Commonwealth Bank of Australia v Kilpatrick

Was the default judgment made irregularly, illegally or against good faith? 7Rule 36.15 provides: "36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3) (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent."

Irregularity 8Two irregularities were relied on. The first was a failure to comply with Rule 10.15, which is concerned with substituted service of an originating process in proceedings for possession of land, which provides relevantly: "(5A) An application for an order under this rule must be supported by an affidavit by the applicant that includes: (a) a statement as to the applicant's knowledge of the defendant's whereabouts, and (b) a statement as to any communications that have occurred between the applicant and the defendant since the cause of action in the proceedings arose (including any communications by telephone, fax or electronic mail). (6) Service in accordance with this rule is taken to constitute personal service." 9The evidence does not establish non-compliance with this Rule. 10Mr Duncombe, a process server engaged by the Bank, swore an affidavit of service on 28 February 2012, which dealt with these matters. In the affidavit, Mr Duncombe deposed that he attended an address at Figtree on a number of occasions to effect personal service on Mr Kilpatrick. 11In these proceedings, Mr Kilpatrick submitted that, in fact, that attendance was concerned with service of a bankruptcy notice on his mother, who resided at the address, not with service of the Bank's statement of claim upon him. This submission rested on an affidavit sworn by his mother, in which she deposed to Mr Duncombe having served her with that notice on 24 February, by leaving the notice at the Figtree address, while the premises were unattended. 12In his affidavit, Mr Duncombe deposed to attempting service on Mr Kilpatrick in November 2011 at the property at Horsley, where Mr Kilpatrick's ex-wife informed him that Mr Kilpatrick was not residing, as well as at the Figtree property, where he spoke to Mr Kilpatrick's father who said he did not reside there; that he was away and that he would not provide his contact details, but agreed to pass on Mr Duncombe's details to Mr Kilpatrick. Mr Duncombe further deposed that he made repeated further attempts to effect service at the Figtree property in January and February 2012, when there was no answer at the door, including on 24 February. There was another attempt on 18 February, when Mr Duncombe spoke to Mr Kilpatrick's brother, Paul Kilpatrick, who told him that Mr Kilpatrick stayed at the address infrequently and said he could pass the documents on to him if required. Mr Paul Kilpatrick provided a mobile phone number on which Mr Kilpatrick could be contacted. Mr Duncombe attempted to contact Mr Kilpatrick on that number and left voice mail messages for 'Brad', which were not responded to. An Australian Electoral Role search disclosed a listing for Mr Kilpatrick at the Figtree address and other searches for an address had either disclosed no address, or the address at Figtree. 13It is apparent that the affidavit sworn by Mrs Kilpatrick does not provide any basis upon which it may be concluded that Mr Duncombe did not attend the Figtree address in order to attempt service of the statement of claim, as he deposed. The fact that he left a bankruptcy notice at that address on 24 February shows only that he had other business to attend to that day, not that his affidavit was falsely sworn. 14This evidence cannot found the basis for a conclusion that the order for substituted service was obtained irregularly. In any event, even if irregularity were established, the Court has discretion to make the order sought, which would not be exercised, if it appears that the foreshadowed defence is manifestly hopeless (see Faircharm Investments Ltd v Citibank International plc [1998] EWCA Civ 171). I will return to this below. 15Service of the statement of claim was effected in accordance with the orders for substituted service at both the Horsley and Figtree addresses. The Bank had previously communicated with him at the Horsley address, including when serving s 57(b) notice upon him the previous September. That had generated his 20 September reply, acknowledging the Bank's demand in relation to the arrears outstanding under the loan; the amount due to rectify default, of some $12,029, due and payable on 3 October; requesting an extension of time to 10 November and promising to make further payments at specified dates and thereafter to make all future payments on their due date. The Bank responded to him at the Horsley address, agreeing to defer enforcement if specified conditions were complied with and advising that they were not, legal enforcement would proceed. A contact person was also nominated for Mr Kilpatrick to deal with at the Bank. 16Mr Duncombe later attempted to contact Mr Kilpatrick on the mobile phone number provided by his brother, a number which the Bank already had on its records as his contact number. That, and the fact that the phone diverted to a voicemail for 'Brad', suggests that it was then in use by Mr Kilpatrick, notwithstanding Mr Kilpatrick's affidavit evidence that it was his mother's number. 17True it is that earlier in September 2011, Mr Kilpatrick had written to the Bank advising of another mobile number on which he could be contacted. Mr Duncombe did not depose to having attempted to call him on that number. In the face of the evidence as to the repeated attempts made to contact Mr Kilpatrick in various other ways, that alone cannot establish that the order for substituted service was obtained irregularly. 18A further irregularity asserted was a failure to comply with Rule 36.8, which requires the filing of an affidavit as to specified matters, prior to judgment being entered in a possession case. The basis of this submission was also the Bank's failure to contact Mr Kilpatrick on the number he provided in September 2011. In the circumstances, that cannot establish a failure to comply with the requirements of this Rule, prior to the entry of default judgment.

Illegality 19The illegality asserted was a failure to comply with requirements of various provisions of the National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)). In evidence was the correspondence of 29 August 2011, sent by the Bank's solicitor to Mr Kilpatrick, serving the relevant notices. The version which Mr Kilpatrick says he received, was incomplete and did not have attached to it a particular notice. Mr Kilpatrick made no enquires of the Bank's solicitor to obtain a complete copy of the letter, notwithstanding its terms. 20At this stage, Mr Kilpatrick's evidence must be taken at its highest. Assuming that he did not receive all that was sent to him, certain requirements of the Code have not been complied with. The Bank relied on the conclusions reached in Monas v Perpetual Trustees Victoria Ltd [2011] NSWCA 417; (2011) 80 NSWLR 739, to submit that even the incomplete version of the Bank's correspondence that Mr Kilpatrick did receive was sufficient to give Mr Kilpatrick necessary notice of the matters dealt with in the Code. At paragraph 39 of that decision, Young JA observed of notices analogous to the type required to be given under the Code in the present case: "[T]here is a whole series of authorities... to the effect that one should not look at such notices strictly, that they are valid so long as they reasonably convey to the recipient the message that the section [of the legislation establishing the notice requirement] intends the borrower to receive and the borrower is not misled; see Campbell v The Commercial Banking Co of Sydney (1879) 2 LR NSW (L)(PC) 375; Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404; Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 at 377." 21These submissions must be accepted, it seems to me. What was received was sufficient to generate a response from Mr Kilpatrick, he having acknowledged in writing that the loan was in default; proposing a repayment schedule and promising to not allow the repayments to fall into default again. The Bank agreed to a revised schedule, but still Mr Kilpatrick went into further default. That default was dealt with in those parts of the correspondence Mr Kilpatrick conceded receiving. 22Division 3 of Part 4 of the Code creates a series of remedies to effect changes to loan agreements on grounds of hardship. There is no suggestion that Mr Kilpatrick wished to make any hardship application under the Code. To the contrary, at the earlier hearing he asserted that he had undertaken renovations to the property, in order to increase its value and maximise its sale potential. In the result it does not seem that there has been any prejudice. 23This certainly does not assist Mr Kilpatrick in establishing the claimed illegality, given what was advised in the part of the letter he accepts he received. 24In any event, on the Bank's case the provisions of the Code sought to be relied on did not apply to Mr Kilpatrick. At the relevant time, it was the predecessor to the Code that applied to the parties' transaction. The limit then in force was $325,600. The loan was for $334,214. Mr Kilpatrick submitted that it would be considered that the loan fell below the limit because of the use of which some of the loan moneys were not. That submission has no force. 25It follows that the claimed illegality was not established.

Against good faith 26The submission that the judgement was entered against good faith also rested on the Bank's failure to contact Mr Kilpatrick on the other mobile number he provided to its solicitors. In the circumstances, that cannot establish that the default judgment was obtained against good faith. Nor does the evidence suggest that had the number been used, Mr Kilpatrick would have taken steps to deal with his default, so that the default judgment would not have been entered. Even now, contrary to his submissions, he is not making the payments required to be made under the loan agreement.

Should the power to set aside the judgment be otherwise exercised in favour of Mr Kilpatrick? 27Rule 36.15 gives the Court a discretion to set aside a default judgment. Mr Kilpatrick relied on Hislop J's summary of factors relevant to the exercise of the discretion in Hamafam Pty Ltd & Ors v Saadullah & Anor [2007] NSWSC 818 at [7]: "7 Factors relevant to the consideration of that issue include: (a) whether the defendants have shown a satisfactory explanation for the delay in filing a defence or moving to set aside the judgment; (b) whether the default judgment was obtained without notice to the defendants; (c) whether the proposed defence is asserted bona fide; (d) whether, if the judgment was set aside, prejudice would be occasioned to the plaintiffs; (e) whether the proposed defence presents an arguable or triable issue; (f) whether it would be futile to set aside the judgment. These factors are considered separately hereunder."

Is there an explanation for the delay in filing a defence? 28Mr Kilpatrick's evidence was that he was not aware of the statement of claim until 21 September 2012 when the Sheriff issued a notice to vacate, due to be executed on 21 September 2012. He then obtained an ex-parte stay.

Was the judgment obtained without notice? 29Mr Kilpatrick submitted that he was not given notice of the Bank's application for default judgment, due to the Bank's failure to contact him on the mobile number he had supplied. That does not overcome the fact that the Bank served the statement of claim in accordance with the order for substituted service at both the Horsley and Figtree addresses and by text sent to his other mobile. 30Service was effected in accordance with the Court's orders, as provided by Rule 10.14. There was no application under Rule 12.11 to set aside that order. Under Rule 10.15(6) service under the order is taken to constitute personal service.

Is the proposed defence asserted bona fide? 31Mr Kilpatrick relied on the judgment of McCallum J in Commonwealth Bank of Australia v Wales [2012] NSWSC 407, where her Honour observed at [30], that 'ordinarily, it will be necessary for a defendant to demonstrate a defence on the merits before default judgment will be set aside'. Further at [31] that 'the existence of a defence is not an express requirement for the exercise of the power'. In that case her Honour exercised the discretion to set aside the default judgment, because the practical result of the Bank's failure to give notice of the default judgment application was to deprive the defendant of the opportunity to avail herself of the remedies provided for in Division 3 of Part 4 of the Code to pursue a hardship application (see also Commonwealth Bank of Australia v Larsen [2012] NSWSC 408). This is not such a case. 32Also to be considered is the proposed defence. The loan agreement, mortgage and obligation to make repayments in terms of the agreement are all there admitted. Much else is there denied or not admitted,. The evidence shows, however, that much of what is proposed to be pleaded, is unlikely to be established at any hearing. 33Mr Kilpatrick seeks to advance claims under the Contracts Review Act 1980, the Australian Securities and Investments Commission Act 2001 (Cth), as well as pursuant to an estoppel, but the pleadings fail to adhere to the requirements of the Rules, that such claims be properly particularised (see rr 14.7, 14,14, 14,15 and 15.1). On the case which Mr Kilpatrick advanced, it is not the terms of the agreements, or the circumstances in which they were entered, which is sought to be relied on to make out such claims. It is rather a claimed respresentation made after the loan went into default, no loan repayments having been made between May and October 2011, on which much of his proposed defence rests. 34In his affidavit evidence Mr Kilpatrick explains why he claims that the loan was not in default. While not revealed by the defence, this rests on his claim that at a time when the loan was in default, a Bank employee, Ms Karunakaran represented to his brother Mr Paul Kilpatrick, in discussions between 1 and 7 July 2010, that if Mr Kilpatrick sold another property which also secured the loan, the surplus amount would be applied to the loan as instalments paid. In further discussions in December 2010, she also told him that Mr Kilpatrick had been allowed an indulgence, the money paid after the sale of the investment properly having been treated as payment in advance of instalment payments. 35The difficulty with such a defence, even if properly pleaded, is that not only does Ms Karunakaran deny making such representations, which she says did not accord with how the Bank was prepared to deal with Mr Kilpatrick at the time, it is also inconsistent with the terms of the loan agreement and with how the Bank dealt with the payment. Even if the Bank had so treated the amount paid, the loan would have shortly been in default again. Further to be considered is that contemporaneous documents show that Mr Kilpatrick himself acted inconsistently with such an understanding, as evidenced in records of various discussions he had with Bank representatives; monthly payments due under the loan, which he made; and with what he acknowledged in September 2011 in writing as to the loan being default, identifying the amount due, proposing to pay the arrears and to thereafter make the monthly payments as they fell due. He then did not adhere to the further arrangement which the Bank entered with him and the loan went into further default. On any view the loan is now in default and monthly payments due are not being made. 36In the result it may not be concluded that the proposed defence is bona fide.

Is there prejudice to the plaintiff? 37Mr Kilpatrick submitted that the plaintiff would not be prejudiced if the default judgment were set aside. That submission cannot be accepted. The loan is clearly in default. Since May 2011 some $1,220 has been paid, payments only made since October 2012 and not at the monthly rate provided by the agreement. 38While Mr Kilpatrick has recently put the property on the market, it has not been listed for auction and there is no evidence that it has generated any interest in the market, at the price he has listed it for.

Does the proposed defence raise a triable issue? 39Mr Kilpatrick submitted that such a defence was not required, in order for the default judgment to be set aside and that in any event, the defence was arguable. 40For the reasons already explained, this cannot be accepted.

Would it be futile to set aside the judgment? 41Mr Kilpatrick's submission that it would not be futile to set the default judgment aside cannot be accepted. On any view, the loan is in default; he has not taken necessary steps to deal with the arrears; and he is not even now making payments due under the loan.

Should the statement of claim be dismissed under Rule 13.4 or struck out under Rule 14.28 42It is strictly unnecessary to deal with this, given the conclusions I have otherwise reached. No submissions were advanced explaining why such orders should be made. On the evidence I have referred to, they would not.

Should there be any further stay? 43In the circumstances it seems to me that Mr Kilpatrick's motion must be dismissed with an order for costs in favour of the Bank. 44Mr Kilpatrick raised no hardship concerns, but pressed for a further stay, complaining that he had been seeking a payout figure from the Bank, but had encountered difficulties communicating with the Bank. There is, however, no evidence that he has taken any steps to refinance, or that a sale of the property is imminent. 45In the circumstances, the only basis for ordering any further short stay was, as the Bank accepted, in order to give Mr Kilpatrick the opportunity to ensure that the property is vacated in an orderly fashion. It did not oppose him being given that opportunity, given that in the circumstances, the eviction can now be scheduled at any time that the Sheriff has available.

Orders 46For the reasons given, I order that:

1. Mr Kilpatrick's motion be dismissed with an order for costs in favour of the Bank, as agreed or assessed.
2. The writ of execution is stayed for 14 days from the date of this decision.

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