National Australia Bank Limited v Cavill Proteas Pty Ltd & 3 Ors [1999] NSWSC 703

New South Wales Supreme Court CITATION : National Australia Bank Limited v Cavill Proteas Pty Ltd & 3 Ors [1999] NSWSC 703 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 11869/98 HEARING DATE(S) : 1 July 1999 JUDGMENT DATE : 15 July 1999

National Australia Bank Limited (Plaintiff)

Cavill Proteas Pty Limited (First Defendant)

PARTIES : Mark Alfred Cavill (Second Defendant)

Amanda Lee Cavill (Third Defendant)

George Alfred Cavill (Fourth Defendant) JUDGMENT OF : Master Harrison

Mr J Thomson COUNSEL : (Plaintiff)

Ms S Gilbert of Dibbs Crowther & Osborne SOLICITORS : Mr M Cavill (Second Defendant in Person) CATCHWORDS : Set aside default judgment CASES CITED : Re Clubb v Westpac Banking Corporation (1990) 93 ALR 123 DECISION : See para 27

12

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

MASTER HARRISON

THURSDAY, 15 JULY 1999

11869/98 - NATIONAL AUSTRALIA BANK LIMITED v CAVILL PROTEAS PTY LIMITED & 3 ORS

JUDGMENT (Part 40 r 9(2) - Set aside default judgment)

1 MASTER: By notice of motion filed 20 April 1999 the defendants seek leave to file a defence and cross claim, an order to set aside judgment, a stay of proceedings and that the venue be changed to Newcastle. The plaintiff opposes the orders sought. Default judgment was entered on 29 September 1998 that the first defendant give the plaintiff possession of the land described at Certificate of Title, folio identifier 80/260606 and known as Lot 80 Coolibah Drive Taree (the property) and that the defendants pay to the plaintiff the sum of $250,751.26. A writ of possession issued on 29 September 1998. On 4 February 1999 the property was sold for $190,000. 2 The defendants relied on the affidavits of Mark Alfred Cavill sworn on 19 April 1999, 14 May 1999 and 7 June 1999 and the plaintiff relied on the affidavits of John Phillip Previte sworn 14 September 1998 and two affidavits of Peter Geoffrey Williams sworn 4 May 1999 and 20 May 1999. Mark Alfred Cavill was a director of the company and has been appointed by the company to act for it. He was granted leave to appear on behalf of the company and himself. 3 By mortgage dated 3 January 1990 the first defendant mortgaged the property to the plaintiff. The mortgage was registered on 1 February 1990. By business combination loan as per letter of offer dated 5 February 1997 (the First Loan Contract) the first defendant agreed to pay to the plaintiff the sum of $243,000 together with interest and all fees and other monies. Subsequently the plaintiff advanced the sum of $243,000 to the first defendant. The loan was for a period of three years. The first defendant neglected to make payment upon demand by the plaintiff. 4 By fixed rate interest only loan as per letter of offer dated 5 February 1997 (the Second Loan Contract) the first defendant agreed to pay $150,000 together with interest and all fees and other monies owing to the plaintiff. The plaintiff advanced monies of $150,000 referred to in the Second Loan Contract to the first defendant on 7 July 1997. The loan was at a fixed interest rate for a period of 12 months. The first defendant subsequently refused or neglected to make payment on the maturity date referred to in the Second Loan Contract on 7 May 1998. The defendants do not dispute that these loans were entered into and the company received the monies nor do they deny that they have defaulted in making loan repayments. 5 The defendant submitted that in 1997 at the time when they entered into the loans, had they been aware that they owed $50,000 less they could have gone somewhere else and borrowed the funds. They allege that the bank has made mistakes and has fraudulently concealed errors which amount to $50,000 to day. The plaintiff submitted that the defendant has not adequately explained its delay in filing this application to set aside judgment nor has it a bona fide defence and errors if any made prior to 1997 do not affect the validity of the 1997 loans. The Law 6 The relevant part of s 40 r 9(2) of the Supreme Court Rules provides: "(2) The Court may set aside or vary a judgment - ….. (b) where the judgment has been entered after judgment has been given in the absence of a party, whether or not the absent party had notice of trial or of any motion for the judgment." 7 In determining whether default judgment should be set aside Priestley JA in Cohen v McWilliam (1995) 39 NSWLR 476 at 481 stated: "It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only on the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct." 8 For the defendant to succeed in its application to set aside default judgment it must give an adequate explanation for the delay in filing its defence and show that it has a defence on its merits, or as often expressed a bona fide defence. However, as Priestley JA said in Cohen it is a fundamental duty of the court to do justice between the parties. 9 Firstly I turn to the defendant's explanation for delay in filing this application. The defendants acknowledged that they received the default statement of claim on 10 August 1998. They employed a solicitor to act on their behalf and counsel's advice was sought. The defendants were advised that it would be financially "suicidal" to litigate the matter in court and that they should try and settle it. The defendants accepted the legal advice given and decided that it was not in their interests to go to court. On 7 September 1998 the defendants offered to mediate the dispute but the plaintiff declined this offer. 10 On 21 August 1998 the defendants' solicitor filed a notice of appearance. On 25 August 1998 the defendants' solicitor advised the plaintiff's solicitor that a defence would be filed in the near future. However a defence was never filed. As previously stated, on 29 September 1998 default judgment was entered. 11 In November 1998 the defendants elected to defend the action. On 27 November 1998 the first defendant wrote to the plaintiff's solicitor and informed it that they were in the process of filing a notice of motion for leave to file a defence and cross claim. The directors of the first defendant that is the second, third and fourth defendants reside in Taree. They attended the Supreme Court registry in November 1998 and made the first attempt to draft a notice of motion. In December 1998 they received a number of requisitions. They attempted to answer the requisitions but that documentation did not reach the court. When the defendants telephoned the registry in January 1999 they ascertained that the documentation had not been received by the registry. The defendants promptly posted further documentation in mid January 1999. The defendants obtained further requisitions on 4 February 1999. 12 Also in February 1999 the plaintiff sent the defendants documentation in relation to a Farm Debt Mediation in relation to another property (the farm). While the defendants were involved in this dispute resolving process in which they hoped to resolve this matter they decided to delay filing the notice of motion as they did not have the resources to focus on both the mediation and Sydney court appearances at the same time. When the mediation process was terminated on 19 March 1999 the defendants channelled their efforts towards answering the requisitions. On 20 April 1999 the notice of motion was ultimately filed. It is my view that the delay of eight months has adequately been explained by the defendants. 13 The first defendant Cavill Proteas Pty Limited (which was formerly known as Cavill Marine Services Pty Limited) had a ongoing relationship with the plaintiff for some 15 years or so. The defendants have alleged that the plaintiff made errors in the bank statements going back to 1988 and had they been aware of those errors that purportedly amount to about $50,000 they would have sought finance from other sources rather than agreeing the 1997 loans with the plaintiff. The plaintiff submitted all of these disputed transactions had been checked by the accountants acting for the first defendant shortly after the details were made known to them and those accountants were satisfied that they were proper payments as they were cross referenced within the company's ledgers. 14 The purpose of the 1997 loan facilities was to re-finance the previous indebtedness of the company. The plaintiff submitted that to now go back over past business dealings completely fails to impeach the debt which is the subject of this judgment. The defendants acknowledge that it is only in recent times that the defendants have sought to put several amounts in the bank account into dispute. The defendants accepted the amount stipulated as outstanding in their accounts when they sought to refinance the loans in 1997. It is my view that the plaintiff is correct in its submissions and the defendants cannot now dispute errors that were made prior to entering the 1997 loan agreements. Hence it is my view that the defendants' defence is hopeless and it is futile to grant leave to file it. 15 If I am wrong and the errors prior to 1997 are relevant I turn to consider whether it can be argued that there were errors made by the plaintiff in the accounts. The first defendant gave 5 specific examples of alleged incorrect debiting of its account. These alleged incorrect debits occurred between 1988 and 1993. The loans that are the subject of these proceedings were entered into in 1997, well after these alleged discrepancies occurred. The defendants initially complained that their account was charged a commitment fee which was not stipulated in the loan agreement. This charge was $166 which according to the first defendant represented an interest rate of 36%. It was later conceded by the defendants that this submission was incorrect. 16 Secondly, the first defendant has submitted that in the 1993 loan contract agreement, item 5(ii) stated that the loan fee was not applicable. However on three occasions in March 1993, March 1994 and on 22 September 1994 the plaintiff debited the account of the first defendant for the sum of $340 on each occasion. The first defendant contended that these debited amounts have now increased the value of the debt by $2,000 at present value. The plaintiff conceded that there may have been errors and if so, the amount due and owing under the judgment debt could be reduced by $2,000. 17 The third complaint is that in 1998 the bank referred to interest payments as miscellaneous debits and instead of applying the interest rate of 15.5% it applied a rate of 16.5% and referred to a sum of $2,199.80. The loan conditions are set out in a document dated 6 April 1998. Paragraph (7) provides: "7(a) Interest shall be payable on the full amount from time to time owing on the Loan Account (calculated on daily balances) on the days set out in Item 3 of the Schedule or on such other days as the Bank may from time to time determine; (b) Interest shall initially be calculated at the rate set out in Item 3 of the Schedule but the Bank may at any time hereafter at its sole discretion vary either by way of increase or decrease the said rate of interest conforming with general movements in the Bank's interest rates without any obligation on the Bank to notify your Company of such variation. PROVIDED THAT if a period is set out in Item 3 of the Schedule the rate of interest set out in that Item will apply for such period from the date of the initial drawing of the Loan. The rate of interest to apply to any balance remaining unpaid on the Loan Account at the expiration of any such period may be so varied by the Bank by notice to your Company and will apply for such further period or periods as the Bank may from time to time determine. …" 18 The loan was not drawn down until 2 August 1988. The bank had a discretion to vary the interest rate. At the time of the loan being drawn down the rate of interest may have increased and the plaintiff was entitled to charge the higher rate of interest. It is my view that this allegation cannot succeed. 19 The fourth complaint by the first defendant is that there were concealed applications of penalty interest rates charged on the overdraft account in 1989. The first defendant referred to a letter dated 21 June 1989 which advised of the renewal of a $25,000 overdraft facility. It stated that the initial interest rate was 21.75% being at the banks base lending rate plus 2% and also stated that the base rate was published at regular intervals in the Sydney Morning Herald. The first defendant stated that this interest rate stipulated above was not clear in this letter but that in the letter dated 14 August 1990 the reference to the calculation on the overdraft account was clear. I do not think the first reference to the mode by which the interest rate was calculated was unclear. The first defendant complained at the interest rate charged at 27 December 1989. The limit on the overdraft at that time was $25,000 yet the account was in debit in the sum of $110,000. There were other times when a higher interest rate was charged when the debit in the overdraft account exceeded the limit. The plaintiff was entitled to charge a higher rate of interest. This allegation is without merit. 20 The first defendant's fifth concern was that the plaintiff for interest calculation divided each year by 365 days regardless of whether it was a leap year (366 days). The defendants referred to Re Clubb v Westpac Banking Corporation (1990) 93 ALR 123, a decision of the Federal Court in respect of bankruptcy proceedings where Burchett J observed: "When Julius Caesar decreed that from the year now known as 45 BC onwards there should be adopted the Julian calendar, with its provision for recurring bissextile or leap years, he not only set the scene for a well known Gilbertian jest; he also set the scene for the problem posed by the present case. For the basic question is whether, in calculating a proportionate amount, for a part of a year, of interest due at a yearly rate, the year in question being a leap year, it is permissible to convert the yearly sum to a daily rate by dividing by 365, or whether it is essential to include the intercalary day, thus making the divisor 366." 21 His Honour held that the notice of bankruptcy served by the bank on its customer was bad because it is erroneous to calculate interest, for periods of days included in a year of 366 days, by a calculation which assumes a year of 365 days. When a leap year occurred, a year must be understood to mean 366 days. His Honour continued: "The courts have declined to treat 365 days as a standard or conventional year when a leap year was involved. The method used by the bank in the present case produced in respect of a leap year a total charged for interest exceeding that which the Supreme Court Act 1970 (NSW) imposed. It also produced the curious anomaly, if applied to the portion of a leap year consisting of 365 days, that the interest for that portion of the leap year would be identical with the interest which could lawfully be exacted for the full leap year." 22 The situation in the case before me differs from Clubb because from at least 1996 and in particular in relation to the 1997 loans (the subject of these proceedings) in the document called renewal advice under the heading "Interest rate: there is a clause which stipulated that the bank calculates interest daily at the annual percentage rate divided by 365 on the unpaid daily bank balance of the facility at the end of each day. This ground of defence cannot succeed. 23 The defendants also submitted that they were charged a higher interest rate in 1991 after the contract had expired and relied on the standard practice of the bank but did not have any evidence of the standard practice. Rather, it seems that after a contract expired, the bank charged interest at the current rate for that particular type of loan. This ground of defence was not made out. In summary, the defendants are not entitled to rely on alleged errors made by the plaintiff prior to 1997 (I have held that they are not). At best, only the argument concerning the loan application fee may be arguable. It should be noted that the amount in dispute in relation to those items is allegedly $2,000 at present value. 24 The defendants also complained about calculations in the plaintiff's letter dated 22 April 1997. Prior to entering the 1997 loans the defendants received this letter which calculated total annual payments which would be made under existing arrangements and alternatively under a proposed arrangement. The proposed arrangement was the one which became the basis for the 1997 loan. The existing arrangements required $67,973 to be repaid annually and the proposed arrangement required $67,935 to be repaid annually. The defendants asserted that there was an arithmetical error but "it was not a decision affecting thing." Hence, this complaint does not constitute a defence. 25 Finally, the defendants submitted that on the day the mortgage was signed by Victoria Mary Brown (the sister of Mark Alfred Cavill) she was not in Taree. However, Mr Cavill admitted he did not know when she signed the mortgage nor when George Cavill (Mark Cavill's father) signed the mortgage nor when the common seal was affixed. Once again this complaint does not give rise to a defence. 26 The defendants referred to 9 years of struggle they had endured to keep the business afloat. They stated that each small amount made a difference. Mr Cavill on behalf of the defendants spoke of their desire to save the family farm which is the subject of separate legal proceedings. While the court has sympathy for the situation in which the defendants find themselves, it cannot be said that they have a bona fide defence. In my view the defence they have sought to raise is futile. There have not been any fraudulent concealments or misrepresentations in relation to the 1997 loan. The defendants have sought to find small errors in the accounts from 1988 to 1998 which do not furnish them with a defence. It is my view that justice is best served if leave to file a defence and cross claim is refused. The notice of motion is dismissed with costs. As the motion is dismissed it is unnecessary for the change of venue issue to be decided. 27 The orders I make are: