Hillsan Pty Limited v Macaulay

(1) The default judgment entered on 20 November 2009 is set aside. DECISION : (2) The writ of possession issued on 2 December 2009 is set aside. (3) The matter is listed for a status conference before the Registrar on 30 April 2010 at 9.00 am. (4) Costs are reserved.

CATCHWORDS : PROCEDURE - Judgment and orders - Judgmetn by default - Application to set aside default judgment - Whether defence on merits

Consumer Credit (Queensland) Act 1994 Consumer Credit Code Consumer Credit Regulation 1995 LEGISLATION CITED : Contracts Review Act 1980 Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005

Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503 Cohen v McWilliam (1995) 38 NSWLR 476 CASES CITED : Cuttle v Brandt (1947) 64 WN (NSW) 96 Davies v Pagett (1986) 10 FCR 226 Evans v Bartlam [1937] 2 All ER 646 Vacuum Oil Pty Ltd v Stockdale (1942) 42 SR (NSW) 239

PARTIES : Hillsan Pty Limited (Plaintiff) Denese Lesley Macaulay (Defendant)

COUNSEL : S Gray (Plaintiff) A Lakeman (Defendant)

SOLICITORS : Mackintoshs Solicitors (Plaintiff) Evangelos Patakas & Associates (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

2009/295271 HILLSAN PTY LIMITED v DENESE LESLEY MACAULAY

JUDGMENT (Set aside default judgment) 1 HER HONOUR: By notice of motion filed 9 December 2009, the defendant seeks firstly an order that the default judgment entered against the defendant on 20 November 2009 be set aside; secondly, an order that the writ of possession issued on 2 December 2009 be set aside; and finally, an order that the defendant have leave to file and serve her defence within seven (7) days from the making of these orders. There is a stay on the execution upon the writ of possession until further order of the court. 2 The plaintiff is Hillsan Pty Limited ("Hillsan"). The defendant is Denese Lesley Macaulay ("Ms Macaulay"). Hillsan relied on the affidavits of Scotte Robertson sworn 28 January 2010, Margaret Speare Robertson sworn 29 January 2010 and Ewan Kenneth Mackintosh sworn 11 December 2009 and 14 December 2009. Mr and Mrs Robertson are directors of Hillsan. Mrs Robertson was not involved in the transactions giving rise to these proceedings. Mr Mackintosh is the solicitor who acts for Hillsan. Ms Macaulay relied on her affidavits sworn 9 December 2009 and 26 February 2010.

Setting aside default judgment 3 The power to set aside judgment is contained in Rule 36.16 of the Uniform Civil Procedure Rules 2005 ("the Rules"). It reads: "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. …" 4 The authorities on setting aside default judgment are Evans v Bartlam [1937] 2 All ER 646; Vacuum Oil Pty Ltd v Stockdale (1942) 42 SR (NSW) 239; Cuttle v Brandt (1947) 64 WN (NSW) 96; and Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503. Hillsan's counsel referred to Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503, where Hope JA (with whom Glass and Mahoney JJA agreed) stated, that in determining whether "sufficient cause" has been shown to set aside a default judgment, the court must look to the whole of the relevant circumstances which include inter alia the existence of a bona fide defence on the merits, an adequate explanation for the failure to defend and any delay; and in determining whether there are bona fide grounds of defence the court must not try the issues to be determine at the trial: what is required is that the court determined that the facts sworn to as providing a defence, if established at the trial, would afford a defence and that the defence is set up bona fide. 5 One of the considerations to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995) 38 NSWLR 476 at 481 quoting from the Federal Court in Davies v Pagett (1986) 10 FCR 226: "It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct , in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation. …" 6 This court should look to the whole of the relevant circumstances including an adequate explanation for delay and the existence of a bona fide defence on its merits. Overall the fundamental duty of this court is to do justice between the parties. Explanation for delay 7 On 20 November 2009, default judgment was entered. On 9 December 2009, this motion seeking to set aside the default judgment was filed. In early August 2009, Ms Macaulay deposes that she received a copy of the statement of claim for the tenant of her property. Shortly after receiving the statement of claim she retained solicitor to act on her behalf. On 11 August 2009, Ms Macaulay filed a notice of appearance. On 20 August 2009, Ms Macaulay's solicitors wrote to Hillsan's solicitors advising that she wished to negotiate a settlement and outlining, in a preliminary way, the matter she would raise in her defence. She requested until 31 August 2009 to file her defence and cross claim. Between 20 August 2009 and October 2009, there was correspondence between Hillsan and Ms Macaulay's solicitors that attempted to negotiate a settlement. 8 On 2 November 2009, Hillsan's solicitors wrote to Ms Macaulay's solicitors as follows: "It is noted that we still have not received a satisfactory response to any of our correspondence with you and particularly our letter of 28 th September 2009. Because of this our client has now given us instructions to proceed to enter judgment and take possession of the property. As this will increase the court fees and our costs which are to be paid by your client we shall refrain from doing so until after 12.00 noon on Wednesday, 4 November 2009." 9 On 3 November 2009, Ms Macaulay's solicitors faxed a copy of a letter. It relevantly reads: "We request your client take no action to enter default judgment and shall assume none will be taken unless we receive notice by you to the contrary pending your providing us with the above information and allowance of reasonable time for negotiations thereafter. If it is your client's intention not to reply to the above or to allow further time for negotiations then, as previously advised, we will require reasonable notice (i.e. 7 days notice) of such intention in order to file our client's defence. Accordingly, we note that we will be unable to file our client's defence by noon tomorrow as demanded in your letter of 2 November 2009 (being effectively less than 48 hours is insufficient) and will require such 7 days notice." 10 On 5 November 2009, by facsimile, Ms Macaulay's solicitors wrote to Hillsan's solicitors and made a further offer of settlement. On 13 November 2009, Hillsan applied for default judgment. On 26 November 2009, the tenant at the property telephoned Ms Macaulay and told her that he had received a letter informing him that Hillsan had obtained possession of the property and the rent was to be paid to Hillsan. She deposed that this was the first time she heard that Hillsan had obtained an order for possession. 11 On 26 November 2009, Ms Macaulay drove three hours to Kiama to collect the letter forwarded to the tenant. On 27 November 2009, Ms Macaulay's solicitor wrote to Hillsan's solicitor as follows: "We advise that we consider your client has entered judgment in bad faith and irregularly given, inter alia, that: (a) Your client has been aware for some time of our client's dispute of the claim, including but not limited to that as set out in our letter to you dated 20 August 2009; (b) We have entered an appearance on behalf of our client in this matter; (c) We made it clear that our client made the settlement offer in an attempt to avoid the costs of litigation (for both parties) and that, in the absence of settlement, our client proposed to defend your client's claim; and (d) Notwithstanding the above, you have failed to: (i) Notify us of your client's response to our client's officer of settlement set out in our without prejudice letter dated 5 November 2009; (ii) Give notice of your client's requirement that, notwithstanding such settlement negotiations, our client file her defence failing which your client would proceed to enter default judgment; and (iii) Serve upon us your client's application to enter default judgment and the affidavits in support or to notify us of the return date of such application. …" 12 Ms Macaulay deposed she was advised by her solicitors that they believed that Hillsan's solicitors would advise him if it proposed to take any action against her, including attempting to apply for default judgment. 13 On 20 November 2009, default judgment was entered. On 2 December 2009, a writ of possession was issued. 14 Although a letter was sent by Ms Macaulay's solicitor dated 27 November 2009, Hillsan's solicitors did not receive it until 30 November 2009 and there was difficulty transmitting it by fax. That letter requested Hillsan's consent to having the judgment set aside. Hillsan's consent has not been forthcoming.

15 In about August 2008, the statement of claim was served. Hillsan then extended the time for filing the defence on four occasions while negotiations took place. Generally speaking, while settlement negotiations may take place prior to the filing of a defence, the period of time for this to occur is not an open-ended one. Hillsan's solicitor had already warned the Ms Macaulay's solicitor that it was proceeding to enter default judgment on 2 November 2009. There was no obligation upon it to give a further warning. However, Ms Macaulay had put Hillsan on notice of the defences she wished to raise as far back as 20 August 2009. While Ms Macaulay may have been tardy in filing her defence, she acted with expedition once she was advised that default judgment had been entered. It is my view her explanation in these circumstances is adequate.

The proposed defence 16 Ms Macaulay in her proposed defence seeks relief under the Consumer Credit Code ("the Code"), Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 and Contracts Review Act 1980. She further alleges that the plaintiff engaged in unconscionable conduct. 17 Ms Macaulay agrees that she is the registered proprietor of the subject property at Kiama. However, she denies that she entered into a loan agreement with the plaintiff and that the loan was secured by a mortgage over the property. On 26 July 2006, Ms Macaulay signed a mortgage and on 15 December 2008, she signed a variation of mortgage. I shall refer to these documents in turn. The original mortgage 18 On 26 July 2006, Ms Macaulay signed a mortgage document, a declaration by the mortgagor as to the purpose of the loan and an acknowledgment of legal advice. Mr Macaulay signed a guarantee. He is not a party to these proceedings. 19 The mortgage stipulated that she mortgaged to the mortgagee all the mortgagor's estate and interest in the above and as set out in annexure A and memorandum No 860000 filed at the Land and Property Information, New South Wales. The principal was for the sum of $50,000. The principal became due and owing one year later on 28 July 2007. Ms Macaulay's signature. It was witnessed by Mr Mackintosh. Mr Mackintosh was also the solicitor acting for the mortgagee and signed the mortgage in that capacity. 20 In the acknowledgement of legal advice Ms Macaulay acknowledges that she instructed Mr Mackintosh to give her legal advice concerning this loan and security documents. The advice given is outlined in paragraph (3) of that document. In essence Mr Mackintosh acted for both the mortgagor and the mortgagee in this transaction. 21 On 6 August 2006, Ms Macaulay had some doubts about the legal advice given as she wrote to Mr Mackintosh and stated: "We also to take this opportunity to confirm (sic), which was discussed with Mr Mackintosh at the time of executing the documents, that independent legal advice was not obtained by the writer or Rodney Macaulay. We were concerned when discussing this issue with Mr Mackintosh that we were not given the opportunity to seek separate legal advice to ensure that the documents and our rights were given appropriate legal advice and instructions." 22 Notwithstanding these comments, Ms Macaulay went on to enter into a variation of mortgage, once again without obtaining independent legal advice. 23 The document entitled "Declaration by the mortgagor as to the purpose of the loan" ("the declaration") was signed by Ms Macaulay. It was also witnessed by Mr Mackintosh, the solicitor acting for the mortgagee. The body of this documents reads: "1. I as Mortgagor named in certain loan and security documents in favour of HILLSAN PTY LIMITED secured over the property at XX XXXX XXXX, KIAMA. 2. I state that the loan funds are to be sued (sic) by me for investment purposes and that the loan is not a home loan." 24 Ms Macaulay in her defence pleads that the mortgage and the variation was for personal purposes namely to financially assist her parents. She alleges that the variation of mortgage varied a mortgage dated 26 July 2006 and her husband told Mrs Robertson that they wished to increase the loan to $130,000 for personal purposes. However, she says that the variation of mortgage was a loan of money for personal, domestic or household use.

The Consumer Credit Code 25 The Code appears as an appendix to the Consumer Credit Act of Queensland. It obtains force in NSW from the Consumer Credit (New South Wales) Act pursuant to s 5. 26 A "credit contract" is defined in s 5 of the Code as follows: "For the purpose of this Code, a "credit contract" is a contract under which credit is or may be provided, being the provision of credit to which this Code applies." 27 Schedule 1 to the Code contained a definition of "contract" as follows: "Contract includes a series of combination of contract, or contract and arrangements." 28 Section 6 sets out the transactions to which the Code applies and reads: "6 Provision of credit to which this Code applies

(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into - (a) the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and

(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and

(c) a charge is or may be made for providing the credit; and

(d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider. (2) If not all the debtors under a credit contract ordinarily reside, or are strata corporations formed, in this jurisdiction, this Code applies only if credit is first provided under the contract in this jurisdiction.

(3) If this Code applies to the provision of credit (and to the credit contract and related matters)- (a) this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and

(b) this Code continues to apply even though the debtor ceases to be ordinarily resident in this jurisdiction. (4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.

(5) For the purposes of this section, the predominant purpose for which credit is provided is - (a) the purpose for which more than half of the credit is intended to be used; or

(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used." 29 Section 11 reads: "11 Presumptions relating to application of Code

(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.

(2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).

(3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained.

(4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not."

The declaration 30 In the present case under the Code the prescribed form of the declaration (s 10) is as follows. "'I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).'. (2) The declaration is to contain (immediately below the above words or, if the declaration is to be made by electronic communication, prominently displayed when (but not after) the person signs) a warning in the following form - IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code. (3) The declaration is to contain - (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider." 31 It is arguable that the declaration that Ms Macaulay signed does not substantially comply with the form prescribed in s 10 of the Consumer Credit Regulation 1995. The variation of mortgage 32 The plaintiff pleads that the mortgage was varied by variation of mortgage dated 15 December 2008 which increased the amount of principal to $130,000 and increased the rate of interest to 12 percent per annum subject to reduction to 10 percent per annum if paid on time. The mortgage as varied provides for the payment of interest on the principal sum of 12 percent per annum reducible to 10 percent per annum if paid on or before the due date. The amount payable under the mortgage was varied and is $1083.33 per month if paid on or before the due date or $1300 if not paid on or before the due date. The defendant went into default on 29 October 2008 by failing to pay the interest due on that date (S/C [5]-[8]). 33 Ms Macaulay pleads that under the Contracts Review Act the variation of mortgage was unjust at the time of entering the variation of mortgage. 34 Ms Macaulay alleges, firstly, that the conditions upon which the variation of mortgage were taken and advances were made by the plaintiff were not the subject of negotiation between her and the plaintiff; secondly, it was not reasonably practicable for her to negotiate the alteration of, or to reject, any of the conditions upon which the variation of mortgage was given to and advances were made by the plaintiff; thirdly, she was unable to make a judgment as to what was in her interest and necessary to protect those interest; and finally, that she was under the influence of the plaintiff, or its servants or agents, including its solicitor in whom she reposed her trust and confidence.

35 Section 7 and 9 of the Contracts Review Act are remedial pieces of legislation. They provide: "7 Principal relief

(1) Where the Court 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, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:

(i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

(3) The operation of this section is subject to the provisions of section 19."

(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. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." 36 On 21 February 2007, "additional funds" of $80,000 were paid to Ms Macaulay. The variation of mortgage document is signed by the Mr Mackintosh but not by Ms Macaulay. It purported to increase the principal sum of $130,000, with an interest rate of 8.95 percent extended to 28 July 2008. However, annexure "A" refers to the interest rate as being 8.65 percent but 10.65 percent if the interest payment is not paid prior to the due date.

37 On 30 June 2008, Hillsan wrote to Ms Macaulay stating that as she was an "excellent client" it proposed to rollover the mortgage at a rate of 9.5 percent for two years. Ms Macaulay wrote back agreeing to the period of two years but requested a lesser interest rate of 9 percent. Then on 31 July 2008, she agreed to an interest rate of 10 percent. On 8 December 2008, Hillsan's solicitor forwarded a copy of a letter dated 5 August 2008 together with a fresh variation of mortgage and deed of guarantee for execution. The variation was signed by Ms Macaulay, her signature was witnessed by Mr Mackintosh who also signed the variation on behalf of the mortgagor. This document dated 15 December 2008 increased the amount to $130,000 and extends the period of the loan to 28 July 2010. On the solicitor's letter dated 8 December 2008, appears the following handwritten comment by Ms Macaulay: "Mr Mackintosh NB unable to get separate legal advice due to pressure from Mr Robinson to sign the attached documents in relation to extension of Mortgage have dated guarantee 10 th October 2008." 38 Mr Mackintosh witnessed Ms Macaulay's signature on both the mortgage and the variation. He also signed an acknowledgement of legal advice on behalf of Ms Macaulay in relation to the mortgage. In my view the matters raised under the Contracts Review Act and Consumer Credit Code are defences on their merits. Whether or not Ms Macaulay ultimately can succeed in these defences depends on the resolution of factual conflict. These facts and circumstances can only be determined at trial. 39 As there is a satisfactory explanation for delay, a defence on its merits and it is in the interests of justice I set aside the default judgment entered on 20 November 2009. I also set aside the writ of possession. The matter is to be listed for a status conference before the Registrar on 30 April 2010 at 9.00 am. 40 Costs are reserved.

(1) The default judgment entered on 20 November 2009 is set aside.

(2) The writ of possession issued on 2 December 2009 is set aside.

(3) The matter is listed for a status conference before the Registrar on 30 April 2010 at 9.00 am.

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.