Goater v Commonwealth Bank of Australia

Court of Appeal (NSW)|2014-10-23|Before: Basten JA, Gleeson JA, Davies J

Principal judgment Parties: Shirley Goater (First Applicant) Terrence Goater (Second Applicant) Commonwealth Bank of Australia (Respondent) Representation: Counsel: Mr N. Hill (Solicitor) (Applicants) Mr AC Casselden/Ms N Dewan (Respondent) Solicitors: Australegal (Applicants) Gadens (Respondent) File Number(s): CA 2014/182391 Decision under appeal Jurisdiction: 9111 Citation: Commonwealth Bank of Australia v Goater [2014] NSWSC 652 Date of Decision: 2014-05-22 00:00:00 Before: Davies J File Number(s): SC 2012/332699

HEADNOTE [This headnote is not to be read as part of the judgment] Mr and Mrs Goater ("the borrowers") defaulted on their mortgage to the Commonwealth Bank of Australia ("the Bank"). The borrowers lodged a complaint with the Financial Ombudsman Service. The complaint was terminated by an agreement between the borrowers and the Bank. The borrowers were required to comply with a schedule of repayments of their accounts and the Bank was to be informed about payments to the local council. The borrowers were to be given a seven-day reminder notice if there was a breach of the agreement, followed by a further seven-day notice if proceedings were to be commenced. On 27 November 2013, a notice was sent to the borrowers by the Bank that they had breached the agreement by failing to pay their water rates to the local council and that proceedings were to be commenced. The borrowers did not immediately respond to the notice or seek advice, resulting in a failure to file a defence to the Bank's claim within time to prevent the Bank applying for default judgment. A belated attempt to file a defence failed to prevent a default judgment being entered; in due course a writ of possession was issued and executed, the borrowers being evicted. An application to the Supreme Court by the borrowers to set aside the default judgment was rejected on the basis that there was no power to set aside the judgment once the writ of possession had been executed. The Court (Basten JA, Gleeson JA and Sackville AJA) held, granting leave to appeal and setting aside the default judgment:

Judgment 1BASTEN JA: Mr Terrence Goater is the registered proprietor of two parcels of land in Frome Street, Moree. The land was mortgaged to the Commonwealth Bank of Australia ("the Bank") as security for an overdraft facility and a business loan. The business loan was provided to Mr Goater and his wife, Shirley Goater, jointly in June 2007. The overdraft facility was made available to Mrs Goater. 2The borrowers being in default of their obligations under the two facilities, the Bank, issued a notice under the Real Property Act 1900 (NSW), s 57(2)(b). There being no response to the notice, on 23 October 2012 the Bank commenced proceedings in the Common Law Division by a statement of claim seeking judgment for the outstanding debts, possession of the land, and leave to issue a writ of possession. 3On 24 October 2012 the borrowers lodged a complaint with the Financial Ombudsman Service, which permitted a form of "alternative" dispute resolution. In accordance with the terms of reference under which the Financial Ombudsman operated, the Bank was required not to take further enforcement action whilst the complaint remained open. The dispute resolution process continued for a year, ending with an agreement signed by the borrowers and headed "Resolution and Release Agreement", but generally referred to in the proceedings as the "FOS agreement". The terms of the agreement and its legal effect lie at the heart of the present appeal and will be addressed shortly. 4On 27 November 2013 the Bank issued a notice to the borrowers stating that they were in default of the terms of the FOS agreement and, if the default were not rectified within seven days, the Bank would "continue with enforcement action 14 days after the date of this letter which is 11 December 2013." 5The statement of claim issued on 23 October 2012 had not been served. On 29 November 2013, the Registrar, on the Bank's application, extended the time for service of the statement of claim until 28 February 2014. The borrowers not having responded to the notice of default under the FOS agreement within the time prescribed by the notice, the Bank caused the original statement of claim to be served personally on them on 30 January 2014. (The affidavit affirming the contents of the statement of claim was sworn on 19 October 2012.) 6On 28 February 2014 (one day after the time for filing a defence had expired) the Bank filed a notice of motion seeking default judgment against the applicants. Judgment was entered on 7 March 2014, as against Mrs Goater, in an amount of $368,039.79 and, as against Mr Goater, in an amount of $322,223.56, together with an order for possession of the properties. 7On 17 March 2014 the Bank filed a motion seeking a writ of possession, which was duly issued. On or about 3 April 2014 the Sheriff served notices to vacate the property by 13 May 2014. The eviction took place at about 3pm on that day, at about the time that a solicitor for the borrowers approached the Court seeking a stay of the evictions. The Bank was notified that the matter would be listed before the Registrar at 4pm, at which time the Registrar was told that the evictions had taken place and no stay was ordered; however, the notice of motion was stood over to 20 May 2014. On 22 May 2014 it came before Davies J and was dismissed: Commonwealth Bank of Australia v Goater [2014] NSWSC 652. 8The notice of motion sought both a stay of the evictions and an order setting aside the default judgment. The evictions having taken place by the time the matter came before Davies J, the refusal of a stay of the evictions was inevitable: there was nothing left to stay. That aspect of the decision made on 22 May is uncontroversial; on appeal the borrowers challenged the refusal of the trial judge to consider the motion to set aside the default judgment.

Decision of trial judge 9Davies J identified a number of matters which were potentially relevant to (a) whether the breach of the FOS agreement relied upon by the Bank had occurred, (b) an attempt by the borrowers to file a notice of motion seeking a stay and challenging the default judgment almost two weeks before the evictions took place and (c) evidence of attempts to obtain legal assistance for a period which would in part have explained the delay on their part in seeking appropriate relief. However, the judge did not dispose of the matter on the basis of these issues: rather, he held that the borrowers could not succeed because the writ of execution had been executed and they had been put out of their property: at [17]. The judge referred to a decision of Johnson J to the effect that where a writ of possession has been executed it is "as a matter of law" too late for a defendant to be let back in to defend the proceedings: Perpetual Ltd v Kelso [2008] NSWSC 906. That reasoning was followed in JP Morgan Trust Australia Ltd v Bridge [2013] NSWSC 668 at [21] (Harrison J). 10The trial judge accepted the statements of principle as "entirely supported by the principle of finality which governs judgments of the Court": at [22]. While considering the result "very unfortunate" for the borrowers, he found himself unable "under the law as it now stands, to make any order which enables them now to challenge the judgment of the Court": at [23]. 11The trial judge then returned to consider evidence that the borrowers had not "acted with any real sense of urgency", but concluded at [36]: "Even putting these matters aside those appearing for the [borrowers] were not able to point to any power in the Court to reinstate their possession of the property in circumstances where the writ has been executed."

Challenge to reliance on principle of finality 12There is something unsettling about the proposition that an erroneous judgment cannot, as a matter of law, be set aside once the orders have taken effect. Generally, orders of a superior court are likely to take effect long before any appeal can be heard and determined. Lodging an appeal does not usually carry any entitlement to a stay. If the effect of obedience to a court order cannot readily be reversed, a stay may well be granted, but that is to protect the practical value of the right of appeal, not because as a matter of law the appeal could not be upheld once the orders had been satisfied. By parity of reasoning, the failure to grant a stay where a stay would have been appropriate cannot deprive an appellate court of the legal power to set aside an erroneous judgment: the practical consequences of reversal may be another matter. 13There is no reason why this reasoning should not apply with respect to a judgment affecting ownership of land. If the land were sold pursuant to a power of sale before the judgment was reversed, it might well be impossible for the successful appellant to recover the property, but that problem does not arise in this case. The property has not been sold and the Bank has agreed not to exercise its power of sale pending determination of the appeal. 14The proposition that, as between the Bank and the borrowers, this Court would not be able to grant necessary relief in the event that the underlying judgment were to be set aside would be startling. That issue was addressed by the Court in United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) 68 SR (NSW) 331, a case where tenants had been unlawfully ejected from premises of which they had a continuing entitlement to possession. Sugerman JA stated at 344, after noting that the relevant judgment should be set aside: "In the result, and for the reasons stated, the judgment for the claimant in ejectment and the writ of habere facias should be set aside in each of the four cases. That is sufficient relief in the cases of the applicants ... against whom the writ has not been executed. The applicant Smart has, however, been put out of possession and we should therefore award a writ of restitution (Cole on Ejectment, p 349) but for the circumstance that counsel for the applicant informs us that somebody else, who is not a party to these proceedings, is now in possession. In these circumstances... I think we should leave the applicant Smart to move before a judge in chambers for such relief as he may be advised upon service on the person now in possession." (See also Walsh JA at 350-351.) 15The Bank sought to resist this conclusion by reliance on the judgment of Mason CJ in Evans v CBFC Ltd (1993) 68 ALJR 125. The decision concerned an application for a stay of execution of a writ of possession, pending determination of an application for special leave to appeal. Having considered the history of the proceedings in this Court and the proposed grounds of appeal, Mason CJ characterised the applicant's prospects of ultimate success to be "negligible": at 126. Relevantly for present purposes, the Chief Justice stated at 126, col 2D: "There is a further element in the present case that creates a formidable obstacle in the way of granting of the stay sought. The writ for possession was executed on 1 December 1993. The applicants asked that I terminate the operation of the writ and they seek orders from me - that have not been formulated - which would enable them to stay in possession and would, presumably, be intended to exclude the respondent from possession. For my part, I doubt that it is within my power to make any order that affects the execution of the writ. The execution of the writ has taken place and stands for better or for worse. What has been done in that respect, pursuant to the authority of the primary judge, is something that must stand unless and until it is set aside on appeal." 16This passage does not assist the Bank. First, it affirms the uncontestable proposition that a stay cannot undo that which has been done. Secondly, and contrary to the Bank's contention, the last sentence expressly recognizes the possibility that the applicant might have been able to recover possession if successful on appeal. 17Finally, it is by no means clear what "principle of finality" is being invoked to deny the court power to reopen a judgment. The proper starting point for any such consideration is the effect accorded by law to the formal step of entering orders. The law in that regard, it should be emphasised, deals not with undoing that which has been done under an order, but reopening the orders themselves. Although this Court has what is sometimes described as "inherent power", it has long been held that this Court does not, except in the case of fraud, have power to recall and reopen orders which have been entered (or, in the older terminology, perfected): Bailey v Marinoff [1971] HCA 49; 125 CLR 529 at 530 (Barwick CJ); Gamser v Nominal Defendant [1977] HCA 7; 136 CLR 145 at 154 (Aickin J); DJL v The Central Authority [2000] HCA 17; 201 CLR 226 at [38] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ). That is equally true of single judges in the divisions. But that principle is subject to statutory variation. 18The proper starting point for considering the present position is the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"). Entry of a judgment or order of the court is a critical step in the resolution of a claim. A judgment or order "may not be enforced until it has been entered in accordance with the uniform rules": Civil Procedure Act, s 133(1). The rules provide that a judgment or order "is taken to be entered when it is recorded in the court's computerised court record system": UCPR, r 36.11(2). Part 36, Div 4 deals with setting aside and variation of judgments and orders. The general principle contained within these rules, reflecting the case law referred to above, is that a judgment or order cannot be amended, varied or set aside after it has been entered, except in accordance with the limited exceptions identified in the rules. One exception is where the parties consent: r 36.15(2); another arises where an order was made "irregularly, illegally or against good faith": r 36.15. The relevant rule for present purposes is r 36.16, which provides: 36.16 Further power to set aside or vary judgment or order (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) 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), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order. 19Although the default judgment in the present case has been entered, it was and remains a default judgment not given in open court; it is also a judgment given or made in the absence of a party. Each of the three paragraphs of sub-r (2) are separate and independent bases for setting aside a judgment or order: although only par (c) refers to proceedings for possession of land, and deals with a matter which does not arise in the present case, its limited operation does not by implication restrict the operation of pars (a) and (b). 20It is evident that the principle of finality does not arise until a judgment of the court has been entered pursuant to r 36.11(1), requiring entry. The principle is then qualified by the express terms of the rules: it is not some brooding omnipresence which destroys the express term of the rules. Thus, in the present case, the Court has power to set aside the default judgment: the trial judge was wrong to deny the existence of that power. The only question was whether it should exercise the power in the circumstances of the particular case. In the course of oral argument counsel for the Bank accepted that conclusion: CA Tcpt, 23/10/2014, pp 20-21.

Whether judgment and orders properly made 21There is no dispute that the borrowers were in default of their contractual obligations at the time they were given notice under the Real Property Act, s 57(2)(b) and at the time the statement of claim was issued. 22A consideration of whether the default judgment should be set aside depends on (a) whether the circumstances entitling the Bank to obtain judgment existed when it sought to enter judgment and (b) whether necessary procedural steps had not been taken which should have precluded judgment by default. The first issue concerned the scope of the parties substantive obligations and the effect of the FOS agreement.

(a) entitlement to judgment 23The Bank had no entitlement to enter judgment on the statement of claim issued in October 2012 until it was served in January 2014. In the meantime, two events had occurred which affected the right of the Bank to proceed with enforcement action. The first was the lodgement of the complaint with the Financial Ombudsman Service. It is accepted by the Bank that this step suspended the Bank's entitlement to take any steps of present relevance by way of enforcement of its entitlement under the mortgage. It is also common ground that the period of suspension ended with the signing of the FOS agreement. The second event was the execution of the FOS agreement, which terminated the complaint. 24These events were not in dispute: what is less clear is the effect of the FOS agreement. The position implicitly adopted by the Bank was that for as long as the borrowers complied with their obligations under the FOS agreement, the Bank was obliged not to proceed with enforcement action in the courts. If that position were to be accepted, it would seem that, by January 2014, the Bank's entitlement to proceed against the borrowers depended not merely upon their default under the mortgage, but also upon their default under the FOS agreement. The statement of claim made no such allegation, but the proposed defence raised, in a manner to which reference will be made below, the absence of any failure by the borrowers to comply with the FOS agreement. 25There was a second question with respect to the FOS agreement: if the Bank were able to rely upon non-compliance by the borrowers, was the Bank nevertheless required to comply with its own procedural obligations under the FOS agreement before continuing with enforcement action? This is not an hypothetical question: for reasons which will be explained shortly, the evidence indicates that the Bank did not comply with its procedural obligations. 26A third issue arose with respect to the terms of the FOS agreement. Under the agreement the Bank was "to capitalise the current arrears owing on the [business loan]" and to reduce the borrower's debt on their MasterCard account by $5,000, "as a goodwill gesture", and not to charge any "new interest and fees" on the MasterCard account. If these new financial arrangements affected the moneys outstanding under the business loan and the overdraft account, were such benefits to be retained by the borrowers in the event of default by them, or was the financial situation to revert to the pre-FOS agreement position, if they defaulted at any time (which, given the terms on which the repayments were to be made might have resulted years later)? 27These were questions with which the Court obtained little assistance, from either party. Accordingly, it is undesirable to answer more than is necessary to determine the outcome of the appeal. Nevertheless, because the relief is discretionary and may depend in part on the defences available to the borrowers, some consideration must be given to these issues (which were raised in the course of the hearing).

(b) scope of FOS agreement 28It is convenient to turn first to the content of the FOS agreement. How it came about is not clear from the evidence: there is nothing on the document itself which indicates any involvement of the Financial Ombudsman Service. It appears on Bank letterhead, but is not signed by the Bank. It is in terms not all of which are readily comprehensible. The subject matter of the complaint to the Ombudsman involved a specific issue with respect to a delayed cheque deposit, on which nothing seems to turn for present purposes, and an issue described as "[f]inancial assistance and debt recovery process relating to" the business loan, the overdraft account and the MasterCard account of the borrowers. 29The FOS agreement was entered into without admission of liability by any of the parties. The borrowers agreed to reduce their overdraft facility to a limit of $50,000 by Friday, 25 October 2013 and thereafter keep the account within the limit and make monthly interest payments. With respect to the business loan, the borrowers agreed to make repayments of $2,205 per month commencing on 25 October 2013. They also agreed to repay their MasterCard account in full in seven years, that is by 25 October 2020, by making monthly repayments of $170, starting on 25 October 2013. The balance of the account was to be identified (but was left blank); the need to make extra deposits as and when money was available, to meet the deadline, was recognised. Further, the borrowers agreed "to assist the Bank in obtaining any relevant information from Morree [sic] Council as necessary. The Bank may request the customer to provide this evidence or authorise Moree Council to provide this information to the Bank." 30In addition to the financial concessions noted above, the Bank agreed "to not proceed with any legal action if the customer maintains this arrangement." The Bank's obligations included the following, namely that it: (i) "Will provide a 7 day reminder notice to borrowers if any or all of the arrangements are not met and if the payments are still not met, the Bank will start the realisation process with another 7 days' notice to the borrowers." (ii) "Will confirm with Moree Council a repayment arrangement plan has been agreed between them and the customer and they are maintaining the agreed payments. If Moree Council does not provide this information to the Bank due to privacy issues, the Bank may request the customer to provide this evidence or authorise Moree Council to provide this information to the Bank. The Bank will require this information by 25 October 2013." (iii) "If the Bank receives any Notice of Judgement or Garnishee Order against the borrowers ... and if the Bank does not receive written evidence than [sic] an arrangement has been reached between the borrowers and the creditors within 30 days from the notice, it will be a default on this arrangement and the Bank will proceed to start the realisation process following 14 days' notice to the borrowers." 31The meaning of the term "realisation process" was not self-evident and it was not defined. It may be assumed for present purposes that it included proceeding against the mortgaged property to realise the Bank's security for any secured debt. It is, however, by no means clear that it was intended to refer to existing proceedings in which the amounts claimed might or might not take account of payments made under the FOS agreement, or amounts allowed by the Bank under the FOS agreement. Further, the reference in point (i) to what might happen "if any or all of the arrangements are not met and if the payments are still not met" is uncertain. Of particular concern in the present case is the nature of the "arrangement" with the Moree Plains Shire Council. 32Procedurally, it is clear from point (i) that the Bank could not take enforcement action until two separate notices had been given, one the reminder notice and the other notice that the realisation process was to commence. A somewhat different time schedule was fixed with respect to any notice of judgment or garnishee order against the borrowers, in point (iii). The obligation imposed on the borrowers with respect to the arrangement with Moree Council (with respect to an entirely separate financial obligation) was a critical consideration. On 27 November 2013 the Bank sent a default notice to the borrowers in the following terms: "Default under FOS Agreement You are in default of the terms of the FOS Agreement. Enclosed is a copy of the email from Suzie Treloar of Moree Plains Shire Council (Moree Council) dated 6 November 2013, confirming: 1) that you have failed to comply with the arrangement with Moree Council regarding the outstanding water arrears; and 2) that Moree Council is proceeding with its legal action. Therefore, no arrangement currently remains on foot with Moree Council (being the judgment creditors in [two Local Court proceedings]). Notice of further enforcement action In light of the above default and in accordance with the terms of the FOS Agreement, we put you on notice that in the absence of the above default being rectified within 7 days of the date of this letter which is 4 December 13, we will continue with enforcement action 14 days after the date of this letter which is 11 December 2013." 33The ordinary reading of the Bank's obligation (i) is that two notices were required: the letter of 27 November 2013 purported to provide both notices within the one document. It is at least reasonably arguable that the Bank was in default of its obligations under the FOS agreement in reactivating the Supreme Court proceedings without a second and separate notice. 34Further, the alleged default of the FOS agreement was a failure to make payments with respect to "outstanding water arrears", presumably referring to an obligation to pay arrears of water rates. The letter from the Council officer of 6 November 2013 raises a number of issues in relation to the borrowers, including the assertion that they had "an agreement with us" to pay their rate arrears, which it was said they had complied with since September 2013. The Council officer alleged a separate agreement to pay water rate arrears which they had not complied with. The letter concluded: "Due to non-compliance of the payment of the water debt, the non-compliance of the Exam Order and the current action for unpaid burial costs, our legal action continues." 35The borrowers' obligations set out in clause 3 of the FOS agreement required them to assist the Bank to obtain "any relevant information" from Moree Council or to authorise the Council to provide the information to the Bank. It did not in terms require the borrowers to have any particular arrangement with the Council or make particular payments to the Council. The Bank agreed to "confirm" that a repayment arrangement plan had been agreed and that the borrowers were "maintaining the agreed payments." The Bank required information by 25 October 2013, but made no reference to the need to obtain information thereafter. If confirming the plan was an element of some inchoate obligation on the part of the borrowers under the FOS agreement, there was no evidence that such a step took place. 36While it appears that the Bank wanted confirmation from Moree Council, possibly from time to time, that the borrowers and the Council had an arrangement for payment of outstanding debts, to which the borrowers were adhering, there was no express requirement that the borrowers adhere to such an arrangement as part of their obligations to the Bank. Indeed, with respect to third party debts generally, the indication that the Bank would treat a notice of judgment or garnishee order as warranting the commencement of its enforcement action is, if anything, inconsistent with some lesser failing on the part of the borrowers warranting termination of the FOS agreement. In particular, there is no provision in the FOS agreement for notification of a default with respect to the Moree Council agreements (which appear not to have been known to the Bank at that time). The ordinary reading of the general provision with respect to a seven day reminder notice and a second seven notice would treat it as operating with respect to payments due to the Bank.

(c) status of FOS agreement 37Although the relationship of the FOS agreement to the parties' obligations under the loan facilities and mortgage was not addressed in terms, it was assumed that the terms of the FOS agreement imposed legal obligations on each party. That assumption should be accepted. The Financial Ombudsman Service was established as an independent forum to resolve disputes between financial services providers (which included the Bank) and an individual, where the dispute relates to the provision of a financial service to the individual: Financial Ombudsman Service, Terms of Reference (1 January 2010), pars 4.1 and 4.2. 38Participation in such a scheme is a general obligation imposed on financial services providers with respect to "retail clients" under the Corporations Act 2001 (Cth), s 912A(1)(g) and s 913B(1)(b). It is a condition of the licensing regime that the scheme be approved by the Australian Securities and Investments Commission under s 912A(2). Aspects of the scheme, as set out in the Terms of Reference would seem to be incorporated into the contractual relationship with the customer. 39Pursuant to the Terms of Reference, a financial services provider "must not pursue legal proceedings relating to debt recovery instituted prior to the lodging of the Dispute with FOS save to the minimum extent necessary to preserve the Financial Services Provider's legal rights and, in particular, must not seek judgment in those legal proceedings ...": par 13.1(a)(ii). As has been noted, it appears that the FOS agreement was a result of a dispute being settled, rather than decided by FOS. Paragraph 13.2 of the Terms of Reference provides: 13.2 Settled proceedings Where a Dispute has been lodged with FOS and is subsequently resolved by agreement between the parties, the Financial Services Provider will not instigate or continue legal proceedings to the extent that those proceedings are inconsistent with that agreement. 40The FOS agreement, sparse as its terms were, appeared to constitute a regime for the payment of debts by the borrowers, which, if complied with, was inconsistent with the Bank's entitlement to realise its security according to the terms of the default notice given under the mortgage in September 2012. If there were to be non-compliance with the FOS agreement by the borrowers, the Bank was entitled, subject to following the agreed procedure, to realise its security, although the proper calculation of the debt may then have been uncertain. It is not necessary to resolve that uncertainty in the present proceedings. 41Were the Bank not entitled to proceed against the borrowers in November 2013, absent the borrowers' non-compliance with the FOS agreement, and compliance by the Bank with its procedural obligations under the FOS agreement, the borrowers had a reasonably arguable case that the proceedings were at best premature and should have been stayed. Furthermore, they had a reasonably arguable case that the statement of claim issued in October 2012 failed to identify the necessary conditions permitting the Bank to obtain a judgment in the form sought. 42For the purposes of an appeal against the refusal to set aside a default judgment, it is not necessary (or appropriate) for this Court to determine whether such arguments should ultimately succeed. (There are still potential factual disputes to be resolved.) Nor is it necessary for the Court to identify the contractual position between the borrowers and the Bank, having regard to the original loan, overdraft facility and mortgage, in the light of the subsequent FOS agreement. However, the mere fact that the borrowers have an arguable defence is not an end of the matter: if they have sat on their hands, thereby allowing the Bank to proceed in ignorance of their position, that fact would undoubtedly be relevant to the exercise of the discretionary power to set aside the default judgment. It is necessary to turn to those considerations.

(d) procedural steps 43After the statement of claim was served on the borrowers on 30 January 2014, a financial counsellor acting for the borrowers, Mr John Humphries, sought details from the Supreme Court Registry and was advised, according to his affidavit of 19 May 2014, that "the date for lodging a defence had been extended to 6 March 2014." Although the trial judge assumed that to be the case, there was no such order on the Court's record, JusticeLink. Nor had any application for an extension been made by the borrowers. It is more likely that Mr Humphries was told that a motion for default judgment had been filed on 28 February 2014 and it was anticipated that judgment would be entered on 7 March 2014, if no defence were filed in the meantime. 44There was a volume of unchallenged evidence that both Mr and Mrs Goater arranged for defences to be sent to the Court on 6 March 2014. In an affidavit sworn on 29 April 2014, Mrs Goater swore that she filed a defence by facsimile and that the Bank's solicitor was notified on that day that a defence had been lodged. In a later affidavit (16 May 2014), she stated that her husband had taken the defence to the Moree Courthouse on the morning of 6 March and told her that he had signed the affidavit verifying the defence in front of a justice of the peace, who had then sent the document to the Supreme Court by facsimile. Having reported to Mr Humphries, he was told that his wife also needed to sign the defence and that, consequently, she printed the defence again, took it to the East Moree Post Office, swore the verifying affidavit and sent the defence by facsimile "at around 4pm". She said that a copy of the signed defence was sent by post the same day. 45A copy of the defence was annexed to her affidavit, together with a facsimile log showing that it had been sent at 4pm on 6 March 2014. The substance of the defence was as follows: "1. I do not believe that I am in default under the loan agreement. 2. CBA acted on the basis of a letter from Moree Council that was not accurate, in that the letter stated no payments had been made to Moree Council towards Water Rates, when almost $6,000 had been paid since September 3rd 2013. 3. To the extent that any rates were in arrears, was due to the CBA freezing funds in the account thus stopping the account being paid." 46The post master at East Moree Post Office swore an affidavit dated 19 May 2014 confirming that he had witnessed the signing and swearing of the defence on 6 March 2014. 47With respect to the defence sent by Mr Goater, he also swore an affidavit dated 19 May 2014 which stated that he had taken the defence to the Moree Courthouse, signed it and arranged for the officer there to send it by facsimile to the Supreme Court. An affidavit of Ms Nicole Brown, clerk at Moree Local Court, dated 16 May 2014 affirmed that she had, on 6 March 2014, witnessed the signing and swearing of the affidavit by Mr Goater and had faxed the document to the Supreme Court. 48According to the trial judge, there was "no evidence" of a defence filed by Mr Goater apart from his affidavit: at [9]. However, in the previous paragraph, the judge had noted that there were affidavits from each of the persons who witnessed the signatures of the respective defendants: at [8]. The reasons continued at [10]: "The Defence that arrived at the Court does not appear to have come to the attention of the person responsible for filing. The result was that the bank, having applied prior to 6 March for default judgment, was given default judgment on 7 March." 49No reference was made to the evidence of Mrs Goater, not contradicted by the solicitor for the Bank, that she had rung the Bank's solicitor to advise of the lodging of the defence. The solicitor's affidavit stated, correctly, that no defence or draft defence was "served" by the borrowers before 7 March 2014. She annexed, however, an unsigned form of defence provided to her at Court on 13 May 2014 by the solicitor for the borrowers, which was dated 30 April 2014. That document stated: "30. I do not believe I am currently in default under the loan agreement and if I was previously then that Loan Agreement has been superseded by the agreement through the Ombudsmans Office (FOS), by an agreement made in September and executed on the 18th October 2013 wherein any arrears were capitalised and a new repayment schedule was agreed to, and I have maintained the FOS agreed payments. 31. CBA commenced this action on the basis of a letter from Moree Council that was not accurate, in that the letter stated no payments had been made to Moree Council towards Water Rates, when bank statements and documents obtained from Moree Council recently prove that almost $6,000 had been paid since September 3rd 2013." 50By affidavit dated 21 May 2014, Mr Humphries, having examined certain accounts, expressed the view that there had been no default with respect to payments of water rates to Moree Council and that what appeared to have been defaults with respect to payments to the Bank had arisen because the Bank had set up an automatic debit on the borrowers' account, unbeknownst to the borrowers, who had made direct transfers, which in turn resulted in them exceeding the overdraft limit. It is not necessary for present purposes to examine the details of these transactions, except to say that they provide some evidence that the borrowers were not at the relevant time in breach of the FOS agreement (assuming it required them to make payments to the Council). 51On 21 May 2014 the officer of the Bank having management of the matter swore an affidavit which included an acknowledgement that at 4.20pm on 6 March 2014 Mr Humphries, with whom she had been in touch and to whom she had supplied documents by email, sent an email advising her that "a defence is being lodged this afternoon". 52On 14 March 2014 the Bank's solicitor sent a letter to the borrowers advising them that default judgment was entered on 7 March 2014, a copy of the letter being sent to Mr Humphries. The letter stated that the solicitors would seek to obtain writs for possession of the property. There was no reference to the filing of any defence. 53On 17 March 2014 the Bank filed a notice of motion seeking a writ for possession of the land. On 3 April 2014 the Sheriff issued notices to vacate the properties and scheduled evictions for 13 May 2014, at 9.30am. 54On 19 March 2014 Mr Humphries emailed a letter to the Registrar of the Court, explaining some of the background set out above and asking that the default judgment be set aside. The following day he was advised by a deputy registrar that if the borrowers wished to set aside the default judgment they would need to file a notice of motion and affidavit. They were advise to obtain legal assistance. Mr Humphries said that he made telephone calls to a number of lawyers to find someone to assist the borrowers. He eventually spoke to someone at Tamworth Legal Aid on about 28 March 2014, but the earliest appointment he could obtain was 17 April: affidavit, 19 May 2014 at par 22. A notice of motion and affidavit were apparently sent to the Supreme Court on or before 30 April 2014, but, on 5 May 2014 Mr Humphries received a telephone call from the Supreme Court stating that a signed application to waive fees was required. A copy of the application was sent by him to Mrs Goater on 5 May. Mrs Goater stated (in her affidavit of 16 May 2014) that she had completed the application and posted it to the Supreme Court on 6 May 2014. 55Mr Humphries stated that on Friday, 9 May 2014 he had spoken at length to a court officer, noting that the eviction was now only one clear business day away and nothing had been heard. The officer told him to email a copy of the waiver form to the Registry, which he did: a copy of the email, together with three attachments, including the application form and Mrs Goater's pension concession card, were attached to the affidavit. 56On Monday, 12 May 2014, at about 6pm, Mr Humphries telephoned the Court again, noting that the borrowers were to be evicted the next morning and he had not heard anything. In due course he was advised that the officer had spoken to a judge and that the matter would be listed for directions the following morning. It was listed before a registrar at 11.15am. He told the borrowers of the arrangement. 57Mr Goater spoke to Mr Humphries at about 9am to advise that the Sheriff had arrived to change the locks. The Sheriff had apparently agreed to stay the evictions until 3pm to await the outcome of the hearing before the registrar at 11.15am. 58After further telephone conversations, Mr Humphries was able to obtain assistance from the borrowers' current solicitor who went before the Deputy Registrar at about 2.30pm. The matter was listed for 4pm, by which time the evictions had taken place.

(e) analysis of procedural history 59It is apparent from the procedural history that at various stages the borrowers were less than diligent in seeking to protect their interests. In particular, their failure to take steps to raise issues with respect to the Bank's letter of 27 November 2013, in circumstances where they understood that they were said to be in breach of the FOS agreement, when they believed they were not, was puzzling and unexplained. Similarly, after being served with the statement of claim, they delayed for almost four weeks before contacting Mr Humphries, from whom they had obtained assistance when negotiating the FOS agreement. 60Mr Humphries was not a solicitor, but a financial counsellor. Furthermore, he worked from Melbourne. Nevertheless, the chronology set out above indicates that he acted with some vigour in seeking to assist the borrowers and prevent both the signing of default judgment and their eviction. 61One factor relevant to the tolerance the Court should exercise with respect to delay is the extent to which the party in default has notice of the risks attendant upon delay. A second is the information available to the party insisting on the letter of its rights as to the defaulting party's attempts to protect himself or herself. These matters go to the exercise of the Court's discretionary powers. 62Prior to the issue of the statement of claim in 2012, the Bank issued a default notice under s 57(2)(b) of the Real Property Act, which was served upon the borrowers. It was probably that notice which led to the complaint by the borrowers to the Financial Ombudsman Service. However, the notice provided the basis upon which the original statement of claim was issued. By the time the statement of claim came to be served, that notice was irrelevant (or as the draft defence suggested, superseded) by the FOS agreement. The Bank's letter of 27 November 2013, as to which more will be said later, relied solely upon a breach of the FOS agreement, on a basis having nothing to do with payments due to the Bank. That was the last written notification of any kind which the Bank provided to the borrowers. It advised that the Bank would "continue with enforcement action" if the relevant breach were not rectified. What was involved in continuing with enforcement action was not stated. 63The FOS agreement was entered into on 18 October 2013. Twelve days later, the Bank received a notice from the Court stating that no step had been taken for over five months in the proceedings commenced by the statement of claim dated 23 October 2012. The notice required the Bank, if it did not wish the proceedings to be dismissed, to file a notice of motion to show cause why an order for dismissal should not be made. That notice had to be filed by 28 November 2013. As at 28 November 2013, the Bank was bound by its contractual undertaking not to continue the legal proceedings it had instituted on 23 October 2012. Regardless of whether the Bank could establish that the borrowers had breached the FOS agreement, the time specified in the letter of 27 November 2013 for rectifying the default had not yet expired. What the Bank told the Registrar is not known: however, on 29 November 2013 the Registrar made an order in the following terms: "1. Extend time for service of Statement of Claim to 28 February 2014. 2. A copy of this order to be served with Statement of Claim. 3. Should Notice of Motion seeking Default Judgment be filed by 28 February 2014, the Statement of Claim will be dismissed. 4. Liberty to restore on 3 days notice. 64In her affidavit of 21 May 2014, the solicitor having carriage of the matter for the Bank misstated the orders so that order 3 included a "not" before "be filed". Accepting that that was the intention of the order made on 29 November, it was nevertheless not what the order stated when it was entered on 24 January 2014, nor was it the form of the order provided by the Court on 29 January 2014, presumably for service the following day. (If personal service had not been effected on 30 January 2014, default judgment could not have been filed within the time provided so that the statement of claim would have dismissed.) 65On 29 January 2014 a solicitor purported to serve the relevant documents by leaving copies under the door at the address, there being no person in attendance: the documents left did not include the order of that date. 66The solicitor returned on the following day to serve the documents personally, including the order of 29 January. As has been noted, the statement of claim contained a solicitor's affidavit verifying the correctness of the pleadings with respect to the overdraft and the business loan, including the statement that each defendant had defaulted by failing to make payments when due, without reference to the subsequent FOS agreement. 67The statement of claim, in the standard form, included a notice to the defendant to the following effect: "If you do not file a defence within 28 days of being served this statement of claim [sic]: ● You will be in default in these proceedings. ● The court may enter judgment against you without any further notice to you. The judgment may be for the relief claimed in the statement of claim and for the Plaintiff's costs of bringing these proceedings." 68One form of relief claimed was interest on the alleged debts accruing in accordance with the provisions of the respective facilities "from October 2012". Whether the Bank was entitled to such amounts, in the light of the FOS agreement, was eminently contestable. The fact that a solicitor had sworn to the effect that the Bank was so entitled in October 2012 was apt to be misleading. Although the notice to defendant said that the Court may enter judgment without further notice, the judgment or order which accompanied the statement of claim referred to the filing of a notice of motion seeking default judgment. Since that order post-dated the orders sought in the statement of claim by more than a year, there was every opportunity for confusion. 69In fact, no notice of motion seeking default judgment was served on the borrowers. As the Bank correctly pointed out, r 16.3 provides: 16.3 Procedure where defendant in default (1) If a defendant is in default, the plaintiff: (a) may apply for judgment to be given under this Part, according to the nature of his or her claim for relief, against the defendant in default, and (b) may carry on the proceedings against any other party to the proceedings. (1A) Unless the court otherwise orders, an application under this rule: (a may be dealt with in the absence of the parties, and (b) need not be served on the defendant. (2) Unless the court orders otherwise, an application for judgment to be given under this Part must be accompanied by: (a) an affidavit of service of the statement of claim (the affidavit of service), and (b) an affidavit in support of the application (the affidavit in support). 70The affidavit in support of the application was not in the materials provided to this Court and its content is not known. 71There are no doubt good reasons why, in many cases, notice of intention to seek a default judgment need not be served. If the defendant has been properly served personally, and has not appeared, the plaintiff will have no notice of address for service. However, given the delay in this matter and depending upon what was said in the Bank's affidavit in support of its application, one would not expect the Registrar to sign default judgment without careful consideration as to what had been alleged in the statement of claim and what had happened over the succeeding period. The obligations of solicitors acting for the Bank on an ex parte application would have required such disclosure. 72As the Bank further noted, there is no obligation in the UCPR for it to serve a notice of motion seeking a writ for possession of the land. Thus, the relevant rules provide: 39.2 Application for writ of execution (1) An application for a writ of execution in respect of a judgment is to be made by way of notice of motion. (2) Unless the court orders otherwise, a notice of motion under this rule: (a) may be dealt with in the absence of the parties, and (b) need not be served on the judgment debtor. (3) The application must indicate the extent (if any) to which the judgment debt has been satisfied under any writ of execution, garnishee order or charging order issued by the court. 73The application must have been supported by an affidavit in support of the application in accordance with r 39.3. What the application said in the present case is not known, because the Bank has not provided any copy of it to this Court, nor was it referred to by the trial judge. However, the need to particularise the relevant payments including the interest accruing on the judgment debt and details of payments made by the borrowers might well have raised an issue as to the basis upon which such payments were due and made and the nature of the default. If full disclosure had been made, one would not expect the Registrar to have given leave to issue the writ of possession, knowing that the only notification by the Court of the risk of such an order being made was that contained in the original statement of claim dated October 2012, albeit recently served. 74An affidavit from a solicitor acting for the Bank dated 21 May 2014 referred to the fact that on 14 March 2014 a letter had been sent to the borrowers confirming that judgment had been entered on 7 March and that the Bank intended to apply for writs for possession of the property. A copy was also sent, she noted, to Mr Humphries. There was no reference in her affidavit to the subsequent contact set out in Mr Humphries' affidavit. Given the limited material provided by the Bank to the primary judge and to this Court, it may be that the writs for possession were obtained without full disclosure of the circumstances as known to the Bank and its solicitors. 75Three factors outlined above militate against refusing relief which might otherwise be appropriate on account of delay on the part of the borrowers. These are - (a) the potential for confusion as to what steps were likely to be taken by the Bank, on what basis, with what degree of notice and when; (b) the relatively limited periods of delay by the borrowers in responding to documents provided to them, and (c) the unwillingness of the Bank to allow any brief respite in spite of knowledge that the borrowers were seeking to take steps to defend the proceedings.

Conclusions 76The trial judge was in error in declining to set aside the default judgment on the basis that the Court lacked power to take that step once possession had been obtained. 77The proper exercise of the power to set aside a default judgment requires consideration of a number of factors: first, whether the occasion for signing a default judgment had arisen. It appears to have been common ground that once the parties entered into the FOS agreement the Bank was not entitled to enforce its rights under the original loan facilities and mortgages so long as the borrowers complied with their obligations under the FOS agreement. In any event, if there were default, the Bank needed to comply with its procedural obligations under the FOS agreement. 78Secondly, in order to avail itself of its right to realise the security under the mortgages, for breach of the FOS agreement, the Bank was required to give notices in accordance with the provisions which have been set out above. This it did not do, purporting to deal in one composite notice with the two staged requirements of the FOS agreement. 79Thirdly, the substantive breach relied upon by the Bank was a failure to comply with a payment scheme arranged with the Moree Plains Shire Council. However, the obligations imposed on the borrowers by the FOS agreement did not in terms require that payments be made to the Moree Plains Shire Council. Accordingly even if there had been breach of an obligation to the Council in that regard, it did not constitute a breach of the FOS agreement. 80Finally, it was arguable that the statement of claim in the form in which it was filed prior to the FOS agreement, and unless amended so as to take account of the respective rights and obligations of the parties subsequent to the conclusion of the FOS agreement, could not be the basis for the judgment sought. Whether there was a contrary view not articulated in this Court is again a matter upon which the Court need not reach any conclusion: it is sufficient to identify the form of the statement of claim as itself a reasonably arguable basis for a defence on the part of the borrowers. 81As all of these factors provide reasonably arguable defences to the Bank's claims, both the judgment of the trial judge and the underlying default judgment should be set aside. 82There is the question as to the fate of the writ of possession. Absent a default judgment, there was no basis upon which the writ of possession could issue. However, having been executed, its force is spent. Whether the borrowers are entitled to reclaim possession was not an issue raised in the proceedings, as the draft notice of appeal sought no order in this regard. Nor is there any information before the Court as to the current occupation of the land. On 24 October 2014 the Bank gave an undertaking not to exercise its power of sale until the proceedings in this Court are determined. Given that the Bank's judgment is set aside, it may be that the Bank will consider extending the undertaking. 83There is a question as to whether the matter should now be remitted to the Common Law Division, in the expectation that it will proceed to a trial. No order of this Court is required to achieve that result. Nor is it clear that the Bank will seek to proceed on this basis. As noted above, there are unresolved issues as to the effect of the FOS agreement on the contractual obligations of the parties including questions as to the entitlement to costs, the entitlement to rely upon the original s 57(2)(b) notice and the nature of the default now relied upon by the Bank. The parties should have an opportunity to reach an agreement as to how the status quo may be maintained while outstanding issues are resolved. In the event that the borrowers seek further interlocutory orders before active steps are taken in the Common Law Division, they have liberty to apply to the Registrar of this Court. 84In these circumstances, the Court should make the following orders: (1) Grant the applicants leave to appeal from the judgment given in the Common Law Division on 22 May 2014. (2) Direct that the applicants file, within 14 days, a notice of appeal in the form of the draft contained in the white folder. (3) Set aside the orders made in the Common Law Division and in place thereof: (a) set aside the default judgment entered on 7 March 2014; (b) order that the plaintiff Bank pay the defendants' costs in the Common Law Division, and (c) otherwise dismiss the defendants' notice of motion of 13 May 2014. (4) Order that the respondent Bank pay the applicants' costs in this Court. (5) Grant the applicants liberty to apply to the Registrar on three days' notice if further interlocutory orders are required. 85GLEESON JA: I agree with Basten JA. 86SACKVILLE AJA: I agree with the orders proposed by Basten JA and his Honour's reasons.

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: 07 November 2014

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