Ozden v Commonwealth Bank of Australia
[2014] VSCA 127
•24 June 2014
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2013 0064
| OZKAN OZDEN and NURAY OZDEN | |
| Appellants | |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA (ABN 48 123 123 124) | Respondent |
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JUDGES: | TATE and BEACH JJA and SIFRIS AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 13 March 2014 | |
DATE OF JUDGMENT: | 24 June 2014 | |
MEDIUM NEUTRAL CITATION: | [2014] VSCA 127 | |
JUDGMENT APPEALED FROM: | [2013] VCC 94 (Judge Ginnane) | |
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LOAN CONTRACT – Mortgage securing appellants’ obligations under three loans – Whether the trial judge erred in admitting a document prepared for the trial as evidence of the amount owing – Whether trial judge erred in authorising the respondent to commence the County Court proceeding with regard to the first loan nunc pro tunc notwithstanding that the notice of default did not comply with the National Credit Code – Whether the respondent’s right to enforcement was limited by a duty to cooperate, act reasonably and act in good faith – Where trial judge considered the totality of evidence in determining the amount owing – Where trial judge correctly exercised discretion in granting leave to commence proceedings nunc pro tunc under s 88(5)(c) of the National Credit Code – Where no breach of duty on the part of the respondent – National Credit Code s 88(5)(c) – Appeal dismissed.
EQUITY – Equitable set-off – Whether the appellant’s cross-claim for damages associated with wrongful retention by the respondent of the title to the marina berth impeaches the respondent’s claim for repayment of the loans – Where the two claims are independent and not sufficiently related – British Anzani (Felixstowe) Limited v International Marina Management (UK) Limited [1980] QB 137 – Eagle Star Nominees Ltd v Merril [1982] VR 557 – Appeal dismissed.
DAMAGES – Whether the trial judge erred in assessment of damages for the respondent’s wrongful retention of title to a marina berth – Damages correctly assessed on basis of loss of chance – Where no contract of sale was on foot – Where trial judge did not act on a wrong principle, misapprehend the facts or make an erroneous estimate of damages suffered – CSR Readymix (Australia) Pty Ltd v Payne [1998] VR 505 – Appeal dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr R E Cook | Christopher Bunnett Lawyers |
| For the Respondent | Mr B Carew | Gadens Lawyers |
TATE JA
BEACH JA
SIFRIS AJA:
Introduction
This is an appeal from a judgment given in the County Court in a proceeding where the Commonwealth Bank of Australia, the respondent, was the plaintiff, and Ozkan Ozden and Nuray Ozden, the appellants, were the defendants. In the County Court proceeding, the respondent sought possession of a property owned by the appellants at 74 Osborne Street, Williamstown, after the appellants had defaulted under a mortgage arrangement with the respondent. Additionally, the respondent sought amounts owing in respect of loans made by the respondent to the appellants.
By way of counterclaim, the appellants admitted that their loan arrangements with the respondent had fallen into arrears, but they argued that the respondent’s right to enforcement was limited by a duty to cooperate, act reasonably and act in good faith. The respondent denied that it owed these duties to the appellants and said that, in any event, it had not breached any such duty.
After a 10 day trial, the trial judge entered judgment for the respondent, ordering that the respondent recover possession of 74 Osborne Street and that the appellants pay the respondent $1 059 083.13. On the appellants’ counterclaim, the trial judge found there had been a wrongful retention by the respondent of a certificate of title of a marina berth belonging to the appellants. For this breach the trial judge awarded the appellants $5000 in damages.
While a large number of issues were ventilated before the trial judge, on this appeal there are only five issues between the parties. First, complaint is made by the appellants concerning his Honour’s assessment of their damages in the sum of $5000 for the wrongful retention of the certificate of title of the marina berth. The appellants contend that at trial they proved a loss in respect of this breach in the amount of $43 268.32. They also claimed damages of $957 713.70 arising indirectly from the respondent’s failure to return the title to the berth. This is discussed further below.[1]
[1]See [29] below.
Secondly, the appellants make complaint about the way the trial judge dealt with an issue concerning an attempted surrender to the respondent of the title to one of the properties that was owned by the appellants and the subject of a mortgage. Specifically, it was submitted that his Honour was wrong in failing to find that, amongst other things, confusion created by the respondent about the steps needed to be taken by the appellants to surrender the relevant title constituted a breach by the respondent of its duty to cooperate, which breach of duty caused the appellants to incur an additional liability for interest to the respondent.
Thirdly, the appellants make complaint about the trial judge’s finding of the amount owed under the third of the three loans. The evidence tendered by the respondent at trial was that the amount owed was $761 052.07. The evidence called on behalf of the appellants was that the amount owed was $708 086.82. His Honour accepted the respondent’s evidence. In making complaint about this finding, the appellants submit that the trial judge wrongly admitted into evidence a document, said to be a business record,[2] showing the amount owing under the third loan to be $761 052.07.
[2]Cf s 69 of the Evidence Act 2008 (Vic).
Fourthly, the appellants make complaint about the trial judge authorising the respondent, pursuant to s 88(5)(c) of the National Credit Code (‘the Code’), to commence the County Court proceeding nunc pro tunc notwithstanding that the relevant notice of default (demand) did not comply with the Code.
Fifthly, the appellants assert that the notice of default (demand) by the respondent ‘was a nullity’. Under this heading, the appellants attack the validity of the demand on a number of bases, and assert that the demand was served in breach of the respondent’s duty to act reasonably and in good faith. In particular, the appellants submit that equity prevented (and prevents) reliance upon the notice.
Background facts and findings of the trial judge
The background facts to this appeal were set out in some detail by the trial judge.[3] They have also been canvassed in judgments of this court given in respect of applications made by the appellants for a stay of the trial judge’s orders.[4] Borrowing from those judgments, the relevant background facts are as follows. In February 2005, the respondent made two loan agreements with the appellants, one for $250 000 (the ‘first loan’) and one for $194 000 (the ‘second loan’). In January 2008, the respondent agreed to provide a further loan for $1 139018 (the ‘third loan’).
[3]Commonwealth Bank of Australia v Ozden and Anor [2013] VCC 94 (‘Reasons’).
[4]Ozden v Commonwealth Bank of Australia [2013] VSCA 195 (Hansen JA and Robson AJA) and Ozden v Commonwealth Bank of Australia [2013] VSCA 340 (Osborn and Beach JJA).
The first loan was to refinance the mortgage of $250 000 on the family home at 74 Osborne Street. The second loan was a standard variable-rate investment loan of $194 000. The appellants used their home at 74 Osborne Street as security for the first and second loans. This mortgage was later extended to cover the appellants’ obligations under the third loan. The third loan was used to purchase a townhouse at 75 Spinnaker Terrace, Safety Beach, and a berth with the marina which adjoined the townhouse. That property had two titles — one for the townhouse and a second for the berth. A first registered mortgage over the Safety Beach townhouse was taken as security for the third loan. As discussed below, the respondent did not take a mortgage over the berth but retained possession of the certificate of title for some four and half years.
A further property of the appellants at Southbank was used as security for the loans, and the three loans were cross-collateralised.
In 2009, the appellants fell into arrears on their loans. On 4 May 2011, the respondent sent a Notice of Default and Demand to the appellants requiring them to remedy the defaults on the loans by 11 June 2011. The defaults were not remedied by that date.
In the proceeding below, the respondent sought judgment for possession of 74 Osborne Street and claimed the amounts due under the three loans. With the respondent’s consent, the appellants sold the Safety Beach property in February 2013. The sale settled on 15 April 2013 and the proceeds of $735 344.22 were used to pay down the third loan.
At trial, the appellants admitted that arrears had accrued on all three loans by 4 May 2011, but in their defence they argued that the respondent’s right to take enforcement action on any of the three loans was limited by a duty to act reasonably and in good faith. The appellants contended that it was a term of each of the three agreements that the respondent owed duties to them to cooperate and act reasonably and in good faith so as to not hamper or prevent the appellants from taking steps to make their repayments and clear any arrears owing to the respondent. The appellants counterclaimed, seeking damages for an alleged breach of each of those terms.
The appellants argued that the respondent’s conduct had caused the problems that had led to the litigation. The appellants said that the respondent had failed to cooperate, act reasonably and in good faith by hampering and preventing them from accessing their own resources to meet their contractual obligations to the respondent.
The evidence at trial disclosed that, although the berth was included as security in the appellants’ application forms for the third loan which were submitted to the respondent, finance was never provided against the berth by the respondent. The appellants purchased the berth with their own funds.
In the middle of 2008, the appellants sought hardship relief because of financial difficulties in Mr Ozden’s new business. The respondent granted hardship relief for August, September and October 2008. In March 2009, the appellants suffered a severe personal and family tragedy.
On 21 March 2009, the appellants placed the Southbank property up for sale to alleviate financial stress while Mrs Ozden was out of work. The appellants sold the Southbank property for $375 000. The sale settled on 7 July 2009 and the net proceeds of sale of $130 000 was paid to the respondent to reduce the amount owing under the first loan.
The respondent agreed to a second hardship relief period between April and June 2009 that involved no repayments toward the loans. The hardship period was extended for August, September and October 2009.
The appellants took steps to sell the townhouse and berth. Mrs Ozden gave evidence that in August 2009, she received a verbal offer to purchase the berth for a price in the high $100 000s. The respondent refused to release the title, claiming that it was attached to the townhouse. Mrs Ozden disputed that, but the respondent would not release the berth title due to the loans being in arrears.
By that time, Mrs Ozden had been informed by the estate agents, Harcourts, that the offer made for the berth was withdrawn because the appellants were unable to commit to the sale.
The evidence at trial disclosed, and the trial judge found, that the berth title and a partial discharge of the mortgage were not provided until September 2012. This was almost three years after the settlement of a Financial Ombudsman Service (‘FOS’) complaint, and after the respondent retained the title without authority for more than four and a half years.
The trial judge found that by failing to return the berth title, the respondent breached a duty of cooperation contained in the loan agreements and mortgages at least from September 2009.[5]
[5]Reasons [150].
There was another complaint by the appellants to FOS. In this complaint, the appellants alleged that the respondent would not provide Mrs Ozden with clear instructions on how to surrender the keys to the Safety Beach property. Mrs Ozden’s evidence at trial was that she and Mr Ozden decided to surrender the Safety Beach property. However, Mrs Ozden received conflicting advice about whether to return the keys to head office or to a branch.[6] The trial judge did not treat this as the subject of a claim for damages.
[6]Ibid [122].
However, at trial, the appellants contended that the respondent forced them to sell the Safety Beach property below market value. The trial judge held that the appellants made their own decision to sell the Safety Beach property in February 2013 after the trial commenced. The trial judge said that the appellants were under financial pressure to do so, but not illegitimate pressure. The evidence disclosed, and his Honour found, that the proposal to sell the Safety Beach property had been under consideration as an option since 2010. It was a means of attempting to deal with the arrears on their loans.
The trial judge found that the appellants had not proved that the respondent breached any contractual duty owed to them because of any conduct in connection with the sale of the Safety Beach property.[7]
[7]Ibid [173].
The trial judge found damages were due on the question of the berth title, but that none of the other matters raised by the appellants established a breach of a contractual duty of good faith, to act reasonably or to cooperate in the performance of the contract.[8]
[8]Ibid [179].
The trial judge found that after November 2009, only four clear payments were made on the third loan, the last being $2000 on 21 January 2011. This was some four months before the notices of May 2011.
The appellants claimed damages of $957 713.70 indirectly arising from the respondent’s failure to return the title to the berth. The trial judge approached the assessment as the loss of a chance to obtain funds from the sale or refinance of the berth title, which the appellants would have probably used to make payments on the third loan and thereby reduced the interest on that loan. His Honour found the relevant period in which the appellants may have sold the berth or obtained finance on it was between September 2009 (being the date that the appellants contended the title should have been returned) and November 2010 (when the appellants leased the berth). The trial judge found that there was no certainty that the appellants would have been successful in selling the berth or refinancing during that period.
The trial judge also found that it was not possible to be precise about the value of the chance that the appellants lost, but it was not so low as to be nebulous. His Honour assessed the damages for loss of a chance to use the berth title to save on interest payments on the third loan at $5000.[9]
[9]Ibid [211].
The trial judge considered the other claims for damages making up the $957 713.70 claim, which allegedly arose from the withholding of the berth title, and rejected them.
The marina berth ‑ Ground 1
The appellants contend that their loss is $43 268.32 and not $5000. This figure is based on their contention that a sale of the marina berth for $200 000 was almost certain.
The relevant findings of the trial judge as to the liability of the respondent (‘the Bank’) are as follows:
149I find that the Ozdens did request the return of the berth title at least from September 2009. That request even took the form of a complaint to the FOS.
150The Ozdens have proved that the Bank breached the duty of co-operation contained in the loan agreements and the mortgages at least from September 2009 by failing to return the berth title. It is unnecessary to decide whether the Bank’s action also breached the duty to act reasonably and in good faith, but I see no reason why it would not have.
The relevant findings of the trial judge as to damages are as follows:[10]
[10]Ibid [200]-[207], [210]-[211].
Conclusion on damages in respect of the berth title
200The Ozdens have the onus of proving their loss and damage. They are entitled to be placed in the situation that would have resulted from performance of the contract. Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82-84. They are entitled, subject to matters of proof, to recover damages for the loss of the bargain ie expectation damages and damage suffered, including expenditure incurred, in reliance on the contract ie reliance damages. Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12 cf Cheshire and Fifoot, Law of Contract 10th Australian edition, pps 1126-11.
201The Ozdens must prove their loss on the balance of probabilities that their expectation of a particular outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.
202The Ozdens may recover damages for loss of a chance if their loss was foreseeable as a probable result of the breach. They are awarded even if the chances of realisation was improbable. The Ozdens must prove that the performance of the contract would have created a chance or opportunity that had some value and was not merely speculative or negligible. The Ozdens referred to their inability to obtain the berth title as the loss of an opportunity.
203The Ozdens have proved that they lost the chance of selling the berth title or obtaining finance on it in the 2009 to 2012 period.
204I accept Mrs Ozden’s evidence that if they had received the berth title back they would have attempted to sell it or obtain finance on it and paid at least [the] sum of the money that they received towards the debt owing on the loan.
205While it is uncertain whether they would have been able to sell it or obtain finance — they have lost the chance of that occurring and that chance is of value.
206However, the evidence does not support a conclusion that, if the Ozdens had obtained the berth title, they would, by selling it or obtaining finance on it and thereby clearing all their arrears, have avoided the events that have led to this litigation. The difficulties that they have experienced over an extended period in paying the amounts due on their loans do not support such a conclusion. The loans may well have continued to accrue arrears. In addition there are the uncertainties as to the price that would have been obtained for the berth title and when it would have been sold. Those uncertainties are not an obstacle to assessing the value of a loss of a chance to use the possible sale price of the berth to reduce the interest owing on the loans. However, apart from that, the Ozdens have not established any other entitlement to an award of damages.
207The Ozdens have proved that they lost the chance to obtain funds from the sale or refinance of the berth title, which they would have probably used to make payments on the Third Loan and thereby reduce the interest on that loan.
…
210Mrs Ozden prepared tables showing the savings in interest that would have occurred in respect of the Third Loan if they had received the berth title in September 2009 and been able to raise funds between $100,000 and $200,000 to pay towards third loan. T612-613. I referred to them previously and I have regard to them for the present purpose. There was no certainty that the Ozdens would have been successful in selling the berth title or obtaining finance on it between September 2009, being the date that they suggest that it should have been returned, and November 2010, when they leased it. I do not consider that they can claim damages for the loss of a chance beyond November 2010, when they leased the berth.
211It is not possible to be precise about the value of the chance that the Ozdens lost, but it was not so low as to be nebulous. Taking those matters into account, I assess as damages, for loss of a chance to use the berth title to save on interest payments on the third loan, the sum of $5000.
The Bank does not challenge any of the findings on liability and damages.
The ground of appeal (ground 1) is formulated as follows:
GROUNDS OF APPEAL
1.Having regard to the following uncontested facts or findings of fact that:
(1)The trial judge accepted the appellants’/defendants’ evidence that the appellants/defendants had received a verbal offer for the sale of the berth in the vicinity of $200,000 (Reasons at [191]);
(2)Before negotiating the price, the second appellant/second defendant called the bank to make sure the bank would release the title to the berth (Reasons at [80]);
(3)The respondent/plaintiff refused to release the title to the berth due to their loans being in arrears (Reasons at [80]);
(4)The offer to buy the berth was withdrawn because the appellants/defendants were unable to commit to the sale (Reasons at [80]);
(5)On 4 November 2009, Mr O’Neill, estate agent, wrote to the appellants/defendants stating that an offer had been received for $200,000, which is below that achieved on two other relevant sales of $225,000 and $230,000 in the same strip of berths (Reasons at [97]);
(6)The respondent/plaintiff did not provide a proper explanation of why it received or retained the berth title (Reasons at [101]);
(7)The respondent/plaintiff had no right to negotiate a settlement based on the title to the berth and they had no legal or equitable right to do so (Reasons at [102]);
(8)The respondent/plaintiff had a duty to co-operate by returning the berth title on which no debt was or had been owing (Reasons at [145]);
(9)The respondent/plaintiff did not return the title to the berth together with a partial discharge of the mortgage to the appellants/defendants until 26 September 2012 (Reasons at [148]);
(10)The appellants/defendants requested the return of the berth title at least from September 2009 (Reasons at [149]);
(11)The respondent/plaintiff had breached its duty to co-operate (Reasons at [150]),
the learned trial judge erred in law in failing to draw the inference that the appellants/defendants had suffered loss representing the interest that could have been avoided from August 2009 had the proceeds of sale of the berth been applied to the reduction of the debt to the respondent/plaintiff to be in the sum of $43,268.32 and not merely $5,000 for a loss of a chance.
In our opinion the trial judge was correct in regarding the assessment of damages as being the assessment of the loss of a chance. There was no executed or concluded contract — or even draft contract — on foot. All that was lost was an opportunity to conclude a contract or raise funds on the security of the marina berth. The appellants’ submission that a sale was ‘almost certain’ is not supported by the evidence.
Having concluded, following the authorities, that such loss of a chance was not negligible, nebulous or theoretical his Honour proceeded to value the chance. Having been deprived of a commercial opportunity, the relevant enquiry so far as quantification is concerned, is to assess the degree of likelihood of its realisation.
The only evidence as to the likelihood of a sale was given by Mrs Ozden. The evidence is thin and does not support a reasonable likelihood or prospect of sale. Indeed the evidence does not engender any confidence that a sale would have taken place.
First, there is no evidence of any interest or offer prior to July 2009, despite the appellants having signed a mandate to sell in January 2009.
Secondly, Mrs Ozden was not personally involved in any discussions, approaches or offers to purchase. This was all done through Mr O’Neill, an estate agent, who was not called to give evidence and was unable to produce his file. He did however sign a letter in November 2009 recording an earlier verbal offer made in July 2009 (‘the Letter’).
Thirdly, the Letter, which is addressed ‘To whom it may concern’, apart from being hearsay, is vague and of limited assistance and relevance. It reflects back to July 2009 without specific details as to the identity of the proposed purchaser or offeror and any relevant terms. There is nothing in writing and the so called offer — even accepting the Letter — does not rise above an enquiry. Finally, the Letter and its contents, however vague, could not be tested by cross-examination and, self-evidently and most relevantly, the Letter does not evidence the certainty of any sale.
Fourthly, in November 2009 the Bank agreed to release the marina berth title in the event of a sale. Despite endeavours, there was no sale, whether because of the global financial crisis or otherwise.
Consequently, although it may be accepted that the marina berth had a value of about $200 000,[11] the evidence as to a likely sale was incomplete and unconvincing.
[11]This was not challenged by the Bank. Indeed in its files the Bank recorded the value at or about $200 000.
His Honour awarded as damages $5000, or an amount representing a 12 per cent (approximately) likelihood of sale. Although no specific reasons were given, the award follows an analysis of the evidence relating to the likelihood of sale. Based on this evidence, the 12 per cent likelihood — although not stated as a percentage — was an assessment entirely open to his Honour.
The principle guiding an appellate court in a review of an award of damages assessed by a judge was stated by Winneke P in CSR Readymix (Australia) Pty Ltd v Payne:[12]
…Where it is alleged on appeal that a judge's assessment of damages is manifestly excessive an appellate court, before it interferes, should be satisfied that the judge has acted on a wrong principle, or has misapprehended the facts or, for these or other reasons, can be seen to have made a wholly erroneous estimate of the damages suffered. It is not enough that the appellate court itself might have awarded a different sum: per Lord Wright, Davies v. Powell Duffryn Associated Collieries Ltd. [1942] A.C. 601 at 616-17; Miller v. Jennings (1954) 92 C.L.R. 190 at 195-6, per Dixon C.J. and Kitto J. It is apparent from such statements of principle that a trial judge, in assessing damages, is involved in the exercise of a form of discretionary judgment and, as such, that judgment should stand unless the appeal court is clearly satisfied that the judicial function has not been duly performed: Minchin v Public Curator of Queensland [1965] A.L.R. 91, per Kitto Jat 95-6; Bratovich v Mitchell [1968] V.R. 556 at 557-8.[13]
[12][1998] VR 505.
[13]Ibid 508. See also Fletcher Construction Australia Ltd v Lines Macfarlane & Marshall Pty Ltd (No 2) (2002) 6 VR 1 [87]-[91], [93]; Federal Commissioner of Taxation v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 336, 381;34 ALR 23, 52;Macedonian Church v Eminence Petar (2008) 237 CLR 66, 125;House v R (1936) 55 CLR 499, 504-505; Diamond v Simpson (No 1) [2003] NSWCA 67 [16]-[17]; Wainwright v Barrick Gold of Australia Ltd [2014] WASCA 15 [88]; McCartney v Orica Investments Pty Ltd [2011] NSWCA 337, [126].
For the reasons given we do not consider that the trial judge acted on a wrong principle, has misapprehended the facts or has made an erroneous estimate of the damages suffered.
The appellants also submitted that they could have raised funds on the security of the marina berth and that such funds would have been sufficient to pay all arrears with consequential positive results. However, the evidence in this regard is entirely lacking.
The surrender of the Safety Beach property — Grounds 2 and 3
The appellants contend that in breach of an agreement made on 30 June 2011, and a further agreement made on 29 August 2011, by reason of a failure to cooperate, the Bank caused loss in relation to the sale of the Safety Beach property in February 2013. Had the Bank cooperated the property would have been sold in August 2011 or shortly thereafter. The loss according to the appellants is the sale (in February 2013) below market value and the interest that would have been saved.
The failure to cooperate is said to arise out of the Bank’s conduct in relation to the appellants’ desire to surrender the property. The contention is that they were unable to do so for 18 months because the Bank would not cooperate and during this time the property decreased in value.
The ground is self-evidently without substance and is rejected.
The trial judge, although prepared to accept that the Bank was under a duty to act ‘reasonably and in good faith in dealing with the appellants and in exercising its enforcement powers’,[14] held as follows:[15]
171The Ozdens alleged that that the Bank forced them to sell the Safety Beach property below market value. The Bank denied the allegation.
172The Ozdens made their own decision to sell the Safety Beach property in February 2013 after the trial had commenced. They were under financial pressure to do so, but not illegitimate pressure. The proposal to sell the Safety Beach property had been under consideration as an option since 2010. It was a means of attempting to deal with the arrears on their loans.
173The Ozdens have not proved that the Bank breached any contractual duty owed to them because of any conduct in connection with the sale of the Safety Beach property.
[14]Reasons [138].
[15]Ibid [171]-173].
Although it may fairly be said, on one view, and as contended in ground 3, that the trial judge did not give direct or adequate reasons for rejecting the argument, it is not correct, in our view, to contend that the matter was not considered by the trial judge. Having considered the matter, including the surrender of the property,[16] his Honour concluded that there was no breach of ‘any contractual duty owed to them because of any conduct in connection with the sale of [the Property]’.[17]
[16]Ibid [122].
[17]Ibid [173].
Even accepting that the appellants received conflicting advice about the return of the keys[18] and failed to give directions in relation to the surrender of the keys, and that Mrs Ozden experienced frustration in this regard, the grounds are not made out.
[18]Ibid.
First, the letter dated 1 October 2010, which was accepted by the appellants, required the surrender to take place by 29 November 2010, in the event that the property was not sold, by delivery of the keys to the branch office with which the appellants were familiar. The appellants did not do this. Rather, they continued to endeavour to sell the marina berth, and they were not pressed by the Bank about the surrender of the Safety Beach property. The conflicting advice was only given many months later,[19] when they were unable to sell the marina berth.
[19]Between April and October 2011.
Secondly, whatever the conduct of the Bank, in this case being unclear, unprofessional and tardy at best, this did not absolve the appellants from their obligations. They could have surrendered the property if they really wanted to. Such surrender is a unilateral act and does not need the assent or even cooperation of the Bank. To suggest that they could not surrender the property for 18 months because of the Bank — a creditor/mortgagee — defies belief and stretches credulity to the limit.
Thirdly, there is no acceptable evidence of any diminution in the market value of the property. No expert evidence was called and it is and was not sufficient for the appellants to simply tender a valuation to such effect.
The amount owing ‑ Grounds 4 and 5
The appellants contend that his Honour erred in accepting the Bank’s evidence as to the amount owing, by relying on a business record purportedly evidencing the amount owing in the sum of $761 052.07. They contend that the amount owing at the relevant time was $708 086.82. The debate is over $52 965.25.
The grounds of appeal (grounds 4 and 5) are in the following terms:
4. The trial judge erred in law in finding that despite:
(1)rejecting the respondent’s/plaintiff’s certificate of indebtedness dated 3 May 2013 purporting to certify that the indebtedness under mortgage number AF916845V (‘the mortgage’) was $780,859.59;
(2)the respondent’s/plaintiff’s failure to otherwise produce evidence of how interest was calculated from the inception of the loan; and
(3)the respondent’s/plaintiff’s witnesses’ inability to explain the calculations made as to indebtedness under the said mortgage, the amount owing by the appellants/defendants under the said mortgage was $761,052.07.
5.The trial judge erred in law in wrongly admitting into evidence a purported partial business record of the respondent/plaintiff (Exhibit ‘S’) relating to the recalculation of the loan secured by the said mortgage under section 69 of the Evidence Act 2008 (Vic) having regard to the provisions of section 69(3) of the Evidence Act 2008 (Vic) and being a self-serving document.
It was submitted that having rejected the Bank’s certificate of indebtedness in the sum of $780 859.59 the trial judge should not have admitted a document, purporting to be a business record, evidencing the recalculation of the loan in the sum of $761 052.07 under s 69 of the Evidence Act 2008 (Vic) because it was specifically prepared for trial and excluded under s 69(3) of that Act.
However a perusal of the transcript of the hearing on 3 May 2013 suggests that the trial judge was satisfied having regard to all of the evidence that the Bank had established on the balance of probabilities that the amount owing at the relevant time was the sum of $761 052.07.
The totality of the evidence supports such a conclusion. In this regard the viva voce evidence of Ms Penn, Maintenance Officer of the Bank, is significant. The errors in the original certificate, which was not specifically rejected and still of evidential value, were identified and attended to by the responsible party. The document was not objected to and was not admitted as a business record. It was simply part of the evidence.
There is no substance in this ground and it is not surprising that it was only faintly pressed by the appellants.
The National Credit Code and the demand — Ground 6
As pointed out, the demands overstated the amount owing under the first loan by $10 000 and under the third loan by $16 000. The overstatement was conceded by the Bank. The Bank now seeks to withdraw this concession and leave was given to the parties to file submissions in this regard.
The third loan was not subject to the National Credit Code and the overstatement does not affect the validity of the demand and is not presently relevant. The first loan was subject to the National Credit Code and the overstatement of $10 000 rendered the demand ineffective unless leave was granted under s 88(5)(c) of the National Credit Code to commence the proceeding nunc pro tunc. His Honour granted such leave and the appellants submit that his Honour was in error.
His Honour dealt with the matter as follows:[20]
60Under s 88(5)(c), the Court can authorize the credit provider to bring the proceedings even where no notice has been served eg where the credit provider considered that the Code did not apply. Such a case was Bank of Queensland v Dutta[2010] NSWSC 574, where there had been a failure to serve any s 80 notice Davies J decided that the credit provider should be authorised to commence the proceedings nunc pro tunc. His Honour took into account the practical consideration that otherwise the proceeding could just be recommenced. The New South Wales Court of Appeal took the same approach in Monas v Perpetual Trustees Victoria[2011] NSWCA 417; (2011) 80 NSWLR 739 (special leave to appeal refused by the High Court of Australia) and so did Whelan J in Silberman v Citigroup Pty Ltd [2011] VSC514.
61However, the Court has a discretion whether to grant the authority to commence the proceedings and must take into account the disadvantage to the defendants. I take into account the amount of the arrears overstated in respect of the loans. But I also take into account that interest is still accruing on those loans, not least on the Third Loan, which is the largest loan by a considerable margin and for which no notice under the Code was required to be served. There is unlikely to be any advantage to the defendants if they face further proceedings in respect of the first two loans in circumstances where their claim under the Third Loan has been heard and determined. In view of the authorities, it is appropriate to authorise the Bank’s application to commence the proceeding ‘now for then’.
[20]Reasons [60]-[61].
Ground 6 is in the following terms:
The trial judge erred in authorising the respondent/plaintiff under s.88(5)(c) of the National Credit Code to commence the present proceeding nunc pro tunc when the demand dated 4 May 2011 did not comply with the Code in circumstances where:
(a)the said demand contained errors, namely (as the trial Judge found) the first loan was overstated by approximately $10,000 and the arrears amount of $136,774.18 for the Third loan was overstated by approximately $16,000 (or, arguably, on the evidence before the Court, the three loans together were overstated by $52,707.42);
(b)the respondent/plaintiff had failed to return the Certificate of Title to the Berth when proper demand had been made for its return; and/or
(c)the respondent/plaintiff had failed to make allowance for the capitalisation of interest payments that had accrued on the appellant’s/defendant’s accounts between March and November 2009 (‘the circumstances of non-compliance’).
Ground 6 was added by leave granted by Osborn and Beach JJA on 22 November 2013 without prejudice to the Bank’s right to argue that the ground should not be permitted to be argued on appeal. In a written submission dated 20 March 2014 the Bank submitted that because ground 6(b) was not argued below the appellants should not be permitted to raise the argument in this Court, on appeal. It was submitted that the appellants were bound by the way in which they conducted the case below and that had the matter been raised the Bank would have conducted its case, so far as this part of the case is concerned, differently.
Although there is some force in this submission, we are not persuaded that the point would have been met by any further relevant evidence, or that it is in the interests of justice not to allow the ground to be argued.
Much evidence was given in relation to the retention of the title to the marina berth and it is difficult to imagine any further relevant witness or probative evidence. The Bank in its written submission filed with leave, submitted that further evidence would have been led in relation to the circumstances surrounding the marina berth title and in particular the chronology leading to its mistaken inclusion as a security. This evidence is discussed later in relation to grounds 7 and 8 where it is of more relevance. Further, the issue raised by the ground is essentially a narrow legal issue not requiring any further evidence. The critical issue is whether leave should have been granted to commence the proceeding nunc pro tunc given the Bank’s admitted retention of the title to the marina berth.
In our opinion there is no merit in the contention that his Honour failed to take into account the suggested relevant matters referred to in grounds 6(a), (b) and (c), and thereby fell into appellable error.
In relation to ground 6(a), this matter, namely the overstatement, was taken into account by his Honour. It was this very error (the only basis of the appellants’ argument) that led his Honour to conclude, for the reasons given, that leave should be granted. There is no error in his Honour’s reasoning and in particular the exercise of his Honour’s discretion.
It is therefore strictly not necessary to deal with the Bank’s application to withdraw the concession made with regard to the overstatement of the amounts owing. The concession as to the overstatement was said to arise out of a mistake as to the effect that the Bank’s moratorium or indulgence had on the interest. The Bank submitted that the evidence established that interest was still to accrue but did not have to be paid. In such event it was contended that the amount owing was not overstated. Although there may be substance in this submission we do not consider that leave to withdraw the concession should be granted. The concession at trial was clear and unequivocal and a party is bound by the way in which litigation is conducted[21] and forensic and tactical decisions made during the course of a trial.
[21]It should be noted that this point was not argued below.
In relation to ground 6(b), we fail to see the relevance of the wrongful retention of the title to the marina berth on the discretion as to whether to grant leave to proceed in light of the error in the demand, comprising the overstatement. For reasons which we will develop in relation to the remaining grounds of appeal, the matters are distinct.
In relation to ground 6(c), this ground was correctly rejected by the trial judge for the reasons he gave.
The validity of the demand — Grounds 7 and 8
These grounds, also not agitated below, were added by leave granted by Osborn and Beach JJA on 22 November 2013 without prejudice to the Bank’s right to argue that the grounds should not be argued on appeal. The Bank has so argued and the parties filed further submissions by the leave of the Court.
The Amended Notice of Appeal is dated 15 November 2013 and is in the following form:
7.The trial judge erred in finding that the demand of 4 May 2011 was a valid demand under the loan agreements and the mortgages by reason of the circumstances of non-compliance or any of them.
8.The trial judge erred in not finding that the circumstances of non-compliance or any of them impeached the right of the respondent/plaintiff bank to demand the debt alleged to be owed to it without discounting that debt as demanded by the amount of the said errors and/or by an amount sufficient to compensate for the non-return of the title and/or the non-capitalising of the interest payments, and the service of the demand of 4 May 2011 was thus either:
(a) irregular or a nullity; and/or
(b)was served in breach of the respondent/plaintiff’s duty to act reasonably and in good faith and did not entitle the respondent/plaintiff to rely upon the service of the demand as a precursor to exercising its power of sale over the Safety Beach and the Williamstown properties.
In our opinion, the Bank had sufficient time to prepare submissions in relation to the grounds and has done so. The grounds adequately raise legal issues associated with the admitted wrongful retention of the marina berth certificate of title. It is unlikely that further evidence led by the Bank as to the nature and extent of the mistake — innocent or otherwise — would assist or be of sufficient relevance in relation to the legal issues raised by the grounds.
As pointed out, the Bank submitted that further evidence would have been led in relation to the circumstances surrounding the marina berth title and in particular the chronology leading up to its mistaken inclusion as a security. The respondent submitted that it would have called the team leader of the Group Lending Services Support to give evidence. In summary that evidence would have been that the appellants had purchased the berth and townhouse pursuant to a single contract of sale and it was the broker, Lawfund Australia, who had the responsibility for entering the data regarding what property or properties are to be mortgaged, who would have caused the marine berth to be identified as a security in a document on the basis of which the Loan Processing Department generated a mortgage instrument. The appellants also included the berth in the loan application. The respondent further submitted that there was no evidence that it recognised that retaining the security was legally wrong until it obtained advice about the alleged wrongful detention of the berth title in August 2012, shortly before a mediation in September 2012. As mentioned above, the berth title was returned with a partial discharge of mortgage in September 2012. Again, although there is some force in the argument, we are not persuaded that the suggested evidence would have made any difference or that it is in the interests of justice not to allow the grounds to be argued. Finally, given the issues in the case relating to the retention of the title to the marina berth, a not insubstantial aspect of the case, it is surprising that the Bank did not call this evidence in any event.
Accordingly we propose to consider the grounds.
The thrust of the appellants’ submission is that the Bank was precluded from making any demand because the appellants had a right to unliquidated damages, associated with the wrongful retention of the certificate of title in relation to the marina berth, which said right impeached the Bank’s claim. Reference was made to the leading case of British Anzani (Felixstowe) Limited v International Marina Management (UK) Limited[22] and the decision of Tadgell J in Eagle Star Nominees Ltd v Merril.[23] Other authorities and texts were referred to.
[22][1980] QB 137 (‘British Anzani’).
[23][1982] VR 557 (‘Eagle Star’).
In British Anzani, Forbes J stated the proposition as follows:
While I am satisfied that it is proper in principle to allow that a cross-claim could be effective as an equitable set off against a claim for rent, it by no means follows that such a defence is available in all circumstances. The important qualification is that the equity must impeach the title to the legal demand, or in other words go to the very foundation of the landlord’s claim. This seems to me to involve consideration of the proposition that the tenant’s cross-claim must at least arise under the lease itself, or directly from the relationship of landlord and tenant created by the lease.[24]
[24]British Anzani, 152.
In Eagle Star, after referring to the judgment of Forbes J in British Anzani, Tadgell J made the following observation:
Nevertheless, in the end Forbes, J based his decision on the conventional principle that ‘the defendant’s cross-claim can be said to impeach the title to the plaintiff’s legal demand’. That principle, if not in so many words, has in effect been required in this Court in recent times to be met before a purely equitable set-off may be recognized as a defence to a claim at law: In Re KL Tractors Ltd., [1954] VLR 505, at p. 508; Bayview Quarries Pty. Ltd. v Castley Development Pty. Ltd., [1963] VR 445, at p. 449; Re Convere Pty. Ltd., [1976] VR 345, at p. 349.
I am not in doubt both that I should apply the principle here and that the defendant does not bring himself within it. I assume in the defendant's favour that for present purposes the plaintiff's claim is to be looked at as a claim for payment of part of the purchase price and not as a claim for possession simpliciter. Even so, the plaintiff's claim and the defendant's unliquidated cross-claim are independent and in no way mutual: cf. Re KL Tractors Ltd., ibid. There is no suggestion on the defendant’s part that his purchase was dependent on or induced or even influenced by the assignment of the policy which he says or infers was promised; and there is no room for an implication to that effect. The plaintiff's promise, assuming it was made and is enforceable, was collateral but subordinate to the contract of sale; and no question of fraud or any other question which might cause equity to intervene was raised. It follows that the plaintiff’s claim owes nothing to any right, legal or equitable, which the defendant asserts and is not impeachable by any equity to which the defendant can refer.[25]
[25]Eagle Star, 560-561. Eagle Star was approved by the Full Court in Indrisie v General Credits Ltd [1985] VR 251. See also Griffiths v Commonwealth Bank of Australia and Anor (1994) 123 ALR 111, 125; D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10, 20; In re K L Tractors Ltd [1954] VLR 505, 507-508; Forsyth & Anor (as trustees for C&S Forsyth Superannuation Fund) v Gibbs [2008] QCA 103 [15], Cunningham and Others v National Australia and Anors (1987) 15 FCR 495, 500;Rawson v Samuel (1841) 41 ER 451, 458; Esso Petroleum Co Ltd v Milton [1997] WLR 938, 950.
Finally, the principle is stated by the learned authors of Meagher, Gummow and Lehanes, Equity Doctrines and Remedies[26] as follows:
(h)One ingredient was necessary in equity but not required at law, that is, that the set-off actually go to the root of, be essentially bound up with, ‘impeach’, the title of the plaintiff. No such requirement existed at law, but in equity it was indispensable. It was not sufficient that there be countervailing claims, nor that those claims were mutual, nor even that they arose out of the same transaction. The defendant, in order to make out an equitable set-off, had to establish that he possessed some equitable right to be protected from the plaintiff’s claim. There are many cases where equitable set-offs have been disallowed because this element was wanting.[27]
[26]D Meagher, D Heydon and M Leeming, Meagher Gummow & Lehane’s Equity Doctrines & Remedies (Butterworths LexisNexis, 4th ed, 2002), 1057 [37-045].
[27]Ibid 1057, [37-045].
We do not consider that the appellants’ claim for unliquidated damages associated with the wrongful retention of the marina berth certificate of title impeaches the Bank’s claim. It does not go to the root of the Bank’s claim so as to preclude the Bank from making or relying on the demand. Any claim for damages is precisely that, namely a claim or cross-claim that can — and indeed was — properly made. Although the final result may diminish the Bank’s claim by way of set-off at common law, where each amount is certain, it does not at the stage of demand affect the demand or the Bank’s right to make it.
The claims are distinct and not sufficiently closely related. Although the parties are the same, like Eagle Star, the appellants have not brought themselves within the principle. Each claim is independent and in no way mutual. The Bank’s claim does not depend on and does not arise out of any right (whether legal or equitable) asserted by the appellants and the right to enforce its security and claim repayment of the loans is not impeachable by any equity to which the appellants can refer. Rather, as pointed out they have and indeed agitated their own claim, which when sounding in money could be set off against the amount of the Bank’s claim.
Notice of Contention
The respondent filed a Notice of Contention on 12 March 2014. The Notice of Contention refers to matters raised in the Grounds of Appeal which have already been discussed above. In view of the conclusions and decisions we have reached, it is not necessary to consider the Notice of Contention separately.
Disposition
For the reasons given the appeal should be dismissed.
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