Cornell v National Australia Bank Limited

[2009] WASCA 225

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   CORNELL -v- NATIONAL AUSTRALIA BANK LIMITED [2009] WASCA 225

CORAM:   NEWNES JA

HEARD:   23 OCTOBER 2009

DELIVERED          :   16 DECEMBER 2009

FILE NO/S:   CACV 110 of 2009

BETWEEN:   WILLIAM LANCE CORNELL

First Appellant

ROSA MARIA CORNELL
Second Appellant

AND

NATIONAL AUSTRALIA BANK LIMITED
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :NATIONAL AUSTRALIA BANK LIMITED -v- CORNELL [2009] WASC 255

File No  :CIV 1414 of 2009

Catchwords:

Practice and procedure - Application for stay of judgment pending appeal - Relevant principles - Turns on own facts

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 15

Result:

Stay granted

Category:    B

Representation:

Counsel:

First Appellant               :     In person

Second Appellant          :     Mr A P Skerritt

Respondent:     Mr C S Gough

Solicitors:

First Appellant               :     In person

Second Appellant          :     Corser & Corser

Respondent:     Minter Ellison

Case(s) referred to in judgment(s):

Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd [1999] WASCA 311

Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161

Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203

National Australia Bank Ltd v Baker [2003] WASC 6

Smolarek v Brian Keith McMaster As Administrator of Eznut Pty Ltd [2006] WASCA 216

1. NEWNES JA:  This is an application for a stay of the enforcement of a judgment of Master Sanderson given on 19 August 2009, by which it was ordered that the appellants give vacant possession of two properties in Boddington to the respondent, pending the determination of the appellants' appeal against the judgment.  The stay is sought by the appellants in respect of only one of the properties.

Background

1. The appellants (the Cornells) are husband and wife.  They own two properties in Boddington.  The first property (the Reserve Road property) was purchased by the Cornells in 1998.  The second property (the Albany Hwy property) was purchased in 2006.  The Cornells resided at the Reserve Road property from 1998 until 2006 and since then they have resided at the Albany Hwy property.

2. Each of the properties is mortgaged to the respondent (the Bank).  The Reserve Road property is subject to a mortgage to secure a loan made to the Cornells on or about 13 February 1998 (the Home Loan).  The Reserve Road property and the Albany Hwy property are subject to a mortgage to secure a loan made on or about 16 May 2006 (the First Market Rate Facility) and both properties are also encumbered by a mortgage to secure a further loan made on or about 13 December 2007 (the Second Market Rate Facility). 

3. As at 28 November 2008, the Cornells were indebted to the Bank under the Home Loan, the First Market Rate Facility, and the Second Market Rate Facility (together, the loan agreements) in the total sum of approximately $1.6 million.  On 28 November 2008, the Bank served notices of default on the Cornells pursuant to the loan agreements.  The Cornells failed to pay the outstanding sums by the dates specified.  On 28 November and 1 December 2008, the Bank served default notices pursuant to the property mortgages.  The defaults were again not remedied.  A notice to vacate was subsequently served in respect of each property, but the Cornells refused to deliver up vacant possession.

4. On 27 February 2009, the Bank commenced proceedings against the Cornells seeking orders for vacant possession of both properties and payment of the sum of $1,599,071.29 owing under the loan agreements.

5. The Bank's statement of claim was filed on 30 April 2009.  The Cornells were required to file and serve a statement of defence by 14 May 2009.  They did not do so.

6. On 19 June 2009, the Bank applied for summary judgment.  That application came on for hearing before Master Sanderson on 21 July and 19 August 2009.  In their affidavits in opposition to the application, the Cornells did not deny that they were indebted to the Bank as alleged or that they were in default under the loan agreements.  They contended, however, that they had a defence to the action.  They said they had entered into both the First Market Rate Facility and the Second Market Rate Facility as a result of misleading and deceptive conduct, negligent misrepresentations, and economic duress on the part of the Bank.

7. It appears from the affidavits filed in opposition to the Bank's application that the relevant dealings with the Bank were conducted by Mrs Cornell on behalf of herself and her husband.  In her affidavit, Mrs Cornell said that, in or about April 2006, she and her husband entered into a contract to purchase the Albany Hwy property for the sum of $927,000.  Mrs Cornell contacted the manager of the local branch of the Bank (the bank manager), with a view to obtaining a loan from the Bank to assist the Cornells in the purchase.  Mrs Cornell says she told the bank manager that it was their intention to repay the loan by selling the Reserve Road property.  She told him that the Cornells' business, Lyddon Farm Aquaculture, had never made more than a nominal profit and that the profits reflected in the financial returns of the business for the previous three years incorporated income earned by Mr Cornell subcontracting his excavator.  She said they were currently unemployed. 

8. According to Mrs Cornell, in the course of her conversations with the bank manager, they discussed possible ways of funding the purchase if the Reserve Road property did not sell.  He suggested that the Cornells would make much more money if they subdivided it.  He predicted that as a result of the gold boom in Boddington, land values in the area would boom in the near future.

9. Mrs Cornell says that, on or about 20 April 2006, she told the bank manager that the sale of the Reserve Road property had fallen through and asked if they could still obtain the loan if they were unable to sell the Reserve Road property straight away.  According to Mrs Cornell, the bank manager told her they could, but they would need to submit a business plan in support of the application and he would assist them in drafting the business plan.  Mrs Cornell says the bank manager told her that the business plan was not so important because the Cornells would sell the Reserve Road property within six months.  Mrs Cornell says they discussed what would happen if the Reserve Road property did not sell as quickly as predicted and the bank manager said 'the bank will back you'.  Mrs Cornell understood him to mean that the Bank would provide finance to enable the Reserve Road property to be subdivided and sold in lots.  It is not clear from the affidavit what caused her to form that understanding.

10. Mrs Cornell says the bank manager canvassed with her possible means of deriving income from the Albany Hwy property, including hydroponics, fish farming, fat lambs, excavator work, hay and oat crops, and olive farming, for the purpose of including the prospective income in the business plan.  She says she told him that she had never run any of those businesses, but the bank manager told her she should still include income from those businesses in the business plan. 

11. According to Mrs Cornell, on or about 28 April 2006, she received a telephone call from an employee of the Bank who informed her that the business plan had to be changed to 'come up with a lot more money or the loan won't fly'.  Mrs Cornell says she expressed concern that the figures in the business plan were just speculation, but was told not to worry as the Cornells would not be relying on the business plan because they would be selling the Reserve Road property. 

12. Mrs Cornell says that the bank manager subsequently amended the business plan to increase the projected income for the business.  In the business plan finally submitted in support of the loan application, the projected income from the businesses previously discussed with the bank manager was shown as $108,500 per annum.  The business plan also ascribed a value to the Reserve Road property of $1,320,000 'based on subdivision potential' and a potential profit on subdivision of $485,000. 

13. On 16 May 2006, the Cornells signed the loan agreement and the mortgage to secure the First Market Rate Facility.  Mrs Cornell says they did so on the basis of what the bank manager had said to her.  The Cornells say that the effect of the loan agreement was not explained to them. 

14. Mrs Cornell says they were able to pay the first instalment of interest on the loan from surplus funds at settlement but otherwise were in default and unable to service the loan from the outset.  In late 2007, in a meeting with officers of the Bank, the Cornells were told that the Bank could refinance their loans and 'park up' their debt.  Mrs Cornell says she understood that to mean they would be relieved of their obligation to make any repayments for 12 months to enable them to arrange a subdivision of the Reserve Road property, but that did not turn out to be the refinancing arranged.

15. On 13 December 2007, the Cornells signed the loan agreement for the Second Market Rate Facility and a Deed of Arrangement.  The Cornells say they signed the Second Market Rate Facility, the Deed of Arrangement and, subsequently, Deeds of Variation because the Bank told them that if they did not do so 'all was lost' and the Bank would sue them for the outstanding money.  Mrs Cornell says she was not allowed possession of the documents long enough to get any independent advice on them.  She says she subsequently signed Deeds of Variation to obtain more time to pay the debt following delays in selling the Reserve Road property.

16. The Cornells say they relied on the representations and advice of the bank manager in entering into the First Market Rate Facility. They submitted that, by the bank manager, the Bank had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth), in connection with the preparation of the business plan and by inducing them to submit it for the purpose of the approval of the First Market Rate Facility.

17. The Cornells say that they entered into the Second Market Rate Facility, the Deed of Arrangement, and the Deeds of Variation under duress because as a result of the predicament in which they found themselves they had no option but to sign the documents.  They said that the Bank's conduct in requiring them to sign the documents or be sued immediately for the outstanding money constituted illegitimate pressure and unconscionable conduct, and the Bank's refusal to allow them sufficient time to get independent advice was unconscionable.

18. I should say that the Bank denies that the bank manager played the role attributed to him by the Cornells and refers to a substantial amount of correspondence which appears to be inconsistent with the Cornells' case. 

19. The Master held that there was nothing in the circumstances alleged by the Cornells which could constitute misleading and deceptive conduct, negligent misrepresentation or economic duress.  He found that there was nothing in the evidence to suggest that the Cornells had a defence of misleading and deceptive conduct under the Trade Practices Act.  Nor was there anything which could be characterised as a representation on behalf of the bank manager, let alone anything that could be characterised as a negligent misrepresentation.  Even assuming the bank manager helped to draft the business plan, there were no facts upon which it could be said that he was negligent.  He relied upon materials supplied to him by the Cornells and it was the Cornells who submitted the business plan.

20. The Master found that there was no foundation for the submission that the Cornells were subjected to 'illegitimate pressure' or economic duress by the Bank.  The evidence showed that the Bank went to remarkable lengths to allow the Cornells to rationalise their affairs and repay the money they had borrowed.  The Master ordered that: 

    1.the Bank have leave to apply for summary judgment;

    2.the Cornells give up and deliver to the Bank vacant possession of the two properties within 28 days;

    3.the Cornells pay the Bank's costs on an indemnity basis.

The appeal

1. On 11 September 2009, the Cornells lodged an appeal against the Master's decision.  The Cornells require an extension of time within which to appeal.  On 15 September 2009, it was ordered that the application for an extension of time within which to appeal be referred to the hearing of the appeal.

The stay application

1. On 15 September 2009, the Cornells applied under s 15 of the Civil Judgments Enforcement Act 2004 (WA) (the Act) for a stay of the enforcement of the order made by the Master that the Cornells give vacant possession of the Albany Hwy property. They do not seek a stay of the order for vacant possession of the Reserve Road property, which, apart from the two Market Rate Facility loans, is the subject of a mortgage to the Bank to secure the Home Loan made in 1998.

2. At the hearing of the application Mrs Cornell was represented by counsel.  Mr Cornell appeared in person and adopted the written and oral submissions put on behalf of Mrs Cornell.

The relevant principles

1. Under s 15 of the Act, a person against whom a judgment is given may apply for an order suspending the enforcement of a judgment. The court may only make such an order if there are special circumstances that justify doing so: s 15(3).

2. The principles applicable to an application under s 15 are not materially different from those which applied to an application for a stay of execution before the introduction of the Act: see Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203 [3]; Smolarek v Brian Keith McMaster As Administrator of Eznut Pty Ltd [2006] WASCA 216 [33]

3. The general principles which are applicable to the exercise of the court's discretion to grant a stay of execution were summarised by Murray and Parker JJ in Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308, as follows:

   1.The successful litigant at first instance will ordinarily be entitled to enforce the judgment pending the determination of any appeal.

   2.It is for the applicant for a stay to move the court to a favourable exercise of its discretion.

   3.It will not do so unless special circumstances are shown justifying the departure from the ordinary rule.

   4.The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation, or where refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal.  It is often put shortly that it will first and foremost be necessary to establish that without the grant of a stay, the right of appeal, whether upon the grant of leave or special leave or not, will be rendered nugatory. 

   5.If that can be demonstrated, the stay will generally still be refused unless it can be established that the appeal process, whether upon the grant of leave or special leave or not, has ultimately reasonable prospects of success so as to result in the grant of relief to the appellant.

   6.If that hurdle can be overcome, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant; where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted [9].

4. While those principles provide guidance in the exercise of the discretion they are not inflexible or exhaustive, and at all times the ultimate question must be whether there are special circumstances which justify the court ordering a stay.

Submissions on this application

1. The Cornells submitted that there are special circumstances which justify the grant of a stay in relation to the Albany Hwy property.  They are fourfold.  First, if they were required to move it would put in jeopardy Mr Cornell's employment.  The Cornells reside at the property and they say it would be difficult to find alternative accommodation in the area.  Mr Cornell works at the nearby Boddington Gold Mine and his employment is the principal source of the family's income.  The effect of his employer's occupational health and safety policies is to limit the amount of travelling time permissible before and after each shift, so Mr Cornell must live close to his work.  Secondly, the Cornells obtain extra income providing accommodation on the property for boarders who cannot find accommodation in Boddington and that income would be lost if the Cornells were forced to move.  Thirdly, the Cornells have two cows and approximately 100 sheep on the property.  The sheep are currently in lamb.  The livestock would have to be moved off the property if the Cornells were required to give vacant possession.  That would be costly and at present would put the lambs at risk.  Fourthly, unless the orders made by Master Sanderson are stayed, the subject matter of this litigation will be lost to the Cornells because the Bank will sell the property to third party purchasers.

2. On the other hand, if the stay is granted and the appeal is unsuccessful, the respondent will suffer only a brief delay in execution of the Master's orders.

3. The Cornells say that the appeal has reasonable prospects of success because the evidence before the Master raised issues that ought to be tried.  They say that the bank manager assisted them to draft a business plan that was inaccurate and had no basis in fact.  That business plan was central to the approval by the Bank of the First Market Rate Facility.  The actions of the bank manager constitute misleading and deceptive conduct because, by the bank manager, the Bank knew that the Cornells would never be able to meet the terms of the loan and that the Cornells had no skill or expertise in the development of the property as proposed in the business plan.  Alternatively, the Cornells say the Bank's conduct in relation to the relevant transactions was unconscionable.

4. The Bank submitted that the appeal has no prospect of success.  The Cornells' affidavits do not make clear what their defence is and how the facts alleged relate to it.  Counsel for the Bank argued that the Cornells did not identify before the Master, and they have still not identified, with any degree of specificity what was the alleged misleading or deceptive conduct on the part of the Bank or what reliance they placed on that conduct.  The affidavits filed by the Cornells do not reveal in what respects they say they were misled by the Bank.  What appears clear from those affidavits is the intention of all parties that the ability of the Cornells to service the Second Market Rate Facility was likely to depend on the Cornells selling the Reserve Road property.  The question of unconscionability was not raised before the Master and there is nothing in the affidavit evidence which is capable of making out such a case. 

5. The Bank submitted that the special circumstances alleged by the Cornells do not establish grounds which would justify a stay of the enforcement of the judgment.  The assertions about the livestock are inadequate and were only raised at the eleventh hour.  The assertions about Mr Cornell's employment position are again inadequate. 

6. Counsel said that the Bank was prepared to give an undertaking that it would provide the Cornells with three or four working days notice before it entered into any contract to sell the property.

Disposition of the application

1. Two substantive issues are raised on this application.  First, whether, in view of the undertaking the Bank is prepared to give, any basis has been made out for a stay of the enforcement of the Bank's right to vacant possession of the property.  Secondly, whether the Cornells have demonstrated that the appeal has some reasonable prospect of success.  (I should say that although the matter was raised with counsel, the Bank did not press any argument based on Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; and see Commonwealth Development Bank of Australia Ltd v Nertec Pty Ltd [1999] WASCA 311; National Australia Bank Ltd v Baker [2003] WASC 6 [9].)

1. The second ground does not involve a detailed examination of the merits of the appeal.  On an application of this nature, argument concerning the substance of the appeal is necessarily limited and the court will not generally speculate upon the appellant's prospects of success.  It is obviously desirable to leave the question of the merits of the appeal to the hearing of the appeal if it is possible to do so.  But it is not appropriate to grant a stay if the appeal is plainly devoid of merit.

2. At this stage, the Cornells have not filed their grounds of appeal and the precise basis upon which they put their case is not apparent.  But as I understand it, they contend that the Master erred in finding that on the material before him it was clear that there was no question which ought to be tried.  They say, in substance, that the questions of whether the Bank engaged in misleading and deceptive conduct and whether its conduct in connection with the relevant transactions was unconscionable, raised triable issues and the Master should have so found.

3. There is some substance in the Bank's contention that the Cornells have failed to identify the precise manner in which the Bank's conduct is said to have been misleading or deceptive or unconscionable, or how it affords the Cornells a defence to the Bank's claim.  But for the purposes of this application I am not prepared to conclude that the Cornells' case, that they had raised matters before the Master which ought to go to trial, is so devoid of merit that the application should be dismissed on that basis. 

4. I am also not persuaded that the Bank's proposed undertaking is a sufficient answer to the application.  It is true that once such an undertaking is given it could not be said that, for the time being at least, the appeal would be rendered nugatory if a stay of enforcement of the order for vacant possession were not granted.  It would not be rendered nugatory simply because the Cornells gave vacant possession to the Bank, as required by the Master's order.  If before the appeal was determined the Bank intended to enter into a contract to sell the property it would first have to give notice to the Cornells, so that they would have an opportunity to apply at that stage for a stay. 

5. But it is not essential to establish that in the absence of a stay the appeal would be rendered nugatory. No such requirement is to be found in s 15 of the Act. Generally, a stay may be granted where it is 'perceived to be necessary to preserve the subject matter or the integrity of the litigation, or where refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal'.

6. In the present case, the effect if a stay is not granted is that the Cornells will have to move out of their residence; they will have to move the livestock off the property and find another place for them, possibly involving the cost of agistment; they are likely to lose the income they currently receive from boarders; and they will have to find suitable accommodation in the area for the purposes of Mr Cornell's employment, a task that on their evidence will be difficult.  The cost involved is likely to be significant and, even in the event that they are successful on the appeal, to be irrecoverable.  It is not suggested by the Bank that their interests are likely to be adversely affected to a significant degree by a stay pending the determination of the appeal.  It is also significant that the appeal has now been set down for hearing on 10 February 2010. 

7. The general principle, that a successful litigant at first instance is ordinarily entitled to enforce the judgment pending any appeal, must give way where special circumstances are shown to exist which justify a stay.  In the somewhat unusual circumstances of this case, I am persuaded that special circumstances do exist and that it is appropriate to stay execution of the order for vacant possession in respect of the Albany Hwy property pending the determination of the appeal or further order.  It will, of course, be incumbent upon the Cornells to pursue the appeal with appropriate diligence to ensure that it is ready for hearing on 10 February 2010.