SHEARS and ANOR v COMMONWEALTH BANK OF AUSTRALIA SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, POWELL and COLE JJA 4 November 1997, 4 November 1997 [1997] NSWCA 282 Contract — Offer and acceptance — Whether concluded agreement Practice — Default Judgment — Application to set aside — Whether bona fide defence on merits — Relevance of delay Powell JA This is an appeal, by leave granted on 25 August 1997, from a Judgment delivered, and Orders made, by Dowd J on 29 July 1997. On that day his Honour dismissed, with costs, the Appellants' application to have set aside a judgment which had been entered by the Respondent (to which I shall refer as "the Bank") on 10 August 1995 in proceedings in which the Bank had sought against the Appellants, relevantly, possession of a property known as 3 Burrawong Avenue Mosman, (to which I shall refer as "the Burrawong Avenue property") over which had it a registered first mortgage and, as well, a judgment in debt based on a personal covenants contained in that mortgage. The mortgage upon which the Bank relied in order to support its claims was one of two securities - the other security being a third party mortgage over a property at Whiting Beach Road, Mosman (to which I shall refer as "the Whiting Beach Road property") which was owned by the mother of the Appellant, Alice Isobelle Gidley (to whom I shall refer to as "Miss Gidley') - which securities had been granted to the Bank to secure an advance by it to the Appellants, in May 1990, of a sum of approximately $2 million. That sum had been sought by the Appellants in April 1990 to enable them to refinance a debt of approximately $2 million owed by the Appellants to an organisation apparently known as "Mortgage Management", which debt was, at the time of the application to the Bank, at the time secured on the Burrawong Avenue property and the Whiting Beach Road property. It is unnecessary to enter in any detail upon what occurred between 1990 and August 1995, the relevance of which date will shortly appear. It is sufficient to record that, from late 1992, the Appellants had fallen into arrear in their servicing of the interest payments due under the mortgage and that, thereafter, from time to time, there had been put, on their behalf, various proposals designed to procure a discharge by the Bank of their obligations under the personal covenants in the relevant mortgage, which discussions had not come to any satisfactory conclusion prior to August 1995. Meantime, these proceedings were commenced in January 1995, the relief which, at the time, the bank sought being a judgment for possession of the Burrawong Avenue property, judgment against the Appellants in the sum of $3,722,891.21, together with interest on that sum from 20 December 1994 to the date of judgment, and costs. So far as the material which is before the Court permits one to judge, no Appearance nor any Defence to the Statement of Claim had been filed on behalf of the Appellants prior to August 1995. 2 UNREPORTED JUDGMENTS On 8 August 1995, or thereabouts, so Ms Gidley says (AB 14-15), she spoke on the telephone with a Mr Garvan, an officer of the Bank, when the following conversation occurred: "(Miss Gidley): 'I am able to raise $1,675,000.00 to settle our debt to the Bank: $1,225,000.00 to pay out Burrawong Avenue and another $450,000.00 for Whiting Beach Road.' Garvan: 'We are looking to see Burrawong Avenue settled first and then we will look at Whiting Beach Road." On 9 August 1995, so Miss Gidley says (AB 15), she attended at the offices of the Bank and met with Mr Garvan and Mr Kitto, another officer of the Bank, at which time there occurred the following conversation: "(Miss Gidley): 'I have obtained a finance approval for Burrawong Avenue which means I will be able to pay the Bank $1,225,000.00, plus I can get another $450,000.00 from my relatives to pay off Whiting Beach Road.' Kitto: 'Where are you getting the $1,225,000.00 from?' (Ms Gidley): 'Prudential.' Kitto: 'What about the relatives' money?' (Ms Gidley): 'I am confident that I can get it.' Garvan: 'Look, you've made lots of promises before, and none of them have been kept. Let's do it one step at a time. What you are proposing is a total discharge for $1,225,000.00 and $450,000.00. We are fully prepared to accept that offer, but we want to see the colour of your money - pay us the $1,225,000.00 and we will talk at the $450,000.00 later.'" Thereafter, so Miss Gidley says, she proceeded with the arrangements to which she had adverted to obtain finance in the sum of $1,225,000.00 in order to enable her and her husband (to whom I shall refer as "Mr Shears'') to have the Bank's mortgage over the Burrawong Avenue property discharged. Although it appears to have been thought that that refinancing might have been able to be carried out earlier, it was not so, and it was not until early September 1995, when the Appellants were able to procure the relevant sums and then to proceed to have the Bank's mortgage over the Burrawong Avenue property discharged. That appears to have occurred at some time prior to 8 September 1995. Meantime, however, the Bank had entered judgment in default against the Appellants for possession of the Burrawong Avenue property, and for debt in the sum of $4,108,946.16 together with costs and, on 16 August 1995, obtained an order for issue of Writ of Possession of the Burrawong Avenue property. That Writ, however, was never executed, for, as I have earlier indicated, the Appellants were able to obtain the funds necessary to enable them to procure a discharge of the Bank's mortgage over the Burrawong Avenue property. We have been informed that, at the time when the refinancing arrangements were carried into execution, the discharge of mortgage which was executed by the Bank expressly reserved the Bank's rights against the Appellants under the personal covenants in the mortgage. Thereafter, so Miss Gidley says (AB 18), on 8 September 1995, she attended once more at the offices of the bank and there saw Mr Garvan and Mr Kitto. On this occasion, so Miss Gidley says, the following conversation took place between them: "(Miss Gidley): 'I was very happy with the settlement of Burrawong. I expect that you are happy too. Now let's finish my mother's house. I am trying to raise the $450, 000.00 we agreed upon earlier.' URJ SHEARS and ANOR v COMMONWEALTH BANK OF AUSTRALIA (Powell JA) 3 Garvan: 'The Bank never agreed to $450,000.00.' (Miss Gidley): "You're changing things. You told me you would accept $450,000.00.' Garvan: "Whatever gave you that impression?' (Miss Gidley): 'You did. Do you want the $450,000.00 or not?'" About a month later, so Miss Gidley says (AB 19), she attended once more at the offices of the Commonwealth Bank and had another conversation with Mr Garvan, Mr Kitto not being present on this occasion. On this occasion, so Miss Gidley says, the following conversation occurred: "(Miss Gidley): 'What's going on? You told me that if we concluded Burrawong we could finalise my mother's house for $450,000.00. I've got the money ready. I want to pay it so that we can finalise things.' Garvan: 'No. That's not acceptable to the Bank. Will you agree to selling your mother's house?' (Miss Gidley): 'No way. You know my position. This is underhand and deceitful. I never thought that the Bank would go back on its word.' Garvan: 'Well, why are you holding this position? What does it matter whether the property is sold or not?' (Miss Gidley): "You don't understand. My mother and I are indigenous people. Her house was bought when she was in her prime. It is part of her mana. The property is not for sale. Also, father is buried in the garden.' Garvan: 'It is illegal to bury bodies in the garden.' (Miss Gidley): 'I know that - his ashes, not the body. You think about it.' Garvan: 'No - you think about it.' (Miss Gidley): 'We had an agreement. And now you have changed everything.' Garvan: 'I'm studying aboriginal and indigenous studies. You remind me of a Tongan friend of mine.' (Miss Gidley): "Don't change the subject. Will you settle mother's house?' Garvan: 'Well, we are not going to take $450,000.00.'" Despite the fact that the Appellants now assert that the conduct of the Bank reflected in the conversation said to have occurred on 12 October 1995 amounted to a breach, or a repudiation, of the agreement which they say was made with the Bank on 8 August 1995, no proceedings by the Appellants to seek to enforce that alleged agreement were commenced prior to March of this year, and, then only in the circumstances to which I will later refer. To say the least, this is surprising, since, first, it would appear that the Appellants became aware, in early 1996, that the Bank had obtained the judgment for the then debt; second, in May, and June, 1996 Bankruptcy Notices were, on the Bank's application, issued in respect of each of the Appellants, which Bankruptcy Notices were, pursuant to Orders made by the Federal Court of Australia, deemed to have been served on the Appellants in October 1996; third, following upon non compliance by the Appellants with those Bankruptcy Notices, Creditors' Petitions for sequestration of the estate of each of the Appellants were issued in November 1996, which Creditor's Petitions were, pursuant to Orders made by the Federal Court of Australia, deemed to have been served on the Appellants in March of this year, when, so far as one can judge, for the first time the Appellants sought legal advice. 4 UNREPORTED JUDGMENTS A Notice of Appearance to these proceedings was filed on behalf of the Appellants in March 1997 and on 27 March 1997 there was filed the Notice of Motion, upon which the Appellants were later to move to have the default judgment set aside and leave to file a defence granted to them. In the Defence and Cross-Claim, which the Appellants sought leave to file, there was raised what can only be described as a multitude of imaginative defences, as well as a very belated cross-claim seeking specific performance of the agreement said to have been made in August 1995, but only two of those defences, or claims, were persevered in on the hearing of this appeal, they being: 1. that the conversation between Miss Gidley and Mr Garvan on 9 August 1995 amounted to a concluded agreement between the Bank and the Appellants, which agreement provided for the payment to the Bank by the Appellants, in full discharge of their indebtedness, of the sum of $1,675,000.00, that sum to be paid in two instalments, the first of $1,225,000.00 and the second of $450,000.00, those sums to be paid within a reasonable time; and 2. that the Bank was estopped from denying that such an agreement had been made between it and the Appellants. Dowd J, from whose Judgment and Orders, as I have previously recorded, this appeal has been brought, concluded, first, that the evidence which had been placed before him did not show that the Appellants had any bona fide defence to the Bank's claims, or that they had any triable cause of action against the Bank. Further, his Honour held that, the Appellants having failed to provide any adequate explanation for the extended period of delay before the Notice of Motion had been filed, they were disentitled to have the Orders which they sought made in their favour. When the appeal came on for hearing, Mr M J Cohen appeared for the Appellants and Mr G K Burton appeared for the Bank. As what I have recorded would have led one to anticipate, the principal question argued on behalf of the Appellants was whether, contrary to the decision of Dowd J, a bona fide defence was revealed by the material which had been placed before the Court, it being said that, as the material in Miss Gidley's Affidavit had not been cross-examined upon, nor been the subject of evidence to the contrary in material filed on behalf of the Bank, nothing more needed to be said in that respect. Tam unable to agree with that submission. On the contrary, it seems to me that, far from that material revealing a concluded agreement of the type advanced on behalf of the Appellants, it did not constitute a concluded agreement at all, and that, even if it were such an agreement, not being supported by consideration, it was unenforceable. Nor, as it seems to me, is any argument based upon an estoppel in any better case, for the estoppel sought to be relied upon could rise no higher than the agreement which it is sought to protect and, if no such agreement be found, in law, to have been made, then the suggested estoppel will have nothing left for it to protect. The other challenge which was made to Dowd J's judgment which led to his dismissing the Appellants' application, was that he placed an undue reliance on the delay which had occurred before the application to set aside the judgment had been made. With respect, it seems to me that that argument likewise is not made out. It is true that failure of an applicant, in a case such as this, to provide an adequate reason for delay does not, of itself, mean that a judgment ought not to be set aside and leave to defend granted, but it is clearly a relevant matter to be URJ SHEARS and ANOR v COMMONWEALTH BANK OF AUSTRALIA (Cole JA) 5 considered by the judge to whom such an application is made in determining whether or not a bona fide defence has been made out. In the event, however, it seems to me that, even if his Honour had been in error in the approach which it is suggested he took, it would not have mattered, for as Ihave earlier indicated, it seems to me that, on the undisputed evidence, no bona fide defence had been made out. For these reasons, I would propose that the appeal be dismissed with costs. Handley JA I agree. I merely add some brief additional observations of my own. The contract relied upon was oral, made between the Appellant, Alice Gidley and two bank officers, as set out in para22 of her affidavit of 26 March 1997. What was said to be the acceptance of her offer, so as to bring into existence an enforceable oral contract, was the statement by Mr Garvan: "Look, you've made lots of promises before, and none of them have been kept. Let's do it one step at a time. What you are proposing is a total discharge for $1,225,000.00 and $450,000.00. We are fully prepared to accept that offer, but we want to see the colour of your money - pay us the $1,225, 000.00 and we will talk about the $450, 000.00 later." The appeal has been conducted on the basis that this evidence should be accepted on its face value and the Court has been content to act on this basis. In any event, this appeal is entirely proper on an application to set aside a default judgment. It is far from clear that the statement: "We are fully prepared to accept that offer", amounts to an immediate acceptance of that offer. But, in any event, Mr Garvan continued: "Pay us the $1,225,000.00 and we will talk about the $450,000.00 later". In terms, this was not an unconditional and final acceptance of Alice Gidley's offer. Iam prepared to assume that the Bank accepted some obligation in relation to the discharge of its mortgage over the Burrawong Avenue property in return for a payment, within a reasonably short time, of $1,225,000.00. However, it seems to me with respect to Mr Cohen's arguments, that there was no finality with regard to the $450,000.00 and the discharge of the mortgage over the Whiting Beach Road property. The only statement that the Bank officer made about that was: "We will talk about the $450,000.00 later". Tam unable to construe that as an immediate unconditional acceptance. On that view, there would be nothing to talk about in relation to the second payment and the second mortgage. Unfortunately for the Appellants, the ambiguity of the situation was not clarified and what amounted, in relation to the Whiting Beach Road, to either a counter offer or a non acceptance, was never followed up by any further negotiation. In the circumstances it seems to me that there was no enforceable contract with regard to the second mortgage over Whiting Beach Road and the payment of $450,000.00 and, as Powell JA has demonstrated, on this basis the Appellants have no arguable case based on estoppel either. The Bank may have been somewhat tough in this matter with its customers, but I am unable to discern any legal entitlement to relief in respect of the Whiting Beach Road mortgage. I agree with the Orders proposed. Cole JA I agree with the reasons for judgment delivered by each of Handley and Powell JJ and the Order proposed by Powell JA. UNREPORTED JUDGMENTS Appeal dismissed with cost. Counsel for the appellant: M J Cohen Solicitors for the appellant: Tzovaras & Company Counsel for the respondent: G K Burton Solicitors for the respondent: Henry Davis York