Mandeville v Better Lending Pty Ltd
[2021] SASCA 28
•3 May 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Court of Appeal: Civil)
MANDEVILLE v BETTER LENDING PTY LTD & ANOR
[2021] SASCA 28
Judgment of the Court of Appeal
(The Honourable Justice Doyle, the Honourable Justice Livesey and the Honourable Justice Bleby)
3 May 2021
ESTOPPEL - ESTOPPEL BY JUDGMENT - RES JUDICATA OR CAUSE OF ACTION ESTOPPEL
ESTOPPEL - ESTOPPEL BY JUDGMENT - ISSUE ESTOPPEL
ESTOPPEL - ESTOPPEL BY JUDGMENT - ANSHUN ESTOPPEL
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - DEFAULT JUDGMENT - OTHER PARTICULAR JUDGMENTS - ON CLAIM FOR DEBT OR LIQUIDATED DEMAND
CONSUMER CREDIT - CREDIT PROTECTION - REGULATED CONTRACTS AND REGULATED MORTGAGES - CREDIT SALE, LOAN AND CONTINUING CREDIT CONTRACTS
Appeal against three judgments of the District Court which determined a claim and a counterclaim arising out of the appellant’s failure to meet certain obligations under a loan agreement.
The appellant, Ms Deborah Mandeville, was formerly married to Mr Andrew Mandeville. Mr Mandeville is the second respondent on the appeal. He played no part in the proceedings on appeal. The first respondent, Better Lending Pty Ltd (‘Better Lending’), is a licensed credit provider based in South Australia.
Ms Mandeville owned the family home at Scoresby, Victoria. She also owned an investment property at Ferntree Gully, Victoria. There was limited equity in each of those properties. On 29 May 2010, Mr Mandeville signed a contract to purchase a residential property in Ferny Creek, Victoria. The purchase price was $1,600,000. The contract was unconditional and required a deposit of $160,000.
On 20 August 2010, the Mandevilles signed a loan agreement with Better Lending to borrow $85,000 for three months. The judge found that this loan agreement was part of a ‘suite of documents including mortgages over the Scoresby and Ferntree Gully properties’. On 2 September 2010, the Mandevilles signed a second loan agreement with Better Lending, which contained an entire agreement clause, the effect of which was that the first loan agreement was subsumed by the second. The total sum lent on the second loan agreement was $167,000. The trial judge found that the purpose of the loans was to provide funds for the deposit on the Ferny Creek residential property. The Mandevilles did not complete the contract for the purchase of the Ferny Creek property and did not make any payments of principal or interest under either the first or second loan agreements.
On 24 July 2014, Better Lending issued proceedings in the Magistrates Court against Mr and Mrs Mandeville, suing in debt on the first loan agreement, rather than the second. On 21 August 2014, Better Lending caused default judgment to be entered against the Mandevilles on the claim, in default of the Mandevilles filing a defence.
Ms Mandeville then commenced a claim in the Magistrates Court against Better Lending, effectively seeking to enjoin Better Lending from further enforcing any of its rights under the second loan agreement and the associated mortgage. Better Lending brought a counterclaim under the second loan agreement. This second action was transferred to the District Court on 20 January 2016. It progressed, slowly, through various interlocutory stages with Ms Mandeville as plaintiff seeking, in the first instance, equitable relief.
This appeal is instituted against a total of three judgments of the District Court, which were together dispositive of the proceedings. The trial judge determined that the default judgment obtained by Better Lending did not, by reason of res judicata, issue estoppel or Anshun estoppel, preclude Better Lending from making further claims under the second loan agreement. He dismissed a claim by Ms Mandeville to the effect that any further claim by Better Lending constituted an abuse of process by reason of the earlier default judgment, and dismissed claims by Ms Mandeville based on duress, undue influence and unconscionable conduct. The judge further found that the National Credit Code applied to the second loan agreement and that Better Lending had failed to comply with ss 129 and 130 of the National Consumer Credit Protection Act 2009 (Cth) (‘NCCPA’). He exercised his discretion under s 177 of the NCCPA to return the parties to the position they would have been in had Better Lending complied with the Act. To this end, he granted an injunction preventing Better Lending from recovering any interest on the loan. On the counterclaim, he gave judgment for Better Lending against each of Mr and Ms Mandeville in the sum of $43,000.
Having regard to the mixed result of the trial, the judge ordered that Better Lending pay 80 per cent of the costs of Ms Mandeville on a party/party basis. The judge noted that this would have the effect that the costs liability of Better Lending would exceed the $43,000 judgment, and acceded to a request that he stay that judgment pending quantification of costs.
Ms Mandeville appealed, and Better Lending cross-appealed.
Held, allowing the appeal on Grounds 5, 11.2 and 11.5, dismissing the cross-appeal, ordering that the counterclaim be dismissed and ordering that Better Lending be restrained from recovering any further amount of principal or any amount of interest, costs or charges:
1. It is not appropriate to have regard to the Counterclaim in the second action, or the loan documents, for the purpose of determining what cause of action had been decided in the first action or the issues that were necessarily decided in that action.
2. The trial judge was correct to conclude that the appellant’s pleas of res judicata and issue estoppel failed as a bar to the claim under the second loan agreement, grounded as those pleas were in the entering of the default judgment on a claim of debt under the first loan agreement.
3. The trial judge erred in concluding that the claim of Anshun estoppel failed as a bar to a claim under the second loan agreement. There is a genuine inconsistency between the claim under the first loan agreement the subject of the default judgment and any claim under the second loan agreement. The failure to plead the second loan agreement in the first action in these circumstances was unreasonable.
4. Anshun estoppel is capable of applying in respect of a default judgment that has a final operation. To this end, it is necessary to understand precisely what the default judgment has determined.
5. There are no circumstances in this case so exceptional such as would warrant applying a discretion not to apply Anshun estoppel.
6. The trial judge was correct to conclude that the National Credit Code applied to the loan agreements, and that it was necessary for Better Lending to make further inquiries and take steps of verification for the purposes of ss 129 and 130 of the NCCPA.
7. The trial judge should not be taken to have held that the default judgment was discharged.
8. The trial judge did not err in failing to make an order for compensation pursuant to ss 178 or 179 of the NCCPA.
Magistrates Court (Civil) Rules 2013 (SA) rr 3(2), 60(1); Magistrates Court Act 1991 (SA) s 19(3); National Consumer Credit Protection Act 2009 (Cth) ss 128, 129, 130(1), 131(3) 177, 178, 179, Sch 1, cls 4, 5(1), 5(4), 13(1), 13(2), 204 ; Transfer of Land Act 1958 (Vic) s 74(5), 78(1); Legal Practitioners Act 1981 (SA) Sch 3, Pt 7; District Court Civil Rules 2006 (SA) rr 228, 234(2), 234(1), referred to.
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, applied.
Mandeville v Better Lending Pty Ltd (No 6) [2019] SADC 168; Mandeville v Better Lending P/L & Anor (No 5) [2018] SADC 99; Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572; Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993; Lauro v Minter Ellison [2020] SASC 137; Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290; Clout & Ors v Klein & Ors [2001] QSC 401; Bonnell v Deputy Commissioner of Taxation (2008) 167 FCR 155; Ekes v Commonwealth Bank of Australia (2014) 313 ALR 665, discussed.Blair v Curran (1939) 62 CLR 464; Jackson v Goldsmith (1950) 81 CLR 446; Ord v Ord [1923] 2 KB 432; Marginson v Blackburn Borough Council [1939] 2 KB 426; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; Pople v Evans [1968] 2 All ER 743; Williams v Zupps Motors Pty Ltd [1990] 2 Qd R 493; Samuels v Linzi Dresses Ltd [1981] 1 QB 115; Baines v State Bank of New South Wales (1985) 2 NSWLR 729; Isaacs v Ocean Accident & Guarantee Corporation [1958] SR (NSW) 69; In re South American & Mexican Co [1895] 1 Ch 37 ; Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246; Licul v Corney (1976) 50 ALJR 439; Hardel Pty Ltd v Burrell and Family Pty Ltd (2009) 103 SASR 408; Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508; Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 3) [1970] Ch 506; Trawl Industries of Australia Pty Ltd (in Liq) v Effem Foods Pty Ltd (1992) 36 FCR 406; Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457; Rogers v The Queen (1994) 181 CLR 251; Mango Boulevard Pty Ltd v Spencer [2008] QCA 274; Fernando v Commonwealth [2014] (231) FCR 251; Pollnow v Armstrong [2000] NSWCA 245; Willoughby v Clayton Utz (No 2) (2009) 40 WAR 98; New Brunswick Rail Co Ltd v British and French Trust Corporation Ltd [1939] AC 1; Henderson v Henderson (1843) 67 ER 313; Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245; UBS AB v Tyne (2018) 265 CLR 77; Timbercorp Finance Pty Ltd (in liq) v Collins (2016) 259 CLR 212; Tanning Research Laboratories Inc. v O’Brien (1990) 169 CLR 332; Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10; Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543; BC v Minister for Immigration and Multicultural Affair [2002] FCAFC 221; Port of Melbourne v Anshun (No 2) [1981] VR 81; Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287; Yat Tung Investments Co Ltd v Dao Heng Bank Ltd [1975] AC 581; House v The King (1936) 55 CLR 499; Accom Finance Pty Ltd v Mars Pty Ltd [2007] NSWSC 726; Howlett v Tarte (1861) 10 CBNS 813; Hoystead v Federal Commission of Taxation [1926] AC 155; Bazos v Doman [2001] NSWCA 347; KC Park Safe (SA) Pty Ltd v Adelaide Terrace Investments Pty Ltd [1998] 1157 FCA; Australian Granites Limited v Eisenwerk Hensel Bayreuth Dipl.-Ing Burkhardt GmbH [2001] 1 Qd R 461; Gibbs v Kinna [1999] 2 VR 19; Boles v Esanda (1989) 18 NSWLR 666; Ling v The Commonwealth (1996) 68 FCR 180; Westpoint Corp. v Coles Supermarket (1996) 71 FCR 584; Macquarie Bank v National Mutual (1996) 40 NSWLR 543; Stuart v Sanderson (2000) 100 FCR 150; Johnson v Gore Wood & Co [2002] 2 AC 1; L. Oppenheim & Co v Haneef [1922] 1 AC 482; Evans v Bartlam [1937] AC 473; Shakespeare Haney Securities Ltd v Crawford [2009] 2 Qd R 156; Haynes v St George Bank (2018) 130 SASR 551; Linkenholt Pty Ltd v Quirk [2000] VSC 166, considered.
MANDEVILLE v BETTER LENDING PTY LTD & ANOR
[2021] SASCA 28
Court of Appeal – Civil: Doyle, Livesey and Bleby JJA
THE COURT: This is an appeal against three judgments of the District Court which, over a period of about 17 months, determined a claim and a counterclaim arising out of the appellant’s failure to meet certain obligations under a loan agreement. The first respondent has cross-appealed.
Background
The appellant, Ms Deborah Mandeville, was married to Mr Andrew Mandeville. They are now divorced. Mr Mandeville is the second respondent on the appeal. He played no part in the proceedings on appeal, although he was a witness at the trial in the District Court. The first respondent, Better Lending Pty Ltd (‘Better Lending’), is a licensed credit provider based in South Australia. Mr Andrew Malecki is the director of Better Lending.
Ms Mandeville owned the family home at Scoresby, Victoria. She also owned an investment property at Ferntree Gully, Victoria. There was limited equity in each of those properties.
Mr Mandeville was unemployed and in receipt of Centrelink benefits. Ms Mandeville was working two jobs to support the family. The couple had two young children.
On 29 May 2010, Mr Mandeville signed a contract to purchase a residential property in Ferny Creek, Victoria. The purchase price was $1,600,000. The contract was unconditional and required a deposit of $160,000.
The trial judge found that Mr Mandeville did not have the funds to meet the deposit for the Ferny Creek property. He continued:[1]
His self-centred, and patently absurd decision to sign that contract, with no rational or realistic prospect of ever complying with it, has resonated right through to this trial, and this decision.
[1] Mandeville v Better Lending Pty Ltd (No 6) [2019] SADC 168 at [2].
On 20 August 2010, less than three months after Mr Mandeville had entered into the contract for the Ferny Creek property, the Mandevilles signed a loan agreement with Better Lending to borrow $85,000 for three months. The judge found that this loan agreement was part of a ‘suite of documents including mortgages over the Scoresby and Ferntree Gully properties’.[2]
[2] Mandeville v Better Lending Pty Ltd (No 6) [2019] SADC 168 at [3].
The trial judge further found that on 2 September 2010, the Mandevilles signed a second loan agreement with Better Lending. This document described the loan amount as:
$167,000 of which $85,000 was advanced on 20 August 2010 and $82,000 will be advanced as directed.
The judge found that the final payment was due on 19 November 2010. The second loan agreement included an entire agreement clause in the following terms:
The Borrower acknowledges and agrees that this Agreement constitutes the entire agreement between the parties relating to the subject matter of this Agreement and supersedes all prior representations, arrangements, understandings and agreements made by the parties whether oral or in writing including but not limited to the Loan Agreement between the parties dated 20 August 2010.
As the trial judge found, the effect of this clause was that the first loan agreement merged into the second. The judge further found that this second loan agreement was also part of the suite of documents including mortgages over the Scoresby and Ferntree Gully properties. On 3 September 2010, Better Lending lodged caveats over these properties to protect its interests under the mortgages.
The Mandevilles did not complete the contract for the purchase of the Ferny Creek property and did not make any payments of principal or interest under either the first or second loan agreements.
The first and second actions
On 24 July 2014, Better Lending issued proceedings in the Magistrates Court against Mr and Mrs Mandeville, claiming $75,000 plus interest and costs (‘the first action’). The particulars of claim alleged, relevantly:
3. By agreement in writing dated 20 August 2010, between the plaintiff on the one hand and the defendants on the other, the plaintiff agreed to advance loan moneys to the defendants (“the Loan Agreement”).
4. On 20 August 2010, the plaintiff advanced the defendant $75,000.00 under the Loan Agreement (“The First Principal Advance”).
5. Pursuant to Clause 5.1 of the Loan Agreement, the First Principal Advance was to be repaid by 20 November 2010.
6. The defendants failed to repay the First Principal Advance by the 20 November 2010 in breach of the Loan Agreement.
Better Lending was therefore suing in debt on the first loan agreement of 20 August 2010, rather than the second loan agreement of 2 September 2010, which had, on its terms, subsumed the first loan agreement. The claim was limited to the sum of $75,000, notwithstanding that the loan under the first loan agreement was $85,000. The remaining $10,000 had been retained by Better Lending on account of ‘loan application costs and disbursements’.
On 21 August 2014, 21 days having passed since service of the claim without a defence having been filed, the solicitor for Better Lending filed a Form 18 pursuant to r 60(1) of the Magistrates Court (Civil) Rules 2013 (SA) seeking judgment against the Mandevilles. The Registrar duly entered judgment. As the claim was for a liquidated sum, judgment was entered in the amount of the claim plus costs, in the amount of $77,577.75.
Without jumping ahead too far in the narrative, a considerable part of the subsequent proceedings in the District Court (‘the second action’) was taken up by the consequences of Better Lending having obtained default judgment in the first action for a sum on the first loan agreement, the obligations under which had been subsumed by the entry into the second loan agreement.
The second action also commenced in the Magistrates Court. Ms Mandeville sought relief against Better Lending, effectively to enjoin Better Lending from further enforcing any of its rights under the second loan agreement and the associated mortgage. This second action was transferred to the District Court on 20 January 2016. It then progressed, slowly, through various interlocutory stages with Ms Mandeville as plaintiff seeking, in the first instance, equitable relief.
The first action, on which Better Lending had obtained default judgment, had also been transferred to the District Court. No further action had been taken in that matter as all attention was directed to the second action. However, following a considerable history that is not necessary to repeat here, senior counsel, once retained, advised Better Lending that it should apply to set aside the default judgment in the first action.
The solicitor for Better Lending filed an affidavit in support of that application in the District Court, explaining the history behind Better Lending obtaining default judgment on the first loan agreement. Relevantly, he gave evidence as follows:[3]
On 24 July 2014, I met with Malecki and suggested to him that rather than commence traditional enforcement proceedings in Victoria, he should give consideration to issuing proceedings in the Adelaide Magistrates Court for the amount advanced under the First Loan Agreement only. I advised him that this would have the benefit of cost saving and likely lead to a more expeditious resolution of issues with the Defendants in respect of repayment of monies owed to Better Lending. I confirmed that advice in an email communication. A true copy of my advice is found at page 83 of Exhibit LJCR-1 of this my affidavit. Malecki accepted that advice.
On 24 July 2014, I caused proceedings to be issued for and on behalf of Better Lending against the Defendants in Magistrates Court of South Australia Action No. 2984 of 2014 (“First action”). The First Action pleads only the advance of principal of $75,000 to the Defendants under the First Loan Agreement. It defines this advance as “the First Principal Advance”.
At the time of drafting the First Action, I had not at that stage appreciated that the Second Loan Agreement purported to supersede the First Loan Agreement with the consequence [sic] effect that any rights of Better Lending under the First Loan Agreement had merged in the Second Loan Agreement.
[3] Affidavit of Luke John Charlton Rowley dated 27 April 2018.
Having caused default judgment to be entered on 21 August 2014, the solicitor registered the default judgment in Victoria and then caused a warrant of seizure and sale to be issued as against the Scoresby property on 9 September 2014.
On 4 February 2015, Ms Mandeville rang the solicitor. She explained that she was having marital difficulties with her husband and that the Scoresby property was the matrimonial home. She explained that Westpac Bank had a first registered mortgage over that property in the amount of $385,000, but that the Mandevilles were selling the Ferntree Gully property (‘the investment property’). She told the solicitor that the Ferntree Gully property was worth approximately $340,000 but that Bankwest had a registered first mortgage in the amount of $206,000.
On 30 March 2015, Ms Mandeville spoke with the solicitor again and discussed the sale of the Ferntree Gully property. In the event, Better Lending agreed to remove its caveat over the Ferntree Gully property. Settlement on the sale of the Ferntree Gully property then occurred on or around 31 March 2015.
The correspondence that occurred around the time of settlement crystallised the basis for the subsequent proceedings commenced by Ms Mandeville. On 31 March 2015, Ms Mandeville offered to pay Better Lending $100,000 from the proceeds of the Ferntree Gully sale. She proposed that this would be in satisfaction of the amount the subject of the warrant and a little over a further $22,000 towards the balance of the amounts under the second loan agreement. She explained the essence of her matrimonial and financial difficulties and that she was seeking to refinance the loan on the family home at Scoresby, so that she would be in a position to pay the remaining $67,000 under the second loan agreement, plus approximately $10,000 in fees.
On 1 April 2015, Better Lending’s solicitor wrote to Ms Mandeville. This was to the effect that as the Mandevilles were selling the Ferntree Gully house of their own volition, rather than the sheriff selling it under the warrant, any monies that the Mandevilles paid to Better Lending from the sale of the Ferntree Gully house would not be paid in consequence of execution of the warrant. The solicitor further explained that as the loans were now some five years old and had not been repaid, the amounts outstanding were several hundreds of thousands of dollars. Better Lending was not prepared to remove the caveat on the Scoresby house unless it was paid the full amount of what was owed under the loan agreement and corresponding mortgage, or until they reached an acceptable arrangement.
In the event, Better Lending received $124,000 from the sale of the Ferntree Gully property, its solicitor maintaining that this was not in satisfaction of the amount outstanding under the warrant.
It is against this background that Ms Mandeville brought the proceedings in the Magistrates Court seeking relief from any further obligations under the loan agreement. That action was transferred into the District Court. It is the subject of the judgments from which the current appeal is brought.
The fourth statement of claim in those proceedings pleaded the payment of the sum of $124,000 and the removal of Better Lending’s caveat over the Ferntree Gully property. It then pleads as follows:
26. The Payment exceeded the Judgment plus the additional costs of the Ringwood Magistrates Court Order and the issuing of the First and Second Warrants (enforcement costs) because Better Lending demanded that Deborah pay to it the whole amount of the Payment, notwithstanding that it exceeded the amount of the Judgment and the enforcement costs, otherwise Better Lending would not withdraw its caveat over the Investment Property in order to allow settlement of the sale of the Investment Property to proceed.
27. In particular, and despite the Judgment, Better Lending wrongly asserted to Deborah that substantial additional monies (over and above the Judgment) remained due under the Second Loan Agreement and the Mortgages.
28. Better Lending asserts that:
28.1. the Judgment was not discharged by the Payment;
28.2. it retains rights against Deborah and Andrew under the Second Loan Agreement, and that Deborah and Andrew remain indebted to it under the Second Loan Agreement in the amount of $1,290,490.00;
28.3. Deborah and Andrew remain indebted to it under the Mortgages;
28.4. it is entitled to enforce the Mortgages, including enforce the Mortgage over the Residence by seeking an order for vacant possession and by selling it; and
28.5. it is entitled to retain the registration of the caveat on the Residence (Caveat).
Ms Mandeville then pleaded that in consequence of the relevant history:
·all rights of Better Lending against the Mandevilles under the second loan agreement and the mortgages had merged in the default judgment and were res judicata;
·alternatively, Better Lending was precluded by r 3(2) of the Magistrates Court (Civil) Rules 2013 (SA) from commencing any other action against the Mandevilles making any claim under the second loan agreement;
·Better Lending was estopped by issue estoppel from claiming in any subsequent proceedings;
·further, or in the alternative, Better Lending was estopped by an Anshun estoppel from making any further claim against the Mandevilles;
·further, or in the alternative, it would be an abuse of process for Better Lending to make any claim under the second loan agreement;
·the default judgment was fully discharged by virtue of the payment of $124,000;
·Better Lending had been unjustly enriched to the extent that the payment exceeded the default judgment and was liable to make restitution to Ms Mandeville in respect of the difference; and
·the first loan agreement, second loan agreement and the mortgages were all procured by Better Lending in breach of the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code, and by duress, undue influence and unconscionably.
The Fourth Statement of Claim then set out a prayer for relief in terms that reflected these claims. This being the Fourth Statement of Claim, these claims also in effect addressed what was by then the Third Counterclaim by Better Lending. By that counterclaim, Better Lending sought orders that the Mandevilles pay the unpaid principal under the second loan agreement, together with interest, fees, costs, charges and expenses.
The Third Counterclaim asserted the amount to be outstanding under the second loan agreement as at that date to be $1,290,490. It also sought damages for breach of the loan agreement, prejudgment interest at the rate of 7 per cent per month, an order that Ms Mandeville give up vacant possession of the Scoresby property to Better Lending pursuant to s 78(1)(a) and (b) of the Transfer of Land Act 1958 (Vic) and costs on an indemnity basis, pursuant to certain clauses in the second loan agreement.
The judgments
As the Court has already observed, this appeal is instituted against a total of three judgments of the District Court, which were together dispositive of the proceedings. First, in September 2018, the District Court heard and determined what it described as a preliminary issue which was formulated by the parties in the following terms:[4]
[4] Mandeville v Better Lending P/L & Anor (No 5) [2018] SADC 99 at [4].
The parties have formulated the following questions:
Statement of Issues
Does the default judgment (appearing at page 4) preclude the first defendant Better Lending Pty Ltd from making the claims pleaded:
1. paragraphs 1O – 1S
2. paragraph 2
3. paragraphs 1,2,3 and 4 of Part 3
of the Second Statement of Counterclaim (appearing at page 45), by reason of:
4. Res judicata?
5. Issue estoppel?
(Footnotes omitted)
In essence, the preliminary issue was whether by reason of the default judgment and the principles of res judicata or issue estoppel, Better Lending was precluded from pursuing any further claims in what was at that stage the Second Statement of Counterclaim.
On this preliminary issue, the judge concluded that the default judgment did not preclude Better Lending from making further claims under the second loan agreement by reason of either res judicata or issue estoppel.
The second judgment, being judgment on the trial of the action, was delivered on 21 June 2019.[5] The Court:[6]
·dismissed Ms Mandeville’s claim that Better Lending was estopped by an Anshun estoppel from making any further claim by reason of the default judgment in the previous Magistrates Court action;
·dismissed Ms Mandeville’s claim to the effect that any further claim by Better Lending constituted an abuse of process by reason of the earlier default judgment;
·dismissed Ms Mandeville’s claims based on duress, undue influence and unconscionable conduct;
·granted an injunction pursuant to s 177 of the National Consumer Credit Protection Act 2009 (Cth) preventing Better Lending from recovering any interest on the loan; and
·on the counterclaim, gave judgment for Better Lending against each of Mr and Ms Mandeville in the sum of $43,000. This represented the difference between the $124,000 already paid and the balance of the principal loan, being $167,000.
[5] Mandeville v Better Lending Pty Ltd & Anor (No 6) [2019] SADC 168.
[6] Mandeville v Better Lending Pty Ltd & Anor (No 6) [2019] SADC 168 at [146]-[150].
The third judgment the subject of this appeal is the decision on costs, made on 20 February 2020. Having regard to the mixed result of the trial, the judge ordered that Better Lending pay 80 per cent of the costs of Ms Mandeville on a party/party basis. The judge noted that this would have the effect that the costs liability of Better Lending would exceed the $43,000 judgment, and acceded to a request that he stay that judgment pending quantification of costs.
The appeal
Ms Mandeville has appealed and Better Lending has cross-appealed. The grounds of appeal are lengthy and discursive in each case. The issues raised in the notices of appeal and cross-appeal can be distilled as follows:
·whether the judge erred in finding that the default judgment did not preclude Better Lending from pursuing the subject matter of the counterclaim by reason of res judicata and/or issue estoppel;
·whether the judge erred in failing to hold that Better Lending was precluded by r 3(2) of the Magistrates Court (Civil) Rules 2013 (SA) from commencing the counterclaim;
·whether the judge erred in failing to hold that Better Lending was estopped by Anshun estoppel from bringing and prosecuting the counterclaim;
·whether the judge erred in holding that the default judgment stood for nothing more than that the appellant was deemed to owe the sum of $75,000, and in failing to find either that Better Lending’s rights under the second loan agreement had merged into the default judgment, or alternatively that the default judgment sum was owed to Better Lending under the first loan agreement rather than the second loan agreement;
·whether the judge erred in failing to hold that the counterclaim constituted an abuse of process;
·whether the judge erred in making the consequential orders by reason of the substantive errors alleged on the Notice of Appeal;
·whether the judge erred in making the orders in consequence of his findings as to Better Lending’s breaches of the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code;
·whether the judge erred in failing to declare that Ms Mandeville had discharged the default judgment enforcement costs from the $124,000 payment;
·whether the judge erred in finding that the second loan was a loan to which the National Credit Code applied;
·whether the judge erred in finding that Better Lending failed to comply with the National Consumer Credit Protection Act2009 (Cth);
·whether the judge erred in exercising his discretion to grant a permanent injunction pursuant to s 177 of the National Consumer Credit Protection Act 2009 (Cth);
·whether the judge erred in finding that Ms Mandeville had substantially succeeded in the ultimate outcome of the litigation and in exercising his discretion to award costs in the manner that he did.
There are many more issues raised on both the Notice of Appeal and Notice of Cross Appeal that effectively form further sub issues or alternatives depending on the resolution of these broader issues. These reasons will refer to them in the course of discussion under the issue headings as framed, to the extent that it is necessary to do so. They do not all properly arise.
Res judicata, issue estoppel and default judgments
Whether Better Lending was precluded from pursuing the counterclaim by reason of the default judgment establishing res judicata or an issue estoppel was the subject of the first of the three judgments the subject of appeal.
In Rogers v Legal Services Commission of South Australia (‘Rogers’),[7] Lander J (Cox and Prior JJ agreeing) set out each of the doctrines of res judicata and issue estoppel and explained their distinct natures:[8]
[7] (1995) 64 SASR 572.
[8] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 592-593.
In G S Bower & A K Turner, The Doctrine of Res Judicata (2nd ed, 1969), the learned authors say this:
“The rule of estoppel by res judicata, which, like that of estoppel by representation, is a rule of evidence, may thus be stated: where a final judicial decision has been pronounced by either an English, or (with certain exceptions) a foreign, judicial tribunal of competent jurisdiction over the parties to, and the subject matter of, the litigation, any party or privy to such litigation, as against any other party or privy thereto, and, in the case of a decision in rem any person whatsoever, as against any other person, is estopped in any subsequent litigation from disputing or questioning such decision on the merits, whether it be used as a foundation of an action, or relied upon as a bar to any claim, indictment or complaint, or to any affirmative defence, case, or allegation, if, but not unless, the party interested raises the point of estoppel at the proper time and in the proper manner.”
The principle is based upon two premises. The first is that it is in the public interest that there be an end to litigation and the finality and conclusiveness of a judicial decision is recognised. [Interest reipublicae ut sit finis litium.] The second is the private right of an individual to be protected from vexatious and oppressive suits arising out of the same circumstances. [Nemo debet bis vexari pro una et eadem causa.]
The Australian courts have been careful to distinguish between the doctrine of res judicata, and a plea of issue estoppel. In Blair v Curran (1939) 62 CLR 464 at 532, Dixon J said:
“The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.”
In Jackson v Goldsmith (1950) 81 CLR 446, Fullagar J discussed the principles of res judicata. Although he dissented in that case, it was only as to the application of the principles to the facts. He said (at 466):
“The rule as to res judicata can be stated sufficiently for present purposes by saying that, where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. This rule is not, to my mind, correctly classified under the heading of estoppel at all. It is a broad rule of public policy based on the principles expressed in the maxims ‘interest reipublicae ut sit finis litium’ and ‘nemo debet bis vexari pro eadem causa’.”
He said (at 467):
“In the second place, it follows from the very nature of the difference between the plea of res judicata and the plea of issue estoppel that different materials are relevant in each case. Where the plea is of res judicata, only the actual record is relevant. Where the plea is of issue estoppel, any material may be looked at which will show what issues were raised and decided. Reasons given for the judgment pronounced are likely to be particularly important for this purpose: see Ord v Ord [1923] 2 KB 432 at 440 and Marginson v Blackburn Borough Council [1939] 2 KB 426 at 437. Both those cases were cases of issue estoppel and were clearly treated as such, though I think, with great respect, that both illustrate the unfortunate absence of a clear legal terminology, to which I have already referred.”
It has been recognised that there is a clear distinction between issue estoppel and res judicata: see also Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 and Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502.
In considering a plea of res judicata the question that must be determined is whether the cause of action which is raised in the second proceedings has already merged into the judgment in the first proceedings: Chamberlain v Deputy Commissioner of Taxation (at 274), per Deane, Toohey and Gaudron JJ.
In the ordinary course of events where a trial has taken place and a judgment entered, it is not difficult to determine whether the cause of action, the subject matter of a current set of proceedings, has been previously disposed of by a tribunal in circumstances which would give rise to a plea of res judicata.
Res judicata is therefore based on the underlying rationales of the principle of finality, namely that the conclusiveness of judicial decisions is recognised and that the individual can be protected from oppressive, repetitive suits.
Issue estoppel, while distinct, has a related foundation. In Blair v Curran, Dixon J described issue estoppel in the following terms:[9]
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion…
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action…
[9] Blair v Curran (1939) 62 CLR 464 at 531-532.
Rogers concerned claims of breach of statutory duty, negligence in relation to false statements and misfeasance in public office, following a conviction for contempt of court that had ultimately been overturned on appeal. Prior to issuing the proceedings making these claims, the plaintiff had issued proceedings that had been struck out for failing to disclose any clear cause of action known to law. One of the issues in Rogers was therefore whether res judicata applied in circumstances where an action had been struck out for a defect in the pleading and if it did, to what cause of action it applied.
Justice Lander recognised that there was a greater difficulty in determining what could properly constitute a plea of res judicata where a matter had not been formally adjudicated upon, such as where there had been a withdrawal before a matter was concluded, a compromise had been agreed to or a judgment had been entered by reason of default. He observed that a dismissal of the matter for want of prosecution did not give rise to a plea of res judicata in a subsequent proceeding.[10] Further, however, he observed that a plea of res judicata will be available even where there has been no investigation into the merits of the matter, such as where consent orders or judgments are entered.[11]
[10] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 594-595 (Lander J) quoting Pople v Evans [1968] 2 All ER 743 at 752 (Ungood-Thomas J); Williams v Zupps Motors Pty Ltd [1990] 2 Qd R 493; Samuels v Linzi Dresses Ltd [1981] 1 QB 115 at 126 (Roskill LJ); Baines v State Bank of New South Wales (1985) 2 NSWLR 729 at 738 (Powell J).
[11] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 595, quoting Isaacs v Ocean Accident & Guarantee Corporation [1958] SR (NSW) 69; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 508 (Deane, Toohey and Gaudron JJ).
Justice Lander concluded:[12]
A judgment entered by reason of the default of another party can give rise to an estoppel per rem judicatam. It has been said that a default judgment can be looked at as another form of a judgment by consent, and as such, then becomes capable of giving rise to all of the consequences of a judgment contained in a contested action.
The difficulty with judgment in default is determining exactly what it is that has been concluded by the first proceedings. In New Brunswick Rail Co Ltd v British & French Trust Corporation Ltd (at 21), Lord Maughan LC said, after considering the hardship and injustice that a defendant might suffer by reason of a plea of estoppel:
“In my opinion we are at least justified in holding that an estoppel based on a default judgment must be very carefully limited. The true principle in such a case would seem to be that the defendant is estopped from setting up in a subsequent action a defence which was necessarily, and with complete precision, decided by the previous judgment; in other words, by the res judicata in the accurate sense.”
Lord Wright, in the same case, said:
“There are grave reasons of convenience why a party should not be held to be bound by every matter of fact or law fundamental to the default judgment. It is, I think, too artificial to treat the party in default as bound by every such matter as if by admission. All necessary effect is given to the default judgment by treating it as conclusive of what it directly decides. I should regard any further effect in the way of estoppel as an illegitimate expression of the doctrine, which in the absence of express authority I am not prepared to accept.”
[12] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 596.
Justice Lander concluded that as no finding had been made as to any fact or the availability of a cause of action, it could not be said that the cause of action had merged into a judgment. He held that the principle of res judicata did not then apply.
Strictly speaking, then, a default judgment is capable of giving rise to res judicata. However, that begs the question. The availability of a plea of res judicata where a default judgment has been entered depends on what it is that default judgment directly decides.
Then, while the principles of res judicata and issue estoppel are distinct, where a default judgment is concerned, there is a commonality of inquiry. While a plea of res judicata asks precisely what cause of action has passed into judgment so that it has merged, issue estoppel asks precisely what state of fact or law that has been contested has been necessarily decided by the judgment.
This view is consistent with that expressed by the Privy Council in Kok Hoong v Leong Cheong Kweng Mines Ltd:[13]
The question is not whether there can be such an estoppel, but rather what the judgment prayed in aid should be treated as concluding and for what conclusion it is to stand. For, while from one point of view a default judgment can be looked upon as only another form of a judgment by consent (see Inre South American & Mexican Co.) and, as such, capable of giving rise to all the consequences of a judgment obtained in a contested action or with the consent or acquiescence of the parties, from another a judgment by default speaks for nothing but the fact that a defendant for unascertained reasons, negligence, ignorance or indifference, has suffered judgment to go against him in the particular suit in question. There is obvious and, indeed, grave danger in permitting such a judgment to preclude the parties from ever reopening before the court on another occasion, perhaps of very difference significance, whatever issues can be discerned as having been involved in the judgment so obtained by default.
(Footnote omitted)
[13] [1964] AC 993 at 1010.
It is axiomatic from the above authorities that a res judicata can only be established by a final judicial decision. The right or cause of action has merged into the judgment and no longer had an independent existence. Similarly, in the case of issue estoppel, some state of fact or law must necessarily have been decided by a judgment such that a party is estopped from agitating that state of fact or law in some other claim.
In Lauro v Minter Ellison (‘Lauro’),[14] Bleby J considered a situation where the District Court had entered default judgment for a liquidated sum on a claim by a solicitor for work done and services provided in respect of a number of disputes. The solicitor’s clients subsequently applied to set aside the default judgment. It was necessary to decide, for the purposes of determining whether the appeal lay to the Full Court or a single judge, whether the subsequent refusal to set aside the default judgment was final or interlocutory. Justice Bleby determined that that decision was interlocutory.
[14] [2020] SASC 137.
The question further arose whether the regime in Sch 3, Pt 7 of the Legal Practitioners Act 1981 (SA) prevented the District Court from entering a default judgment for a liquidated sum. Justice Bleby held that in entering default judgment, the District Court judge was not purporting to exercise jurisdiction to assess the quantum of the respondent’s entitlement to costs. Rather, he was exercising a power that exists under r 228 of the District Court Civil Rules 2006 (SA), as well as rr 234(2) and 234(1). Those rules existed in furtherance of the Court’s power to control its own processes.
To that end, Bleby J observed that the judge, in entering default judgment, did not determine the costs that were recoverable by the firm from the appellant under the terms of its retainer. Neither did the judge determine the merits of the set-off and counterclaim. Judgment was entered for a liquidated sum, following a procedural default. The default judgment did not purport to be an adjudication of the bill of costs such as is reserved to the exclusive jurisdiction of the Supreme Court on application under Sch 3, Pt 7 of the Legal Practitioners Act 1981 (SA).[15]
[15] Lauro v Minter Ellison [2020] SASC 137 at [70], [72].
In reaching that conclusion, Bleby J further made the comment that a default judgment was interlocutory in nature because it did not as a matter of a law finally dispose of the rights of the parties. That comment conflated two concepts. It is the case that the default judgment did not determine the costs that were recoverable by the firm under the terms of the retainer. For that reason, Bleby J held that the default judgment did not cut across the exclusive jurisdiction of the Supreme Court.
In Carr v Finance Corporation of Australia Ltd,[16] Gibbs CJ identified the prevailing tests for determining whether a judgment is final or interlocutory as being ‘whether the judgment or order appealed from, as made, finally determines the rights of the parties’.[17]
[16] (1981) 147 CLR 246.
[17] Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 248 (Gibbs CJ), see further, Licul v Corney (1976) 50 ALJR 439 at 444.
In Hardel Pty Ltd v Burrell and Family Pty Ltd[18] Kourakis J, as he then was, explained that an order bringing an action to an end by dismissal of the action or default judgment may still be interlocutory. He considered that a summary judgment should be considered to be a final order on the basis that it disposes of the action finally by a judgment that creates a new charter governing the substantive rights of the parties.[19]
[18] (2009) 103 SASR 408.
[19] Hardel Pty Ltd v Burrell and Family Pty Ltd (2009) 103 SASR 408 at [38] (Kourakis J).
The fact that the judgment in Lauro, being a default judgment of liability for a liquidated sum on account of work done, did not determine the costs that were recoverable by the firm under the terms of the retainer, does not mean that the default judgment was not a final judgment. The question is always, rather, what has been finally determined such as to merge into a judgment. In the present case, the answer to that question allows identification of the subject of any res judicata by merger of a claim and any issue estoppel by determination of issues.
In Kok Hoong v Leong Cheong Kweng Mines Ltd, the Privy Council said:[20]
…default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maugham L.C., they can estop only for what must “necessarily and with complete precision” have been thereby determined.
What, then, must the default judgment be taken to have decided in this earlier action? As a decree it adjudges in terms no more than that the appellant is entitled to recover from the respondent a fixed sum of dollars, interest and costs, and it was argued on this appeal that the judgment can estop from nothing more than denial of that bare fact…Their Lordships, however, do not think that, where as here the plaint upon which the judgment has been obtained is itself upon and so forms part of the record, there is any valid ground for refusing to notice what case it is that a plaintiff has set up in order to found the order that he claims.
[20] Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1012-1013.
When considering the question of the application of res judicata to default judgments, Kirby P in Linprint Pty Ltd v Hexham Textiles Pty Ltd[21] quoted a decision of Buckley J in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 3):[22]
There is no question but that the decisions … which are relied upon are all judicial decisions by competent courts or tribunals. It is said, however, as regards the English decisions, that these, being interlocutory, are not of a final character. Many interlocutory orders, such, for instance, as an interim injunction limited to take effect only until judgment or further order, clearly involve no final decision of any issue between the parties either expressly or, since they depend only upon a prima facie case being made out, by implication. Finality for this purpose means that the decision (a) is one which does not ex facie, as in the case of an order for an account or inquiry, leave something to be judicially determined or ascertained before the decision can become effective or enforceable, and (b) is not subject to subsequent discharge, rescission, modification or any other form of review by the court or tribunal making the decision.
[21] (1991) 23 NSWLR 508.
[22] [1970] Ch 506 at 538-539.
His Honour considered that Buckley J’s formulation of the preconditions to the application of res judicata were too widely expressed. His Honour said:[23]
It would be a curious consequence of the application of Buckley J's reasoning that, to safeguard the small number of cases where such a judgment is later set aside, all such judgments were deprived of the protection of finality which the law of res judicata is designed to achieve. In my view Buckley J's expressed pre-conditions for the application of res judicata are too widely expressed. They are inconsistent with a number of English decisions to which I will refer. They do not represent the law of this State or, I believe, of Victoria. The mere fact that a judgment entered for default of appearance of a party may be set aside if that party moves the court giving judgment to do so, is not a reason, in the meantime, for regarding the judgment so entered as anything but final for the purpose of the law of res judicata.
Quite properly, the respondent conceded that there was no authority in Australia which contradicted this conclusion.
[23] Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508, 518.
Senior counsel for the appellant accepted that it was necessary to examine a default judgment carefully to ascertain what it had decided that was thereby the subject of any res judicata. To that end, he submitted that it was necessary to look at the record, which included the particulars of claim in the Magistrates Court action that proceeded to default judgment. However, he also relied, as part of the record, on Better Lending’s Counterclaim in the second action in the District Court. This incorporated the Defence and pleaded the terms of the first loan agreement, as well as the terms of the second loan agreement that provided for the second loan agreement to supersede the first loan agreement.
The Counterclaim in the second action further admitted that the (first) Magistrates Court action had concerned the first loan agreement, and the loan of $85,000 made under that loan agreement. It alleged that the default judgment was vitiated by a mistake, in that Better Lending’s rights against the Mandevilles under the first loan agreement were expressly superseded by the second loan agreement. It further pleaded that Better Lending had never had any entitlement to claim under the first loan agreement or to enter the default judgment and pleaded the existence of the entire agreement clause in the second loan agreement.
The appellant’s case is therefore that the ‘record’ shows that the second loan agreement superseded the first loan agreement, and that under the second loan agreement there was only one sum lent of $167,000, albeit that it had been lent in two tranches. It followed that at the time of the Magistrates Court action and the default judgment, the only cause of action available to Better Lending was pursuant to the second loan agreement. The default judgment was therefore necessarily a part of the sum of the $167,000 lent under the second loan agreement, and the cause of action that had merged in the default judgment was in substance the same cause of action the subject of the Counterclaim. The appellant argued that Better Lending’s admitted error in pleading a claim and obtaining default judgment on the first loan agreement does not displace the operation of res judicata in respect of the only available cause of action.
It is important to recognise that the record on which the appellant relies is not only the pleading in the Magistrates Court on which default judgment was obtained, but also the subsequent Defence and Counterclaim in the second action in the District Court, which had commenced after the default judgment had been entered. The appellant further submitted (in the alternative) that it was permissible to have regard to the loan agreements themselves, in order to ascertain whether the two causes of action were the same. The submission was made on the apparent basis that to look at those documents would, at a minimum, enable the pleadings to be understood.
There is no difficulty with the proposition that it can be of assistance to interrogate the pleadings in a matter to understand precisely what it is that has merged into a final judgment. The prospect of looking at materials that go beyond this is more problematic. Having said that, there are some authorities that tend to support a broader inquiry into the putatively overlapping claims by reference to the evidence that would be led in each.[24]
[24] See, Trawl Industries of Australia Pty Ltd (in Liq) v Effem Foods Pty Ltd (1992) 36 FCR 406 at 419‑422; Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457 at [25]-[28], [30] (Handley JA, Mason P and Latham J agreeing).
In Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (‘Zetta’),[25] the Full Federal Court undertook an analysis of principle and authority going to the question of whether a dismissal of proceedings constituted a res judicata in respect of all of the causes of action that had been raised in the proceedings. That case had been listed for trial and counsel had applied unsuccessfully to adjourn the proceedings. Counsel was then invited to open and lead evidence and indicated that he was not in a position to do so. The dismissal then followed.
[25] (2018) 265 FCR 290.
The Full Federal Court held that the judgment in the original proceedings was final in respect of all the causes of action. That conclusion was not displaced by the manner in which the dismissal had come about. To this end, the Court reviewed a number of authorities that in various ways have tended to speak against distinguishing the circumstances in which a final judgment is entered. It referred to Rogers v The Queen[26] where Deane and Gaudron JJ described the reasons for the principle of res judicata which the Court in Zetta took as a suggestion that there was no qualification to the types of final judgment to which the principle applies:[27]
(1)A judgment of the court must be respected as fundamental to any civilised and just judicial system.
(2) Judicial determinations must be final, binding and conclusive.
(3)There is injustice if a party is required to litigate afresh matters which have already been determined by the courts.
(4)Decisions of the courts, unless set aside or quashed, must be accepted as incontrovertibly correct.
[26] (1994) 181 CLR 251.
[27] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [21].
The Court in Zetta considered that these principles would be ‘substantially undermined’ if there could be a distinction between judgments giving rise to res judicata and those that do not, depending on whether there was a decision on the merits ‘in the sense of a judicial assessment based upon an evaluation of the facts and application of legal principles’.[28] To similar effect, it then referred to the judgment of Fullagar J in Jackson v Goldsmith,[29] where his Honour said that in the case of res judicata, only the actual record was relevant, whereas a plea of issue estoppel may permit looking at material so as to see which issues are raised and decided.[30]
[28] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [22].
[29] (1950) 81 CLR 446 at 466-467.
[30] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [23].
As the Court noted, this approach is consistent with the approach taken by Dixon J in Blair v Curran.[31]
[31] (1939) 62 CLR 464 at 532.
Importantly for the purposes of the present case, the Court in Zetta then went on to say:[32]
Further, the proposition that for a res judicata to arise there must be both a final judgment and it must be on the merits (in the sense of some form of reasoned adjudication of the merits) is contrary to the well-established position in Australia that res judicata applies to a final judgment in default or by consent: Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508 at 519-521 and 526-527; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502. However, in such cases, particularly where judgment is entered in default of defence, care must be taken in determining exactly what has been concluded by the judgment: Rogers v Legal Services Commission (SA) (1995) 64 SASR 572 at 596-597.
[32] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [27].
To this end, the Court then said that if a default judgment is not set aside or corrected for slip or error, the final judgment gives rise to a res judicata as there is no uncertainty or defect that would require consideration of how it was obtained.
The Court did, however, distinguish the situation where a judgment may be entered procedurally, such as by operation of a self-executing order in default of compliance with a direction of the Court. It considered that in such cases where there was no hearing, they were akin to cases where orders are made ex parte. Res judicata did not apply to orders of such a kind as they were not a final determination of rights.[33]
[33] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [30] citing Mango Boulevard Pty Ltd v Spencer [2008] QCA 274 at [57]-[61].
The default judgment entered in the present matter does not seem to be of such a character, as it was Better Lending who caused judgment to be entered in default of a defence being filed by the Mandevilles. It did not occur simply by operation of the rules or in any other self-executing manner.
The Court in Zetta concluded:[34]
It follows that since Blair v Curran, in the High Court there has been no qualification as to the effect that is to be given to a final judgment that determines in any way an underlying cause of action that may be said to merge in the judgment. There is no suggestion that res judicata depends upon the circumstances in which a final adjudication of a cause of action occurred (whether that be by default, consent or the absence of attendance by a party at a hearing where notice has been given that an order for judgment may be made or by reason of a failure by a party to advance any case at trial or final hearing). The same is reflected in the judgments of this Court.
It is an important principle. A party who is commanded to attend a trial or final hearing to answer a claim based upon a cause of action would face the same injustice if the claim could be re-agitated after final judgment was given dismissing the claim irrespective of the circumstances in which the judgment was given. Whether a claim is allowed or dismissed by consent, default or after a contested hearing, the need for finality is the same in each instance. A party who wishes to preserve the right to bring further proceedings should seek leave to discontinue. The need for finality is one reason why an application for such leave may be refused if brought late in the day and without explanation beyond inability to proceed with the case.
[34] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [32]-[33].
The Court concluded that in determining whether a res judicata had arisen, there was no purpose to be served in inquiring into the circumstances in which final judgment had been obtained, res judicata being grounded in the principle of finality. The relevant question ‘is to inquire into what cause of action was adjudicated by the final judgment’.[35] It was for that reason that the Court in Zetta concluded that in determining the extent of the res judicata in the particular case, all that the Court should look at is the record comprised of the nature of the claim and the final orders.[36]
[35] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [35].
[36] Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [35], citing Fernando v Commonwealth [2014] (231) FCR 251 at [45] (Besanko and Robertson JJ, Barker J agreeing); Pollnowv Armstrong [2000] NSWCA 245 and Willoughby v Clayton Utz (No 2) (2009) 40 WAR 98 at [27]-[28].
The Courts in Rogers and Zetta each acknowledge that while default judgments are capable of engaging the principles of res judicata, they will not always do so; it will depend upon a close scrutiny of the circumstances of the particular judgment and what it can be taken to have decided. Both decisions acknowledge that there will be some default judgments which are premised merely upon some procedural default (such as a failure to comply with an order for further disclosure), or indeed a dismissal for want of prosecution or the failure to identify a cause of action, where it simply cannot be said that the judgment is predicated upon any final determination on the merits of a cause of action.[37] However, there will be other default judgments where, like consent judgments, it will be appropriate to treat them, as a matter of principle and policy, as having involved a determination on the merits of a particular cause of action.[38] There need not for this purpose be an actual determination following the presentation of evidence and argument, and the application of the law to the facts in a reasoned way.[39]
[37] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 593-594; Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [30], [34], [50]; See also Clout & Ors v Klein & Ors [2001] QSC 401 at [28] (Holmes J).
[38] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 596; Mango Boulevard Pty Ltd v Spencer [2010] QCA 207 at [116] (Fraser JA, Muir and White JJA agreeing).
[39] Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 595; Zetta Jet Pte Ltd v The Ship ‘Dragon Pearl’ (No 2) (2018) 265 FCR 290 at [51].
There are several observations that follow. First, a default judgment obtained in circumstances as were obtained in the present case can properly be viewed as a final judgment. It was obtained in default of the Mandevilles filing a defence. The Mandevilles, on being apprised of its existence, did not apply to set it aside.
That still begs the question, however, of the cause of action that is the subject of the res judicata. On the authority of Zetta and the cases cited therein, and in particular the conclusion that there is no warrant for interrogating the circumstances in which that final adjudication of the cause of action occurred, it is appropriate only to look at the nature of the claim and the final orders.
These were clear enough. The claim was a claim in debt for $75,000 arising under the first loan agreement. Judgment was given for that sum plus costs. That is the subject of the res judicata.
The essence of the appellant’s argument that it should be permissible to consider Better Lending’s counterclaim and the loan documents, is that these documents identify, uncontroversially, that there never was a cause of action arising under the first loan agreement. To fail to consider these documents is to fail to have regard to the reality of the situation, in that the claim under the first loan agreement can only ever have been a claim under the second loan agreement. There was one cause of action; it is that cause of action in respect of which the res judicata arises.
As unusual as this situation is, it does not give rise to an exception to the principles distilled by the Federal Court in Zetta. To permit such a broad inquiry is effectively to require a trial on the correctness of the default judgment, directly undermining the principle of finality. To this end, it is helpful to refer back to the reasons for the principle of finality that the High Court identified in Rogers v The Queen[40] including that decisions of the courts, unless set aside or quashed, must be accepted as incontrovertibly correct.
[40] Rogers v The Queen (1994) 181 CLR 251 at 275.
The appellant’s attempt to rely on material that goes beyond the record as characterised in Zetta and other cases is for the purposes of making an argument as to the proper character of the judgment the subject of res judicata, not to argue that res judicata does not apply. That approach, however, is contrary to the line of authorities canvased by Lander J in Rogers v Legal Services Commission of South Australia[41] requiring that the res judicata on a default judgment be defined with precision.
[41] (1995) 64 SASR 572.
In New Brunswick Rail Co Ltd v British and French Trust Corporation Ltd,[42] cited by Lander J in Rogers, Lord Wright said that there were ‘grave reasons of convenience why a party should not be held to be bound by every matter of fact or law fundamental to the default judgment’.[43] Lord Wright was not prepared to accept that a default judgment could have any further effect of estoppel other than by reference to the matter ‘directly decided’.[44] This was the conclusion that the trial judge reached:[45]
In my view, it is neither necessary nor appropriate for me to have regard to the loan agreements in the Trial Book, in the manner submitted by the Plaintiff. The principles cited above are quite clear, and quite strict. The res judicata issue is to be determined by having regard to the claim pleaded, and the default judgment obtained, in the first proceedings. That is to be compared with the claim pleaded in the proposed further proceedings. That material makes mention of what is referred to as a first loan agreement and a second loan agreement. So I have regard to the fact that the respective pleadings allege the existence of two loan agreements. To do otherwise, would render a comparison of the respective proceedings meaningless. To compare them, I am entitled to have regard to the fact that they allege a first and second loan agreement. However, I do not consider I should go to [sic] any further than that. I do not consider I should drill down to a consideration of the content of those two loan agreements.
Even if the content of the respective alleged loan agreements was a relevant consideration for the determination of this issue, I do not consider that I could, or should, conclude that the only legal justification for the default judgment was the second loan agreement. That is a trial issue. If the Plaintiff (Defendant in that action) wished to advance that defence to Better Lending’s proceedings, she could have filed that defence; or made a timely application to set aside the default judgment and pursue that defence.
[42] [1939] AC 1.
[43] New Brunswick Rail Co Ltd v British and French Trust Corporation Ltd [1939] AC 1 at 38.
[44] New Brunswick Rail Co Ltd v British and French Trust Corporation Ltd [1939] AC 1 at 35.
[45] Mandeville v Better Lending Pty Ltd & Anor (No 5) [2018] SADC 99 at [35]-[36].
The trial judge concluded that to go beyond the pleaded cause of action and the orders to determine the content of the res judicata would be ‘totally at odds with the fundamental principle of res judicata’.[46] That conclusion was correct. The appellant’s argument that the further materials are necessary to understand what was decided by the default judgment misses the point. The principle of finality does not permit of such extrapolation. What was decided by the default judgment was a question of liability under the first loan agreement. The principle of finality is unconcerned with the perspective that that pleading was based on a mistake as to the applicable loan agreement.
[46] Mandeville v Better Lending Pty Ltd & Anor (No 5) [2018] SADC 99 at [37].
The position is potentially different when it comes to considering issue estoppel.
In Jackson v Goldsmith,[47] Fullagar J said of the question of the materials relevant to a plea of issue estoppel as compared with a plea of res judicata:
In the second place, it follows from the very nature of the difference between the plea of res judicata and the plea of issue estoppel that different materials are relevant in each case. Where the plea is of res judicata, only the actual record is relevant. Where the plea is of issue estoppel, any material may be looked at which will show what issues were raised and decided. Reasons given for the judgment pronounced are likely to be particularly important for this purpose.
[47] Jackson v Goldsmith (1950) 81 CLR 446 at 467.
As observed above, in Kok Hoong v Leong Cheong Kweng Mines Ltd,[48] the Privy Council identified the difficulties in applying issue estoppel to a default judgment, in that a default judgment only speaks to the fact that a defendant has, for unascertained reasons, suffered judgment in a particular suit.[49]
[48] [1964] AC 993.
[49] Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1010.
Here, as the trial judge observed, there are no reasons for judgment that can cast light on the issue necessarily decided by this default judgment. Ultimately, the plea by Ms Mandeville of issue estoppel fails for reasons similar to that of res judicata. The issue estoppel is necessarily defined by what were summary pleadings in a Magistrates Court action. To have regard to the Counterclaim in the second action and the loan documents themselves, the second of which was not contemplated on any view in the first action in the Magistrates Court, would be to go well beyond what possibly could be said to have been decided by the default judgment in the Magistrates Court action.
The trial judge concluded:[50]
If the default judgment can be interpreted as having decided any necessary or cardinal issues, they are firstly, that Ms Mandeville owed Better Lending $75,000; and secondly that this debt was pursuant to the pleaded, first loan agreement. Upon that topic I accept the submission of Mr Roberts SC. I do not see how those decided issues stand in the way of Better Lending now taking proceedings for another amount of money under another loan agreement. I do not see how those further proceedings in any way challenge or contradict the two cardinal matters, identified, as having been decided in the first proceedings.
(Footnote omitted)
[50] Mandeville v Better Lending Pty Ltd (No 5) [2018] SADC 99 at [44].
The trial judge was correct to conclude that the appellant’s pleas of res judicata and issue estoppel failed, grounded as those pleas were in the entering of the default judgment on a claim of debt under the first loan agreement. The judge reached these conclusions on an orthodox application of principle. The causes of action were distinct and the statement of claim in the second proceeding did not purport to contradict or challenge the issues necessarily decided by the default judgment. In any event, it was not appropriate to go to the Counterclaim in the second action, or the loan documents, for the purpose of determining what cause of action had been decided in the first action or the issues that were necessarily decided in that action. The fact that, in the circumstances of this case, it is relatively clear and accepted between the parties that the first action was misconceived, is not to the point.
Whether the trial judge erred in failing to hold that Better Lending was precluded by Rule 3(2) of the Magistrates Court (Civil) Rules 2013 from commencing the Counterclaim
Rule 3(2) of the Magistrates Court (Civil) Rules 2013 (‘MCR’) provides:
(2) A person may not commence more than one action in respect of the same or a substantially similar cause of action and the Court must attempt to resolve multiple actions involving a party and determine all matters in dispute in an action so as to avoid multiplicity of actions.
This Rule was in force when Better Lending filed the Counterclaim initially in the Magistrates Court. The appellant’s bare submission is that this rule ‘barred the Counterclaim’. However, the appellant does not appear to have applied to strike it out at the time. The second action, including the Counterclaim, was then transferred to the District Court; the relief sought on the Counterclaim far exceeded the jurisdiction of the Magistrates Court.
Section 19 of the Magistrates Court Act 1991 (SA) provides for the transfer of proceedings between courts. Section 19(3) provides:
(3) Where proceedings have been transferred under this section, they may be continued and completed as if steps taken in the proceedings prior to the transfer had been taken in the court to which they are transferred.
There was no equivalent provision to MCR r 3(2) in the District Court Civil Rules 2006 (SA). Once the matter was transferred, MCR r 3(2) had no operation. The appellant’s written submissions appear to have recognised this. The appellant’s substantive submissions in respect of this rule appear to have been confined to arguing that its existence informs the questions of unreasonableness and special circumstances that govern whether Better Lending was estopped by Anshun estoppel from bringing and prosecuting the Counterclaim. We address those questions below. Ground 4, which relies on MCR r 3(2) alone, fails.
Whether the trial judge erred in failing to hold that Better Lending was estopped by Anshun Estoppel from bringing and prosecuting the Counterclaim
Grounds 5 to 9 inclusive make various complaints that stem from the judge’s conclusion declining to find that the Counterclaim was barred by the principle of Anshun estoppel.[51]
[51] Mandeville v Better Lending Pty Ltd (No. 6) [2019] SADC 168 at [80].
Anshun estoppel: principles
Expressed in the simplest of terms, the doctrine of Anshun estoppel prevents a party from litigating a matter where it was unreasonable not to have raised that matter in earlier litigation. The doctrine takes its name from the High Court authority of Port of Melbourne Authority v Anshun Pty Ltd (‘Anshun’).[52] The underlying principles had been articulated much earlier, in Henderson v Henderson:[53]
[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
[52] Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
[53] Henderson v Henderson (1843) 67 ER 313 at 319 (Wigram VC).
In Anshun, Gibbs CJ, Mason and Aickin JJ articulated the principle as follows:[54]
…in applying the Henderson v Henderson principle to a plaintiff said to be estopped from bringing a new action by reason of the dismissal of an earlier action, Somervell L.J. and Lord Wilberforce insisted that the issue in question was so clearly part of the subject matter of the initial litigation and so clearly could have been raised that it would be an abuse of process to allow a new proceeding. Even then the abuse of process test is not one of great utility. And its utility is no more evident when it is applied to a plaintiff's new proceeding which is said to be estopped because the plaintiff omitted to plead a defence in an earlier action.
In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.
[54] Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 602-603 (Gibbs CJ, Mason and Aickin JJ).
More recently, in Tomlinson v Ramsey Food Processing Pty Ltd, French CJ, Bell, Gageler and Keane JJ restated the principle in the following terms:[55]
The third form of estoppel is an extension of the first and of the second. Estoppel in that extended form operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding.
(Footnotes omitted)
[55] Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at [22].
Anshun concerned the failure of an owner of a crane to rely on an indemnity agreement with the hirer on the suit of a workman who had suffered injuries in the course of the hirer operating the crane. The owner’s liability was apportioned at 90 per cent, and the hirer’s liability at 10 per cent. The owner then commenced a separate action against the hirer, relying on the indemnity agreement.
The appellant accepted that there were considerable gaps in the evidence as to how the moneys had been applied, thanks to the manifold and manifest inadequacies of the evidence of her former husband, who had driven the transactions. Ultimately, however, she submitted that the state of the evidence was not such that Better Lending had rebutted the presumption under s 13(1) of the NCC.
For its part, Better Lending, through Mr Malecki, submitted that this characterisation of the evidence relied on supposition. At best, the evidence established that of the $150,000 advanced, only $37,500 had been paid on account of the deposit. That did not meet the requirement of s 5(4)(a) of the NCC. Referring back to his original inquiry at the time of the first loan agreement, when he had concluded that the first loan was unregulated as it was to replace business funds, he submitted that the only reasonable conclusion was that the Mandevilles had used the loan funds to advance their business interests, and found themselves in a position:[132]
where those business interests did not yield the result they expected. Faced with the prospect of compromising their investment property and residential dwelling which they had mortgaged as security for an unregulated loan they proceeded to manufacture this regrettable cause.
[132] Written Submissions of the First Respondent/Cross-Appellant, [33(b)].
Taking the loan advances separately, the $10,500 that was demonstrably paid after the first advance represented only some 14 per cent of the amount advanced. The payment of $27,000 to the vendors following the second loan agreement represented only 36 per cent of that second advance. Altogether, only 25 per cent of the sums advanced were shown to be paid on account of the deposit.
Mr Malecki also maintained that the money advanced under the first loan agreement replenished business funds of Mr Mandeville and for that reason, the loan was not for a coded purpose.
In reaching the conclusion that the loan was for a ‘coded purpose’, the trial judge observed, having regard to Haynes v St George Bank,[133] that it was necessary to have regard to the substance and reality of the loan transaction and make an objective assessment. Haynes concerned predecessor legislation, but no relevant difference of principle arises on account of the substitution of legislative regimes.
[133] Haynes v St George Bank (2018) 130 SASR 551.
The judge’s conclusion requires some consideration of the correct construction of s 5(1)(b) of the NCC, specifically, what is meant by the phrase, ‘the credit is provided or intended to be provided wholly or predominantly’ for one of the listed purposes. We have already referred to the reference by the Chief Justice in Haynes to the statement by the Queensland Court of Appeal in Shakespeare Haney Securities Ltd v Crawford,[134] to the effect that in the great majority of transactions, the relevant purpose will be determined by reference to the terms of the application for credit and the approval. The Court in Haynes further adopted the statement by Gillard J in Linkenholt Pty Ltd v Quirk,[135] that ‘the substance of the transaction in the context of its performance’ must be considered.
[134] Shakespeare Haney Securities Ltd v Crawford [2009] 2 Qd R 156 at [31].
[135] [2000] VSC 166 at [98] (Gillard J).
The Court in Haynes took that view that in this assessment, the intention of the debtor is not determinative.[136] To this end, it relied further on Shakespeare Haney Securities Ltd v Crawford, in the treatment by that case of s 6(1)(b) of the Uniform Consumer Credit Code:[137]
The focus of s 6(1)(b) is on the provision of credit rather than on the obtaining of credit. That is inconsistent with a construction which looks to the debtor’s state of mind. Also, one would think that if the legislature had in mind that, in determining the purpose for which credit was provided, the debtor’s intention was the governing consideration, s 6(1)(b) would have been worded along these lines:
“The debtor intended to apply the credit wholly or predominantly for personal, domestic or household purposes.”
[136] Haynes v St George Bank (2018) 130 SASR 551 at [45] (Kourakis CJ, Blue and Doyle JJ agreeing).
[137] Shakespeare Haney Securities Ltd v Crawford [2009] 2 Qd R 156 at [32].
The intention of the debtor, at least where it has been communicated to the lender, may be relevant to an assessment of the ‘substance of the transaction in the context of its performance’. Insofar as it can be ascertained it is, however, only one piece of evidence that contributes to the assessment.
The judge’s analysis interrogated the actual application of the moneys advanced, based on inferences he drew from the whole of the evidence. This exercise discloses no error. First, while there were significant gaps in the evidence, there was sufficient evidence from which the judge was able to conclude that the funds were applied, predominantly, to the deposit on Ferny Creek. The appellant’s submission in this regard should be accepted.
That conclusion also requires acceptance of the proposition that it is not fatal to the appellant’s case that the state of the evidence is such that a significant proportion of the moneys were, in the first instance, applied to Mr Mandeville’s business interests or paid to family members. The evidence, such as it was, allowed the inference to be drawn that these applications were in repayment of funds lent by those entities to pay down the deposit. It was open to the judge to conclude that the substance of the transaction, viewed in the context of its performance, was that these loans were advanced so as to enable the Mandevilles to pay the deposit on the Ferny Creek property.
More fundamentally, none of the matters raised by Better Lending on appeal, separately or together, required a conclusion that the presumption imposed by s 13(1) of the NCC was displaced. The judge did not err in concluding that the NCC applied to the loan agreements.
Whether Better Lending complied with the NCCPA
A ‘credit contract’ is defined in s 5 of the NCCPA as having the same meaning as in s 4 of the NCC. As set out above, s 4 of the NCC defines a credit contract as ‘a contract under which credit is or may be provided, being the provision of credit to which this Code applies’.
Sections 128-130 of the NCCPA, at the time the loan agreements were entered into, imposed certain obligations on licensees with respect to credit contracts (to which the NCC applied) and, thus, to the loan agreements the subject of the present matter:
128Obligations of credit providers before entering credit contracts or increasing credit limits
A licensee must not:
(a)enter a credit contract with a consumer who will be the debtor under the contract; or
(b)increase the credit limit of a credit contract with a consumer who is the debtor under the contract;
on a day (the credit day) unless the licensee has, within 90 days (or other period prescribed by the regulations) before the credit day:
(c)made an assessment that:
(i)is in accordance with section 129; and
(ii)covers the period in which the credit day occurs; and
(d)made the inquiries and verification in accordance with section 130.
Civil penalty: 2,000 penalty units.
129 Assessment of unsuitability of the credit contract
For the purposes of paragraph 128(1)(c), the licensee must make an assessment that:
(a)specifies the period the assessment covers; and
(b)assesses whether the credit contract will be unsuitable for the consumer if the contract is entered or the credit limit is increased in that period.
Note:The licensee is not required to make the assessment under this section if the contract is not entered or the credit limit is not increased.
130 Reasonable inquiries etc. about the consumer
Requirement to make inquiries and take steps to verify
(1)For the purposes of paragraph 128(1)(d), the licensee must, before making the assessment:
(a)make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract; and
(b)make reasonable inquiries about the consumer’s financial situation; and
(c)take reasonable steps to verify the consumer’s financial situation; and
(d)make any inquiries prescribed by the regulations about any matter prescribed by the regulations; and
(e)take any steps prescribed by the regulations to verify any matter prescribed by the regulations.
Civil penalty: 2,000 penalty units.
The judge found that Better Lending had entered into the second loan agreement without making the assessment required by s 129 and without having made the inquiries and undertaken the verification steps required by s 130.[138] These conclusions were based on the primary finding to the effect that the inquiries made and information gathered by Better Lending were ‘absolutely minimal’.[139] To this end, the judge found:
·the inquiries amounted to Mr Malecki concluding that this was a short-term loan for which there was an ‘exit strategy’, namely that there was enough equity in the Scoresby residence and Ferntree Gully investment property to meet the principal and interest on the loan;[140]
·this was an assessment of security, not of the suitability of the credit contract for the consumers;[141]
·the inquiries fell well short of amounting to reasonable inquiries about the topics enumerated in s 130, even for a short-term loan. Better Lending took no steps to verify anything and took Mr Mandeville’s statements at face value;[142]
·there were specific features that pointed strongly to the need for further inquiries and verification. The Mandevilles were purchasing a $1.6 million house. They required last-minute, high interest, bridging finance to stave off being sued for the deposit. While Better Lending was not providing a loan for the purchase price, the circumstances required a greater inquiry ‘than simply a rudimentary assessment of the available equity’;[143]
·perhaps most importantly for the assessment of the overall adequacy of the inquiries, in the circumstances of Better Lending providing short-term finance for the purchase of a residential home that was secured by two properties, the judge held:[144]
Fourthly, there is an inherent contradiction in Mr Malecki’s evidence as to whether the exit strategy amounted to sufficient inquiries pursuant to The Code, and in particular the issue of substantial hardship. At the time the credit was provided, the exit strategy, (in other words enforcement of the security if that became necessary) would have entailed selling both the Scoresby and Ferntree Gully properties. Scoresby at that time was the Mandevilles’ family home. On the one hand, Mr Malecki took the view that it was unnecessary to make any inquiries about whether the Mandevilles had any prospect whatsoever of completing on the contract for the new home at Ferny Creek. On the other hand, unless they were able to settle on that contract, implementation of Better Lending’s exit strategy would have entailed enforcing the mortgage over Scoresby; in other words, turning them out of their home.
(Footnote omitted)
[138] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [116].
[139] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [107].
[140] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [107].
[141] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [109].
[142] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [110].
[143] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [111].
[144] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [112].
Mr Malecki challenged the judge’s findings of breaches of ss 129 and 130 by reference to the concept of ‘scalability’. To this end, he referred to the regulatory guide, RG-209 as in effect at June 2010 that had been tendered at trial, which stated:[145]
In order to determine whether a credit contract is ‘not unsuitable’, you must make ‘reasonable inquiries’ about the consumer’s financial situation, and the consumer’s requirements and objectives in relation to the credit contract. You are also required to take ‘reasonable steps to verify’ the consumer’s financial situation.
The obligation to make reasonable enquiries, and to take reasonable steps to verify information, is scalable – that is, what you need to do to meet these obligations will vary depending on the circumstances.
[145] Australian Securities and Investments Commission, Regulatory Guide 209 – Credit Licensing: Responsible lending conduct, June 2010 at 9.
The Guide identified ‘scalable’ matters capable of having an impact upon the assessment. Mr Malecki submitted that in all of the circumstances, Better Lending had made reasonable inquiries and undertaken sufficient verification within the short time frames it was given.
He submitted that it was relevant that the loans were for bridging purposes, as they were repayable within a short period of time and that it was always anticipated, from the perspective of Better Lending at least, that there would be an inflow of funds on the sale of the other properties to discharge the debt. He submitted that this would then meet the definition of ‘bridging finance contract’ in s 204 of the NCC:
bridging finance contract: a credit contract is a bridging finance contract if:
(a)when the contract is made, the debtor:
(i)reasonably expects to receive a lump sum before the term of the contract ends; and
(ii)intends to discharge the debtor’s obligations under the contract so far as possible with that sum; and
(aa)the term of the contract is 2 years or less; and
(b)the conditions (if any) prescribed by the regulations are met.
This definition of ‘bridging finance loan’ in s 204 of the NCC did not exist in 2010 when the loan agreements were entered into.
Mr Malecki’s point was that by reason of the bridging nature of the loans, different and less onerous obligations fell upon Better Lending to make inquiries. In essence, the appropriate inquiry for Better Lending was whether there was sufficient equity in the assets that secured these short-term loans.
To this end, he referred to a statement quoted with approval by the Chief Justice in Haynes v St George Bank:[146]
However, the point to be made is that, given the real (bridging) nature of the loan transaction, there was never really any doubt about serviceability provided Mr Haynes sold St Peters expeditiously. Importantly, it was not the Bank’s obligation to ensure the prudence of Mr Haynes’ overall arrangements concerning the Longwood purchase or to ensure that his retirement plans would come to fruition. The Bank did not assume any responsibility towards Mr Haynes for the value of St Peters or as to the price ultimately obtained when it came to be sold.
[146] Haynes v St George Bank (2018) 130 SASR 551 at [91] (Kourakis CJ, Blue and Doyle JJ agreeing).
In Haynes, the Court concluded that the credit in question had not been provided wholly or predominantly for personal, domestic or household purposes.[147] The observation of the Court relied on by Mr Malecki was one of a number going to the question of whether the Bank in that case had breached clause 25.1 of the Code of Banking Practice 2004. Other matters included the nature of Mr Haynes’s business activities, his lengthy history as a good customer of the Bank and his having been a very experienced and knowledgeable businessman. The passage that Mr Malecki relies on is not of assistance to the question of the obligations of Better Lending under the NCC.
[147] Haynes v St George Bank (2018) 130 SASR 551 at [60] (Kourakis CJ, Blue and Doyle JJ agreeing).
Mr Malecki also sought to tender, on the appeal, an affidavit sworn by him on 16 May 2019, the subject matter of which was the steps he had taken to comply with the NCCPA and NCC. He had sought to tender it on 16 May 2019 at trial, after he had given evidence and had been released. The appellant had objected to its tender at trial on a number of bases, including that it would require further cross‑examination. The judge does not appear to have ruled formally on its receipt, but did not refer to it in the judgment or give consideration to its contents. The appropriate inference is that the judge determined not to receive it. On that basis, particularly when the evidence has never been tested, the Court declines to receive the affidavit on the appeal.
Neither the timing nor the bridging nature of the loans rendered the judge’s conclusions as to Better Lending’s non-compliance with ss 129 and 130 of the NCCPA erroneous.
We reach this conclusion having regard to, and accepting the strength of, the judge’s observation that the simple inquiry into the sufficiency of the equity for the purposes of the credit contract, when one of the secured assets was to be the family home, placed that home at risk. Mr Malecki had understood the value of the Ferntree Gully investment property to be $280,000. It had a mortgage of $192,000, leaving equity of about $88,000.[148] It was consequently necessary for Better Lending to have security over the Scoresby residence as well.
[148] Trial Transcript 447.32-35.
The absence of any further knowledge about the Mandevilles’ financial situation, even in the short term, precluded any understanding of the risk that they would suffer substantial hardship in complying with the loan. Section 131(2) of the NCCPA provides:
(2)The contract will be unsuitable for the consumer if, at the time of the assessment, it is likely that:
(a)the consumer will be unable to comply with the consumer’s financial obligations under the contract, or could only comply with substantial hardship, if the contract is entered or the credit limit is increased in the period covered by the assessment; …
Section 131(3) provides:
(3)For the purposes of paragraph (2)(a), it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.
This subsection creates a presumption, rather than a benchmark, of substantial hardship. Substantial hardship might arise in lesser circumstances.
The broker had advised Mr Malecki at the outset that the settlement date on the intended sale of the investment property had passed. Mr Mandeville had represented to Mr Malecki that he was in a position to complete the $1.6 million purchase of Ferny Creek, but that he needed to borrow money to pay the deposit, as there had been a delay on settlement on the sale of the investment property.[149] Mr Malecki did not take steps to verify these representations.
[149] Trial Transcript 444.9-445.17.
It was also the case, however, that the appellant had provided, with the second loan agreement, a statutory declaration dated 2 September 2010, which included the following statements with respect to ‘the Property’, which was defined in a schedule as the Scoresby and Ferntree Gully properties, collectively:[150]
3. the Property is not the subject of a Contract of Sale save for the contract of sale to purchase the Property by the Company;
4. that I have not sold nor agree to sell nor offered for sale nor granted any option over the Property or any part of the Property; …
[150] Exhibit P1, Exhibit Cross-Appeal Book Vol 1, p 206.
It is not at all clear what is meant by ‘the Company’, as that is not defined in the statutory declaration. These statements are confusing not only for that reason, but also because ‘the Property’ referred to both properties. On no view was there a suggestion of a contract of sale in respect of Scoresby.
Mr Malecki gave evidence in cross-examination that he read this statutory declaration and understood the reference to ‘the contract of sale to purchase the Property by the Company’ to be a reference to the contract of sale in respect of the Ferntree Gully property. However, he did not ask for a copy of the Ferntree Gully sale contract.[151]
[151] Trial Transcript 455.15-21.
This statutory declaration accompanied the second loan agreement, after the broker had told Mr Malecki (prior to the first loan agreement) that the settlement date on Ferntree Gully had passed. There was, at the very least, a considerable gap in the most basic information as to the prospects of release of the equity in Ferntree Gully. Better Lending had no information as to the immediate, short-term prospects for servicing the loan. That fact alone warranted further inquiry into and verification of the Mandevilles’ financial situation.
The judge did not err in finding that it was necessary for Better Lending to make further inquiries and take steps of verification for the purposes of ss 129 and 130. The knowledge that this loan was short-term, of a bridging nature and secured by mortgages over the Ferntree Gully investment property and the Scoresby family residence (that only together carried sufficient equity), did not discharge these obligations. It follows that we reject the challenges to the findings that Better Lending had breached ss 129 and 130, and dismiss the substantive grounds of the cross-appeal.
Conclusions on relief consequent on upholding the finding of breaches of the NCCPA
The claim for relief on the cross-appeal
Ground 8 of the cross-appeal challenges the trial judge’s exercise of his discretion under s 177 of the NCCPA to grant the permanent injunction restraining Better Lending from recovering any further amount of principal or interest, or other costs or charges, except for the sum of $43,000 (that being the difference between the $124,000 paid and the $167,000 lent). However, that injunction was granted, and Ground 8 is prosecuted, on the premise that Better Lending was not prevented from bringing and prosecuting the Counterclaim. As the Court has held that Better Lending is estopped from doing so, the foundation on which Better Lending seeks to expand its relief under the second loan agreement has disappeared.
That does, however, bring us back to Ground 11 of the Notice of Appeal and the consequences of the trial judge’s conclusion, which this Court has upheld, that Better Lending failed to comply with ss 129 and 130 of the NCCPA.
The appellant’s claim for relief consequent on having discharged the default judgment
In the first instance, the appellant observes that the trial judge made no specific finding that the payment of $124,000 by the appellant to Better Lending from the proceeds of sale of Ferntree Gully discharged the default judgment. However, the judge did give credit for the default judgment sum in calculating the quantum to be paid on the Counterclaim, which he based upon the total principal sum lent. The judge dismissed, in effect, the appellant’s claim for a declaration that she had satisfied the default judgment, but otherwise restrained Better Lending from enforcing it. The appellant thus submitted that it should be inferred that the trial judge had found that the payment of $124,000 had discharged the default judgment.
The judge should not be taken to have held that the default judgment was discharged. Rather than determining that question, he was simply ruling a line under the transactions using his broad discretion under s 177 of the NCCPA ‘to grant an injunction on such terms as the court considers appropriate’. To this end, he reasoned:[152]
If Better Lending had complied with The Code, the futility of this entire transaction would have been readily apparent. Any reasonable investigation and assessment would have revealed that there was no prospect of completing the purchase of Ferny Creek. The loan would never have been made. Better Lending would not have advanced the principal, and the Mandevilles would not have accrued any interest. Accordingly, I consider the appropriate exercise of the broad discretion I am required to exercise, is to do what I can to return the parties to that position; A position that would have been maintained, had Better Lending Complied with The Act. The best I can do to revert to that position is by enabling Better Lending to recover the balance of the principal, but no interest. I acknowledge that minds could differ on how the discretion should be exercised here. In my view, that is the most appropriate way to balance the various facts and circumstances, in accordance with the overall objects of The Act, and having regard to the nature and extent of the breaches by Better Lending.
[152] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [120].
The difficulty with inferring from this that the judge found that the appellant had, by the payment, ‘discharged the default judgment’ is that whether she had done this was subject to a contest of legal and factual inference, arising in the first instance out of the correspondence between the appellant and Better Lending’s solicitor, set out above. The judge did not resolve that contest. Because he was proceeding under s 177 of the NCCPA, he manifestly had no reason to do so. The remedy that he did grant had a different, statutory source and was governed by discretionary considerations arising from Better Lending’s breach of the Act, not an assessment of the premise on which the $124,000 was paid.
It follows that there was no consequent error in dismissing the appellant’s claim for $46,422.25 (being the $124,000 less the default judgment sum). There was no necessary premise to the order that the default judgment had been satisfied. We dismiss Grounds 11.1 and 11.2. We also dismiss Ground 13, which complains that the judge erred in failing to declare that the appellant had discharged the default judgment and enforcement costs from the $124,000 payment.
The claim for compensation
Ground 11, being premised on the appellant’s success on at least one of the previous grounds, required an examination of the judge’s findings of breaches of the NCCPA, for the reasons explained above. This Court has upheld those findings. Ground 12 challenges directly the orders that the judge made in consequence of those findings. This Court has addressed these matters for the most part, in context, above. However, Ground 12 raises a further complaint with respect to the judge’s dismissal of the appellant’s claim for $46,422.55.
Paragraph 29.6.4 of the Fourth Statement of Claim sought an order, including pursuant to the provisions of the NCCPA and NCC, that Better Lending pay to the appellant the sum of $46,422.55, together with interest. On the appeal, the appellant characterised this order not only as a necessary consequence of the imputed finding by the trial judge that default judgment had been satisfied, an argument that this Court has rejected, but also as a compensatory order pursuant to ‘either or both’ of ss 178 and 179 of the Act. These sections were also the subject of submissions at trial.
Sections 178 and 179, predictably enough, provide for orders to be made that compensate a plaintiff for loss or damage suffered as a result of a commission of an offence or contravention of a civil penalty provision. The appellant’s argument for a compensation order was premised on the proposition that the only benefit she received from the loans was the $10,000 that she admittedly spent on repaying her credit card debt. She argued that that amount should be taken as being accounted for as part of her payment of the default judgment sum. Anything she and her husband received beyond that default judgment sum was not to her benefit, given that her husband had caused the deposit to be forfeited. It follows, on her argument, that the sum she paid to Better Lending in excess of the default judgment sum effectively constituted a loss to her caused by Better Lending’s breaches of the Act.
The appellant and Mr Mandeville received the funds under the loan agreement jointly. It is not at all apparent why the consequences of the feckless behaviour of Mr Mandeville, both at large and in his relationship with the appellant, his then wife, were required to be visited on Better Lending via a remedial statutory position that, in the context of these proceedings, addresses the position between Better Lending and the appellant.
The appellant was a signatory to the loan agreement and received the funds. The judge, in rejecting the pleas of duress and undue influence, said:[153]
I consider that Deborah Mandeville has also to some extent, overstated her lack of autonomy relating to financial and related matters. Whereas I accept that Andrew Mandeville was physically and emotionally aggressive and controlling in the marriage, I also accept that Deborah Mandeville was in the unenviable and totally unsatisfactory situation of having to go along with her husband’s demands in order to keep the peace. I have already outlined my impressions and findings as to Andrew Mandeville’s conduct. However, whilst Deborah Mandeville may well have felt powerless or disinclined to rein in her husband, I consider she had at least a basic knowledge of the transactions that were negotiated on her email account and processed through her bank account.
[153] Mandeville v Better Lending Pty Ltd(No 6) [2019] SADC 168 at [140].
The judge had a suite of remedies available to fashion in the exercise of his discretion. It is not necessary to decide whether it was open to him to make an order for compensation under s 178 or 179 of the NCCPA for a ‘loss’ that the appellant claims to have suffered by paying to Better Lending an amount that exceeded the default judgment sum, but which did not exceed the principal she had received from Better Lending. It is sufficient to express the conclusion that in fashioning a remedy that aimed to restore the parties to their pre-loan positions, it is not tenable to argue that he erred in failing to do so. We dismiss this remaining component of Ground 12.
The claims for relief in respect of the caveat, the loan agreement documents and the mortgages
Grounds 11.3 and 11.4 complain that the judge erred in:
11.3.dismissing (or in effect dismissing) the appellant’s claim for an order requiring the respondent to take all necessary steps to remove the caveat lodged on the Scoresby property;
11.4.dismissing (or in effect dismissing) the appellant’s claim for an order requiring the respondent to deliver up to the appellant the First Loan Agreement, the Second Loan Agreement, the Scoresby Mortgage and the Ferntree Gully Mortgage; …
These complaints should be read against the balance of the relevant orders the judge did make, in Paragraph 2.2 of the Formal Orders:
2.2.An order restraining Better Lending from taking or pursuing any further step to enforce:
(i) the loan agreements;
(ii) any security relating to the loan agreements;
(iii) the Adelaide Magistrates Court default judgment dated 21 August 2014 in AMC Action No 2984 of 2014;
(iv) any warrant or other remedy directly arising from the said Adelaide Magistrates Court default judgment;
(v) any mortgage or caveat purporting to secure or protect or arising from either of the loan agreements.
The further orders that the appellant seeks, which are in the nature of mandatory injunctions, did form part of the relief sought on the Fourth Statement of Claim. The appellant sought orders discharging the mortgages or delivering them up under s 74(5) of the Transfer of Land Act 1958 (Vic). This provides:
(5) A registered mortgage does not operate as a mortgage or charge on the land if for any reason the mortgage is, or is found to be, void or not enforceable at law or in equity and the mortgagee must discharge the mortgage as soon as practicable.
This section operates of its own force. The orders made by the trial judge have been subject to an appeal. That appeal has now been determined. Better Lending has consequent obligations under the orders and under the general law. To the extent that the orders have the effect that the mortgages are unenforceable as described in this section, it would be premature to make an order requiring Better Lending to comply with the general law.
As to the complaint of a failure to make an order requiring Better Lending to take all necessary steps to remove the caveat lodged on the Scoresby property, Better Lending has been restrained from enforcing the caveat. In the absence of the appellant having explained why she cannot take steps to have the caveat removed under the general law, it is not appropriate to make an order of the type sought.
Mr Abbott, in submissions, explained that the mischief the appellant was seeking to address by these orders was:[154]
[T]he effect of the orders is that Better Lending still has the benefit of the mortgage to enforce a judgment on the counterclaim for $43,000, and it still has the caveat on Scoresby supporting that mortgage. So to that extent, Better Lending still has the mortgage available, and it has a judgment in its favour for 43,000.
[154] Appeal Transcript 53.13-19.
Regardless of the merits of that submission at the time that it was made, it does not survive the setting aside of the judgment on the Counterclaim. We dismiss Grounds 11.3 and 11.4 of the appeal.
Conclusions on the appeal
For the reasons explained, there is no basis for interfering with the broad approach taken by the trial judge which was, in the exercise of his discretion, to return the parties to the position they would be in had the loan agreements not been entered into. As explained, however, Better Lending is prevented from pursuing the Counterclaim. That necessarily requires allowing Ground 11.5 and setting aside judgment on the Counterclaim in the sum of $43,000.
That constitutes a necessary interference with the judge’s exercise of the discretion under s 177 of the NCCPA which, for the sake of convenience, we set out here:
2.1 An order pursuant to s 177 of the National Consumer Credit Protection Act 2009 (Cth) restraining Better Lending from recovering any further amount of principal or any amount of interest, or other costs or charges except for the sum of $43,000 pursuant to Order 1.
The appeal is allowed on Grounds 5, 11.2 and 11.5. The cross-appeal is dismissed. Orders numbered 1 and 2.1 are set aside. In place of the order numbered 1, the order is as follows:
1. The counterclaim is dismissed.
In place of Order 2.1, the order is as follows:
2.1 An order pursuant to s 177 of the National Consumer Credit Protection Act 2009 (Cth) restraining Better Lending from recovering any further amount of principal or any amount of interest, or other costs or charges.
The Court will hear the parties as to the costs of the trial, the appeal and the cross-appeal.
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