Commonwealth Bank of Australia v Larsen

Circumstances in which default judgment was entered 5The loan agreement and mortgage sued on by the bank are governed by the National Credit Code (schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)). 6The loan was advanced in around May 2006 and secured by a mortgage over Ms Larsen's home in Bathurst. Ms Larsen fell into difficulty servicing the mortgage in March 2011 after her paid maternity leave expired. She was unable to return to work at that stage due to health problems with her infant child and the unavailability of appropriate childcare for a child with special needs. 7In late May 2011, Ms Larsen was served with a notice of default pursuant to s 88 of the National Credit Code and s 57(2)(d) of the Real Property Act 1900. The notice was served under cover of a letter dated 23 May 2011 from Gadens Lawyers to Ms Larsen. The covering letter stated that the credit provider demanded payment of $8,375.00. In a separate paragraph, the letter further stated "you are also required to pay the credit provider's costs in connection with preparing and serving the notice, being $323.72". 8The notice of default attached to the letter set out the same figures and a total amount due of $8,698.72. However, on the second page of the notice of default, where the notice said "YOU MUST PAY THIS AMOUNT TO RECTIFY YOUR DEFAULT", the space for insertion of the relevant amount was left blank. 9Left unsure as to what amount was required to be paid to rectify the default, Ms Larsen rang Law Access (a government-funded telephone advisory service), who advised her to call Gadens. The covering letter from Gadens to Ms Larsen identified Pip Nagam as the person of contact. However, when Ms Larsen rang Gadens, Ms Nagam was not available. Ms Larsen's affidavit states: I spoke to another person from Gadens. They said words to the effect: "You just need to pay out the sum of $8,375 indicated on the notice by the date indicated". 10The bank objected to the admission of that evidence as to the truth of its contents, in light of Ms Larsen's inability to identify the person to whom she spoke. Its relevance, however, lies in the fact that the words were said, which was the basis on which it was admitted. 11Separately, the bank responded to the application with an affidavit sworn by Pip Nagam who stated, in summary, that if there had been such a call, in accordance with Gadens' usual practice, there would be a record of the conversation. I do not think that is a sufficient basis to doubt Ms Larsen's evidence on that issue. Her version finds support in the fact that, on her copy of the letter from Gadens, she drew a heavy square around the figure $8,375. She paid that amount within the period allowed under the default notice. 12Ms Larsen remained on unpaid maternity leave and again fell into arrears under the loan agreement. She did not receive any further default notice and, on 23 September 2011, was served with the statement of claim. The defaults relied upon by the bank were the failure to pay the credit provider's costs in the sum of $323.72 and the failure within the same period to pay the regular monthly payment (on top of the amount identified in the default notice). Ms Larsen states, and I accept, that following her conversation with a representative of Gadens, she did not appreciate that she was required to pay any more than $8,375 in order to comply with the default notice. 13Upon receiving the statement of claim, Ms Larsen again sought advice from Law Access, who told her that she had three options. One was to lodge a dispute with the bank's dispute resolution scheme on the grounds of financial hardship. That is the course she chose. 14In accordance with the advice, Ms Larsen contacted the Financial Ombudsman Service (FOS), who advised her in the first instance to contact the bank's solicitor so as to lodge an application for financial hardship with the bank. Ms Larsen then spoke to Gadens, who gave her contact details for the account manager at the bank, named Phuong. Ms Larsen spoke to Phuong and explained the reasons for her financial hardship. During that conversation Ms Larsen told Phuong that she had been advised by the FOS to lodge a hardship application. Ms Larsen states that Phuong responded that it would not be necessary to "trouble" herself with that, as they could work it out together. 15Ms Larsen's version is corroborated by a record of the conversation kept by the bank. The relevant entry was annexed to an affidavit relied upon by the bank sworn by Phuong Huynh. Her note of a conversation dated 30 September 2011 (with my translation of her shorthand) states: Borrower rang. Advised received statement of claim and she rang Ombudsman who advised her that if she paid the amount on the default notices by the due date then bank has to issue new notices not proceed with statement of claim and she paid $8375 on 22 June 2011. Due date on default notice is 27 June 2011. They also advised her to ring the bank and if she want to lodge complaint then they will further investigate and provide her assistance. I advised her the current arrears and give her one week to work out her budget then ring me back without complete any papers work. She is happy to do that. I gave her until next Friday. Her baby is sick and currently in the hospital. 16It is plain, in my view, that the effect of Phuong Huynh's advice was to discourage Ms Larsen from taking the step she needed to take in order to lodge a hardship application with the bank in accordance with s 72 of the National Credit Code. 17Phuong Huynh asserted in her evidence that, according to her review of the bank's records, Ms Larsen did not call back within a week as requested. However, an entry made by another bank officer, Mr D'Souza, on 14 October 2011 contradicts that evidence. His note (with my translation of shorthand) states: Female debtor called in and confirmed details, wanted to speak with Phuong Huynh, advised will get Phuong Huynh to call her back on her mobile next week, she advised had left a message last week and is still expecting a call back, she wanted clarification on the complaint regarding the default notice being satisfied and was still served the statement of claim. 18On the basis of that entry, I do not accept that Ms Larsen failed to get back to Phuong Huynh, as asserted on behalf of the bank. 19On 25 October 2011 Ms Larsen spoke to Phuong Huynh complaining that she had left a few messages and that no one had rung her back. Phuong Huynh told her that Stephen Clifford was now managing her account and that she would let Stephen know Ms Larsen had called. Ms Larsen attempted to call him once, without success. She states that the number she had for him did not permit her to leave a voicemail message. 20Over four days between 24 and 27 October 2011, Mr Clifford made several attempts to contact Ms Larsen, without success. Ms Larsen explained that she did not have access to her own voicemail box during that time. She was at that time under considerable stress due to the ill health of her son. The bank contends that, as Ms Larsen had "failed or refused" to take or return Mr Clifford's calls, the bank instructed Gadens to make an application for default judgment. That application was made without notice to Ms Larsen. 21The evidence on the application reveals a dispute as to whether, in the conversation on 30 September 2011, Phuong Huynh advised Ms Larsen not to make a lump sum payment to clear her arrears but only to maintain her regular payments. Ms Larsen says that is what she was told. Without purporting to recall the conversation, Phuong Huynh denies that she would have said that. It is not possible to resolve that dispute on the present application. Whatever was in fact said during the conversation, I accept Ms Larsen's evidence that she understood the conversation in that way. According to her evidence, she found Phuong Huynh difficult to understand. Ms Larsen had $5,000 available that day and would have been in a position to clear the arrears had she been advised to do so. 22For the reasons stated in Commonwealth Bank of Australia v Wales, I am satisfied that the Court has power under r 36.16(2) to set aside the default judgment, upon proper cause being shown for doing so, notwithstanding the fact that Ms Larsen does not assert the existence of any defence proper to the bank's claim. As was the position in Wales, the basis for the present application is that the bank's treatment of the defendant's approach on the grounds of hardship, combined with its failure to give notice of its intention to move the Court for default judgment, deprived Ms Larsen of an opportunity to avail herself of the remedies under the National Credit Code in circumstances where she had sought in good faith to invoke those remedies. 23I was persuaded in the present case that it was appropriate to set the default judgment aside on that basis. There were two critical considerations in my decision. The first relates to the circumstances surrounding the notice of default. The way in which the notice was drawn created some confusion. Taking a cautious approach, Ms Larsen sought advice to seek confirmation as to the amount required to be paid in order to comply with the notice. She was informed by a person in the bank's solicitor's office that she had to pay the amount of $8,375 and she did so within the period allowed. Her failure to comply with the notice was plainly contributed to by those events. 24Secondly, it is clear that Phuong Huynh dissuaded Ms Larsen from lodging a hardship application when she sought to do so, as she had been advised to do by the FOS. Ms Larsen attempted to follow up the negotiations as requested by Phuong Huynh, but was stymied by the fact that Phuong Huynh was on leave and no one returned her calls. The later period of only four days during which she did not return the bank's calls must be viewed in that context. 25In the event, a series of actions on the part of both the bank and its solicitors combined to defeat Ms Larsen's efforts to forestall enforcement action by rectifying the default and, when that had evidently failed, to invoke the hardship provisions in the Code. Those events, combined with the absence of notice to Ms Larsen of the motion seeking default judgment, deprived her of the opportunity to have a hardship application determined by the FOS or the court before judgment was entered. In my view, those circumstances provided sufficient cause to set aside the default judgment under r 36.16(2).

Orders (1)That the default judgment entered on 11 November 2012 against the defendant be set aside pursuant to rule 36.16(2). (2)That the stay of the writ of possession granted by the Registrar on 12 January 2011 be extended up until 5 pm on 7 May 2012. 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. Decision last updated: 11 May 2012