Commonwealth Bank of Australia v Ozden
[2013] VCC 94
•1 May 2013 Revised 3 May 2013
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Not Restricted Case No. CI-11-03200 |
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| v | |
| OZKAN OZDEN | First Defendant |
| and | |
| NURAY OZDEN | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30-31 January, 1,4-7,11-12 and 21 February 2013 | |
DATE OF JUDGMENT: | 1 May 2013 Revised 3 May 2013 | |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Ozden & Anor | |
MEDIUM NEUTRAL CITATION: | [2013] VCC 94 | |
REASONS FOR JUDGMENT
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LOAN CONTRACT – mortgage – whether National Credit Code applies – whether notice of default and demand defective – whether leave should be given to commence proceedings - whether bank under a duty to act in good faith or reasonably – duty of co-operation to return title mistakenly taken - damages- National Credit Code ss 6.11,13 and 88
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Sergi | Gadens |
| For the Defendants | Self represented by the Second Defendant |
HIS HONOUR:
Background
1 In February 2005 the plaintiff, the Commonwealth Bank of Australia (the Bank), made two loan agreements with the defendants, Mr Ozkan Ozden and Mrs Nuray Ozden, one for $250,000.00 (the First Loan) and one for $194,000.00 (the Second Loan).
2 In January 2008, the Bank agreed to provide a further loan for $1,139,018.00 (the Third Loan).
3 The defendants used their family home at Williamstown as security for the First Loan and the Second Loan. This mortgage was later extended to cover the defendants’ obligations under the Third Loan.
4 A first registered mortgage over a property at Safety Beach owned by the defendants, was also provided as security for the Third Loan. That property had two titles – one for the town house and a second for a berth title associated with the marina which adjoined the town house.
5 On 4 May 2011, the Bank sent a Notice of Default and Demand (the Notice) to the defendants requiring them to remedy the defaults on the loans by 11 June 2011. The defaults were not remedied by that date.
6 The Bank seeks judgment for possession of the Williamstown property and claims loss and damage or a debt for the amount owing on the three loans. Mr and Mrs Ozden, with the Bank’s consent, entered into a contract to sell the Safety Beach property in February 2013.
Conduct of the proceeding
7 Mrs Ozden represented both herself and her husband at the trial. She presented a detailed case with intelligence and capacity. Mr Ozden stated that he wished his wife to present his case. He was present for at least part of the time on most of the days of the hearing. He appeared to have principal responsibility during the trial of looking after the couple’s infant. The Bank drew significance from the fact that Mr Ozden did not give evidence. However, I accept Mrs Ozden’s evidence that, in the main, she handles their financial affairs.
8 Mrs Ozden’s evidence was attacked by the Bank and issues about her tax returns raised. But overall, I consider that she attempted to give truthful evidence.
9 The defendants had legal representation until about three months before the proceeding commenced. Their defence was drawn by counsel.
10 The trial took eleven hearing days. That considerable length reflected the detail of the parties banking relationship that was examined in the evidence.
11 The Bank called evidence from Mr M Hanrahan, Assistant Manager, Loss Mitigation area; Mr A Giuliani, Collections Officer; Mr M Deligiorgakis, Collection Officer; Mr S Stamef, Collections/Credit Solutions Officer; and Mrs P Penn, Maintenance Officer.
12 The first defendant, Mrs Nuray Ozden, gave evidence on her own behalf and that of her husband. She called as a witness Mr K Sawatzki, their accountant, to give evidence about the family’s financial affairs.
13 The defendants admit that arrears had accrued on all three loans by 4 May 2011 but in their Amended Defence and Counterclaim argued that the Bank’s right to take enforcement action on any of the three loans is limited by a duty to act reasonably and in good faith. The defendants contend that it was a term of each of the three agreements that the Bank owed duties to them to cooperate and act reasonably and in good faith so as not to hamper or prevent them from taking steps to make their repayments and clear any arrears. They counterclaimed seeking damages for breach of those terms.
14 The defendants argued that the Bank’s conduct had caused the problems that had led to the litigation. It had failed to co-operate, act reasonably and in good faith by hampering and preventing the defendants from accessing their own resources to meet their contractual obligations to the Bank. The Bank had failed to apply its own policies. The defaults were caused by the Bank wrongly characterising arrears and failing to recommence payments of the loans following the end of hardship periods that had been granted to the Ozdens in 2009.
15 The defendants did not pursue an unconscionable conduct defence that was pleaded in their defence.
16 The Bank denied that the terms relied on by the Ozdens formed part of the loan agreements or mortgages. It argued that its obligations were only those contained in the written terms of the loans and mortgages .
The Bank’s proofs
17 There was no dispute about formal matters, for instance ownership of property or the fact that the defendants had entered into the agreements. The Bank relied on admissions made in the defence and on a Notice to Admit. Dobbs certificates were tendered in accordance with the terms of the Common Provisions that formed part of the mortgages. Mr Hanrahan and Mrs Penn gave evidence about them. Mrs Penn produced details of the balances of the three loans, on the Bank’s case, as at 1 February 2013. Ms Penn excluded from the amounts owing on the loans a number of late payment fees that the Bank acknowledged had been included in error.
18 The Ozdens questioned whether payments totalling $8000 had been credited as repayments of loans. They did not prove that they were not so credited and there was no real evidence that this had not occurred.
The three Bank loans
19 The First Loan was to refinance the mortgage of $250,000 on the family home at Williamstown.
20 The Second Loan was also dated 4 February 2005 and was a standard variable-rate investment home loan of $194,000 for which security was taken over the Williamstown and Southbank properties.
21 At the same time the Bank agreed to provide a line-of-credit facility with a credit limit of $85,000. This was referred to as the Viridian line of credit, or VLOC, throughout the proceeding. Counsel for the Bank described it as like a giant credit card, except that it was secured.
22 On 11 January 2008, the Bank provided the third loan, which was a low-documentation standard variable-rate investment home loan for the sum of $1,139,018.00 in connection with the purchase of the Safety Beach property and the marina berth.
23 The loans were cross-collateralised.
24 The Safety Beach property, which was also referred to in evidence as the Martha Cove property, was sold with the consent of the Bank on 18 February 2013, for $750,000.
The written terms of the loan agreements and the mortgages
25 The Loan Agreements consisted of Consumer Credit Schedules and the document containing the Bank’s Usual Terms and Conditions.
26 There was some difference between the version of the Conditions on which the Bank relied and the version that Mrs Ozden said that the Bank provided her. However the terms of the Default clause were the same.
27 Clause 9 of the Usual Conditions contained the Default clause, including the following provisions:
“ 9.1 You are in default under the Contract if:
(a)you do not pay on time any amount payable under the Contract;
(b)You do not keep to the other terms of the Contract or the terms of any Security.
…
9.2 In most circumstances we give you a notice requiring you to fix the default (if the default can be fixed) within a certain time of telling what the default is. In some circumstances we do not have to give you a notice (for example, if a court excuses us from giving a notice)
9.3 If you are in default and:
(a) you do not fix the default in the time allowed by the notice we give you under clause 9.2;
(b) the default cannot be fixed, and the time stated in the notice we give you under clause 9.2 elapses; or
(c) we do not have to give you a notice under clause 9.2
THEN
(d) we may decide without further notice, that all money owing by you under the Contract is due and payable immediately;
(e) we may sue you for payment of the money you owe us;
(f) we may exercise rights under the Security, including our right to sell the Security Property;
(g) we will not be required to make available to you any undrawn portion of the Loan (if applicable) nor will we be required to comply with any other of our obligations under the Contract.
We can do any or all of the above things in any order.
9.4 You must pay us any expenses we reasonably incur in enforcing or protecting our rights under the Contract or a Security. These expenses are:
(a)debited to the Loan Account;
(b)due and payable on the date when debited.…”
28 The Bank relied on the Notice dated 4 May 2011 that it served on the defendants.
The Notice of Default and Demand
29 The Notice of Default and Notice of Demand was a three page document.[1] The heading of the Notice contained the following description:
“pursuant to section 88 of the National Credit Code and section 76 of the Transfer of Land Act (Vic) 1958”.
[1]CB 836
30 The body of the Notice also contained a statement that it was given pursuant to those two provisions. It stated that amounts totalling $163,194.37 had not been paid on the three loans. Those arrears were due on 4 May 2011. The arrears alleged to be due on that date were: on the First Loan $25,710.89; on the Second Loan $24.00 and on the Third Loan $136,774.18. There were also enforcement expenses of $685.30. The Notice stated that:
“TOTAL AMOUNT DUE YOU MUST PAY THIS AMOUNT TO RECTIFY YOUR DEFAULT $163,194.37”
31 The Notice stated:
“To remedy this default, the Total Amount Due must be paid to the Lender no later than 11 June 2011(Rectification Date). Interest, fees, and charges continue to accrue on this amount until paid. Additional enforcement expenses may also be incurred.”
32 The Notice also stated that if the total amount due was not paid by the rectification date, the whole of the amount required to payout the loans would become immediately due and payable, (that amount was stated to be $1,655,179.66) and the Lender would commence enforcement proceedings in relation to the default and repossession of mortgaged properties may begin and the Lender would exercise its other rights under the Loan Agreement.
33 The Bank relied on the acceleration provisions in the loans, and said that once the demands had been served, nothing further could occur to stop it exercising its rights.
Errors in the Notice
34 The Notice contained two errors. The first was that the arrears amount of $25,710.89 for the First Loan was overstated by approximately $10,000. Secondly, the arrears amount of $136,774.18 for the Third Loan was overstated by approximately $16,000.[2]
[2]T899
35 These errors were caused by the failure of the Bank during the hardship relief period to reverse the arrears out of its internal accounts. However, these arrears were not referred to in statements sent to customers.
The effect of the errors in the Notice of Default
36 The Bank relied on the decision in Bunbury Foods Ltd v National Bank of Australasia Ltd that it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt.[3] However, this principle did not apply to agreements regulated by the Credit Acts[4] and it would seem to agreements regulated by the National Credit Code.
[3](1984) 153 CLR 491
[4]See Equuscorp Pty Ltd v Rigert 2003 VSC 343 and Equuscorp Pty Ltd v Equuscorp Pty Ltd v Olsen [2004] VSC 454 and also Wilson v AGC Ltd(No 1) (1987) ASC 55-598 and Wilson v AGC Ltd (No 2) (1987) ASC 55-606
Did the National Credit Code apply to the loans?
37 It is therefore necessary to decide whether the National Credit Code applies to the three loans.
38 Although the application of the Code was not pleaded in the defence, the Bank made submissions about its applicability and Mrs Ozden relied on it in her submissions.
39 Pursuant to s 13(1) of the Code, in any proceeding in which a party claims that a credit contract, mortgage or guarantee is one to which the Code applies, it is presumed to be so unless the contrary is established.
40 I was not referred to any declaration made by the Ozdens as to the purpose of their application for credit: see s 13 (2).
41 The Bank appeared to accept that, if the Code applied, then the Notice did not satisfy s 88 because of the incorrect statement of the debt. Section 88(3) of the National Credit Code sets out the form of a demand that must be given before a Bank can sue for moneys said to be owed. These include that it must specify the default and in this case that means specify the arrears.
42 The Bank submitted that even if the Code applied to some, but not all of the loans, the Notice remained valid on the basis of the principles discussed in Bunbury Foods ie in respect of those loans to which the Code did not apply. It did permit proceedings to be commenced in respect of the loan or loans to which the Code did not apply eg the Safety Beach loan. As a further alternative, the Bank sought leave to commence proceedings nunc pro tunc under s 88(5) of the Code.
43 The authorities suggest that notices or demands under s 76 of the Transfer of Land Act 1958 are generally not invalid if they overstate the amount owing.[5]
[5]See the authorities discussed by Croft J in Whild v G E Mortgage Solutions Ltd [2012] VSC 212
44 The National Credit Code does not apply to contracts or other instruments that were made before its commencement, unless the previous Code, the Consumer Credit Code applied to them. Each of the loans was made before the National Credit Code commenced. Therefore the National Credit Code only applies if the loan contracts were “carried over instruments.” That would only be the case if the Consumer Code[6] applied to the loans immediately before the commencement of the National Credit Code on 1 July 2010.
[6]The Consumer Credit Code which was contained in the appendix to the Consumer Credit (Queensland) Act 1994
45 In order for the old Credit Code to apply to a contract, it must satisfy the requirements of s 6(1). The relevant provisions of s6 state:
“ (1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into:
(a)the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and
(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes;
(c) a charge is or may be made for providing the credit; and
(d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.
…
(4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.
(5) For the purposes of this section, the predominant purpose for which credit is provided is-
(a) the purpose for which more than half the credit is intended to be used; or
(b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be used most.”
46 Previous decisions of this Court have decided that the relevant question is what was known to the credit provider or its agents or, what a credit provider in those circumstances ought reasonably to have to known at the time of entering into the contract about the purpose of the loan. In other words, the Court should consider the matter in terms of the substance of the transaction in the context of its performance and honour on an objective basis.[7]
[7]Reference Finance & Leasing Ltd v Phillips [2009] VCC 627 and see Commonwealth Bank of Australia v Chapman {2010}VCC 441 and Chapman v Commonwealth Bank of Australia [2012] VSCA 162
47 A number of the authorities were considered in Bank of Queensland Ltd v Dutta[8] where Davies J applied the approach of Gillard J in Linkenholt Pty Ltd v Quirk that:
“It is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its performance.”[9]
[8][2010] NSWSC 574 at [123]
[9][2000] VSC 166 at [98]
48 The decision in Bank of Queensland Ltd v Dutta was applied by Croft J in Knowles v Victorian Mortgage Investments Ltd.[10]
[10][2011] VSC 611 at [47]
49 Counsel for the Bank submitted that the Code did not apply because the loans were for investment purposes. He submitted that the test was what the Bank understood the purpose of the loan to be at the time it was entered into with the consumer.
50 There was evidence that the defendants were involved in buying and selling investment properties.[11] The Safety Beach property was available for renting and often was let. There was other evidence from the Ozdens that they intended the property to be a weekender or their own holiday house.
[11]T 462
51 Mrs Ozden stated that she had only ever lived in Williamstown, and evidence shows that the Safety Beach property was a holiday home for them. However, the holiday home had only been occupied for 6 of 52 weeks of the year because the Ozdens had entered into casual leasing arrangements. Ms Ozden stated that they did purchase it as an investment property, but that it has not been used more than 50% for that purpose.
52 However, the contents of the Ozdens’ tax returns suggest that the Safety Beach property was used 100% for rental purposes.[12] Their letter of complaint to the Financial Ombudsman Services, which is referred to below, described the Safety Beach property as an investment property.
[12]T1063
53 The Bank relied on the loan application forms[13] which appear to describe the loans as for investment purposes.
[13]CB 289, 361 and 435
54 However, the first two loans, in whole or substantial part, were to refinance the Ozdens’ Williamstown home, which was not an investment property.
55 I consider that the Bank has proved that the Safety Beach property was an investment property and that the Third Loan was obtained for and used for that purpose. The National Credit Code does not apply to the Third Loan. However, the Bank has not proved that the first two loans were for investment purposes. The Code therefore applies to the first two loans.
56 The question arises whether the Notice of Default and Notice of Demand could be relied on as a demand in respect of the Third Loan for the Safety Beach property to which the Code did not apply. I consider that it could. It was a demand in respect of that Third Loan as well as in respect of the first two loans. In the case of the Third Loan, the demand is not invalid because it overstates the amount of the loan outstanding.
57 The Bank argued that an overstatement of the arrears in a Notice of Default and Demand did not invalidate subsequent court proceedings: see Monas v Perpetual Trustees Victoria Ltd.[14]
[14](2011) 80 NSWLR 739
58 In the alternative, the Bank made application under s 88(5) of the Code for authority to bring the proceeding. That provision states:
“A credit provider is not required to give a default notice or wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if:
…
(c) the court authorises the credit provider to bring the enforcement proceedings.
…”
59 The defendants have relied on the argument that the Notice does not comply with the provisions of the Code. The authorities suggest that proceedings commenced where no Notice as required by the Code has been served are not a nullity, although they may be capable of summary dismissal at an early point in the proceeding. They can be regularised by an order made under s 88(5)(c).
60 Under s 88(5)(c), the Court can authorize the credit provider to bring the proceedings even where no notice has been served eg where the credit provider considered that the Code did not apply. Such a case was Bank of Queensland v Dutta,[15] where there had been a failure to serve any s 80 notice Davies J decided that the credit provider should be authorised to commence the proceedings nunc pro tunc. His Honour took into account the practical consideration that otherwise the proceeding could just be recommenced. The New South Wales Court of Appeal took the same approach in Monas v Perpetual Trustees Victoria,[16] and so did Whelan J in Silberman v Citigroup Pty Ltd.[17]
[15][2010] NSWSC 574
[16](2011) 80 NSWLR 739 special leave to appeal refused by the High Court of Australia
[17][2011] VSC514
61 However, the Court has a discretion whether to grant the authority to commence the proceedings and must take into account the disadvantage to the defendants. I take into account the amount of the arrears overstated in respect of the loans. But I also take into account that interest is still accruing on those loans, not least on the Third Loan, which is the largest loan by a considerable margin and for which no notice under the Code was required to be served. There is unlikely to be any advantage to the defendants if they face further proceedings in respect of the first two loans in circumstances where their claim under the Third Loan has been heard and determined. In view of the authorities, it is appropriate to authorise the Bank’s application to commence the proceeding “now for then”.
The Ozdens’ defence and counterclaim
62 As previously stated, the Ozdens defend the Bank’s proceeding by arguing that the Bank is restricted in relying on the default clause contained in the loan agreements and the power to call up the mortgage because of the obligation under the good faith term. In addition they have counterclaimed seeking damages against the Bank arising from its retention of the berth mortgage and title and because of their forced sale of the Safety Beach townhouse and on other grounds.
63 The Ozdens also allege that it was a term of the mortgages that the Bank’s right to enforce any default by them was limited by a duty to act reasonably and in good faith. They plead that the Bank has obtained security in the form of the berth and has provided no benefit to them in consideration of that security and is liable to give restitution to them in the form of the berth certificate of title. They also plead that the Bank has retained the berth’s certificate of title wrongly, depriving them of its use and that they have suffered loss as a result thereof. The berth title was included in the mortgage by mistake.
64 The Bank was also under a duty not to hamper or prevent them from taking steps to make their repayments and to clear any arrears that they owed on their loans.
The dealings between the Bank and the Ozdens
65 It is necessary to set out the relevant facts that have given rise to this litigation.
66 In 2005, the first and second loans were issued to support the refinancing of the Ozdens’ family home. The VLOC facility was also issued.
67 On 14 January 2008, the Ozdens settled their purchase of the Safety Beach property including the berth. They were on separate titles. That purchase was financed by the third loan.
68 Mrs Ozden gave evidence that, at the settlement of the Safety Beach property on 14 January 2008, the Bank took the title by mistake. Although the contracts for purchase were exchanged in May 2007, the settlement was rushed and took place under the pressure imposed by the vendor’s solicitors, who were also the firm who acted for the Bank. They confirmed that penalty interest at 16% was accruing and that they would issue a Notice of Rescission if settlement did not occur on that date.
69 The Ozdens’ first complaint to the Financial Ombudsman Service (FOS) was made in July 2008 and concerned the additional penalty interest incurred because of delayed settlement.
70 At settlement, the Bank took a mortgage over both the title to the town house and the berth.[18]
[18]CB 481
71 The berth title was included as security in the Ozdens’ application forms which were submitted to the Bank. However, finance was never provided against the berth by the Bank. The Ozdens purchased it with their own funds. The Bank argued that the berth was originally intended to form part of the security for the third loan. However, the lender’s mortgage insurer would not accept it as security.
72 In about the middle of 2008, the Ozdens sought hardship relief because of financial difficulties in Mr Ozden’s new business. It was granted for August, September and October 2008. The Bank’s letter of 25 August 2008 included the following statement:
“.To assist you during your current financial difficulties, we are prepared to:
Defer repayments on the above Home loan [to] for the months of August, September and October 2008, after which time you are then required to commence repayments as of November 2008 to keep your Home loan in the original term established.”[19]
[19]CB 76
73 In March 2009, Mrs Ozden and Mr Ozden suffered a severe personal and family tragedy.
74 On 21 March 2009, the Ozdens placed the Southbank property up for sale to alleviate financial stress while Mrs Ozden was out of work. They sold the property for $375,000 and that sale was settled on 7 July 2009. The net proceeds of sale of $130,000 went to the primary home loan of Williamstown. The loans were cross-collateralised. The Bank refused the Ozdens permission to keep $70,000 from the sale to help with their financial situation and to pay for their loan debts whilst they were out of work.
75 The Bank agreed to a second hardship period between April and June 2009. The Bank’s letter on 27 April 2009 granting the second hardship period, stated:
“To assist you during your current financial difficulties, we are prepared to:
·Allow nil repayments toward the above home loans for the months of April, May and June 2009. Please be advised that interest charges will continue to be debited monthly to your loan account during the deferral period and will be subject to any advertised changes to interest rates.
·Accept reduced repayments on both the above credit card accounts of $100.00 per month for a period of three months commencing 27/04/2009. Please be advised your first payments according to these arrangements are due 11/05/2009.
·Freeze further interest on the above credit card accounts for a period of three months commencing 24/04/2009.
This is a temporary arrangement only and will be reviewed on 11/08/2009, when we will consider further assistance as required and as determined by your circumstances.”[20]
[20]CB 80- 81
76 On 29 June 2009 the Bank wrote to the Ozdens referring to the agreement for the hardship period in respect of the Third Loan and stating:
“ That agreement has now expired, so you need to continue to maintain your contractual payments when they fall due.”[21]
[21]T672
77 The hardship period was extended for August, September and October 2009. The letter of 8 August 2009 informing the Ozdens of that fact stated the Ozdens were to recommence monthly repayments in respect of the First Loan on 14 November 2009 and in respect of the other two loans on 25 November 2009.[22]
[22]CB 83
78 At the conclusion of the first hardship period, a Bank employee phoned the Ozdens and informed them that the hardship period had expired and requesting information about the accounts that they would use to recommence making payments on their loans.[23] Mrs Ozden arranged for the repayments to be debited directly from their Line of Credit.
[23]T474
79 The Ozdens took steps to sell the town house and berth. Mrs Ozden’s letter to the FSO states that a section 32 statement was prepared for the Safety Beach investment property and berth in July 2009, although there was some evidence that they were on the market at an earlier point. Mrs Ozden discovered that the berth title was held by the Bank. She received advice from her lawyer that she either call and request the Bank to release the title or wait until the sale of the berth and then the release of the title.
80 Mrs Ozden gave evidence that in August 2009, she received a verbal offer to purchase the berth for a price in the high $100,000’s. Before negotiating about the price, she called the Bank to make sure they would release the title. The Bank told her that they would not, because it was attached to the townhouse. Mrs Ozden disputed that, but the Bank said that they would not release the berth title due to their loans being in arrears.
81 By that time, Mrs Ozden had been informed by the estate agent, Harcourts, that the offer made for the berth was withdrawn because she and her husband were unable to commit to the sale.
82 On 20 September 2009, Mrs Ozden wrote a letter of complaint to the FSO regarding the Bank’s failure to release the Berth Title and to provide access to accumulated savings.[24]
[24]CB 704
83 In April 2010, the Ozdens received a letter from the Bank dated 28 September 2009 which stated that the first home loan had ceased to be secured by the berth title and was now secured by the Williamstown property and the Safety Beach townhouse.[25] No evidence was called to explain why this letter was sent apparently months after it was written.
[25]CB707 and T511
84 Mrs Ozden stated that in around mid–October 2010, she had two conversations with Mr J Grech of the Bank who proposed only releasing the berth’s title once the Safety Beach property was sold or if they used the proceeds of the berth sale to reduce the arrears amount.
85 The Bank’s internal document system contained notes and internal emails relating to the berth title issue.[26]
[26]They were part of the Bank’s OSCA system
86 One email on 22 October 2009 contains the statement by a bank officer:
“Ms Ozden is a polite lady who is easy to deal with but is frustrated by recent interactions and differing advice (or interpretation of the advice she has received from various parts of the Bank).”[27]
[27]CB 1318K
87 On 22 October 2009, one Bank officer emailed colleagues that the problem stemmed “around the ‘conditional’ provisions of the hardship relief as detailed on 8 August 2009”. He also wrote:
“ We my encounter difficulty in terms of Section 25.1 of Code of Banking Practice if we make hardship relief conditional on the client agreeing to contribute funds in reduction of debts. Perhaps if we decide to stick to this strategy a quick call to Legal would be appropriate. I would suggest the FOS would raise their eyebrows at such a condition and specifically refer us to the UCCC.
Basically in my discussions with Mrs Ozden she said CBA agreed to defer loan repayments which she accepted.
However she says she was not working (and was the primary breadwinner [I think]), and needed access to the surplus funds from the sale to live on. She says that was the reason for the sale in the first place. If we don’t have a letter documenting the proposal and her acceptance it may be worth considering other ways of resolving the complaint.
So it seems in one way we have agreed to assist through the hardship but on the other she says we have contributed to the hardship by removing access to the living funds and removing her ability to obtain refinance to an interest only facility by taking away her capacity to service the debt(s).
I wonder if there could be an opportunity as part of the resolution to reverse some of the $17K so that she has some funds to live on? This might be acceptable to both the Bank and the client?
In relation to the Boat berth she says that we did not advance funds for its purchase and if we have security over it we shouldn’t.
Potentially she could sell it for $230,000 which again might be the partial solution to the current disputes/complaints.”[28]
[28]CB 1318P- 1318O
88 On 29 October 2009, an internal email about recommendations to resolve the FOS stated:
“ We also hold a security over boat berth/mooring which is the other complaint as we had advised that we do not accept this as security however contract for sale received had both townhouse & boat berth/ mooring on it & that is how documents were prepared. This reduces our LVR to approximately 82.14%.”
89 The email contained recommendations including that:
“ 3. Evidence to be held on file that townhouse & boat berth are up for sale.
…
5. A maximum of $100,000 – or 50% of sale price is to be obtained from sale of boat berth/mooring.”[29]
[29]CB 1318EE
90 An email from another officer of the same expressed agreement with the recommendations and stated:
“I believe the decision to refund the client the surplus funds following the sale of Southbank property will resolve the Complaint.
It rectifies any claim that the Bank acted in an unconscionable way by demanding debt reductions before considering hardship relief.
It also gives the client the opportunity to service the debts and subsidise living cost pending Mrs Ozden returning to full employment.
The Dispute with the FOS was based on the fact that Mrs Ozden did not believe CBA took security over the Boat Berth and therefore did not attribute any value or loanable sum against the asset. However refused to release the Boat Berth albeit we had told her we don’t take security over Boat Berths or attribute any value to them.
So by simply agreeing to the sale of the Boat Berth (she says she has just lost a sale for $230,000) we should resolve the FOS dispute.
It seems logical therefore to me that with her support sale of the Boat berth (if a new purchaser can be found in the short term) has the potential to clear the $42,000 arrears immediately without effecting the LVR position. (Based on my understanding that we did not attribute a value to the Boat Berth and took security over it in error). There is a likelihood that there would be a surplus of say $180,000 which she may be prepared to contribute to further debt reduction?”[30]
[30]CB 1318CC
91 On 4 November 2009, the Bank wrote to Mrs Ozden relating to her complaint to the FOS. Two matters were raised: one relating to the release of the boat berth title and the second relating to the use of a surplus of $17,216.56 resulting from the sale of a property at Southbank.[31] The letter stated in part:
[31]CB721
“Concern
You have advised the Bank that you would like to sell your boat berth which is referred to as … This asset was purchased without financial assistance from the Commonwealth Bank, however at this point the Bank holds a registered mortgage over the asset.
Response
· The Bank has no objection to the sale of this asset.
· The Bank understands that this asset could sell for approximately $230,000 to a willing purchaser.
· The Bank will take all action necessary to discharge the mortgage over this asset and make the title available to you/or solicitor when the Bank is advised a purchaser has been secured.
· Please provide the Bank with a copy of the contract of sale for the boat berth and/or townhouse as soon as possible.
· The Bank seeks your commitment to the adjustment of loan arrears from sale proceeds. Please see later under adjustment of arrears.”
92 The letter went on to deal with adjustment of arrears and the application of the surplus of $17,216.56 from the sale of the Southbank property, which was credited to the housing loan as a principal debt reduction and which they had planned to utilize for personal expenses and to meet their ongoing commitments. The Bank agreed to reverse this amount from the housing loan and credit it to the VLOC account. The letter stated:
“Following sale of the boat berth the Bank requires all arrears on your accounts to be adjusted. The Bank acknowledge that the surplus funds following adjustment of these arrears will be at your disposal.”[32]
[32]CB 725
93 The letter stated that the arrears on the three loans totalled $27,158.85, which it said would increase to $44,375.06 after the reversal of the sum of $16,213.47.
94 On 11 November 2009, Mrs Ozden signed at the foot of the Bank’s letter of 4 November 2009 that she acknowledged and accepted the settlement proposal provided by the Commonwealth Bank of Australia. She also signed a separate document entitled “Acceptance of Offer”. The document stated:
“3. The Commonwealth Bank has:
·Consented to the sale of the boat berth held under reference of … Safety Beach subject to sale proceeds being applied in reduction of the current arrears on my portfolio. This figure varies but as at today’s date is approximately $27,158. This arrears figure will increase to approximately $44,376.06 after reimbursement of $17,216.56 is made to me as per my written request.”[33]
[33]CB736
95 The next part of the document stated that Mrs Ozden accepted the above in full and final resolution of all matters outstanding and arising under this dispute. She crossed that section out and initialled deletion.
96 On 16 November 2009, an internal Bank email sent by the officer handling the FOS complaint, noting that Mrs Ozden had amended the acknowledgment and stating:
“UNFORTUNATELY Mrs Ozden has amended the Acknowledgment [which] now effectively makes it useless as the FOS will not close the case.
She crossed out the acknowledgment portion because she says if she doesn’t get a sale of the Boat Berth the matter will not be fully and finally resolved.
She also feels that as the Bank had no right to take security over the Boat Berth in the first instance we should give her the discharge and title deed now.
I can see her point. Realistically we cannot INSIST on her using sales proceeds the way we want but now we have her signed letter I feel it represents her signed undertaking that she will obtain sufficient proceeds from the sale to adjust the arrears.”[34]
[34]CB 738
97 Also on 4 November 2009, Mr M O’Neill of Harcourts Dromana, who were estate agents prepared a letter, addressed “To Whom It May Concern” stating that they acted for the Ozdens in respect of the sale of their berth and townhouse at Martha Cove and that:
“To date we have had a number of enquiries on the berth and received one verbal offer from a buyer to purchase back in July 2009. The figure put forward was for $200,000 well below two other relevant sales in the same strip of berths …that achieved sale prices of $225,000 & $230,000 respectively.”[35]
[35]CB724
98 Mrs Ozden gave evidence of an offer to purchase the berth in 2009 but said that the buyer in fact purchased the next door berth for $205,000.[36] The boat berth was on the market for a year between November 2009 and November 2010. Mrs Ozden said that the Global Financial Crisis made it difficult to sell. They decided to lease it for $5000 for a 6 month period.[37]
[36]T575
[37]T 539
99 The evidence suggests that the Bank was significantly confused or mistaken about the berth title. This is most clearly illustrated by the Bank pleading in a reply signed by counsel, which was not altered until an amendment was made at the commencement of the trial, that a settlement concerning the berth was booked for 10 December 2009 with a payout figure of $129,571.47 required, but that neither the Ozdens nor any representative attended the settlement. This allegation had no basis and was entirely wrong. The Bank had confused the Ozdens with another customer.
100 Mrs Ozden stated that she assumed that when they asked for the berth title they would get it back.[38] The berth title and a discharge of mortgage were not provided until September 2012, almost three years after the settlement of the FOS complaint and after the Bank had retained it without authority for more than four and a half years.
[38]T97
101 The Bank did not provide a proper explanation of why it received or retained the berth title. The evidence suggests that it was provided with the title as part of the original application for a loan and never returned or, that it became mixed up in the transfer of the title for the Safety Beach property.
102 The Bank had no right to negotiate a settlement based on a berth title that they have no legal or equitable right to have.
103 Mrs Ozden learned on 9 July 2010, while attending the Keilor Downs branch of the Bank, that the First Loan had not been re-activated after the end of the last hardship period and was in arrears. On 3 August 2010, she attended the Altona Branch and requested the establishment of an automatic fund transfer from the Line of Credit for an amount of $1750 starting from 25 August 2010. She also agreed to make extra payments of $2000 to bring the loan out of arrears.
104 The Ozdens cleared the arrears owing on the first and second loans in July and August 2010. But the arrears for the Third Loan were not cleared. Mrs Ozden gave evidence that repayments of the Third Loan were not reactivated in August 2010 as she wanted to discuss in more detail with the Bank’s head office how best to deal with the large arrears.
105 The Bank issued a Notice of Default and Notice of Demand dated 24 August 2010 showing arrears of $96,466.56 on the third loan. Mrs Ozden stated that rather than charging 9 months of arrears from October 2009, the Bank charged 16 or 17 months including the hardship period.[39] The Notice had a rectification date of 29 September 2010.
[39]T101
106 In August 2010, the Bank informed the Ozdens that if they could not pay the arrears they would have to surrender the Safety Beach property. According to Mrs Ozden, it also informed them that the Bank did not intend to repossess the Williamstown property and that mortgage insurance would make up the shortfall.
107 The repayments of the Third Loan were reactivated later in December 2010 following discussions with Mr A Giuliani, who was a Bank officer. It was agreed that they would make extra payments towards the Third Loan and apply for the release of superannuation funds from APRA.
108 On 15 September 2010, the Ozdens wrote to the Bank with proposals concerning the home loan and the Safety Beach loan. They stated that the Safety Beach property was up for sale. They requested that the Bank release the boat berth title so they could refinance against it to cover the arrears amount.[40] They said that if the Safety Beach property did not sell, if they could not discharge the mortgage or if they were unable to discharge the arrears amount within the timeframe, they were happy to surrender the property to the Bank on 29 November 2010.[41]
[40]CB 781
[41]CB781
109 On 1 October 2010, the Bank replied stating that the Bank would not release the berth title while any of the home loans were in arrears and that could not be considered as an option for clearing the arrears. It also stated that if the Safety Beach property was to be surrendered the “keys are to be dropped off at your local branch.”[42]
[42]CB 782
110 On 8 November 2010, the Ozdens leased the berth for $5000 for six months. The lease could be terminated on one month’s notice.[43]
[43]CB 902
The APRA application
111 On 23 December 2010, the Ozdens applied to the Australian Prudential Regulatory Authority (APRA), for early release of their superannuation benefits on specified compassionate grounds to clear their arrears owed to the Bank.[44]
[44]CB789
112 In their application to APRA the second defendant stated:
“… our primary home (Williamstown) & holiday home (Martha Cove) are cross-collateralised meaning if the bank sells one property they can sell the other to make up the difference.”[45]
[45]CB 792
113 The sum of approximately $75,000 in superannuation funds or benefits were held on their behalf. APRA appears to have been willing to release the funds if they would have been sufficient to clear the arrears. The parties dispute whether they would have been sufficient.
114 The Ozdens argued that they had other financial resources available, although the evidence of their financial circumstances, including from their accountant, did not clearly establish that that was the case.
115 On 26 May 2011, the Bank advised Mrs Ozden that based on the current circumstances, it was unable to advise APRA that the Bank would cease with its current recovery process or foreclosure action.[46]
[46]CB 829
116 I do not consider that the Bank breached any duty that it owed to the Ozdens by sending that letter.
117 APRA did not release the Ozdens’ superannuation funds.
118 After the service of the May 2011 Default and Demand Notice the Bank granted the Ozdens an extension of time until 30 June 2011.
119 The Ozdens were unable to contact the Bank officer, who was handling their matter in late June 2011 as he was overseas on leave. Mrs Ozden said that she did not understand why her calls were not returned in the period immediately before 30 June 2011. Because of that fact, she considered that she was prevented from being able to surrender the keys to the Safety Beach property.
120 The Bank commenced the current proceedings in July 2011.
121 Mrs Ozden made a third complaint to the FOS, that the Bank would not provide her with clear instructions on how to surrender the keys to the Safety Beach property.
122 Mrs Ozden’s evidence was that she and Mr Ozden decided to surrender the Safety Beach property. However, she received conflicting advice about whether to return the keys to head office or to a branch.
123 Mrs Ozden said that in respect of payment of Loan 3 “why would we put money towards a sinking ship.”[47]
[47]T551
124 She hoped to resolve the matter through mediation.
Was there a term of the contract requiring the Bank to act with good faith
125 The legal issues raised by the Ozdens’ case were: did the Bank owe the Ozdens a duty to cooperate and act reasonably and in good faith so as not to hamper or prevent them from taking steps to make their repayments and clear any arrears? Secondly was the Bank’s right to take enforcement action on any or all of the three loans limited by a duty to act reasonably and in good faith?
126 Mrs Ozden relied on the duty of good faith and the provisions of Codes. These were the National Credit Code and the Code of Banking Practice. It is a 26 page document and states in the Introductory Clause :
“ This Code is a voluntary code of conduct which sets standards of good banking practice for us to follow when dealing with persons who are, or who may become, our individual and small business customers and their guarantors.”
127 Clause 2.2 states,
“We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.”
128 Clause 25.2 states:
“ With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them.”
129 There was an issue about when the Banking Code commenced, but the Bank’s internal communications refer to its applicability. Mrs Ozden also referred to a document issued by ASIC being: the Regulatory Guide “Credit licensing: General conduct obligations” dated June 2010.
130 The Guide referred to general conduct obligations imposed on credit licensees under s47(1) of the National Consumer Credit Protection Act 2009. Section 47(1)(a) provides that:
“(1) A licensee must:
(a) do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly;
…”
131 The Ozdens argued that the duties to co-operate and act reasonably and in good faith were to be implied to afford business efficacy to the agreements and arose from the factual circumstances surrounding the agreements and their formation.
132 The Bank argued that no such term was contained in the loan contracts or the mortgages. The written loan agreements were so comprehensive that there was no room for a duty of good faith to be implied.
The term of good faith
133 The extent of the duty of good faith and acting reasonably in commercial transactions is a matter of ongoing debate.[48] There is authority that supports the existence of such a term.[49] The question was considered by the Victorian Court of Appeal In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL.[50] Warren CJ stated:
“It might be that a duty of good faith is no more than a duty to act reasonably in performance and enforcement, a long established duty. Of course, some commentators have regarded the duty to act reasonably as properly subsumed within the duty of good faith.”[51]
[48]See Chief Justice Warren, “Good Faith: Where are we at?” (2010) 34 Melbourne University Law Review 344
[49]See Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 SWLR 234 and Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558
[50][2005] VSCA 228
[51][3]
134 Buchanan JA, with whose judgment Warren CJ and Osborn AJA agreed stated:
“ I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident, so that an obligation of good faith applies indiscriminately to all the rights and powers conferred by a commercial contract. It may, however, be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitative conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, rather than implication as a matter of law creating a legal incident of contracts of a certain type.”[52]
[52][25]
135 More recently, in Beerens v Bluescope Distribution Pty Ltd[53] Tate JA said:
“I do not accept that, as the law currently stands, the content of any implied obligation or a duty of good faith in the exercise of contractual rights and powers requires compliance with an overriding standard of reasonableness that would deny Bluescope the exercise of its contractual rights under cl 6.6 in the promotion of its legitimate commercial interests, when the conditions for the exercise of those rights are met..”
[53][2012] VSCA 209 at [167]
136 Clause 6.6 entitled Bluescope to withdraw credit facilities, terminate contracts in force or suspend performance when the customer had breached the contract.
137 There is little authority concerning the existence of an implied duty of good faith in respect of bank loans and credit contracts. That may be due to the remedies provided by the Credit Codes. There is some authority that a Bank’s right to cancel an overdraft is subject to the qualification that it be exercised reasonably and in good faith, but recognising that it had a contractual right to cancel the facility at its discretion and that it is entitled to have regard to its legitimate commercial interests in exercising that discretion.[54]
[54]Commonwealth Bank of Australia V Rentsel Nominees Pty Ltd [2001] VSC 167 at [47] and Commonwealth Bank of Australia v Spira [2002] NSSC
138 I am prepared to assume for the purposes of deciding this case, that the Bank was required to act reasonably and in good faith in its dealing with the defendants and in exercising its enforcement powers. I adopt that conclusion because of the vulnerability that borrowers such as the Ozdens may have in dealing with a Bank. I also consider that the existence of the Credit Code regime which applied to the first and second loans and the existence of the voluntary Banking Code make this an area where the implication can be made in accordance with the principles discussed in BP Refinery (Westernport Pty Ltd v Shire of Hastings).[55] The term is reasonable and equitable, is capable of clear expression, it does not contradict express terms and can give business efficacy to the contract. In view of the presence of Credit Codes and Banking Codes it is so obvious that it goes without saying.
[55](1977) 180 CLR 266 at 287
139 However, on the question of the Bank’s obligations to return the berth title, I consider that the Ozdens have other contractual causes of action which more appropriately apply.
140 First, there is an express term of the Common Provisions of the mortgages that applied. The Common Provisions of the two mortgages given in January 2008, including that over the berth title includes the following subclause A 2.5, which forms part of clause “A 2 How this mortgage affects you and The Property”:
“When there is no Amount Owing, we will release The Property from this mortgage when you ask us to do so.”[56]
[56]CB 486
141 The definition of “The Property” includes the land described in this mortgage.”[57]
[57]CB485 clause A1
142 A breach of that clause of the Common Provisions was not pleaded by the defendants. But they did rely on the long established implied term contained in contracts that the parties must cooperate in performing the contract.[58] In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,[59] Mason J described the term as follows:
“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract and are not fundamental to the contract.”
[58]Butt v McDonald (1896) 7 QLJ 68
[59](1979) 144 CLR 596 at 607
143 In Beerens v Bluescope Pty Ltd[60], Tate JA also referred to the recent statement of Gummow, Hayne, Heydon and Kiefel JJ in Campbell v Backoffice Investments that:
“As Young CJ in Eq rightly pointed out, care must be exercised in identifying both the content and operation of an implied obligation to co-operate lest it be at odds with the terms on which the parties have expressly agreed.” [61]
[60][2012] VSCA 209 at [160}
[61](2009) 238 CLR 304 at 358 [168]
144 Nettle JA stated:
“Secondly, although every contract imports an implied obligation to do all such things as are necessary to enable the other party to the contract, the duty is informed by the express terms of the contract. It is a duty to afford the other party the benefit of what he has contracted for; not a duty to act generally in the other party’s best interests.”[62]
[62](supra) [54]
145 Here the duty to co-operate by returning the berth title on which no debt was, or had ever been, owing, was informed by the express terms of the Common Provisions of the mortgage.
146 At trial, the Bank did not advance any argument of substance that it ever had the right to that mortgage or to possession of that title. Rather it argued that mistakes were made on both sides and the defendants had advisers and lawyers acting for them who should have detected the error.
147 It would be surprising if a Bank holding a statutory licence to lend money was not under a duty to correct a significant mistake and return a mortgage. Even more so when it has reached an agreement through the Financial Ombudsman Services to do so. That duty might be enforced by a number of causes of action including those seeking restitutionary remedies. The obligation to co-operate in performance of acts fundamental to the performance of the contract is one cause of action that was available to the defendants.
148 The Bank, through its solicitors, returned the title to the Berth together with a partial discharge of the mortgage on 26 September 2012 by sending it to the defendants’ solicitors. The defendants did not discharge the mortgage over the berth title until the middle of February 2013. Mrs Ozden suggested that she was unaware of what to do with those documents,[63] although at the time she received them she had a solicitor acting for her.
[63]T538
149 I find that the Ozdens did request the return of the berth title at least from September 2009. That request even took the form of a complaint to the FOS.
150 The Ozdens have proved that the Bank breached the duty of co-operation contained in the loan agreements and the mortgages at least from September 2009 by failing to return the berth title. It is unnecessary to decide whether the Bank’s action also breached the duty to act reasonably and in good faith, but I see no reason why it would not have.
The other matters relied on by the Ozdens
151 The Ozdens relied on other actions of the Bank, which they argued were in breach the duty of good faith and to act reasonably and the duty to co-operate. I will apply the same assumption - that the Bank was under a duty of good faith and to act reasonably in its dealing with the defendants under the loan agreements and mortgages.
152 The Ozdens relied on the Bank’s failed to honour its agreement and capitalise arrears during or following the second hardship period. It failed to reactivate accounts for direct debit payments for all loans following this hardship period. The Bank prevented the defendants from being eligible for their re‑age and capitalisation policy, hence clearing their arrears, due to its business systems failures. The Bank forced them to sell the Safety Beach property below market value.
153 The Bank made errors in respect of charging late-payment fees. It had made false accusations in relation to the defendants’ accounts, stating that they failed to make payments on a monthly basis. The Bank failed to acknowledge that as soon as the existence of arrears owing on the loan accounts was brought to their attention, they took steps to commence repayments from the accounts.
154 The defendants also relied on the Bank placing conditions on approving a second round of hardship in 2009, such as utilising proceeds from the Southbank sale to reduce their indebtedness.
Failure to reactivate loans after the hardship period
155 The Ozdens argued that they had acted on past experience with the Bank in assuming that they would be contacted after the end of the second hardship period and reminded to recommence payments. They had no motivation not to make their loan repayments as they might lose their home. A precedent was set after the conclusion of the first hardship period and they assumed that the same practice would be followed after the conclusion of the extended second hardship period.
156 Repayments of each of the loans was arranged by direct debit to be made from the line of credit provided by the Bank.
157 The Bank argued that the Ozdens were obliged to ensure that the monthly repayments were made on each loan. The Bank’s letters had informed them of that obligation. They were receiving statements for the three loans every month. Mrs Ozden was unable to explain why the increasing debt did not come to their attention.
158 As previously stated, Mrs Ozden first learnt that automatic reactivation of direct debits of loan repayments had not occurred, when in July 2010 she visited the Keilor Downs branch. She had not checked the monthly accounts that the Bank sent in respect of each of the three loans between November 2009 and June 2010 and received no letter of demand. She said that she was still feeling lost and sad as a result of her family tragedy and was not paying attention to many aspects of her life, including the family finances.
159 The letters of 29 June 2009 and 8 August 2009 clearly advised the Ozdens of their obligation to recommence payments. They received regular statements in respect of their loans. If the loan repayment was not made on the due date there was a breach of the loan.
Conclusion on the re-activation issue
160 The defendants were obliged to ensure that repayments of the loans were made on the due date. If this was to be done by direct debit payments, they had to be reinstated. They were receiving Bank statements.
161 The fact that after a previous hardship period had concluded, the Bank contacted the defendants to arrange the recommencement of direct debit payments does not remove the obligations of the Ozdens to make the payments.
162 The defendants have not proved a breach of contract in respect of this matter.
Failure to capitalise or re-age the arrears
163 The Ozdens argued that in respect of both hardship periods, the Bank’s arrears reports listed the hardship monthly payments as arrears. The Bank should have capitalised or re-aged these arrears. It did not because its business systems failed.
164 Mrs Ozden asked Mr Stamef, a Bank officer, in cross-examination, why she and her husband would not have met the recast or re-age policy in November 2010. Mr Stamef stated that the Bank had to consider the whole picture of the customer’s connected accounts, including those that were in arrears.[64]
[64]T392
165 The defendants relied on notes recorded in the Bank’s internal notes.[65]
[65]See CB 875
166 In the notes of 6 October 2009 there is an entry of Mr Guiliani that:
“ I have as approved by management to add arr-s back on this account totalling $103,647.22 as should not of been capped….please refer to my last note for our current position going forward.”[66]
[66]CB879
167 A further entry for 6 October 2010 stated:
“This loan was re-aged 4/10 as part of RD initiative 27 as a linked loan …[home loan] was indentified as potential for re-age. Given re-payments on this loan for at least 12 months have dishonoured this loan this loan does not meet re-age policy and accordingly re-age should be reversed and arrears re-instated.”[67]
[67]CB 879-880
168 Mrs Ozden relied on an internal email of Mr Grech, a Bank officer, of 29 October 2009, which has been referred to previously and which stated in part:
4. Consideration of capitalisation of arrears after a 6 month period so we can verify that they can meet proposed repayments.
5. A maximum of $10000 or 50% of the sale price is to be obtained from the sale of the boat birth/mooring.
6.. That all loans be monitored carefully & and any further arrears are not to be tolerated. ” [68]
[68]CB 712,1318EE
169 Mrs Ozden gave evidence that Mr Grech called her and said “will you be happy with us capitalising on the loans?” and that he “want[ed] to come up with a resolution.”[69]
[69]T500
Conclusion
170 The defendants have not proved that the Bank was under any duty to capitalise or re-age arrears. Nor have they proved that the failure to do so breached any implied contractual duty. The Bank had a discretion whether or not to do so. The evidence suggests that it took into account all the circumstances of the Ozdens, including the dishonoured payments. Mr Grech’s email was a recommendation made when the Bank was considering proposals to resolve the FOS complaint. His conversations with Mrs Ozden about capitalisation would have occurred in a similar context. The terms on which the Bank and the Ozdens resolved the FOS complaint of September 2009 were contained in the document dated 11 November 2009, that occurred after Mr Grech’s recommendation.
The Bank forced the defendants to sell the Safety Beach property below market value
171 The Ozdens alleged that that the Bank forced them to sell the Safety Beach property below market value. The Bank denied the allegation.
172 The Ozdens made their own decision to sell the Safety Beach property in February 2013 after the trial had commenced. They were under financial pressure to do so, but not illegitimate pressure. The proposal to sell the Safety Beach property had been under consideration as an option since 2010. It was a means of attempting to deal with the arrears on their loans.
173 The Ozdens have not proved that the Bank breached any contractual duty owed to them because of any conduct in connection with the sale of the Safety Beach property.
Late payment fees
174 The Bank acknowledged that a number of late payment fees were incorrectly added to the loan accounts. Mrs Penn in her calculations made adjustments to the arrears by deducting the amounts wrongly included.
175 The Ozdens have not proved that the Bank incorrectly included in loan arrears any other late payment fees than those that it acknowledged. The Ozdens alleged that a number of the late payment fees were invalidly debited to their accounts because they were for periods when the Bank should have reactivated the deductions from their accounts. I have not accepted that the Bank was under any obligation to do that and I do consider that the Bank was entitled to charge these late payment fees. The Ozdens have not proved that any late payment fees, other than those which the Bank has acknowledged, were invalidly added to their accounts.
176 The Bank’s mistakes in charging late payments were errors that the Ozdens were entitled to have rectified. However, they were not of a nature that involved a breach of a contractual term of the kind on which the Ozdens relied and which would entitle them to an award of damages.
Allegations about arrears
177 The contention that the Bank wrongly alleged that the Ozdens’ accounts were in arrears consisted of matters raised as part of the arguments that I have previously considered eg arrears caused by the Bank and not arranging the reactivation of the direct debits.
Failure to enable part of proceeds of the Southbank sale to be used by the Ozdens
178 The Ozdens considered that the Bank should have allowed some of the proceeds of the sale of the Southbank property to be retained and used by them. But, the Bank, in a situation where loans were cross-collateralised was
entitled to direct those funds to the payment of the loans.
Conclusions on the allegations of breach of contract
179 I have previously dealt with the question of the berth title. None of the other matters raised by the Ozdens established a breach of a contractual duty of good faith, or to act reasonably or to co-operate in the performance of the contract.
180 The Bank’s actions, that are discussed above, have to be seen in the context of the manner in which the Ozdens’ loan accounts had been operated. If I had considered there was substance in any of the matters raised (other than the berth title issue), in assessing whether the Bank had breached a duty of good faith, or to act reasonably, or co-operate, I would have had to take into account the Bank’s right to protect its own commercial interests. The Bank relied on the many dishonoured payments that had occurred. They were still to be regarded as dishonoured even though correcting payments were later made.
181 After November 2009 only four clear payments were made on the Third Loan. They were on:
(a)14 December 2010 – $7,549.44;
(b)15 December 2010 – $2,000.00;
(c)21 January 2011 – $7,791.00;
(d) 21 January 2011 – $2,000.00.
182 The defendants’ response to this was that they ceased repayments in February 2001 as the APRA funds were insufficient to clear the total arrears on the Third Loan and the Bank continued to insist on the sale of the Safety Beach property. However, the result still was that no repayments were made on the largest loan after January 2011 – almost four months before the Bank served the Notices of May 2011.
183 The Bank gave extensions to the Ozdens from August 2010 to June 2011 because they were trying to sell the Safety Beach property, failing which they said that they would surrender it. The Ozdens contended that all the Bank’s actions, including the extensions of time that it granted, were for its own benefit. But they also benefitted the Ozdens.
184 The matters that I have discussed in this section of the judgment support the conclusion that, save in respect of the berth title, the Bank did not breach any contractual duty that it owed to the Ozdens.
Consideration of damages
185 The only breach of contract by the Bank that I have found is the failure to return the berth title. That breach gives rise to action in damages on the Ozdens’ counterclaim. It does not operate so as to restrict the Bank’s rights to enforce its rights under the loan contracts or the mortgages in respect of the titles to the Safety Beach or Williamstown properties.
186 The Ozdens now have the berth title. So subject to any proof of diminution in its value between 2009 and the present, the measure of damages is what loss or damage the Ozdens proved that they suffered as a result of not being in possession of it between January 2008 and September 2012.
187 The Ozdens summarised the damages that they claimed in a table in the following terms:
Description of loss
$ Value
(Approximate)
$ Value
(Approximate)
1. a) Inability to put $200,000 lump sum payment to Loan 3 from sale of Berth and save on interest for approximately 3.5 years
$43,268.32
(Refer to Annexure D)
b) Inability to put $100,000 lump sum payment to Loan 3 from refinancing Berth and save on interest for approximately 3.5 years
$21,634.16
(Refer to Annexure D)
2. Capital Value loss on Berth minus 1 year rental of Berth of 10K
$25,000.00
$45,000 capital value loss + 1 year rental loss on Berth) minus $20,000, 2 years rent on Berth)
$25,000.00
3. Shortfall from sale of R4/75 Spinnaker Terrace, Safety Beach at K4750,000. Again if we had sold the Berth or been able to refinance against it in Sept 2009 or had arrears capped we would have been able to clear our arrears (even if CBA had made an administration error) and been able to keep Spinnaker Terrace and not incur a shortfall by selling it at the worst time economically possible
$791,722.50
($15,556,160.01 Exhibit C minus 1.925% agent fees of $14,437.50)
Shortfall includes enforcement costs of $60,280.5
$791,722.50
188
4. Initial Deposit contributed to T4/75 Spinnaker Terrace, Safety Beach
$84,571.51
($234,265.21 initial deposit) minus $128,750 purchase price of Berth) minus $20,973.70) penalty interest reimbursed.
$84,571.51
5. Incorrectly charged Bank Fees
$785.00
$785.00
6. Defendant Legal Fees
$34,000.00
(Henty’s Lawyers fees til Nov 2012)
$34,000.00
TOTAL LOSS with inability to sell Berth
$979,347.33
TOTAL LOSS with inability to refinance against Berth
$957,713.70
189 I will first consider Item 1 contained in this Table. The Ozdens pointed to two approaches to the calculation of their damages for not having the berth title. They were unable to sell the berth and apply the proceeds to reduce the balance of the third loan. They were also unable to raise finance on the berth and use that to reduce the arrears on the third Loan.
190 The calculations of Mr and Mrs Ozden provided some proof that if in September 2009 they had made a contribution of $200,000 towards the Third Loanthey would have saved approximately $43,268,31 in interest repayments. If they had contributed a further $100,000 towards that loan they would have made an interest saving of $21,634.[70]
[70]Exhibit – Annexures D and E see T 613
191 The Bank’s internal documents assumed that the berth title was worth about $200,000. I accept the Ozdens’ evidence that they received a verbal offer in that vicinity.
192 The Berth was offered for sale in about January 2009.[71] The Ozdens state that the Bank should have returned the berth title to them at least by September 2009, when they made a written request for it. It was crucial to have it in their hands when they received a verbal offer of $200,000 in the middle of 2009.
[71]CB 636
193 Mrs Ozden considered that it was to risky to sign a contract to sell the berth when the Bank was refusing to return the title.
194 Mrs Ozden gave evidence of her attempts to obtain finance on the berth title. In the middle of 2010, she spoke to Mr Karabidiian, a finance broker and he informed her there were two entities that would consider putting up between 50 and 60% of the value of the berth. However they would require its title if they were going to lend on it.[72] The finance broker was not called by the defendants.
[72]T 536-357
195 The Bank submitted that the Ozdens were unable to sell the berth because of the vagaries of speculative real estate developments. They had purchased off the plan. The Global Financial Crisis also restricted their ability to sell the berth title. They had engaged many estate agents in an attempt to sell.
196 The Bank argued that physical possession of the berth’s title was not needed to enter into a contract to sell the berth or to apply for finance. The title was only required to effect settlement. The Ozdens’ solicitors did not write to the Bank querying why the title was held. Nor did the defendants commence proceedings seeking the production of the title or make an application to the Registrar for the cancellation of the old title and the issue of a new title.
197 The Bank pointed out that there was no expert evidence about the losses that had been suffered.
198 I consider that the Bank’s submissions on this issue were unrealistic. The Bank, having agreed to release the berth title, was now refusing to do so. It does not sit well for the Bank to submit that the Ozdens could have gone ahead and sought a purchaser or sought finance in those circumstances.
199 For the same reasons, I consider that there is no substance in the Bank’s argument that the Ozdens failed to mitigate their loss or damage. The Bank has not proved that contention.
Conclusion on damages in respect of the berth title
200 The Ozdens have the onus of proving their loss and damage. They are entitled to be placed in the situation that would have resulted from performance of the contract.[73] They are entitled, subject to matters of proof, to recover damages for the loss of the bargain ie expectation damages and damage suffered, including expenditure incurred, in reliance on the contract ie reliance damages.[74]
[73]Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82-84
[74]Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12 cf Cheshire and Fifoot, Law of Contract 10th Australian edition, pps 1126-1128
201 The Ozdens must prove their loss on the balance of probabilities that their expectation of a particular outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.
202 The Ozdens may recover damages for loss of a chance if their loss was foreseeable as a probable result of the breach. They are awarded even if the chances of realisation was improbable. The Ozdens must prove that the performance of the contract would have created a chance or opportunity that had some value and was not merely speculative or negligible. The Ozdens referred to their inability to obtain the berth title as the loss of an opportunity.
203 The Ozdens have proved that they lost the chance of selling the berth title or obtaining finance on it in the 2009 to 2012 period.
204 I accept Mrs Ozden’s evidence that if they had received the berth title back they would have attempted to sell it or obtain finance on it and paid at least sum of the money that they received towards the debt owing on the loan.
205 While it is uncertain whether they would have been able to sell it or obtain finance – they have lost the chance of that occurring and that chance is of value.
206 However, the evidence does not support a conclusion that, if the Ozdens had obtained the berth title, they would, by selling it or obtaining finance on it and thereby clearing all their arrears, have avoided the events that have led to this litigation. The difficulties that they have experienced over an extended period in paying the amounts due on their loans do not support such a conclusion. The loans may well have continued to accrue arrears. In addition there are the uncertainties as to the price that would have been obtained for the berth title and when it would have been sold. Those uncertainties are not an obstacle to assessing the value of a loss of a chance to use the possible sale price of the berth to reduce the interest owing on the loans. However, apart from that, the Ozdens have not established any other entitlement to an award of damages.
207 The Ozdens have proved that they lost the chance to obtain funds from the sale or refinance of the berth title, which they would have probably used to make payments on the Third Loan and thereby reduce the interest on that loan.
208 In Commonwealth of Australia v Amann Aviation Pty Ltd,[75] Deane J explained that in some cases it is “impracticable or inappropriate” for the court to make “ultimate findings” on the balance of probabilities about what would have occurred if a party had not breached the contract. In some cases, considerations of justice dictates that damages be assessed by reference to the “probabilities or the possibilities of what would have happened or what will happen”. This prevents the defendant avoiding “liability by pointing to the obvious, namely, that it is theoretically more probable than not that a less than fifty percent chance of success would have resulted in failure.”[76]
[75](1991) 174 CLR 64
[76](supra) at 118-119
209 In MacDonald v Australian Wool Innovation Ltd,[77] Weinberg J described the assessment of the loss of a chance, in the context of the renewal of a contract beyond its initial term, as follows:
“ In Cheshire and Fifoot, the learned authors suggest at [23.15] that it is not necessary to establish that the chance would probably have been realised. It has been suggested that a one per cent chance may give rise to an entitlement to compensation: Malec v JC Hutton Pty Ltd per Deane Gaudron and McHugh JJ. The idea that a one per cent chance would be other than ‘speculative’ might strike some as odd, but that would seem to be the view of the High Court in Malec. See also Sellars v Adelaide Petroleum NL, L’Huillier v State of Victoria and Global Network Services Pty Ltd v Legion Telecall Pty Ltd in which a ten per cent chance was held to be compensable.
If the chance is so low as to be regarded as speculative, say less than one per cent, the Court will disregard it in assessing damages. However, any chance that is not so nebulous as to fall within that description should be taken into account.
According to Cheshire and Fifoot, while percentage figures are commonly used, it is not essential for a court to express a percentage of possibility, or probability, in calculating the amount of an award. The Court is entitled to take a global approach and to award a lump sum: Fightvision Pty Ltd v Onisforou; and Glenmount Investments Pty Ltd v O’Loughlin.” (citations omitted).
[77]{2005] FCA 105 at [247]-[250]
210 Mrs Ozden prepared tables showing the savings in interest that would have occurred in respect of the Third Loanif they had received the berth title in September 2009 and been able to raise funds between $100,000 and $200,000 to pay towards third loan.[78] I referred to them previously and I have regard to them for the present purpose. There was no certainty that the Ozdens would have been successful in selling the berth title or obtaining finance on it between September 2009, being the date that they suggest that it should have been returned, and November 2010, when they leased it. I do not consider that they can claim damages for the loss of a chance beyond November 2010, when they leased the berth.
[78]T612-613
211 It is not possible to be precise about the value of the chance that the Ozdens lost, but it was not so low as to be nebulous. Taking those matters into account, I assess as damages, for loss of a chance to use the berth title to save on interest payments on the third loan, the sum of $5000.
Other items of damages claimed
212 I will now consider in turn the other items of damages that the Ozdens claim in their table. Some of the calculations that the Ozdens advanced were unclear.
The capital value loss on berth minus one year rental of berth of $10,000
213 The defendants relied on a valuation of the berth in 2010. There was no evidence of the value of the berth at the time of trial. It had been on the market to sell, but was not sold, so it was then leased. There was no evidence that as the present time, it has decreased in value.
Shortfall from sale of Safety Beach town house
214 The Ozdens contended that if they had sold the berth, or been able to refinance against it, in September 2009, or if the arrears had been capped, they would have been able to clear their arrears and been able to keep the town house and not incur a short fall, by selling it at the worst time economically possible.
215 I have assessed damages for the loss of a chance to sell the berth title or use it to obtain finance and thereby decrease interest payments. The Ozdens had ongoing difficulties making the repayments required under the loan agreements. They have not proved that the sale or refinance of the berth title would have solved their financial problems by enabling them to repay arrears and make the payments that continued to fall due on the loans.
216 The Safety Beach property was sold after a long period of consideration of how to repay part of the third loan.
Initial deposit
217 This was the sum of $84, 571.51 which was the amount of the deposit paid on the townhouse, less the deduction of the purchase price of the berth and the amount of penalty interest. The defendants did not establish any basis for recovering that sum as damages for any breach of contract by the Bank.
Incorrectly charged bank fees $785
218 These amounts are not recoverable as damages. The late payment fees that the Bank incorrectly charged were deducted by Mrs Penn in her calculations of the loan balances.
Defendants’ legal fees
219 Legal fees incurred defending a claim are not recoverable as damages in most circumstances – there is nothing in this case that takes it out of the ordinary.
Other matters
220 I will now deal with some additional matters that were raised by Mr and Mrs Ozden.
221 The defendants queried debits to their accounts for the payment of stamp duty and whether they were justified. The evidence supports the conclusion that the stamp duty on the Safety Beach purchase was paid out of the moneys loaned by the Bank and the debits in respect of the stamp duty were justified.
222 It was also argued that in 2008 the finance broker had acted as agent for the Bank, but that was not established on the evidence.
223 The Ozdens raised issues concerning the Bank debiting enforcement costs to their loan accounts. The Bank has the right to charge reasonable enforcement expenses that it reasonably incurred or expended in relation to defaults: see eg Clause 9 of the terms of the loan agreements.
224 Issues were raised about the mortgage insurance for the mortgages. The Ozdens had been charged the premiums. That insurance is issued to provide protection for the Bank.
Conclusion
225 The Bank is given leave to commence this proceeding under s88(5) of the National Credit Code.
226 The Bank is entitled to an order for possession of the Williamstown property, the Safety Beach property having been sold. The Bank is entitled to judgment for the amount that is owing on the three loans. I accept Mrs Penn’s evidence as to the amount of the debts owing by the defendants as at the time she gave evidence. I will hear the parties as to the current amount of those debts.
227 Mr and Mrs Ozden are entitled to judgment against the Bank for damages in the sum of $5000 in respect of the detention of the berth title.
228 I will hear the parties as to the appropriate orders that should be made.
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