Ozkan Ozden and Nuray Ozden v Commonwealth Bank of Australia (ABN 48 123 123 124)

[2013] VSCA 340

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	OSBORN and BEACH JJA
WHERE HELD	MELBOURNE
DATE OF HEARING	22 November 2013
DATE OF JUDGMENT	22 November 2013
MEDIUM NEUTRAL CITATION	[2013] VSCA 340
JUDGMENT APPEALED FROM	Commonwealth Bank of Australia v Ozden & Anor [2013] VCC 94 (Judge Ginnane)

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PRACTICE AND PROCEDURE – Application for stay of execution of warrant for possession pending hearing of appeal – Judgment below for mortgagee to recover possession of family home – Previous application for stay of execution of judgment – Instant application made on the basis of different circumstances - Undertaking given to make interest payments in respect of the judgment debt and to pay a lump sum to the respondent – Additional grounds of appeal proposed – Special circumstances found – Application granted.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr R E Cook	Christopher Bunnett Lawyers
For the Respondent	Mr B Carew	Gadens Lawyers

OSBORN JA:

1. On 3 May 2013 Judge Ginnane (as his Honour then was) gave judgment in the County Court for the respondent (‘the Bank’) in the sum of $1,059,083.13 and ordered that the respondent recover possession of land at 74 Osborne Street, Williamstown, over which it held security by way of mortgagee in respect of three loans. 

1. On 17 May 2013 the appellants instituted an appeal against these orders and by summons dated 3 June 2013 sought an order pursuant to s 74(4) of the County Court Act 1958 for a stay of execution of the judgment.  That application was refused with detailed reasons by Hansen JA and Robson AJA on 2 August 2013.[1]

   [1]Ozden v Commonwealth Bank of Australia [2013] VSCA 195 (‘Reasons’).

1. Further application was made by summons dated 31 October 2013 for an order restraining the sheriff from executing a warrant of possession. 

1. On 1 November 2013 the appellants offered undertakings as a condition of stay of the execution of the warrant that:

(a)       the appellants make the interest payments referred to in paragraph [17] of the affidavit of Nuray Ozden sworn 31 October 2013 in this proceeding; and

(b)      the appellants pay to the respondent $50,000 on or before 4:30 pm on 15 November 2013. 

1. Counsel for the appellants also foreshadowed additional grounds of appeal which were not raised before Hansen JA and Robson AJA. 

1. In the circumstances the Court ordered:

2.The warrant for possession referred to in paragraph [10] of the affidavit of Nuray Ozden sworn 31 October 2013 in this proceeding in respect of the property at 74 Osborne Street, Williamstown, be stayed until 4.00pm on 22 November 2013.

3.The appellants file and serve an amended notice of appeal on or before 15 November 2013.

4.The appellants pay the respondent’s costs of this application.

5.The matter be adjourned to 9.30am on 22 November 2013.

1. The appellants have since made payments generally in accordance with their undertakings and in particular have paid the $50,000 required as a lump sum to be paid by those undertakings.  It appears they have not made the full interest payments due on the judgment debt, which were referred to in the relevant paragraph of the affidavit of the second respondent sworn 31 October 2013, but rather have made the interest payments due on the two relevant underlying loans.  There is little reason to doubt that this discrepancy, which amounts to some $954.16, was unintentional, and I do not regard it as materially affecting the basis on which this Court should deal with the application before it today. 

1. The appellants have also filed an amended notice of appeal.  The new grounds of appeal are:

6.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 noncompliance").

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.

1. The amended notice of appeal raises a series of issues going to the Bank’s right to sue or exercise its power of sale in the absence of a proper demand.  It takes issue with the authorisation given by the trial judge under s 88(5)(c) of the National Credit Code.  It raises the question of the effect of alleged breaches of the National Credit Code in respect of the demand of 4 May 2011 made by the Bank prior to the institution of the primary proceeding.  It further attacks the validity of that demand and asserts the demand was served in breach of the Bank’s duty to act reasonably and in good faith.  In particular, counsel for the appellant submits that equity prevented reliance upon the notice of demand for the reasons summarised in paragraph 13 of his written submissions:

Here it can be alleged that the Bank’s right to serve a notice at the time it did in the form it did is impeached by one or other of the circumstances set out in the Amended Notice of Appeal.  As noted by Tadgell J (at p 561)[2] there may even be a ‘question of fraud or other question which might cause equity to have intervened’.  This is so because:

[2]Eagle Star Nominees Ltd v Merril [1982] VR 557.

(a)The Bank was refusing to release the title to the berth.  Had it done so the plaintiff would have had sufficient funds to pay the amount demanded.  This wrongful act is so connected with the service of the demand that a Court ought not ignore it.

(b)The definition of fraud eg as expressed by Lord Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 954 is very broad and ‘it is a mistake to suppose that an actual intention to cheat must always be proved’. Here the conduct of the Bank is much worse than that. The Bank has been found by the Trial Judge to have wrongfully withheld a title over an extended period of time when it was known to the Bank that the appellants wished to sell the boat berth in order to pay the Bank the instalments due under the loan.

(c)It is significant that the amount stated in the notice totalled $163,194.37 when it was served on 4 May 2011.  It was alleged that those arrears were:

(i)On the first loan $25,710.89;

(ii)On the second loan $34.00;

(iii)On the third loan $136,774.18;

(iv)Enforcement expenses of $635.30 were also sought;

…

(d)His Honour found that the notices overstated the amounts due as follows: The first loan was overstated by approximately $10;000 and the third loan was overstated by $16,000. … On any view at the most only about $137,000 was owing.

(e)The appellants argued that the loans were in fact overstated by $52,700 by reason of the respondent/plaintiff failing to make allowance for the capitalisation of interest payments and otherwise:

The arrears amount for loan one was overstated in the May demand by $17,961.39 (this figure includes the wrongly characterised arrears during the 2009 hardship period between April to October of $9,961.39 and the extra payments that were made directly to the loan on 24 September 2010, 22 October 2010, 23 November 2010, 24 December 2012 in the sum of $8,000).

The arrears amount for loan two of $24.00 should not have existed as this loan was cleared of all arrears on 9 July 2010.

The arrears amount for loan three was overstated by $34,722.30 (this figure includes wrongly characterised arrears during the 2009 hardship period between April and October).

If they are correct only about $110,500 was then due.

(f)It is notable that on 4 November 2009 Mr M O’Neil of Harcourts Dromana (estate agents) had notified the appellants that they had received enquiries as to the purchase of the berth of an offer of $200,000 which was ‘well below two other relevant sales in the same strip of berths…that achieved sale prices of $225,000 and $230,000 respectively’.  Had the bank released the title to the berth and not acted in such a wrongful fashion the appellants would have been in sufficient funds to pay the demand: indeed they would not have received a demand at all because their payments would not have been in arrears.

1. I note that questions of breach of good faith were agitated before the trial judge, and he held that in the circumstances of the case the Bank was under a duty of good faith in respect of its dealings with the appellants in relation to enforcement of its security.  The appellants alleged at trial that the duty of good faith was breached in respect of a failure by the Bank to return to them the title to a boat berth at Safety Beach; a failure to give advice that loans were reactivated after a hardship period; a failure to capitalise or re-age arrears; an alleged forcing of the sale of a property at Safety Beach below market value; incorrect calculation of late payment fees; alleged incorrect claims of arrears owing; and alleged failure to enable part of the proceeds of the sale of a property at Southbank to be used by the appellants.  His Honour concluded:

I have previously dealt with the question of the berth title.  None of the other matters raised by the Ozdens established a breach of a contractual duty of good faith, or to act reasonably or to co-operate in the performance of the contract. 

The Bank’s actions, that are discussed above, have to be seen in the context of the manner in which the Ozdens’ loan accounts had been operated.  If I had considered there was substance in any of the matters raised (other than the berth title issue), in assessing whether the Bank had breached a duty of good faith, or to act reasonably, or co-operate, I would have had to take into account the Bank’s right to protect its own commercial interests.  The Bank relied on the many dishonoured payments that had occurred.  They were still to be regarded as dishonoured even though correcting payments were later made.[3] 

[3]Commonwealth Bank of Australia v Ozden & Anor [2013] VCC 94, [179]-[180].

1. It appears that the allegation of breach of good faith now made in proposed ground 8 was not argued at first instance. 

1. Nevertheless looked at in the broad the new grounds of appeal raise matters which go to the legal characterisation and effect of matters which were squarely raised at first instance and which are the subject of factual findings by the judge.  The appellants were represented by the second appellant in person at trial and the matters in issue are matters in respect of which the Bank has not suffered any relevant evidentiary prejudice.  In my view, the amendment of the notice of appeal should be allowed. 

1. Counsel for the respondent has raised responses to ground 6(c) and referred to the High Court authority of Bunbury[4] concerning the common law requirement for a valid demand.  In his submission, the new grounds of appeal are not reasonably arguable; but in my view the matters raised by him do not demonstrate that the new grounds of appeal are not so sufficiently arguable as to be other than materially relevant to the discretion which the Court must exercise today.

   [4]Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 49.

1. The circumstances now before the Court differ materially from those before Hansen JA and Robson AJA:

(a)       the appellants’ grounds put in issue the validity of the whole of the judgment against them, rather than raising matters which left a balance in excess of $900,000 which was not impeached by any reasonable arguable ground of appeal;

(b)      the appellants have made a $50,000 payment in reduction of their indebtedness and the bulk of the amount claimed by the Bank is secured by the mortgage over 74 Osborne Street, Williamstown, which was valued at $840,000 in October 2012;

(c)       the appellants have now provided further information as to their financial dealings since judgment was entered against them and of their overall financial position; and

(d)      the claim for the stay is not simply founded upon the assertion that the Osborne Street property is the appellants’ home.[5]

[5]See Johnson v Cressy [2009] VSCA 123, [50].

1. Special circumstances justifying a stay of judgment may be said to exist where there is a real risk that it would not be possible for a successful appellant to be restored substantially to his or her position if the judgment against him or her is executed.[6] 

[6]Cellante v G Kallis Industries Pty Ltd (1991) 2 VR 653.

1. The Osborne Street property is the family home of the appellants and their two small children.  The history of the parties’ dealings is a complex one and, as the trial judge found, not without aspects which favour the appellants.  In all the circumstances of the case and subject to the giving of further undertakings for the continuation of relevant interest payments, I would be prepared to hold that sufficient special circumstances exist to warrant a stay of execution until the determination of the appeal. 

BEACH JA:

1. I agree. 

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