National Australia Bank v David Clark & Ors

Judgment 1In 2002 the plaintiff, National Australia Bank Limited, advanced substantial sums to the 1st and 2nd defendants, David and Renae Clark, secured by mortgages over two properties: one at Cessnock, owned by them jointly, and another at Kurnell, owned by Renae Clark. In the following year, the bank advanced a further sum to the third defendant, a company conducted by Mr and Mrs Clark, secured by their personal guarantees and the mortgage of the Cessnock property. The company is now in liquidation. 2By a statement of claim on 5 March 2009, the bank alleged default in repayment of these loans and sought possession of the two properties, together with monetary judgment against the three defendants. The proceedings have a somewhat complicated history and, for reasons which I need not recount, no defence was filed. The bank took possession of the Cessnock property and it has been sold. On 14 December 2012 the bank obtained default judgment for possession of the Kurnell property. An application by Mr and Mrs Clark to Registrar Bradford to set that judgment aside was unsuccessful. 3The application turned primarily upon whether there was an arguable defence to the claim for possession of the property. A draft defence and cross-claim were produced. These were based on an affidavit of Renae Clark of 7 May 2013, to which I shall refer shortly. Registrar Bradford found that the defence and cross-claim did not disclose arguable issues in respect of the claim for possession, although they might raise matters in respect of which remedies could be sought in separate proceedings. 4Before me is an appeal against the Registrar's decision. In lieu of the defence and cross-claim, counsel for Mr and Mrs Clark, Mr McQuillen, relied on a new, refined, defence. It was to this defence that argument before me was directed. 5The advances to Mr and Mrs Clark (as opposed to the company) were the subject of two accounts, and were made pursuant to a facility agreement of 14 August 2002. That agreement provided for interest only payments over a period of five years, with payment of the principal amounts at the expiration of that period. The bank alleges that those principal amounts have not been paid, and that Mr and Mrs Clark have been in default in respect of both accounts since 23 August 2007. That the principal amounts have not been paid is not in dispute. 6Mrs Clark deposed in her affidavit that, in a telephone conversation in mid-July 2007, she told the manager of the relevant branch, Mr Wilson, that she and her husband were about to travel overseas. Mr Wilson said that their "current facilities" were coming up for renewal and that, upon their return, they would need to sign the necessary documentation to extend them for another three years. Mrs Clark said that previously, when their affairs were in the hands of an earlier manager, Ms Woods, she had been able to roll over other facilities "on a very informal basis". Ms Woods would phone them, asking them to come in and sign the necessary documentation which the bank had prepared. She went on to say that, a few days after the phone conversation with Mr Wilson to which I have referred, she had a conversation with him in his office about another matter, in the course of which he said, "We will look after renewing those other loans when you return from overseas." 7Mrs Clark's affidavit goes on to recount protracted dealings with the bank concerning this matter and another matter which, if accepted, do not reflect well upon the bank. However, it is not for me to express a view about the bank's conduct. I must focus on those parts of the affidavit which could bear upon the bank's claim to possession of the Kurnell property. 8According to Mrs Clark, that other matter, which I need not explain, led to her and her husband becoming dissatisfied with Mr Wilson. They returned from overseas early in August 2007, and on 6 August their finance broker, Mr Christoforou, contacted his NAB business development manager and forwarded to him documentation so that he could take over their affairs. Mr Christoforou reported to Mrs Clark the confirmation by that business manager that he would approve the loans and roll over the facilities which they currently had with the bank. However, Mr Wilson refused to hand over their file to that business manager. In the event, documentation enabling extension of the facilities was never signed. 9Nevertheless, for the period from 23 August 2007 to 2 June 2008 Mr and Mrs Clark continued to make interest payments in respect of the two loans to them personally. In February 2008 the bank issued default notices and froze the two accounts, but in the same month those notices were withdrawn and the accounts reinstated. Dealings with the bank continued until 2 June 2008, but on that date the accounts were again frozen and further default notices were issued. It is those notices upon which the bank relies for the present proceedings, together with letters of demand of 5 January 2009. No further interest payments have been made since 2 June 2008. It is the Clarks' case, expressed in the draft defence, that they tendered payments on or about that date but the bank refused to accept them, having "cancelled" the facilities without any reasonable notice to them. 10Late in November 2007 they obtained approval from HSBC for a substantial loan facility capable of refinancing their commitments to the bank. At that stage, however, they wished to remain with the bank, albeit dealing with a different manager. 11Early in January 2009 the bank listed a default, apparently relating to a credit card of Mr Clark, with the credit reporting agency, Veda Advantage. In September of that year that listing was found to have been an error, and the bank had Veda Advantage remove it. In the meantime, in July 2009, they were informed by HSBC that the loan facility which had been approved could not proceed because a credit check had brought up a default. Asked by a lending consultant with HSBC to produce bank statements, Ms Clark acknowledged that they would reveal that no payments had been made in respect of the loans since June 2008. Approaches to other lenders also met with no success because of the default listing or because it appeared from their bank statements that their loan accounts with the bank were in arrears. 12Put shortly, Mr McQuillen submitted that this material could form the basis of a challenge to the bank's case that there had been default in payment entitling it to bring the present proceedings and, in particular, to claim possession of the Kurnell property. He relied upon the bank's receipt of continued interest payments between August 2007 and June 2008, after the expiry of the term of the loans, and the course of events exposed in Mrs Clark's affidavit. 13The defence case is conveniently encapsulated in par 35 of the draft defence in this way: In or about July and August 2007, the bank represented to Mr and Mrs Clark (and, through them, to the company) that the period for payment of the principal sums under the three facilities, and pursuant to the mortgages, "was to be renewed and/or extended for a further period of 3 years at a rate of interest to be fixed." The representation was said to be partly express and partly implied. To the extent that it was express, reliance is placed on Mr Wilson's conversations with Mrs Clark in July 2007 and the communication between Mr Christoforou and his business manager in August 2007. Reliance is also placed on certain email communications between Mr Wilson and Mr and Mrs Clark. To the extent that the representation is said to be partly implied, that implication is said to arise from the following: Before Mr and Mrs Clark left for overseas in July 2007, Mr Wilson told Mrs Clark that the bank would renew the three facilities when they returned from overseas, subject to their completion of formal documentation required by the bank upon their return. On or about 6 and 23 August 2007, Mr Christoforou was advised by his business manager that renewal of the loans had been approved. In the course of dealings over a 5 year period with the previous branch manager, Ms Woods, facilities had been renewed "by means of similar representations as were made by Mr Wilson." Mr and Mrs Clark were not told by the bank that the facilities would not be renewed until they received default notices. Acting in reliance upon that representation and induced by it, Mr and Mrs Clark expected renewal of the facilities to be approved for a further 3 years and that they were not required to pay the principal sums until the expiration of that 3 year period. Based on that expectation, they refrained from accepting the offer from HSBC at the time it was made and, having taken that course, their credit rating with other lenders was damaged as a result of the bank's reporting them to "Credit Reporting Agencies". They have since been unable to secure funding with which to pay the principal sums owing to the bank and, further, have been subjected to the present proceedings. 14The defence pleads waiver, estoppel or the formation of a new agreement. It is also claimed that the representation by the bank relied upon amounts to conduct which was misleading or deceptive, or was unconscionable, contrary to the Australian consumer law. 15Finally, the defence also relies upon s 92(1) of the Conveyancing Act 1919, which provides: "Where the mortgagor has made default in payment of the principal sum at the expiry of the term of the mortgage, or of any period for which it has been renewed or extended, and the mortgagee has accepted interest on the said sum for any period (not being less than three months) after default has been so made, then, so long as the mortgagor performs and observes all covenants expressed or implied in the mortgage, other than the covenant for payment of the principal sum, the mortgagee shall not be entitled to take proceedings to compel payment of the said sum, or for foreclosure, or to enter into possession, or to exercise any power of sale, without giving to the mortgagor three months' notice of his or her intention so to do." 16For this purpose, Mr McQuillen noted that the bank had accepted interest payments between August 2007 and June 2008. The default notices of 2 June 2008 demanded payment within 31 days of service, and the letters of demand of 5 January 2009 required payment within 7 days. These periods, he argued, fell well short of the 3 months' notice required by the subsection. He acknowledged that this was a second string to his bow, and that the central issue was whether the conduct of the bank created a waiver, an estoppel or a new agreement. 17In my view, Mr McQuillen's arguments, enshrined in the terms of the draft defence, were effectively answered by the submissions of counsel for the bank, Mr Koch. As to waiver, he pointed out that cl 26 of the mortgage memorandum required any waiver or variation of the mortgage to be in writing signed by the bank. Generally, there is force in his argument that the conversation with Mr Wilson before Mr and Mrs Clark went overseas amounted to no more than a statement of the bank's preparedness to consider a roll over for a further 3 years upon their return, but did not amount to a commitment to do so. Any extension of the facilities was contingent upon the completion of the necessary documentation. The conduct of the bank described in Mrs Clark's affidavit, taken at its highest, could not imply the formation of a new agreement or constitute a representation by the bank that the facilities would be extended. 18Even if such a representation could be inferred in the early stages of the Clarks' dealings with the bank upon their return from overseas, it was abundantly clear that that was not the bank's position in June 2008, when the relevant default notices were served. The default notices of February 2008 which were withdrawn are not to the point. As Mr Koch put it, the fact that a demand was served and withdrawn does not amount to a representation that a further demand will not be made. 19Nor, on this issue, could the Clarks rely upon the bank's receipt of their continued interest payments between August 2007 and June 2008. During that period the matter was the subject of negotiations which, as Mr Koch pointed out, would have been cut very short had the Clarks not continued to meet the interest accruing. Mr Koch challenged the assertion in the draft defence that after the accounts were frozen in June 2008 the bank refused the tender of further interest payments, saying that it was inherently unlikely that the bank would adopt that approach. I can see the force of that argument but I need not express any concluded view about it. 20Mr Koch also took issue with the assertion in the defence that the bank had reported the Clarks to credit reporting agencies. As I have said, there was evidence of a default listing in respect of a credit card of Mr Clark, which was later withdrawn. Annexed to Mrs Clark's affidavit is a copy of the Veda Advantage credit file in respect of her. It records her applications for credit to various financial institutions, but does not disclose any default on her part. In response, Mr McQuillen said that there might be further evidence on that topic which was not before me. 21However that may be, I do not see this issue as one of importance. As I understand Mrs Clark's affidavit, the difficulty in refinancing their debt to the bank through other institutions was the bank records disclosing no payment in respect of their facilities since June 2008. In any event, this matter bears upon the detriment Mr and Mrs Clark claim to have suffered in reliance upon the representation by the bank for which they contend. Their defence fails at the outset because no such representation could be established. 22As to s 92 of the Conveyancing Act, Mr Koch pointed out that the requirement in subs (1) is contingent upon the observation of "all covenants expressed or implied in the mortgage, other than the covenant for payment of the principal sum ... ." He argued that the fact that Mr and Mrs Clark made no interest payments from June 2008 amounted to a failure to observe a relevant covenant. More importantly, he pointed out that, relevantly for present purposes, the provision is directed to the commencement of proceedings by the bank to enforce its rights. It is not directed to the periods expressed in a default notice or a demand for payment. In this case default notices, served in June 2008, threatened enforcement proceedings if the defaults were not rectified. The present proceedings were not instituted until March 2009. Thus, the Clarks had 9 months' notice of the bank's intention to take that course. This, I accept, is sufficient to meet the s 92 defence. 23Accordingly, I am satisfied that Mr and Mrs Clark have not raised an arguable defence against the bank's claim for possession of the Kurnell property. Whether the matters of which they complain might found a claim against the bank for damages is a question upon which I express no view. The default judgment for possession of the property should stand. The appeal against Registrar Bradford's decision is dismissed.