Commonwealth Bank of Australia v Damianos & Anor
[2007] VSC 442
•11 October 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 8298 of 2006
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| V | |
| DAMIEN ANTONY DAMIANOS | Defendant |
No. 8300 of 2006
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| V | |
| CHRISTOPHER GEORGE BLIZZARD | Defendant |
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JUDGE: | KAYE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 October 2007 | |
DATE OF JUDGMENT: | 11 October 2007 | |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Damianos & Anor | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 442 | |
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PRACTICE COURT – Judgment entered in default of defence – Appeal from Master dismissing application to set aside judgment – No arguable defence on merits disclosed – Appeal dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff in each proceeding | Ms M. Loughnan | Alison Harewood |
| For the Defendant in each proceeding | Ms C Gobbo | Tony Hargreaves & Partners |
HIS HONOUR:
In each of these two matters the plaintiff appeals from orders made by Master Evans on 24 September, in which the Master set aside judgments which had been obtained by the plaintiff in default of defence by each of the defendants. In each case the writ was issued on 23 August. An appearance in the case of Mr Damianos was entered on 5 October and in the case of Mr Blizzard on 28 September. That appearance was filed on their behalf and served by a solicitor, George Henderson. No defence was delivered by the solicitor on behalf of the defendants and so default judgments were entered, in the case of Mr Damianos on 24 November, and in the case of Mr Blizzard on 13 November.
In each case the plaintiff had sued the defendant in respect of amounts loaned to the defendant. In the case of Mr Damianos, the amount claimed in the writ was a little over $225,000, and in the case of Mr Blizzard the amount claimed in the writ was approximately $224,000.
The circumstances in which those loans came to be made to each of the two defendants are unusual, if not to say extraordinary, and are set out in quite some detail in affidavits filed by each of the two defendants. I shall not traverse what is said in those affidavits in great detail. It is sufficient to say this. In late 2005, Mr Damianos was approached by a colleague called Birch to interest him in a proposal whereby, effectively, property at Toora was to be purchased in the name of Mr Damianos from a man called Rushford. The land was to be developed by developers. The developers were to pay six months’ interest payments into a nominated bank account. That nominated bank account was to have a direct debit authority attached to it so that any mortgage payments related to the purchase could be automatically withdrawn. It was put to Mr Damianos that if the development proceeded the land could be on-sold in six months. If the development did not succeed, then Birch and his associates would re-purchase it. Accordingly, the gist of the scheme was that at no time would Mr Damianos be liable to pay anything under the purchase. In return, Mr Damianos would receive a fee of $3,000 on settlement of the purchase and, when the land was on-sold, a further fee of $2,000. Mr Damianos initially was not interested in the proposal, but in early 2006, in further discussions with Mr Birch, he agreed to it. At that time he was also introduced by Mr Birch to another gentleman called Gerber, and in February 2006 Mr Damianos entered into a contract to purchase the land.
After signing that contract, it was necessary to obtain finance for the transaction to proceed. In paragraph 14 of his affidavit, Mr Damianos says that in late February or early March 2006 he attended a meeting in order to sign mortgage documents. Mr Birch and Gerber asked him whether he wished to proceed with the loan, in response to which Mr Damianos asked them whether the land was worth more than the loan amount. In response, Birch and Gerber told him that they believed that the land had been valued by the Commonwealth Bank at the same amount of the purchase price in the contract. Mr Damianos, who was a mortgage broker, said that in his experience loans had to be accompanied by an independent valuation by the lending bank. He states that had he known that the bank had not valued the land he would not have entered into the transaction. Relying on the representations made to him by Birch and Gerber, he signed the relevant loan documents and the transaction thus proceeded. I should interpolate that it appears that the scheme itself in some form may well have been fraudulent and I understand is at the moment the subject of investigation by the Fraud Squad. The land itself apparently was worth well less than the purchase price, and indeed, as appears from the materials, may only have been worth as little as $5,000. In his affidavit Mr Damianos also suggests that Mr Rushford, the vendor, and a Mr Nepasket were also involved in the scheme.
In early 2006, Mr Damianos told Mr Blizzard about the scheme. At about that time Mr Blizzard met with Mr Rushford and Mr Birch and discussed the scheme with them. He too states that he was told by Birch and his associates that the bank had valued the land at the amount to be borrowed. Based on that representation, he entered into the loan agreement as had Mr Damianos.
It appears that, not long after the transaction was entered into, the loans fell into default because no monies had been placed in the accounts of Mr Blizzard and Mr Damianos from which direct debits could be made to the bank. The bank’s representatives contacted each of the two borrowers, who in turn spoke to Birch and his associates. It appears that Mr Henderson was acting as a solicitor for the developers and, to cut a long story short, it appears that during that period of time each of the defendants were reassured that the matter was being attended to on their behalf. As I stated, ultimately, when the writ was served on each of the two defendants, they asked Mr Henderson to act on their behalf. Mr Damianos states that he was not aware of the entry of the judgment until he consulted new solicitors, Mr Freeman of Tony Hargraves & Partners, shortly after May 2007. He did, however, receive a letter from the bank dated 27 November 2006, which, on its face, told him that the bank had entered judgment in the amount for which judgment had been entered by the bank. A similar letter was also sent to Mr Blizzard. Mr Damianos has given an explanation for his understanding of that letter in paragraph 50 of his affidavit. He states that he telephoned Birch, who told him that a group defence was being prepared by Henderson and he need not worry about the letter. As a result of subsequent discussions with Henderson, he assumed that Henderson had prepared the necessary papers to deal with the correspondence of the bank, and at no time did Henderson tell him that he had not lodged a defence on his behalf.
That then, albeit in summary form, is the background to the application which came before Master Evans. This being an appeal from the Master, the application of course proceeds de novo. Generally speaking, where a judgment has been regularly entered in default of a defence or in default of appearance, the defendant, in order to set that judgment aside, must firstly show an excuse why the step which ought to have been taken, in this case the delivery of a defence, was not taken. Secondly, the defendant must show that there has not been untoward delay in seeking to set aside the judgment. Thirdly, and in my view most importantly, the defendant must show that there is some purpose to be served in setting aside the default judgment, in the sense that the defendant has, in some form, at least an arguable defence if he were permitted to defend the action.
In this case I am satisfied as to the first matter. It seems clear that both defendants trusted Mr Henderson to defend the proceeding. It was not their fault that the defence was not delivered. In relation to the second matter, that is, the issue of delay, that is more problematic. Mr Blizzard does not in fact explain why, having received the letter from the bank in November 2006, he did not then proceed. The letter on its face is quite clear. Mr Damianos does not in turn state that he misunderstood the letter. Rather, he appears to have relied on some sort of assurances given to him by Mr Henderson.
The critical issue in this case is really whether there is any purpose to be served should I permit the defendants to defend the action. That requirement is not an inflexible requirement of this court. However, it is one which is normally adopted because, if a defendant is permitted to defend, there is no purpose in doing so unless there is at least some prospect that the defendant will be able to successfully resist the action.
In forming my conclusions in relation to that, I do bear in mind that, if one takes the view of the proceedings most favourable to the defendants, the defendants themselves have to a large extent been innocent parties in a fraud practised not only on the bank but also on themselves. I do not say that that is the case, but that is taking the most lenient view of the facts contained in the affidavits. If that is so, then the defendants may not be in a position at this stage to fully understand and know all of the facts which they would be able to make out in a defence.
Ms Gobbo, who appeared on behalf of both defendants, submitted to me that the defendants in essence would have two defences if they were permitted to defend the proceeding. The first defence is based on the misrepresentation made to them by Birch and his associates that the bank had obtained a valuation of the property which was purchased by the defendants. Secondly, it was argued by Ms Gobbo that, if permitted to defend, the defendants would have a cross-claim in damages against the bank, based on the bank’s failure to obtain a valuation and lending the monies to them without a valuation, and based in addition on the failure of the bank to properly process the loans by interviewing the intended borrowers.
In response to that, Ms Loughnan pointed out that the highest that the material put forward by the defendants can go is to establish that a misrepresentation was made to each borrower, that is, the defendants, by Messrs Birch and Gerber that a valuation had been obtained when it had not. In my view, that submission is correct. Indeed, it cannot be gainsaid on the affidavits. Thus, as Ms Loughnan has pointed out, even if a representative of the bank, in this case a man called Waller, who was apparently either an employee or agent of the bank, had been a party to the misrepresentation, the simple circumstance is that it was Birch and Gerber who made the false representation to the defendants. There is nothing in the material which suggests that Birch and Gerber were other than participants in the fraudulent scheme. There is nothing other than, at the most, speculation upon which I could draw any inference at all, even at this preliminary stage, that Birch and Gerber were the innocent recipients of fraudulent information from Waller which they conveyed to the two defendants.
Thus, in my view, Ms Loughnan is correct that, on the material which is before me, the highest it can be taken is that the defendants in each case were misled by Birch and Gerber and were wilfully misled by Birch and Gerber. Even if Waller was a representative of the bank, and even if Waller had fraudulently passed that information to Birch and Gerber, nonetheless Birch and Gerber themselves knew it was false and passed it on to the defendants. In those circumstances, on the materials which are currently contained in the affidavits, there is no case, in my view, which could be adequately made out that the defendants were misled by the plaintiff or by an agent of the plaintiff as to the existence of a valuation.
The circumstance is that the bank did not obtain a valuation. Each of the two defendants has sworn that they expected that the bank would have obtained a valuation. However, in order to establish a duty of care, or even an arguable duty of care, owed by the bank to the defendants to obtain such a valuation, it would be necessary to establish much more than simply the expectation by each of the two defendants that, in the circumstances in which they were borrowing the funds, the bank would obtain a valuation. Indeed, as Ms Loughnan has pointed out, banks obtain a valuation, not to protect the intended borrowers, but to protect themselves and their interests.
Ms Gobbo has been unable to point me to any authority or to any principle which would even arguably support the existence of a duty of care which has been breached by the plaintiff, and which would give rise to rights by way of counter-claim in this case should I permit the defendants to defend the matter. In my view, given the current state of High Court authority in relation to when a duty of care might arise, the facts which are contained in the affidavits fall well short of establishing even arguably, and even arguably to a weak degree, the existence of any duty of care. Thus, neither of the defences, in my view, which have been sought to be relied on could be said to be defences which are even weakly arguable.
The only question which has given me cause for concern is whether, nonetheless, I should permit the defendants to defend the matter because the factual situation set out by them in their affidavits may lead to further inquiries which may ultimately enable them to raise some arguable defence. The difficulty with that proposition lies in the way I formulated it. It seems to me that there is little that can really be disclosed which, on further inquiry, might give rise to an arguable defence.
I must say I have approached this case with the predisposition to allowing the defendants leave to defend if I considered there was any purpose to be served in doing so. The law has long recognised that in litigation of this type, defendants ought to be given their day in court and not shut out at a preliminary stage. However, notwithstanding that proposition, I cannot conscientiously conclude that the defendants, on the material put forward to me, have shown any defence which even arguably could be made on their behalf at trial.
I also consider that there has been undue delay by each of the defendants which has not been properly explained. I should, however, say that if I had come to the conclusion that there was some defence which could be put forward usefully on behalf of the defendants, I would not have relied on that delay to have shut them out from their rights to defend these proceedings.
Accordingly, for the reasons which I have just pronounced, it follows that the appeal by the plaintiff bank in each proceeding should be allowed and the order of Master Evans in each matter set aside.
(Discussion ensued concerning costs and indemnity certificate.)
HIS HONOUR:
I will grant a certificate to the defendants. Could I suggest you both have a good look at the Act, you draw up the appropriate order to properly protect the defendants’ rights to a certificate for indemnity in relation to whatever costs the certificate will give them, and I will sign that order.
The orders I make are these:
1.In each matter the appeal be allowed.
2.The orders of Master Evans made 24 September be set aside.
3.I will grant to the respondent in each matter a certificate under the Appeal Costs Act.
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