Commonwealth Bank of Australia v Clune and Anor

Tepko Pty Limited v Water Board (2001) 206 CLR 1 Allianz Australia Insurance Limited v Crazzi (2006) 68 NSWLR 266 Integral Home Loans Pty Limited v Interstar Wholesale Finance Pty Limited [2006] NSWSC 1464 Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 CASES CITED : Idoport Pty Limited v National Bank Limited [2000] NSWSC 1215 Graham v Aluma Lite Pty Limited (1996) 39 NSWLR 58 Permanent Mortgages Pty Limited v Cook [2006] NSWSC 1104 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 R v Janceski (2005) 64 NSWLR 10 Director of Public Prosecutions v Yigit [2008] NSWCA 226

Commonwealth Bank of Australia (Plaintiff) PARTIES : Louise Mary Clune (First Defendant) Daniel McMahon Clune (Second Defendant)

COUNSEL : Mr J Bates (Solicitor) (Plaintiff) Ms R Francois (First and Second Defendants)

SOLICITORS : Gadens (Plaintiff) Sweeney Tiggemann (First and Second Defendants)

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

12890/06 Commonwealth Bank of Australia v Clune and Anor

JUDGMENT 1 JOHNSON J: By Notice of Motion filed 21 August 2008, the Defendants, Louise Marie Clune and Daniel McMahon Clune, seek an order under Rule 28.2 Uniform Civil Procedure Rules 2005 ("UCPR") for separate determination of a question before the trial in these proceedings. The Plaintiff, Commonwealth Bank of Australia, opposes this application. 2 By Amended Statement of Claim filed 21 April 2008, the Plaintiff seeks possession of land and judgment for money against the Defendants upon the basis of alleged mortgage default. By their Defence to the Amended Statement of Claim filed on 18 June 2008, the Defendants deny that the Plaintiff is entitled to relief upon a number of bases, including the alleged failure on the part of the Plaintiff to serve notices which complied with s.80 Consumer Credit (NSW) Code ("Code") (paragraph 8, Defence to Amended Statement of Claim). 3 The Defendants' Notice of Motion seeks the following orders: "1. That the question of whether the Plaintiff has served notices on the Defendants complying with section 80 of the Consumer Credit (NSW) Code be decided separately from any other questions before the trial in the proceedings.

2. The Plaintiff pay the costs of and incidental to this motion.

3. Such further or other order as the court deems fit."

Relevant Principles on Separate Determination Application 4 The power of the Court to order separate determination of an issue is a discretionary power which must be exercised judicially. In exercising the power under Rule 28.2, the Court is enjoined to give effect to the overriding purpose under s.56 Civil Procedure Act 2005 to facilitate the just, quick and cheap resolution of the real issues in the proceedings. 5 The Court begins with the proposition that it is ordinarily appropriate that all issues in proceedings should be disposed of at the one time and that it is for the party who wishes to have a question separately determined to show that it is desirable for that to occur. It is necessary for the Court to bear in mind the disadvantages which may flow from fragmentation of civil litigation, including unexpected complications: Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 55; Allianz Australia Insurance Limited v Crazzi (2006) 68 NSWLR 266 at 305 [233]. 6 It has been observed that, since the Civil Procedure Act 2005, the Court should take a more interventionist role in identifying and separating important issues which can resolve significant parts of litigation expeditiously: Integral Home Loans Pty Limited v Interstar Wholesale Finance Pty Limited [2006] NSWSC 1464 at [6]. Although trial courts will probably be more disposed nowadays to order separate questions than they might have been in the past, it remains the case that separate determination is an exceptional course to be contrasted with the ordinary course of deciding a case in its totality: Street v Luna Park Sydney Pty Limited [2007] NSWSC 697 at [5].

The Broad Positions of the Parties 7 Both sides to the litigation drew upon the helpful summary of principles of Einstein J in Idoport Pty Limited v National Bank Limited [2000] NSWSC 1215 at [7] in advancing or opposing the application for separate determination. 8 In the present case, Ms Francois, for the Defendants, submits that separate determination of the stated issue is appropriate in this case because:

(a) the resolution of that separate issue will have the effect of resolving the entirety of the litigious controversy or of substantially narrowing the field of controversy;

(b) the resolution of that separate issue carries with it a strong prospect that the parties will thereafter be able to resolve their dispute themselves and thus avoid further litigation. 9 Mr Bates, for the Plaintiff, submits that separate determination is not appropriate in this case because:

(a) there are intertwined issues of fact or law between the proposed separate question and the other questions in the proceedings, such that the determination of the separate question will not have any substantial effect upon the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation;

(b) there is a possibility that the resolution of the separate issue will not finally determine the issue, but will merely result in an appeal from that decision in relation to that separate issue, creating a multiplicity of proceedings, interruption to the Court and undesirable fragmentation of the proceedings;

(c) an order for separate determination will not result in the quicker and cheaper resolution of proceedings as anticipated, but will have the opposite effect, causing added delay and expense to the resolution of the litigation.

The Present Application 10 On the hearing of the Notice of Motion, the Defendants relied upon the affidavit of David James Sweeney sworn 21 August 2008 and the Plaintiff read the affidavit of Charles James Fletcher Perry sworn 1 September 2008.

The Defendants' Submissions 11 The Plaintiff claims judgment against the Defendants for the following sums:

(a) $407,885.48 said to be owing under the First Home Loan;

(b) $382,352.62 said to be owing under the Second Home Loan;

(c) $40,831.09 said to be owing under the Personal Loan. 12 The Defendants' pleaded response to these claims contends that the First Home Loan, Second Home Loan and Personal Loan are loans to which the Code applies and that the Plaintiff did not serve a notice complying with s.80 of the Code with respect to these loans. As a result of this alleged non-compliance, the Defendants submit that the proceedings relating to the First Home Loan, Second Home Loan and the Personal Loan are barred by operation of s.80(2) of the Code. 13 The Defendants acknowledge that documents which purport to be s.80 notices were sent to the First Defendant on 21 September 2004, 31 January 2005 and 9 December 2005 and to the Second Defendant on 21 September 2004, 31 January 2005 and 9 December 2005 (Affidavit, DJ Sweeney, 21 August 2008, pages 53-72). However, the Defendants submit that these notices do not comply with what are said to be the mandatory requirements for a default notice under s.80(3) of the Code. The Defendants rely upon Graham v Aluma Lite Pty Limited (1996) 39 NSWLR 58 at 66-68 and Permanent Mortgages Pty Limited v Cook [2006] NSWSC 1104 at [69] in support of the proposition that service of a valid s.80(3) notice is a condition precedent to the institution of these proceedings. The Defendants submit that the terms of s.80(3) of the Code are such that strict, and not substantial, compliance is required for a valid default notice. 14 Ms Francois acknowledged that Graham v Aluma Lite Pty Limited and Permanent Mortgages Pty Limited v Cook were cases where no notice at all was served and not, as here, notices were given which are said to be defective. 15 The Defendants contend that, if they are successful with respect to the question posed for separate determination, then that part of the Plaintiff's claim which is dependent upon service of valid s.80 notices must be dismissed. 16 Insofar as the Plaintiff has amended its claim in April 2008 to plead an alternative case based on mistake, the Defendants accept that the resolution of the s.80 Code issue will not apply to that claim as that cause of action relies upon there being no true agreement, and therefore no credit contract: s.7(2) of the Code. However, if the Defendants succeeded on a hearing of the separate question, whether or not the Plaintiff would then elect to proceed with its alternative claim of mistake and abandon its claim based on the monies being loaned under the First Home Loan is not yet known. Ms Francois submits that, even if the Plaintiff made that election to forgo the additional monies which it could recover under the First Home Loan, the determination of the s.80 issue in favour of the Defendants will be dispositive of the Plaintiff's primary case and, probably, the whole of the proceedings. 17 Ms Francois submits that the Defendants have a strong argument that the s.80 notices are invalid. She submits that the hearing of the proposed separate question would be a relatively neat one, essentially to be determined by reference to the face of the notices in combination with such other facts as are clear on the pleadings. Ms Francois submits that there is a strongly arguable case that the s.80 notices were invalid in that they:

(a) failed to state that the Defendants had until the end of the expiry of the 38-day period specified in the notice to remedy any further similar default - instead, the notices indicated misleadingly that, if a subsequent default occurred during the period of the notice, then that default itself would be sufficient to entitle the Plaintiff to commence enforcement proceedings without further notice;

(b) failed to identify the specific defaults which had occurred and suggested misleadingly that, if any further default of any kind whatsoever occurred within the period of the notice, then enforcement action could be taken without any further notice. 18 Ms Francois submits that the question of whether the Plaintiff has served notices complying with s.80 of the Code is suitable for separate determination because:

(a) the question turns on the construction of the written notices sent by the Plaintiff and there is no contested evidence;

(b) if the Defendants succeed on the separate question: (i) the Court must then dismiss the Plaintiff's claims based on the First Home Loan, the Second Home Loan and the Personal Loan; and

(ii) the Defendants' Amended Cross-Claim, which was filed in relation to the original Statement of Claim, will become irrelevant;

(c) even if, after its primary claims were dismissed, the Plaintiff elected to proceed with its alternative claim of mistake, this would be a substantially shorter hearing with a greater likelihood of settlement given: (i) the Plaintiff will have elected to abandon its claims to interest and other charges it had been seeking to recover under the First Home Loan;

(ii) the most significant issue in dispute is the amount of monies already paid by the Defendants to repay the monies lent to them by mistake;

(iii) the Defendants would make an open offer to settle the mistake claim based on the amounts already paid by them prior to the commencement of the proceedings, and the proceeds obtained by the Plaintiff from the sale of the Defendants' land in Western Australia. 19 If the separate question is not ordered, and the Defendants succeed on their s.80 defence at the hearing, Ms Francois submits that the time and cost of hearing the evidence and argument relating to all the claims and defences with respect to the Code regulated loans will be wasted and will have to be heard again in any later proceedings commenced by the Plaintiff after it has complied with s.80 of the Code. In the circumstances, Ms Francois submits that the hearing of the separate question is likely to effect a quicker, cheaper and more just resolution of the proceedings.

The Plaintiff's Submissions 20 Mr Bates acknowledged that the proposed question put forward by the Defendants was, at first blush, very attractive, involving the suggested simple exercise of comparing the notices with the terms of s.80 (3) of the Code. However, the Plaintiff submits that far more than this would be required, including further questions, if this issue was to be posed for separate determination. 21 Mr Bates submits that the present application ought be viewed in the context of the present claim. 22 The Plaintiff alleges that, on 2 February 2001, it agreed to provide the Defendants with a loan facility of $363,506.00 (the first Home Loan) to enable them to purchase a residential property at 15 Falls Street, Leichhardt ("the Leichhardt property"). The loan was drawn by the Defendants and they completed their purchase of the Leichhardt property. Then, on or about 18 June 2001, the Plaintiff agreed to a request of the Defendants to provide a loan facility of $388,500.00 (the Second Home Loan). The main purpose of the Second Home Loan was to pay the First Home Loan and to finance home renovations to the Leichhardt property. 23 In the usual course, upon pay out of the First Home Loan by the Second Home Loan, the Plaintiff would have closed the First Home Loan account and no further drawings or redrawings would have been available thereunder to the Defendants. Unfortunately, by mistake, the Plaintiff failed to completely pay out the balance owing on the First Home Loan (to the extent of $2,073.27) and mistakenly failed to close the First Home Loan account. Thereafter, the Defendants redrew under the First Home Loan from May 2002 to August 2003 the total sum of $340,000.00. With these redrawn monies, the First Defendant purchased a property in Perth. 24 All of the above is pleaded by the Plaintiff at paragraphs 44-58 of the Amended Statement of Claim filed 21 April 2008. However, the Defendants, notwithstanding that either one or both of them have had the benefit of the redrawn monies under the guise of the First Home Loan, have declined to accept the responsibility of repaying those monies to the Plaintiff. 25 The Plaintiff submits that this is not a case where it would be appropriate for the separate decision sought by the Defendants to be ordered and that such a separate determination will not result in a more just, quicker or cheaper resolution of the issues in the proceedings. The Plaintiff submits that this is so because there are intertwined issues of fact and law between the suggested question and other matters and issues which will still have to be resolved in the proceedings. In particular, if the Plaintiff is successful in its claim for monies had and received as pleaded in paragraphs 44-58 of the Amended Statement of Claim, it is submitted that such success is likely to result in a determination under s.7(2) of the Code that the provisions of the Code, including s.80, do not apply at all to the money redrawn purportedly under the First Home Loan. Accordingly, with that issue having to go to trial in any event, the Plaintiff submits that it would be inappropriate and premature to make any separate determination as sought by the Defendants based upon an assumption that s.80 of the Code is applicable. 26 Mr Bates submits that it is inappropriate on the present application to go into the merits of the proposed separate question. However, it should be understood that the Plaintiff firmly maintains that its s.80 notices did comply with s.80(3) of the Code. In particular, the Plaintiff contends that the notices specified the default (being in each case a monetary default) and stated the action necessary to remedy such monetary default by requiring payment of the specified amount owed. Further, the Plaintiff says that such notices made clear that if there was a subsequent or further failure to make another monetary payment within the relevant time period, the Plaintiff could exercise its rights without further notice. The Plaintiff contends that the approach to construction of s.80(3) of the Code suggested by the Defendants is unnecessarily rigid and strict and illegitimately entails additional words of expansion being read into the provision to achieve the result required by the Defendants. 27 The Plaintiff submits that the separate question is inappropriate and unhelpful and that the Defendants' Notice of Motion should be dismissed with costs.

Resolution of Competing Submissions 28 It is for the Defendants to demonstrate that the Court should exercise its discretion to order separate determination of the question posed. Such a course would involve fragmentation of the proceedings. The question is whether such fragmentation will facilitate the just, quick and cheap resolution of the real issues in the proceedings. 29 If there was a neat and decisive question which involved a comparison of the notices with the terms of s.80(3) of the Code, separate determination may well be considered appropriate in this case. 30 This is not a case like Graham v Aluma Lite Pty Limited and Permanent Mortgages Pty Limited v Cook where no notice at all was served and it was held that a notice was required. The question raised for separate determination in this case would involve two steps:

(a) whether the notices served by the Plaintiff failed to comply with a requirement of s.80 of the Code - in the absence of a prescribed form of notice, this question will require a practical assessment of the content of the notices served by reference to the terms of s.80 and the purpose which s.80 seeks to achieve;

(b) if so, what were the consequences of the failure to comply with s.80: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 388 [91], 390 [93]; R v Janceski (2005) 64 NSWLR 10 at 21 [44]-[46]; Director of Public Prosecutions v Yigit [2008] NSWCA 226. 31 I have concluded that the issues are not as clear cut, and clearly severable, as the Defendants submit. There are factual and legal issues to be resolved, in light of the evidence adduced at a hearing, with respect to the application of the Code given the unusual circumstances relating to the First Home Loan and the Second Home Loan in this case. In expressing this view, I am not, of course, purporting to reach a conclusion on these matters. I mention these factors to explain why I do not think that the present question ought be severed for separate determination in this case. 32 I am not persuaded that the Court's discretion should be exercised in favour of ordering separate determination of the question posed in the Defendant's Notice of Motion. 33 These proceedings have been on foot since 2006. The matter should proceed expeditiously through any outstanding interlocutory steps with the view to a hearing date being secured at the earliest possible time.

Costs 34 In the event that the Court declined to order separate determination, the Plaintiff seeks the costs of the motion. The Defendants submit that, in the event that the application is unsuccessful, costs of the motion should be costs in the cause. Ms Francois submits that, if the Defendants are ultimately proved right on the s.80 point, they should have some protection as to costs, but that if they are proved wrong, the Plaintiff will be otherwise protected as to costs. I accept the Defendants' submission as to costs.

Orders 35 I make the following orders: (a) the Defendants' Notice of Motion filed 21 August 2008 is dismissed; (b) costs of the motion are to be costs in the cause. **********

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