Gajic & Anor v Poyser [2007] VSCA 175

**2 Before examining the appellants' arguments in support of their grounds of appeal, it is necessary to set out briefly the circumstances giving rise to the proceeding. The appellants are a married couple, although it seems that they are now estranged. At all relevant times they resided at 36 Curlew Point Drive, Patterson Lakes ("the property") which, in September 2004, was valued at $1.25 million. The sole registered proprietor of the property was the second appellant. According to the affidavit of the first appellant sworn on 4 August 2006, the property was registered in the name of the second appellant in order to protect him from potential claims by his creditors in relation to business interests. At the time of the dealing between the parties as will be described, the property was encumbered by a number of securities - two mortgages and four caveats - in respect of the then existing loans that related primarily to the first appellant's business.

3 In September 2004 discussions took place between, on the one hand, the first appellant, the appellants' then solicitor, Mr Zindilis, and their financial advisors, and on the other, Wainwrights, the solicitors for the respondent, in respect of a loan of $200,000 that was sought by the first appellant on the basis that it would be made to the second appellant on the security of a second mortgage over the property. It was proposed by the first appellant that the money would then be on lent to him. In the result, the second appellant executed the following documents on or about 21 October 2004:**

(a) A form of acceptance, dated 29 September 2004, in respect of the offer of a loan of $200,000 from the respondent contained in Wainwrights' letter of that date. The primary interest was to be 18 per cent per annum payable wholly in advance. A condition of the loan was that the National Australia Bank would advance to the second appellant $747,000 by way of a first mortgage loan. The form, as signed by the second appellant, stated that she had "read, understood and [accepted] all the terms and conditions of the [letter of offer]".

(b) A (second) mortgage to secure the above loan over the property in favour of the respondent which stated, inter alia, that the date of repayment of the loan was 31 October 2005.

(c) A statutory declaration relating to the mortgage in which the second appellant acknowledged that:

- she was the registered proprietor of the property

- she was seeking a new second mortgage loan of $250,000 (inclusive of interest) to be secured over the property for the purpose of paying out existing mortgages and the monies claimed under the four existing caveats lodged in respect of the property

- the existing loans secured over the property were predominantly in respect of the first appellant's business debts

- she had read the mortgage documents, and that their legal effect has been explained to her by her "Legal Practitioner" and that she fully understood "all the terms and conditions of my new loan".

(d) The solicitor's certificate provided by Mr Zindilis in respect of the loan in which he certified, amongst other matters, that he had explained to the second appellant, before she signed the relevant documents, their general nature and effect "including the risk of loss of any security property and other assets owned by the Borrower". He went on to state that -

"Following the above explanations, the borrower stated to me:

• [she] understood the general nature and effect of the documents. It appeared to me that [she] did have such understanding.
• That [she was] signing those documents freely, voluntarily and without pressure from any other person."

The second appellant then certified that she had read the certificate and that the information in it was true.

4 Following the execution of these documents, $250,000 (from which interest was deducted by Wainwrights) was advanced to the second appellant on behalf of the respondent and, not long thereafter, an Epitome of Mortgage was forwarded to the second appellant by Wainwrights which relevantly stated:

"(1) The loan is repayable on the 31st October 2005.

(2) The interest is payable wholly in advance, the interest for year ending 31 October 2005 having been deducted from the loan monies."

**5 On 22 September 2005 Wainwrights wrote to the second appellant, noting that the second mortgage loan was due for repayment by 31 October 2005 and requesting details of the likely payment. Almost by way of response, on 27 October 2005, Wainwrights received a fax from Mr Zindilis that stated that "an extension of 30 days is requested to refinance". Wainwrights sought certain information from Mr Zindilis in respect of this request, but that was not provided. Instead, on 23 November 2005, Mr Zindilis forwarded a fax to Wainwrights stating that "an extension of three months is requested @ the same rate of interest and it is proposed that if after two months the borrower is not able to provide proofs of refinancing then your firm will be instructed to totally refinance the property with of course all commission and costs payable to you." This request was refused by way of a letter of 28 November 2005 from Wainwrights to Mr Zindilis (with a copy being sent to the second appellant). In early December 2005 Wainwrights informed Mr Zindilis that they had received instructions from the respondent to commence legal proceedings for the recovery of the monies advanced under the second mortgage. In the result, a Notice to Pay was issued, requiring payment of the loan monies together with penalty interest - a total of $257,657.15 - within seven days failing which the respondent would exercise his rights under the mortgage. No payment was made by the appellants pursuant to the Notice and, on or about 8 February 2006, Wainwrights served on the appellants a Notice of Possession in respect of the property. The appellants did not relevantly respond to that Notice and, in the result, by writ filed in the Supreme Court on 7 March 2006, the respondent instituted the proceeding for possession of the property. On 7 April 2006 the appellants filed an appearance through their then new solicitors, Radebe & Associates. On 11 May 2006, as I have noted, a default judgment was entered against the appellants entitling the respondent to recover possession of the property, and on 19 May 2006 he issued a warrant of possession.

6 By summons dated 15 June 2006 the appellants applied to set aside the default judgment. In the result, interlocutory orders were made staying the execution of the writ of possession and the default judgment. As has already been explained, the appellants' application to set aside the default judgment was refused and the appeal against that decision was dismissed by the learned primary judge. In support of their application to set aside the default judgment the appellants filed three affidavits, each sworn by the first appellant on 15 June, 6 July and 4 August 2006 respectively. No affidavit or other material was filed by the second appellant. The respondent relied primarily on two affidavits of Bruce Wainwright, the principal of Wainwrights, sworn 24 July and 9 August 2006 respectively.**

**7 A number of matters were not in dispute. Thus, it is common ground that the monies were advanced as described, that the documents in question were duly executed by the relevant parties and that no part of the capital or default interest has yet been paid by either appellant. It is also the case that the appellants remain in occupation of the property. It was candidly accepted by their counsel that if an appropriate notice of possession was now served on the appellants they would have no defence to it.

8 The appellants' counsel also seemed to accept, rightly, I think, that in order to succeed in their application they would have to establish that they had at least an arguable defence on the merits. Although the court has a discretion to set aside a default judgment that has been regularly obtained[2] - and it was not argued before us that the judgment was irregular - ordinarily the court will not set aside a default judgment if the defendant has no possible defence on the merits because to do so would be an exercise in futility.[3] The appellants contended before us, as they did below, that they had two possible defences to the respondent's claim for possession. The first and primary defence[4] was based on a claim that, at or about the time of the execution of the mortgage documents, Mr Wainwright, on behalf of the respondent, agreed that the appellants could "roll over" the loan for a period of up to 12 months after 31 October 2005. The appellants exercised that right of extension, so it was said, so that the respondent had no right to possession of the property at the time of the claim or the hearings below. Alternatively, it was said that there was no entitlement to possession because Mr Wainwright had falsely represented to the appellants that they would be entitled to roll over the loan for up to one year and the appellants had acted upon that representation. The second defence[5] was said to have been based on the principles recognised in Commercial Bank of Australia Ltd v Amadio[6] and Garcia v National Australia Bank Ltd,[7] namely, that the court may refuse to enforce a right where it has been obtained by unconscionable or unfair conduct on the part of the claimant in respect of the defendant who was, at the relevant time, under a special disability. It was claimed that, here, the respondent - through his agent Wainwrights - behaved unconscionably in relation to the second appellant by procuring her to execute the mortgage and related documents in circumstances where Wainwrights knew that she could not read the English language and had only a poor understanding of it such that, without assistance and explanation, she would not comprehend the nature and effect of the mortgage and that she was likely to act on the directions of the first appellant who may not adequately explain the documents to her. It was said by the first appellant that the contents and operation of the mortgage had in fact not been explained to his wife before she signed the documents in question and that she did so essentially at his direction. Thus, it was said for the appellants, they had at least arguable defences that required the default judgment to be set aside.**

Alleged error as to finding relating to misrepresentation defence

**9 As has been noted, the Master and the learned primary judge concluded that the appellants' material did not disclose an arguable defence. His Honour considered that, in order to establish that the misrepresentation defence was arguable, the appellants had to satisfy the court that they had an arguable right to extend the loan for a period of 12 months. He concluded that on the material the appellants had not made out a defence of that character.

10 The appellants contended before us that in considering whether the material established an arguable misrepresentation defence, his Honour erred in at least one of three ways. First, it was claimed, his Honour impermissibly sought to determine the merits of the misrepresentation defence for himself and to resolve factual matters that were in controversy between the parties. Secondly, counsel argued, in the course of doing so, his Honour misdirected himself as to the extent to which he could critically analyse the appellants' material by applying what was said in that regard by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd[8] ("Eyota") to which reference will be made later. Thirdly, and in any event, it was said, his Honour wrongly concluded that the misrepresentation defence was so devoid of merit as to refuse to set aside the default judgment. I now turn to consider the arguments in relation to the claimed errors.**

Claimed error in seeking to determine merits of defence

**11 In support of the claim that his Honour impermissibly sought to resolve the merits of the proposed defence and factual issues rather than merely seeking to decide if the material disclosed an arguable "misrepresentation" defence, the appellants' counsel pointed out, correctly, I think, that there was a significant conflict in the evidence of the parties on the "roll over issue". The appellants' evidence as to the making of the claimed roll over agreement, or the misrepresentation, became progressively more elaborate in the first appellant's successive affidavits. Thus, in his first affidavit the first appellant's only reference to the matter was his assertion: "The term of the loan was one year, however my wife and myself were informed by the [respondent] that the term of the loan could be extended". In his second affidavit, the first appellant claimed that, shortly before the second appellant signed the Letter of Offer, Mr Wainwright agreed that the loan could be extended for another year and that, in reliance on that representation, he procured his wife to sign the Letter of Offer. No doubt in order to explain the absence in the Letter of Offer of a reference to this "right of roll over", the first appellant essentially said in his second affidavit that he did not require the "roll over" term to be included in the Letter of Offer because by the time the agreement to that effect was concluded, the Letter of Offer had been drawn and that he "trusted" Mr Wainwright (and the respondent) to adhere to the promise. No explanation, however, was provided by the first appellant as to the absence from the terms of the mortgage of the claimed right to "roll over" the loan. Be that as it may, the first appellant asserted in his second affidavit that, in March or April 2006, Mr Wainwright acknowledged that he had "represented" to him that the loan could be rolled over. It was on the basis that this representation, claimed the first appellant, that in late 2005 he made no "arrangement to repay the loan within a year".

12 In his third affidavit, the first appellant again said that Mr Wainwright told him at the time of the negotiations for the loan that it could be rolled over by the appellants for another year, that he, the first appellant, was "happy to accept his word" and that it was on the basis of that representation that he procured the second appellant to sign "the mortgage papers". He also claimed that in early 2006 he "insisted" to Mr Wainwright that the promise to roll over the funds be implemented and that, in response, Mr Wainwright said that, although he could not obtain a renewal of the loan, he would procure replacement moneys from another source. I mention for completeness that the first appellant also said in his third affidavit that, after the writ had been served, Mr Wainwright told him that he would not take "any further legal action against the [appellants] whilst he endeavoured to obtain other loan funds to pay out the [respondent]". In light of these promises, the first appellant alleged, he assumed that the problem "had been fixed" and that it would be unnecessary for him to file a defence.

13 In his affidavits sworn 24 June and 9 August 2006, Mr Wainwright denied making the alleged "roll over" promise to the first appellant, or offering to obtain substituted funds after the expiration of the loan, or telling the first appellant that the proceeding would not be pursued. He said that there were no discussions between the parties about extensions, or roll over, of the one year loan until a request was made for a 30 day extension as has been mentioned.

14 The appellants' principal attack on his Honour's impugned conclusion, as has been noted, was that he purported to determine the merits of the appellants' "misrepresentation" defence by impermissibly seeking to resolve the above conflict in the evidence. Counsel stressed that the resolution of the conflict depended principally on the acceptance or otherwise of the credibility of the two deponents. This was plainly a matter for trial, said counsel, and not for summary resolution. It was argued for the appellants that, although the judge acknowledged in his reasons that it was "inappropriate for the court to determine where the truth lies in an application of this character", he nevertheless proceeded to determine, in effect, that the first appellant's relevant evidence was not credible without affording the appellants the right to cross-examine Mr Wainwright. Thus, it was submitted, his Honour made the same legal error that was identified in Lau v Citic Australia Commodity Trading Pty Ltd[9] ("Lau") to which reference will be made later.

15 The principles that govern the determination of an application to set aside a default judgment and, in particular, the primary function of the court in that context, are not in much doubt. They were recently summarised by Winneke P in Lau.[10] His Honour said that an applicant who seeks to invoke the discretion of the court to set aside a default judgment that was entered regularly -**

"... must demonstrate to the Court grounds upon which the discretion ought to be exercised in his favour. The primary consideration for the judge is that there are merits in the defences to which the Court should pay heed. If there are merits in one or more of those defences the Court will ordinarily exercise its discretion in favour of allowing the matter to pass to final adjudication, provided that the applicant shows that he has an adequate explanation for his failure to file a defence. ... It is not for the judge, on an application of this nature, to determine the merits of the defence for himself or to seek to resolve factual issues which might at that stage appear to exist on the materials before him."

The principal error that was made by the primary judge in that case, said his Honour, was that he "embarked upon a trial of facts, and more particularly the credibility of Lau, in coming to the conclusion that the defence was unarguable".[11] The line was impermissibly crossed by the trial judge, said Winneke P, primarily because he assessed the credibility of the testimony of the person alleging that he has an arguable defence.

16 A like view was expressed by Street ACJ in Reinehr Industrial Lease & Finance Pty Ltd v Jordan,[12] namely, that in an application to set aside a default judgment:

"... the court is concerned rather to evaluate such evidence as is put forward in order to see whether, in the interests of justice, a defendant, who has for some procedural default been deprived of a right to due determination of his defence, should nevertheless be put back into the position of enjoying that right. This necessarily involves care being taken not to embark upon attempted resolutions of conflicts in evidence given by a defendant who may have been cross-examined during the course of an application to set aside a default judgment".

17 I consider, however, that his Honour did not impermissibly cross the line between, on the one hand, assessing with care whether an arguable defence has been established and, on the other, seeking to determine the credibility of particular deponents or the merits of the claimed defence. His Honour said in his reasons that he accepted that his task was confined to determining whether "there are merits in the defence - rather than determining the merits of the defence or seeking to resolve factual issues". It is true that his Honour went on to say that this "[did] not mean that the court must accept uncritically as giving rise to a genuine dispute every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents, or other statements by the same person, or inherently probable".[13] But it does not follow from this observation, or from the reasons read as a whole, that his Honour impermissibly sought to resolve the matters as is claimed by the appellants. There may have been some force in the appellants' case on this issue if the contest were confined to "oath against oath" where, for example, the opposing parties swore affidavits giving different versions of the one event. In those circumstances, it may be that absent cross-examination and a trial it could not be fairly determined if the appellants' claim was arguable. But that was not this case. The relevant evidence as to whether the representation was made was not confined to that of the first appellant and Mr Wainwright. In coming to the impugned conclusion, his Honour took into account, as contradicting the first appellant's material, not so much what was said by Mr Wainwright, but the documentary evidence, including Mr Zindilis' certificate, and objective surrounding circumstances that clearly pointed against there being a roll over agreement or representation as was contended for by the first appellant in his affidavits. I will refer to this material later when I deal with the appellants' claim that his Honour erred in concluding that the material did not establish a prima facie case that the "roll over" representation as made.

Claimed misdirection as to extent of analysis of material

**18 I now turn to examine the appellants' claim that his Honour wrongly applied the abovementioned observations of McLelland CJ in Eq in determining whether there was a genuine dispute between the parties. It was said for the appellant that what was said in Eyota[14] was not relevant to the present situation because that was done in the context of setting aside a statutory demand under the Corporations Law, which reflected policy considerations that were not applicable here. But it seems to me that the enquiry with which McLelland CJ in Eq was concerned was not materially different from that undertaken by his Honour. In both cases the question was whether the claimant had made out an arguable dispute, in one case in relation to the existence of a debt and, in this case, as to the existence of an alleged promise or representation. If the court was bound to accept, without question, every assertion by a defendant as to the existence of circumstances that are said to give rise to an arguable defence, the court would have no meaningful role to play in determining whether, in the exercise of its discretion, the default judgment should be set aside. On the appellants' case, it would be sufficient for a defendant merely to assert facts which, on their face, gave rise to a defence in order to have the default judgment set aside notwithstanding that objective evidence makes it apparent that the assertions are, or border on being, untenable. Moreover, that the approach adopted by McLelland CJ in Eq and by his Honour in this case is of general application is made apparent by the observations of the Privy Council in Eng Mee Yong v Letchumanan to which reference has been made.[15]

19 In the circumstances, I consider that his Honour made no error in the manner in which he examined the first appellant's claims.**

20 I am also of the view that his Honour made no error in concluding that the appellants had not established an arguable misrepresentation defence. The following objective facts, not set out in order of importance, point against there ever having been a representation or agreement of the kind alleged by the appellants. First, when repayment of the loan was first sought by the respondent the appellants effectively accepted that the loan became due on 31 October 2005. They did not insist on or assert a right of extension of the loan but, as has been noted, through their then solicitor, asked for an extension of it, first for 30 days and then three months. Secondly, all the relevant mortgage documents make it plain beyond reasonable doubt that the loan was for one year only, repayable on 31 October 2005. Next, as his Honour pointed out, there was an inherent improbability that there was a roll over agreement as alleged without there being a requirement by the respondent that interest for the second year be paid in advance and there was no evidence that there was such a request. I also consider that the fact that the allegation of the existence of a roll over right was strongly disputed by Mr Wainwright was not an irrelevant consideration. Moreover, the solicitor's certificate strongly indicates that the second appellant knew that she borrowed the money only for 12 months, and the absence of evidence from him and her to the contrary, and a lack of explanation why they did not give evidence, confirms, I think, that the agreement was confined to the period set out in the documents and the contention by the first appellant that there was a "side agreement" about the roll over is so inherently improbable that it is unsurprising that his Honour considered that the appellants failed to establish an arguable defence based on the claimed misrepresentation.

**21 The appellants further argued that, in any event, his Honour made a fatal error in respect of the Amadio defence, in that he made no mention of it in his reasons, thereby demonstrating either that he failed to consider it or, if he had, he failed to give reasons for his implied rejection of it. On either basis, it was claimed, there was relevant error so that the default judgment should be set aside.

22 In my view, however, no vitiating error exists arising out of the judge's failure to deal, in terms, in his reasons with the Amadio defence. I consider that this claim, as framed by the appellants, is hopeless and it is unsurprising that it was not pressed before us by counsel with his usual vigour and enthusiasm.

23 The claim of unconscionable conduct on the part of the respondent was based in large part on the mere assertion by the first appellant that the second appellant had no ability to read English and that she was not provided with legal advice about the effect of the mortgage prior to its execution. As has been noted, this claim was made in the face of documentary evidence before the court to the contrary, more particularly, the solicitor's certificate and the statutory declaration to which reference has been made. Importantly, as has also been mentioned, neither Mr Zindilis nor the second appellant gave evidence and no explanation was given why that was so. It is true that in an interlocutory application of this nature hearsay evidence - which is what most of the first appellant's evidence on this issue was - is admissible, but the question of what weight should be accorded to it is a different matter. The claims by the first appellant that the second appellant executed the documents without explanation as to their operation by Mr Zindilis and without understanding them, and at the mere behest of the first appellant, are obviously of a serious and contentious nature and no reason has been advanced by the appellants as to why the second appellant and Mr Zindilis could not have given evidence about those matters. In the circumstances, I think, the first appellant's evidence amounts to no more than mere assertion which does not raise the claim based on unconscionable conduct to the level of an arguable defence. In my view, this conclusion is so obvious that it might be said that his Honour did not consider it necessary to spell it out in his reasons. But if the better view is that his Honour's silence in his reasons on this issue indicates that he had failed to consider it, no injustice flows from this error because, as I have said, it is apparent that this aspect of the appellants' case fails to**

disclose an arguable defence. The same result can be said to apply if it is assumed that his Honour erred in failing to provide reasons for rejecting this claim.

24 For the above reasons, I would dismiss the appeal.

25 I agree with Chernov JA, for the reasons which his Honour gives, that this appeal should be dismissed.

26 For the reasons given by Chernov JA, I would also dismiss the appeal.

[1] Poyser v Gajic [2006] VSC 380.

[2] Rule 21.07 of the Rules of the Supreme Court.

[3] Bayview Quarries Pty Ltd v Castley Development Pty Ltd [1963] VicRp 64; [1963] VR 445, 446-447 (Sholl J).

[4] Called for convenience "the misrepresentation defence".

[5] Called for convenience "the Amadio defence".

[6] [1983] HCA 14; (1983) 151 CLR 447.

[7] [1998] HCA 48; (1998) 194 CLR 395.

[8] (1994) 12 ACSR 785, 787.

[9] [1999] VSCA 34.

[13] As has been noted, in support of this approach, his Honour cited the observations to this effect by McLelland CJ in Eq in Eyota (1994) 12 ACSR 785, 787 where his Honour referred in that context to Eng Mee Yong v Letchumanan [1980] AC 331, 341, a case in which the Privy Council came to a like view in relation to the "vague, self-contradictory and implausible assertions" of a caveator who unsuccessfully sought the removal of the caveat.

[14] (1994) 12 ACSR 785.