Matsoukatidou & Anor v Commonwealth Bank of Australia [2014] VSCA 229

ADMINISTRATIVE LAW - Whether the Court has jurisdiction to review a decision under the Terms of Reference of the Financial Ombudsman Service - Judge not entitled to look behind the representations regarding the determinations of the Financial Ombudsman Service under the Terms of Reference.

1 The applicants, Betty and Maria Matsoukatidou (the 'Matsoukatidous') seek a stay of orders made on 30 May 2014 by Judge Cosgrave of the County Court, in an application for summary judgment by the respondent, the Commonwealth Bank of Australia ('CBA').

2 The summons seeking a stay arises out of proceedings brought by CBA to recover an investment home loan of $600,980 made to Betty Matsoukatidou under a loan agreement of 23 April 2007. The loan was secured over property in Tecoma of which the applicants were registered proprietors as tenants in common.

3 Maria Matsoukatidou guaranteed the loan to a limit of $594,217 plus enforcement expenses.

4 On 7 February 2011, the Bank served a Notice of Default and Notice of Demand on the Matsoukatidous, demanding payment of $17,223.78, by no later than 14 March 2011. If that amount was not paid the whole of the amount required to pay out the loan became immediately payable.[1]

5 On 5 April 2011, following a failure to comply with the Notices, CBA filed a writ in the County Court against the Matsoukatidous seeking, inter alia, possession of the Tecoma property.

6 By summons dated 6 March 2012, CBA applied for summary judgment in the County Court pursuant to r 22.02 of the County Court Civil Procedure Rules 2008 (Vic). The summons was originally returnable on 13 April 2012 but was subsequently adjourned several times for reasons explained below. It was finally resolved on 30 May 2014.

7 Between 2012 and the handing down of the summary judgment against which the Matsoukatidous have now appealed, they lodged several disputes with the Financial Ombudsman Service ('FOS'), against CBA. The first dispute (Number 281332) was filed on 20 April 2012. It complained about a notice received by the Matsoukatidous requiring repayment of $16,000 in arrears and relied on hardship as the basis for altering their repayment obligations.

8 The following events are described in the respondent's submission as follows:

That dispute was settled pursuant to a Resolution and Release Agreement dated 26 October 2012 (the Resolution Agreement). The Resolution Agreement provided that from 28 December 2012 to 30 June 2013 reduced monthly payments of $4,000 would be made to the Investment Home Loan. The full balance of the loan would be repaid or a letter would be provided confirming unconditional approval from another lender to refinance the full balance of the Investment Home Loan by 30 June 2013. On 28 December 2012 the First Appellant failed to pay the instalment of $4000. The date for payment was extended to 22 January 2013. On that date the First Appellant paid $3,500.

On 23 January 2013 the First Appellant lodged a dispute 311375 with FOS...[This dispute related to the requirement that the applicants pay the legal costs of the Bank].

By letter dated 30 October 2013 from FOS to the First Appellant it was stated that Tim Goss Manager Operations had thoroughly reviewed disputes 28132 and 311375 and that dispute 311375 remained excluded from FOS's jurisdiction for the reasons provided in the letter dated 20 May 2013.

Betty Matsoukatidou subsequently submitted dispute 336085.[2]

9 In the letter from FOS to the Matsoukatidous dated 30 October 2013 no reference was made to dispute 336085, although the letter addressed a number of matters raised in by dispute 336085, including a complaint by the Matsoukatidous that FOS had disclosed to CBA that there had been a house fire on the Tecoma property, that the house fire had resulted in hardship to the Matsoukatidous, and that a complaint about the failure of the mortgage insurer to indemnify them, should not have been treated as a separate dispute but as part of the complaint relating to hardship.

10 On 29 May 2014, shortly before the Bank's application for summary judgment was to be heard by Judge Cosgrave, the Matsoukatidous raised two other disputes (disputes 363161 and 363281), each of which also relied on the hardship they would suffer if they were required to comply with the terms of the loan. That hardship application appears to relate to both the fire, which burnt down the building on the Tecoma property, and to the failure of the mortgage insurer to pay the amount insured.

11 When the application for summary judgment was heard on 30 May 2014, Judge Cosgrave inquired whether there were any outstanding disputes with FOS which would preclude the making of orders against the Matsoukatidous. FOS Terms of Reference ('Terms of Reference') cl 13.1(a)(i)-(ii) (subject to certain exceptions not relevant to this matter) provide:

a) ... where an Applicant lodges a Dispute with FOS, the Financial Services Provider:

(i) must not instigate legal proceedings against the Applicant or any Other Affected Party relating to any aspect of the subject matter of the Dispute;

(ii) 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 provided the Dispute is lodged before the Applicant or Other Affected Party takes a step in those legal proceedings beyond lodging a defence or a defence and counterclaim (however described); or

(iii) must not take any action to recover a debt the subject of the Dispute, to protect any assets securing that debt or to assign any right to recover that debt,

while FOS is dealing with the Dispute.[3]

12 The applicants contended before Judge Cosgrave that there were still outstanding disputes against CBA which were currently being investigated by FOS, so that CBA was precluded from seeking summary judgment. In that context there was discussion between Betty Matsoukatidou and Judge Cosgrave relating to hardship said to arise because of the fire, and the insurance matter.[4] It was contended that FOS had wrongly taken the view that these disputes had been resolved in substance.

13 The respondent submitted that all disputes before FOS had been resolved and, in particular, that FOS's action in deleting the 29 May 2014 disputes (363161 and 363281) FOS was appropriate as these disputes concerned matters which FOS had previously addressed.

14 After hearing the parties, the judge adjourned the proceedings to clarify the question of whether, as the Matsoukatidous had submitted, there were still outstanding disputes which were being investigated by FOS. The judge indicated that if there were no outstanding disputes then he would make the orders which were subsequently made. The transcript shows that Ms Betty Matsoukatidou answered 'yes', when it was put to her that the judge intended to follow that process.[5]

15 Following the adjournment, the CBA filed affidavits exhibiting emails from FOS which indicated that there were no outstanding disputes and that disputes 363161 and 363281 had been dealt with or deleted (the 'No Dispute Emails').

16 As a consequence the judge did what he foreshadowed he would do and ordered that:

• The plaintiff recover possession of the land described in Certificate of Title Volume 10702 Folio 115, situated and known as 132 Belgrave-Ferny Creek Road, Tecoma Victoria 3160;
• The first defendant pay the plaintiff the sum of $763,128.17;
• The second defendant pay the plaintiff the sum of $594,217.00; and
• The defendants pay the plaintiff's costs of the proceeding, including any reserved costs of the application relating to the proceeding before Judge Cosgrave.
• The defendants pay the plaintiff's costs of the proceeding (including any reserved costs) and the costs of this application.

17 The Matsoukatidous filed a Notice of Appeal against Judge Cosgrave's orders on 13 June 2014. By summons dated 21 August 2014, the Matsoukatidous seek a stay of Judge Cosgrave's orders pending the determination of the appeal.

18 The test for determining whether a stay should be granted was set out by DoddsStreeton JA in Maher v Commonwealth Bank of Australia. She observed that:

Prima facie, a successful party is entitled to the benefit of the judgment obtained below and the presumption that the judgment is correct. The applicant for a stay therefore bears the onus of demonstrating that a stay is justified. [6]

19 Her Honour referred to the judgement of Young CJ (with whom Brooking J agreed), in Cellante and Ors v G Kallis Industries Pty Ltd to the effect that an 'an applicant for a stay under Rule 66.16 must show 'special or exceptional circumstances to take the case out of the general rule that an appeal does not operate as a stay.'[7] The fact that an appeal could be rendered nugatory if a stay were not granted could amount to a special circumstance but:

The prospect that the appeal may be rendered nugatory must be balanced against the principle that the successful party is entitled to the fruits of the judgment. A stay should not be granted unless there is at least an arguable ground of appeal, although otherwise speculation as to the ultimate prospects of success is usually inappropriate.[8]

20 We note that of course that this case concerns an application for summary judgment. The principles outlined by DoddsStreeton JA may be applied more liberally in the context of a summary judgment. In weighing up the balance of convenience, the court may also consider grounds or reasons that support an application to set aside the summary judgment which do not go to the merits of the substantive case.[9] Ultimately, however, such material will be of little assistance to the court, where, as we consider applies in this case, the applicant has no substantive defence to the cause of action.

21 In support of their application the applicants contend that at the very least disputes 363161 and 363281 remain outstanding. In oral submissions counsel for the applicant referred to cl 5.3 of FOS Terms of Reference:

5.3 Process for exclusion of Disputes

a) Where a Dispute is lodged with FOS and:

(i) FOS considers that these Terms of Reference exclude the Dispute; or

(ii) FOS decides to exercise a discretion under these Terms of Reference to exclude the Dispute,

FOS will advise the Applicant (and any other parties that are involved in and have been informed about the Dispute) and provide reasons for this assessment.

b) If, within 30 days of receipt of this advice, the Applicant objects to an assessment made by FOS in accordance with paragraph a), FOS will review the matter if FOS is satisfied that the Applicant's objection may have substance. If so:

(i) FOS will inform the other parties involved in the Dispute;

(ii) all parties will be given an opportunity to provide submissions;

(iii) all parties will be provided with copies of each other's submissions; and

(iv) FOS will review the matter and provide the parties with FOS's final decision referred to as a Jurisdictional Decision - this will set out the reasons for the decision.[Emphasis added] [10]

22 This provision, in effect, requires FOS, if it considers the Terms of Reference exclude a dispute, and that the applicant's objection to that decision 'may have substance', to advise the applicant and any other parties that involved and have been informed about the dispute, of FOS's assessment. FOS is also required to provide reasons for the assessment and to permit the applicant to object to the assessment made by FOS. FOS is then required to review the matter and provide the parties with FOS's final decision.

23 Counsel for the applicant contended that because FOS had not gone through this process, FOS had no power to delete disputes 363161 and 363281, which therefore remained outstanding.

24 In our view this interpretation ignores the qualification in cl. 5.3(b) of the Terms of Reference, that FOS must be satisfied that the applicant's objection 'may have substance'. Further, it would produce an absurd result because it would allow an applicant to continually raise new disputes and require FOS to give the applicant a new opportunity with each separate dispute lodged, to make submissions on the decision of FOS to exclude the dispute. The effect would be that any relevant court proceeding on foot, could be stayed indefinitely pending the resolution of each fresh dispute filed with FOS.

25 The main argument made by counsel, however, was that the judge below did not accord natural justice to the Matsoukatidous because he did not give the Matsoukatidous the chance to comment on the No Dispute Emails provided by FOS to CBA and subsequently filed with the court, notifying CBA that, as at 30 May 2014, FOS considered that there were no current disputes involving the Matsoukatidous and CBA.

26 In its submission, CBA conceded that, if the stay were not granted and the Tecoma property was sold, the appeal would be rendered substantially nugatory. However, CBA submitted that this should be balanced against the fact that the Matsoukatidous had not pleaded any substantive ground of defence to CBA's claim that the loan arrears are $177,602 as at 28 August 2014, with interest accumulating at $126.81 per day and that the grant of the stay would not, in substance, alter the position of the Matsoukatidous. They would remain liable for the amount owing on the loan as a borrower and guarantor and that liability was secured by the mortgage in the name of CBA over the property. Even if the Matsoukatidous succeeded on appeal, the balance of the loan would remain due and owing and continue to be secured. In our view, the Matsoukatidous have not shown special or exceptional circumstances justifying the grant of a stay. The loan payments are substantially in arrears and even if the judgment were stayed, they would still remain liable for the loan and liable to have the property sold to realise the security because they have not advanced any substantive defence.

27 In effect, the submission that the judge erred in failing to examine whether FOS had in fact properly determined that there was no outstanding dispute between the Matsoukatidous and CBA, amounts to a collateral challenge to the manner in which FOS applied its Terms of Reference.[11] However, a decision of FOS to exclude a dispute is not judicially reviewable.[12]

28 There was nothing before Judge Cosgrave, and nothing before this Court which indicates that FOS has acted in such a way that would enable the Court to go behind the assertion by FOS that there were no outstanding disputes lodged with FOS that concerned the Matsoukatidous and CBA.

29 In so far as the applicants complain about the alleged failure of the judge, to accord the Matsoukatidous natural justice because he did not give the Matsoukatidous a chance to make submissions on the content of the No Dispute Emails, this argument must be rejected.

30 As we have said, the Matsoukatidous were given an opportunity to challenge FOS contention that the disputes had been dealt with. In fact Ms Betty Matsoukatidou did so by arguing that her hardship grounds had not been properly been addressed, and that no account had been taken of the hardship that she and her family had suffered because of the need to vacate the Tecoma property after a fire burnt down the building.

31 Further the judge had made it clear to the Matsoukatidous that if FOS indicated that there were no outstanding disputes, he would make the orders sought, which he ultimately made.

32 In our view, neither the complaints made in the hearing today, nor the complaints in the Notice of Appeal filed on 14 June 2014, which refers to corrupt disclosure, use of personal information by public sector officials and complaints made to ASIC of official misconduct, have any prospect of success.

[1] Under clause 9.3 of the Usual Terms and Conditions for Consumer Mortgage Lending which applied to the loan obtained by the Matsoukatidous from CBA, CBA was entitled to decide, without further notice that all money owing by the Matsoukatidous was due and payable immediately, to sue the Matsoukatidous for payment, and to exercise its rights under the Security to sell the property.

[2] Commonwealth Bank of Australia, 'Respondent's Outline of Submission to the Application for a Stay', Submission in Matsoukatidou v Commonwealth Bank of Australia, S APCI 2014 0067, 8 September 2014, [6]-[11].

[3] Financial Ombudsman Service, Terms of Reference 1 January 2010 (as amended 1 January 2014), cl 13.1.

[4] The transcript of proceedings before Judge Cosgrave does not indicate that the applicants relied on the fact that the applicants were seeking a new planning permit to develop the Tecoma property, following the expiration of a previous planning permit for its subdivision and development. However, this issue was raised in the hearing of the application before this Court.

[5] Transcript of Proceedings, Matsoukatidou & Anor v Commonwealth Bank of Australia (CI-11-01475, Judge Cosgrave, 30 May 2014), 16-17.

[6] [2008] VSCA 122 [20].

[9] Compare Lubura v Nezirevic [2013] VSCA 215, though this was a case where the defendant sought to set aside a default judgment. The test for setting aside summary judgment was considered in Lysaght Buildings Solutions Pty Ltd v Blamalko Pty Ltd [2013] VSCA 158.

[10] Financial Ombudsman Service, Terms of Reference 1 January 2010 (as amended 1 January 2014), cl 5.3(k).

[11] The distinction between a direct and collateral challenge turns on the form of the remedy sought. Craig PP, Administrative Law (2nd ed, Sweet & Maxwell, 1989) p 320 indicates that the direct/collateral attack distinction may be drawn on two alternative bases: the form of the remedy, or the scope of the review given by the remedy, rather than its form. The latter approach is taken in the well-known exposition by Rubinstein A, Jurisdiction and Illegality: A Study in Public Law (Clarendon Press, 1965) pp 37-39: 'In the last resort, it is not the form of the remedy, but the scope of review afforded by it, which determines its nature. If this scope is confined to an examination of the nullity of the challenged decision, the proceedings are collateral; but if it extends to the merits of the case, the proceedings are direct.'

[12] Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456. See also Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179.