New South Wales Supreme Court CITATION : Pappas v Commonwealth Bank of Australia [2005] NSWSC 1068 HEARING DATE(S) : 19 October 2005 JUDGMENT DATE : 26 October 2005 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Malpass at 1 DECISION : The judgment and order of 8 March 2005 is set aside and the matter is remitted to the Local Court for determination in accordance with law; the defendant is to pay the costs of the summons; If so entitled, the defendant is to have a certificate under the Suitors' Fund Act 1951. CATCHWORDS : Decision founded on breach of contract not litigated by the parties - denial of procedural fairness - onus - questions not dealt with - pleaded issues and departure therefrom - leave. Alex Pappas (Plaintiff) PARTIES : Commonwealth Bank of Australia (Defendant) FILE NUMBER(S) : SC 11257/05 Mr P Bruckner (Plaintiff) COUNSEL : Mr A Gemmell (Defendant) Bolzan & Dimitri (Plaintiff) SOLICITORS : Abbott Tout (Defendant) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 0518/03 LOWER COURT JUDICIAL OFFICER : Dr Brown LCM - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Associate Justice Malpass 26 October 2005 11257 of 2005 Alex Pappas v Commonwealth Bank of Australia JUDGMENT 1 His Honour: On 11 April 1997, the plaintiff entered into a lease agreement (the agreement) with the State Bank of New South Wales (the State Bank) with respect to a second-hand BMW motor vehicle (the vehicle). The agreement imposed an obligation to pay 48 monthly instalments of $753.27 (the first of which was payable on 11 April 1997 and the last of which was payable on 11 March 2001). The vehicle had a residual value of $11,400. 2 Monthly payments were made until March 1998. The plaintiff sold the car on 11 March 1998. About six days thereafter, the plaintiff made a payment in the sum of $30,000 to the State Bank (it was applied to meet monthly instalments). This was the last sum recorded as being received by it from him. The plaintiff contends that a week or two later, he paid a further sum. There is no evidence as to the quantification of that alleged payment. 3 On 4 June 2001, the defendant became the successor to the State Bank. It would seem that until sometime thereafter, the defendant was unaware of the disposition of the vehicle. 4 On 6 January 2003, the defendant purported to terminate the agreement. It demanded payment of the sum of $10,889.91 (it turned out that this was an overstatement of the claim by reason of error made in a GST calculation). On 31 January 2003, the defendant brought proceedings in the Local Court at Parramatta (in the General Division). Originally, the claim was pleaded as being for money owing pursuant to the agreement. The original process was amended. The amended process pleaded breach of conditions of the agreement and failure to comply with a demand. 5 The plaintiff put, inter alia, the allegations of breach in issue and also relied on what has been described as an accord and satisfaction. In substance, it was contended that an agreement had been reached as to what was due and that such amount had been paid by the plaintiff to the State Bank. 6 The plaintiff sought particulars of the alleged breach. The particulars that were provided alleged failure to pay the residual value following the final payment of rent. 7 In May 2004, the parties reached an agreed statement of facts and issues as follows:- 1. Whether [Mr Pappas] fully paid out the lease agreement in about March of April of 1998, or at any other time. 2. Quantum. 8 The proceedings were heard by Dr Brown LCM on 31 August and 29 October 2004. Both parties were represented by counsel. 9 The Magistrate found in favour of the defendant. It recovered judgment in the sum of $9,212.70. An order for costs was made in favour of the defendant on an indemnity basis. 10 The judgment of the Magistrate contained the following:- One is left with the impression that neither side paid any attention to the actual terms of the lease over which they were fighting. This superficiality however, cannot be allowed to deny the plaintiff a remedy for breach of its legal rights, if such a breach can be shown to have in fact occurred, within the four corners of the contract which was an exhibit before me, and whose existence and details were not disputed. It seems to me on a simple analysis of a lease agreement and the substance of the evidence, there has been a breach by the defendant. Strictly speaking of course, questions of law do not have to be cleared, so that failure to do so cannot be used as a basis for denying the plaintiff a remedy if due, or for denying the defendant the right to raise any legal issues by way of defence, should he so choose. … … … Under clause 4.9 of the lease, the defendant lessee may not part with possession of the goods without the consent of the plaintiff lessor. If one accepts the plaintiff's case, the defendant had no such consent from the plaintiff or its predecessor's entitled. Consequently, on that view of the case, a repudiation event had occurred under clause 10.2.3 and a termination payment became payable under clause 10.4. A termination payment is defined in clause 1.1.17 to include (d) the residual value to item 7 subject to a rebate had not been the subject of argument. Obviously, if one accepts the defendant's case, he had the consent of the State Bank to dispose of the vehicle, and there is no breach of clause 4.9. However, the lease itself requires any consent to such act, disposal or transfer, to be in writing under clause 13.4 and no such writing was ever produced. Breach of that condition of the lease can itself only be waived in writing under clause 13.2. The defendant said he reads contracts carefully, so he must be taken to have been aware of this important obligation. The defendant was unable to produce any such written waiver, the onus of proving that such a waiver was granted lies on the defendant. On those simple and clear legal grounds, it follows that the plaintiff has established, on the balance of probabilities, that the defendant was in breach of the lease which breach had not been waived and the defendant is therefore liable to make a termination payment in accordance with paragraph, my preceding paragraph 16. [Tr 8.3.05, pp10-11] 11 The judgment also contained the following:- I accept that there may well have been oral communications between the defendant and the State Bank of New South Wales and that a payout figure may well have been quoted to the defendant by the State Bank. Given the defendant's continuing need for banking services to support his various business activities, it seems to me unlikely that he would have blatantly breached the terms of his lease and would have disposed the BMW without reference to the bank and without any attempt to discharge his liability under the lease. What exactly did occur there is a matter of considerable conjecture. … … … I am left with the impression that he simply opportunistically took advantage of confusion and uncertainty that arose during the takeover of the State Bank by the Commonwealth Bank and relied on the latter bank's inefficiency in pursuing its claims to distance himself from the transactions with the State Bank. [Tr 8.3.05, pp9-10] 12 Proceedings have been brought in this court to challenge the decision of the Magistrate. The plaintiff now proceeds on an amended summons filed on 6 June 2005 (there are 11 grounds of appeal). It is a lengthy document and comprises 20 pages. 13 The proceedings came on for hearing on 19 October 2005. The primary position of the plaintiff is that there has been error in point of law. The alternative position adopted by the plaintiff is that there are questions of mixed law and fact and it makes an application for leave. Leave is also required in respect of challenges made to the costs order. 14 Both parties have made written submissions (those of the plaintiff were voluminous and extended to 31 pages). These submissions were supplemented by oral argument. 15 The principal area of challenge concerned a ground which contended that the proceedings were determined on bases that were not pleaded, particularised or litigated during the hearing. This concerned the finding of breach of clause 4.9. 16 It may be that the view could be taken that such a breach did fall within the allegations made in the amended process. Be that as it may, this particular breach was not particularised. 17 Save in one respect, it was not raised during the hearing. Counsel for the parties made written submissions. It was not mentioned in either the submissions in chief made on behalf of the defendant or in the submissions which responded to them. In the reply thereto, the submissions from the defendant contained the following:- 7. The defendant, without obtaining the plaintiff's approval (let alone in writing as required by the terms of the lease), sold and parted with possession of the vehicle (themselves fundamental breaches of Clause 4.9) notwithstanding that he was obliged to return it to the plaintiff following the final payment of rent. Following conclusion of the evidence, through Counsel's written submissions, the defendant now makes the breathtaking and plainly untenable contention that he can somehow fail to return the vehicle and simultaneously not it's [sic] Residual Value. 18 Whilst the submissions in reply did mention the matter of breaches of clause 4.9, the mention was not made in the context of it being part of the case in chief. It was raised in the course of dealing with another matter. 19 The plaintiff contends that he was denied procedural fairness in respect of this matter. It was not one on which he had the opportunity to lead evidence or to be heard. 20 It seems to me that the plaintiff was denied procedural fairness. However, on one view, it may be that any opportunity to lead evidence and make submissions would not have brought about a different result. The plaintiff takes issue with this approach and contends that there were other avenues it could have pursued to meet the claim. One of them was to rely on a defence of expiry of the relevant limitation period. Whether or not such a matter would assist the plaintiff is a contentious matter and may require further court consideration. 21 I should add that it is said that the plaintiff did not plead any such defence because it was under the belief that it was defending an allegation of breach that took place in 2003. 22 There is dispute between the parties as to what findings were made that led to the finding of breach of clause 4.9. There is no express finding on the question of consent. What was said on the question is lacking in precision and provides ample room for doubt. 23 For completeness, I should mention that submissions were made on the pleading questions (inter alia, that the Local Court was not a court of strict pleading). For present purposes, these considerations need not be pursued. 24 It suffices to that that, generally speaking, parties are confined to the issues raised by the pleadings. However, it is not unusual for parties in that Court to depart from the pleadings and litigate other issues. If that happens, the Court should determine those issues if they resolve the dispute. 25 The plaintiff did not impress the Magistrate as a witness. Indeed, various unflattering observations were made concerning him and his evidence. He lacked documentation to support what was said by him. The poor impression that he made as a witness of truth and reliability appears to have played an important role in the decision that was reached. 26 The judgment also contains the following:- It should be noted that the bank's own transaction recording and documenting procedures left a considerable amount to be desired; did not issue receipts, for advance payments, made no attempt to communicate with the lessee for a considerable time. It is I think, fair to say that if the evidence at the end of the close of the plaintiff's case, the plaintiff might have been in some difficulty as to proving its assertions, even on the balance of probabilities. However, a weak case in chief may be substantially bolstered as in this case by a very poor, not to say, dishonest case in reply, especially where an adverse view is formed as here of the credibility of the defendant in person. [Tr 8.3.05 p10] 27 The meaning to be attributed to these observations may also be a matter of conjecture. The question has to be approached on the basis that earlier in his judgment the Magistrate had correctly expressed the onus borne by the defendant. The plaintiff sees the observations as demonstrating error in point of law (misdirection as to onus). The onus to prove its own case rested with the defendant and the plaintiff's lack of credibility could not be relied upon to overcome any evidentiary deficiencies in the defendant's case. 28 There were numerous other matters agitated by the plaintiff. In the circumstances, little needs to be said concerning some of them and others do not require comment. It suffices to make only some further brief observations. 29 It is contended that the Magistrate failed to address the defence of accord and satisfaction. At an early stage in his judgment the Magistrate identified the issue in dispute as being "related solely to the question of whether the defendant had paid out a loan made to him" by the State Bank in respect of the vehicle. As the judgment proceeded he moved away from that issue. Perhaps, other observations made therein and the determination made by him may be seen as an implicit rejection of the defence. However, real doubt remains as to whether he lost sight of it and failed to ultimately deal with it. 30 There were a number of submissions concerning a lack of evidence to support findings made by the Magistrate. There was not an abundance of evidence before him. However, generally speaking, it would not be correct to say that there was no evidence to support findings that were made. 31 There were submissions that there were findings which were dependent on the giving of notice and the passing of time (such as of repudiation and termination). As I read the judgment, no such findings were made. If a different view was to be taken on those matters it was not material to the decision. 32 There were submissions made as to the quantum findings. In the light of what has been earlier said, these do not have to be adduced. 33 There were matters that required the grant of leave. In any of those cases, it does not seem to me that it would have been appropriate to grant leave. It suffices to mention some of the relevant considerations. 34 The dispute concerns a modest sum. The litigation that has taken place is disproportionate to what is involved in the dispute. There are no questions of public interest. There is no manifest error. 35 The plaintiff bears the burden of satisfying the court that there has been error of law that justifies the disturbing of the decision of the Magistrate. It is with reluctance that the court has come to the view that the onus has been discharged in this case. 36 The defendant relied on a notice of contention. It propounded three other bases on which the decision could be affirmed. They relate to matters which were not dealt with by the Magistrate and required findings from the Local Court. If the matter is remitted to the Local Court, these questions can be dealt with by it. 37 The court has been told that the dispute has been to arbitration, prior to the hearing in the Local Court. The dispute must now be referred back to the Local Court and the parties seem to be facing a further hearing. One result may be that the plaintiff will still lose the final battle. Whilst the result may be an unhappy one, the court is left with no alternative. 38 The judgment and order of 8 March 2005 is set aside and the matter is remitted to the Local Court for determination in accordance with law. The defendant is to pay the costs of the summons. If so entitled, the defendant is to have a certificate under the Suitors' Fund Act 1951. ********** 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.