Nichols Constructions Pty Limited v Elphick

Factual background

1. By written loan agreement dated 17 December 2013, Mrs Elphick borrowed $4,200,000 from Nichols Constructions and purchased a property known as xxxx Street Cronulla NSW ("the property"). As security for the obligations under the loan agreement Mrs Elphick granted Nichols Constructions a registered first mortgage dated 17 December 2013 over the property ("the mortgage").
2. At the time of entering into the above arrangement, Mrs Elphick had no form of income. She is a housewife (T16.13). She was the sole shareholder of a company Point Corporation Pty Ltd ("Point Corp"). Mr Elphick was the sole director of Point Corp and can be described as the driving force of Point Corp. Point Corp was engaged by Nichols Constructions to work in conjunction with it to, firstly, promote and market lots for sale that had been subdivided ("the Laidley land"); and secondly, to project manage the construction of homes on the subdivided lots. Point Corp was to be paid commissions for the sale of the lots as well as construction costs of the improvements to be erected on the subdivided lots. In early 2014, problems arose such that the subdivided lots could not be sold and improvements could not be constructed on the land. This resulted in sales not being achieved and constructions not proceeding.
3. Nichols Constructions' position is that the loan agreement and mortgage expressly required interest payments of $28,000 per month commencing 16 January 2014. Mrs Elphick did not make any interest payments required by the loan agreement. The loan agreement and mortgage also expressly required capital repayments of $285,000 per month commencing April 2014. It appears to be common ground that Mrs Elphick did not make any payments other than the sum of approximately $35,000.
4. It is convenient that I briefly refer to the pleading contained in the statement of claim.

The pleading in the statement of claim

1. Paragraphs [3] to [10] of the statement of claim plead: "3 On or about 17 December 2013, the plaintiff lent the defendant the sum of $4,200,000 pursuant to a loan agreement signed by the defendant on 17 December 2013 (Loan Agreement). 4 The Loan Agreement was secured by a mortgage over the property dated 17 December 2013 and registered number AXXXXXX (Mortgage). 5 The final principal sum repayable pursuant to the Loan Agreement, as set out in the Schedule to the Loan Agreement, was $4,684,000. 6 Clauses 6, 7 and 8 of the Loan Agreement provided that the defendant must repay to the plaintiff the principal sum and interest in the manner specified in the Schedule to the Loan Agreement together with all legal costs, fees and enforcement expenses. 7 In breach of Clauses 6 and 7 of the Loan Agreement, the defendant had defaulted on the Loan Agreement by the failure to make payments of principal and interest as set out in the Schedule to the Loan Agreement. The defendant has failed to make any of the required monthly payments in full. As at 6 November 2014 the outstanding balance/arrears of the loan together with interest was $6,388,030. 8 Clause 13 of the Loan Agreement provides that upon default in due and punctual payment of any part of the principal sum, the total amount of the principal sum remaining unpaid at the date of default immediately becomes due and payable. 9 The plaintiff served a default notice issued pursuant to s 88 of the National Credit Code (Default Notice) and a notice issued pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) (s 57(2)(b) Notice) on the defendant on 4 June 2014. 10 The defendant failed to comply with the terms of the default notice and the s 57(2)(b) Notice."
2. In other words, Nichols Constructions bases its claim upon Mrs Elphick's failure to pay pursuant to the obligations under her loan agreement. It should also be noted that the judgment sought in the statement of claim is for the monetary sum of $6,388,030 (relief claimed [1]).

Setting aside default judgment

1. The power to set aside judgment is contained in UCPR 36.15 and 36.16. They relevantly read: "36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3) (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent. 36.16 Further power to set aside or vary judgment or order (cf SCR Part 40, rule 9) (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. …"
2. The most recent Court of Appeal authority considering an application to set aside default judgment pursuant to UCPR 36.16, is Stankovic v Magee [2014] NSWCA 439. In Stankovic, Macfarlan JA (with Basten and Gleeson JJA agreeing) stated at [18]: "[18] In reaching this conclusion, the Judicial Registrar stated that there needed to be 'some demonstration by the defendant by clear evidence that [he has] a good defence on the merits'. This put the bar too high. As Sackville AJA (with the agreement of Barrett and Leeming JJA) said in Dai v Zhu [2013] NSWCA 412 at [89], 'a defendant who seeks to set aside a judgment by default regularly obtained must show that he or she has a bona fide defence'. His Honour at [92] continued: [92] In determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case: Adams v Kennick Trading, at 507; CBA v Humphreys, at [3]. All that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue. The nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant's explanation for the delay or failure to comply with the orders of the court Adams v Kennick Trading, at 506; Nash v Swinburne. [93] The application of these principles must now be subject to the provisions of the [Civil Procedure Act 2005 (NSW)]. If, for example, the circumstances of a particular case are such that it would be contrary to 'the just determination of the proceedings' (s 57(1)(a)) to require a defendant to adduce affidavit evidence demonstrating a bona fide defence, the Court would be unlikely to reject the defendant's application to set aside a default judgment solely on the ground that no such affidavit had been filed. Each case must of course depend on its own facts. But it is fair to say that the principles articulated in the cases decided before the enactment of the [Civil Procedure] Act are consistent with the criteria laid down in the legislation."
3. Another consideration to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995) 128 FLR 263; (1995) 38 NSWLR 476 at 481 quoting from 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 courts 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. …"
4. I will consider whether firstly, Mrs Elphick has provided a satisfactory explanation for delay; secondly, whether she has a bona fide defence and an arguable or triable issue; thirdly, ss 56, 57 and 58 of the Civil Procedure Act 2005 (NSW); and fourthly, the interests of justice.
5. The final issue to be determined is whether the default judgment for the monetary sum should be set aside on the basis of irregularity.

(a) Explanation for delay

1. On 11 November 2014, a statement of claim was filed. On 22 November 2014, the statement of claim was served. On 24 November 2014, Mrs Elphick instructed Anthony Licardy, solicitor ("Mr Licardy"). On 17 December 2014, Mr Licardy informed the Nichols Constructions' solicitors that the proceedings would be vigorously defended. On 24 December 2014, Mr Licardy advised the solicitors for Nichols Constructions that his client would not be able to file a defence and cross claim and sought an extension of time for Mrs Elphick to file her defence to 30 January 2015. The solicitor for Nichols Constructions agreed.
2. On 31 January 2015, (the day after the defence was due to filed), Mr Licardy advised the solicitors for Nichols Constructions that contracts of sale for the property had been exchanged on 4 December 2014 and settlement was to take place on 12 February 2015. However, no sale eventuated.
3. On 3 February 2015 (three days after the extension to file the defence had expired), default judgment was entered in relation to possession of the property. On 5 March 2015, a writ of possession was issued. Arrangements were made to take possession of the property on 21 April 2015.
4. On 13 February 2015, default judgment was entered that Mrs Elphick pay to Nichols Constructions the monetary sum of $6,388,030. Nichols Constructions has sought and obtained default judgment for the incorrect amount. The judgment sum overstated the amount of the debt. The correct amount is either $5,195,000 or $5,321,000. I shall refer to this error later in this judgment.
5. On 14 February 2015, Mr Licardy wrote to the solicitors for Nichols Constructions and advised: "…On our instructions, our respective clients had a heated discussion about a number of issues in which your client indicated his intentions to travel to Sydney on Monday 16th February 2015, for the purpose of listing the property … for sale, which is the property, the subject of the above proceedings. In our correspondence to you dated 24th December 2014, it was brought to your attention that there were a number of issues between our client's husband Ken Elphick and Les Nichols which needed to be resolved before the mortgage to your client was discharged. We are now aware that default judgment was entered against Mrs V Elphick on Friday 13 February 2015 and that your client now intends to travel to Sydney on Monday 16 February for the purpose of listing the Cronulla property for sale. Notwithstanding your instructions, we would have thought that, as a matter of professional courtesy, you would have informed us of your instructions to file for default judgment. We are instructed that our client will now move the Court next week to set aside the default judgment and will be seeking costs against your client on an indemnity basis."
6. On 16 April 2015, on an ex parte application, Mrs Elphick sought and obtained a stay of the writ of possession and was granted leave to file a notice of motion to extend the stay, which was to be returnable on 23 April 2015. The application was supported by an affidavit of Mrs Elphick dated 16 April 2015.
7. On 21 April 2015, Mrs Elphick filed the notice of motion to set aside default judgment, and served an affidavit of Mr Licardy dated 21 April 2015 together with an affidavit of Mr Elphick dated 21 April 2015.
8. On 23 April 2015, orders were made for Mrs Elphick to serve evidence in reply and the matter was listed for hearing on 7 May 2015.
9. On 1 May 2015, Mrs Elphick served a further affidavit of Mr Elphick. The hearing date of 7 May 2015 was vacated, orders were made for Mrs Elphick to serve her evidence by 14 May 2015 and the matter was listed for directions on 28 May 2015.
10. On 14 May 2015, Mr Licardy advised Mrs Elphick that he was no longer representing her. On 28 May 2015, Mrs Elphick's new solicitors filed a notice of appearance and the matter was transferred into the possession list for directions on 14 June 2015.
11. On 14 June 2015, Mrs Elphick sought leave to serve further evidence. Leave was granted to serve further evidence and any proposed defence she intended to rely on by 23 June 2015. On or about 24 June 2015, Mrs Elphick served further evidence and a proposed defence ("the proposed defence").
12. The delay between the first default judgment being entered (3 February 2015) and the filing of the notice of motion to set aside the default judgment (21 April 2015) is about seven weeks. Nichols Constructions has not referred to any prejudice it has suffered caused by the delay. Since the motion was filed, Mrs Elphick has served affidavits in support of her motion in a timely manner. In these circumstances, it is my view that Mrs Elphick has provided a satisfactory explanation for her delay.

(b) Whether there is a bona fide defence and an arguable or triable issue

1. Counsel for Mrs Elphick submitted that the proposed defence gives rise to an arguable or triable issue such that if the Court accepts that Mrs Elphick asserts it bona fide, Mrs Elphick, prima facie, has a defence. Senior counsel for Nichols Constructions disagreed.
2. Both parties have identified issues they say are raised in the defence, but some have been expressed in slightly different terms. The most contentious one is the pleading contained in paragraph 6 of the proposed defence. It pleads: "6. As to paragraph 6 of the Statement of Claim, the defendant: (a) says that it was a term of the Loan Agreement Document that the defendant was to repay to the plaintiff 'the principal sum' in accordance with clause 6(a) of the Loan Agreement Document and the accompanying Schedule; (b) says it was a term of the Loan Agreement and the Mortgage that the defendant was to repay principal and interest in accordance with the Schedule and the Spreadsheet attached to the Loan Agreement Document (the Spreadsheet) if and when the Subdivided Lots were sold and contracts for the construction of dwellings on those sold lots were entered into such that the amounts identified in the Spreadsheet were achieved; Particulars (i) This term was expressed and in discussions between Mr Nichols and Mr Elphick; (ii) In the alternative, this term was implied, and the implication arises: (a) from the written and oral parts of the Loan Agreement, including the discussion referred to immediately above and the Loan Agreement Document; (b) by law; (c) from the facts and circumstances set out above and in paragraphs 18 below. (c) says it was a term of the Loan and the Mortgage that the plaintiff was to use all reasonable endeavours and would carry out the subdivision work with reasonable care and skill and in a proper and workmanlike manner to ensure that the sale and construction amounts identified in the Spreadsheet were achieved. Particulars (i) This term was implied and the implication arises: (a) from the written and oral parts of the Loan Agreement, including the discussion referred to above and the Loan Agreement Document; (b) from the fact that the plaintiff (including its servants or agents) was responsible for subdividing the Laidley Land, which Point Corp, in turn, had to sell on behalf of the plaintiff and contracts for the construction of dwellings on those sold lots were to be entered into order for the amounts identified in the Spreadsheet to be achieved; (c) from the facts and circumstances set out above and in paragraphs 18 below."
3. In other words, did Mrs Elphick's obligation to repay the amount owing under the loan agreement only arise if and when the subdivided lots were sold and contracts for the construction of dwellings on those sold lots were entered into, such that as the amounts identified in the spreadsheet attached to the loan agreement were achieved, and Point Corp received commissions from the successful sale of the subdivided lots and the construction of improvements? This depends whether there was an oral term and if so, whether it formed part of the loan agreement.
4. Mr Elphick deposed (Affs, 21 April 2015, 1 May 2015) that in discussions prior to the loan agreement being entered into he said to Mr Nichols: "What will happen is that as Point Corp sells the land it will receive commissions and it will then pay back the loan." (Aff, 21 April 2015) "Each time a sale is made Point Corp will pay to Nichols Constructions the $100,000 purchase price that it receives from the third party and $10,000 which will come out [of] Point Corp's pocket, but which Point Corp will recover through the construction price. In making the payment of $100,000 Point Corp will pay over its commission of $28,500 for each sale from Nichols Constructions from April 2014. We will be aiming to do 10 a month. Nichols Constructions will keep that amount so that a total of $4,684,000 is paid by Vickie for the loan. The extra $484,000 on top of the interest and initial principal will be for the 44 earlier lots which have been sold at $99,000 instead of $110,000." (Aff, 1 May 2015) (oral term)
5. Whether these conversations took place is in dispute. Mr Nichols denies Mr Elphick ever having said words to the effect that the obligation to make interest and principal payments in accordance with the loan agreement and the mortgage were dependent upon successful sales and construction of houses.
6. There are three documents that are central to these proceedings. They are the loan agreement, the spreadsheet (attached to the loan agreement) and the mortgage. It is necessary to briefly refer to the relevant portions of these documents.
7. The loan agreement is between Mrs Elphick as mortgagor, Nichols Constructions Pty Ltd as mortgagee and Mr Elphick as guarantor.
8. Clauses 6 and 7 of the loan agreement provide: "6. REPAYMENT The Mortgagor hereby covenants with the Mortgagee: (a) To repay to the Mortgagee the principal sum on the day and in the manner specified in the Schedule hereto and otherwise in accordance with the provisions of this Agreement. (b) In addition to repaying to the Mortgagee the principal sum as aforesaid to pay any other moneys hereby secured or due hereunder to the Mortgagee in accordance with any Agreement in respect of the payment thereof made between the Mortgagor and Mortgagee and in default of such Agreement being made upon demand. 7. INTEREST The mortgagor covenants with the Mortgagee to pay interest to the Mortgagee upon the principal sum at the rate and at the time and in the manner specified in the Schedule hereto and to pay interest upon any other moneys hereby secured which are outstanding from time to time from the time or times that the same are paid advanced or may have become recoverable by the Mortgagee at the rate (or if more than one rate is specified at the higher of such rates) payable in respect of the principal sum as specified in the Schedule hereto such interest to accrue and be payable from day to day at all times save in the event of early repayment the provisions hereof shall be subject to the provisions of Clause 21."
9. The loan is for a two year period.
10. The schedule (referred to above) is as follows: "1. THE MORTGAGOR: Vickie Maree Elphick
11. THE MORTGAGEE: Nichols Constructions Pty Ltd ACN 010 763 505
12. PRINCIPAL SUM $4,200,000.00
13. RATE OF INTEREST: 12% per annum ('the higher rate') PROVIDED HOWEVER that if the Mortgagor shall pay to the Mortgagee the said instalments on the due dates then the Mortgagee will accept interest at the rate of 8% per annum ('the lower rate') in lieu of interest at the said higher rate. Furthermore the Mortgagor will make the payment in accordance with the attached Spreadsheet.
14. REPAYMENT OF THE PRINCIPAL SUM AND PAYMENT OF INTEREST: The Mortgagor will pay to the Mortgagee the amount of $4,684,000.00 ('the final principal sum') together with interest and any other moneys owing hereunder on or before 16 December 2015 from the date thereof.
15. INTEREST: (i) The Mortgagor will pay to the Mortgagee interest on the said sum or on so much thereof as shall from time to time remain unpaid and on all other monies owing herein mentioned at the rate of 12% per annum, such interest to be calculated and charged monthly in advance. (ii) The Mortgagor will pay to the Mortgagee interest on the principal sum by monthly instalments computed from the 16th day of each month and the first of such payments to be made on the 16th day of January 2014…"

The spreadsheet (referred to at 4 in the schedule above)

1. Although the spreadsheet is referred to under the heading "Rate of Interest", this spreadsheet refers to principal payments only. "Laidley land sale and construction schedule Category January 2014 February 2014 March 2014 Total to March 2014 Land 0 10 10 30 Land Payment 10X$110K = $1.100M 10 X $110K = $1.100M 10 X $110K = 1.100M $3.300M Construction 0 0 0 0 Payment Nil Nil Nil Nil

Category April 2014 Land 10 Land Payment 10 X $110K = $1.100M Construction 10 Payment 10 = $285,610

…"

1. Up until and including March 2014, the schedule shows that no construction costs are payable and the payment of principal is nil during those months. From April 2014 to the end of the mortgage (16 December 2015), the schedule shows that there are specified construction units and principal amount that are repayable (only January 2014 to April 2014 are reproduced in the schedule above). These entries in the spreadsheet provide some support for the alleged terms in the oral term.

The mortgage

1. Senior counsel for Nichols Constructions submitted that clause 6 of the mortgage conditions provides for the payment of principal and interest, and is unqualified.
2. Clause 6 of the mortgage relevantly reads: "… the Mortgagor will pay the principal and interest on the principal sum or on so much thereof as for the time being shall remain unpaid, and upon any judgement or order in which this or the preceding covenant may become merged at the higher rate as follows, namely, by equal monthly payments on the day shown in the summary each and every month in each and every year until the principal sum and interest shall be fully paid and satisfied, the first of such payments computed from the date of loan to be made on the day shown in the summary and compounding monthly from the date upon which the amount becomes due until payment. "
3. The schedule, annexure A, to the mortgage relevantly reads: Principal $4,200,000.00 Final Principal $4,684,000.00 Term of loan 2 years Date of repayment On or before 16 December 2015 Address of security property xxxxxx, Cronulla NSW 2230 Higher rate of interest 12% Lower rate of interest 8% Instalments interest only or principal and interest Principal and Interest Date of first instalment 16 January 2014 Date of subsequent consecutive monthly instalments 16th day of each month Additional interest on early repayment 1 month

1. This schedule shows that in addition to principal and interest payments, Mrs Elphick has to repay an additional sum of $684,000.
2. Senior counsel for Nichols Constructions referred to Equuscorp Pty Ltd v Glengallan Investments (2004) 218 CLR 471; [2004] HCA 55 where the plurality held at [33] - [36] [citations omitted]: [33] The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents' case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither. [34] There are reasons why the law adopts this position. First, it accords with the 'general test of objectivity [that] is of pervasive influence in the law of contract'. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions. [35] Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. Different questions may arise where the execution of the written agreement is contested; but that is not the case here. In a time of growing international trade with parties in legal systems having the same or even stronger deference to the obligations of written agreements (and frequently communicating in different languages and from the standpoint of different cultures) this is not a time to ignore the rules of the common law upholding obligations undertaken in written agreements. It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside. [36] The conclusion that the respondents are bound by the written loan agreements may leave open the possibility that an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents' case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties' agreement recorded in the writing they executed. It is the written loan agreement which governed the relationship between Rural Finance and each respondent."
3. Senior counsel for Nichols Constructions submitted that the oral term is inconsistent with the express terms of the loan agreement and mortgage, that do not make the repayment obligations conditional in any way, and further that an analysis of the relevant provisions of the written agreements demonstrates that they are not subject to any conditions such as is pleaded in paragraph 6(b) of the proposed defence.
4. According to senior counsel for Nichols Constructions, if the oral term is not an express term of the contract, then it cannot be an implied term because it does not satisfy the tests for implication of an ad hoc term. Nichols Constructions asserted that the first and most obvious problem is that the implied term would be inconsistent with the express terms of the contract: see Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5 at [38] per Gleeson CJ (Gaudron, McHugh, Gummow and Hayne JJ agreeing); and that the requirements for implication of an ad hoc term are well settled: see Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, Mason J at 347.
5. Finally, senior counsel for Nichols Constructions asserts that the implication would radically subvert the allocation of risk, which Mrs Elphick accepted, and that it is not reasonable to introduce a term which would impose the risk of the borrower being unable to repay the loan on the lender. He submitted that such a term would subvert commerce, as borrowers not lenders should assume the risk that they will be unable to repay the loan.
6. I am prepared to accept Nichols Constructions' proposition in relation to the construction of the terms of the mortgage that parties are bound by written loan agreements. But where there is ambiguity, the Court may look to where the language of a contract is ambiguous or susceptible of more than one meaning, and objective evidence of the surrounding circumstances known to both parties is admissible to assist in the interpretation of the contract: see Codelfa.
7. However, my task is not to embark on a hearing of the full merits of the case. My task is to determine that the defence as asserted is bona fide and that there is an arguable or triable issue. If I am wrong and paragraph [6] is not arguable, the oral term is also relevant to the next claim, namely whether the loan agreement is unjust pursuant to the Contracts Review Act 1980 (NSW). As the Contracts Review Act claim also involves the same documents, I consider paragraph [6] of the proposed defence should proceed to trial.

Contracts Review Act

1. It is alleged that the loan agreement is unjust within the meaning of s 7 of the Contracts Review Act and s 76 of the National Credit Code for the reasons set out in [18] of the proposed defence. They are that the loan was, otherwise, a pure asset loan; that while Mrs Elphick only received $4,200,000, she was obliged to repay $4,684,000 plus interest; and if she defaulted, interest was at 12% compounded under the mortgage and she had no income of her own. She is a housewife.
2. In Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 at [51] Brereton J noted that the relevant questions when considering whether a contract is unjust are: "…whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment [Antonovic v Volker (1986) 7 NSWLR 151 at 154-155 (Samuels JA, Kirby P agreeing); Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 270E (Samuels JA); Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41, [34]-[40] (Spigelman CJ), [106]-[111] (Basten JA)]. The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion [Khoshaba, [34]-[36] (Spigelman CJ), [109] (Basten JA)]."
3. I have referred to Riz in order to point out whether or not a contract is unjust in the circumstances in which it was made, involves the exercise of judicial discretion. This will involve the consideration of the facts and circumstances in which the contract was made.
4. Section 9 of the Contracts Review Act sets out the matters to be considered by the Court in determining whether a contract is unjust or not, some of which apply to Mrs Elphick: see paragraph [49] of this judgment.
5. There is some support for Mrs Elphick's claim that there was an oral term and that payments of principal were not due until April 2014 in the entries of the spreadsheet, incorporated in the loan agreement. In my view, the Contracts Review Act raises triable issues.

Frustration

1. It is pleaded in the proposed defence at [20] to [26] that if there has there been intervening conduct, being the conduct of Nichols Constructions in respect of the subdivision, such that the loan agreement is frustrated.
2. Nichols Constructions complains that this pleading of frustration does not identify the precise allegations of fact relied upon. Nichols Constructions submitted that if it is accepted that there was no oral or implied term that repayment was conditional on the success of Mr Elphick's commercial expectations then there is no basis to find that any conduct alleged constituted a "change in circumstances that led to performance becoming more onerous must render the contrite 'radically different' or 'fundamentally different' from anything contemplated by the parties": see MSU Management Pty Ltd, Re; Urusoglu v MSU Management Pty Ltd [2011] NSWSC 54, Ward J at [345] applying Codelfa.
3. I note that Nichols Constructions' contentions are based on the acceptance that there was no oral or implied term. I do not think this defence is based upon whether there was the same implied term referred to earlier in this judgment. In my view, it is a triable issue.

Notices

1. There are defences based on the alleged failure to serve notices of default under clause 13(a) of the loan agreement, under s 57(2)(b) of the Real Property Act 1900 (NSW) or under s 88 of the National Credit Code (paragraphs 8, 10, 13 to 17). The requirement to serve a s 57(2)(b) notice only comes into play when the property is to be sold. That event is yet to occur so the failure to serve the s 57(2)(b) notice is not an arguable defence.

National Credit Code notice

1. So far as the National Credit Code notice is concerned, it is also alleged that Nichols Constructions has failed to comply with the National Credit Code (and, hence, the express terms of the loan agreement) in that it has failed to give to Mrs Elphick notices that comply with the National Credit Code.
2. On the issue of the service of the National Credit Code, Mrs Elphick gave conflicting evidence. Mrs Elphick gave evidence that during 2014, either she or her husband collected mail from their post box at the Cronulla post office. She agreed that it looked like her husband's signature on an Australia post document under the heading "Delivery information signed for by K Elphick".
3. Initially, Mrs Elphick gave the following evidence (T38.44-50, T39.29-40.17, T40.45-47): "Q. Do you remember him telling you that he had picked up mail from Cronulla Post Office which included a letter addressed to him and one for you including notices of default given under the National Credit Code and under the Real Property Act? A. He would have, yes. Q. And he told you about that, did he? A. I think so. … Q. I'll ask you to assume that the article of post or the two articles of post for which those signatures were given were letters addressed to each of you and your husband which enclosed notices of default under the Real Property Act and the National Credit Code, make that assumption. I think you've told us that your husband did tell you about receipt of those notices? A. I'm not sure, I'm not a hundred per cent sure that that related to this. I don't know. We got lots of mail. Q. Did he ever tell you around about 4 June 2014 that he'd received‑- A. No idea. HER HONOUR Q. Please wait? SMITH Q. You told us a little while ago, that you thought that he did tell you. That was accurate wasn't it? A. Yes, but related to this box with this signature, I'm not sure 100% sure. Q. I accept that. I'm prepared to accept that it's difficult for you to tell in any categorical way, whether the signature on the two documents I've shown you is your husband's, but you've told me I think, it looks like his signature? A. Yes. Q. It was his practice to go to the Cronulla Post Office and pick up articles of post addressed to you and him from your post box and other sources, during 2014? A. Yes. Q. You were moving around a bit and that's why you had a post box? A. We've always had a Post Office box. Q. Do you remember him telling you at some point in, I suggest to you mid 2014, after 4 June, that he had picked up articles of correspondence at the Post Office which included default notices under the Real Property Act and the National Credit Code; correct? A. No I don't know what this relates to, I don't know. … Q. He had a practice of keeping you informed of any important letters that he had picked up on your behalf at Australia Post? A. Not ‑ well, I guess sometimes, I don't know."
4. Even though I found Mrs Elphick's evidence on whether or not she had been served with the notice under the National Credit Code unconvincing, this does not mean that I have reached a conclusion that her defence is not bona fide. Rather, I have reached the conclusion that her claim that she did not receive the notice is not a good one.
5. Nichols Constructions referred to Bank of Queensland v Dutta [2010] NSWSC 574. Whether or not Dutta is applicable to these proceedings is a matter that can be argued at trial.

Sections 56, 57 and 58 - Civil Procedure Act

1. The application of these principles is subject to the provisions of the Civil Procedure Act. I refer to ss 56, 57 and 58 of the Civil Procedure Act but it is not necessary to reproduce them here. Mrs Elphick has filed affidavits, been cross examined and has not been tardy in her application to set aside the default judgment.
2. It is my view that Mrs Elphick has shown that her defence is bona fide and it raises triable issues.

Dictates of justice

1. Finally, after taking into account the short delay between the entering of the default judgments and the application to set them aside, that Mrs Elphick has a bona fide defence and has shown that she has triable issues and that no prejudice has been caused to Nichols Constructions by that delay, it is my view that Mrs Elphick should be allowed a proper opportunity to have the defence argued on its merits.
2. While currently there is no draft cross claim, it will include the relief sought should Mrs Elphick be successful. This relief may involve keeping the possession of the property on terms. In my view, both default judgments should be set aside. The default judgments entered 3 February 2015 and 13 February 2015 are set aside. Mrs Elphick is to file a defence and cross claim within 14 days.

Irregularity

1. So far as the default judgment for the monetary sum is concerned, it has been entered in the wrong amount. It is an irregularity pursuant to UCPR 36.15(1).
2. Mr Wilson, the solicitor acting for Nichols Constructions, deposed (Aff, 14 May 2015 [21] and [22]): "21. Default judgment was entered in the amount of $6,388,030. Since that judgment was entered I have become aware from a review of my file that the amount included interest for the period up to December 2015. The correct amount of the judgment ought to have been $5,195,000 which includes default interest up to the end of January 2015. Interest has continued to accrue for each month since. As at the end of April 2015 the amount owing is $5,321,000. 22. In the circumstances I respectfully seek leave to have the amount of the judgment varied to $5,195,000 or alternatively to $5,321,000."
3. Mr Wilson (Aff, 3 July 2015 [7] to [38]) provides a further explanation of how these amounts of $5,195,000 and $5,321,000 are arrived at. While it is not necessary to reproduce this explanation here, it is quite an involved exercise and one that requires that Mrs Elphick be afforded an opportunity to respond. Counsel for Mrs Elphick has also set out what is said to be deficiencies in the affidavit seeking default judgment so far as it relates to the monetary sum. These are of a technical nature and as I have already decided to set aside the default judgment this irregularity is yet another reason why default judgment for the monetary sum should be set aside.
4. The parties are to seek instructions in relation to mediation and inform the Registrar at the directions hearing.
5. Costs are reserved. The court orders that: (1) The default judgments entered on 3 February 2015 and 13 February 2015 are set aside. (2) The defendant is to file and serve a defence and cross claim within 14 days. (3) The matter is listed for directions before the Registrar at 9.00 am on 7 August 2015. (4) Costs are reserved.

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: 17 July 2015