BETWEEN : COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)

Practice and procedure - Summary judgment - Application out of time - Extension of time to apply - Disputed facts - A question which ought to be tried

Australian Can Do Pty Ltd v Levin & Co Pty Ltd [1947] VicLawRp 47; [1947] VLR 332

Berry v Berry [1929] 2 KB 316

Burnes v Trade Credits Ltd (1981) 34 ALR 459

Carver v Westpac [2002] NSWSC 431

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18

Creamoata Ltd v The Rice Equalization Association Ltd [1953] HCA 40; [1953] 89 CLR 286

Deputy Commissioner of Taxation v Heaton (1997) 35 ATR 450

Dey v Victorian Railways Commissioner [1949] HCA 1; (1949) 78 CLR 62

Eng Mee Yong v Letchumanan [1980] AC 331

Falinski v Commonwealth Bank of Australia, unreported; NSWCA; 6 February 1998

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1985) 154 CLR 87

General Streel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Hadfield v Commonwealth Bank of Australia (2002) 1 DCLR (NSW) 41

Jacka Nominees Pty Ltd (In Liq) v Edwards Karwacki Smith & Co Pty Ltd, unreported; SCt of WA; Library No 920512; 12 October 1992

Preston v J Murray-More (NSW) Pty Ltd, unreported; NSWSC; 13 May 1983

Rogers & Ors v Australia and New Zealand Banking Group Ltd & Anor [1985] WAR 304

Schoenhoff v Commonwealth Bank of Australia, unreported; NSWSC; 21 October 2003

Smith v Town & Country Bank, unreported; SCt of WA; Library No 970716; 18 December 1997

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

1 ACTING MASTER CHAPMAN: The plaintiff, by way of chamber summons filed on 6 December 2002, seeks leave to make the application and applies for summary judgment to be entered against the defendants. The principles to be applied in such applications are conveniently summarised at par 4 of the plaintiff's written submissions. In general I agree with that summary and have considered those principles in relation to this application.

2 The question of leave should first be addressed. The defendants argue that although the delay in bringing the application is short, the application has been on foot since 6 December 2002 and that delay has occurred because the plaintiff was not ready.

3 The plaintiff, on the other hand, submits there is no prejudice to the defendants in the delay. Apart from the inevitable interest which continues to accumulate I accept that to be so. Some of the delay since the application was filed has been with the consent of the parties to permit the plaintiff an opportunity to sell the secured property. It seems to me, to the extent that the defendants consented to part of the delay, it is not fair for them now to make the submission they do. It was open to the defendants to pursue this application with greater vigour if they so chose.

4 In my view, the delay both before the application was brought and since is justifiable and I consider it is appropriate to grant the leave sought in these particular circumstances.

"(a) by an express written agreement between the Plaintiff and Western Australian Wine Corporation Pty Ltd ACN 078 572 013 as trustee for the Wine Corp Trust ('Borrower') dated 5 November 1998 ('Agreement'), the Plaintiff agreed to lend the sum of $1,400,000 to the Borrower on the terms and conditions within the Agreement.

Refer paragraph 2, Statement of Claim and paragraph 11 and pages 29 to 61 of Ficko's affidavit.

(b) the terms of the Agreement are set out in paragraph 3 of the Statement of Claim and include a term that the security includes a joint and several personal guarantee unlimited as to amount from the Defendants (amongst other individuals) ['Guarantee'].

Refer paragraph 3(m), Statement of Claim and paragraph 12 and pages 102 to 114 of Ficko's affidavit.

(c) the terms of the Guarantee are set out in paragraph 5 of the Statement of Claim and include terms that the Defendants guaranteed the Borrower would pay the 'Secured Moneys' (as defined in the Guarantee) to the Plaintiff and the Defendants would pay the Secured Moneys to the Plaintiff on demand (or so much of the Secured Moneys specified in the said demand).

Refer paragraph 5(a), (c), Statement of Claim and paragraph 15 and pages 102 to 114 of Ficko's affidavit.

(d) pursuant to the Agreement, an event of default occurred when the Borrower failed to pay the residual balance of the loan funds (namely, the sum of $1,400,000) at the expiry of the term of the Agreement (on 3 December 2001); on or about 8 January 2002, the Plaintiff declared by written notation ('Notation') that (amongst other things) the Borrower was in default of the Agreement and that all amounts owed by the Borrower under the Agreement (namely, the sum of $1,400,000) were immediately payable.

Refer paragraph 6, Statement of Claim; and clause 10.2 of the Plaintiff's Usual Terms and Conditions (page 56 of Ficko's affidavit) and pages 115 to 117 of Ficko's Affidavit.

(e) the Borrower refused or neglected to remedy the said default (either in part or in whole) and the Plaintiff served written notices of demand ('Notices of Demand') on the Borrower (on 16 May 2002) and the Defendants (on 17 May 2002), demanding payment of the amount of $1,404,893.41 together with interest accruing at the rate of $496.71 per day from and including 9 May 2002.

Refer paragraphs 7, 8 and 9, Statement of Claim and paragraphs 17, 18 and 19 and pages 120 to 123 of Ficko's affidavit.

(f) the Borrower and the Defendants refused or neglected to pay the total amount outstanding under the Agreement and the Guarantee."

6 The defendants resist the application on three grounds, namely:

(1) the guarantees were procured in a way which makes them unenforceable;

(2) the transactions which occurred at the end of 2000 and in 2001 operate as a matter of law to discharge the liabilities of the defendants;

(3) the sale process of the mortgaged land and the residual liability is in question.

7 At the outset, objection was taken by the plaintiff to the affidavit of Ms Hardie, sworn on 6 February 2003. No grounds of objection were raised in the written submissions of the plaintiff. However, in oral submission counsel for the plaintiff contended that Ms Hardie is unable to depose to the correctness of Mr Scook's recitation of alleged statements or representations by a third party. Ordinarily that would be true. However, here, Ms Hardie was present during the conversations and she can depose to what was said in her presence. I do not accept the objections the plaintiff makes to the affidavit of Ms Hardie.

8 The plaintiff also takes issue with the affidavit of Mr Scook in that it is submitted some of what is deposed to is not supported by documentary evidence such as ASIC searches and the like. It is further contended that there are inconsistencies with the evidence.

9 Whilst I accept the affidavits of the defendants could have, and perhaps should have, gone further than they have, in my view the issues raised by the plaintiff go to the weight which should be placed upon them, rather than their admissibility.

10 As to the first issue raised by the defendants, counsel for the defendants referred specifically to par 17 of the affidavit of Mr Scook sworn on 6 February 2003, which states:

"17. I told Lekias the defendants did not want to provide the guarantees. Lekias said we should not be concerned about providing the guarantees because the land to be mortgaged as part of the security was valued in excess of $2.74m and the loan to equity ratio would be only about 51% and this meant there was no risk in us providing the guarantees. He said the guarantee requirement was just bank protocol."

11 At par 14 of his affidavit, Mr Scook deposes to the fact that this discussion took place around October 1998.

12 Of that allegation, Mr Lekias deposes in his affidavit, sworn 18 March 2004, to the fact that he was not employed by the bank until 23 August 1999 and this is supported by the payroll records of the plaintiff. Further, he says he did not make any such statements at any subsequent time. There is a clear conflict on the evidence.

13 Counsel for the defendants submitted that I must find that Mr Scook was mistaken about the officer being Mr Lekias and it is in fact another bank officer. On the state of the evidence before me, I do not agree. That is certainly one explanation but there are more, some of which may or may not be favourable to the defendants. Of that evidence, counsel for the plaintiff invites me to find that Mr Lekias was not employed at the time and therefore it was more likely than not that the alleged representations were not made.

14 Whilst I have some reservation with the version of events put forward by the defendants, I am not persuaded that it is inherently incredible. Further, given the state of the evidence, I am not prepared to draw either of the inferences suggested by counsel. In the circumstances, I consider the defendants should have an opportunity to explore this issue at trial.

15 As to the second issue raised by the defendants, I was referred specifically to par 27, 28 and 37 of the affidavit of Mr Scook, which reads as follows:

"27. The plaintiff was involved in those negotiations. Carol and I had further meetings with the plaintiff in particular with Lekias. In those meetings I told Lekias that Carol and I wanted out of the project and to be released from the guarantees that we had provided to the plaintiff. I said the plaintiff's position would be greatly enhanced by the proposed transaction because the moneys owed to the plaintiff would ultimately be the responsibility of Tuart and Tuart had the ability to raise money by the issue of further shares. Lekias agreed.

28. I said that Carol and I would only proceed with the Tuart transaction if as part of it, we were released from the guarantees. Lekias said if the Tuart transaction was completed then the plaintiff would not rely upon the guarantees that had been provided by us and the other guarantors.

37. At 16 February 2001 the land the subject of the mortgage referred to in this action was valued at $4.3m. This was discussed at that time with Lekias and he said the plaintiff was more than happy about the new arrangement. He said the bank was comfortable with the value of the land now owned and controlled by Tuart, (being $4.3m plus $9.5m) against loans of $1.4m and $1.1m)."

16 It is accepted that Mr Lekias was employed by the plaintiff at this time. Of these paragraphs, Mr Lekias deposes at par 9 and 11 of this affidavit sworn on 18 March 2004 as follows:

"9. I refer to paragraphs 26 to 28 of Mr Scook's Affidavit and depose as follows:

(a) I attended a number of meetings with Mr Scook and/or Ms Hardie between my date of commencement of employment with the Plaintiff and some time in 2001, to follow up outstanding interest payments under the Facility and otherwise carry out my relationship management role generally.

(b) Mr Scook did not inform me of the matters referred to in paragraph 27 of his affidavit and I did not agree with such matters.

(c) Mr Scook did not inform me of the matters referred to in paragraph 28 of his affidavit and I did not make the alleged statements attributed to me in that paragraph.

11. I refer to paragraph 37 of Mr Scook's Affidavit. Mr Scook did not inform me of the matters referred to in that paragraph and I did not agree with such matters or make the alleged statements attributed to me therein."

17 Counsel for the defendants submits that the defendants changed their position as a result of these alleged discussions. It is said the conduct of the plaintiff is unfair to the defendants and further the plaintiff would be estopped from resiling from the promises made by the plaintiff through Mr Lekias.

18 Again I have some reservation with the version of events put forward by the defendants. I accept the submission of counsel for the plaintiff that the Court is not bound to accept uncritically the issues in dispute. Some of the evidence deposed to in Mr Lekias' affidavit certainly places doubt on the issues raised by the defendants. However, I do not find the evidence of the defendants inherently incredible. At the end of the day, I am of the view that there are issues which should be tried.

19 As to the third point raised by the defendants, they are critical of the number of certificates which the plaintiff has issued and the fact that each is for a different amount. They also raise issue with the amount which is said to be outstanding. Given the length of time this application has been on foot, I do not find it surprising that a number of certificates have been filed, nor that the amounts in each were different. The certificates on their face purport to be issued pursuant to cl 18 of the guarantee, which reads:

Unless it is contested in proceedings between the Bank and the Guarantor, a written statement of the amount of the Secured Moneys due or owing at any date which:

(a) states that it is made up from the books of the Bank, and

(b) is signed by an Authorised Officer of the Bank

is sufficient evidence of that amount and of all other matters set out in the statement."

20 It is argued on behalf of the defendants that the affidavit of Mr Scook sworn on 6 February 2003 puts in issue the fact that there was something wrong with the sale process. It is said the amount claimed in the certificate is contested in these proceedings and thus the certificate does not stand as sufficient evidence of that amount. It is accepted that the secured property has now been sold. The defendants argue that nonetheless there is a real issue in this matter because they do not know how much it was sold for, what were the net sale proceeds, what fees have been incurred etc.

21 The defendants also raise the question of whether or not the plaintiff has correctly exercised its duties when selling the secured property. In this regard the defendants refer to [13] in Carver v Westpac [2002] NSWC 431 where Austin J said:

"13 The relevant general principles are:

1. The power of sale is given to the mortgagee for its own benefit, and is not held by the mortgagee in a fiduciary capacity.

2. Moreover, the fact that the mortgagee's sale is for a price disadvantageous to the mortgagor is itself no ground for judicial intervention: Warner v Jacob (1882) 20 Ch D 220, 224; Haddington Quarry Co v Hudson [1911] AC 727; Adamse v Broadway Credit Union Ltd (1999) NSW Conv Rep 55-876.

3. Nevertheless, in exercising the power of sale, the mortgagee is subject to an equitable duty to act in good faith: Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676; Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477. The mortgagee's impropriety is sometimes described as a fraud on the power, and sometimes as a wilful or reckless disregard of the interests of the mortgagor, and sometimes as a sacrificing of the interests of the mortgagor. Whatever description is used, it is clear that the commission of actual fraud (in the sense of an intention to defraud the mortgagor, or corruption, or collusion with the purchaser) need not be shown: Forsyth v Blundell at 496-7, per Walsh J.

4. It is unclear whether, as a matter of Australian Law, the mortgagor and the mortgagee stand in a relationship of proximity under which the mortgagee owes the mortgagor a common law duty to take reasonable care in the exercise of the power of sale: cf Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949; 2 All ER 633. So far the Australian cases have analysed facts suggesting failure to take reasonable care by recourse to the equitable principles concerning good faith, rather than common law negligence.

5. Nor is it clear whether different practical results flow from the application of the equitable duty of good faith and the principles of common law negligence. Fisher and Lightwood's Law of Mortgage (Australian edn, 1995), p 459, states:

'There may be some practical differences between the two tests, such as in the extent of the mortgagee's duty to others besides the mortgagor, but it is doubtful whether in most cases the result would be different whichever test was applied. In Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 at 481 it was said that to take reasonable precautions to obtain a proper price is but part of the duty to act in good faith.'

6. The following are some of the incidents of the mortgagee's duty of good faith:

(a) the onus of establishing breach of the duty lies on the mortgagor: Forsyth v Blundell at 499;

(b) a mortgagee fails to act in good faith if it looks after its own interests alone and sacrifices or absolutely disregards the interests of the mortgagor: Pendlebury at 680-1 per Griffiths CJ;

(c) action which is unfair would normally be regarded as action in bad faith: Pendlebury, at 694 per Barton J;

(d) the mortgagee cannot discharge its duty by delegating the exercise of the power of sale to an agent (such as a real estate agent), since the duty requires the mortgagee not only to select a competent contractor but also to give adequate instructions, and to exercise some surveillance over the contractor or to inspect the work he is doing: Commercial and General Acceptance Ltd v Nixon [1981] HCA 70; (1981) 152 CLR 491, 498 per Gibbs CJ, 500 per Mason J;

(e) where the mortgagor's case of breach of duty is based on sale at an undervalue, it is not necessary for him to prove that any particular individual would have paid a higher price for the property: Nixon v Commercial and General Acceptance Ltd [1980] Qd R 153 (not disturbed, on this point, on appeal to the High Court); McKean v Moloney [1988] 1 Qd R 628."

22 Counsel for the defendants contend that in the case before me the circumstances of the sale of the property is questionable and particularly as the sum realised, seems to be somewhat less than one could expect.

23 The plaintiff argues that the only issue in which the certificate comes into contest is where there is a manifest error, a substantial error or an authorised officer has not signed it. He referred to the statement of claim and the affidavits filed in support of this application. I accept that when this action commenced, things were then clearer. Since then, the property has been sold and the details of that sale and the costs associated with it are not known to the defendants.

24 Whether or not those circumstances, on their own, would fall into the category which would enable the defendants to challenge the certificate, is perhaps a moot point. Nevertheless, on what is before me I am persuaded the circumstances surrounding the sale are such that warrant these issues to be fully aired at trial.

25 In the circumstances of this case I would decline to enter judgment, at this interlocutory stage, in favour of the plaintiff .