Westpac Banking Corporation v Bickley

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

10563/01 - WESTPAC BANKING CORPORATION v LESLIE JAMES BICKLEY

JUDGMENT (strike out part of defence & cross claim; GST - frustration)

1 MASTER: By notice of motion returnable 17 August 2001 the plaintiff sought orders that the court strike out paragraphs 3, 5, 6, 7 and 8 of the defence and the whole of the cross claim in these proceedings. The plaintiff does not seek to strike out the part of the defence which relates to an alleged agreement. 2 By statement of claim filed on 27 February 2001 the plaintiff alleges that on 12 August 1997 the defendant mortgaged a property at Harbord to the plaintiff. The plaintiff alleges that it made advances and granted accommodation to the defendant and that the defendant is in default of the payment of the principal sum and the interest due on the money secured by the mortgage. The defendant has admitted that he entered into the mortgage. 3 The plaintiff alleges that on 6 December 2000, as the defendant was in arrears of payments due to the plaintiff, they made written demand on the defendant pursuant to s57(2)(b) of the Real Property Act 1900 (NSW). At the date of filing of the statement of claim the defendant continued to owe the amount in arrears. The plaintiff has sought possession of the property and payment of the amount owing under the mortgage.

The law on striking out pleadings 4 Part 15 r 26 of the Supreme Court Rules provides: "(1) Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleadings be struck out. (2) The Court may receive evidence on the hearing of an application for an order under subrule (1)."

5 In a Court of Appeal decision Air Services Australia v Zarb (NSWCA unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb. 6 In General Steel Barwick CJ, who heard the application alone, stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 7 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 8 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 9 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241."

The Defence and Cross Claim 10 Paragraph 3 of the defence and cross claim (filed on 12 April 2001) pleads: "3. In further answers to paragraphs 3, 4, 5, 6, 7, 8 and 9 of the Statement of Claim the Defendant says:- (a) the introduction into law of the Commonwealth Governments [sic] Goods and Services Tax ("GST") with effect from 1 July 2000, so deleteriously affected the building services industry and those within it including the Plaintiff so as to deprive the Plaintiff of a cash flow reasonably sufficient to service the Plaintiff's business and personal financial obligations and commitments;

(b) in consequence of that impact upon the building services industry the performance of the said loan agreement with the Plaintiff became without fault on the part of the Defendant impossible

(c) by reason of the matters alleged in the next preceding sub-paragraphs, the contractual stipulations as to monthly payment of interest under-pinning the Plaintiff's aforesaid mortgage referred to in paragraph 3 of the Statement of Claim were frustrated and the Defendant thereby was discharged from further performance of the said contractual stipulations as to such interest." 11 For the purposes if this application, the plaintiff conceded that the introduction of GST so affected the defendant's business that it made it impossible for the defendant to perform his obligations under the mortgage. The cross claim pleads: "5. The Defendant as Cross-Claimant repeats the matters set forth in paragraph 3 of the Defence against the Plaintiff as Cross-Defendant.

6. In the premises the said contractual stipulation made between the parties that under-pins the Cross-Defendant's mortgage became subject to the provisions of the Frustrated Contracts Act 1978 , and the Cross-Claimant became entitled to relief thereunder.

7. Pursuant to the Act, [t]he Cross-Claimant claims an adjustment from August 2000 until February 2001 of the following provisions in the Mortgage contract:- (a) the interest provisions contained in Clause B1 of the memorandum referred to in paragraph 8 of the Statement of Claim;

(b) the all moneys provision of the said Clause B1 of the Memorandum referred to in paragraph 9 of the Statement of Claim. 8. Further, the Cross-Claimant claims a declaration that in the circumstances and the event which occurred and as affected the Cross-Claimant between July 2000 and February 2001, the Cross-Defendant has not become entitled to accelerate and call up the amount secured by the Cross-Defendant's Memorandum of Mortgage numbered 3946568." 12 The plaintiff submitted that the defendant's reference to the principles of frustration is misconceived because before an extraneous event can be characterised as an event of frustration, that event must alter the contract itself and not simply affect a party's capacity to perform the contract. 13 Recently in Alanbert Pty Ltd v Butler Pty Ltd [2000] NSWSC 261, Hamilton J at para 44 stated that the modern doctrine of frustration may be taken to be as stated by Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 728 - 729, where Lord Radcliffe states: "… frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do. There is however, no uncertainty as to the materials upon which the court must proceed. 'The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred' ( Denny Mott & Dickinson Ltd v James B. Fraser & Co Ltd [1944] AC at 275-275., per Lord Wright). In the nature of things there is often no room for elaborate inquiry. The court must act upon a general impression of what its rule requires. It is for that reason that special importance is necessarily attached to the occurrence of any unexpected event that, as it were, changes the face of things. But even so, it is not hardship or inconvenience or material loss itself which calls the principles of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for." 14 In Codelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Mason J stated that the defendant has to show that the loan contract became "fundamentally different from that originally contemplated". His honour stated: "…so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulation in the new circumstances." (per Lord Simon of Glaisdale in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at 700 (cited with approval of Aickin J in Codelfa at 378). 15 The defendant submitted that once a s57(2)(b) notice was issued, the obligation of the defendant was to pay the principal and interest rather than interest and this charge made it impossible for him to perform his obligations under the mortgage. 16 It is my view that the introduction of GST did not make the mortgage contract fundamentally different from that originally contemplated. The contractual obligations for repayment did not alter because of the introduction of GST. Rather the defendant's ability to pay became more onerous. The doctrine of frustration is clear. It does not apply in these circumstances. This part of the defendant's defence discloses no reasonable cause of action and is hopeless. Paragraphs 3, 5, 6, 7 and 8 of the defence should be struck out. The cross claim should also be struck out. 17 Costs are discretionary. Costs should follow the event. The defendant is to pay the plaintiff's costs. 18 The orders I make are: (1) Paragraphs 3, 5, 6, 7 and 8 of the defence are struck out.

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