National Australia Bank v Mark Patrick Mullins - [2006] ACTSC 116

NATIONAL AUSTRALIA BANK v MARK PATRICK MULLINS & ANOR

[2006] ACTSC 116 (1 DECEMBER 2006)

PRACTICE AND PROCEDURE – setting aside default judgment – banker and customer – default by borrower – whether bona fide defence on the merits – whether Consumer Credit Code applicable

NEGLIGENCE – banker and customer – duty of care – customer purchasing business –whether bank under duty to investigate or advise as to viability of business

Land Titles Act 1925

Consumer Credit Act 1995

Consumer Credit Regulation 1995

Consumer Credit Code

Beneficial Finance Corporation Ltd v Karabas (1991) 23 NSWLR 256

Timms v Commonwealth Bank of Australia [2004] NSWSC 76

Permanent Trustee Australia Ltd v Gusevski [2005] NSWSC 1281

Simpson v Alexander (1926) 26 SR(NSW) 296

Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503

No. SC 174 of 2006

Judge: Master Harper

Supreme Court of the ACT

Date: 1 December 2006

IN THE SUPREME COURT OF THE )

) No. SC 174 of 2006

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: NATIONAL AUSTRALIA BANK
Plaintiff

AND: MARK PATRICK MULLINS
First defendant

AND: JANET MARGEURITE MULLINS
Second defendant

ORDER

Judge: Master Harper

Date: 1 December 2006

Place: Canberra

THE COURT ORDERS THAT:

The application by the second defendant dated 17 August 2006 be dismissed.
The application by the defendants dated 7 September 2006 be dismissed.
The defendants pay the plaintiff’s costs of both applications.

The defendants, who are self-represented, apply to the Court to set aside a default judgment entered on 6 July 2006 and an order for delivery of possession of land (Block 3 Section 56 Fraser) dated 7 August 2006. It emerged during the hearing of the application that the defendants were unaware of an earlier default judgment entered on 13 April 2006 for debt against the second defendant. Counsel for the plaintiff did not oppose my treating the present application as extending to the setting aside of the earlier as well as the later default judgment.
The action was commenced in March 2006. The statement of claim asserts that the defendants are the registered proprietors and joint tenants of the Fraser property, and also of a residential strata unit at Killara in New South Wales. The claim is that on 15 June 2004, the defendants contracted to borrow, and the Bank to lend, an amount of $590,000 as a home loan. The defendants agreed to make monthly payments of principal and interest in reduction of the loan. By the time proceedings were instituted their payments were behind, entitling the Bank, it is asserted, to demand immediate repayment of the principal with interest and fees.
The home loan is secured by a registered mortgage over the Fraser property. The terms of the mortgage allow the Bank, in the event of default, to enter and take possession of the Fraser property, and also to sue the defendants for debt. The Bank served the defendants with a default notice under the Land Titles Act 1925 and a notice under the Consumer Credit Code in respect of the default in March 2005. The default notice required payment of an amount of the order of $16,000 within a month. The defendants did not comply with the notice. The Bank made a formal demand in July 2005 for repayment of the principal.
The home loan is also secured by a registered mortgage over the Killara property. A default notice was served on the defendants under the equivalent NSW legislation in August 2005, followed by a notice demanding repayment of the principal in September 2005. Neither of the notices was complied with.
Also in June 2004, the Bank agreed to lend, and the defendants to borrow, an amount of $445,000, described as a business loan. The business loan was secured by the same mortgages. The defendants fell behind with their repayments in relation to the business loan, and failed to comply with formal notices in relation to that loan also. By the time proceedings were commenced, the amount claimed by the Bank was just under $1,120,000, with interest continuing to accrue.
Service of the originating application was effected on the second defendant, Ms Mullins, on 30 March 2006. On 13 April 2006, default judgment was entered against her for the amount claimed plus interest and costs, though not for possession.
On 16 June 2006 I dispensed with service of the originating application on the first defendant. On 6 July, default judgment was entered against him for the amount by then due under the mortgage, plus interest and costs; and against both defendants for possession of the Fraser property and the Killara property. On 7 August the Registrar made an enforcement order for delivery of possession of the Fraser property, and dispensed with service of further process in relation to that order on the first defendant.
On 17 August the second defendant made an application for a stay of the order for delivery of possession. The application came before me on 18 August. Ms Mullins told me that she made the application on her own behalf, not on behalf of Mr Mullins. She told me that they were no longer together. She had spoken to him by telephone. He was aware that the application was being made. Ms Mullins asked for a stay of the order because it did not provide enough time for her to find other accommodation. She told me that she had extended indigenous family members living with her at Fraser, and also occupying the Killara residence, and that enforcement of the order would have severe implications for her and for them. She explained that Mr Mullins was of aboriginal ancestry and that the other residents were related to him. She needed time to find somewhere to rent and to move house. She saw herself as having obligations to the relations of Mr Mullins living at both properties. She asked for ninety days. She accepted that she had left it too late to instruct solicitors to obtain advice as to her options, and asked for additional time to do so.
She went on to say that she had not responded adequately to the initial documentation she had received from the Bank. She believed she had a claim by way of setoff, of the order of $400,000. Her belief was that she and Mr Mullins had had an arrangement with the Bank to trade out of their difficulties and to sell the Killara property in an orderly manner. The Bank had told them that they could not sell the Killara property without its consent, and this had never been forthcoming.
She also referred to an agreement she said they had reached with a manager at the Bank to restructure their debt and to be allowed to continue trading with their newsagency. The newsagency had closed down and receivers had been appointed in January 2006. I stayed enforcement of the order for four weeks, and told Ms Mullins that this was to give her time to vacate the Fraser property. The solicitor for the plaintiff said that it would take about two months to obtain possession of the Killara property because of delays in the Supreme Court of New South Wales. I suggested that Ms Mullins assume that she was unlikely to get any further extension, and that she take advantage of the time I had given her.
On 7 September 2006 Ms Mullins filed a further application, this time on behalf of both defendants, seeking that the order for delivery of possession and the second default judgment be set aside on grounds which I shall summarise as follows:
The Bank acted unconscionably and illegally in its dealings with the defendants.
The Bank failed to assess the viability of the Willoughby newsagency business and its capacity to pay its debts.
The Bank amended the terms of the loan before settlement, to the disadvantage of the defendants.
The Bank refused to correspond with the defendants after it learned that Mr Mullins was indigenous and had been charged with criminal offences.
The Bank failed to respond to a request by the defendants to vary the terms of the contract under the Consumer Credit Code.
The loan agreement and mortgage should be set aside under the Consumer Credit Code.
The Bank evicted a tenant from the Killara property, preventing the defendants from meeting their financial obligations.
The Bank, in breach of the Consumer Credit Code and the Code of Banking Practice, rejected an application by the defendants to renegotiate the loans on the ground of hardship.
The defendants did not defend the proceedings because of unforseen circumstances.

(10)The Bank owed a duty of care to the defendants to ensure that they understood the nature and the legal and financial implications of their dealings with the Bank; the Bank was informed that Mr Mullins had recently been dismissed from a position with the ACT Government and had been subjected to racial vilification, and that he was suffering from stress requiring psychological treatment, but failed to afford either defendant an opportunity to seek independent legal or financial advice, contrary to the ASIC Act and the Consumer Credit Code.

The application was heard on 25 October, following my refusal of an application by Ms Mullins for an adjournment. For part of the hearing the defendants were represented by Ms Gawander, solicitor, of Snedden Hall and Gallop, who withdrew by leave before the hearing was complete. Mr Mullins was not present during the morning but attended during the afternoon. The case for the defendants consisted of affidavits by each of them, upon which they were cross-examined.
In an affidavit affirmed on 8 September 2006, Ms Mullins deposed that she was living at the Fraser property, sharing the house “with members of my indigenous extended family, including an elderly lady.” Mr Mullins, she said, was living at the Killara property, “with members of his indigenous extended family, including a family with children.”
She said that she did not contest the action when first served because she was embarrassed and unsure what to do. She acknowledged that she should have sought legal advice immediately. She had been in the course of changing jobs after twenty years. She was threatened with unrelated litigation for breach of privacy. She was stressed because of issues relating to Mr Mullins’ criminal prosecution. Committal proceedings against him had been heard for a week in March 2006: both of them had attended court each day.
Ms Mullins complained in her affidavit that the Bank “did not do a due diligence on the Willoughby newsagency … prior to lending money for the purchase of the business”. She also complained that after approval of the loan application, the interest rate was increased before settlement. She claimed that this increase turned a marginal deal into an unworkable one. Because of the last-minute change in the interest rate, she said, the business was unable to meet its loan repayments “from day one”. Payments could have been made only if the defendants had borrowed more money or neglected to pay tax and trade creditors.
Ms Mullins deposed that she was not given any advice or opportunity by the Bank to seek independent financial or legal advice before signing the loan documents. When she and Mr Mullins realised that the business was in financial trouble, she approached the Bank and attempted to renegotiate the repayment arrangements and to sell the Killara unit. She and Mr Mullins had a meeting with Mr Aldo Bert of the Bank in Sydney on 28 July 2005. She said that they reached a verbal agreement to restructure the loan repayments and for the Bank “to provide further financial accommodation to the business to allow for it to meet its outstanding trade creditors and to be sold along with the Killara unit.” After the meeting, she said, she “attempted to finalise the agreement” and wrote to the Bank and “set out the proposed terms” in a letter of 1 August 2005. She deposed to a telephone conversation with Mr Bert on an unspecified date, presumably in late September or early October 2005, in which she states that Mr Bert said words to the following effect:

The Bank has decided to exit your account. The Bank does not want to be involved with criminals and in the Bank’s experience most if not all Aboriginal-owned or controlled businesses failed because the owners are criminals and this is another example of this.

She says that this was the last conversation she had with Mr Bert, and that the Bank did not answer further correspondence.

The actions by the Bank resulted, she said, in the newsagency business defaulting in payment of an operating debt to its major supplier, John Fairfax Pty Ltd. The value of the business was lost. Mr and Ms Mullins were unable, she says, to arrange for an orderly sale. In January 2006 the Bank appointed a receiver to the business.
Ms Mullins also complained in the affidavit that after they had found a tenant for the Killara property, the Bank served the tenant with a notice to vacate, resulting in a loss of rental income.
In cross-examination, Ms Mullins said that at the time of the loan application her salary with the ANZ Bank was a little less than $90,000 per annum. Her responsibilities as a property finance manager included maintaining the existing customer base of the Bank, and looking for new property deals. In relation to loan applications, she would analyse the feasibility of the project and financial information provided by the customer, and prepare an advice to her superiors, recommending for or against the application. The feasibility analysis would include review of a valuation report and feasibility study. The projects she dealt with included house and land packages, multi-density unit developments and land subdivisions. She had been employed by the ANZ Bank since 1985. She remained in that employment until March 2006, when she moved to St George Bank as senior manager, credit and administration. Over her years with the ANZ Bank, she had served in a number of capacities including graduate trainee, securities clerk, business banking officer, commercial accounts officer and junior manager, as well as property finance manager. Within the ANZ Bank in Canberra there were three or four other property managers at her level. At the time she made the application to the plaintiff Bank for a loan, she agreed that she was intimately familiar with commercial loan applications.
She was asked to clarify the position about the tenancy of the Killara property. She said that the tenant had been in occupation for about three months in mid-2005 at a gross rent of $1,600 per month. She conceded that none of the rent had been paid to the Bank in reduction of the outstanding amount. Her explanation for this was that the Bank did not agree to the proposal she had set out in her letter of 1 August 2005. She said as part of her answer “there was no consent to the agreement”. I take it from this that she was saying that the offer to pay the rent direct to the Bank was part of a composite offer contained in that letter which the Bank did not accept.
Mr Mullins affirmed an affidavit on 21 September 2006, generally supporting the assertions made by Ms Mullins in her affidavit. Much of the wording of his affidavit is identical to that of Ms Mullins. He asserted that he too did not contest the action initially because he was embarrassed and unsure of what to do. He said that he had been “suffering from depression and associated medical and psychological issues since mid-2002, caused by the severe strain he [was] placed under at that time because of a sustained series of racist attacks and physical assaults by a subordinate.”
He also asserted that during negotiations with Mr Bert of the Bank, Mr Bert mentioned his aboriginality in pejorative terms. Since then he had been “in a complete state of mental breakdown and unable to deal with any personal issues”. During the negotiations with the Bank Mr Mullins said that he was affected by having recently had his employment with the ACT Public Service terminated, in the context of allegations that he had falsified his curriculum vitae to obtain employment.
Mr Mullins stated in the affidavit:

The NAB was made aware of this. I was upfront and told Mr Booker of the NAB that he [sic] was unable to make an informed decision about the loan details because of my current state of mind. Mr Booker advised me to rely on the advice of Janet Marguerite Mullins who is neither an accountant nor a lawyer nor at arm’s length from the transaction. Neither Janet Marguerite Mullins nor I were given the opportunity or advice from the NAB to seek independent financial or legal advice prior to signing the loan documents.

Mr Mullins deposed that in July 2005 he had been charged with criminal offences stemming from his dismissal from the ACT Public Service, the charges being reported on ABC News in the ACT. He said that Mr Bert had asked him about this some time after the meeting at the Bank in Sydney on 28 July 2005. He had told Mr Bert that he had been charged but would be defending the charges. He had also told Mr Bert that he was an indigenous Australian and that his dismissal and the subsequent charges were racially motivated, and influenced by a public interest disclosure he had made to the ACT Government about fraud which had come to his attention as Commissioner for ACT Revenue. He said that he had told Mr Bert that the Bank might be implicated in an investigation into missing ACT Government property. Mr Bert, he said, from that point on had refused to communicate with him or with Ms Mullins.
Mr Mullins, who gives his address in the affidavit as the Killara unit, asserts in the affidavit that if the Bank had not served the tenant with a notice to vacate, the tenant would still be in occupation, paying rent and offsetting the commitment of the defendants to the Bank. This assertion appears inconsistent with the occupation of the property by Mr Mullins and members of his extended family.
Mr Mullins also asserted in the affidavit his belief that the Bank was influenced by one of its substantial ACT customers, a Mr Spiro Konstantinou, to apply pressure on him and Ms Mullins in retaliation for the public interest disclosure, which related, among other issues, to the customer’s business activities. He deposed to a telephone discussion with the manager for the Bank in Canberra whom he had dealt with about the loan, Mr Booker.
In cross-examination, Mr Mullins said that he had been living at the Killara property since about March 2006, though not paying anything in the nature of rent. He was asked about a curriculum vitae which had been annexed to Ms Mullins’ affidavit. He agreed that it was his curriculum vitae, probably prepared by Ms Mullins but with his knowledge. He confirmed that he had been a policy manager in the ACT Revenue Office from about June 2001, and had been appointed Commissioner for ACT Revenue in April or May 2002. He had occupied that position until November 2003, when he was directed to undertake a review of the ACT land rates system. He left the ACT Public Service in January 2004. Thereafter, he said that he had run the newsagency at Willoughby for eighteen months but otherwise had not been in employment.
He was asked about a copy of a letter over his signature to the Chief Minister dated 27 June 2003 which included the following:

After leaving school in 1981 I enrolled in a Bachelor of Arts degree at the University of Sydney which I completed in 1984 and further completed a Diploma of Education in 1986…

I enrolled at the City College of Business Management in Sydney which offered University of London qualifications in Law and Science (Economics). I successfully completed Bachelors’ degrees in Law and Science (Economics) and a Master’s degree in Science (Accounting and Finance) through City College and was admitted to these degrees externally from the University of London.

Mr Mullins said that he felt that he would be disadvantaging himself in other proceedings if he were to answer the questions. I explained to him that he was entitled to refuse to answer a question if the answer might tend to incriminate him, and he declined to answer the question on that ground.

He was also asked about his tax returns for 2002, in which his occupation was stated as economist, and for 2003 in which it was stated as lawyer. He expressed some surprise, saying that he would have thought that it would have said public servant. He sought to explain the apparent anomaly by saying that the occupations were chosen from “drop down boxes”, which I take it means that the computer offers a choice of occupations from which the correct one can be selected at the click of a mouse. He also said that the returns were completed by a tax agent and that he would have done no more than sign them. He declined to answer questions about the accuracy of the occupations, claiming privilege against self-incrimination.
He was adamant that he had had only one meeting with Mr Booker, that being on 15 June when the loan and mortgage documents were executed. He also maintained that he had informed Mr Booker that he was under the care of a psychologist, and that the Fraser property was on Wiradjuri land, so that he had a spiritual attachment to the property.
He was also sure that he had told Mr Bert at the meeting on 28 July 2005 that he was an indigenous person. He recalled that this came up because he was wearing an indigenous flag lapel badge. He recalled some discussion with Mr Bert about the property being associated with his extended indigenous family.
Mr Mullins was cross-examined about a website, He denied that he operated the website. He knew of its existence but would not agree that it had been put on the internet with his authority. He had not posted anything on the site, and would not accept that he had permitted documents in his possession to be posted on the site. It was put to him that there was a photograph of him on the home page of the website. His response was that he knew nothing about it and had not looked at the website for a week or two. He was shown a computer printout, and agreed that his photograph was there. It was put to him that in his earlier answers he had been seeking to distance himself from the website. He said that he had not said that, nor had he claimed ownership of it. All he had said was that he had no control over the website. He was asked whether it was a coincidence that the website included material about his allegations of fraud involving the Australian Capital Territory and his criminal prosecution. He responded that he believed that Commonwealth authorities had taken the information on the site at face value and were conducting investigations into it. He said that he could not assist as to who operated the website. He was asked whether he was saying that he did not know who operated it. His response was “Not exactly, no. There are a number of people out there who are disappointed with corruption and I’ve been to a lot of human rights organisations, a lot of anti-corruption organisations, a lot of politicians, raised a number of issues with these people”. He agreed that documents published on the website included allegations which he supported. He said that he did not know the name of the website administrator. He was asked whether Mr Philip Hart might have any association with the website. He said that Mr Hart was a computer engineer and “might be the guy that uploads it”. Counsel for the plaintiff then put to him that he was being “coy” in his answers and not telling the complete truth. He replied “I would not know how to upload a document to a website full stop”.
I invited Mr Mullins to expand on the answers he had given in cross-examination, as the equivalent of re-examination had he been represented. He explained in a little more detail what the website was about, and expressed his belief that Mr Konstantinou had submitted what amounted to a fraudulent tender for an ACT Government project. He mentioned his suspicions that Mr Konstantinou had brought pressure to bear on the Bank in relation to the proceedings against him.
In his curriculum vitae, in evidence as part of an annexure to Ms Mullins’ affidavit, Mr Mullins sets out his relevant employment experience, including periods working in the insolvency division of accounting firms Hamiltons and Bird Cameron in Sydney, and with Tress Cocks and Maddox, solicitors in Sydney. He had also worked as a tax manager with Ernst and Young in Sydney. He had been a tutor in commercial law in the graduate law programme at the University of Canberra, where he had also been a project officer on a project relating to insolvency.
No medical or psychological evidence was adduced to support his assertions about his psychological condition or treatment.
The Bank relied on affidavit evidence by Mr Booker and Mr Bert, both of whom were cross-examined orally. Mr Booker has been employed in the banking industry for twenty-three years and has spent the last ten years in lending. He was the Bank’s “relationship manager” who dealt with the application by Mr and Ms Mullins for loan finance.
He says that he first met Ms Mullins in March 2004. She told him that she and her husband intended to buy a newsagency at Rose Bay in Sydney for $445,000. They were looking for a loan to assist with the purchase. She was a business banking manager with the ANZ Bank. She and her husband had two properties to secure the loan, the Fraser house and the Killara investment property. Both were mortgaged to the ANZ Bank to secure a housing loan of $590,000. They wished to pay out the ANZ Bank, offer the National Australia Bank first mortgages on both properties, and borrow enough to pay out the ANZ and buy the business. Mr Booker asked her to complete an application form and provide supporting documentation. She provided cashflow forecasts and profit-and-loss statements for the business in April 2004.
Later in that month, Mr Booker said that he had a meeting with the defendants, at which Mr Mullins told him that he was a qualified accountant and had been practising for about twenty years. He specialised in insolvency and had an understanding of how newsagencies operated. Ms Mullins told him that she was a business banker employed by ANZ Bank. She said that she did not want to finance the purchase through her employer because she wanted to keep her private banking arrangements separate from her work. Mr Booker formed the impression that Mr and Ms Mullins were intelligent and articulate and had spent a lot of time evaluating the business.
In late May 2005, Ms Mullins told Mr Booker that the Rose Bay Newsagency purchase had fallen through, but that she and Mr Mullins had arranged to purchase another newsagency, at Willoughby, for the same price. She provided him with financial documentation about the Willoughby Newsagency, including a cashflow forecast which she had prepared. She said that it was based on trading figures supplied by the vendor, which she was satisfied were accurate. She and Mr Mullins were confident that their cashflow budget was realistic and that they would have the capacity to service the borrowings.
Mr Booker deposed that in assessing the loan application, he had taken account of the fact that the expected annual net income of Mr and Ms Mullins, including rent from the Killara property, significantly exceeded their loan commitments. She had told him that she intended to resign from her job and move to Sydney to assist Mr Mullins in running the newsagency, at which time they would sell the ACT property to reduce the principal. This would also give her access to $100,000 of superannuation funds, which she could use to decrease borrowings further. Mr Booker recommended to his superiors that the loan be approved.
Mr and Ms Mullins had fallen into arrears in respect of the home loan in December 2004, five months after settlement. They had not made any repayments since then. Their business loan had gone into arrears in March 2005. They had made no repayments since May 2005, and had failed to provide the Bank with interim quarterly monthly accounts and copies of tax returns, a condition of approval of their loan application. He had telephoned them on many occasions. Usually he would leave a message but his call would not be returned. Sometimes he would make contact but would be told that it was not convenient for them to talk at the time. They had regularly promised to make payments but failed to do so.
Mr Booker denied that he had suggested to Mr Mullins that he rely on Ms Mullins for advice about the loan. He said that Mr Mullins had never told him that he was unable to make an informed decision about the loan. On the contrary, he had represented himself as a qualified accountant of twenty years’ experience, specialising in insolvency, and he had at all times been lucid and articulate. Mr Booker had had no concerns about the ability of Mr Mullins to make reasoned decisions in the running of a newsagency. He was sure he would have advised Mr and Ms Mullins to obtain legal advice about the loan documents, because this had been his usual practice for ten years, though he could not specifically recall giving that advice.
He deposed that he had been completely unaware that Mr Mullins’ employment with the ACT Public Service had been terminated or that he had been under psychological treatment as a result of racial vilification or assault.
A considerable volume of documentation and correspondence was in evidence. The initial funding proposal prepared by Mr and Ms Mullins dated 29 March 2004, in respect of the purchase of the Rose Bay Newsagency, bears the hallmarks of having been prepared by someone with a considerable level of sophistication in financial matters. The Bank’s form of application for business finance was completed in Ms Mullins’ handwriting and signed by her on 15 April 2004 but not signed by Mr Mullins. The latter sought to make something of this in his submissions to the Court, seeking, I thought, to drive something of a wedge between his position and that of Ms Mullins. Suffice it to say that I am far from satisfied that Ms Mullins was acting in her own interests and without any authority from Mr Mullins. On the contrary, I have no doubt that the absence of his signature from the documentation arose simply from his physical unavailability on the day it was signed.
Mr Booker gave oral evidence. He said that he had had two meetings prior to the loan being drawn down at which both Mr and Ms Mullins were present. The first meeting was to discuss the loan application for the newsagency purchase, and the second was to sign the loan and mortgage documents. Mr Mullins had at no time said anything about not being in a position to make an informed judgment about the loan, and there had been no mention of his aboriginality, of his spiritual attachment to the Fraser property, of the property being on Wiradjuri land, or of his grandmother having been born in the vicinity. He was certain of this, and said that he would undoubtedly have remembered any mention of those matters.
Mr Booker was cross-examined by Mr Mullins. He was unsure of the date of his earlier meeting with the defendants, and had no diary records of it. He conceded that only the signature of Ms Mullins appeared on the Bank loan application form of 15 April 2004, and that Mr Mullins had not signed it. Mr Booker was unable to give a satisfactory explanation for this, saying that he must have forgotten to have Mr Mullins sign it when he was at the Bank. He agreed that it would have been normal Bank procedure to have Mr Mullins sign the form as well as Ms Mullins, and conceded that he had not complied with this procedure.
He was asked about the loan agreement documents, which bore the signatures of Mr and Ms Mullins as borrowers, and Mr Booker as witness to both signatures, and were dated 15 June 2004. Mr Booker said that if the Bank had followed its usual practice, the security documents would have been sent to the borrowers at the Fraser address about two weeks before they were to be signed. Mr Mullins asked Mr Booker whether he was aware that Mr Mullins was not living at the Fraser address and had had to travel from Sydney to Canberra to sign the documents. Mr Booker said that he was unaware of this, but was not surprised by it as he knew that Mr Mullins was in the process of buying the newsagency in Sydney. He was unaware that Mr Mullins was living at the Killara property and assumed that his principal address was still at Fraser.
Mr Booker annexed to his affidavit a copy of a letter dated 7 June 2004 addressed to Mr and Ms Mullins at the Fraser address. The letter informed them that the loan had been approved, set out details of the loan and attached a letter of offer which required their written acceptance. Mr Booker did not pretend to have a personal recollection of this letter being sent out. I accept that the best evidence is the copy of the letter annexed to the affidavit, from which I infer that the letter was sent to the Fraser address within a day or so of 7 June 2004. I accept that Mr and Ms Mullins signed it at the Bank, in Mr Booker’s presence, on 15 June 2004. I accept that on the same day, they signed, in Mr Booker’s presence, the facility agreement. I accept that Mr Mullins may not have seen these documents until the meeting at the Bank when they were signed. I also accept that Mr Mullins had not, prior to 15 June, signed any document at, or addressed to, the Bank in connection with the loan.
Mr Booker conceded in cross-examination that he had no specific recollection of advising Mr Mullins to obtain independent legal or financial advice, though he said that it was his invariable practice to do so.
Mr Booker said that it was not the Bank’s policy or practice to undertake a due diligence investigation in relation to a loan application of this kind, even where the Bank was advancing the entire purchase price and the customers were contributing nothing. He said that the Bank’s practice was to take into consideration the background of the applicants and the information they provided. In the present case he had taken account of the fact that Mr Mullins was an experienced insolvency practitioner and Ms Mullins was a senior business banking manager with another bank.
Mr Booker denied knowing, or knowing of, a customer of the Bank named Konstantinou. He said that he had first encountered Mr Konstantinou’s name when he read the affidavits of the defendants.
On 25 May 2004, Ms Mullins wrote to Mr Booker, apparently on behalf of herself and Mr Mullins, informing him that their offer to purchase the Rose Bay Newsagency had not been accepted. They had been unable to meet the vendor’s time frame and the vendor had accepted another offer. They had, however, been successful with an offer to purchase the Willoughby Newsagency for the same price, with a settlement date of 25 June 2004. Ms Mullins explained in the letter that the Willoughby Newsagency was similar in size, operation and configuration to the Rose Bay Newsagency. She provided figures she had obtained from the vendors about its cashflow and profitability. She wrote a follow-up letter on 7 June 2004 to Mr Booker, attaching a listing of chattels included in the purchase and providing contact details for discharge of the existing mortgage with ANZ in Canberra. She concluded “As discussed, we are running to a very tight time frame and I am concerned that any further delays will derail our purchase program”.
On 10 June 2004, she sent a fax to Mr Booker setting out details of superannuation and other life insurance cover for herself and Mr Mullins. She said that she had requested their tax agent to provide tax returns for 2001, 2002 and 2003. She asked whether it was possible to sign the documents the following Tuesday, ready for settlement the next week. Copies of the tax returns were forwarded by fax on 18 June 2004.
The formal letter of approval of the loan from the Bank to Mr and Ms Mullins was sent on 18 May 2004 to the Fraser address, the stated address for both in the earlier correspondence and documents. Both Mr Mullins and Ms Mullins signed the loan documentation on 15 June 2004, Mr Booker witnessing their signatures.
On 21 June 2004, Ms Mullins sent an email to Mr Booker confirming that settlement was booked in for that afternoon, and giving account details for the deposit of funds on settlement. She concluded “I am very appreciative of your assistance in meeting our timetable, and am sorry to be a nuisance”.
Settlement duly took place on 21 June. Mr Booker wrote to Mr and Ms Mullins on that date confirming details of transfers of the funds on settlement, and thanking them for banking with the Bank.
By November 2004, payments were behind. On 11 November Mr Booker sent an email to Ms Mullins asking for trading results to the end of September, and noting that Mr and Ms Mullins were currently in breach of the mortgages. He concluded “It is current bank policy that noncompliance letters are to issue after ten days overdue so I thought I would give you a heads up before sending the letter. Any problems please let me know”. Shortly afterwards, Mr Booker sent to Mr and Ms Mullins “letters of non-waiver” confirming that they had failed to meet their contractual obligations: this could have serious consequences for them and could result in legal action; the Bank did not waive its legal rights in relation to any breach of obligation, even if the Bank did not take any action, or delayed in exercising a right, and even if the defendants relied on the Bank’s conduct and acted to their detriment.
The September figures were provided, but the default continued. There was further email correspondence through to the middle of the following year, with the Bank pursuing the arrears. Mr Bert in his affidavit deposed to a meeting with the defendants on 28 July 2005. By that time the home loan was seven months in arrears and the business loan three months in arrears. Mr Bert said that during the meeting, the defendants had accepted that they were in substantial arrears and did not have the capacity to service their loans. They had given a number of reasons for this: the business was not performing as well as they had expected; stock had been stolen at about the time they took over; they had only recently managed to find a tenant for the Killara property; and they were expecting a tax refund of about $50,000 for the 2004 financial year. They had not yet lodged their returns because of a dispute with their accountant as to how the returns were to be presented. They had said that they had placed the newsagency business on the market and had two interested purchasers. They had accepted that they would have to sell the business and the Killara property and they were also considering selling the house in Canberra. They had said that they wanted to formulate an “exit strategy” and had asked Mr Bert to stop the Bank’s legal action. At the end of the meeting, Mr Bert’s evidence is that he told the defendants that the Bank would consider any proposal they wished to make, but would continue its legal action against them and otherwise reserved all of its legal rights.
Mr Bert deposes that he spoke to both the defendants by telephone the day after the meeting, 29 July 2005. He told them that the Bank intended to continue with the legal action against them. On the same day he wrote confirming the conversation. A copy of that letter is in evidence. It was expressed to be without prejudice. In the letter, Mr Bert confirmed that the Bank would continue its legal proceedings in relation to the loans, and that interest and fees would continue to accrue. He recommended that the defendants continue to make deposits to the accounts. He said that the Bank would accept all deposits, without prejudice to its rights in relation to the existing defaults.
This letter crossed with a letter written by Ms Mullins on behalf of Mr Mullins and herself dated 1 August 2005. That letter included the following:

Thank you for meeting with us on Thursday 28 July 2005. We are disappointed that the Bank has decided to proceed with a selldown of our assets immediately following this meeting. Notwithstanding this, and as discussed, we seek the Bank’s forbearance in allowing an orderly exit from our indebtedness to the Bank. This will ensure that our commitments are met in full.

. . .

We regret the situation that has arisen, and apologise for our tardiness in attempting to rectify this matter. We acknowledge your concerns regarding payment of the outstanding amount and appreciate your tolerance in this matter.

. . .

We seek to renegotiate the terms of the housing loan on the ground of hardship, as set out in the Consumer Credit Code. Pending sale of Killara and the business, we seek the Bank’s consent to vary our repayment arrangements from principal and interest repayments to interest only, with a three-month moratorium to provide time for sale and settlement to occur. We undertake to meet the monthly interest costs on each loan.

. . .

We would like to work with the Bank, and sincerely request that you review your decision in light of our discussions of Thursday 28 July and this letter.

On 20 September 2005 Ms Mullins wrote to Mr Bert expressing concern that she had not received a response to the letter of 1 August. Mr Bert replied the following day. He said that before the Bank could make any decision, the defendants would have to provide financial information supporting their request. He asked for financial statements for the newsagency, and copies of tax returns for each of the defendants, for the 2004 and 2005 financial years. He reiterated that the Bank reserved all of its rights, entitlements and remedies arising from the default.
At about the same time, Mr and Ms Mullins complained to the Banking and Financial Services Ombudsman. The Ombudsman’s office asked the Bank for a response. Mr Bert responded by letter of 18 October 2005, and wrote a lengthy letter on the same date by way of response to Mr and Ms Mullins. Mr Bert repeated that the Bank was not prepared to consider the hardship issue in the absence of the financial information previously requested. In the absence of that information, he said that the Bank intended to continue with its enforcement action once the Ombudsman had finalised their complaint.
The Ombudsman wrote to Ms Mullins on 7 December, asking for the financial information which the Bank had requested by 21 December. No reply was received, and the Ombudsman’s office closed its file.
Mr Bert in his affidavit denied telling the defendants that the Bank had not done “a due diligence” in respect of the Willoughby Newsagency purchase prior to approving the loan. He denied that they informed him that Mr Mullins was “an indigenous Australian”, or that he had been charged with criminal offences. He specifically denied having spoken the words attributed to him at paragraph 14 above. He denied mentioning Mr Mullins’ aboriginality in pejorative terms, or even being aware of it. Mr Mullins had said nothing to him about any investigation into missing ACT Government funds or assets, or about the Bank being mentioned in the allegations.
Mr Bert was cross-examined by Ms Mullins. He said that at the meeting of 28 July 2005, most of the talking had been done by Mr Mullins. He could not recall Ms Mullins saying much. He was adamant that Mr Mullins had mentioned nothing about aboriginal origins. It was put to him that Mr Mullins had been wearing an aboriginal flag lapel badge at the meeting. Mr Bert said that he did not notice this, though he accepted that it might have been correct. He recalled Mr Mullins accusing the Bank of not having conducted a proper due diligence investigation. He had responded that the Bank had relied on the information provided by Mr and Ms Mullins, and on their qualifications and experience. He said that the Bank had accepted the figures provided by Mr and Ms Mullins, and had undertaken an assessment of the credit risk on the basis of those figures.
Counsel for the plaintiff formally objected to a number of paragraphs in the affidavits affirmed by each of the defendants. I indicated that I would deal with those objections in these reasons rather than immediately. I have come to the view that a number of the objections are well founded, but, as I said during the hearing, I am inclined to allow some flexibility to litigants in person which would not be appropriate where all parties are legally represented. None of the passages objected to has been taken into account in arriving at my decision to the disadvantage of the Bank, and in the circumstances I do not propose to go through the formal process of striking out any portions of the affidavits.
I remind myself of the nature of my task in determining an application of this kind. Despite the course that the hearing of this application took, with affidavit and oral evidence on both sides, it is not my task to determine the factual issues as though this was a hearing of the action itself. In the words of P. W. Street CJ in Simpson v Alexander (1926) 26 SR(NSW) 296 at 301:

…in considering whether a defendant, who seeks to be let in to defend, discloses a defence upon the merits, the Court or a judge is not to try the issues of fact arising upon the alleged defence. That is for the jury at the trial. All that is required on an application of this kind is that the defendant should swear to facts which, if established at the trial, will afford a defence; and should establish his bona fides in setting up that defence. Although, however, issues of fact cannot ordinarily be gone into on an application of this kind, and although it is not usual to go beyond the evidence put forward by the defendant for the purpose of disclosing a defence on the merits, there is, so far as I know, no inflexible rule of law or of practice preventing affidavits in answer from being received.

As Hope JA expressed it in Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 at 507:

…evidence can be received, by cross-examination or otherwise, as to the bona fides of the applicant in seeking to rely upon the defence, even though the evidence adduced relates to the issues which would be determined if the matter went to trial. However the question to which this evidence is directed is not simply whether the applicant has shown a defence on the merits; it goes rather to the composite question whether the applicant has shown a bona fide defence on the merits. If the judge hearing the application concludes that the applicant has deliberately lied about the alleged defence and is thus dishonest in raising it, the applicant would fail to establish that he had a bona fide defence on the merits. But if in such a case the judge merely concluded that he preferred the evidence of the respondent to that of the applicant, or anything as to credit short of a disbelief by the applicant in the facts he relied on to found the defence, he would not on that account alone be entitled to find that the applicant had failed to establish that he had shown a bona fide defence on the merits. If he did so, he would be trying the issue to be determined at the trial, and this would be an error of law.

On the hearing of an application of this nature, it seems to me that I should accept, on a provisional basis, the evidence of Mr and Ms Mullins, except to the extent that I can be reasonably sure that their evidence would not be accepted on the hearing of the action.
I do not draw any inference against Mr Mullins from his refusal to answer some questions on the ground that his answers might tend to incriminate him. He is facing criminal prosecution, in which the Crown will be obliged to prove every aspect of its case against him beyond reasonable doubt. It would be inappropriate for me to use against him in these proceedings the exercise of his discretion to decline to answer any question, when an answer might have negative implications for him in the criminal proceedings.
I remind myself that in hearing an application of this nature, it is not necessarily appropriate for me to arrive at findings of fact. Having said that, I think that Mr Booker may well have been mistaken in his recollection that Mr Mullins was physically present at a meeting of the Bank with him on or about 15 April 2004. Although I am generally inclined to accept the evidence of Mr Booker and Mr Bert, both of whom were frank about their less-than-perfect recall of the events surrounding the Bank’s dealings with the defendants, I am sure that Mr Booker at the time of his initial discussion with Ms Mullins would have been seeing many customers of the Bank in connection with loan applications, and would have seen hundreds of customers since then. I am inclined to accept that Mr Booker saw Mr Mullins for the first time on 15 June 2005 when he attended with Ms Mullins to sign the security documents.
I have a comfortable satisfaction that if Mr Mullins had informed Mr Booker, as he says he did, about his Aboriginal background, his dismissal from his employment with the ACT Public Service, his psychological symptoms and treatment, and his prosecution for alleged criminal offences, Mr Booker would have remembered those matters. Alarm bells, I am sure, would have rung in his mind as to whether the loan was an appropriate one for the Bank to be considering. I am in no doubt that these were matters which Mr Booker would have seen as significant and to be taken into account by the Bank in deciding whether or not to approve the loan application.
As to the meeting of 28 July 2005, it seems to me that the account of that meeting by Mr and Ms Mullins is unlikely to be accurate. The documentation and correspondence at the time of and immediately following that meeting are not disputed. To the extent that they are inconsistent with the evidence of the defendants, it seems to me that the correspondence is likely to be accepted on a hearing of the action as more likely to reflect what happened at the time than their oral evidence some years later.
For these reasons, it seems to me extraordinarily unlikely that the evidence of Ms Mullins that Mr Bert used words to the effect set out in paragraph 16 would be accepted.
It is clear from the documents in evidence that the Bank was initially approached by Ms Mullins on behalf of herself and her husband, asking for a loan for the purchase of a newsagency. The proposal could be described as a professional and well-documented one. Ms Mullins presented as a manager with another bank, apparently experienced in and conversant with business dealings of such a kind. Mr Mullins was held out by the couple to be an insolvency practitioner. He was at the time the Commissioner for ACT Revenue, a senior position within the ACT Public Service and one consistent with a high degree of financial sophistication. The couple already owned two residential properties. There was no reason for a bank manager in Mr Booker’s position to feel any concern that they might be considering entering an unwise investment or getting out of their depth.
The complaint of the defendants that Mr Booker should have arranged a “due diligence” on the purchase seems to me entirely misconceived. If anyone can be criticised for not having taken that step, it must surely be the defendants. They were buying the business at a figure to which they were agreeing. I accept Mr Booker’s evidence that it was not the practice of the Bank to undertake such an investigation in circumstances of this nature. His responsibilities would not have gone beyond assessing any risk to the Bank in the commercial transaction it was proposing to enter with the defendants.
I cannot make a positive finding that Mr Booker advised Ms Mullins to obtain legal advice before signing the loan documents. I accept that it was his usual practice to do so. She says that he did not. He may well have done so, but I cannot be satisfied on the balance of probabilities that he did or did not. I am satisfied that he gave no such advice to Mr Mullins, because of my finding that he met and spoke to Mr Mullins for the first time on the day the documents were executed. In any event, it does not seem to me that it matters one way or the other. The Bank did not, in the context of its relationship with Mr and Ms Mullins, owe them any duty to advise them to obtain independent legal advice before signing the documents.
Their complaint, in any event, seems to me to relate to a failure to advise them to obtain commercial rather than legal advice. The defendants do not suggest that there was anything about the legal effect of the documents to their disadvantage. Their argument, though they have not expressed it in so many words, must be that the Bank should have advised them to get advice as to the commercial and financial viability of the purchase. I am satisfied that before they signed the mortgage documents, they had committed themselves to the purchase by entering a contract with the vendor. They did not seek any advice from the Bank before doing so, and the Bank owed them no duty to provide them with commercial advice or to advise them to obtain commercial advice.
On the question of the duty owed by a bank to a borrower, I apply the principle stated by Meagher JA in Beneficial Finance Corporation Ltd v Karabas (1991) 23 NSWLR 256 at 277, where his Honour said, referring to earlier authority, that there is no duty on a financier to provide a borrower with any commercial advice, although if any such advice was tendered the financier might be found to have assumed a duty of care. The question was considered more recently by Barrett J in Timms v Commonwealth Bank of Australia [2004] NSWSC 76. His Honour noted that cases in which a Bank lending to a customer assumed a fiduciary liability were rare, and arose only where the Bank’s role extended beyond that of finance provider into the area of advice. In the case before his Honour, the fact that the Bank had information suggesting that the customer was paying too much for a business or property and that the purchase might prove unprofitable was of itself insufficient to give rise to such responsibility. His Honour found also that the Bank was not liable in negligence, there being no duty of care on the part of a bank lending to a customer in a normal commercial transaction.
The defendants have drawn my attention to a decision of Newman AJ, Permanent Trustee Australia Ltd v Gusevski [2005] NSWSC 1281. This was an action under the NSW Contracts Review Act 1980, which does not have an equivalent in the Territory, in which his Honour set aside a mortgage in circumstances where the lender had failed to examine the capacity of the borrower to make agreed repayments of a loan and had approved the loan only by reference to the value of the property. The decision seems to me of limited relevance in the present circumstances. It can be distinguished on its facts. In the present case, the figures put forward by the defendants showed ample capacity to service the loan. In any event, the order made by his Honour was made under a statutory power not available to this Court.
Any relationship between the Bank and Mr Konstantinou is entirely irrelevant to the Bank lending money to Mr and Ms Mullins, and to the Bank seeking to recover possession of the properties from them following their default under the loan agreements. Mr Konstantinou may well be a major customer of the National Australia Bank in Canberra, and he may have reason to be negatively disposed towards Mr Mullins, but there is no evidence capable of raising even a prima facie case that the Bank’s actions against Mr and Ms Mullins have been in some way influenced by pressure from Mr Konstantinou.
It is a major part of Mr and Ms Mullins’ case for setting aside judgment that at the meeting of 28 July 2005 an agreement was concluded between them and the Bank effectively neutralising any earlier default. It is clear from Ms Mullins’ letter to the Bank of 1 August 2005, and from the Bank’s letter over Mr Bert’s signature of 29 July 2005, that no agreement was concluded, and that the Bank at all times reserved its rights arising from the defaults. The defendants are unable to point to the precise terms of the agreement they allege was reached on 28 July 2005: taking this issue at its most favourable to them, one would look at the arrangements set out in their letter of 1 August. If this was said to be their proposal to which the Bank agreed, I need only say that it is common ground that they took no steps to adhere to their side of the bargain. They paid no rent to the Bank, they took no steps to sell the Killara property, and they made no other payments to the Bank.
I am satisfied that no agreement was reached at the meeting on 28 July.
Part of the defendants’ case in the present application relates to their entitlement to relief under the Consumer Credit Code. The Code applies in this Territory by virtue of the Consumer Credit Act 1995. It empowers a court in certain circumstances to change a credit contract and to stay enforcement proceedings where a debtor can establish hardship. I am satisfied that the Code has no application to the present case. Section 6 of the Code provides that it applies to credit provided wholly or predominantly for personal, domestic or household purposes. The credit provided by the Bank in this case was provided solely for the purchase of a business.
Additionally, the hardship power is not available where the credit provided exceeds an amount prescribed by the regulations. Regulation 22A of the Consumer Credit Regulation 1995 fixes the ceiling at 110% of the amount of the average loan size for new dwellings in New South Wales. At June 2004, the average loan size for the purchase of a new dwelling in New South Wales was $292,200. The loan to the defendants very considerably exceeded 110% of that figure. Accordingly the Consumer Credit Code has no application.
The defendants complain that the Bank increased the interest rate shortly before settlement, from the rate at the time of the approval of the loan. The indicative rate at the date of the letter of offer was 8.75%. By settlement it had increased to 8.8%. However, the loan was at an agreed fixed interest rate for the first year, so that this increase did not apply for that year. I am satisfied that under the terms of the agreement, the Bank was entitled to increase the rate from the indicative rate as it did, and I am equally satisfied that by reason of the fixed interest period, the increase had no practical impact on the defendants.
None of the other grounds upon which the defendants rely in their application could, if established, defeat the Bank’s claim.
It is essential for the defendants to succeed in an application of this kind for them to establish a defence on the merits, as well as explaining the delay in delivering a defence in time, and in making the application to set judgment aside. Where a defendant can do so, the Court has a discretion which is to be exercised after balancing the competing interests of the plaintiff and the defendants, and determining whether or not the interests of justice require that the defendants should be permitted to contest the claim. In exercising the discretion, the Court is required to evaluate the apparent prospects of success of the proposed defence.
In the present case, I am not satisfied that the defendants have any defence on the merits to the claim by the Bank. I see this as by far the most important consideration. Having arrived at this conclusion, it is unnecessary for me to consider whether, if a good defence on the merits had been demonstrated, the explanation for the delay would be adequate.
The application by the defendants will be dismissed with costs.
I am minded to allow the second defendant a short extension of the existing stay of the order for delivery of possession of land in relation to the Fraser property, to enable her to move her belongings out of the house and to find some affordable short-term accommodation whilst she looks for something more permanent. I shall hear the parties as to the length of the extension.

I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 1 December 2006

Counsel for the plaintiff: Mr D J C Mossop

Solicitors for the plaintiff: Dibbs Abbott Stillman

First defendant: In person

Second defendant: In person

Dates of hearing: 25 October 2006, 2 November 2006

Date of judgment: 1 December 2006.