New South Wales Supreme Court CITATION : Commonwealth Development Bank of Australia Limited v Bradley & Anor [1999] NSWSC 544 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 12651/98 HEARING DATE(S) : 26 May 1999 JUDGMENT DATE : 7 June 1999 Commonwealth Development Bank of Australia Limited (Plaintiff) PARTIES : Timothy John Bradley (First Defendant) Irene Alexis Bradley (Second Defendant) JUDGMENT OF : Master Harrison Mr Burton (Plaintiff) COUNSEL : Mr Ogborne (Defendants) Cowley Hearne of Sydney (Plaintiff) SOLICITORS : Turton of Sydney (Defendants) CATCHWORDS : Strike out defence; Summary judgment ACTS CITED : Real Property Act 1900 (NSW) Air Services Australia v Zarb (NSWCA unreported, 26 August 1998) Dey v Victoria Railway Commissioners (1948-49) 78 CLR General Steel Industries Inc v Commissioner for Railway (1964) 112 CLr 125 Webster & Anor v Lampard (1993) 177 CLR 598 CASES CITED : Websdale & Ors v S & JD Investments Pty Limited & Ors (1891) 24 NSWLR 573 Westpac Banking Corporation v Comanos (NSWSC, Giles J unreported, 9 May 1991) Mercantile Holdings Limited v Fisher (NSWSC, Yeldham J, 19 November 1982 unreported) PT Limited v Abdurahman (NSWSC, Yeldham J, 14 October 1985, unreported) Commonwealth Bank of Australia v Comserv (No 1181) Pty Limited (1998) NSW Conv R 55-402 White v Ormsby (NSWSC, Bryson J, 30 June 1988, unreported) Moreland Finance Corporation Ltd v Turner (NSWSC, Newman J, 1 June 1900, unreported) DECISION : See para 28 8 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON MONDAY, 7 JUNE 1999 12651/98 - COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LIMITED v TIMOTHY JOHN BRADLEY & ANOR JUDGMENT (Strike out defence; Summary judgment) 1 MASTER: By notice of motion filed 3 May 1999, the plaintiff seeks that pursuant to Part 15 r 26 of the Supreme Court Rules (the Rules) the defence or amended defence be struck out or that pursuant to Part 13 r 2 of the Rules, summary judgment be entered and that expedition be granted. The plaintiff relied on an affidavit of Brett Russell Ingle-Olson sworn 28 April 1999. The defendant did not rely on any affidavit evidence and opposed the orders sought. 2 Mr Timothy John Bradley is the first defendant and Irene Alexis Bradley is the second defendant. The defendants are the registered proprietors of a property known as "Melross" Moss Vale Road, Kangaroo Valley (the property). On 15 July 1994 the defendants executed a mortgage (the mortgage) over the property in favour of the plaintiff to secure advances made by the plaintiff from time to time to them. Financial accommodation in the form of a term loan (the account) was provided to the defendants between 15 July 1994 and 20 August 1998. Paragraph (5) of the statement of claim asserts that pursuant to paragraph (7) of the memorandum of mortgage the defendants in default of the due payment of money owing or payable as demanded and the plaintiff was entitled to exercise its right under the mortgage. 3 The plaintiff issued a s 57(2)(b) notice pursuant to the Real Property Act 1900 (NSW) dated 20 August 1998. The plaintiff pleads that the defendants have failed and neglected to pay the amount claimed in the demand and seeks possession of the property and judgment in the sum of $863,761.73 plus interest. 4 The parties attended a Farm Debt Mediation. They entered into an agreement dated 30 April 1997. The relevant covenants contained in the agreement (FDMA) are as follows: "1. Repayments of $6,400 pm and $4,800 pm to be met. Next instalment is to be met by the first Wednesday of June 1997 and by June 2009; the amount outstanding together with any interest and charges thereon is to be met. 2. Interest rate is to be set at 12% pa until August 1998 at which time the rate is to be set for a further 12 months on 24 months at the rate applicable for performing loans. 3. No prepayment fee is to apply to the loan up to and including August 1998. 4. Should borrowers be unable to meet repayment in any month then a further one month is to be allowed to rectify the situation. 5. Should the account not be in order after the further month has been allowed then assets are to be sold to bring account into order . 6. The borrower can elect to met payments on a weekly basis. 7. Should borrower elect to provide weekly payments then the weekly amount is to be calculated as being the total monthly repayments per annum divided by the weeks per year. The Bank will accept this as meeting the repayments set out in 1, above. 8. If settlement of Lot 142 is not effected by 30 June 1997 repayments are to be reviewed with view to clearance of the debt over the remaining period of the loans. 9. Prepayment fees is only applicable after August 1998 should borrowers provide more than amount equal to 12 months repayments in advance." 5 It is common ground that if the parties are in default of the agreement then the mortgage provisions apply. 6 Part 15 r 26 of the Rules provides: "(1) Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleadings be struck out. (2) The Court may receive evidence on the hearing of an application for an order under subrule (1)." 7 The relevant parts of Pt 13 r 2 says: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and (b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 8 In a recent decision in Air Services Australia v Zarb (NSWCA unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62, General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced the passages quoted. 9 In Dey (1948-1949) 78 CLR 62 Dixon J stated at p 91: "The application is really made to the inherent jurisdiction of the Court to stop the abuse of its process when it is employed for groundless claims. The principles upon which that jurisdiction is exercisable are well settled. A case must be very clear indeed to justify the summary intervention of the Court to prevent a plaintiff submitting his case for determination in the appointed manner by the Court with or without a jury. The fact that a transaction is intricate may not disentitle the Court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceedings amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the Court to dismiss the action as frivolous and vexatious and an abuse of process." 10 After considering that proposition further his Honour said, at p 92: "It is in my opinion of more importance to maintain the integrity of the principle that under cover of the inherent jurisdiction to stop abuse of process litigants are not to be deprived of the right to submit real and genuine controversies to the determination of the courts by the due procedure appropriate for the purpose than for this Court to add another to the many judicial attempts that have been made to construe and apply the perplexing provisions that stand in Victoria as s 5(2)(b) of the Workers' Compensation Act 1928." 11 In General Steel Barwick CJ, who heard the application alone, referred to Dixon J's passage quoted above at p 130. He then stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 12 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'." 13 More recently in Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried'." 14 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 15 Rolfe AJA continued: "In Wickstead Kirby P set forth five reasons for not dismissing part of the proceedings at the stage he was considering the matter. The third, fourth and fifth reasons all involved a consideration of the changes taking place in the law and the relevance of that to such an application. In NRMA Insurance Limited v A.W. Edwards (Court of Appeal, unreported, 11 November 1994) his Honour, with whom Powell JA agreed, in repeating the test to be applied said, at p 7: 'Nevertheless, the more complex and arguable is the legal point, and the more dependent it may seem to be upon debatable factual premises, the less likely it is that the peremptory relief sought by a party will be appropriate to the circumstances of the case, particularly where it would lead to the consequence of terminating proceedings altogether, or terminating them forever against one party.' He then pointed out that: 'Unless the remedy is effectively confined to cases 'for protecting a defendant from vexation by the continuance of proceedings which must be useless and futile', it would have the consequence of substituting summary judicial impression for determination on the merits, having heard both evidence and argument in the normal way of our courts'." 16 The plaintiff submitted that the validity of the purported s 57(2)(b) notice is irrelevant and that such notice can be treated as a notice of demand. The plaintiff submitted that in any event it did not have to serve a notice of demand because of the provisions of clauses 7.1 and 7.2 of the mortgage. According to the plaintiff cl 7.2 entitled the mortgagee's a right to immediate payment without any demand or notice (except as required by any statutory provision which cannot be excluded) if any of the events listed in cl 7.1 occur and default in payment is one of those events. 17 The defendants submitted that it was necessary to issue a s 57(2)(b) notice and that the notice was invalid. This allegation has been pleaded in the defence. The defendants relied on the authority of Websdale & Ors v S & J D Investments Pty Limited & Ors (1891) 24 NSWLR 573. However in Websdale the appellants were exercising their power of sale (see Clarke JA at p 576B). His Honour said that the power of a mortgagee to sell the mortgage property where that property is registered under the Real Property Act 1900 (NSW), is conferred by s 58(1) which applies only where the mortgagee is authorised by s 57(2) to exercise that power. 18 The plaintiff bank in the case before me is seeking possession. It is not seeking to exercise its power of sale. The plaintiff referred to Westpac Banking Corporation v Comanos (NSWSC, Giles J unreported, 9 May 1991). At p 6 His Honour stated: "…there is a wealth of authority that service of a notice pursuant to s 57(2)(b) of the Real Property Act is not a prerequisite to a mortgagee obtaining possession but a sale by mortgagee." 19 Giles J cited the following authorities: Mercantile Holdings Limited v Fisher (NSWSC, Yeldham J, 19 November 1982, unreported); PT Limited v Abdurahman (NSWSC, Yeldham J, 14 October 1985, unreported); PT Limited v Radler (NSWSC, Finlay J, 31 July 1986, unreported); Commonwealth Bank of Australia v Comserv (No 1181) Pty Limited (1988) NSW Conv R 55-402; White v Ormsby (NSWSC, Bryson J, 30 June 1988, unreported); Beneficial Finance Corporation Limited v Collings (NSWSC, Newman J, 15 September 1989, unreported); and Moreland Finance Corporation Limited v Turner (NSWSC, Newman J, 1 June 1990, unreported). 20 It is my view that the service of a s 57(2)(b) notice upon the defendants is not a pre-requisite to a mortgagee obtaining possession. Accordingly the parts of the defence relating to the validity of the s 57(2)(b) notice cannot be maintained and should be struck out. 21 The plaintiff submitted that it could appropriate payments to the account in the manner it saw fit. By letter of 28 August 1998, the plaintiff informed the first defendant that his cheque in the sum of $11,200 had been received that day and applied to the August 1998 loan repayment making it paid in full. This occurred at a time when there were existing arrears in the July payments. The letter further stated that the plaintiff applied a New South Wales Dairy Corporation cheque for $3,577.60 received on 13 August 1998 towards the July 1998 arrears of $8,910. The result of these appropriations was that the July 1998 repayment was still in arrears by $5,332.40 yet the August payment had been made in full. The letter concluded that in accordance with the FDMA as arrears had not been paid within the stipulated time frame, assets must now be sold to repay the loan. 22 The plaintiff submitted that where there is a debt the debtor has the primary right to appropriate any payments to make some reduction of the debt but if he does not appropriate the creditor has the right to appropriate. According to the plaintiff the defendant/debtor did not specify that the sums of $11,200 and $3,577.60 were to be appropriated to the July arrears and therefore the creditor had the right to appropriate those amounts in the manner which it saw fit. In other words, the plaintiff was entitled to appropriate payments received in August towards the August arrears rather than towards the July repayment. 23 However, the defendants submitted that paragraph (4) of the FDMA created a special condition attaching to the deposit and that moneys received in August should have been appropriated to the July repayment. Had the plaintiff adopted that course it would not have been entitled to issue the notice of demand on 20 August 1998 because paragraph (4) of the FDMA stipulated that should the borrower be unable to meet a repayment in any month then a further month was to be allowed to rectify the situation. The plaintiff should not have issued the notice of demand until September 1998. This proposition is in my view is arguable. 24 Further, a bank officer has made calculations in a payment summary (Ex BR108) which shows that as at March 1999 the defendants were in arrears in the sum of $65,462.88. These calculations ignore a payment of $110,550.32 made by the defendants to loan account No 20303404/2 on 24 March 1999. The defendants also have provided a table of payments which shows that if this amount was paid off the arrears, as at March 1999 then the account is in credit in the sum of $45,087.44. 25 The plaintiff has not provided any evidence to show whether the sum of $110,550.32 were loan repayments or a payment which reflects the settlement of Lot 142 - see paragraph (8) of the FDMA. It is my view that it is arguable that the defendants are not in default of the agreement. It is my view that the plaintiff has failed to discharge its onus as I am not satisfied that the defendants case is hopeless and should be dismissed. I decline to strike out the balance of the defence and I also refuse to order that summary judgment be entered. 26 In relation to the order seeking expedition, the plaintiff has not produced any evidence to show the current value of the property. The amount (if the plaintiff's calculations are accepted) due and owing under the mortgage was $863,761.73 as at 30 October 1998. It is not known how much equity there is in the property. The plaintiff has failed to demonstrate there is urgency in having this matter determined. It has not made out a case for expedition so I decline to so order. 27 The plaintiff has had only limited success in its endeavour to strike out the defence and obtain summary judgment. It would seem that the matter could have been placed in the holding list and obtained a trial date in the near future. Nevertheless, the plaintiff elected to pursue its application for summary judgment at this late stage. In these circumstances it is my view that the appropriate order for costs is that costs be costs in the cause. 28 The orders I make are: (1) The paragraphs of the defence that relate to the validity of the s 57(2)(b) notice should be struck out. (2) The defendants are to file an amended defence within 14 days. (3) The balance of the plaintiff's notice of motion filed 3 May 1999 is dismissed. (4) Costs be costs in the cause. ********** Last Modified: 06/07/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.