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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] ACTSC 116
Decision Date: 1 DECEMBER 2006

CaseChat Overview and Summary

The case of National Australia Bank v Mark Patrick Mullins involved a dispute between the plaintiff, National Australia Bank, and the defendants, Mr and Ms Mullins. The bank sought to enforce judgments obtained against the defendants for default in loan repayments. The defendants sought to set aside the default judgments and argued that they had a bona fide defence on the merits and that the Consumer Credit Code applied to the case. The legal issues before the court were whether the bank owed a duty of care to the defendants in providing commercial advice and whether the Consumer Credit Code applied to the case. The court found that the bank did not owe a duty of care to the defendants in providing commercial advice and that the Consumer Credit Code did not apply to the case as the loan was provided solely for the purchase of a business. The court also found that the defendants had not established a bona fide defence on the merits and dismissed their applications to set aside the default judgments. The defendants were ordered to pay the plaintiff’s costs of both applications.

Orders

Orders of the court

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.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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.