NAB Group Ltd v Noss & 2 Ors

[2001] NSWSC 1018

CITATION:

NAB Group Ltd v Noss & 2 Ors [2001] NSWSC 1018

CURRENT JURISDICTION:

Common Law

FILE NUMBER(S):

SC 10143/2001

HEARING DATE(S):

22 October 2001 and 30 October 2001

JUDGMENT DATE:

13 November 2001

PARTIES :

Australian and New Zealand Banking Group Limited
(Plaintiff)

Doreen Noss
(First defendant)

Richard Noss
(Second defendant)

Andrew Roger Robbins
(Third defendant)

JUDGMENT OF:

Master Harrison

COUNSEL :	Ms K Burke (Plaintiff) Mrs S Higgins (Third defendants)
SOLICITORS:	Coudert Brothers (Plaintiff)
CATCHWORDS:	Set aside default judgment - stay of writ of possession
LEGISLATION CITED:	Supreme Court Rules Real Property Act 1900 Trade Practices Act
CASES CITED:	Evans v Bartlam (1937) AC 473 Vacuum Oil Pty Limited v Stockdale (1942) 42 SR 239 Cuttle v Brand (1947) 63 WN 96 Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503 Cohen v McWilliam (1995) 39 NSWLR 476 National Westminister Bank Plc v Skelton [1933] WLR 72 Mobil Oil Case Ltd v Rawlinson (1981) 43 P & CR 221 Horrobin v Australian and New Zealand Banking Group Ltd (1996) 40 NSWLR 89 Lord v Direct Acceptance Corporation (NSWCA unreported, 25 November 1993)
DECISION:	(1) The default judgment entered on 14 June 2001 insofar as it effects the third defendant is set aside; (2) The writ of possession is set aside; (3) The third defendant is to file and serve his defence within 14 days; (4) The third defendant is to pay the plaintiff's costs of the motion.

- 14 -

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

TUESDAY, 13 NOVEMBER 2001

10143/2001 - AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED v DOREEN NOSS & 2 ORS

JUDGMENT (Set aside default judgment: stay of writ of possession)

: By amended notice of motion dated 22 October 2001 the third defendant seeks firstly, an order pursuant to Part 40 r 9(2) of the Supreme Court Rules (SCR) that judgment entered 14 June 2001 in these proceedings as set out in paragraphs 2, 5 and 6 be set aside; and secondly, an order that the writ of possession be stayed in respect of the whole of the land described in Certificate of Title Folio Identifier 1/780028 of the register maintained thereunder and known as “Yarrabar”: Peak Hill Road, Dubbo in the State of New South Wales (Yarrabar).

2   The plaintiff relied on the affidavits of Rachael Theobald sworn 2 August 2001, Julie Patricia Engwirda sworn 6 August 2001 and Michael Thomas Rowe sworn 28 September 2001 and 8 October 2001. The third defendant Andrew Roger Robbins, relied on his affidavits sworn 9 July 2001, 7 September 2001 and 22 October 2001.

3   The first defendant is Doreen Noss and the second defendant is Richard Noss. On 14 June 2001 default judgment was also entered against them. The first and second defendants have been ordered to pay $733,733.98. The first and second defendants’ property “Kathville” has been sold and realised for $278,000. In addition to an order for possession of Yarrabar the third defendant was ordered to pay the sum of $512,999.67.

The law in relation to default judgment

4   The relevant part of s 40 r 9(2) of the SCR provides:

"(2) The Court may set aside or vary a judgment -
(b) where the judgment has been entered after judgment has been given in the absence of a party, whether or not the absent party had notice of trial or of any motion for the judgment."

5   The authorities on setting aside default judgement are Evans v Bartlam (1937) AC 473 at 489; Vacuum Oil Pty Limited v Stockdale (1942) 42 SR 239; Cuttle v Brand (1947) 64 WN 96 at 97; and Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503.

6   A consideration to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995) 39 NSWLR 476 at 481:

"It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only on the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct."

7   For the third defendant to succeed in his application to set aside default judgment it must give an adequate explanation for the delay in filing its defence and show that it has a defence on its merits, or as often expressed a bona fide defence. However, as Priestley JA said in Cohen that it is a fundamental duty of the court to do justice between the parties.

The statement of claim

8   The third defendant is the registered proprietor of the land known as “Yarrabar”. A pottery business is conducted on that property. By statement of claim the plaintiff pleads that by an agreement dated 21 November 1997 the third defendant guaranteed to the plaintiff repayment of all monies advanced and accommodation granted or afforded from time to time by the plaintiff to Puroil (the third guarantee). The third defendant was a director of Puroil Pty Limited and held 35% of the shareholdings. Puroil engaged in the business of producing bulk supplies of cold pressed vegetable oils and oil seeds such as soya beans for sale to wholesale and distributors of the food industry. Puroil built a processing plant on Kathville. Puroil is indebted to the plaintiff in respect of an overdraft account no. 3537-64348 (the Puroil OD) and a fully drawn advance account no 2736-83417 (the Puroil FDA) (the facilities).

9   It is alleged that in June 2000 Puroil defaulted in payment of monies due and owing under the facilities. It is not denied that Puroil was in default in its loan repayments. On 25 July 2000 the plaintiff served a notice of demand on Puroil and Puroil failed to comply with that demand. On 15 August 2000 the plaintiff served a notice of demand on the third defendant. The third defendant has failed to comply with that notice.

10   On 5 September 2000 Puroil was placed into voluntary administration. Subsequently, Max Prentice was appointed liquidator of the company.

Proposed defence and cross claim

11 By proposed defence and cross claim, the third defendant admitted that he entered into the guarantee, was served with a notice of demand and a s 572(2) Real Property Act 1900 notice and that he has not paid any amount to the plaintiff in respect of the amount owed by Puroil to the plaintiff.

12   By mortgage dated 23 July 1997 registered as dealing number 3366428 (the first Yarrabar mortgage) the third defendant mortgaged to the plaintiff all his estate and interest in Yarrabar. On 23 October 1997, the third defendant signed a limited guarantee limited to the sum of $20,000 (the first guarantee for the monies advanced to Puroil). By mortgage dated 21 November 1997 registered as dealing number 3708749 (the second Yarrabar mortgage) the third defendant mortgaged to the plaintiff all his estate and interest in Yarrabar. By an agreement dated 24 November 1997 the third defendant guaranteed to the plaintiff repayment of all monies advanced and accommodated granted or afforded from time to time by the plaintiff to Puroil Pty Limited (“Puroil”) (“the second guarantee”). In August 1998 the plaintiff agreed to provide a further loan facility to Puroil. The total amount loaned by the plaintiff was $290,000.

13   The third defendant denies that the plaintiff is entitled to an order for possession and payment of the debt of Puroil due to representations made by the plaintiff. These oral representations allegedly induced the third defendant to enter into the second guarantee and mortgage. It is pleaded that the third defendant to the knowledge of the plaintiff relied on these representations and is estopped from seeking orders against the third defendant. The third defendant relies upon s 52 of the Trade Practices Act. The proposed cross claim seeks that the terms of the mortgage and guarantee be varied.

The alleged representations

14   At paragraph 11 of the third defendant’s affidavit of 16 August 2001, the third defendant swore that in the second half of 1997, probably 23 October 1997, the second defendant and he again approached Steve Manning for additional funding for Puroil in order for it to expand its business. Puroil manufactured oils. The third defendant recalls speaking to Steven Manning about the loan facility and recalls the words to the effect of the following being said:

“Steve, as you know, I am working to reduce my overall debt with the bank with the aim of being debt free by 1998. I am also concerned about my future exposure in respect of Puroil. Where will I rank in the guarantee of debts of Puroil if I agree to become a guarantor?”

15   Mr Manning replied with words to the effect of:

“You will be the third guarantor and there is plenty of potential for the bank to recover any money before it got to you.”

16   The third defendant then said:

“How will the bank recover its debts? As you know I am concerned about my exposure to ???” [Puroil ?]

17   Mr Manning replied:

“Doreen Noss is the first guarantee, she holds the land and you’ll pay rent to her. So that will be first to go, then the plant.”

18   The third defendant at paragraph 12 says that having been given the assurances by Mr Manning, he agreed to become guarantor to advances made by the plaintiff to Puroil. He was of the understanding that under the second guarantee he would be responsible for the remainder of any debt after the sale of “Kathville” and the Puroil business, including its plant and equipment. He believed that the plaintiff understood this to be the case.

19   In a bank file note dated 4 November 1997 Steve Manning recorded “I have today held discussions with Andrew Robbins regarding Security requirements for Puroil Pty Limited. Proposed lending for Puroil is to be $185,000 and will be secured in part by way of a Guarantee from Andrew, supported by an allocation under our IRM”.

20   Further the plaintiff’s contract for the fully drawn account (accepted on 11 September 1998) stipulated that the standard guarantee and indemnity, unlimited as to amount by Richard and Doreen Noss, was supported by the standard guarantee and indemnity as to amount by the third defendant, the registered mortgage over Yarrabar and registered mortgage over Kathville and registered company charge. [My emphasis added]

21   I closely examined the third defendant while he was being cross examined and formed the view that he was not an overly impressive witness. He was astute but sought to volunteer information so as to embolden his defence. The third defendant during cross examination, admitted that he signed the unlimited guarantee. The third defendant acknowledged that in the guarantee, the section referring to “Limited guarantee” was crossed out and had been initialled by him. The third defendant also admitted that he had the opportunity to obtain legal advice and read over the document but he chose not to do so. He signed an acknowledgment to the above effect, and additionally, he acknowledged that in deciding to enter into the guarantee, he did not rely on any promise, statement or information made or given by the bank or bank officers or agents except those set out in this guarantee and those given to him in writing signed by a bank officer.

22   The third defendant states at paragraph 15 of his affidavit that in signing the agreement he continued to be of the belief that not withstanding the use of the words “unlimited as to amount” on page 5 of the letter of offer, that the conditions under which he had signed the guarantee on 21 August 1997 continued to apply. He understood that the plaintiff would first seek to recover any outstanding debt of Puroil from the Sale of “Kathville” and then from the sale of the plant and equipment of Puroil, ie., he would be third in rank. His explanation for following this course of action was that he trusted the bank.

23   If these representations were actually made, and induced the third defendant to sign the guarantee, the property owned by the Noss’s has already been sold and realised approximately $278,000. However, it is not known whether there are further assets of the first and second defendants yet to be sold. The first and second defendants were also ordered to pay the sum of $733,739.48. There is a shortfall of $455,739.48. Puroil is currently in liquidation. The bank held a floating charge over the plant and equipment of Puroil. The third defendant at auction entered into a contract with the liquidator to buy some plant and equipment owned by Puroil. Regrettably the third defendant has not completed that contract. The third defendant’s evidence is that the company still has some unrealised assets namely intellectual property (the third defendant’s) and marketing rights. It is not known whether there is any real value in these ‘assets”. It would appear that even if all of Puroil’s and the Noss’ assets are realised there will be a shortfall which even on the third defendant’s version of events, he is liable to pay. Because there is no evidence to this effect, I cannot set aside the default judgment on terms namely that the plaintiff retains its order for possession of Yarrabar.

24   Prior to giving an unlimited guarantee the third defendant did give a guarantee limited to $20,000. I accept that the third defendant’s case concerning the representations is weak, but I do not regard it unarguable. Its merits will be determined by the evidence given. Once the assets of the first and second defendants and Puroil have been fully realised, it may be that the third defendant’s defence is futile because he will then, on his own case, be liable for the shortfall. However, at this stage the defendant has an arguable defence which should be permitted to go to trial provided the explanation for delay is satisfactory.

Explanation of delay

25   On 22 January 2001, the third defendant was served with the statement of claim. On 2 February 2001 the third defendant attended a creditors meeting of Puroil. Ms Amanda White was present and he told her “Amanda I am going to file a notice of appearance for myself and everyone else involved.” The third defendant then went to the registry of the court. As there was a long queue he left and arranged for his mother to collect the correct form.

26   On 1 February 2001, the third defendant prepared a notice of occupier on behalf of his wife and children. On 22 February 2001, the third defendant filed a notice of appearance. He served a copy of that document on the Dubbo branch of the plaintiff. At paragraph 36 of his affidavit sworn 9 July 2001 the third defendant says that having filed his notice of appearance, he expected to be advised by the court when the matter would next be dealt with as he intended to vigorously defend the claim that the plaintiff made in relation to its claim against him personally, and its claim for possession of his property and the Kathville property on which Puroil’s processing plant was located. The third defendant admitted that he did not appreciate that at the end of the statement of claim he was warned that a defence should be filed.

27   On 17 April 2001 a Farm Debt mediation was held, and ultimately the parties were unable to reach an agreement to settle these proceedings. On 14 June 2001the plaintiff obtained possession of Yarrabar and a writ of possession issued.

28   The third defendant heard nothing more until 29 June 2001 when the sheriff came to his property and handed him a notice to vacate his property no later than 10.00 am on 6 July 2001. He immediately telephoned the bank and left a message for Amanda White to call him. On 4 July 2001 the third defendant telephoned Amanda White and said words to the effect Amanda, what is going on? How can you get us to leave without us being heard and you know we are close to getting finance. She said words to the effect I am getting into trouble for taking so long. You are going to lose you house.

29   On 9 July 2001, the third defendant rallied himself and appeared before James J. The third defendant sought and obtained a stay of execution of the writ of possession. He filed an affidavit in court.

30   On 13 August 2001, the plaintiff filed the notice of motion seeking to set aside the default judgment. Apparently the third defendant’s records were destroyed when his mother’s car was stolen and since July he has been seeking documents from the plaintiff without success. The lack of documentation has delayed his preparation of his affidavits.

31   Once the third defendant became aware of the judgment, he acted expeditiously to have it set aside. The third defendant’s explanation is satisfactory. This is a borderline case, but the interests of justice favour the defendant being allowed to defend the action taken by the plaintiff.

Whether the order for possession and writ should remain on foot and the third defendant be only granted leave to argue over the monetary sum

32   The plaintiff submitted that the defence does not impede its right to retain possession of Yarrabar. The issue of whether a cross claim pleading equitable set-off defeats a mortgagee’s right to possession was discussed by the English Court of Appeal in National Westminister Bank Plc v Skelton [1933] WLR 72. In Skelton the Court of Appeal refers to the line of authority which clearly establishes the principle that the existence of a cross claim even if it exceeds the amount of a mortgage debt will not by itself defeat the right of possession of a legal chargee. Slade LJ refers in particular to the decision of Nourse J in Mobil Oil Case Ltd v Rawlinson (1981) 43 P & CR 221. Slade LJ says that this principle has much to commend it, since it could lead to abuse if a mortgagee was kept out of his undoubted prima facie right to possession by allegation of some connected cross claim which might be wholly without foundation.

33   It was argued that the cross claim in which the mortgagor has rights by way of equitable set-off is an exception to the principle stated above. Slade LJ concludes that he cannot accept the submission that the Mobil Oil principle is not applicable where the mortgagor has a claim to unliquidated damages by way of equitable set-off. Thus Skelton established that a cross claim on foot which pleads equitable set-off will not by itself defeat the right of possession of a legal chargee.

34   In Horrobin v Australia and New Zealand Banking Group Ltd (1996) 40 NSWLR 89 Sheller JA refers to a mortgagee’s right to possession where there is an equitable set-off. He says:

“A legal mortgagee’s right to possession is a common law right which is an incident of its estate in the land. In the absence of a term of the mortgage the right to possession has nothing to do with default on the part of the mortgagor. If there is a provision that, so long as certain payments are made, the mortgagee will not go into possession, then the mortgagee has to that extent contracted itself out of its rights. For the position under the Real Property Act 1900, see s 57 and s 60, and Ex parte Jackson: Re Australasian Catholic Assurance Co Ltd (1941) 41 SR (NSW) 285 at 289; 58 WN (NSW) 228 at 230 and United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) 68 SR (NSW) 331 at 347; 87 WN (Pt 2) (NSW) 204 at 220. The existence of a cross-claim, even if it exceeds the amount of a mortgaged debt, will not by itself defeat a right to possession enjoyed by a legal chargee. In National Westminster Plc v Skelton (at 78), the principle was said to extend to the case where the mortgagor had a claim to unliquidated damages by way of equitable set-off. These general principles underlie the decision of the High Court in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 165-167, 169.”

35   In Horrobin fraud was alleged. Sheller JA said that in the present case before him, the summary judgment went further than order for possession, as there was a defence of equitable set-off which went to the root of the respondent’s title to recover. That being so there was a triable issue on the defence and summary judgment should not have been given.

36   In Lord v Direct Acceptance Corporation (NSWCA unreported, 25 November 1993) Sheller JA wrote the leading judgment with which Kirby P and Meagher JA agreed. Sheller JA discussed the equitable defence of set-off and says that the mere existence of a cross demand is not sufficient. Sheller JA says:

“The cases (on equitable set-off) have been extensively examined by Woodward J in D Galambos and Son Pty Ltd v McIntyre (1974) 5 ACTR 10 and Giles J in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 710-712. In Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 at 1102, Lord Brandon of Oakbrook said that the concept of impeaching the title to the legal demand was not one familiar today and referred to the expression used in Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 at 212-213 that a claim may be set-off if ‘flowing out of and inseparably connected with the dealings and transactions which also give rise to the claim’.”

1. 7   However, Sheller JA is of the view that “the concept of equitable set-off is better stated in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 3rd ed (1992), par 3709(h) at 818, where the learned authors say that it is an indispensable requirement of equitable set-off that the set-off actually go to the root of, be essentially bound up with, and “impeach” the title of the plaintiff.

38   While the third defendant admitted that he had signed the mortgage, it is arguable that the mortgage does not stand alone because it was expressly provided in support of the guarantee. The third defendant signed a bank document and in the bank’s letter of offer dated 25 August 1998 it expressly stated “Standard guarantee and indemnity unlimited as to amount by Andrew Roger Robbins supported by the following: registered standard mortgage over the property Yarrabar, Newell Highway, Dubbo”. On 21 November 1997 the third defendant signed a bank document that expressly stated “I acknowledge that the following documents have been deposited by Andrew Roger Robbins with you in support of my standard guarantee and indemnity dated 21 November 1997 for the account of Puroil Pty Ltd…”. It is my view that it is not sufficiently clear that the rule laid down in Horrobin and Lord applies in this case because it is arguable that the plaintiff may exercise its rights under the mortgage only if it is able to exercise its rights of the guarantee. Hence, I set aside the default judgment insofar as it affects the third defendant.

39   Costs are discretionary. The third defendant has asked for an indulgence of the court so he should pay the costs of the motion.

40   I make the following orders:

(1) The default judgment entered on 14 June 2001 insofar as it effects the third defendant is set aside.

(2) The writ of possession is set aside.

(3) The third defendant is to file and serve his defence within 14 days.

(4) The third defendant is to pay the plaintiff’s costs of the motion.
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Last Modified: 11/27/2001