Westpac Banking Corporation v Munk

Judgment 1These are proceedings for possession and recovery of a debt arising out of a bill facility and a lease facility granted to the defendants. The facilities were originally granted by St George Bank but were later taken over by Westpac Banking Corporation following the merger of the two banks. 2The proceedings were commenced by Westpac in September 2010. By defence filed on 22 December 2010, the defendants denied the Bank's entitlement to the relief sought but did not put forward any positive defence. 3In July 2011, the order for possession sought by the Bank was made by consent. The security property was sold in early 2012 and the proceeds applied in reduction of the debt. However, there remains a substantial debt outstanding and accordingly the Bank has pursued its claim for judgment in a money sum. 4On 17 May 2012, Harrison AsJ determined an application by the Bank for summary judgment under r 13.1 of the Uniform Civil Procedure Rules 2005. Her Honour struck out the defence and entered judgment for the Bank in the sum of $2,121,994.71: see Westpac Banking Corporation v Munk [2012] NSWSC 504 (the amount in which judgment was entered on that date is not stated in the orders as recorded in her Honour's reasons but is the sum of the two amounts identified in the reasons at [4]). 5By notice of motion filed 20 August 2012, the defendants seek to appeal against that decision under r 49.4 of the Rules. This judgment determines that application. 6The appeal was not instituted within 28 days after the "material date" (being the date on which the judgment of the Associate Judge was given), as required under r 49.8(2) of the Rules. Accordingly, the appeal cannot be prosecuted unless the Court extends that time in accordance with r 49.8(4) of the Rules. 7In the event that the extension of time is granted, the Bank seeks to contend that the decision of the Associate Judge should be affirmed on grounds other than those relied upon by her Honour. The Bank does not seek a discharge or variation of any part of the decision. 8The principles to be applied in determining an application for an extension of the time within which to institute an appeal were considered by the Court of Appeal in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61. In that case, the Court noted (at [55]) that such an application should be approached with an acknowledgment of the proposition that the respondent to the application has "a vested right to retain the judgment", citing the judgment of Brennan CJ and McHugh J in Jackamarra v Krakouer [1998] HCA 27; (1998) 195 CLR 516 at 519 [4]. 9The Court in Tomko identified four factors of "general relevance" to such an application: at [55] per Basten JA; Hodgson and Ipp JJA agreeing at [1] and [17] respectively. They are the length of the delay; the reason for the delay; whether the applicant has a fairly arguable case and the extent of any prejudice suffered by the respondent to the application. 10The length of the delay in the present case is significant but not egregious. The date on which the judgment was given was 17 May 2012. Under the rules, the appeal was required to be instituted on or before 14 June 2012. The notice of motion instituting the appeal was filed on 20 August 2012, just over two months later. 11The reason for the delay is not entirely well explained but warrants some acceptance. The defendants did not approach their present solicitor until "on or about 13 June 2012", the day before the appeal period expired. They had no documents in their possession to assist him. That was apparently due to the exercise of a lien over the file by their former solicitor, although that was not established on the evidence. In short, there is no satisfactory explanation for that part of the delay. 12It should be acknowledged, however, that the solicitor did, on 14 June 2012 (the last day for instituting an appeal), file a notice of intention to appeal in the registry of the Court of Appeal (served on the Bank on 28 June 2012). Whilst that step was misconceived, it had the effect of communicating to the Bank the defendants' desire to appeal against the decision of the Associate Judge. It may be assumed that, had the solicitor been approached earlier and been better instructed, he may have been better placed to approach the matter in an orderly way. 13The issue whether prejudice will be suffered by the respondent if the time to appeal is extended is difficult to assess in the context of an appeal against the entry of summary judgment. The authorities acknowledge the existence of a "vested right" in a respondent to an application such as the present to retain the judgment. In Tomko, Basten JA explained that expression (at [82]) as referring to an enforceable right to payment of a judgment debt. Plainly, in a sense, there is prejudice if an existing, enforceable right is taken away. However, I would see that factor as being inextricably linked with the merits of the grounds raised for impugning the judgment. If it is the case, as contended by the defendants, that the determination of the summary judgment application entailed error, the prejudice of losing a present right to enforce that judgment would on its own be a factor of little weight. 14For those reasons, in the circumstances of the present case I consider the most significant factor in determining whether to grant an extension of time to be the requirement to demonstrate a fairly arguable case. 15The defendants' notice of motion identified a number of grounds of appeal. In oral submissions, however, M de Robillard, who appears for the defendants, stated (at T22-23) that the only point sought to be raised by the appeal was whether the learned Associate Judge erred in finding that a proposed defence based on an alleged collateral contract or promissory estoppel was hopeless: at [17] to [35] of the judgment. 16The defendants acknowledge that no such defence has been pleaded. The contentions sought to be relied upon to establish the proposed defence were set out in an affidavit of each defendant sworn in opposition to the summary judgment application. The Associate Judge very fairly took the approach of determining the application by reference to that evidence, regardless of the inadequate pleading, taking the evidence at its highest and on the premise that, if it revealed an arguable defence, leave to amend the defence could be granted: at [9] of the judgment. 17The circumstances in which the defence is sought to be raised are as follows. It is admitted on the pleadings that the defendants accepted the terms of the bill facility and the lease facility. As already noted, in each case the facility was entered into not with the plaintiff bank but with an entity in the St George Bank group of companies. Following the granting of the facilities and prior to the commencement of the proceedings, the two banks merged and all of the assets of St George Bank became the assets of the plaintiff bank. 18It is also admitted on the pleadings that the term of the bill facility expired on 2 March 2009 and that St George Bank terminated the facility on that date and retired the outstanding bills to the defendants' cheque account, debiting that account with the face value of the bills. 19The proposed collateral contract or promissory estoppel defence was outlined by the Associate Judge at [17] and [18] of the judgment as follows: The Munks allege that there is an arguable defence of collateral contract and/or promissory estoppel that arises from presentations (sic) 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 (sic) 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." Susan 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 (sic) to the terms and conditions. It will rollover three plus three plus three as the term expires." 20Her Honour construed that evidence as amounting to a contention that the bank had made a representation that if the defendants were not in default of the terms of the bill facility at the expiration of three years, the bills would be rolled over for a further three years. As her Honour noted, that would have given the defendants a bill facility for a six-year term from September 2005 to September 2011. 21The Munks relied upon the representation to found a potential defence of collateral contract or promissory estoppel. As to the alleged collateral contract, the Associate Judge noted a submission put by the Bank that the defence could not succeed because the High Court "has repeatedly held that a collateral contract cannot be inconsistent with the terms of the main contract". However, her Honour concluded at [28] that it did not matter in any event, as "even if there was a rollover for a further three years the bill facility would have been retired". 22As to the alleged promissory estoppel, the critical consideration relied upon by her Honour was again the fact that, by the time the summary judgment application was determined, the facility had expired, even on the defendants' version of events. 23It is convenient to set out her Honour's analysis of that issue in full (at [29] to [34] of the judgment): 29 The 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." 30 The 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. 31 Mr 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. 32 The 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. 33 The Bank referred to Maguire v Makronis [1997] HCA 23; (1997) 188 CLR 449 at 475 where the High Court per Brennan CJ, Gaudron, McHugh and 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. " 34 It 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". 24Her Honour was plainly right in concluding that, even on the defendants' own evidence and taking the proposed defence at its highest, there is a present obligation to repay the amount of the facility. In my view, her Honour was correct to conclude on that basis that the Bank was entitled to have judgment for the principal sum entered summarily. 25With great respect to the Associate Judge, however, I think her Honour failed to grapple with the implications of the defendants' contentions for the Bank's entitlement to claim interest on the principal sum at the default rate from the date on which the bills were retired. The conversations outlined in the defendants' evidence were capable of supporting a promissory estoppel preventing the Bank from retiring the bills until September 2011. Her Honour noted that the Munks had not adduced evidence to show how they would have been in a position to repay the principal sum even by the later date. What was overlooked, however, was that the promissory estoppel, if established, would have precluded the bank from enforcing the facility as if in default until then, whether or not the Munks were able to pay it after then. 26Subject to that qualification, in my view her Honour was correct to enter summary judgment for the principal sum. By the time the Bank's application was determined, the facility had expired on any view. Mr Munk's version of the relevant conversation suggested that the promise was to extend the facility endlessly, or at least more than once, but her Honour addressed that issue (at [31] of the judgment) and there was no challenge to her Honour's findings in that respect. 27It follows, in my view, that the Bank could not be estopped from enforcing the facility after September 2011. However, the proposed defence established an arguable basis for confining the entry of summary judgment so as to allow default interest only from September 2011, not from the date on which the bills were retired. 28My conclusion on that issue raises the need to consider the Bank's notice of contention, which raised the following ground as to the proposed defence: Even if an arguable defence of promissory estoppel and/or collateral contract were established (which is denied), clause 15.5 of the CBAD agreement (as defined by paragraph 3 of the statement of claimed filed 1 September 2010) required the defendants to pay all the amounts they owed to the plaintiff "in full without set off, counter claim or deduction". As a consequence of that clause, the plaintiff is entitled to be paid all amounts it is owed by the defendants before the debtor may exercise any rights (including by way of set off, counter claim or deduction) against the plaintiff. 29Clause 15.5 states: You must pay us all amounts you owe us in full without set-off, counter claim or deduction. However we may set off against amounts you owe us any money we owe you. 30The Bank submitted that, by that clause, the defendants waived any right to dispute the debt owing under the bill facility or to raise any offsetting claim until that debt has been paid. It was submitted that the effect of the clause is that the Bank is entitled to be paid in full before the defendants may exercise any rights whatsoever against the Bank. 31That argument was put before the Associate Judge, but her Honour determined that it was not necessary for her to decide: at [27]. 32In my view, the Bank's contention can be disposed of briefly. The Bank relied on the decision of Bank of Western Australia Ltd v O'Brien [2012] NSWSC 456. In that case, McDougall J stated at [25] that it is "both clear and uncontroversial that a creditor and a debtor may agree that the creditor is entitled to be paid in full before the debtor may exercise any rights (including by way of set off or cross claim) against the creditor". His Honour noted that such clauses are commonly referred to as "suspension" or "suspension of rights" clauses. 33In summarising the relevant principles, McDougall J expressed his agreement with the following statement from the judgment of Bryson J in Capital Finance Australia Limited v Davies [2002] NSWSC 1146 at [97]: The jurisdiction of courts and the rights of parties to make claims before courts are not conferred by contract and cannot be ousted by contract. However there is in my opinion no infringement of this principle where parties agree that in stated circumstances a particular sum of money will change hands without the opportunity at the same time to obtain judicial disposition of any other claim between them. In the contract of guarantee there is no infringement of the principle where parties agree to ensure that the guaranteed sum will be paid, and make this the more certain by postponing litigation raising any cross-claim or set-off. 34It is convenient, for present purposes, to proceed on the premise that the clause relied upon by the Bank in the present case amounts to an agreement between the Bank and the defendants that the defendants must pay their debt to the Bank before being entitled to obtain a judicial determination of any discrete claim against it. Assuming that to be the case, I do not think the clause is an answer to the defendants' contentions. In my view, the proposed "defence" of promissory estoppel does not fall within the characterisation of being a set-off, counter claim or deduction. It goes to the primary debt. If established, the estoppel would prevent the Bank from enforcing the bill facility or treating it as being in default until September 2011. The result would be that the "amounts you owe us" within the meaning of clause 15.5 could be calculated so as to include default interest only from that date. 35For those reasons, I have concluded that the judgment entered on 17 May 2012 should be set aside but that the Bank is entitled to have judgment entered summarily, excluding default interest until after 30 September 2011. It will accordingly be necessary for the bank to recalculate the judgment sum. 36The Bank is of course entitled to pursue its claim for the balance of the default interest claimed, but that part of the claim cannot, in my view, be determined summarily. 37The orders I propose are: (1)That the time within which the appeal may be instituted be extended to 20 August 2012. (2)That the orders of Harrison As J made on 17 May 2012 be set aside and in lieu thereof that judgment be entered for the plaintiff against both defendants in an amount to be calculated in accordance with this judgment. 38I will hear the defendants as to whether they wish to have leave to amend the defence filed 22 December 2010. I will hear the parties as to costs. I direct the plaintiff to bring in short minutes of order within 2 days to reflect these reasons.