Maksacheff v Commonwealth Bank of Australia [2016] NSWSC 1109 | Case summary

The plaintiffs' case

The Bank obtained judgment by default in the previous possession proceedings on 14 July 2015. At the same time, it also obtained a monetary judgment in the sum of $607,523.10. After judgment the plaintiffs sought to challenge the Bank's title to possession in various ways. It is unnecessary for the purpose of this decision the difficulties experienced by the Bank in securing possession.
On or about 30 November 2015, a number of documents were delivered to the Bank addressed to it and others, including the second to fifth defendants. The documents included: 1. A document styled notice of tender for payment referring (in its own terms) to the delivery of a promissory note for discharge of the mortgage; acknowledging and apologising for all previous dishonours, such as any previous late payment instalments; a demand that if the Bank rejected the promissory note as defective or insufficient it return it to the plaintiffs within 3 days; and the following statement (Exhibit RL 1 page 15): "Alternatively if the Promissory Note ('the note'), is not returned to the maker at the time, date and place stipulated on the Promissory Note it shall be deemed by all parties in this matter that the lender has accepted the notes as sufficient consideration to satisfy or discharge all liabilities to Commonwealth Bank of Australia. Should the Commonwealth Bank of Australia Limited, via its employees or agents, not return or present the notes to maker for payment as stated above yet make any unsubstantiated claim as to its deficiency or defectiveness, or pursue collections against us or estate subject to taking delivery of the Promissory Note, it shall be deemed by all parties to the NOT NEGOTIABLE contracts that the Commonwealth of Bank of Australia Limited is in commercial default of its contracts." 1. The promissory note in favour of the Bank in the sum of $700,000 containing the following statement: Redeemable on DEMAND at 173 Summer Street Orange, New South Wales at 10:35 hours without; let, delay, hindrance or ado, on the 7th Day of December, AD 2015. 1. The document referred to in the Notice of Tender as the "not negotiable contract". (Exhibit 2; EP 16 - 21 Exhibit RL 1). That document was created by appending additional typed pages to a bank statement issued by the Bank to the plaintiffs, apparently received by them on 27 November 2015 and covering the period 19 October 2015 - 7 November 2015. As may be expected, it is printed on the Bank's letterhead and carries its logo. The statement has been added to by handwritten endorsements made by the first plaintiff acknowledging the indebtedness for the closing balance, a little in excess of $625,000, and rounding that figure up to include other matters, apparently acknowledged as due to the Bank, to a total of $650,000.
The document contained typed notes said to be terms of the contract to the effect that the Bank accepted the promissory note as "sufficient to discharge [the plaintiffs] liability to the Bank". And that the Bank would discharge the mortgage and return the certificate of title to the plaintiffs. Other terms required the Bank to issue a statement "showing a zero balance as confirmation the account was settled in full". Other mutual promises not presently material are set out. There are material terms under the heading "Default and Liability Clause and Notice". Its essential feature was to provide for the payment of liquidated damages in the sum of $2.8 million upon default by any party of its obligations under the contract. It would seem to be calculated as "some four times the value of the original contract", presumably a reference to the loan agreement and mortgage. $2.8 million is not four times the acknowledged $650,000; it is four times the sum of $700,000 appearing on the face of the promissory note tendered to discharge the mortgage.
The defendant failed to return the promissory note as defective or insufficient within three days and failed to attend at the time and place notified on its face to redeem its value. The plaintiffs say by this conduct, the Bank accepted the tender of the promissory note in discharge of the plaintiff's liability, and the other terms and conditions including the default provisions.
On 8 December 2015, the plaintiffs demanded payment of the liquidated damages of $2.8 million. The demand stated in part the following: "Our delivered promissory note was neither returned to us, or presented for payment in order to hold the maker liable (Australian Bills of Exchange Act 1909 (Cth) s 93) (sic) and hence the liability was discharged against us, as maker, and the Bank accepted the promissory note in full and final satisfaction of the outstanding liability pursuant to the above account. Under the 'Default and Liability Clauses' sections of the contracts the Commonwealth Bank of Australia claim and confession, via its legal representative … to non acceptance of our delivered Promissory Note automatically discharged the liability against [the plaintiffs] and created a liability against you … of a total of Two Million, Eight Hundred Thousand Dollars ($2,800,000) to [the plaintiffs] being the total of amount as disclosed within the respective contract."
On the 18 of December 2015, the Bank's solicitors wrote to the plaintiffs including in the following terms: "Our client rejects those documents as they have no legal validity or effect, in particular with regard to payment of our client's mortgage debt. Without admission, we return the document to you herewith (attached). … Until the full mortgage debt is repaid, our client will be proceeding with enforcement action, … and the sale of the property in accordance with the terms of its mortgage."
Further demands were made by the plaintiffs before commencing proceedings on 12th April 2016.

Decision

I am satisfied in the requisite degree that the defendants have discharged the heavy onus of demonstrating that the plaintiffs' claim could not possibly succeed and should not be allowed to proceed to a hearing on the merits.
In the course of his clear, succinct and helpful argument, Mr J Hynes of Counsel, who appeared for the defendants, referred me to Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. At 534 McHugh JA (as his Honour then was), with whom Samuels JA agreed, said (citations omitted): "Under the common law theory of contract, the silent acceptance of anoffer is generally insufficient to create any contract ….. Theobjective theory of contract requires an external manifestation of assent toan offer. Convenience, and especially commercial convenience, has givenrise to the rule that the acceptance of the offer should be communicated tothe offeror. After a reasonable period has elapsed, silence is seen as arejection and not a acceptance of the offer. Nevertheless, communication ofacceptance is not always necessary. The offeror will be bound if he dispenseswith the need to communicate the acceptance of his offer … However, an offeror cannot erect a contract between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance … The common law's concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer or be bound by contractual obligations." (Emphasis Added).
Kirby P wrote to the same effect at 527 - 8. His identified the rationale for this rule in the following terms: "Various explanations may be offered for this principle. One is that itderives from the disinclination of the common law to impose legal liability upon individuals for omissions. Another is that it is a consequence of thecommon law's protective attitude towards liberty of conduct and itsresistance to the unilateral imposition of obligations. Still another is that itderives from the contractual theory of the common law that a binding andlegally enforceable agreement must be mutually achieved by offer andacceptance. Whatever the history of and reasons for the general rule, itsexistence is not in doubt." [Original emphasis].
Their Honours accepted that silence in conjunction with other circumstances "may indicate that [the offeree] has accepted the offer" (per McHugh JA at 534). However, that is not this case; no positive or affirmative conduct on the part of the Bank is alleged. The plaintiffs' whole case depends upon the Bank's silence and omission to act. Taken at its highest and on the assumption that each averment in the statement of claim will be proved at a hearing, the plaintiffs' case clearly and unambiguously engages the principle discussed in Empirnall Holdings.
In an attempt to answer Mr Hynes very telling point, Mr Andrew, who I gave leave to appear for the Plaintiffs at their request, (see [2016] NSWSC 1108) pointed out that "the agreement" carried the Bank's trademarks and logos and that this was equivalent to it either signing the contract or affixing its common seal to it. With respect, this argument must be rejected. Those insignia had been printed on the bank's stationery issued to the plaintiffs as a prior statement of account, before the plaintiffs adapted it for their own purposes when drafting their proposed contract.
Mr Andrews also relied upon the various provisions of the Bills of Exchange Act 1909 (Cth). However, not only is there no averment that the tender of the promissory note was of itself sufficient to discharge the liability of the plaintiffs to the Bank, but also, no relief is sought in the initiating process based upon that matter. The Court's judgment of 15th July 2016 is no way called into question, impugned or sought to be set aside in the pleading on ground premised on the tender of the promissory note, or otherwise. The judgment could hardly be called into question by a circumstance which occurred more than four months after its entry.
Moreover, it seems to me that the plaintiffs delivery of the promissory note to the Bank could not of itself discharge any liability of them as borrowers under the mortgage and loan agreement. It is not shown that in accordance with its terms the mortgage could be discharged by tender of a promissory note, especially one as heavily conditioned as that which forms part of Exhibit 2. If anything, the promissory note created a new obligation to pay had the Bank presented the note on the date and at time and place it specified. The Bank's failure to present the note for payment discharged the plaintiffs from any liability on the note: ss 89 and 93 Bills of Exchange Act 1909 (Cth). It did not discharge the plaintiffs from their liability on the mortgage or loan agreement, the latter of which doubtless specified the required mode of payment to effect a discharge.
I am satisfied that the plaintiffs claim has no prospects of success whatsoever and that the proceedings must be summarily dismissed.
Before pronouncing final orders there are two points I should mention. First, the plaintiffs' evidence included (as DJM 13; Court Book BP 19 to 62) an affidavit of a person named Michael Carrigan who describes himself as a certified mortgage securitisation auditor and a subscriber of the Bloomberg Professional Service. His evidence, which I suppose was put forward as expert evidence, went to the question whether the plaintiffs' mortgage debt to the Bank had been securitised, which I take to be a reference to its assignment by the Bank to another.
Mr Andrews accepted that there was no case pleaded based on this concept. He went further and acknowledged that the relevance of securitisation, if any, was to the Bank's claim in the previous proceedings (28.5 - 29.10T). The point is no longer available to them, given the judgment: Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589. But in any event Mr Carrigan's "evidence" does not establish that the mortgage loan was securitised. At page 13 of his affidavit Mr Carrigan said he researched the Bloomberg online data base which "did not reveal matching characteristics based on the original" mortgage loan agreement. At page 39, he referred to a possibility that the loan "may have been sold and transferred" but said "there is no record of assignments". There is no factual basis in the evidence before me for supposing that the plaintiffs may possibly have a case against the bank they are entitled to advance based upon the concept of securitisation.
Secondly, the so-called liquidated damages provision is self-evidently unenforceable as a penalty: Legione v Hateley [1983] HCA 11; 152 CLR 406 at 445. As this was not argued it does not form a basis of my decision.
My orders are: 1. Under Rule 13.4 Uniform Civil Procedure Rules 2005 the proceedings are dismissed generally. 2. The plaintiffs are to pay the defendants' costs.

Maksacheff v Commonwealth Bank of Australia

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Judgment (7 paragraphs)

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