Dunwoodie v Teachers Mutual Bank Ltd

Factual Background 4The following facts are drawn from the appellants' affidavits dated 13 November 2012 and 12 December 2012, the affidavit of Michelle Evans dated 4 December 2012 and the affidavit of Katherine Lane dated 12 December 2012. 5The appellant is a former school teacher. He has suffered from a depressive mental illness for some years. 6In 2009 the appellant was convicted of offences the nature of which was not disclosed in the evidence but which apparently led to him being placed in protective custody. He was sentenced to a term of periodic detention commencing on 18 April 2009 which he served at Parramatta Correctional Centre. His periodic detention ran from 2 pm Wednesday until 12 pm Friday for the duration of his sentence. 7The appellant asserted that while he was in protective custody and affected by medication then being used to treat his depressive illness, he was approached by individuals he believed to be from the Sydney branch of the Hells Angels and threatened with death or personal injury if he did not do their bidding. He also asserted that members of the gang threatened and intimidated him both while he was in custody and when he was released on non-custodial days and often subjected him to physical assaults unless he did what they said. 8In particular, the appellant identified a person described as "X" for the purpose of the proceedings, (but whose identity was said to be disclosed in a confidential exhibit) as the "main guy who would approach" him while in custody. 9In April 2009, less than a month after his periodic detention commenced, the appellant said that X coerced him to procure a debit card from the respondent's Homebush branch. He said X had threatened to tell everyone, in substance, about the offences of which he had been convicted unless he withdrew funds using the card. 10In May 2009, the appellant said that he was collected by a number of gang members, including X, at the prison gates after he was released one Friday after a period of periodic detention. He said that he was taken to a Commonwealth Bank of Australia ("CBA") branch near Redfern and Central station where X told him to "[o]pen an account with $50 and get a cheque book". The CBA account was opened that day and the appellant was given a chequebook on the spot. 11The appellant said that X instructed him to write himself a cheque for $60,000 and deposit the cheque at a post office presumably for transmission to his CBA account. The appellant said that he did not feel that he had any choice and thought that he might be killed if he did not do as he was told. He said he was then taken to a National Australia Bank ("NBA") branch where, according to his second affidavit he said he had previously, at X's directions, "order[ed] the money". (In his first affidavit, dated 13 November 2012, the appellant said (at [22]) he had seen "the bikie gang ring several banking institutes to 'order' $60,000".) 12According to the respondent's bank records, on 1 May 2009 the appellant deposited a cheque drawn on his Commonwealth Bank account for the amount of $60,000 into his account. 13Later that day, the appellant attended a National Australia Bank ("NAB") Branch in the Sydney CBD. It was common ground that NAB acted as agent for the respondent at this time. It is also common ground that at the relevant time, the respondent permitted cheques to be cashed on its members' accounts without clearance or enquiry. The appellant claimed that X said words to the effect "get the cash out". 14The appellant completed a withdrawal slip and also used his debit card to effect the withdrawal. The NAB bank teller counted out $59,950 in cash for the appellant (being the $60,000 less an amount debited for reasons it is unnecessary to explore). The appellant claimed that while this was occurring, X telephoned his mobile from his car outside the bank and said words to the effect, "if you don't come out with the money now you will be dead". The appellant then claimed that he gave the money to the gang. 15The appellant said he reported the matter to the police and was told by one of the officers words to the effect "are you sure you want to rat on these guys, if you rat on these guys they'll get you". The appellant said that he took this to mean that he might be in danger if he said anything. He stated that he "did not feel [he] had any choice and had to do what they asked [him]". 16On 7 May 2009, the CBA dishonoured the cheque. This caused the appellant's account to be overdrawn by the sum of $59,096.64. The respondent debited the appellant's savings account in respect of the dishonoured cheque. 17The appellant received a statement in the mail saying that the account was overdrawn but threw it away. 18On 11 August 2009, the respondent filed a statement of claim claiming "money found to be due from the [appellant] to the [respondent] on accounts stated between them in the sum of $60,537.35". 19The appellant said that he received the statement of claim while he was still in periodic detention and did not do anything about it. He said his depression was particularly bad during his time in custody and that he "did not know what to do or where to turn" because of his fear of the gang. He also expressed his concern that the gang would "kill me, ... would suicide me in my cell" if he involved them in any way. 20After the appellant was released from Silverwater Correctional Centre, where he was moved when Parramatta no longer did periodic detention, he said he "didn't know what to do and moved to the country and hoped it would all go away." He also claimed that he tried to contact the respondent about the matter by writing to them, but nothing really came of it. No copy of any such correspondence was in evidence. 21An expert report from Dr Irwin Pakula, the appellant's treating psychiatrist, stated that in about September 2009 the appellant was "obviously depressed", facing multiple stressors in his life (including the circumstances of his conviction and the threats from Hells Angels), had quite severely impaired decision-making ability such that "it made perfect sense to him not to raise the matter of the statement of claim until it was forced upon him". He opined that the appellant "seems to have hoped it would just all go away but this is likely to be wishful thinking rather than reality based thinking". 22On 5 February 2010, the respondent filed a notice of motion seeking default judgment in the amount of $66,014.87, comprising the amount claimed in the statement of claim with interest and fees. Default judgment was entered on the same date. 23The respondent caused a Writ for the Levy of Property to be issued on 12 September 2012. On 15 October 2012 the Sheriff served a Notice of Seizure on the appellant relating to his Mazda utility motor vehicle. 24After receiving the Notice of Seizure, the appellant took steps to obtain assistance, including visiting a local accountant, to look into obtaining a loan to repay the respondent. The accountant helped him to obtain free legal advice through the Consumer Credit Legal Centre. The appellant said that after obtaining legal advice, he realised that he may have a defence to the proceedings. 25By notice of motion filed 16 November 2012, the appellant sought an order setting aside the default judgment. He sought to rely on a draft defence and cross claim denying liability to pay the sum sought by the respondent essentially on the basis that the entries in the account stated relied upon by the respondent were procured by fraud and duress and were "void as a matter of law or voidable at [his option]." He particularised that assertion by stating that X had threatened him with physical injury and forced him to withdraw the money and deliver it to him (X), such that the appellant's will was "overborne" and that X had "used [him] as an instrument by which X robbed the [respondent] of the said sum of $60,000 in cash with threats of violence." He also contended the withdrawal was "the [dishonest] act of X" and that any entry in the respondent's accounts was void against the appellant as "the entry of a fraudulent transaction" and was not available to found any action on accounts stated. 26The appellant also asserted that a "no clearance timeframe" policy (the "Policy") the respondent included in the terms of its contract to provide the appellant with banking services had the effect of enabling funds to be released before the time had passed for a cheque to be dishonoured. He claimed the policy generated "an inherent and obvious risk of fraud" and exposed the respondent's "members to predation by third parties" a risk which was manifest, that the debit transaction was only possible because of that policy and, accordingly that the contract was unjust. 27The appellant's draft defence asserted that X had threatened him with physical injury and that he had effected the withdrawal subject to that duress. It contended that the withdrawal was "only made possible because of the ... Policy". It also alleged that despite the risk of fraud deriving from the Policy the respondent had made no inquiries as to whether the appellant had any means of paying it any amount owed if the cheque was dishonoured. Next, the draft defence pleaded that the appellant was ignorant of the contents of the Conditions of Use Accounts and Access in force for members of the TCU, had not seen the full Contract prior to entering into it, had no opportunity to negotiate any alterations to its terms and, (in a sub-paragraph left incomplete) purported to assert matters of which the respondent was said to have been aware at the time the appellant executed the agreement. It also relied upon those matters to contend that the contract was unjust. 28By way of cross-claim the appellant asserted that by virtue of the contract, there was an implied duty of care to act with due care, skill and diligence and that the respondent had breached that duty by clearing the cheque on the security of an overdrawn transactions account when it knew or ought to have known the cheque may not be honoured and the absence of any overdraft arrangement. Another particular of breach of the implied duty was that the Policy did not comply with "prudent banking policy" thus exposing the appellant to risk. 29The draft defence and cross-claim asserted that in order to avoid the unjust consequences arising from the matters pleaded, the Court should make orders under s 7 and s 8 (Sch 1) of the Contracts Review Act 1980 (NSW) (the "CRA") in effect relieving the appellant of his liability for the monies the respondent sought to recover.

Primary Judgment 30The primary judge dismissed the appellant's notice of motion. In her brief ex tempore reasons, her Honour accepted, for the purposes of the application, there was "no reason to doubt that the defendant has been intimidated and threatened and that his withdrawal of the monies was done under duress". However, her Honour was not satisfied that there was a basis for the defence.

Proposed defence 31The papers on which the appellant relied included an updated version of the draft defence which had been relied upon before the primary judge. It mainly completed cross references omitted from the earlier draft, but also particularised the Policy as follows: "The practice of the plaintiff was to pay cheques presented for payment by its school teacher members upon presentation, without taking any steps to ensure that the account contained cleared funds or enquiry. That policy was replaced by a policy of clearance in three business days for cheques deposited at a Teachers Mutual Bank office or a National Australia Bank branch or seven business days for cheques deposited at Bank@Post as per [an internet address was set out] without any exception for school teacher members, after the events complained of in the present proceedings." 32That aspect of the draft defence which relied upon the appellant's ignorance of the contents of the terms of the Contract were expanded to contend that the respondent ought to have known at the time the appellant executed the agreement to enter into the Contract that the Policy "created a systemic risk of loss to which persons in the position of the defendant were vulnerable." 33The respondent did not object to the Court having regard to the amended form of the draft defence.

Appellant's Submissions 34Mr J C Kelly of Senior Counsel, who appeared for the appellant submitted that the primary judge's exercise of her discretion to set aside the default judgment miscarried because her Honour failed to find that the defence of duress at common law was available to a defendant "forced to act against his will in fear of death or personal injury notwithstanding that the threat of harm emanates from a third party". He asserted, in short, that the Hells Angels used the appellant as an instrument to rob the respondent. 35Mr Kelly argued that the primary judge should have held that the appellant had reasonable prospects of success in defending the respondent's claim on the merits on the basis of common law duress and the consequential vitiation of the account stated by the respondent, or, that her Honour should have held that the circumstances in which the default judgment was entered were sufficient to justify setting the judgment aside and allowing the applicant in to defend the respondent's claim on its merits. He contended that the review of authorities in Barton v Armstrong [1973] 2 NSWLR 598 (at 606 - 610) supported the proposition that it is not necessary for the other party to a contract sought to be set aside on the basis of duress to have known of the conduct said to constitute duress. 36Alternatively, Mr Kelly submitted that the appellant was entitled to relief under the Contracts Review Act. He argued that a contract which permitted unauthorised over-drawing by persons under duress or disability, relevantly, the payment of the cheque without clearance or enquiry, facilitated fraud and as such was an unjust contract within the meaning of s 7 of the Contracts Review Act. 37Finally, Mr Kelly contended that the fact the appellant was in periodic detention, suffered from a depressive mental illness and was paralysed by fear explained his delay in moving to have the default judgment set aside. He also relied upon these factors as affording good reason to have the judgment set aside and for the appellant to have the opportunity to defend the claim on its merits. He submitted the matter raised an important issue of principle and that the delay has not caused the respondent to suffer any prejudice.

Respondent's Submissions 38Mr Timothy Hancock of Counsel, who appeared for the respondent, submitted that leave to appeal should not be granted, or, if granted the appeal should be dismissed because the appellant had delayed too long in seeking to set aside the judgment and, too, because the appeal had no reasonable prospects of success. He contended that there was no issue of principle as the claim arose out of an "ordinary banker-customer transaction". 39Mr Hancock contended that the appellant was guilty of gross delay in seeking to set aside the default judgment almost three years after it was entered. He submitted that the appellant knew that he was liable to repay the debt, because he wrote to the respondent about it and received a statement (which he threw away) showing that his account was overdrawn. 40Secondly, Mr Hancock submitted that the draft defences had no reasonable prospects of success primarily because the alleged fraud and duress were not alleged to be the acts of the respondent. He observed that, on the appellant's case, the respondent was the victim of a bank robbery carried out by X, albeit using the appellant as his agent. He contended that absent any allegation that the respondent knew about, or in any way participated in, X's alleged duress or the fraud, neither could be relied upon to set aside the respondent's claim. 41Thirdly, Mr Hancock submitted that the only available inference from the appellant's evidence was that he concealed the true facts from the respondent when withdrawing the monies claimed from the account. He argued that the appellant knew that the cheque would not be met on presentation. Therefore, he submitted that the relevant entries in the respondent's books were not false, because they recorded underlying transactions which the appellant admitted to be true, in the sense that they recorded transactions which took place. 42Fourthly, Mr Hancock submitted that the CRA defence had no reasonable prospects of success because the appellant's loss arose from his own dishonesty with respect to the respondent, rather than the unjust nature of the contract, that it is not unconscionable for a bank to permit a customer to draw against uncleared funds, rather such an arrangement operated to the benefit of the customer and that, under ordinary custom and usage, an unsecured overdraft is repayable on demand. He further argued that the appellant's CRA defence depended upon the particular transaction in question, not whether the contract was unjust according to the circumstances 'at the time it was made": cf s 7 CRA.

Setting aside a default judgment 43The court's jurisdiction to set aside the default judgement is found in the bald terms of Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 36.16(2)(a), providing the "court may set aside or vary a judgment or order after it has been entered if ...(a) it is a default judgment (other than a default judgment given in open court)". The fundamental (but not the only) principles guiding a court asked to exercise the unfettered discretion UCPR 36.16(2)(a) confers, are whether the applicant has a bona fide ground of defence, an adequate explanation for the failure to defend and the length of any delay: Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 (at 506) per Hope JA (Glass JA agreeing). In the final analysis, it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974, unreported) cited with approval by Sackville AJA (Barrett and Leeming JJA agreeing) in Dai v Zhu [2013] NSWCA 412 (at [83]). 44In Dai v Zhu Sackville AJA also explained (at [89]) that the rationale for the requirement that the applicant for relief demonstrate a bona fide ground of defence is that "in the exercise of its 'unfettered, though judicial, discretion' the Court will consider ...(a) whether any useful purpose would be served by setting aside the judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained". His Honour also explained (at [92]) that in "determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case...[a]ll that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue [and] [t]he nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant's explanation for the delay or failure to comply with the orders of the court". 45In elaboration of the last proposition it is necessary to explain that the court considering the application to set aside a default judgment is not trying the issues of fact arising upon the defence advanced, but must be satisfied that the defence is "fairly arguable in law or fact" and that the applicant is bona fide in seeking to rely upon that defence: Reinehr Industrial Lease & Finance Pty Ltd v Jordan per Street ACJ (Glass JA agreeing). 46Finally, it should be observed that the application of these principles is subject to the provisions of the Civil Procedure Act 2005 (NSW): Dai v Zhu (at [93]); Richards v Cornford (No 3) [2010] NSWCA 134 (at [98]ff) per Allsop P (McColl JA agreeing).

Account stated 47The amount the respondent sought to recover in the statement of claim was said to be due from the appellant on accounts stated between them, described as "set out in the [respondent's] statement dated 10 July 2009". The latter document was not before the Court, but I would infer that it was most probably a statement from the respondent sent to the appellant setting out the balance of his account. It may be the statement which he acknowledged receiving, albeit discarding, showing his account was overdrawn: see [17] above). 48I assume, having regard to the nature of the relationship between the parties, that the reference to "accounts stated" was to what has been described as "real account stated", arising "when several items of claim are brought into account on either side, and, being set against one another, a balance is struck, and the consideration for the payment of the balance is the discharge of the items on each side": Laycock v Pickles (1863) 4 B & S 497 (at 506); 122 ER 546 (at 549) per Blackburn J. In Bank of NSW v Brown [1983] HCA 1; (1983) 151 CLR 514 (at 535 - 536), after referring with approval to Blackburn J's statement, Brennan J approved Mr R M Jackson's description in "The History of Quasi-Contract in English Law" (Cambridge (1936) (at 110)) of such an account stated as "contracts [which] should be discussed within the body of contract law, perhaps the most convenient place being in proximity to Accord and Satisfaction." 49Brennan J also referred with approval to Firm Bishun Chand v Seth Girdhari Lal (1934) 50 TLR 465 (at 468) where Lord Wright, in delivering the judgment of the Privy Council, described the nature of the account stated as follows: "Indeed, the essence of an account stated is not the character of the items on one side or the other, but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and, by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral, and creates a new debt and a new cause of action. There are mutual promises, the one side agreeing to accept the amount of the balance of the debt as true (because there must in such cases be, at least in the end, a creditor to whom the balance is due) and to pay it, the other side agreeing the entire debt as at a certain figure and then agreeing that it has been discharged to such and such an extent, so that there will be complete satisfaction on payment of the agreed balance. Hence, there is mutual consideration to support the promises on either side and to constitute the new cause of action. The account stated is accordingly binding, save that it may be reopened on any ground - for instance, fraud or mistake - which would justify setting aside any other agreement ... This rule does not depend on the character or the origin of the debts or credits on either side. (Emphasis added) 50Thus, where the agreement supporting the account stated can give rise to no valid claim, or, to put it another way, is void, a claim upon it can not be used to found an action upon an account stated: Joseph Evans & Co Ltd v Heathcote [1918] 1 KB 418 (at 426 - 427) per Pickford LJ; North v Marra Developments Ltd [1979] 2 NSWLR 887 (at 914) per Mahoney JA (Hope and Samuels JJA agreeing (at 901 - 902); North v Marra Developments Ltd [1981] HCA 68; (1981) 148 CLR 42 (at 60) per Mason J (Murphy and Wilson JJ agreeing).

Duress and fraud 51Avoidance of a contract for duress is a common law remedy. It operates in circumstances where illegitimate pressure imposed on the victim renders his apparent consent revocable: Anson's Law of Contract, (29th ed, 2010, Oxford University Press, at 352); see also Nelson Enonchong, Duress, Undue Influence and Unconscionable Dealing (2nd ed, 2012, at [2-001, Sweet & Maxwell]). Knowledge of the facts, actual or constructive, constituting alleged duress by both parties to the contract is an essential element of a claim to have a contract set aside on this basis: see Kesarmal v NKV Valliappa [1954] 1 WLR 380; Witham v Commercial Union Capital Limited [2002] EWCA Civ 1776 (at [11]) per Laws LJ. 52There is no issue, for the purposes of the appeal, that if a court accepts that the appellant made the withdrawal in the circumstances for which he contends, he was acting under duress at the time. Such duress operates when "there was induced thereby a fear which could be assumed to some extent to paralyse the will": Barton v Armstrong (at 606) per Jacobs JA. Thus, duress "takes away the free agency": Barton v Armstrong (at 607). 53Chitty on Contracts (31st ed, 2012, Sweet & Maxwell, vol 1 at [7-053]) states: "Where it is sought to avoid a contract on the ground of duress exercised, not by the party seeking to enforce the agreement, but by some third person, the party seeking to avoid the contract must prove that the other party knew of the duress, or had constructive notice of it or had procured the making of the contract through the agency of the party who exercised the duress." 54Chitty cites Kesarmal v NKV Valliappa in support of the proposition in [7-053]. In that case, the respondent was held to be entitled to have set aside an instrument of transfer of land executed by him on 20 July 1943 in favour of the appellants on the ground that it had been obtained by duress within the meaning of s 27 of the Titles to Land (Occupation Period) Ordinance 1949 of Malaya. The case turned on the circumstances in which that legislation provided that duress as inclusively defined therein, operated to overcome principles of indefeasibility of title. However, while the Ordinance had the effect if duress within the meaning of s 27 was established of removing the indefeasibility provision and rendering the registered proprietor's title vulnerable, it did not defeat it, nor say how it could be defeated. In such circumstances the Privy Council held (at 384) that recourse must be had to the ordinary law and stated: "Under that law knowledge on the part of the transferee is a necessary ingredient. Their Lordships are therefore of opinion that knowledge of duress on the part of the transferee must be established before a transferor can claim to be entitled to have an instrument of transfer which has led to the registration of a proprietor under the Land Code set aside on the ground of duress." 55A contract entered into under duress is voidable, not void: Barton v Armstrong (at 614) per Jacobs JA; (at 617) per Mason JA; (at 621) per Taylor AJA; Electricity Generation Corporation T/As Verve Energy v Woodside Energy Ltd [2013] WASCA 36 (at [31]) per McLure P (Newnes JA agreeing); at [201]) per Murphy JA. The logic of this appears to be that, "notwithstanding that pressure is present, there is, ex hypothesi, an element of 'willingness to contract'": Halsbury's Laws of Australia, online edition at [110-5670]; Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 (at 45) per McHugh JA; see also Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel) [1983] 1 AC 366 (at 400) per Lord Scarman. 56I do not accept Mr Kelly's submission that the review of authorities undertaken by Jacobs JA in Barton v Armstrong (at 606 - 610) supports the proposition that it is not necessary for the other party to a contract sought to be set aside on the basis of duress to have known of that matter. He did not refer to any particular part of his Honour's reasons and there is no express support for that proposition in the pages to which he referred. 57It is unnecessary to set out the complicated facts of Barton v Armstrong. Suffice it to say, that it did not concern the question whether third party duress could be relied upon by its victim to avoid a contract as against a party with no knowledge of the duress. The critical issue on appeal in this court and the Privy Council was the extent to which it had to be established that Armstrong's threats played a role in Barton's decision to enter into a deed in order for that deed to be set aside. The Privy Council (by majority) held (approving Jacobs JA's dissenting decision in this court) that the deed was void because it was executed under duress in the form of threats to kill and that it was sufficient that the duress was a reason for executing the deed, even if it might have been executed although no threat had been made. 58The passages in Jacobs JA's reasons to which Mr Kelly drew the Court's attention contain express statements contrary to the proposition for which he contends. Speaking of the nature of the duress which would enable a contract said to have been entered into under its influence to be avoided, Jacobs JA said that that duress "must consist in threats of violence calculated to cause fear of loss of life or of bodily harm or actual violence or unlawful imprisonment or threat thereof to one party ... by the other party to the contract, or by someone acting with his knowledge and with his advantage." 59Jacobs JA also referred (Barton v Armstrong (at 611)) to Reynell v Sprye (1852) 1 De G M & G 660; 42 ER 710, a case concerning fraud which his Honour considered bore some analogy with those concerning duress, as, too, did the majority in the Privy Council: Barton v Armstrong (at 631). In that case, Lord Justice Lord Cranworth said (1 De G M & G (at 708)); ER (at 727 - 728): 'Once make out that there has been anything like deception, and no contract resting in any degree on that foundation can stand ... where, therefore, in a negotiation between two parties, one of them induces the other to contract on the faith of the representations made to him, any one of which has been untrue, the whole contract is in this Court considered as having been obtained fraudulently." 60Finally, I would refer to Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38 where Isaacs J, who reviewed the general law on the subject of duress in commercial situations described as "ancient principle" (at 56) the statement in 1 Rolle's Abridgment (at 688) (Henry Rolle, Un Abridgment Des Plusieurs Cases Et Resolutions Del Common Ley, 1668, London), that "duress by a stranger by procurement of the party who is to have the benefit is good cause of avoidance" and added, "[i]t is clear that duress created by persons or circumstances unconnected with a party to a contract is no cause for impeaching the bargain with him". Perry J applied Isaacs J's statement in Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 565 (at 593), holding that "[p]ressure by a third party acting independently of the contracting parties cannot constitute duress so as to provide a ground for avoidance". 61Mr Kelly's argument was almost entirely focussed on the effect of X's duress. He said little about the issue of fraud, let alone identify any principle which would enable the court to set aside a transaction at the appellant's behest who, insofar as the respondent was concerned had perpetrated the fraudulent transaction, if it was properly so characterised. In my view the better interpretation of the events is Mr Hancock's: the deposit of valueless cheque was a fraud on the respondent by the appellant, albeit on his case under duress by X. 62In my view the appellant's proposed fraud and duress defences are not fairly arguable in law, there being no suggestion that the respondent was in any way a participant in, or cognisant of, either the fraud or the duress to which the appellant claims he was subjected.

Contracts Review Act 63Section 7 of the CRA gives the court a broad discretion as to the relief it may afford "if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result" where it finds "a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made. 64Section 9(1) of the CRA provides that: "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract." 65Among the public interests capable of attracting attention when considering the operation of s 9(1) are "keeping people to their freely entered bargains " and "advancement of the protection, which the CRA manifestly intends to give, to those not able fully to protect themselves and to those preyed upon by dishonesty, trickery and other forms of predation": Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell [2011] NSWCA 389; (2011) 15 BPR 29,699 (at [269], [270) ("Tonto") per Allsop P (with whom Bathurst CJ and Campbell JA agreed). 66Allsop P also said in Tonto (at [271]): "[I]t is not part of the purpose of the CRA to promote an efficient banking system or to lay down rules for good banking practice: cf Cook v Permanent Mortgages Pty Ltd [2007] NSWCA 219; BC200706866 at [14]. Nevertheless, to the extent that the organisation of lending programmes, through sub-contracted intermediaries, has the capacity to generate risk of lending to duped, misled or inappropriate borrowers and such structures are administered without clear operational regard for the lending guidelines, it is in the public interest to administer the CRA to protect such people. Such protection will, in the public interest, encourage the recognition by lenders that the safeguards in such structures to avoid or minimise fraud or misleading conduct should be rigorously applied... when people are duped, misled, defrauded or taken advantage of by participants in the financial system by means that have been, in significant part, facilitated by inhering obvious risk and lax operation of appropriate safeguards, it conforms to the public interest to take into account such systemic and operational failure in order to assist to promote conditions that will make it more difficult for such conduct to exist, and thus encourage circumstances more conducive to free and just contracts." (Emphasis added). 67Mr Kelly relied on the passage from Tonto emphasised in the previous quote. 68While appreciating the breadth of the discretion the CRA confers, I do not accept the case the appellant seeks to advance under this rubric is fairly arguable in law or fact. It is not, in my view arguable that the Policy generated an obvious risk of fraud or exposed the respondent's members to "predation by third parties" so that it could be characterised as unjust within the meaning of s 7 of the CRA. A member with a credit balance in his or her account with the respondent was just as vulnerable to a person with criminal intentions subjecting the member to the sort of threats X allegedly made to the appellant to induce that member to withdraw funds from that account. In other words, a member of the respondent was just as vulnerable to threats directed to compelling him or her to withdraw money from his or her account whether the account was in fact in credit or, as in the present case, showing a false credit balance by reason of the operation of the Policy. Nothing in the Policy or its operation indicated any conduct on the respondent's part which could attract the description "dishonesty, trickery [or] other form[s] of predation". Nor is there any laxity such as Allsop P contemplated in Tonto (at [271]). As his Honour effectively said, the CRA should not be a vehicle for a general inquiry into the banking system. 69The appellant's final ground of appeal appeals to the general circumstances in which the judgment was entered as reasons for his default and delay and warranting setting aside the default judgment. Absent an arguable legal or factual basis for granting that relief, there is no room to entertain that submission.

Delay 70I would also briefly advert to the respondent's complaint that the delay in making the application to set aside the default judgment of itself warrants refusing leave to appeal. The psychiatric evidence addressed the appellant's state of mind in 2009, but not in the intervening period prior to the filing of the motion to set aside the default judgment. During that period of some three or so years, or at least until the Sheriff contacted him, the appellant had thrown away the statement revealing his account was overdrawn, ignored the statement of claim served on him and was hoping "it would all go away". Such delay prima facie offends against the timely disposition of litigation central to the provision of justice mandated by s 56ff of the Civil Procedure Act: Richards v Cornford (No 3) (at [106]. It is unnecessary to express any final view about whether the delay in this case, of itself, would have warranted refusing relief.

Conclusion 71The primary judge did not err in dismissing the appellant's application to set aside the default judgment. 72I propose the following orders: (1)Grant leave to appeal. (2)Appellant to file the notice of appeal in the form of the draft appearing at tab 3 of the White Book within 14 days. (3)Appeal dismissed with costs. 73BASTEN JA: The background to the present application has been recounted by McColl JA and need not be repeated. The primary question is whether the applicant has an arguable defence to the Bank's claim. For the reasons set out below, there is an arguable case to be considered under the Contracts Review Act 1980 (NSW). The primary judge did not reject his defence on discretionary grounds relating to delay; there being no adverse findings in this respect, the applicant should not be precluded from running the case because of delay in seeking to raise the defence. Accordingly, there should be a grant of leave to appeal and the appeal allowed. 74For the purpose of determining whether there is an arguable defence, the facts alleged by the applicant must form the basis of the analysis. Nevertheless, for the purposes of the defence under the Contracts Review Act, the factual circumstances are of limited relevance. The critical issue is the contractual arrangement between the applicant and the Bank, which allowed him to withdraw (apparently without limit) against a credit balance attributable to an uncleared cheque (apparently from any source, including one drawn by the customer on another account) and regardless of the lack of security held by the Bank. 75By paying cash in such circumstances, the Bank was, in effect, providing credit. Although the allegation of feckless lending might be viewed as poor practice for a credit provider, it is said to be more than that. Such lending may arguably be an irresponsible practice from the perspective of the customer. So called "asset-lending" may lead a court to decline to enforce a loan contract, where the credit provider has shown no interest and made no (or inadequate) inquiry as to the ability of the borrower to repay the loan. The term "asset-lending" reflects the fact that the credit provider is secure in the knowledge that, in a case of default, it can recover its capital, interest, fees and expenses by realising the asset held as security. Arguably, a credit provider which holds no security should not be treated more favourably. There is no self-evident reason not to hold an unsecured contract to be unjust in circumstances where a secured contract would be unjust. 76The availability of relief for borrowers under the Contracts Review Act may be characterised as a reflection of the respective positions of borrower and lender. The lender, it may be assumed, can determine to whom, in what circumstances and on what conditions to lend its funds. The terms on which it lends, or provides other financial services, will be set to make them as attractive as possible to potential customers, bearing in mind the assessed risks to the credit provider. For a bank to offer payment against uncleared cheques is undoubtedly an attractive service to many. 77On the other hand, the borrower may be financially unsophisticated, under pressure to obtain finance or not well able to assess his or her own capabilities or the contractual requirements of a proffered loan. If the terms offered by the credit provider encourage or facilitate irresponsible borrowing, or even facilitate fraud or exploitation through third party duress, those terms may be subject to review under the Contracts Review Act. 78If the Bank's conditions were susceptible to such an analysis, the precise circumstances in which loss was suffered by the customer will not be determinative of whether he or she has an arguable case for statutory relief. In this case, the facts may appear unusual or not readily foreseeable; but a different view might be taken if a customer were being pressured by her husband (or by a wife) or a close relative. Such risks lead responsible credit providers (acting, no doubt primarily, in their own interests) to insist on dealing separately with joint borrowers and, especially, guarantors. However, it is not the protection of imprudent lenders which lead courts to refuse to enforce credit contracts, but rather the failure adequately to respect the separate interests of the customer. 79The circumstances in which the policy adopted by the Bank in the present case could be exploited to the potential disadvantage of the Bank's customers are manifold and not limited to, although exemplified by, the present case. In addition to the circumstances of spouses, friends or relatives who might persuade a customer to drawdown immediately on an uncleared cheque, a school teacher with a part-time tutoring business might draw down on his or her customers' cheques believing them to be creditworthy, when in fact they were not. 80Two features of the Bank's policy revealed on the facts alleged are noteworthy. First, the policy was not limited by a ceiling. To allow customers to drawdown amounts likely to be needed for everyday living expenses is one thing; to pay out $60,000 is quite another. Secondly, the identity of the drawer was not relied upon as a control. For example, to allow a teacher to draw against a cheque from a large employer is one thing; to be allowed to draw against the customer's personal cheque on an account with another institution is quite another. 81The fact that the applicant could have been subject to similar duress and suffered a similar loss if in fact he had funds in his Commonwealth branch bank account is of limited relevance, depending on how the challenge is formulated. First, it is not known that the blackmail would have been pursued or would have been effective in those circumstances. Secondly, the respondent would not have been involved. Thirdly, and most importantly, the respondent, if somehow involved, would have succeeded on causation (because the cheque would have been cleared in due course and the amount credited to the applicant's account) regardless of the unjustness of the policy. On the presently assumed facts, the applicant did suffer loss because of the impugned policy; the policy could still be unjust, even if it did not cause the applicant's loss. However, if the policy were found to be unjust, the loss was in fact suffered and causation arguably established. 82There is a rich case law under the Contracts Review Act, but none of it is relevant at this stage. An authority which would preclude a finding of unjustness would be relevant, but none was relied on. The very imprecision of the statutory standards militates against dismissing such a case summarily. 83There remains the question of delay. There is no doubt that there was significant delay; the applicant, however, seeks to account for the delay by the continuing effect of the duress and his own psychological conditions. He also asserts that there has been no prejudice to the Bank. Although there would appear to be prejudice at least to the extent of the costs incurred by the Bank in seeking to enforce its judgment, the other matters are all questions of fact which should be addressed by the trial court. That has not happened. For these reasons, the delay should not result in this Court declining to require the trial court to consider the merits of the application to set aside the summary judgment, subject to any discretionary considerations raised before it. 84These conclusions should lead to the following orders: (1) Grant leave to appeal. (2) Direct the applicant to file a notice of appeal in the terms of the draft notice contained in the white folder. (3) Set aside the orders made in the District Court and remit the matter to that Court to hear and determine the application to set aside the summary judgment on the basis that there is an arguable case for relief under the Contracts Review Act. (4) Order that the respondent pay the applicant's costs in this Court. 85WARD JA: I have had the opportunity to read in advance the draft judgments of each of McColl JA and Basten JA. 86I agree with McColl JA that the appellant's proposed fraud and duress defences are not fairly arguable in law for the reasons that her Honour sets out. 87However, like Basten JA, I consider that the draft defence and cross-claim on which the appellant seeks to rely raises an arguable defence to be considered under the Contracts Review Act 1980 (NSW) as to whether the contract pursuant to which the respondent provided banking services to the appellant, insofar as it incorporated general terms and conditions permitting the drawing of uncleared cheques, was unjust in the circumstances relating to the contract at the time it was made. As McColl JA notes (at [45]), when considering an application to set aside default judgment the court must be satisfied that there is a bona fide arguable defence. It does not determine the factual merits of the defence. Quirk DCJ's reasons focus on whether there was an arguable defence based on fraud and duress, without separately addressing whether the proposed Contracts Review Act defence was arguable on the facts pleaded by the appellant. 88Without commenting on the hypothetical arguments canvassed by each of McColl and Basten JJA in their respective reasons, as to whether the incorporation of the impugned policy might or might not be not unjust in particular circumstances, the availability of such arguments illustrates in my opinion that the case sought to be advanced by the appellant raises an arguable defence. Whether or not it might ultimately succeed is a different issue, on which I express no opinion. 89I share McColl JA's concern as to the delay in the making of the application to set aside the default judgment. However, this was not the basis on which the application was dismissed and it is not appropriate to express a view on this in circumstances where it will no doubt fall to be considered on the remittal of the matter to the District Court. 90I agree with the orders proposed by Basten JA.

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: 24 February 2014