Westpac Banking Corporation v Anderson
[2017] VCC 1519
•1 November 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BANKING AND FINANCE LIST
Case No. CI-15-01507
| WESTPAC BANKING CORPORATION (ABN 33 007 457 141) | Plaintiff |
| Defendant by Counterclaim | |
| V | |
| LENA ANNIKA ANDERSON | Defendant Plaintiff by Counterclaim |
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JUDGE: | HER HONOUR JUDGE A M RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4, 5, 6, 7 and 14 September 2017 | |
DATE OF JUDGMENT: | 1 November 2017 | |
CASE MAY BE CITED AS: | Westpac Banking Corporation v Anderson | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1519 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT
Catchwords: CONTRACT – plaintiff seeking to recover judgment debt - whether plaintiff entitled to debit enforcement expenses from defendant’s loan account without telling her first – was the defendant entitled to cease paying her monthly repayments because of the plaintiff’s conduct – did the plaintiff breach any implied term to act reasonably and in good faith
UNCONSCIONABILITY – whether the plaintiff acted unconscionably under the Australian Securities and Investments Commission Act 2001 (Cth)
PRACTICE AND PROCEDURE – did the plaintiff engage in an abuse of process by later reversing the disputed payment and making a second summary judgment application
LOSS AND DAMAGE – losses claimed by the defendant, including loss of income, not caused by any breach of contract or unconscionable conduct on the part of the plaintiff
Legislation Cited: Australian Securities and Investment Commission Act 2001 (Cth)
Civil Procedure Act 2010 (Vic)
Competition and Consumer Act 2010 (Cth)
County Court (Chapter 1 Amendment No 9) Rules 2015 (Vic)
Limitation of ActionsAct 1958 (Vic)
National Consumer Credit Protection Act 2009 (Cth)
Owners Corporation Act 2006 (Vic)
Cases Cited:Anderson v Owners Corporation & Ors [2012] VCAT 1388
Anderson v Westpac Banking Corporation [2016] VCC 119
Anderson v Westpac Banking Corporation [2016] VSCA 172
Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557
Burbank Australia Pty Ltd v Owners Corporation [2015] VSC 160
Cameron v Qantas Airways Ltd (1995) 55 FCR 147
Commonwealth Bank of Australia v Ozden [2013] VCC 94
Commonwealth Bank of Australia v Stephens [2017] VSC 385
D A Christie Pty Ltd v Baker [1996] 2 VR 582
Director of Consumer Affairs (Vic) v Scully [2013] VSCA 292
Director of Consumer Affairs (Vic) v Scully (No 3) [2012] VSC 444
Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7
GE Capital Australia v Davies & Ors [2002] NSWSC 1146
Hadley v Baxendale (1854) 9 Exch 341
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152
Masters Home Improvements Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88
National Australia Bank Ltd v Rice [2015] VSC 10
National Australia Bank Ltd v Rose [2016] VSCA 169
Nominal Defendant v Manning (2000) 50 NSWLR 139
Paciocco v Australia and New Zealand Banking Group (2016) 258 CLR 525
Qantas v Cameron (1996) 66 FCR 246
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429
Sam Management Services (Australia) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320
Stubbings v Jams 2 Pty Ltd [2017] VSC 404
Tonto Home Loans Australia Pty Ltd v Tavares [2011] 15 BPR 29,699
Violet Home Loans Pty Ltd v Schmidt (2013) 44 VR 202
Westpac Banking Corporation v Anderson [2015] VCC 1117
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hay | Gadens Lawyers |
| For the Defendant | In person |
HER HONOUR:
Introduction
1 The defendant (“Ms Anderson”) is the registered proprietor of Unit 2, 16 Yarra Avenue, Reservoir (“the property”).[1] She purchased the property in 2009 with funds advanced by St. George Bank Limited (“St. George”) split into two loans. The plaintiff (“the bank”) is St. George’s successor in law and is entitled to bring these proceedings in its own name.
[1]Being Lot 2 on Plan of Subdivision 621012F and described in Certificate of Title Volume 11118 Folio 843.
2 On 24 March 2014, the bank debited $22,369.68 (“the disputed payment”) from Ms Anderson’s first loan account and paid this sum to the manager of Owners Corporation PS621012F (“the Owners Corporation”) appointed to the property. The disputed payment related to costs and unpaid fees arising from an ongoing dispute between Ms Anderson and the Owners Corporation. The bank did not contact Ms Anderson before debiting her account. In response to the bank’s action, Ms Anderson ceased making monthly instalments due under both loans. She stopped paying on 18 May 2014 and remains in arrears, subject to her counterclaim that her failure to pay instalments was due to the conduct of the bank.
3 The bank seeks to recover the sums said to be owing by way of a judgment debt.[2] An order for possession has already been made in the bank’s favour. Ms Anderson alleges the bank was not entitled to debit her account and it breached various contractual and statutory obligations in doing so. A central plank of her defence is that she was not indebted to the Owners Corporation in the amounts alleged. Ms Anderson counterclaims for damages said to have been caused by the bank’s alleged unconscionable conduct, including a claim for loss of income.
[2]Exhibit “P1”, “Dobbs” certificate tendered by the bank shows the level of indebtedness as at 4 September 2017.
4 The following issues arise for consideration:
(a) was the bank entitled to make the disputed payment;
(b) was Ms Anderson entitled to stop paying her monthly loan repayments;
(c) can Ms Anderson recover damages from the bank, including her claim for lost income.
5 For the following reasons, the bank is entitled to judgment for the debt claimed and the counterclaim is dismissed.
Background
6Ms Anderson entered into two loan agreements with St. George on 21 January 2009. The first loan agreement was a “no deposit home loan” in the sum of $168,000 with a fixed interest rate. The second loan agreement was a “no deposit home loan” in the amount of $112,000 at a variable interest rate (‘the second loan agreement”). The term of each loan was 23 years.
7The two loans were secured by a registered first mortgage over the property dated 17 March 2009. Ms Anderson became the sole registered proprietor of the property on 17 March 2009.
8Ms Anderson admits in her defence that she entered into the loans, executed the mortgage and that St. George advanced the funds under the two loan agreements. She also admits that she is in arrears and did not remedy the default. But she says, further, that her failure to remedy the default was due to the conduct of the bank which is the subject of her counterclaim.
9On 1 March 2010, the bank became St. George’s successor in law and all assets and liabilities of St. George became assets and liabilities of the bank.
10The property is one of three units in the relevant subdivision with the common property principally being a shared driveway. Ms Anderson’s unit is in the middle. Units 1 and 3 are tenanted and owned by a married couple who developed the site. Ms Anderson has a long and troubled history of disputation with her neighbours, the Owners Corporation and the manager appointed by the Owners Corporation, Jeffrey E McLean & Co Pty Ltd (“the Manager”).
11 On or about 3 March 2014, the bank received a letter from LMS Lawyers dated 25 February 2014, solicitors acting on behalf of the Owners Corporation and the Manager. LMS Lawyers advised that:
(i) the Owners Corporation had obtained an order from the Supreme Court of Victoria for costs in the sum of $10,325 against Ms Anderson (“the costs order”);
(ii) the Owners Corporation had filed a warrant of seizure and sale which was to be executed by the Sheriff unless payment of $22,369.68, being the costs order sum of $10,325, plus $12,044.68 representing additional sums owed by Ms Anderson to the Owners Corporation, was made by 11 March 2014;
(iii) the Owners Corporation was currently facing financial difficulties in respect of complying with its statutory obligations including paying for appropriate insurance;
(iv) it was wishing to put the bank on notice of these matters and enquired as to whether the bank as mortgagee intended to take any action having regard to the circumstances.
12 The letter attached a copy of the costs order and a final fee notice.
13 Ms Anderson was served with a Sherriff’s warrant dated 11 February 2014 for $11,082 on 11 March 2014. This represented the costs order and interest on that sum.
14 Following receipt of the letter from LMS Lawyers, the bank determined to pay the disputed payment. On 24 March 2014, the bank paid $22,369.38 to the Manager by way of an electronic funds transfer and debited that amount from Ms Anderson’s first loan agreement account. The debiting of the disputed payment resulted in the balance of the first loan account increasing from $149,320.71 to $171,069.39.
15 The bank did not contact Ms Anderson following receipt of the letter from LMS Lawyers, nor did it contact her before debiting the first loan agreement account. It is also common ground that the bank relied upon the matters stated in LMS Lawyers’ letter and made no enquires of the firm. The bank’s case is that it paid the disputed payment to prevent the Owners Corporation from seizing and selling the land.
16 Mr Curtis, a legal manager in the dispute resolution section of the bank, gave evidence that LMS Lawyers’ letter was sent to the collections area of St. George. The matter was reviewed by four bank officers in ascending hierarchy who approved the payment. The document in evidence records the four stamps of the officers concerned.
17 Due to what was described by Mr Curtis as a processing error, the account was not placed into an arrears status which would have automatically triggered a notice to the customer. He also gave evidence that the payment was made because the bank tries to preserve its security.
18 Ms Anderson only discovered the debit when she was checking her bank statements some weeks later on 21 April 2014. This understandably caused her considerable distress. She rang the bank that day to complain about the debiting of her account and also lodged an online complaint. Ms Anderson disputed the amounts which had been claimed. In her online complaint, she stated there was a warrant issued for $11,082.03 on 14 February 2014 which she claimed was the subject of police investigation, being a fraudulent claim for costs that had already been paid by insurance. She went on to say that the amount had been paid twice by the bank which was inexcusable in itself but not to inform her of the claim was “totally reprehensible”. She requested the bank immediately repay the double payment of $11,185 to her account and adjust interest accordingly. Ms Anderson stated that if this repayment was not received within 7 days, she would contact the Financial Services Ombudsman (“FOS”). Ms Anderson also wrote a letter to the Chief Executive Officer (“CEO”) of the bank on 22 April 2014 and made further phone calls seeking information. She gave evidence that her requests for information went unanswered and she was told to file a complaint with FOS or get a lawyer. Ms Anderson did lodge a complaint with FOS.
19 Mr Curtis gave evidence about St. George’s policy in March 2014 in respect of debiting customers’ accounts. He said the collections area did not contact customers when they made drawings on the customers’ accounts to pay rates, land tax or owners corporation fees. Since then, the practice adopted by Westpac has been uniformly applied, namely, a letter is sent to the customer about the proposed debit, a telephone call is made and if no response, a follow up second letter is sent. If there is still no response by the customer, the bank will then determine what to do. Self-evidently, that policy is preferable to the no contact policy previously adopted by St George. Mr Curtis said the bank gets a number of unpaid rates matters all the time in the consumer area, so the bank has to decide whether to pay the outstanding taxes or not but every case is judged on its individual merits.
20 The regular minimum repayment due on the first loan agreement reduced from $1,244 down to $1,066 on 30 March 2014, notwithstanding the balance had increased as a result of the disputed payment.
21 On 30 April 2014, the bank wrote to Ms Anderson responding to concerns she had raised with FOS and the bank’s CEO on 22 April 2014. The bank advised that it was entitled to debit the account relying upon clause 27 of the “Residential Loan Agreement General Terms and Conditions” which it then set out in full. A copy of the Terms and Conditions brochure was attached to the letter as well as a copy of LMS Lawyers’ letter which had been requested by Ms Anderson. Relevantly, the bank stated as follows:
“The bank paid the costs of $22,369.68 in order to preserve the mortgage security from being seized and sold. The bank has acted appropriately in this matter and complied with the terms and conditions set out for your loan.
As we have acted appropriately the funds will not be returned to you (sic) Home Loan account.
If in the mean time you have made a payment yourself for the outstanding debt amount in addition to the funds paid by the bank, you will need to contact the body the funds were paid to in order to receive a refund.”
The letter concluded by noting that if Ms Anderson was not satisfied with this final response, the bank would await the outcome of any investigation completed by FOS.
22 Ms Anderson replied by letter dated 5 May 2014. Omitting the formal parts, the letter is as follows:
“1. The Supreme Court Taxation Order/Sheriff’s warrant for $11.082.03 is INCLUSIVE of the costs in the Fee Notice. A copy of the Warrant is attached. While the Order that gave rise to this is the subject of a police investigation it is accepted that this amount could legally have been deducted from my account on the basis that a warrant existed to seize property of this value. As the mortgagee however I should have been notified. In this case I would then have applied for an injunction until the police investigation was finalized. It should always have been my decision as to how these costs were paid.
2. The Bank of Melbourne had no authority to pay on the basis of a fee notice or lawyers letter as neither are a legally binding claim and, as already mentioned, the costs are already included in the above. LMS Lawyers has defrauded the Bank by claiming these fees twice and the bank has been negligent in paying them. This is a significant breach of security and the bank must reimburse and recover the costs from LMS Lawyers. I will not be incurring legal expenses for an obviously fraudulent claim being mistakenly paid by the bank. At no time could LMS Lawyers have seized property on the basis of this fee notice or letter therefore the mortgage security was never at risk so Section 27 of the Loan Agreement does not apply.
Until this matter is resolved I am holding my mortgage payments in a safe account with a separate bank.”
23 The bank sent an email on 5 May 2014 in response saying that the matter had been investigated and appropriately responded to by the Customer Relations team.
24 Ms Anderson lodged a second dispute form with FOS dated 6 May 2014. She reiterated her stance in the dispute form that due to her serious concerns about the obvious ignorance of bank staff and lax security measures, she was placing her mortgage payments in a safe separate account outside the bank until the matter was investigated.
25 On 18 May 2014, Ms Anderson failed to make the minimum monthly payments due under the first and second loan accounts. She has not made any payments since.
26 On 26 May 2014, Ms Anderson sent an email to her employer, Berry Street Victoria (“Berry Street”), giving notice of her resignation of employment. The reasons why she resigned are in dispute and are relevant to the issue of her entitlement to claim loss of income as part of her counterclaim.
27 The bank wrote to Ms Anderson on 10 June 2014 referring to correspondence received from FOS and providing the bank’s response. The bank confirmed it was entitled to pay the debited amount in order to preserve the mortgage security from being seized and sold. The bank referred to various clauses in its Memorandum of Common Provisions, in particular Clauses 2, 17.3(a), 18 and 19. The author, Mr Colquhoun, an external dispute manager of the bank, also referred to the fact that both loan accounts were in arrears and that Ms Anderson was being charged interest on a higher balance than she would otherwise be if she was making repayments. The letter concluded with the following paragraph:
“We encourage you to recommence payments if possible. Alternatively, if you require financial assistance we are happy to assess. Please feel free to contact me directly if you would like to discuss any of these options.”
28 Ms Anderson replied to Mr Colquhoun by email dated 18 June 2014. She again challenged the legitimacy of the bank’s action and confirmed she had “frozen payments into those accounts until the matter has been resolved and the bank has taken corrective action.”
29 On or about 2 July 2014, Ms Anderson received a default notice from the bank. This was later withdrawn when she reminded the bank that it could not pursue enforcement whilst the dispute with FOS was under investigation.
30 FOS reported by way of letter to the bank and Ms Anderson on 2 July 2014. FOS advised Ms Anderson it was not apparent that her claim could be made out and therefore FOS had decided to cease consideration of the dispute. This response was not acceptable to Ms Anderson. After receiving further communications from Ms Anderson, FOS determined it was appropriate for the dispute to proceed directly to an Ombudsman Determination. FOS wrote to the bank on 29 August 2014 advising the bank of its intended course and sought further information from the bank.
31 The bank replied to FOS on 12 September 2014 by email. Mr Colquhoun confirmed the bank had not contacted Ms Anderson before making the debit; it had relied on the information provided by LMS Lawyers and it had made no enquiries of the Owners Corporation directly. As to the lack of notice to Ms Anderson, the bank described this as a one-off processing error on its part. It stated the normal process when enforcement costs are charged is that the bank puts the account into arrears which initiates contact to the customer by phone and email. The bank said it wished to resolve the dispute and agreed that it would have been polite to contact Ms Anderson when it received the letter from LMS Lawyers and apologised for not doing so. The bank went on to say that it was more than happy to help Ms Anderson with bringing her arrears up to date and was open to considering interest adjustments on the extra interest incurred while payments have not been made as a gesture of goodwill. The bank referred to a change in its response to these type of orders and payments. It said it “now made attempts to contact the borrower prior to processing any payments and charging the loan account. … The proposed change is not due to any legal requirements but to improve the customer engagement.”
32 On 19 September 2014, LMS Lawyers wrote to Mr Colquhoun of the bank. This was in response to a query made by the bank about the suggestion of a double payment. The firm confirmed the amounts were owing and it was not aware of any factors that would result in the amount of $12,044.68 being a double payment.
33 On 23 October 2014, Ms Anderson sent an email to Mr Colquhoun requesting financial assistance to cover living and health expenses until the dispute was settled and her health recovered so she could return to work. She requested access to $10,000 being the equivalent of just over five weeks salary that she would have earned had the dispute not occurred. She suggested that this sum could be put against her mortgage account until settlement of her claim. The bank did not accede to Ms Anderson’s request. Ms Anderson wrote a further letter of complaint to the CEO of the bank on 24 October 2014, to which she said she received no response.
34 Ms Anderson subsequently chose to withdraw her complaint with FOS as she perceived she would not receive a fair outcome. She wrote a letter to FOS on 26 October 2014, in which she advised she had serious doubts about the independence of FOS and its expertise to make a determination. Ms Anderson said if she did not receive a determination by 30 October 2014 she would withdraw her complaint and “ask the bank to instigate default action so that the matter could proceed to court for settlement”. She gave notice of her intention to write to Australian Securities and Investments Commission (“ASIC”) to seek a review of FOS’s investigative procedures.
35 On 29 October 2014, Ms Anderson sent an email to the bank and copied to FOS, stating she had withdrawn her dispute with FOS due to the unreasonable delays in providing a determination and her concerns about its independence from the bank. She went on to say that she had lodged separate complaints about the bank and FOS with ASIC. Ms Anderson also wrote a letter on 29 October 2014 to the bank confirming she had lodged a complaint with ASIC which was separate to her financial claim against the bank and this should not delay the bank instituting default action so she could lodge a formal counterclaim for her financial losses. Significantly, she stated “I will not be making any repayments until I am repaid in full.”
36 Mr Colquhoun of the bank emailed Ms Anderson on 31 October 2014 noting that the case with FOS was closed and that the bank can recommence collection activity. He went on to say:
“Given the matter is not resolved and the stress previously caused I wanted to confirm that you do want the Bank to recommence this process which will involve phone calls, letters etc. As stated previously we are more than happy to hold collection activity if you require assistance or want to come to an arrangement to clear the arrears.”
37 This was met with a reply from Ms Anderson in an email dated 31 October 2014 who said that the bank could start whenever it liked but she would not be engaging in phone calls.
38 Thereafter events took a predictable course and the bank sought to enforce its rights. The bank served a notice of default on 14 January 2015 which was not remedied. A writ seeking possession was filed on 30 March 2015. The bank brought a summary judgment application which was dismissed on 17 August 2015.[3]
[3]Westpac Banking Corporation v Anderson [2015] VCC 1117
39 Ms Anderson obtained employment in October 2015 and has remained employed since.
40 On 15 October 2015, the bank reversed the disputed payment in the first loan account together with interest on that amount in the sum of $1,768.25. The bank’s lawyers sent a letter to Ms Anderson dated 15 October 2015 advising her of this and noting the reversal was made without an admission of liability or wrongdoing.
41 Following the reversal, the bank amended its pleading to include a claim for debt in addition to the order sought for possession.
42 On 16 October 2015, the bank filed a second application for summary judgment seeking possession and judgment on the debt claim. On 1 March 2016, Judge Cosgrave made an order for possession in favour of the bank but declined to make an order in respect of the debt claim and otherwise dismissed the application.[4]
[4][2016] VCC 119
43 These orders were the subject of applications for leave to appeal in the Court of Appeal in Anderson v Westpac Banking Corporation.[5] The bank’s application for leave to appeal was dismissed. Ms Anderson’s application for leave to appeal remains extant pending the outcome of the trial on the debt claim in this proceeding. One of the matters raised but not finally determined by the Court of Appeal was whether it was proper for the bank to have made a second summary judgment application.
[5][2016] VSCA 172
44 Following the hearing in the Court of Appeal, Ms Anderson amended her defence and counterclaim to allege the reversal of the disputed payment and the making of the second summary judgment application was an abuse of process.
Applicable terms and conditions in the loan agreements and mortgage
45 The terms and conditions in respect of the first and second loan agreements are contained in a document entitled “Residential Loan Agreement General Terms and Conditions” with an effective date of 21 July 2008. The bank relies upon a number of the terms and conditions set out in that document. The first clause relied upon is Clause 5, which provides as follows:
“What you must pay
You must:
• repay all amounts you borrow from us,
and you must also pay us:
• interest charges;
• any default interest charges;
• our fees and charges and government charges; and
• enforcement expenses under clause 27.
You authorise us to debit these amounts to your loan account. We may do so on or after the date we pay them or the date they become due or payable by you or us (whichever is earlier).
You must pay all amounts due under this loan agreement in full without setting off amounts you believe we owe you and without counterclaiming amounts from us.”
46 Clause 27 relates to enforcement expenses. It states as follows:
“Enforcement expenses may become payable under this loan agreement and under any security in the event of a breach.
You must pay us, when we ask, any reasonable expenses we reasonably incur in enforcing this loan agreement or a security after you are in default (including in the case of a mortgage security, expenses incurred in preserving and maintaining the property such as by paying insurance, rates and taxes for the property). We may debit these expenses to your loan account so that they are included in the balance owing on your loan account. We do not have to tell you first.”
47 Clause 28 relates to default. It provides as follows:
“When are you in default?
You are in default if:
• you do not pay on time all amounts due under this loan agreement or any security; or
• you do something you agree not to do, or don’t do something you agree to do under this loan agreement; or
• you give, or another person acting on your behalf gives, us materially incorrect or misleading information in connection with this loan agreement or a security; or
• we reasonably believe that you or another person has acted fraudulently in connection with this loan agreement or a security; or
• you are, or a person other than you who provides a security is, in default under a security or withdraws from it; or
• you become, or a person other than you who provides a security becomes, bankrupt or insolvent or steps are taken to make you or them so.”
48 Clause 29 relates to default and provides that the bank may give a notice stating that the borrower is in default. Unless the default is corrected within the period set out in the notice or required by law, then at the end of the period and without further notice, the total amount owing becomes immediately due for payment (to the extent it is not already due for payment). The bank then may take action to recover that amount or enforce any security, or do both.
49 The bank also relies upon the terms and conditions contained in the Memorandum of Common Provisions (“MCP”) incorporated into the mortgage dated 16 March 2009. The relevant clauses relied upon are as follows:
“Rates, taxes and levies
2. You must pay on time all amounts for which you are liable as owner of the property, including rates, taxes and shared scheme levies.”
50 “Shared scheme” is defined as:
“Shared scheme means each scheme or plan regulated by a shared scheme law that affects the property. Examples of properties which are often part of a shared scheme are strata or stratum title home units and town houses and properties in integrated developments.
Shared scheme law means any legislation that provides for the:
·subdivision and development of land with shared property; or
·subdivision of buildings; or
·management of land which is subdivided and has shared property; or
·management of subdivided buildings.”
51Clause 3.2(b) imposes an obligation upon the mortgagor to comply with all laws and requirements of authorities and other obligations in connection with the property.
52Clause 17 of the MCP relates to costs, indemnities and interest. The bank relies specifically upon clause 17.3 which provides:
“You indemnify us against, and you must therefore pay us for, liability, loss or costs (including consequential or economic loss) we suffer or incur:
(a)if you default under this mortgage (in which case you will also be liable for any loss arising because we require repayment of the amount owing earlier than its due date); or
(b)in connection with the property or our monitoring of works.”
53 Clause 18 deals with the things that the bank may do at any time. Clause 18.4 states:
“We may do anything which you should have done under this mortgage but which you have either not done or in our opinion have not done properly. If we do so, you must pay our expenses in accordance with clause 17 or 21.”
54Acts which constitute a default are set out in clause 19. A default includes, under 19(b) if “you do something you agree not to do, or you don’t do something you agree to do, under this mortgage or an agreement covered by this mortgage;”.
55Clause 20 relates to the powers of the bank in respect of its entitlement to take action consequent upon a default by the borrower which includes suing for the amounts owing and taking possession of the property.
56 Clause 21 deals with enforcement expenses and states:
“When we ask, you must pay us the reasonable expenses we reasonably incur in enforcing this mortgage after you are in default (including in preserving and maintaining the property – such as by paying insurance, rates and taxes for the property). This applies to expenses we incur before or after taking action under clause 20.”
57General matters are covered by Clause 23. It provides as follows:
“Setting off money
23. Except to the extent you have a right of set-off granted by law which we cannot exclude by agreement (such as under a Consumer Code), you must pay the amount owing in full without setting off amounts you believe we owe you and without counter claiming amounts from us.
We may set off against the amount owing any money we owe you.”
58 The final clause relied upon in the MCP is clause 25. It deals with bank certificates and provides:
“25. We may give you a certificate about a matter or about an amount payable in connection with this mortgage. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect.”
Was the bank entitled to debit the disputed payment?
59 For the bank to rely upon clause 27 of the first loan agreement, it must be shown not only that the expenses debited to Ms Anderson’s account were reasonable and reasonably incurred, but that she was in default when the disputed payment was made. Ms Anderson disputes she was ever in default and says further, the bank was not entitled to debit her account without asking her first which it did not do.
60 Ms Anderson had a long standing dispute with the Owners Corporation, the Manager and the other lot owners regarding numerous matters, including the right to charge her increased annual levies. She refused to pay fee notices that were sent to her claiming they were invalid.
61 The Owners Corporation brought an application in VCAT to recover unpaid fees from Ms Anderson on 20 June 2011. On 26 July 2011, VCAT ordered Ms Anderson pay the outstanding fees in the sum of $1,243.02 plus costs of $650.00. These sums were paid by her.
62 On 11 July 2011, Ms Anderson forwarded an application to VCAT. She made various complaints in her application about the alleged misconduct of the other lot owners, the Manager and the former manager, a real estate agent.[6] The Owners Corporation was joined as a respondent subsequently. This proceeding had a tortuous history. Mr McLean gave evidence on behalf of the manager, that he had attended VCAT on 16 occasions.
[6]Exhibit “D9” contains a copy of both VCAT applications and the order made on 26 July 2011.
63 At an AGM of the Owners Corporation held on 12 July 2012, the members present passed an interim special resolution to raise a special levy of $12,000 per lot to cover the costs of the Owners Corporation in defending the VCAT proceeding. Ms Anderson was not present at the AGM. The Manager sent the minutes of the meeting to Ms Anderson under cover of a letter dated 20 July 2012. Ms Anderson disputes she is liable to pay the special levy of $12,000 and has not done so.
64 In final submissions, the bank drew to the Court’s attention the fact that the letter sent by Mr Mclean on 20 July 2012 did not comply with s97(4) of the Owners Corporation Act 2006 (Vic) (“the OC Act”). The letter did not state, as it should have done, that the interim special resolution would become a special resolution at the end of 29 days after it had been passed unless lot owners who held more than 25% of the total votes for all the lots affected petitioned the secretary against the resolution. The effect of non-compliance with s97(4) results in a procedural irregularity with the result that the interim special resolution did not become a special resolution by the passing of time.[7] The bank notes that this technical non-compliance with the OC Act was not known to it at the time it made the disputed payment and only became apparent during the course of the trial. LMS Lawyers and the Manager had proceeded on the basis that the special resolution had been validly passed. Additionally, neither Ms Anderson nor any of the lawyers who had acted for her previously raised the issue of possible non-compliance with s97(4).
[7]Burbank Australia Pty Ltd v Owners Corporation [2015] VSC 160, [38] – [39]
65 Following three days of hearing, Senior Member Megay made orders on 11 September 2012 dismissing Ms Anderson’s application, with costs reserved.[8]
[8]Anderson v Owners Corporation & Ors [2012] VCAT 1388
66 On 10 December 2012, the Owners Corporation and the Manager made an application for costs on an indemnity basis in the sum of approximately $33,000. Senior Member Megay ordered those parties’ costs to be taxed in accordance with Magistrates’ Court Scale E.
67 Tisher Liner, acting on behalf of Ms Anderson, wrote to LMS Lawyers on 1 August 2013 advising that Ms Anderson was willing to pay the sum of $5,440 in order to discharge her debts to the Owners Corporation. Ms Anderson gave evidence she paid $5,000 and $440 to the Owners Corporation in August 2013. The sum of $5,440 was applied towards amounts then owed by her to the Owners Corporation. According to the evidence of Mrs McLean, the bookkeeper employed by the Manager, this amount was insufficient to discharge Ms Anderson’s indebtedness and she remained in arrears.
68 Ms Anderson engaged Ms Elizabeth Ruddle of counsel to advise on various matters arising from the VCAT decision. She provided a memorandum of advice dated 20 March 2013 in which she advised, inter alia, that she did not consider the decision was appealable. Ms Anderson and Mr Recht of Tisher Liner met with counsel to discuss her advice. Mr Recht gave evidence that it was explained to Ms Anderson that she did not have any reasonable prospects of success on appeal. Ms Anderson did not appeal the VCAT decision.
69 The costs of the VCAT proceeding were subsequently taxed in the Supreme Court and fixed in the sum of $10,325 by order of Costs Registrar Deviny on 24 September 2013.
70 Ms Anderson challenges the claim made by the Owners Corporation for fees on a number of bases, many of which she agitated unsuccessfully in VCAT. Her various complaints included allegations that LMS Lawyers had not been properly appointed as no special resolution had been passed; the Manager was not authorised to act as the Manager’s contract had expired; and LMS Lawyers’ costs had already been paid by an insurer and therefore, were not owing.
71 Ms Anderson did argue there was an element of double dipping with the disputed payment and there may be some justification for this view. Ms Anderson was ordered to pay the taxed costs of $10,325 which she has not paid. This sum represents the costs ordered against her as a losing party in the VCAT proceeding. If she were to pay the $12,000 special levy claimed as well, then she would bear some $22,000 of LMS Lawyers’ fees incurred totalling around $33,000. If Ms Anderson paid both the special levy and the costs order, her share would be disproportionately greater than the other lot owners. This in turn could be a breach of s28(2) of the OC Act which provides that a lot owner should not have to pay more than its proportionate share.
72 The Owners Corporation did receive funds from its insurer, CHU Insurance to cover the costs of defending the proceeding at VCAT. The Manger refunded the amount of the costs order of $10,325 to the insurer from the funds it received from the bank, representing part of the costs incurred in defending the proceeding at VCAT. Ms Anderson did not appreciate that an insurer has a right of subrogation and CHU Insurance was entitled to recoup any funds received by its insured, being the Owners Corporation in respect of defence costs. Her complaint that the Owners Corporation and/or LMS Lawyers engaged in fraud by claiming LMS Lawyers’ fees when it had received funds from its insurer is unfounded. Similarly, her complaint that the Manager was not validly appointed is not borne out. Mr McLean gave evidence that the Manager’s contract was validly renewed on 11 May 2013 until 11 May 2016, which I accept. The Manager was entitled to be indemnified in respect of the costs incurred in paying LMS Lawyers’ fees under the management agreement. The Owners Corporation did not need to pass a special resolution under s18 of the OC Act to engage LMS Lawyers to defend the VCAT proceeding. Ultimately, these matters go nowhere in any event, as Ms Anderson was under a legal obligation to pay the taxed costs about which there can be no debate.
73 Ms Anderson did not appeal the order dismissing her application at VCAT nor the order for costs made against her. As such, these orders were binding upon her as was the order in the Supreme Court taxing those costs. An appeal from Registrar Deviny’s order to Woods AsJ was dismissed on 1 February 2015. Consequently, Ms Anderson was indebted to the Owners Corporation in the sum of $10,325. This figure had increased to $11,082.03 by 14 February 2014 with the addition of interest payable. On one view, Ms Anderson has achieved a windfall in that the disputed payment extinguished her liability to the Owners Corporation and prevented the property from being sold and the bank has since reversed the payment.
74 Ms Anderson was much aggrieved by the turn of events surrounding the disputed payment. She has lodged multiple complaints against various entities without receiving any positive outcome. These include:
(a) a complaint about LMS Lawyers to the Legal Services Commissioner;
(b) a complaint to Consumer Affairs Victoria about the Manager;
(c) a complaint to the President of VCAT about the conduct of Senior Member Megay;
(d) letters to Attorney Generals Clark and Pakula complaining about her treatment at VCAT;
(e) a letter to the Premier, Mr Andrews, complaining about the failure of her local member to respond on her behalf to the Attorney General;
(e) complaints to the Chief Commissioner of Police, the Minster for Police, Professional Standards Command and IBAC for failures to investigate her allegations of fraud made against the Owners Corporation and its lawyers, in circumstances where she was advised by the police that no crime had been committed. [9]
[9]A number of the complaints are contained in PFSCB.
75 Clause 2 the MCP requires the amount in question to be incurred as “owner of the property” and includes all “shared scheme levies”. Fees levied by an owners corporation would fall within the definition of a shared scheme levy. The costs order was made against Ms Anderson as a party to a proceeding at VCAT defended by the Owners Corporation and the Manager. This might raise an issue as to whether the costs order arises against her in her capacity as “owner”. The bank submitted that it did so because the costs liability was intimately connected with her ownership of the property and would not have arisen if Ms Anderson did not own the property. The claims made in her VCAT application were made in her capacity as an owner alleging breaches on the part of the Manager, the Owners Corporation and the other lot owners. It is axiomatic that the liability to pay the legal costs would not have been incurred unless Ms Anderson was the owner of the property and therefore, the threshold requirement in clause 2 is satisfied.
76 Having regard to the failure to comply with s97(4), the special levy is arguably invalid. I am prepared to accept that Ms Anderson was not in default in failing to pay the special levy of $12,000 because of the non-compliance with s97(4).
77 I accept the evidence of Mrs McLean, the bookkeeper and office manager of the Manager, that Ms Anderson was in default as at the date of the disputed payment in respect of outstanding rates and interest on those sums, leaving aside the costs order and special levy. This is reflected in the final fee notice sent to the bank by LMS Lawyers where there are fees listed as being payable every six months. Ms Anderson also gave evidence that she refused to pay rate notices sent to her by the Manager and would routinely return envelopes from the Manager unopened.
78 I find that Ms Anderson was in default at the time the disputed payment was debited from her account. The quantum of the amount in default is not as high as the sum claimed in LMS Lawyers’ letter having regard to the difficulties associated with the validity of the special levy, but she was still in default.
79 The next issue is whether the disputed payment was reasonable and reasonably incurred by the bank. In my view, the bank was entitled to rely upon the matters contained in LMS Lawyers’ letter as being an accurate account of the instructions the firm received from the Owners Corporation. The letter attached a copy of the Supreme Court order and final fee notice. The letter also stated that the warrant for seizure and sale of the property was “in the process of being executed” and “the process of execution would continue if the costs order and fees remained unpaid”. Payment was requested within 14 days, failing which execution of the warrant “will continue”. The bank had no reason to doubt the accuracy of the matters conveyed by LMS Lawyers.
80 I do not consider the bank was required to embark upon the detailed exercise that has been conducted in this trial in order to assess whether the amounts claimed were properly owing before making the disputed payment. It was not incumbent upon the bank to approach the Owners Corporation directly and bypass its lawyers nor was it required to undertake some form of independent audit of the amounts in question before debiting the account.
81 The bank paid the disputed sum to prevent the property from being seized and sold. In my view, this reason satisfies the requirement that the payment be reasonably incurred. I am also satisfied that the amount sought was reasonable as the bank was entitled to rely upon the matters stated in LMS Lawyers’ letter.
82 Ms Anderson’s case is that clause 27, when properly construed, requires the bank to make a request of the customer before it debits the account. It being common ground that the bank did not ask her first, Ms Anderson submits this was a clear breach on the part of the bank and therefore, the bank was not entitled to debit her first loan account. This submission requires consideration of the construction of clause 27.
83 The object of construction of a clause is to ascertain and give effect to the meaning of the parties. The parties’ intention is objectively judged from the words used, as it is presumed that the parties intended to say what they said. Determining the objective meaning requires ascertaining “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”[10]
“The function of courts is to give effect to the bargain and not to deny its efficacy by a restrictive technical analysis.”[11] The High Court has stated that “no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.”[12]
[10]Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 at [11], as noted in N Seddon, R Bigwood and M Ellinghaus, Cheshire and Fifoot Law of Contract (LexisNexis Butterworths Australia, 10th ed, 2012) at [10.31], p447
[11]John Carter, Carter on Contract (LexisNexis Australia, online edition as at March 2017), [12-030]
[12]Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437
84 The construction of commercial contracts was considered by the High Court in Electricity Generation Corporation v Woodside Energy Ltd[13] where the court reaffirmed the objective approach as follows:
“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”… unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience.” (Footnotes omitted.)
[13][2014] HCA 7 at [35]
85 Having regard to the general principles listed above, the steps required to satisfy clause 27 constitute:
(i) the customer is in default;
(ii) reasonable expenses are reasonably incurred by the bank (that is, a payment is made by the bank) in enforcing the loan agreement or a security after the customer is in default;
(iii) assuming the expenses are reasonably incurred, the wording “you must pay…any reasonable expenses we reasonably incur” (emphasis added) suggests the payment by the bank occurs first and the request for ‘repayment’ comes next. On this reading, the phrase ‘we do not have to tell you first’ has no work to do yet because, as a matter of logic, the expenses will be incurred without notice to the customer;
(iv) the bank can either at its election once it has incurred the expense:
(a) ask the customer to repay the amount, which the customer must pay when asked; or
(b) debit the expenses from the loan account without telling the customer that this will happen.
86 The phrase ‘we do not have to tell you first’ applies to the debiting of the loan account, which the bank can elect to utilise (“we may debit…” (emphasis added) instead of asking the customer for payment. It follows from this analysis the bank did not have to tell Ms Anderson first before debiting her account.
87 Ms Anderson was in default at the relevant time, as her failure to pay the fees owing to the Owners Corporation was an event of default under clause 2 and 19 of the MCP. Under clause 18.4 of the MCP, the bank was entitled to do anything that Ms Anderson should have done but did not do so. The bank also relies upon this provision as providing a proper basis for making the disputed payment. Self-evidently, it was authorised under this clause to make the disputed payment when Ms Anderson had not done so. Clauses 17 and 21 of the MCP requires the borrower to reimburse the bank for expenses it incurs.
88 Clause 5 of the first loan agreement provides that the customer has to pay various amounts, including enforcement expenses under clause 27, and the customer authorises the bank to debit those amounts to the loan account. It follows the bank was entitled to debit Ms Anderson’s account, and in accordance with clause 27, the bank did not have to give her prior notice.
89 Ms Anderson submits the bank did not have to take any action, because its security was never at risk as the value of her home exceeded the amounts lent by the bank, so it would have recovered its funds upon a sale. But this ignores the fact that the bank was entitled to preserve its security and could make the disputed payment if it wished to do so under the security documents, rather than sell up the property, or let another party such as the Owners Corporation sell the property. I reject this submission by Ms Anderson.
90 One last contractual allegation made was the bank had repudiated the loan agreement and mortgage by making the disputed payment. This is pleaded in paragraphs 67 to 69 of the Further Amended Defence and Counterclaim. No plea is then made that Ms Anderson has accepted the alleged repudiation. This claim is not properly pleaded nor borne out factually. I find that the bank did not repudiate the loan agreement when it made the disputed payment which it was entitled to do.
Did the bank breach any implied term to act reasonably and in good faith?
91 Ms Anderson pleads the bank was under an obligation to act reasonably and in good faith. The terms are said to be implied by the agreement; by the need to give business efficacy; under the Banking Code of Conduct and also the Credit Code. It is alleged in paragraph 64 of the Further Amended Defence and Counterclaim the bank breached the implied term of the loan agreement and mortgage to act reasonably and in good faith when it made the disputed payment.
92 The Court of Appeal recently considered the legal principles relating to acting reasonably and in good faith in Masters Home Improvements Pty Ltd v North East Solutions Pty Ltd[14] The court stated at [99]:
“… it is sufficient for present purposes to note that the contractual duty to act reasonably and in good faith encompasses the basic obligations to (a) act honestly and with fidelity to the bargain; (b) not to undermine the bargain or the substance of the contractual benefit bargained for; and (c) to act reasonably and with fair dealing having regard to the interests of the parties (which will commonly, at times be in conflict), and the to the provisions and objectives of the contract, objectively ascertained. The obligation does not require that a party subordinate its legitimate interests to those of the other party. The content of the obligation is informed by the contractual, commercial and factual context” (footnotes omitted.)
[14][2017] VSCA 88
93 The applicable version of the Code of Banking Practice (“Banking Code”) is the 2013 version. The Banking Code is voluntary and sets out standards of good banking practice that banks agree to follow in dealing with their customers or their guarantors (clause 1.1). The bank is a signatory to the Banking Code.
94 Ms Anderson contends, as part of her claim relating to unconscionable conduct, that the bank breached clause 2.2 of the 2004 Banking Code. This clause provides:
“2.2We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.”
95 The equivalent provision in the 2013 Banking Code is clause 3.2 and is in the same terms.
96 The effect of this clause has been considered judicially as being probably no more than requiring a bank to act in good faith towards the customer.[15] While the Banking Code itself does not provide a remedy for any breach, this does not prevent a court granting relief.[16]
[15]Per Young JA in Sam Management Services (Australia) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320 at [74]
[16]National Australia Bank Limited v Rose [2016] VSCA 169
97 By reason of the foregoing, it can be readily assumed the bank was obliged to act reasonably and in good faith towards Ms Anderson. But the circumstances set out in the background facts above do not demonstrate any bad faith, wrongdoing or impropriety on the part of the bank. The bank was entitled to act in the way it did as it was expressly authorised to do so under the terms of the loan agreement and the mortgage. It was made clear during the trial that Ms Anderson was not seeking to set aside any of the bank’s security documentation as part of her case.[17] By relying upon its contractual rights to which both parties had willingly agreed, the bank did not breach any implied term to act reasonably and in good faith. Nor did its conduct in the way it made the disputed payment give rise to a breach of any implied term.
[17]T262
Should the bank have referred the dispute to the Code Compliance Monitoring Committee?
98 Section 32 of the 2013 Banking Code refers to the Code Compliance Monitoring Committee (“CCMC”) as having been established under the Banking Code. It provides that the CCMC’s functions will be to:
(a)investigate and make any determination on allegations from any person that the bank has breached the Code (but the CCMC will not resolve or make any determination in any other matter);
(b)monitor the bank’s compliance under the Code; and
(c)monitor any other aspects of the Code that are referred to the CCMC by the ABA.
99 Ms Anderson raised a complaint at trial regarding the alleged failure by the bank to refer her to the CCMC. While objecting that this complaint was not specifically pleaded, the bank did, however, address the issue at length in final submissions. Ms Anderson argued the bank was required to refer her to the CCMC and because it had not done so, she had been dragged in through the court under sufferance. She claimed she was denied due process because she had not been informed of the CCMC’s existence. Her complaint appeared to be predicated on the assumption that she would have obtained a more favourable outcome at the CCMC, which remains speculative, assuming there was such a requirement on the part of the bank.
100 The CCMC does not resolve disputes between a bank and customer, and it has no involvement in either the bank’s internal dispute resolution process or external dispute resolution process. In respect of the external dispute resolution process, s47 of the National Consumer Credit Protection Act 2009 (Cth) (“the NCCP Act”) requires credit licensees to be a member of an external dispute resolution scheme. The bank is a member of the FOS, which is an external dispute resolution scheme approved by ASIC. The NCCP Act sets out when a credit provider is obliged to inform a customer of their rights to file a complaint with the FOS. Neither the NCCP Act nor the Banking Code requires a credit provider to refer a customer to the CCMC.
101 Furthermore, the matters upon which the CCMC will not investigate include complaints where, amongst other things, the person:
(a)wants compensation, restitution or another type of individual outcome;
(b)wants the CCMC to fine the bank or issue penalties; or
(c)wants the CCMC to declare rights and entitlements.[18]
[18]See the CCMC website at the foregoing and, in particular, because this was a dispute in which Ms Anderson was seeking an individual outcome, I am of the view that the bank was not under any obligation to refer Ms Anderson to the CCMC.
Did the bank act unconscionably?
103 Ms Anderson alleges the bank engaged in unconscionable conduct in four ways: in the performance of the contract; in the dispute resolution process; in the bringing of these proceedings and in the conduct of the present proceedings.
104 Ms Anderson makes a claim for unconscionable conduct under the Australian Consumer Law and s12CB of the Australian Securities and Investment Commission Act 2001 (Cth) (“ASIC Act”). Section 131A of the Competition and Consumer Act 2010 (Cth) provides that the Australian Consumer Law does not apply to the supply, or possible supply, of financial services or financial products. Rather, the provisions for consumer protection in relation to financial services or products are contained in Division 2, Part 2 of the ASIC Act, of which s12CB forms part.
105 Section 12CB (1) provides:
“(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of financial services from a person (other than listed public company)
engage in conduct that is, in all the circumstances, unconscionable.”
106 If s12CB(1) applies, then the “unwritten law” in relation to unconscionable conduct does not apply pursuant to s12CA(2). Ms Anderson pleads unconscionable conduct under s12CB only.
107 Section 12CC(1) of the ASIC Act contains a list of matters which a court may have regard to for the purposes of s12CB. The section provides:
“(1)Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the service recipient; and
(b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and
(e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and
(f) the extent to which the supplier’s conduct towards the service recipient was consistent with the supplier’s conduct in similar transactions between the supplier and other like service recipients; and
(g) if the supplier is a corporation—the requirements of any applicable industry code (see subsection (3)); and
(h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the service recipient:
(i) any intended conduct of the supplier that might affect the interests of the service recipient; and
(ii) any risks to the service recipient arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and
(j)if there is a contract between the supplier and the service recipient for the supply of the financial services:
(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and
(iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and
(l)the extent to which the supplier and the service recipient acted in good faith.”
108 The High Court has addressed the interpretation of ‘unconscionable conduct’ under s12CB(1) in Paciocco v Australia and New Zealand Banking Group, where Gageler J said:[19]
“The statutory question raised by the customers' claim that ANZ engaged in unconscionable conduct within the meaning of s 12CB(1) of the ASIC Act when it entered into and then implemented its standard contractual stipulation for the charging of the late payment fee to Mr Paciocco was whether that conduct was objectively to be characterised as "unconscionable" according to the ordinary meaning of that term, requiring as it does a "high level of moral obloquy" on the part of the person said to have acted unconscionably.[20] The answer to that question necessarily turned on a consideration of that conduct in the context of what s 12CB(1) described as "all the circumstances.”
[19][2016] HCA 28 at [188]
[20]Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 [121]
109 The requirement of ‘moral obloquy’ as part of the prohibition under s12CB was discussed by Elliott J in Stubbings v Jams 2 Pty Ltd:[21]
[21][2017] VSC 404
“E.3 Unconscionability
[32] The associate judge referred to a number of cases when discussing the relevant principles applicable to unconscionability. Proceeding on the basis that statutory unconscionability would be pleaded in due course, her Honour stated that it was a requirement for a defendant to establish ‘moral obloquy on the part of the lender’ before a successful defence could be raised. Such an observation is consistent with some of the relevant authorities. However, the most recent cases suggest that no such specific requirement of ‘moral obloquy’ exists.
[33] In Director of Consumer Affairs Victoria v Scully[22], after observing that it was undesirable to attempt a comprehensive definition of the word ‘unconscionable’, the Court of Appeal made a number of general observations with respect to the correct approach to determining whether certain conduct is ‘unconscionable’.
[34] The first of these was that the word ‘unconscionable’ was intended to have its ordinary meaning. Then, having made various observations concerning indicia that may assist in determining whether or not certain conduct is unconscionable, it was stated that a court must explain what it understands by the words and phrases in the relevant statutory provision and to do so it will be necessary to use words different from those contained in the provision. However, such words are strictly to explain the words used in the statutory provision, not to replace them.
[35] With respect to the meaning of the words ‘moral obloquy’ themselves, Court of Appeal explained
The phrase ‘moral obloquy’ is not itself part of everyday discourse. Most people would have to consult a dictionary to be sure of its meaning. … The phrase suggests the very things that are suggested by other phrases such as ‘import(ing) a pejorative moral judgment’ or ‘highly unethical’.
[36] After observing that a distinctive quality of unconscionable conduct is that it is unethical and must include ‘some degree of moral tainting … of a kind that permits the opprobrium of unconscionability to characterise the [relevant] conduct’, the court expressed its conclusion, implicitly rejecting an approach which simply substituted the phrase ‘moral obloquy’ for the word ‘unconscionable’. [Footnotes omitted.]
[22](2013) 303 ALR 168
110 The interpretation of ‘unconscionable conduct’ was also considered by Sloss J in the recent case of Commonwealth Bank of Australia v Stephens:[23]
“It has been said that unconscionable conduct in the context of such statutory provisions is constituted of ‘serious misconduct, something clearly unfair or unreasonable’[24] showing ‘no regard for conscience’.[25] But it is not enough that the conduct complained of is objectively unfair, unjust, wrong or unreasonable. As Hargrave J pointed out in Director of Consumer Affairs (Vic) v Scully (No 3),[26] the cases concerning the content of statutory unconscionability ‘disclose a consistent requirement that the relevant conduct must include a significant element of moral obloquy’.[27] His Honour explained the concept of ‘moral obloquy’ by reference to the decision of the Court of Appeal in New South Wales in Tonto Home Loans Australia Pty Ltd v Tavares,[28] where Allsop P (with whom Bathurst CJ and Campbell JA agreed) said that what is required is ‘some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party’.[29] Hargrave J then summarised the position stating:
It follows that the conduct in question must be more than negligent. It will usually involve some deliberate wrongdoing, although there may be cases where recklessness will suffice. For example, cases involving wilful blindness. Ultimately, as the cases demonstrate, each case must depend upon its own circumstances and the Court must make a value judgment as to whether to characterise the conduct with ‘the opprobrium of unconscionability’.
His Honour’s analysis was upheld on appeal[30] and cited with approval in Violet Home Loans Pty Ltd v Schmidt.”[31]
[23][2017] VSC 385 at [387]
[24]Cameron v Qantas Airways Ltd (1995) 55 FCR 147 at 179
[25]Qantas v Cameron (1996) 66 FCR 246 at 262 per Davies J
[26][2012] VSC 444
[27](Supra) at [26]
[28][2011] 15 BPR 29,699
[29](Supra) at 29,766 [293]
[30]Director of Consumer Affairs (Vic) v Scully [2013] VSCA 292
[31](2013) 44 VR 202 at 219 at [58]
111 Her Honour later concluded:[32]
“To be sure, there are aspects of the Bank’s conduct that, without the benefit of hindsight, one might describe as being less than satisfactory – some of which were alluded to by counsel for Mr Stephens – but that does not render the conduct unconscionable in the relevant sense. This is not a case where it could be said that the Bank engaged in unfair tactics or exerted any undue influence or undue pressure.”
[32][2017] VSC 385 at [404]
112 The matters said to give rise to the unconscionable conduct claim are listed in paragraph 70 of the Further Amended Defence and Counterclaim. The first one in paragraph 70(a) refers to the relative strength of the two parties and that Ms Anderson was unable to protect herself regarding the disputed payment. A disparity in the status of the parties is not, without more, a proper basis for finding unconscionable conduct. Further, the bank was specifically authorised under its security documents to debit the disputed payment.
113 The next allegation in 70(b) is that the bank’s conduct was not consistent with its conduct in similar transactions. No evidence was led by Ms Anderson in support of this allegation. In fact, the evidence of Mr Curtis was that the former practice of St. George of not contacting parties before debiting their accounts was applied uniformly towards customers who were in default.
114 It is pleaded in paragraph 70(c) that the bank breached the clauses of the Banking Code listed in paragraph 30 of Ms Anderson’s pleading. It has been held that a failure to comply with the Banking Code amounts to a breach of a contractual warranty.[33] The clauses relied upon are:
[33]Per Elliot J in National Australia Bank Ltd v Rice [2015] VSC 10 at [4], which finding was not disturbed on appeal: see National Australia Bank Ltd v Rose [2016] VSCA 169 at [45].
(a) clause 3.2, being an obligation to act fairly and reasonably towards its customer in a “consistent and ethical manner”;
(b) clause 4.2, an obligation to comply with the Code except where it would lead to a breach of law; and
(c) clause 27, which imposes obligations upon a bank before increasing an existing credit facility.
115 Ms Anderson appears to be of the belief that by charging the enforcement expenses to her loan account, this amounted to an increase in an existing credit facility which she had not approved. This argument goes nowhere, as the bank was not increasing the amount of her loan but was, instead, debiting enforcement expenses for which she was liable. The facts disclosed reveal no conduct on the part of the bank that demonstrates it breached either clause 3.2 or 4.2 of the Banking Code.
116 The next breach alleged in paragraph 70(d) is an unreasonable delay in disclosing the bank’s intention to make the disputed payment. The bank was not under an obligation to inform Ms Anderson before making the disputed payment under clause 27. The delay between the making of the payment and her finding out was caused by a processing error according to Mr Curtis. While it would have been “polite” to have informed Ms Anderson at an earlier time following the payment, this delay does not amount to an act of unconscionable conduct by the bank.
117 Paragraph 70(e) relies upon the delay in making the reversal of the disputed payment as an act of unconscionable conduct. This assumes there was a requirement to refund the money. The bank made the reversal without an admission of liability. Arguably, Ms Anderson has benefited from the reversal because the bank is no longer seeking to recover from her the monies it paid to discharge her liability to the Owners Corporation. This allegation is not made out.
118 The allegation in paragraph 70(f) is unclear, but the effect seems to be that it is alleged the bank was not entitled to rely upon the applicable clause in the loan agreement and mortgage because of the matters pleaded in paragraph 61. This then picks up the allegations that Ms Anderson was not in default and the bank was required to ask her prior to debiting her account. For the reasons already given, Ms Anderson was in default and no prior notice was required.
119 Paragraph 70(g) relies upon the conduct of the bank after making the disputed payment which appears to cover the period from March 2014 until the issue of the proceedings. The detailed background circumstances described above do not, in view, disclose anything that could give rise to a finding of unconscionable conduct by the bank. It participated in the FOS process which Ms Anderson decided to withdraw from before a determination and, thereafter, other than maintaining its position that it was legally entitled to debit the account, the bank sought to assist Ms Anderson if she needed help making her monthly repayments.
120 The allegation made in paragraph 70(h) relies upon conduct by the bank in the proceeding, including the making of two summary judgment applications. I deal with the latter matter separately under paragraph 146 and following below. I am not satisfied that the bank engaged in unconscionable conduct by prosecuting its claim in this court as it was entitled to enforce its rights under the loan agreements and mortgage, and the way in which it did so is unremarkable.
121 I do not accept that the bank made any misleading statements to the FOS, being the allegation in paragraph 70(i), or that the bank incorrectly maintained it was entitled to make the payment as alleged in paragraph 70(k). The remaining allegation in paragraph 70(l) is largely unintelligible but, again, to the extent that it alleges the bank acted unconscionably by enforcing its legal rights, that allegation is also rejected.
122 The conduct of the bank in all the circumstances does not reveal it acted “with the opprobrium of unconscionablity” as the case law requires. Accordingly, I find Ms Anderson has failed to establish her claim of unconscionable conduct under s12CB of the ASIC Act.
Was Ms Anderson entitled to cease making her loan repayments?
123 In response to the disputed payment, Ms Anderson decided to cease making payments under the first and second loan agreements. In paragraph 14 of her Amended Defence and Counterclaim, she pleads her failure to do so was caused by the bank’s conduct which is the subject of her Counterclaim. In paragraphs 61 to 69 of the Further Amended Defence and Counterclaim, Ms Anderson pleads the bank’s conduct in making the disputed payment meant the bank was not entitled to treat her as being in default.
124 Ms Anderson gave evidence she initially placed the amounts due in an account with a separate bank, but later had to use those funds for living expenses once she ceased working at Berry Street.
125 It is clear Ms Anderson made a unilateral decision to stop paying her monthly loan repayments. I find her decision to do so was the result of her subjective reaction to the events rather than being caused by the bank’s conduct in making the disputed payment.
126 The bank relies upon clause 5 of the Residential Loan Agreement General Terms and Conditions which applies to both loan agreements. It requires Ms Anderson to repay all amounts due without setting off amounts she believes the bank may owe and without counterclaiming from the bank. Clause 23 of the MCP similarly provides that the customer must pay amounts owed in full without set off or counterclaiming. The bank’s position is that these clauses are independent of any obligation the bank owed to her which I accept as being correct.
127 Such clauses have been held to be valid and do not amount to an ouster of the court’s jurisdiction.[34] Similarly, in Commonwealth Bank of Australia v Ozden[35], the court found that a breach by the bank gave rise to a claim for damages but did not restrict the bank’s rights to enforce the loan contracts and mortgage under consideration.
[34]See GE Capital Australia v Davies & Ors [2002] NSWSC 1146 per Bryson J at [93]-[98].
[35][2013] VCC 94, upheld on appeal to the Court of Appeal.
128 Even if the bank did breach any obligations owed to Ms Anderson by making the disputed payment, this did not relieve her of the obligation to keep up her minimum monthly payments. By failing to pay them, she fell into default. At the very least, the second loan remained unaffected by the disputed payment.
129 Although not specifically pleaded as an equitable set off, Ms Anderson’s claim in paragraph 69 of her pleading is that the bank’s conduct precluded it from treating her as in default and enforcing the loan agreements and mortgage. As I have found that the bank did not engage in any unconscionable conduct, the issue of an equitable set off does not arise for consideration. Unfortunately, Ms Anderson made an error of judgment when she decided to stop paying. Had she continued to do so, then the only dispute would have been over the quantum of the disputed payment and the right of the bank to make it without reference to her. By not paying the amounts due, Ms Anderson already has a judgment for possession against her and will be liable to pay the debt claimed in this proceeding, with the likely consequence she will lose her home.
Is the bank liable to Ms Anderson for her loss of income claim?
130 At the time of the disputed payment, Ms Anderson was working at Berry Street as a senior executive assistant. She commenced employment on 17 March 2014 and was subject to a probationary period of three months. During this period, either party could terminate employment with one week’s notice. Ms Anderson has worked with a variety of employers and is an experienced bookkeeper.
131 Ms Anderson resigned from her employment with Berry Street on 26 May 2014. She claims she lost income as a result of the bank’s alleged unconscionable conduct in making the disputed payment. I have found that the bank did not engage in any unconscionable conduct but if I were wrong about this, her claim for lost income falls to be considered. On 8 September 2017, during the course of the trial, Ms Anderson provided a written breakdown of her loss of income claim. She seeks damages for loss of income from 1 June 2014 to when she recommenced employment on 25 November 2015. She claimed her salary was $82,009 gross per annum and $62,483 net. Her gross loss was calculated at $123,000 and her net loss at $93,724. She also claimed monthly superannuation of $532 @ 18 months to arrive at a figure of $11,376. I agree with the bank’s submission that the proper way to value her loss of income claimed is on a net basis.
132 In paragraphs 40 and 41 of her Further Amended Defence and Counterclaim, Ms Anderson pleads she resigned from her employment because she was unfit to work due to medical conditions caused by the disputed payment and subsequent dispute with the bank. Ms Anderson gave a history to Professor Littlejohn, a rheumatologist, who provided a medico-legal report dated 14 December 2016, which she relied upon at trial. Ms Anderson told him she could not continue at Berry Street and left work in late May because of ill health, including a flare up of a pre-existing condition of fibromyalgia. Professor Littlejohn noted Ms Anderson told him the symptoms of her fibromyalgia had been aggravated by stress in connection with issues related to her bank. He agreed during his evidence, that work impairment was a common accompaniment of fibromyalgia. While telling Professor Littlejohn about the stress of the incident with the bank, it became apparent during cross-examination that Ms Anderson had not told the doctor about various other matters that might have contributed to her stress levels, including ongoing disputes with her neighbours, the Owners Corporation and the VCAT hearing, amongst others. Professor Littlejohn agreed if he had been told about the other events he may have said there were a lot of stressful events going on at the same time and the bank might have been one of them.
133 The circumstances in which Ms Anderson left her employment are contested. She gave evidence about a heated disagreement she had with another staff member about arrangements for the use of a conference room. She also gave evidence about her strained dealings with her supervisor, Ms Jacqui Riters.
134 The day after the altercation at work, she met with Ms Riters to discuss the incident. Ms Riters said Ms Anderson was upset and queried whether Berry Street was the right place for her. She did not come to work the following day, a Friday, and sent in an email saying she was sick. On the following Monday, she resigned. Ms Anderson said she made the decision after speaking with Fran, (another employee), that it was easier to leave.
135 On 26 May 2014, Ms Anderson sent an email to Berry Street which stated:
“Dear all.
It is with great regret that I hereby tender my resignation as I have decided that Berry Street is not the right fit for me long term.
I greatly value the opportunity I have had here and wish Berry Street all the best in its work.
Although I am on probation, I am happy to work out four weeks’ notice to give you the opportunity to replace me but will leave that up to you.
Either way I will continue to support Berry Street and its important work.”
136 Ms Anderson’s resignation was accepted that day. In a letter sent to the Privacy Officer at Berry Street on 29 May 2014, Ms Anderson wrote:
“I left employment at Berry Street on Monday 26 May 2014 following unfortunate incidents in which I felt bullied”.
137 Ms Riters gave evidence that Ms Anderson was not the right fit for Berry Street and had decided to terminate her employment after the expiration of her probation period. Consequently, her employment would have finished at Berry Street on 17 June 2014, or thereabouts.
138 The conduct of the bank in making the disputed payment and the subsequent dispute, did not result in Ms Anderson being medically unfit to continue her employment. It is significant that she felt well enough to offer to serve out her four-week notice period. I find she left Berry Street voluntarily as a result of the altercation at work and not due to any ill health allegedly caused by the bank’s actions.
139 The loss of income claim is not specifically claimed as damages for breach of contract in the Further Amended Defence and Counterclaim. Had it been claimed under contract, the claim would also fail because there was no breach of contract by the bank. Further, the damages are clearly too remote and not recoverable, assuming any breach of the first loan agreement. Ms Anderson’s loss of income does not fall within either limb of Hadley v Baxendale.[36] The loss of income claimed does not flow naturally from the alleged breach, nor could it be said such a claim was reasonably foreseeable had the parties turned their minds to it as a result of a breach on the part of the bank.
[36](1854) 9 Exch 341 at [354]
Other losses claimed
140 In paragraph 71 of the Further Amended Defence and Counterclaim, Ms Anderson claims damages for unconscionable conduct being the sum of interest charged improperly at the default interest rate and the liability to pay the enforcement costs claimed by the bank.
141 Counsel for the bank informed the Court that default interest had not been charged on either loan account, so that disposes of this head of damage.
142 The document handed to the Court by Ms Anderson on 8 September 2017 entitled “Break down of loss & damage claimed for counter-claim (L. Anderson)” sets out the the losses claimed for other damages as follows:
“Damages
1. Loans and interest adjusted to the balance immediately prior to the unilateral withdrawal of $22,369.68 on 24 March 2014, being $247,000;
2. Unconscionable conduct in the performance of the loan agreements: $62,500
3. Unconscionable conduct in the dispute resolution process: $62,500
4. Unconscionable conduct in the bringing of these proceedings: $62,500
5. Unconscionable conduct in the conduct of these proceedings: $62,500
Total: $250,000”
143 As I understood Ms Anderson’s claim, she wanted an outcome whereby her indebtedness to the bank would be discharged and she would be able to retain the property unencumbered. This appeared to explain the way she put her damages claim so that the damages sought to be awarded would extinguish the debt she owed to the bank immediately prior to the disputed payment. This accorded with the declaration sought in the relief to her counterclaim that she was only liable for the amounts payable before the disputed payment was made, and not for any default interest and enforcement costs.
144 The bank objected to the way in which the damages were claimed on the basis that the amounts sought bore no relationship to any wrong suffered arising from any conduct of the bank. The bank submitted Ms Anderson was effectively seeking to cancel the loan agreements, which was impermissible.
145 Had I made a finding of unconscionable conduct, then the losses that might have flowed would mostly likely have been the amount of the disputed payment and interest thereon. These sums have been refunded by the bank. The enforcement costs would not be recoverable because these costs have been incurred as a result of the default in making monthly repayments, which is unconnected to any alleged unconscionable conduct. As a matter of causation, the amounts claimed by Ms Anderson do not flow from the alleged unconscionable conduct and are not recoverable.
Was it an abuse of process for the bank to reverse the disputed payment and bring a second summary judgment application?
146 The appropriateness of making the second summary judgment application, and in particular, seeking an order for possession again was raised by the Court of Appeal, but not determined.
147 Following the appeal, Ms Anderson amended her pleading to allege in paragraph 59 of her Further Amended Defence and Counterclaim that reversing the disputed payment and bringing the second summary judgment application was an abuse of the court’s process.
148 The County Court (Chapter 1 Amendment No 9) Rules 2015 commenced operation on 18 May, 2015. This amended the rules governing applications for summary judgment in the County Court made under the Civil Procedure Act 2010 (Vic) (“the CPA”). The CPA and the current Order 22 are silent on the number of applications for summary judgment that can be made. The former Order 22 provided that the plaintiff could only make one application for summary judgment, except by order of the Court. But even though the requirement to seek leave on a second application no longer exists, that does not mean parties can bring unlimited applications, particularly, where the merits of the applications are substantially similar. This might well result in an abuse of process.
149 In the Court of Appeal, reference was made to two decisions which predated the 2015 amendment to the rule. The first case was D A Christie Pty Ltd v Baker[37]. The question in that case was whether a second application could be made for an extension of time under s23A of the Limitation of ActionsAct 1958 (Vic) after the first application was dismissed two years earlier by a different judge. The second application was made with further evidence explaining the delay. The application was granted. On appeal, it was held the second application was an abuse of process as the additional material relied upon had been available at the time of the first application and no explanation was given why it had been omitted earlier.
[37][1996] 2 VR 582
150 The second case referred to was Nominal Defendant v Manning[38]. The respondent had made a second application to commence proceedings against the Nominal Defendant, having failed on the first occasion. The Court of Appeal declined to follow the majority view in D A Christie that an applicant making a second interlocutory application is guilty of an abuse of process unless the other party is guilty of fraud, or the application rests on evidence which could not have reasonably been relied upon before. The Court held that the decision below did not amount to a miscarriage of justice where the introduction of new evidence did not constitute an abuse of process.
[38](2000) 50 NSWLR 139
151 This case is different in that the second application did not introduce new evidence that might have been available previously. Rather, the bank claims the reversal of the disputed payment was, in effect, a significant change in circumstances, and the second application was done for appropriate reasons.
152 The bank argues the second application summary judgment was not an abuse of process because:
(a) at the time of the first summary judgment application, the bank was seeking an order for possession for the purpose of recovering the full debt owed, including the disputed payment;
(b) following the dismissal of the first summary judgment application, the bank was concerned to avoid a trial over a dispute concerning $22,369.68 and in keeping with its obligations under ss19, 23 and 25 of the CPA;
(c) having regard to Judge Cosgrave’s decision in respect of the first summary judgment application and the bank’s obligations under the CPA, the bank decided to reverse the disputed payment together with interest on that sum without any admission of liability, and amended its claim to specifically claim debt and bring on a second summary judgment application.
153 The bank says the fact the disputed payment had been reversed, together with interest, meant Ms Anderson could no longer dispute the principal and interest component of the first loan balance. The second loan was subject to separate loan contract terms and was unaffected by the disputed payment. Therefore, the bank considered it was entitled to summary judgment on its claim for possession, even if the Court decided to allow Ms Anderson to run her counterclaim to trial.
154 Given an order for possession was granted on the second summary judgment application, it might be said this demonstrates it was not an abuse of process for the bank to make the second application. But the bringing of the second summary judgment application did not resolve the legitimacy of the bank’s conduct which was not overcome by simply reversing the disputed payment and interest. The consequence of bringing a second summary judgment application has resulted in the issues in the proceeding effectively being split and there remains the final determination of the Court of Appeal following judgment on the debt claim. While I am not prepared to find the bringing of the second summary judgment application amounted to an abuse of process, the utility of making a further application in the circumstances was debatable.
Conclusion
155 Having regard to the foregoing, the bank has made out its claim for the judgment debt sought. Ms Anderson has failed to establish the matters pleaded in her counterclaim, which is dismissed.
156 I will hear the parties on the precise form of orders to be made, including the amount of the judgment debt, interest and costs.
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