NAB v Amed [2011] NSWSC 988

The bank lent monies to a husband and wife secured by a mortgage over their home. In addition they lent monies to a company secured by a guarantee given by the couple and other individuals/companies. The loans went into default and the bank demanded repayment of the loans and the guarantees and obtained default judgement against the husband and wife. The husband sought an order that the default judgment against him be set aside on the basis that he was not served with the statement of claim and had good defences to the bank’s action on the basis that he had not obtained independent legal advice and in respect of the guarantee, that the bank had made certain representations. His wife was served, and filed a defence.

The law in relation to setting aside default judgments

Rule 36.16(2)(a) of the UCPR provides for the setting aside of a default judgment. The test is whether the interests of justice require that the defendant should be permitted to contest the claim. A bona fide ground of defence and an adequate explanation for the failure to defend and any delay are relevant matters to consider.

Explanation for delay

The court found it more probable than not that the statement of claim had been served on the husband and that there was no acceptable explanation for not defending the proceedings. However given the delay was not lengthy and the bank did not argue any substantive prejudice caused by the delay, the court permitted the husband to raise any viable defences.

Contracts Review Act defence

Under the Act, a contract may be unjust because its terms, consequences or effects are unjust (substantive injustice) or may be unjust because of the unfair methods used to make it (procedural injustice) eg where the claimant did not have the capacity or opportunity to make an informed choice as to whether he should enter into the contract. A failure to obtain independent legal advice cannot of itself make any transaction unjust.

The court found that the husband had no arguable bona fide defence on the basis of not having obtained adequate legal advice and dismissed his application to set aside the judgment in respect of the mortgage debt.

The husband claimed that in relation to the guarantee, the bank made misleading and deceptive representations that its rights would only be enforced after default and the sale of the property and only if amounts were still owing which was unlikely and is estopped from asserting that the guarantee is presently enforceable.

The court found that where representations are made by the bank as to the procedure to be adopted in the event of default, it is arguably unjust to permit the bank to rely on its unqualified rights in the guarantee unless that is expressly brought to the attention of the guarantor and explaining that the representation is no more than a prediction of the bank’s usual approach but will not qualify the bank’s rights to pursue the guarantor whether or not it has exercised its rights under the mortgage. The court found that while the husband cannot seek to have the guarantee set aside, it can seek an order that the bank’s obligations not be enforced until the rights of the bank have been fully exercised by sale of the property. The court noted that the wife was in a different position since it is arguable that it is unjust to enforce the guarantee at all against her since the bank may have been on notice that the guarantee was unjust from her point of view and that she needed to obtain advice independent of the bank and her husband and did not.

The court found that in respect of the guarantee, the husband had a viable defence under the Contracts Review Act 1980 and set aside the default judgment in respect of the guarantee.

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