Commonwealth Bank of Australia v Susan Hannaford Pty Limited & 2 Ors

Judgment 1HIS HONOUR: In 2004 the plaintiff, Commonwealth Bank of Australia, lent $5,500,000 to the first defendant, Susan Hannaford Pty Limited. The directors of that company are Susan Hannaford, the third defendant, and her daughter, Marquessa Hannaford, the second defendant. The loan was secured by a mortgage over a property at Balgowlah Heights owned by the company, together with guarantees by each of Susan and Marquessa Hannaford. The property is also their home. In January 2010, following default in repayment of the loan, the bank instituted proceedings in this court for possession of the property and for judgment against all three defendants for the amount outstanding on the loan which, with interest, was close to $6,000,000. 2The proceedings are contested, the defendants relying upon an amended defence and a cross-claim filed in September 2011. Before me is a motion by the bank for summary judgment against the company for possession of the property. The motion does not seek judgment against the company for the debt, nor against Susan and Marquessa Hannaford on their guarantees. 3For present purposes it is necessary to refer only to so much of the defence and cross-claim as relate to the company and the issue of possession. The defence does not put in issue the loan, the mortgage or the fact that there was default in repayment. Rather, the defence raises three discrete, related issues: It is claimed that the defendants and the bank entered into a "switching agreement", by which the requirement for monthly payments of principal and interest was varied to monthly payments of interest only. In breach of that agreement, it is alleged, the bank continued to apply payments to the principal. (Pars 2A - 4A, 10A(1)). In the alternative, it is claimed that the bank is estopped from "avoiding" that switching agreement by a course of conduct which led the defendants to believe that it had been accepted (par 10A(2)). Further in the alternative, it is alleged that the bank acted unconscionably, in breach of certain provisions of the Australian Securities and Investment Commission Act 2001 (Cth), based upon that same course of conduct (par 13A). Referred to in the defence, and annexed to it, are a bank document entitled "Loan Switching Request", and a document on bank letterhead addressed "To whom it may concern" dated 7 April 2009. 4The defence asserts that on 30 October 2008 the bank entered into the switching agreement, providing for monthly payments of interest only for a period of 5 years from 1 November 2008. The company complied with that agreement by making interest payments up to and including June 2009, whereupon the bank refused to accept payments on that basis. In breach of the switching agreement, the bank had continued to apply those payments to the principal due under the loan agreement, giving rise to unjustified interest and default fees. This course of conduct and its outcome are also the basis of one of the issues raised in the cross-claim. 5The defence contends that the switching agreement is established by the fact that the Loan Switching Request was "endorsed" by an officer of the bank, by the terms of the letter of 7 April 2009, and by the bank's acceptance of the interest only payments over the period to which I have referred. It is the bank's case that this contention is untenable and that, no other matter being raised by the company in opposition to the order for possession, it is entitled to the summary judgment it seeks. 6It is necessary first to examine the Loan Switching Request. It is a standard form document. It begins with the words, "Please complete the sections below with your Lender's assistance." The request in any given case is conveyed by ticking boxes next to a number of options. In the present case the following boxes are ticked on the first page of the document: "I/We request the Bank to change my/our Loan Contract as per completed section/s on this Loan Switching Request. I/We acknowledge that, if the Bank agrees to vary the Contract, as set out in this request form, my/our Contract shall be so varied on the date the Bank processes this request." 7On the second page, under the heading "Repayment Types," options of principal and interest or interest only are available. The interest only box is ticked, and under that a period of 5 years is sought. There is then a box providing for a date from which the option is to be effective. That box has not been filled in but next to it in handwriting appears "TBA". Presumably, this means "to be agreed" or "arranged", or something to that effect. 8On the fourth page is a heading "Business Unit use only." Under that is a box headed "Prepared by (full name)", in which is written the name Bradley Michael Rourke. Next to that is a box headed "Business Unit name", and in that box is written "Private Bank". On the first page the borrower is shown as the company in a box for which there is provision for a signature. No signature appears in that box. At the bottom of the first page Susan Hannaford and Marquessa Hannaford are shown as guarantors, and the signatures of both of them appear there. Next to their signatures appears the date "October 30, 2008" but, as will be seen, that cannot be accurate. 9It is not in dispute that Mr Bradley Rourke was an officer of the bank at the relevant time. It is his name and handwriting on page 4 of the document which is claimed in the defence to be the endorsement evidencing the bank's approval of the request. 10Counsel for the bank, Mr White, argued that it was nothing of the kind. It was no more than what it is expressed to be, that is, a disclosure of the name of the bank officer who prepared the document. He drew attention to the opening words of the document to which I have referred, "Please complete the sections below with your Lender's assistance." It is apparent that Mr Rourke completed the document from an e-mail he sent to Marquessa Hannaford on 31 October 2008. 11 What emerges from that e-mail is that on the previous day, 30 October, the two of them had discussed an amendment of the loan contract to provide for interest only payments. What also emerges is that Mr Rourke was not prepared to do so unless existing arrears were paid. The relevant part of the e-mail reads as follows: "I understand your point re a move to 'interest only' in the current economic climate and then a lump sum reduction to the loan in the future with probable funds to be received, but before I can look at such an amendment, we have to address the current arrears incurred whilst the loan has been under a 'principal & interest' contract arrangement. I cannot move to an interest only arrangement and retrospectively split up principal and interest arrears, so I need you to firstly wire a lump sum of $69,117.00 to get the loan back up to date ASAP (as discussed, currently the loan is precariously close to the default notice and further legal action which you do not want), and only then I can look at, and attend to an interest only arrangement. I attach a loan switching form (2 attachments, 1 pertinent signing documents, and the other T & C) that I have completed for you, to amend your loan to interest only as per the above guidelines, so if you can send the funds and executed form (both you and Susan to sign - Page 1) to me in unison, and advise me when the funds have left, I can then look out for them, reduce the loan accordingly and amend loan repayments and advise an approximate interest only repayment figure to you to have wired monthly. I hope this is clear and cannot stress to you enough that we need to clear the arrears ASAP." (Emphasis in original.) 12Given that the Loan Switching Request was sent to Ms Hannaford on 31 October, it is clear that neither she nor her mother could have signed it on 30 October. The defendants' solicitor, Mr Mandoh, who appeared at the hearing of the motion, acknowledged as much and added that Mr Rourke may not necessarily have "endorsed that document" on 30 October. It was not his clients' case that the agreement came into being on that day, although that is what the defence tended to convey. This matter can be put to one side, as nothing turns on it for present purposes. 13Paragraph 7 of the statement of claim refers to a failure to make repayments, in whole or in part, between August 2008 and October 2009. Paragraph 2B(d) of the defence asserts that a number of payments were made "in accordance with the interest-only Switching Agreement ... ." It is said that between November 2008 and January 2009 payments of over $75,000 were made. Although it is not expressed in the document, it was understood by the parties at the hearing of the motion that these were said to be payments of arrears. Thereafter, the defence sets out a series of what are described as interest-only payments between March and June 2009. 14Mr White took me to bank statements which were in evidence dealing with the period between July 2008 and January 2009. Over that period a number of repayments were dishonoured. Payments between November 2008 and January 2009 which were not dishonoured totalled, in fact, a little over $68,000. This is a figure close to the arrears of $69,000 odd referred to in Mr Rourke's e-mail. However, an analysis of the bank statements undertaken by Mr White, which I need not recite, establishes that those payments were not sufficient to cover even the interest which continued to accrue over that period. It is plain enough that those arrears were never made good. 15The letter addressed "To whom it may concern" of 7 April 2009, also relied on in the defence, was signed by another officer of the bank, Mr Bill Batziolas. It refers to the "Loan Facility" in the name of the company and notes the "Loan approval amount" as $5,500,000 and the "Current Loan Balance" as $5,576,837. The body of the letter is as follows: "Please note that Ms Susan Hannaford has a current Investment Home Loan with the Commonwealth Bank of Australia in her company name Susan Hannaford Pty Limited. Details of which are outlined above. At this point in time, the loan is being conducted within agreed arrangements with a view to sustaining a long term valued relationship." 16This letter must be understood in the light of what led up to it. Its terms were negotiated through an exchange of e-mails that day between Marquessa Hannaford and Mr Batziolas. It began with an e-mail from Ms Hannaford, from which it appears that the bank had paid land tax on the Balgowlah property on behalf of the company and that Susan Hannaford was seeking an unsecured loan from another source to repay that tax debt. Ms Hannaford requested "a letter of good standing" from the bank which would confirm her mother's substantial loan, having been in place for about 5 years, and would describe her as a person "in good standing" and "a valued client." 17In his reply Mr Batziolas said that the bank could not provide such a letter due, among other things, to "the current arrears situation." He said that he could provide a letter confirming the loan details and would be prepared to add "that the loan is being conducted as per agreed arrangements at this point." Through further e-mails the terms of the letter were settled, but in one of them Mr Batziolas conveyed this message: "Please also note that the letter provided does not in any way compromise the current arrangement in place on the home loan which requires the arrears and land tax to be cleared ... and the Bank's legal right to commence recovery action should our requirements not be adhered to within the specified timeframe." 18Paragraph 2B(f) of the defence contends that by this letter, with its assertion that the loan was being conducted "within agreed arrangements", the bank "further communicated its acceptance of the Switching Agreement ... ." Against the background of these e-mails, Mr White submitted, that could not be so. 19Accordingly, Mr White argued, the matters pleaded in the defence, including the two annexed documents, are incapable of establishing the Switching Agreement contended for. Similarly, he added, the defences based upon estoppel and the ASIC Act are untenable. In further support of that argument, he referred to two other e-mails from Mr Batziolas to Marquessa Hannaford in response to e-mails from her. 20The first e-mail, of 13 February 2009, included the following: "I have reconciled your loan account and can confirm the following; Arrears based on Principal and Interest (P & I) repayments as at 31/10/2008 as conveyed to you by Brad Rourke in his email was $69,117.00. Interest Only amounts accrued from November 2008 to January 2009 totals $90,638.64. Payments received to the loan account since 31/10/2008 total $68,213.10. Balance of arrears required to be paid (based on the Bank agreeing to accept Interest Only from November 2008) is $91,542.54. The Bank also requires you to pay the Land Tax of $118,770.54 which we paid by debiting your loan account 10/12/2008. ... Marquessa, in trying to resolve this matter to our mutual satisfaction, the Bank is willing to proceed to formalise the interest only repayment arrangement for your loan account and will waive the principal portion of the arrears ($38,712.36) that has accrued on your loan since November 2008 subject to the following requirements; Arrears of $91,542.54 is to be paid to the loan account by close of business 20/2/2009. Land Tax of $118,770.54 is to be paid to the loan account by 31/3/2009. Future monthly interest only repayments commencing this month and due on the 26th are strictly maintained." ... Further requirements were stipulated, but it is not necessary to refer to them for present purposes. 21The second e-mail, of 12 May 2009, again summarised the condition of the loan account and sought confirmation, among other things, of the payment of arrears of $91,542.54. The other matters of which confirmation was sought also do not need to be referred to. The e-mail continued: "All of the above is imperative in order for you to comply with the Bank's requirements, for the Bank to complete its review of your loan account due to the default situation and for the Bank to proceed to formalise the interest only repayment arrangement that you requested." 22What this demonstrates, as Mr White put it in oral submissions, is that the bank was "bending over backwards to accommodate the defendants." However, from the whole of the material it is clear that for some time a Switching Agreement was in the air but it was never concluded. Nor is there any basis on which it could be found that the bank is estopped by its conduct from denying such an agreement, or that its conduct was unconscionable in the manner pleaded in the defence. 23Mr Mandoh opened his case on the application by seeking to read an affidavit of Marquessa Hannaford of 14 June 2011, to which Mr White objected. The objection was partly as to the form of the document, but principally as to relevance. Some of the affidavit was directed to matters which are not relevant to this application. Insofar as it dealt with the Switching Agreement, it asserted the matters raised in the defence and, it seems to me, added nothing of significance to the material tendered by the bank. In the event, Mr Mandoh made no reference to the affidavit in his submissions. 24Put shortly, he relied upon the fact that between November 2008 and January 2009 the company paid an amount close to the $69,000 odd in arrears referred to by Mr Rourke in the e-mail of 31 October 2008. He argued that Susan and Marquessa Hannaford believed that, having paid those arrears, they had "locked in" the Switching Agreement. That position is hinted at, but hardly spelled out, in Marquessa Hannaford's affidavit. Mr Mandoh submitted, however, that it might arise in evidence at a trial and was a matter militating against the summary disposal of the case. 25It is trite, however, to say that whether a contract has been entered into is a matter to be determined objectively on the whole of the evidence, and the subjective view of a party is not relevant to the issue. Further, as Mr White pointed out in reply, if the Hannafords "had a misconceived lay understanding, for whatever reason," it does not follow that there was any misrepresentation on the part of the bank founding an estoppel or a finding of unconscionable conduct. 26The principles governing an application for summary judgment are the subject of longstanding and familiar authority. They were recently summarised by Johnson J in Westpac Banking Corporation v Corry [2011] NSWSC 1014 at [14]: "The applicable principles on a summary judgment application are clear. Before a Court will give summary judgment to a plaintiff, it is necessary for the Court to reach a high level of satisfaction that the order should be made. The principles are well known - a very clear case is required before summary judgment is granted and the power to order summary judgment should be sparingly employed: Dey v Victorian Railway Commissioners [1949] HCA 1; 78 CLR 62 at 91; General Steel Industries Inc v Commissioner of Railways (NSW) [1964] HCA 69; 112 CLR 125 at 129; Webster v Lampard [1993] HCA 57; 177 CLR 598 at 602-3; and Cosmos E-C Commerce Pty Ltd v Bidwell and Associates Pty Ltd [2005] NSWCA 81 at [37]-[38]." 27In my view, this is a very clear case. On the material before me, the company's defence to a claim for possession is unarguable, as is that part of the cross-claim which relies upon the same material and raises the same issues: pars 5 - 6, 8A(a) - (b). Mr Mandoh did not seek leave to replead and, on the evidence before me, is not apparent how the pleadings could be recast to identify an issue fit to be tried. In any event, the defence and cross-claim in their present form are the result of a somewhat tortuous process described in an interlocutory judgment of Davies J of 16 September 2011. That procedural history would not favour the exercise of a discretion to allow the company to replead. 28In relation to the cross-claim, it remains to consider two claims to which the company is a party. Both of them are brought under the ASIC Act, alleging unconscionable behaviour on the part of the bank. The first complains of the bank's failure to consent to a lease of the mortgaged property: par 8B. The second relates to the bank's refusal to register a transfer of title to the property from the company to Susan and Marquessa Hannaford, thereby depriving them of the benefit of an exemption from land tax on the basis that the property was their principal place of residence: par 8C. In each claim there was sought a declaration that the defendants were entitled "to restitution by way of offset on their loan balance" of the amount of money lost by the bank's conduct, or an order that the amount lost be "removed from and/or credited to" the loan balance: par 1(q) and (s) respectively. 29In effect, these are claims for damages, by way of set-off. As such, it is well established that neither is an answer to a claim for possession. In Westpac v Corry (supra) the defendants claimed that certain conduct by the bank had led to their refraining to take action which might have substantially reduced their indebtedness. Johnson J observed at [34], "To the extent that the Defendants seek to rely upon a form of set-off by way of defence or a cross-claim, I note that a cross-claim or set-off is not a defence to a claim for possession of land ...". His Honour referred to authority, including the familiar decision of Walsh J in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161. In Perpetual Trustee Company Ltd v Paola [2010] NSWSC 997, in which the defendants complained that the mortgagee had withheld consent to their leasing the subject property, Rothman J said at [47], "The proper remedy, if there be one, and if unconscionability or unreasonableness were to be disclosed, would be damages." Accordingly, neither of these cross-claims stand in the way of judgment for possession in favour of the bank. 30I am satisfied that the bank is entitled to the relief which it seeks in par 2 of the notice of motion, that is, judgment against the first defendant, the company, for possession of the subject property. I shall hear the parties as to any other orders which should be made and, if necessary, hear argument on costs.