Police and Nurses Credit Society Ltd v Anderson

[2012] WASC 339

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   POLICE & NURSES CREDIT SOCIETY LTD -v- ANDERSON [2012] WASC 339

CORAM:   MASTER SANDERSON

HEARD:   20 AUGUST 2012

DELIVERED          :   17 SEPTEMBER 2012

FILE NO/S:   CIV 1642 of 2012

BETWEEN:   POLICE & NURSES CREDIT SOCIETY LTD

Plaintiff

AND

BRYAN CHARLES ANDERSON
ROSINTA FALENTIN ANDERSON
Defendants

Catchwords:

Application for summary judgment by bank - Unconscionable conduct - Evidence of unconscionability required - Turns on own facts

Legislation:

Competition and Consumer Act 2010 (Cth)

Result:

Judgment entered for plaintiff against defendants

Category:    B

Representation:

Counsel:

Plaintiff:     Mr B C Smith

Defendants:     Mr J R Johnson

Solicitors:

Plaintiff:     Gadens Lawyers

Defendants:     Julian Johnson

Case(s) referred to in judgment(s):

Bank of Western Australia Ltd v Kwa [2003] WASC 110

Blomley v Ryan (1956) 99 CLR 362

Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285

Kwa v Bank of Western Australia Ltd [2003] WASCA 227

1. MASTER SANDERSON:  This is the plaintiff's application for summary judgment.  The defendants are the registered proprietors of 2 Coulthard Crescent, Canning Vale.  They have owned the property since 8 August 2006.  The plaintiff is the mortgagee and the defendants are the mortgagors under a first registered mortgage over the property.  The mortgage was registered on 8 August 2006.

2. The mortgage secures performance of the defendants' obligations under a written loan agreement between the plaintiff as lender and the defendants as borrowers.  The loan agreement was signed by the defendants on 28 July 2006.  Pursuant to the loan agreement, the plaintiff advanced the sum of $537,379.85 to the defendants.  The defendants were required to make monthly repayments of principal and interest.  The defendants have failed to make the repayments required by the loan agreement.  As a result, they are in default under the terms of the loan agreement and the mortgage.  On 2 March 2012 the plaintiff's solicitors issued a default notice to the defendants.  The default was not rectified within the time specified in the default notice.

3. On the basis of the evidence of the loan agreement, mortgage, default notice and surrounding circumstances, the plaintiff has verified its cause of action and has established a prima facie entitlement to judgment.  The evidentiary onus shifts to the defendants to show an arguable defence.  The defendants rely on an affidavit of the first‑named defendant sworn 9 July 2012.  In addition, a defence has been filed.

4. The defendants' case can be summarised in this way.  They acknowledge entry into the loan agreement and the advance of funds to them under the terms of these documents.  The defendants make no complaint about the circumstances of entry into the transaction with the plaintiff and do not dispute they are otherwise bound by the express terms of the documents.

5. They say as a consequence of an injury suffered by Mr Anderson in September 2007, a claim arose against a chiropractor.  Proceedings were issued in the District Court for damages including past and future consequential loss.  The District Court action was commenced in June 2010 and is still not resolved.  The defendants say the reason they are in default is Mr Anderson's diminished capacity to work which is alleged to be the result of the injury the subject of the District Court claim.  The defendants concede they do not have the capacity to service the loan repayments or repay the balance of the loan without sale of the property.

6. The defendants allege the plaintiff has engaged in unconscionable conduct within the meaning of s 21 of the Second Schedule to the Competition and Consumer Act 2010 (Cth) (the Consumer Law). The defendants allege the plaintiff is at fault in three separate but interrelated ways. First, it is alleged the plaintiff failed to 'consider adequately' the defendants' request for relief from their repayment obligations for an undetermined time. Second, by issuing the default notice. Third, by commencing these proceedings for enforcement of the loan agreement and mortgage.

7. The concept of unconscionability, as it is to be understood under s 21 of the Consumer Law, encompasses but is not limited by the equitable doctrine. The equitable doctrine is traditionally focused on the circumstances of entry into a transaction, whereas the concept under s 21 is sufficient to include matters that occur within the ambit of an unimpeached contract and is not restricted by a strict requirement of special disability: see s 21(4) and Hampton v BHP Billiton Minerals Pty Ltd [No 2] [2012] WASC 285 [182] ‑ [183].

8. The section is still to be applied with a principled approach and is not a roving commission to rewrite contracts or adjust obligations to the convenience of one of the parties when circumstances change.  The principle of unconscionability is not one which extends sympathetic benevolence to a victim of undeserved misfortune.  Rather, it is a principle which denies to those who acted unconscientiously the fruits of their wrongdoing:  see Blomley v Ryan (1956) 99 CLR 362, 429. The evaluative process of reasoning used to determine if conduct is unconscionable under the equitable doctrine remains the same under the section.

9. In Hampton, Edelman J states in relation to the predecessor provision from the Trade Practices Act 1974 (Cth):

   This section has been described as prescribing a 'standard' rather than a 'rule'. The assessment of whether conduct is unconscionable under this section will be heavily dependent upon an assessment of all of the circumstances of the case. But there are limits to the judicial discretion in this evaluative exercise. It has been emphasised that in the application of this standard, 'the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably'. And it will never be the case that a party would breach the statutory proscription against unconscionable conduct merely by relying on contractual rights [194].

10. The plaintiff makes the point the defendants have not identified a single authority in support of the proposition that a mortgagee should in good conscience suspend its rights under a loan agreement and mortgage and wait an undetermined period of time to see if a personal injuries claim will produce funds sufficient to discharge the debt.

11. While acknowledging each case must be assessed on its particular facts, the plaintiff did refer to the decision of Newnes M (as he then was) in Bank of Western Australia Ltd v Kwa [2003] WASC 110. In that case the defendant argued that it was unconscionable for the plaintiff to enforce the mortgage as he had been involved in a motor vehicle accident which was not his fault. Newnes M said:

    As to the other ground, that the defendant is unable to service the mortgage because of events which are outside his control, whatever sympathy one may have for Mr Kwa's personal circumstances, the fact is that he entered into an agreement which required him to make certain payments and, in default of doing so, the plaintiff was entitled to exercise its rights under the agreement. It is not to the point that Mr Kwa's inability to meet his obligations has come about by reasons beyond his control. They are, of course, also beyond the control of the plaintiff. The plaintiff is, in the circumstances, entitled to exercise its rights under the agreement [23].

12. Mr Kwa was denied leave to appeal (Kwa v Bank of Western Australia Ltd [2003] WASCA 227). Mr Kwa had applied for a stay of execution pending the hearing of the appeal. He argued that if left in possession of the property he would have done other things to repay the debt given time. The court said:

    It can be no answer to the bank's pursuit of its remedies under its security that it might recover the funds advanced and the interest owing by another means which might provide a more favourable outcome to the appellant [5].

13. The plaintiff submits the uncertain amount of time required by the defendants to finalise the personal injuries claim is fatal to the allegation of unconscionable conduct.  In my view, that submission ought be accepted.  The outcome of litigation is always uncertain.  There is no definite timeline in this case.  In effect, what the defendants are seeking is an injunction preventing the plaintiff from exercising its legal rights.  There is no basis upon which such an injunction could be granted.

14. In deference to the submissions put by counsel and the way the defence of the defendants is framed, I will deal with each of the four paragraphs of the defence which put the case against the plaintiff.

15. Paragraph 28 is concerned with inequality of bargaining power.  The perceived inequality arises in a transaction which is no different to that which invariably exists between any borrower and a lender.  The unfortunate events which led to the first‑named defendant's disability have rendered the defendants a defaulting party who are at law no different from any other defaulting party.  The fact the plaintiff may have a strong bargaining position is not evidence of unconscionability.  The defendants need to point to conduct that took unconscientious advantage of the plaintiff's strong position.  There is no evidence that the plaintiff misused or took advantage of any perceived inequality.

16. By par 29.1 the defendants allege the plaintiff failed to 'consider adequately or at all the defendants' request' for relief from repayment obligation.  But that is not what the evidence shows.  The correspondence and call logs taken together show the defendants' request had been considered and the matters raised by the defendants taken into account.  The fact the plaintiff did not agree to an extension is not in and of itself evidence the request was not considered.

17. By par 29.2 it is alleged issuing the default notice was in some way improper.  But the defendants were in default and the issuing of a default notice in such circumstances cannot give rise to a defence.  The same is true with respect to issuing these proceedings.  The plaintiff in seeking to enforce its rights is not acting improperly.

18. It is alleged by par 30.1 of the defence the plaintiff failed to act consistently with the 'promoted persona'.  With respect this plea is meaningless and provides no basis for defence.

19. By par 30.2 it is alleged the plaintiff failed to act in accordance with 'banking code' obligations.  No particulars of this allegation are provided.  However, the plaintiff acknowledges it subscribes to the 'Mutual Banking Code of Practice' and it voluntarily follows that code.  The code requires the plaintiff to work with a borrower constructively to see if financial difficulties can be overcome, taking into account a number of factors including short term and long term financial issues.  The code does not require a particular result to be achieved to the advantage of the borrower and it does not require the plaintiff to conduct itself in a way that does not protect its own interests.  The intention of the relevant sections of the code is to ensure that adequate processes are in place to facilitate the assessment and provision of financial assistance in appropriate cases.

20. It is clear from the evidence, on any proper assessment the plaintiff has conducted itself in accordance with the provisions of the code, particularly s 24.  It has provided an indulgence and forbearance to the defendants over a considerable period of time.

21. Finally, an issue was raised by the defendants as to the lender's mortgage insurance.  The plaintiff has declined to provide information to the defendants about the position of the plaintiff's mortgage insurer.  They were quite right to do so.  It is irrelevant to the issues in this action.

22. The purpose of lender's mortgage insurance is to reduce the risk of loss for the mortgagee if the security is insufficient to cover the debt after a sale.  The mortgagee enters into the policy with the insurer for that reason and for its own benefit.  The fact the cost of the premium is passed on to the borrower does not change the nature of that arrangement.  The policy is not for the benefit of the borrower and it provides no protection to the borrower from the risk of loss were the value of the security insufficient.  The insurer would have a right of subrogation to cover the loss they sustained.

23. In all the circumstances, I am satisfied judgment ought be entered for the plaintiff.  In accordance with usual practice, I will allow the defendants 28 days to provide delivery up of the property.  The costs of this application and the costs of the action generally should be paid by the defendants.