Plaintiff v Defendants

2 The defendants denied that the bank had made advances to them, contending that the loan documents and mortgage were unenforceable on a number of grounds. They filed a defence in which they alleged that the debt upon which the bank relied 'was created by the Plaintiff as a book-entry out of thin air (or less) and thus the Plaintiff has no right whatsoever to claim payments in cash currency in return for the book-entry credit'. The defendants alleged that the bank had given no value to them by the 'book-entry credit' and thus the advances were not repayable and the mortgage unenforceable.

3 The defence was followed by an elaborate, lengthy and often confusing counterclaim in which the defendants alleged, amongst other things, that the bank engaged in predatory lending by refusing their application for relief at a time of financial hardship. The counterclaim also contained an allegation of criminal conspiracy by the defendant, and alleged breaches of the Trade Practices Act 1974 (Cth), the Contract Review Act and the Industrial Arbitration Act. These allegations were devoid of factual foundation, pleaded or otherwise articulated.

4 The counterclaim was comprised of random, almost incomprehensible, statements, propositions, quotations, argument and references to other material that appeared to have been lifted from other documents and randomly pasted into the pleading. Passages were quoted from Magna Carta and the Bible. What could be distilled from the document, however, was a complaint about global economic policy and modern banking practices which, on the most generous analysis, was only faintly connected to the bank's claims.

5 The bank applied for summary judgment on its claims pursuant to r 22.02 of the Supreme Court (General Civil Procedure) Rules 2005[1] and s 61 of the Civil Procedure Act 2010[2] on the ground that the defence had no prospect of success. The bank also sought judgment on the counterclaim pursuant to r 22.08 of the Rules of Court and s 62 of the Civil Procedure Act. Alternatively, the bank sought judgment against the defendants or to have their defence and counterclaim struck out pursuant to r 23.01 or r 23.02 of the Rules of Court.

6 The plaintiff's summons was heard and determined by an associate judge who, on 30 November 2011, gave judgment in favour of the plaintiff for possession against both defendants. The first defendant was ordered to repay the advances with interest in the sum of $516,774.63, together with costs on a solicitor and own client basis. By that time the second defendant had been declared bankrupt. Her counterclaim was dismissed. The counterclaim brought by Mr Norman was also dismissed save for paragraphs 2 to 4 inclusive, which made an allegation of predatory lending.

7 Mr Norman was given an opportunity to file further material to support his allegations of predatory lending, and for that purpose the proceeding was adjourned to 14 December 2011. Mr Norman did not file any further material. Nor did he attend the hearing on 14 December 2011, and on that day the balance of his counterclaim was dismissed.

8 Mr Norman has appealed against the judgment and orders of the associate judge made on 30 November and 14 December 2011. The appeal is by way of a re-hearing de novo. The bank pointed out that on one view of the facts, the appeal was out of time in relation to the judgment on 30 November, although within time if calculated from 14 December 2011. I did not understand the bank to resist an extension of time within which to appeal insofar as necessary. Because the summons was adjourned 'part heard' on 30 November, it is arguable that the appeal was within time against both sets of orders. In any event, it is not as if Mr Norman has unreasonably delayed, or that the bank would in some way be prejudiced by the extension of time. Insofar as it is necessary, I would extend the time within which Mr Norman may appeal to the date of his notice of appeal.

9 The bank's applications for summary judgment, including dismissal of the counterclaim, relied on the Rules of Court and the Civil Procedure Act. The requirements for similar relief under the different regimes are not identical, although the differences are not material in the present circumstances. The bank applied for summary judgment on its claim under r 22.02 which provides:

(1) Where the defendant has filed an appearance, the plaintiff may at any time apply to the Court for judgment against that defendant on the ground that the defendant has no defence to the whole or part of a claim included in the writ or statement of claim, or no defence except as to the amount of a claim.

(2) Paragraph (1) shall not apply to a claim for libel, slander, malicious prosecution, false imprisonment or seduction or to a claim based on an allegation of fraud.

(3) Where the writ or statement of claim includes a claim within paragraph (2), the plaintiff may apply for judgment in respect of any other claim and continue the proceeding for the first-mentioned claim.

(4) Except by order of the Court, the plaintiff shall make only one application for judgment under this Order.

10 That application was made on the ground that the defendants had no defence to the whole of the claim. Summary judgment under that rule is not available where a claim is based on an allegation of fraud. From the reasons for judgment published by the associate judge it would appear that the defendants had contended before her that as they were alleging fraud against the bank, it was not open to the bank to seek judgment under the rule. No such contention was advanced at the rehearing. In my opinion any such contention would have been misconceived. The bank's claim is not based upon an allegation of fraud, in whole or in part.

11 The bank also relied on s 61 of the Civil Procedure Act which provides:

1. Plaintiff may apply for summary judgment in proceeding

A plaintiff in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a defendant's defence or part of that defence has no real prospect of success.

12 The provisions under the Civil Procedure Act, enabling applications for summary judgment, have been held to involve a departure from the requirements under the existing Rules of Court. In JBS Southern Aust Pty Ltd & Anor v Westcity Group Holdings Pty Ltd & Ors,[3] Croft J undertook a useful analysis of the various tests for summary judgment to ascertain the meaning and significance of the new test in the Civil Procedure Act - 'no real prospect of success'. His Honour endorsed principles enunciated by J Forrest J in Matthews v SPI Electricity Pty Ltd[4], as a useful guide to the exercise of the power of summary judgment and dismissal under the Act.

13 I am of the view that in the vast majority of cases there will not be any practical difference in the application of the tests. The High Court in Spencer v Commonwealth[5] held, in relation to s 31A of the Federal Court of Australia Act 1976 which employs a similar 'no reasonable prospect' test, that while the test for summary judgment under that Act had been liberalised, the power should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. The High Court emphasised that ordinarily a party is not to be denied the opportunity to place his or her case before the Court in the ordinary way. The essence of Mr Norman's submission was just that - he wanted the opportunity to advance his case with all of the usual procedural aids ordinarily available to a litigant at trial.

14 The bank also applied for judgment on the counterclaim pursuant to r 22.08 which provides:

(1) Where a defendant serves a counterclaim, the defendant may at any time after service, on the ground that the plaintiff has no defence to the whole or part of a claim made in the counterclaim, or no defence except as to the amount of a claim, apply to the Court for judgment against the plaintiff.

(2) This Order shall, with any necessary modification, apply to an application under paragraph (1) as if the plaintiff were the defendant and the defendant the plaintiff.

15 Rule 22.08 seems inapt to be applied in favour of the bank for an order to dismiss the counterclaim. The bank was not, however, confined to that rule. Section 62 of the Civil Procedure Act provides:

1. Defendant may apply for summary judgment in proceeding

A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.

16 In the alternative, the bank sought judgment on its claim and dismissal of the counterclaim or that the defence and counterclaim be struck out pursuant to rr 23.01 or 23.02 of the Rules of Court. They contended, in effect, that the defence did not disclose an answer and the counterclaim did not disclose a cause of action.

17 To prove its claim the bank relied on an affidavit of Tara Siobhan Voyce, sworn 3 November 2011, and an affidavit of Ashwathi Murlidhar, affirmed 4 November 2011. Ms Voyce deposed to the service of demands and notices required under the loan agreements, mortgage and by statute. Ms Murlidhar deposed to the loan documentation, security, the advances, termination of the two loan facilities and the preparation of demands and default notices. She deposed to the bankruptcy of the second defendant, produced a certificate under the mortgage in which she verified the amounts owing, and deposed to the fact that the amounts remained unpaid.

18 While the defendants denied the advances, they did not challenge the execution of the loan agreements or the mortgage, the calculation of the amount claimed or that they had failed to repay the bank. The central thrust of the defence was that the loan agreements and mortgage were unenforceable because the bank had not made the advances. They contended that what purported to loans or advances, reflected in credit and debit entries in their bank accounts, were merely creations of the bank 'out of thin air'.

19 The evidence tendered by the bank established that on about 14 February 2008 it agreed with the defendants to provide a loan of $395,000. I was informed by Mr Norman that the purpose of the loan was to assist in the purchase of the defendants' family home. According to Mr Norman, the bank purported to make a loan by debiting their account and crediting the account of the vendor of the property. He argued that those were not real transactions in which money was advanced, but artificial creations of the bank. The bank's evidence also established that a second agreement was made on about 22 August 2008 under which the bank agreed to, and did provide the Normans with an overdraft facility up to a limit of $45,000, which they fully utilised and exceeded.

20 An account balance summary of the defendants' account with the bank as at 15 February 2008 revealed an opening nil balance and a closing debit balance of $395,000. The amount recorded an 'authority transfer' in the sum of $369.988.83, payment of stamp duty of $23,560, registration fees of $1,257 and other incidental fees referable to the purchase of the property.

21 Mr Norman is a filmmaker. He said that he encountered some financial difficulties after purchasing their home. These difficulties were said to have been caused by the global financial crisis, and because a film he had produced did not provide the expected returns. He said that when he initially approached the bank for financial assistance, it offered an overdraft facility of $25,000. He was soon able to repay that facility in full, but then seems to have negotiated a larger overdraft of $45,000. The amount due under the overdraft facility has not been repaid and is included in the total sum claimed by the bank.

22 To secure the repayment of the home loan, the defendants granted a mortgage over the property to the bank on about 14 February 2008. They later acknowledged and agreed that repayment of the overdraft facility was also secured by the mortgage. The loan documents established that both facilities were terminable by the bank at any time. The overdraft account, established in August 2008 had exceeded its limit by 15 February 2010. By notice to the defendants in writing dated 17 February 2010 the bank terminated the home loan facility and demanded that the defendants immediately repay the amount. The terms of each facility provided that the defendants would be in default if, after the facility had been cancelled, they did not immediately repay the unpaid balance. In that event, the bank was required to give a notice allowing at least 31 days to remedy the default. On 8 July 2010 the bank demanded repayment of the amounts due under both facilities and gave notice of default pursuant to s 76 of the Transfer of Land Act 1958.

23 It would appear that until 12 November 2010, the bank had not given formal notice of termination and a demand for repayment of the overdraft facility. Whether notice of termination was required when the overdraft account had exceeded its limit was not the subject of argument. Presumably the bank thought it prudent to give such a notice, and did so on 12 November 2010. Consequently, on 10 January 2011, the bank served a further notice pursuant to s 76 of the Transfer of Land Act in respect of the outstanding amount under both facilities.

24 On 4 November 2011, Ms Murlidhar, a 'realisations consultant' in the employ of the bank, certified pursuant to cl 45 of the mortgage memorandum, that the total amount owing by the defendants to the bank as at 3 November 2011 was $514,233.51 with interest accruing at the rate of $96.67 per day.

25 The second defendant, Rebecca Norman, had been declared bankrupt on 15 June 2010. Pursuant to s 58(5) of the Bankruptcy Act 1966 (Cth) her bankruptcy did not affect the bank's ability to realise its security, although it was no longer able to proceed against Ms Norman for the outstanding amounts under the facilities. Nor was Ms Norman in a position to prosecute her counterclaim.

26 The matters raised by Mr Norman by way of defence, and in support of his counterclaim, gave his case a superficial aura of complexity. But in the end, his case could be distilled to the following propositions:

(1) An overarching contention that the issues raised by the defendants were so serious and complex as to require a full hearing, and that this was not an appropriate case for summary judgment. While not expressed in these terms, I take Mr Norman to also invoke s 64 of the Civil Procedure Act which provides:

1. Court may allow a matter to proceed to trial

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.

(2) Notwithstanding the existence of signed loan or facility agreements, and the purported credit and debit balances disclosed in the bank statements, the bank had not advanced any money to the defendants, and thus nothing was owed to the bank. Mr Norman contended that the bank had created credit out of thin air.

(3) The bank had engaged in predatory lending practices by taking advantage of the defendants' financial predicament, encouraging them to enter into the overdraft facility.

(4) The bank had wrongfully dealt with the defendants' assets constituted by the loan agreements, mortgage and title when the bank securitised the loans.

27 Mr Norman affirmed an affidavit dated 25 November 2011 in opposition to the summons for final judgment. In paragraph 2 he deposed that he had never met or heard of Ms Murlidhar. He contended that Ms Murlidhar worked from within an automatic teller machine. He went so far as to contend that Ms Murlidhar did not exist. Having regard to the limited scope of the issues between the parties the attack on Ms Murlidhar was gratuitous. The defendants did not seek to contest the accuracy of the relevant facts deposed to by Ms Murlidhar, save for the fact of advances having been made and that there were amounts owing to the bank. Mr Norman's real complaints were condensed in paragraphs 27 and 28, in which he alleged that the bank misused his security when securitising assets, and his contention in paragraph 30 that 'the defendants owe the plaintiffs nothing and nothing is due'.

28 Mr Norman devoted much of his affidavit to a complaint about the independence of a witness to a signature; a complaint that Ms Murlidhar had access to bank records; a complaint about her failure to deal with 'predatory lending' in the face of a call by the then Prime Minister for the banks to respond to financial hardship; and a complaint that she deposed to matters, such as the service of notices, that were prepared by the bank's solicitors. There were other matters. For example, Mr Norman complained that Ms Murlidhar had access to bankruptcy records in relation to Rebecca Norman, and that she prepared her affidavit as if a legal practitioner, when she was not. These complaints did not, however, provide any answer to the bank's claims.

29 In his oral submissions, Mr Norman elaborated on his 'securitisation' case:

Your Honour, one of the arguments I am advancing today is based on securitisation. The securitisation arrangements that banks have entered into with various third parties - that is the contractual arrangements - are complex. The principles of law upon which securitisation arrangements rest are themselves complex and, finally, the legal policy issues raised by securitisation arrangements, not least the lack of disclosure of these arrangements to consumers, the anti-competitive outcomes for consumers and the economic damage these arrangements have caused, are very significant to this case, hence your Honour should be mindful of these complexities and certainly should not be putting cases involving these issues into the too-hard basket is my opening statement to you, your Honour, because it has been seen before in this court and others that this securitisation and money out of thin air argument has slipped under the table a little bit.[6]

30 Mr Norman was aware that some of his arguments had previously been rejected by courts. He submitted, however, that his case was unique and that his arguments had never before been tested by the courts in this country and therefore he should have that opportunity because:

... purely based on the fact that we're now dealing in a new economic change in the world where securitisation brought down the American system just recently and is about to do so in Greece and Europe, and this court hasn't heard the complete story of why securitisation has brought us to this point, in that my home was securitised, in other words sold, to thousands of others, part of a mortgage pool. Those people should actually be here in court if they're actually part owners of my mortgage and for that reason, I think it's fair to say that if this goes to trial, or at least to a point where I can discover these documents and question the bank's intent, that this gives me an opportunity to show your Honour that this case has been heard before in any court...[7]

31 Mr Norman said he believed that the loans, mortgage and title had been securitised. He said that if his mortgage had been on-sold on the stock market in the US the bank had no right to his home. It is not certain whether Mr Norman was making a complaint about the bank's standing to bring its claim or whether the suspected securitisation and dealing with his mortgage was part of his overall complaint about the creation of 'money out of thin air'. At times the concepts seem to merge.

32 When pressed on the significance of securitisation to the bank's claim against him, he said:

... the significance is this: if my asset was on-sold, then, number one, it wasn't disclosed to me, okay, so disclosure to me is an important part, and the current contracts and exhibits are then irrelevant because what I want to find and what I want to discover is, number one, where the credit for my loan came from from the bank because I wasn't credited that amount. There is your thin air theory, which I'll certainly go into later in incredible detail, if you'd like. My main concern, though, with a securitised loan ... is that I trusted the bank that I was doing business with that bank and purely based on the fact that the very first day that I signed that mortgage, it was then sold and they made a profit day one.[8]

The problem that I think the bank is going to find very difficult to prove to the court is that, number one, they didn't use their own money. In fact, they didn't use any money to supposedly give me a loan or, as they say in their statement, they credited my account, which looked like a debit to me, but it was a credit...[9]

34 Mr Norman's securitisation argument then extended into a complaint about the conduct of the government of the United States in providing a $4.3 billion 'bail out' for the banks. He argued:

Now the reason why they got that bail out was because my securitised loan was in a pool of loans or part of an investment...

The point I'm making, your Honour, when it comes to securitisation is that $4.3 billion, why aren't I getting that $4.3 billion, because the asset which has been on-sold by the National Australia Bank has profited once by the day I signed they get the money back straight away from the investors. Number 2, they on-sell it and they get commissions, etcetera, from the trade. Number 3, they don't pay taxes...[10]

The problem I have is that the bank have now profited from my property four times, plus the bail out, and here I am today in court trying to fight for my own property that I have the title to, even though the bank, without telling me or disclosing to me that they're going to on-sell it, has done so ...

...they don't disclose this information to give me a better shot at making an informed decision whether or not I want my property at risk of the investment market. So the fight that I have with the bank is the transparency of disclosure. The fight I have with the bank is the non-commitment to show me my own account details in its entirety. And if they don't own the asset then my contract with them is then baseless. And looking at the time, your Honour, I think that my main point of call here is that what I want to get from the court is the opportunity, as other litigants do, to investigate, call witnesses and get discovery of documents so that the honourable judge can then decide based on the facts, not just what's on the information.[11]

36 Mr Norman's contention that the bank had not made recoverable advances was no more than a reworking of allegations made by borrowers of in Fisher v Westpac Banking Corporation[12] and Arnold v State Bank of South Australia.[13] In those cases, a debtor contended that loans purportedly made by a bank did not create a recoverable debt because they had been created as book entry credits and were not supported by assets in currency or real wealth. In common with the present case, the allegations sought to invoke various Biblical injunctions, Magna Carta, and alleged international conspiracies.

37 The defendants' contention that the bank made no advances is without substance. The defendants received value under the first facility when, as Mr Norman conceded, the bank applied the amount reflected as a debit in their account in part satisfaction of the defendants' obligation to pay the vendors of the property, as well as stamp duty and some other expenses. However characterised, the bank gave value in a monetary sum which permitted the defendants to complete the purchase of the property and have it transferred into their name. No further investigation into bank records or its creation of cashless transactions will assist the defendants in their quest to establish that there were no advances and that they owe nothing to the bank.

38 A generous interpolation of the defendants' attack on the bank for wrongfully dealing with their loan accounts, mortgage and title had three basic components. First, a general complaint that there was unauthorised dealing with their property; second, that insofar as the bank may have dealt with their loan accounts, mortgage and title, the defendants did not benefit from the proceeds; third, that as a consequence of the securitisation the bank has no title to seek repayment or possession of the property under the mortgage.

39 A threshold difficulty with this part of the defendants' case is that there was no evidence of any on-sale of the loans or securitisation by the bank. The alleged improper dealing was mere assertion. But in any event, Mr Norman did not suggest that upon payment of the outstanding amounts the defendants would be unable to obtain a discharge of the mortgage and recover their title. Had the bank in some way dealt with its interest in the loans, through a process of securitisation, it was not suggested that the defendants' interest in the property was in any way diminished.

40 The defendants' advocacy on this topic might more accurately reflect the concerns of those who purchased derivatives based upon unsound loans. The defendants were not exposed to the risks they would have this court explore when investigating the alleged impropriety of the securitisation process. Ultimately, the defendants' contentions concerning securitisation were baseless and irrelevant to their position as mortgagor, debtor and registered proprietor.

41 The associate judge gave Mr Norman an opportunity to better advance his case for predatory lending. He did not take advantage of that opportunity. During the course of submissions, Mr Norman conceded that the allegation of predatory lending applied only in relation to the overdraft. Thus, even if there was some merit in the complaint, the bank would still be in a position to move for judgment based only upon the failure to repay the first facility secured by the mortgage.

42 The allegation of predatory lending, as explained during submissions, was a complaint that the bank had failed to waive repayment obligations when confronted with the defendants' financial hardship. It was difficult to know whether the financial hardship of which Mr Norman spoke was the result of a failed film venture, the commencement of the global financial crisis, or both. The cause does not seem to matter. The defendants had approached the bank for further financial assistance. Mr Norman said that the bank offered an overdraft facility. What the bank ought to have done, he argued, was conform with a request of the then Prime Minister, Rudd, to suspend mortgage repayments for a period of time.

43 These facts, even if pleaded or deposed to in an affidavit, would not be sufficient to justify leave to defend, or a trial of the issue under s 64 of the Civil Procedure Act or otherwise, in relation to the repayment of the overdraft facility. First, there would seem to be no basis to contend that the banks were obliged to follow the recommendation of the Prime Minister, if indeed any such recommendation was made. Second, had the bank not provided further accommodation it seems inevitable that the Normans would have defaulted under the first facility in late 2008. It is unnecessary to speculate. There is simply no evidence of predatory lending or of facts that might indicate a defence to the claim for repayment of the overdraft.

44 The bank has established its claims. The defendants have not shown any cause, by affidavit or otherwise, why judgment should not be entered for the bank on its claim for possession and its money claim against Mr Norman. Having regard to the defence as filed, the counterclaim, Mr Norman's affidavit, the notice of appeal and his submissions, there is nothing advanced that would constitute a defence to those claims.

45 The counterclaim does not disclose a cause of action. Such incantations as are found in the counterclaim, that might ordinarily form part of a pleaded cause of action, had no factual foundation. By his counterclaim, Mr Norman sought to agitate a series of very general complaints about the banking industry and government policy. In my opinion, the defence and counterclaim have no prospect of success. There is nothing about these allegations that meet the bank's claims or might otherwise justify the refusal of summary judgment, or a trial of any issues under s 64 of the Civil Procedure Act. Even if some of Mr Norman's complaints might, in a context of social, economic or political debate, have some merit, they do not assist the defendants in their defence of the bank's proven claims.

46 The appeal is dismissed. The orders made by the associate judge for possession, repayment and costs are confirmed.

[2] ('Civil Procedure Act').

[3] [2011] VSC 476.

[4] [2011] VSC 168.

[5] [2010] HCA 28; (2010) 241 CLR 118.

[12] [1992] FCA 390, (French J).

[13] (1992) 38 FCR 484, (Burchett, Hill and Drummond JJ).