Westpac Banking Corporation v Michael Munk

Summary judgment 613.1 UCPR provides: "13.1 Summary judgment (cf SCR Part 13, rule 2; DCR Part 11A, rule 2; LCR Part 10A, rule 2) (1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires. (2) Without limiting subrule (1), the court may give judgment for the plaintiff for damages to be assessed. (3) In this rule, a reference to damages includes a reference to the value of goods." 7In Commonwealth of Australia v Griffiths & Anor [2007] NSWCA 370 Beazley JA (with whom Mason P agreed) said: "11 The general principles relating to the summary disposal of proceedings are well-known: see General Steel Industries Inc v Commissioner for Railways (NSW) & Ors [1964] HCA 69; (1964) 112 CLR 125 at 129. If it is demonstrated that there is a real question to be tried, the matter is inappropriate for the entry of summary judgment: Dey v Victorian Railway Commissioners [1949] HCA 1; (1949) 78 CLR 62. The tests stated in the authorities as to whether it is appropriate that a case be disposed of by the entry of summary judgment include statements such as that the matter is "so obviously untenable that it cannot possibly succeed"; "manifestly groundless" or "would involve useless expense": see General Steel Industries at 129. 12 The summary disposal of proceedings or part thereof deprives a party of the right to a contested hearing. For that reason it is said that the requirement for establishing that there is no triable issue is demanding: Air Services Australia v Zarb (Court of Appeal, 26 August 1998, unreported). In Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598, Mason CJ, Deane and Dawson JJ said at 602: '... the issue before the learned Master on the application for summary judgment was not whether [the plaintiffs] would probably succeed in their action against [the defendant]. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. 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.' (Citations omitted)" 8Also see Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118. 9For the purposes of this application I have taken the Munks' facts at their highest. Should this matter proceed to trial some of these "facts" will be the subject of dispute. I have also taken into account all of the Munks' submissions even though they are not pleaded on the current defence because, if there is any substance in them, leave can be granted to amend the defence. 10It is common ground that the Munks had two facilities, a commercial bill acceptance facility ("the bill facility") with the Bank and a hire purchase/lease facility with St George Finance ("the lease agreement"). It is important to note that the lease agreement was not an agreement between the Bank and the Munks. It was between the Munks and a third party, St George Finance. 11On 13 September 2005, the bill facility was approved for an initial limit of $1,088,000 approved by the Bank. On 27 September 2005 the funds were drawn down. The commercial facility was provided by the Bank to the Munks for the purpose of acquiring the property in order to run a bakery business. 12On 27 April 2007, a lease agreement with a limit of $850,000 was approved by St George Finance Ltd. On 17 December 2008, the agreement was executed. This lease agreement enabled the Munks to acquire equipment for the bakery business at the property through a related corporate entity.

The defence 13The defence, filed 22 December 2010, admits each of the facilities upon which the Bank sues (statement of claim filed 15 September 2010): the mortgage; that the mortgage secures the facilities upon which the Bank sues; that the term of the bill facility expired on 2 March 2009 and the value of the outstanding bills were debited to the overdraft; and the demands made by the Bank in respect of each of the facilities. The Munks acknowledge that they received the notice of demands in relation to the lease agreement but deny the plaintiff's right to issue them.

The bill facility 14The initial term of the bill facility was 3 years. The term was subsequently extended and rolled over to 2 March 2009 when the facility was terminated and the face value of the bills amounting to $1,188,000 was retired to the overdraft. 15The bill facility, dated 13 September 2005, incorporates the Bank's "General Standard Terms" ("the terms"). The terms provide that from the time any amount is overdue for payment and until it is paid, the Munks must "pay interest at...the default rate, on the overdue amount." The "default rate " is defined as the rate of interest payable under clause 12 of the Terms. Clause 12 provides that: "...the default rate for a facility is always 3% per annum more than the interest rate for that facility (if a facility does not have a rate it is to be taken for the purpose of this clause to have an interest rate equal to the commercial base rate). If the interest rate changes, so does the default rate." 16In so far as the bill facility is concerned, the defence at [12] asserts that the Munks were meeting the "repayments but [the Bank] commenced changing default interest of approximately twenty percent per annum. As a result of charging that default rate the bank statements were showing escalated debt thereby taking away the ability of [the Munks] to refinance the facility". The defence does not plead that the charge of the default "interest" was not in accordance with the term of the bill facility. The Bank was entitled to charge the default rate once the payment was not made. This argument is hopeless.

Collateral contract and/or promissory estoppel 17The Munks allege that there is an arguable defence of collateral contract and/or promissory estoppel that arises from presentations made by a bank officer, Ms Jodie Gelbert in September 2005 in a conversation where both the Munks were present. Both Mr and Mrs Munks have given evidence of this conversation. Michael Munk (Aff [11] 19/4/11) says that in September 2003 he asked Jodie in the presence of Susan Munk at the Botany property, "Why is the commercial bill facility only for three (3) years when we asked for five (5) years. We have approval from the Commonwealth Bank for five (5) years." Jodie replied, "This is the standard term for this type of loan facility. If you pay on time with no defaults in payment it will automatically be rolled over for another three (3) years." 18Susan Munk (Aff [14] 11/5/11) says that prior to executing the loan documentation in 2003 she had a conversation with Jodie (an employee of the Bank) at a meeting in the presence of Michael Munk and Mr Jim Bosch. After Mr Munk said to Jodie words to the effect, "This is only for three years. I asked for five. How can we repay this money in three years?" Ms Gelbert said words to the effect, "Whilst it is three years the loan will automatically be rolled over as long as the repayments are met and there would be no charge to the terms and conditions. It will rollover three plus three plus three as the term expires." 19It should be noted that the Munks' versions of the conversation differ. Both agree that it was conditional on there being no defaults in payment of the facility for three years. According to Mr Munk the facility would be rolled over for another three years, ie for a total of six years. Mrs Munk says that the facility would rollover three plus three plus three (ie the facility would be rolled over for a further nine years). Mrs Munk makes no mention of Mr Munks reference to the five year term approved by the Commonwealth Bank. 20Overall, the representation by the bank officer seems to be that if the Munks' were not in default of the terms of the bill facility at the expiration of three years, the bills would be rolled over for another three years. That would have given from a bill facility for a six year term from September 2005 to September 2011. 21The term stated on the first bill facility document (MXL-01, page 5) the original is "3 years from the first drawdown date", which supports the Bank's position. The funds were drawn down in or about 27 September 2005. There was a series of agreements varying the original to which I shall briefly refer. 22The first variation is dated 27 April 2007. It increased the limit by $100,000 to $1,188,000 but this document stated the term as five years from the first drawn down date [my emphasis added]. On 1 May 2007, the Munks accepted these terms. The Munks argue that the 27 April 2007 written document stated that it supersedes any previous offer documents and provides a five year term contradicting the original document. This gives some limited support to the Munks' case that from the outset the term was intended to be more than three years. 23On 30 September 2008, the Bank wrote to the Munks informing them that the facility had expired and a temporary extension to 31 October 2008 was given. The term was subsequently extended to 30 November 2008 and then to 31 December 2008. Although the bill facility expired on 31 December 2008 it was then allowed to roll on a monthly basis until 2 March 2009, at which time the facility was terminated and the face value of the bills was retired to the Munks' cheque account number XXX XXX XXX (the overdraft). The Munks did not sign any of these last three documents. Mr Munks' evidence is that they decided to reject the offer made on 30 September 2008 because of the onerous new terms. 24The Munks' argument continues that contrary to the original agreement for a six year term in 2005, the Bank asserted on 30 September 2008 that the term had expired and after the temporary extensions up to 2 March 2009, demanded full repayment. 25The Munks says that they have suffered detriment in having arranged their affairs on the basis that they would have until September 2011, not September 2008 to repay the principal of $1,188,000. Even if this can be established, on their own evidence, the Munks would still be obliged to repay the Bank the principal of $1,188,000, albeit at a later time. 26The Bank contends that the alleged representations do not form any part of the articulated grounds of defence. As previously stated, leave can be granted to amend the defence and file a cross claim. However, the Bank submitted that the alleged representations do not constitute an arguable defence (or cross claim) to the Bank's claim for recovery of the proceeds of the bill facility. 27The Bank refers to a standard term of the bill facility that provides that the amount owing is payable "in full without set off, counterclaim or deduction" and submitted that the Munks have to pay the amount payable as claimed by the Bank and then issue a cross claim. After judgment had been reserved, written and proof read counsel for the Bank sent a further email that referred to Bank of Western Australia Limited v O'Brien [2012] NSWSC 456 at [25]-[32], which counsel says supports that proposition. As it now turns out, having already written the judgment it is not necessary for me to decide this issue. 28The Bank also submitted that the purported collateral contract defence cannot succeed because the High Court has repeatedly held that a collateral contract cannot be inconsistent with the terms of the main contract - see Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133; Maybury v Atlantic Union Oil Co [1953] HCA 89; (1953) 89 CLR 507; and Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1. The Bank points out that the bill facility both as initially agreed and as subsequently amended is quite explicit as to the relevant term or duration of the facility. The initial term was to be 3 years. That term was subsequently extended and the facility successively rolled over until 2 March 2009. Accordingly to the Bank, the bill facility as the main contract is quite inconsistent with the terms of the alleged collateral contract and accordingly the defence based on collateral contract is bound to fail. But this does not matter. Even if there was a rollover for a further three years the bill facility would have been retired. 29The Munks also submitted that the representation constitutes an actionable promissory estoppel in reliance upon the principles enunciated in Walton's Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 64 CLR 387 where Brennan J stated that the object of promissory estoppel is to avoid the detriment the promisee would suffer if the promisor fails to fulfil their promise. His Honour stated the satisfaction of equity calls for the enforcement of the promise only to the extent necessary to achieve that object and he set out at 428 to 429 the well known six criteria the plaintiff must prove to establish an equitable estoppel: "(1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise." 30The Bank submitted that to the extent that it is alleged that a representation was made to the effect that the bill facility would be rolled over at the end of the initial three year term, there is nothing misleading in such a representation because the facility was in fact extended to 2 March 2009. But that is not the Munks' case. At the earliest, the facility was to be retired in September 2011 not in 2009. 31Mr Munk says that they have suffered "detriment in arranging their affairs on (sic) basis that they would not need to repay $1,188 million principal in September 2008 (after 3 years), but only in September 2011 (6 years)". Mr Munk's version for a rollover to continue for 9 or 12 years cannot be right. The Bank points out that neither Mr nor Mrs Munk plead or adduce any evidence of detriment. While it is not necessary to plead matters of law, the Munks have not provided even a skeleton argument as to how they would have been in a position to pay back the $1,188,000 in September 2011. On 22 February 2012 and again on 21 March 2012, they were directed to serve any additional evidence upon which they intended to rely by 16 March 2012. No further evidence has been provided. 32The Bank asserts that the Munks do not identify how promissory estoppel if proved, provides a defence to the Bank's claim in relation to the bill facility. According to the Bank, it cannot be relied upon in support of a claim for rescission of the bill facility or the mortgage which supports it without the Munks making restitution to the Bank for the moneys borrowed. 33The Bank referred to Maguire v Makronis [1997] HCA 23; (1997) 188 CLR 449 at 475 where the High Court per Brennan CJ, Gaudron, McHugh a d Gummow JJ stated: "To set aside the Mortgage purely in its operation as a security, without conditioning that upon payment would be to reform the transaction in an impermissible fashion. It would be to strike down the security interest without ensuring payment of that which was paid in return for it. The respondents would be left with the fruit of the transaction of which they complain, whereas their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position. " 34It is my view that even on the Munks' own evidence, they are obliged to repay the amount of the facility of at least $1.188M plus the default rate of 3% more than the commercial base rate on the overdue amount, albeit on their evidence on 11 September 2009 (now passed). Under the term of the facility they are obliged to pay the rates charged on the retired bill facility in accordance with the bill facility's "General Standard Terms" (MXL 01 pp 10-28) which terms were incorporated into the loan agreement between the parties. Those terms provided that in the event of default, which included where any amount was overdue for payment, interest in respect of a facility, such as a commercial bill facility that did not have a prevailing interest rate when no in default, was to be charged in respect of any default at 3 percent more than the "commercial base rate". 35It is my view claims for a collateral contract and/or promissory estoppel are hopeless.

The Lease Agreement 36By letter dated 27 April 2007, St George Finance approved a lease facility in the amount of $850,000 on the terms appearing in that document. 37By the Lease Agreement, St George Finance agreed to lease the goods referred to in the agreement on the terms appearing in that document and in the "Lease Agreement Terms and Conditions." 38The Lease Agreement required monthly rent instalments to be made on certain payment dates. 39The requirement to pay all moneys due on time and as required is defined as a "fundamental provision" of the lease agreement. 40A failure to comply with a "fundamental provision" of the lease constitutes a repudiation of the Lease Agreement entitling St George Finance to terminate by notice. In regard to the lease agreement, the defence puts the Bank to proof of the default, the Bank's entitlement to terminate the agreement in reliance upon that default and the amount of its claim. 41The Munks submitted that in August 2010, a default in paying instalments under the lease agreement amounting to about $37,000 was rectified and that it is unclear whether and why the account again went into default by 1 September 2010 when the action was brought. 42The records show that on 6 September 2010 (after the notice of termination was issued on 9 August 2010) payment totaling $37,5000 was made but there was $340.52 penalty interest still due and owing. On 26 September 2010 a payment of $11,757.66 was due. On 18 October 2010 a payment of $11,000 was made but no further payment was made in relation to the instalment of $11,757.66 due on 26 October 2010. 43It is clear from the record of payments, the Munks first defaulted in respect of their obligations under the Lease Agreement on 8 November 2009. Those defaults continued up to 9 August 2010 when notices of termination were issued. The Munks ceased making any instalment payments under the Lease Agreement from 8 November 2010. 44Interest payable on the Lease Agreement in respect of overdue balances is the "lease rate plus 3%." 45On 9 August 2010, the lease agreement was terminated by notice of termination consequent upon the Munks' failure to meet all rental instalments as required under the agreement. On 19 August 2010, the Bank (not St George Finance) made a demand on the Munks for all amounts due under the Lease Agreement.

The indemnity and counter indemnity - the lease 46The Bank's claim in relation to the lease agreement is based upon an indemnity and counter-indemnity between Westpac, St George Finance and the Munks (indemnity). Under this agreement, the Bank is required to indemnify St George Finance on demand for any liability, loss or costs it suffers as a consequence of the Munks not meeting all amounts payable under the lease agreement when due. The Munks in turn are required to indemnify the Bank on demand for any amounts it pays to St George Finance under the indemnity. 47The indemnity is between St George Bank Limited (described as "we"), Michael Munk and Susan Jayne Lyness Munk (described as "you"), and St George Finance Limited (described as "SGFL"). The facility is described as the lease facility provided by SGFL to you the terms of which are set out in facility offer between SGFL, St George Bank Ltd and you dated 27 April 2007. 48The provisions read: "1.1 This indemnity and counter-indemnity is entered into in consideration of SGFL providing or continuing to provide financial accommodation to you and use providing the indemnity to SGFL, in each case at your request. 1.2 By signing this indemnity and counter-indemnity, you acknowledge that: (a) SGFL has argeed to provide you with the SGFL facility; (b) at your request, we have agreed to indemnity SGFL in connection with your obligations under SGFL facility (see clause 2); (c) you have agreed to counter-indemnify us (see clause 3) against our loss under the indemnity we give SGFL under clause 2; ... 1.3 You are liable for all the obligations under this indemnity and counter-indemnity ... 2. Indemnity We unconditionally and irrevocably indemnity SGFL against, and we must therefore pay SGFL on demand for, liability loss or costs SGFL suffers or incurs if: (a) you do not, are not obliged to, or are unable to, pay SGFL all mounts payable under the SGFL facility when they are due; or ... We, as principal debtor, agree to pay SGFL on demand a sum equal to the amount of any such liability loss or costs. 3. Counter-indemnity You [the Munks] unconditionally and irrevocably indemnify us against, and you [the Munks] must therefore pay us on demand for, your liability. You as principal debtor agree to pay us on demand a sum equal to the amount of your liability. 49Under the heading Counter-Indemnity, the reference to "we" is a reference to the Bank. To make sense of the document, the reference to "us" must also be a reference to the Bank. 50The existence of indemnity and counter indemnity is pleaded at paragraph 8 of the statement of claim. Ms Lansom a bank officer, deposed that the Bank has accepted that it is liable to St George Finance under the terms of the indemnity (Aff [15] 18/3/11). The Bank has served a notice of demand in relation to the lease agreement on the Munks. 51But the point raised by the Munks is that no demand is pleaded or evidenced as between St George Finance and the Bank with the consequence that neither the Bank's obligation to indemnify St George Finance has arisen nor has the Munks' obligation to indemnify the Bank. I agree that there is no evidence or pleadings that the Bank has served a notice of demand on St George Finance. However, the Bank has accepted liability and the Munks, as principal debtor, agrees to pay the Bank on demand a sum equal to "your" liability. Hence, the Bank was entitled under the counter indemnity to issue a notice of demand to the Munks. This claim has no merit.

The overdraft account 52The Munks contest that the Bank had not demonstrated that it had a right to transfer the facility debt into the overdraft to demand full payment. The Bank says that because the bill facility is not in the nature of a loan there is no interest applicable to that facility. The bill facility was retired into an overdraft account created by the bank. 53The Bank has, for the purposes of the proceedings, calculated interest on the retired bill facility at a rate equal to the "commercial base rate" plus 3 percent (even though it says it could have charged default interest on the overdraft at much higher commercial rates). 54On 2 March 2009, the bill facility was retired into the overdraft account. To the extent that the Munks assert that they were "meeting the repayments..." it should be noted first, that as at the date of service of the demand in relation to the overdraft there were no arrangements in place for the repayment of those moneys $1,188,000 had become due and payable. There were no repayment arrangements for the Munks to meet. On 22 March 2010, demand was made on the Munks for the repayment of the overdraft. Since that time there have been no payments made in reduction of the debit balance in that account. 55In so far as the Munks challenge the amount of interest the have been charged on the balance owing in the overdraft account, the terms of the bill facility provided that in the event of default, which included where any amount was overdue for payment, interest in respect of a facility charged in respect of any default at 3 percent more than the "commercial base rate". Alternatively the Bank submitted that it could have charged interest as above, it did not do so. In any event, the Bank says that the interest rates charged were in fact more favourable than the prevailing overdraft rates. 56It is my view that the matters raised in the defence and the defendants' submissions are hopeless. There is no utility in granting the defendants leave to replead their defence. The defence is struck out and judgment should be entered in favour of the plaintiff against both defendants for the monetary claim. 57Costs are discretionary. The defendants should pay the plaintiff's costs of the motion filed 21 March 2011 and of the proceedings.

The Court orders: (1) That judgment be entered for the plaintiff against both defendants for the monetary sum. (2) The defence filed 22 December 2010 is struck out. (3) The defendants are to pay the plaintiff's costs of the notice of motion filed 21 March 2011 and of the proceedings.

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: 18 May 2012