Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : NATIONAL AUSTRALIA BANK LIMITED -v- CORNELL [2009] WASC 255

Appeal - Summary judgment - Mortgagee action - Master granted summary judgment on respondent/mortgagee's claim for vacant possession of land - Alleged negligent misrepresentation and economic duress were cross-claims and not defences to claim - No material error in master's decision - Turns on own facts

Cornell v National Australia Bank Ltd [2009] WASCA 225

1 BUSS JA: The appellants (the Cornells) appealed against an order of Master Sanderson made on 19 August 2009 that they give vacant possession of two properties in Boddington to the respondent (the Bank).

2 The appeal was argued on 10 February 2010. At the conclusion of the argument this court ordered, relevantly, that the appeal be dismissed. We said that we would publish reasons for decision later. These are my reasons.

3 On 27 February 2009, the Bank, as plaintiff, issued a Supreme Court writ against the Cornells as defendants. The Bank filed an amended statement of claim on 14 May 2009 pursuant to O 21 r 3 of the Rules of the Supreme Court 1971 (WA).

4 The Bank pleaded that it had provided credit facilities from time to time to the Cornells. The Cornells used the facilities to purchase and become the registered proprietors of the Boddington properties. One was located at Lot 5, Reserve Road, Boddington and the other at 9629 Albany Highway, Boddington. The Cornells granted mortgages over the properties in favour of the Bank to secure the amounts owing from time to time under the credit facilities. The Bank alleged that the Cornells had defaulted under the facilities and the mortgages. It claimed vacant possession as mortgagee of the Reserve Road property and the Albany Highway property. The Bank also claimed payment from the Cornells of the amounts owing under the credit facilities and the mortgages, together with interest thereon pursuant to s 32 of the Supreme Court Act 1935 (WA).

5 By chamber summons dated 19 June 2009, the Bank sought leave to apply for summary judgment against the Cornells. The relief sought in the summons included an order that the Cornells give vacant possession of the Boddington properties. The Bank did not seek summary judgment on its monetary claim. It merely sought an order that the 'remainder of the action' be adjourned sine die.

6 The master made orders, relevantly, in the terms sought by the Bank.

7 On 16 December 2009, Newnes JA granted a stay of the master's order in relation to one of the Boddington properties (no stay having been sought in relation to the other) until the determination of the appeal or further order.

8 Newnes JA gave written reasons for his decision to grant the stay. See Cornell v National Australia Bank Ltd [2009] WASCA 225. It is convenient to reproduce from his Honour's reasons the relevant background facts:

The appellants (the Cornells) are husband and wife. They own two properties in Boddington. The first property (the Reserve Road property) was purchased by the Cornells in 1998. The second property (the Albany Hwy property) was purchased in 2006. The Cornells resided at the Reserve Road property from 1998 until 2006 and since then they have resided at the Albany Hwy property.

Each of the properties is mortgaged to the respondent (the Bank). The Reserve Road property is subject to a mortgage to secure a loan made to the Cornells on or about 13 February 1998 (the Home Loan). The Reserve Road property and the Albany Hwy property are subject to a mortgage to secure a loan made on or about 16 May 2006 (the First Market Rate Facility) and both properties are also encumbered by a mortgage to secure a further loan made on or about 13 December 2007 (the Second Market Rate Facility).

As at 28 November 2008, the Cornells were indebted to the Bank under the Home Loan, the First Market Rate Facility, and the Second Market Rate Facility (together, the loan agreements) in the total sum of approximately $1.6 million. On 28 November 2008, the Bank served notices of default on the Cornells pursuant to the loan agreements. The Cornells failed to pay the outstanding sums by the dates specified. On 28 November and 1 December 2008, the Bank served default notices pursuant to the property mortgages. The defaults were again not remedied. A notice to vacate was subsequently served in respect of each property, but the Cornells refused to deliver up vacant possession.

On 27 February 2009, the Bank commenced proceedings against the Cornells seeking orders for vacant possession of both properties and payment of the sum of $1,599,071.29 owing under the loan agreements.

The Bank's statement of claim was filed on 30 April 2009. The Cornells were required to file and serve a statement of defence by 14 May 2009. They did not do so.

On 19 June 2009, the Bank applied for summary judgment. That application came on for hearing before Master Sanderson on 21 July and 19 August 2009. In their affidavits in opposition to the application, the Cornells did not deny that they were indebted to the Bank as alleged or that they were in default under the loan agreements. They contended, however, that they had a defence to the action. They said they had entered into both the First Market Rate Facility and the Second Market Rate Facility as a result of misleading and deceptive conduct, negligent misrepresentations, and economic duress on the part of the Bank.

It appears from the affidavits filed in opposition to the Bank's application that the relevant dealings with the Bank were conducted by Mrs Cornell on behalf of herself and her husband. In her affidavit, Mrs Cornell said that, in or about April 2006, she and her husband entered into a contract to purchase the Albany Hwy property for the sum of $927,000. Mrs Cornell contacted the manager of the local branch of the Bank (the bank manager), with a view to obtaining a loan from the Bank to assist the Cornells in the purchase. Mrs Cornell says she told the bank manager that it was their intention to repay the loan by selling the Reserve Road property. She told him that the Cornells' business, Lyddon Farm Aquaculture, had never made more than a nominal profit and that the profits reflected in the financial returns of the business for the previous three years incorporated income earned by Mr Cornell subcontracting his excavator. She said they were currently unemployed.

According to Mrs Cornell, in the course of her conversations with the bank manager, they discussed possible ways of funding the purchase if the Reserve Road property did not sell. He suggested that the Cornells would make much more money if they subdivided it. He predicted that as a result of the gold boom in Boddington, land values in the area would boom in the near future.

Mrs Cornell says that, on or about 20 April 2006, she told the bank manager that the sale of the Reserve Road property had fallen through and asked if they could still obtain the loan if they were unable to sell the Reserve Road property straight away. According to Mrs Cornell, the bank manager told her they could, but they would need to submit a business plan in support of the application and he would assist them in drafting the business plan. Mrs Cornell says the bank manager told her that the business plan was not so important because the Cornells would sell the Reserve Road property within six months. Mrs Cornell says they discussed what would happen if the Reserve Road property did not sell as quickly as predicted and the bank manager said 'the bank will back you'.

Mrs Cornell understood him to mean that the Bank would provide finance to enable the Reserve Road property to be subdivided and sold in lots. It is not clear from the affidavit what caused her to form that understanding.

Mrs Cornell says the bank manager canvassed with her possible means of deriving income from the Albany Hwy property, including hydroponics, fish farming, fat lambs, excavator work, hay and oat crops, and olive farming, for the purpose of including the prospective income in the business plan. She says she told him that she had never run any of those businesses, but the bank manager told her she should still include income from those businesses in the business plan.

According to Mrs Cornell, on or about 28 April 2006, she received a telephone call from an employee of the Bank who informed her that the business plan had to be changed to 'come up with a lot more money or the loan won't fly'. Mrs Cornell says she expressed concern that the figures in the business plan were just speculation, but was told not to worry as the Cornells would not be relying on the business plan because they would be selling the Reserve Road property.

Mrs Cornell says that the bank manager subsequently amended the business plan to increase the projected income for the business. In the business plan finally submitted in support of the loan application, the projected income from the businesses previously discussed with the bank manager was shown as $108,500 per annum. The business plan also ascribed a value to the Reserve Road property of $1,320,000 'based on subdivision potential' and a potential profit on subdivision of $485,000.

On 16 May 2006, the Cornells signed the loan agreement and the mortgage to secure the First Market Rate Facility. Mrs Cornell says they did so on the basis of what the bank manager had said to her. The Cornells say that the effect of the loan agreement was not explained to them.

Mrs Cornell says they were able to pay the first instalment of interest on the loan from surplus funds at settlement but otherwise were in default and unable to service the loan from the outset. In late 2007, in a meeting with officers of the Bank, the Cornells were told that the Bank could refinance their loans and 'park up' their debt. Mrs Cornell says she understood that to mean they would be relieved of their obligation to make any repayments for 12 months to enable them to arrange a subdivision of the Reserve Road property, but that did not turn out to be the refinancing arranged.

On 13 December 2007, the Cornells signed the loan agreement for the Second Market Rate Facility and a Deed of Arrangement. The Cornells say they signed the Second Market Rate Facility, the Deed of Arrangement and, subsequently, Deeds of Variation because the Bank told them that if they did not do so 'all was lost' and the Bank would sue them for the outstanding money. Mrs Cornell says she was not allowed possession of the documents long enough to get any independent advice on them. She says she subsequently signed Deeds of Variation to obtain more time to pay the debt following delays in selling the Reserve Road property.

The Cornells say they relied on the representations and advice of the bank manager in entering into the First Market Rate Facility. They submitted that, by the bank manager, the Bank had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), in connection with the preparation of the business plan and by inducing them to submit it for the purpose of the approval of the First Market Rate Facility.

The Cornells say that they entered into the Second Market Rate Facility, the Deed of Arrangement, and the Deeds of Variation under duress because as a result of the predicament in which they found themselves they had no option but to sign the documents. They said that the Bank's conduct in requiring them to sign the documents or be sued immediately for the outstanding money constituted illegitimate pressure and unconscionable conduct, and the Bank's refusal to allow them sufficient time to get independent advice was unconscionable.

I should say that the Bank denies that the bank manager played the role attributed to him by the Cornells and refers to a substantial amount of correspondence which appears to be inconsistent with the Cornells' case [2] - [19].

9 Before the master, the Cornells resisted the Bank's application for summary judgment on the basis that:

(a) The Bank's employee, Mr Trystan Joyce, engaged in misleading or deceptive conduct in trade or commerce on behalf of the Bank, in contravention of s 52 of the Trade Practices Act 1974 (Cth), in that he counselled, procured and assisted the Cornells 'to prepare a business plan that had no basis in historical fact and did not reflect the previous 8 years of poor performance of that business and induced [Mrs Cornell] to submit the plant [sic: plan] to him for the purpose of approval' of one or more of the credit facilities.

(b) Mr Joyce, on behalf of the Bank, made the following negligent misrepresentations to the Cornells:

(a) That [the Cornells] could still borrow money in the event that the Reserve Road property would not be sold right away on the basis of a suitable business plan going forward in circumstances where that business was known to be unsuccessful and that Mr Joyce would undertake to prepare that business plan was a negligent misrepresentation and assumption of the role of business advisor by him;

(b) The request from Mr Joyce's assistant 'Jade' to [Mrs Cornell] requesting that the business plan be amended to include more projected income or 'the loan won't fly' represents a negligent misrepresentation and assumption of the role of business advisor by him.

See the written submissions filed by the solicitors for Mrs Cornell.

(c) The Cornells entered into the deed of arrangement and the deeds of variation with the Bank as a result of 'illegitimate pressure' applied by the Bank's employees and 'economic duress'. The alleged illegitimate pressure in relation to the deed of arrangement and the deeds of variation was an employee of the Bank informing the Cornells that if they did not sign the documents they 'would be sued by [the Bank] and their loans called in'. Also, in relation to the deeds of variation, it was alleged that the employee informed Mrs Cornell that if she did not sign the deeds of variation 'all was lost'.

10 The Cornells argued before the master that the issues they had raised required that there be unconditional leave to defend.

11 As to the Cornells' allegation of misleading or deceptive conduct, the master said that there was nothing in the evidence which could, in his view, constitute misleading or deceptive conduct on the part of the Bank's employee, Mr Joyce [13]. According to the master, Mrs Cornell's evidence did not identify any relevant misleading or deceptive conduct and there was nothing to suggest that the Cornells had a defence under the Trade Practices Act.

12 As to the allegation of negligent misrepresentation by Mr Joyce, the master said that this allegation was, as he understood it, based upon the fact that Mr Joyce assisted the Cornells in preparing a business plan which, in turn, was used to satisfy the Bank that the Cornells could service their borrowings. The master held:

Even assuming that Mr Joyce assisted the defendants [the Cornells] in drafting the business plan, there are no facts upon which it could be suggested he was negligent. He relied upon material supplied to him by the defendants. In the end it was the defendants themselves who submitted the business plan. There is nothing in the second-named defendant's [Mrs Cornell's] affidavit which could be characterised as a representation by Mr Joyce to them, let alone anything that could be characterised as a negligent misstatement. In my view, there was no substance to this aspect of the defendants' submissions [14].

13 As to the allegation of illegitimate pressure/economic duress, the master was of the view that this had no foundation. He said that the correspondence between the parties and the terms of the deed of arrangement and the variations to it demonstrated that the Bank went 'to quite remarkable lengths to allow [the Cornells] to rationalise their affairs and repay the money they had borrowed' [15]. According to the master, no criticism could be levelled at the Bank for its conduct.

14 The master was satisfied that the Cornells had no defence to the Bank's claim for possession of the Boddington properties. He therefore ordered the Cornells to give and deliver up to the Bank vacant possession of the properties. He also ordered that the remainder of the action be adjourned sine die.

1. In awarding summary judgement the learned Master erred in finding that [the Cornells] had no arguable defence to the claim of [the Bank].
2. The learned Master erred in finding that there was no substance to [the Cornells'] claims that an officer of [the Bank] had given a negligent misrepresentation to [the Cornells].
3. The learned Master erred in finding there was no foundation to [the Cornells'] claims to have been placed under 'illegitimate pressure' or 'economic duress'.

16 The Cornells have not challenged in the appeal, the master's decision in relation to the allegation of misleading or deceptive conduct.

17 The grounds raise, in essence, two issues. They are, whether the master erred in determining that there was no substance in the Cornells' allegations of negligent misrepresentation and illegitimate pressure/economic duress and whether, as a result, he erred in awarding summary judgment to the Bank on its claim for vacant possession of the Boddington properties.

18 I am satisfied that the master's decision to enter summary judgment was correct. My reasons for this conclusion are different from those given by the master. They were, however, raised at the hearing of the appeal and counsel for the Cornells had a proper opportunity to deal with them.

19 First, the Cornells' allegations do not relate to the mortgages. Further, and in any event, even if their allegations were made out at trial they would not vitiate the mortgages or result in the mortgages being set aside.

20 Secondly, their allegations are not a defence to the Bank's claim for vacant possession. Rather, they are a cross-claim which, if established at trial, will have a remedy in damages if they prove the suffering of actual and compensable loss.

21 Thirdly, the affidavit evidence relied on by the Cornells before the master did not indicate that their allegations had caused or materially contributed to the suffering of any compensable loss. For example, there was no evidence as to whether the market value of either or both of the Boddington properties had increased or decreased since their purchase by the Cornells, since the alleged reliance on the alleged negligent misrepresentations or since the alleged conduct in response to the alleged illegitimate pressure/economic duress. Indeed, the Cornells did not even formulate the nature of any actual and compensable loss they may have suffered in consequence of the negligent misrepresentations allegedly made or the illegitimate pressure/economic duress allegedly applied by the Bank.

22 Fourthly, even if, contrary to the master's view, there is any foundation or merit in the Cornells' allegations, there is no reason why they cannot be litigated in a counterclaim filed in the Supreme Court action commenced by the Bank. As I have mentioned, the balance of the Bank's claim (which relates, relevantly, to its monetary claim against the Cornells) has been adjourned sine die. Alternatively, the Cornells may commence their own proceedings. Any such claim by the Cornells against the Bank would be for damages.

23 Fifthly, it is not in dispute that the Bank made loans to the Cornells under the credit facilities and that when the Bank commenced the Supreme Court proceedings on 27 February 2009, $1,599,071.29 or thereabouts was owing by the Cornells. The evidence before the master reveals that the Cornells are unable to re-pay any of the principal except from the sale of the Boddington properties and that they have not been paying interest on the principal. The Cornells have not made any payment into court and are unable to make such payment.

24 Sixthly, on the basis of the reasons I have already given, I am not satisfied that there is any justification for granting conditional or unconditional leave to defend or that there are issues which ought to be tried or that circumstances ought to be investigated before the Bank is awarded vacant possession of the properties.

25 For these reasons, I joined in the orders made by the court on 10 February 2010, including the order dismissing the appeal.

26 NEWNES JA: The reasons published by Buss JA express the reasons that I joined in the orders made on 10 February 2010.

27 JENKINS J: I have had the benefit of reading the draft reasons of Buss JA. Those reasons explain why I joined in dismissing this appeal at the conclusion of the hearing.