The lender alleged the borrower defaulted under the mortgage and sought possession. The borrower filed a defence raising an estoppel argument which alleged that the loan was part of development finance arrangement (consisting of representations made by the bank) whereby the bank was to finance the construction of residential units and, in the meantime, allow the borrower to pay interest by overdrawing its account. The borrower had relied upon the representations and the bank was now estopped from reneging on them. The Borrower also argued that there had been no valid service of a s57(2)(b) notice.
The estoppel / variation defence
The lender sought under rule 14.28 of the UCPR to strike out the Defence on the basis that it discloses no arguable defence. The court noted that the defence should only be struck out in a plain and obvious case. The court then made the following finding about the strength of the borrower’s case:
At its highest the Defendant’s evidence might support an action against the Bank for damages for breach of its promise to lend him 80% of the construction costs. What the evidence does not do is disclose any representation by the Bank that the Bank would not call up the existing loans if there was a default under those loan agreements.
The court then noted that any cross-claim for damages could not effect the obligation to repay the debt:
Even if the borrower has some sort of cross-claim against the Bank for damages for breach of the contractual promise to lend 80% of the construction costs any damages, as a matter of law, could not be set off against amounts owing to the Bank and could not, therefore, preclude the Bank obtaining an order for possession.
Unfortunately exactly what law His Honour was referring to was not particularised. Presumably it was common law or statute because His Honour then bolstered that statement by noting:
The matter is put beyond doubt by clause 10 of the Terms and Conditions which expressly provides that borrower does not have a right of combination or set off unless the NAB has agreed.
The s57(2)(b) defence
The court noted that there is no requirement for a s 57(2) Notice to be served and expire before an order for possession is able to be obtained however it is otherwise if it is necessary to rely on an acceleration clause in the mortgage. To the extent that an acceleration clause needs to be relied the notice must have been duly served and expired before an acceleration clause can be of any effect (s57(5)). The borrower claimed that the lender relied upon an acceleration clause in demanding all the monies be repaid. The court rejected this argument commenting:
The Bank had no need to, and did not, rely on the acceleration clause in making the demand that the overdrawn funds be repaid. What was owing to the Bank was $61,790.38 being the overdrawn balance on the account. Since nothing was being accelerated s 57(5) was not engaged.
The borrower also argued that the bank was required to give 38 days notice in the s57(2)(b) notice as the loan contract required the lender to give 7 days notice after a s57(2)(b) had not been complied with. The judge rejected this argument holding:
The notice served notified the Defendant that if the default was not remedied within 31 days it was proposed to exercise the power of sale in respect of the land. That is what the sub-section requires. The fact that the loan contract provides for the service of a further notice to give the mortgagor another 7 days after a failure to comply with the first notice cannot mean that the 31 day notice accompanied by the required warning is not sufficient to comply with s 57(3). The Bank in fact gave further notices on 31 March 2009 in respect of each facility requiring payment of the amount within 7 days. Those notices were not complied with. Accordingly, the Bank’s right to take possession of the property, expressly provided for in the loan contract was enabled.
The defence is embarrassing
The Bank also argued that by reason of the way the defence was pleaded the it was was embarrassing within the meaning of rule 14.28 of the UCPR. The court noted:
A pleading may be embarrassing even though it does contain allegations of material facts sufficient to constitute a cause of action, if the material facts alleged are couched in expressions which leave difficulties or doubts about recognising or piecing together what is referred to, or if imprecise or slang words are used with unduly broad ranges of possible meanings or without clear meanings. It is not fair to require a litigant to flesh out general expressions or indirect allusions by piecing together information in other documents such as affidavits or experts’ reports. He might get it wrong, and the greater the complexities are, the more probable it is that he will understand what is alleged in some different way to what the plaintiffs will rely on. Procedural justice can be upset just as much by opportunistic advocacy by an ambush from complete concealment.
His Honour commented that if he had not reached the view that no reasonable defence was disclosed, he would have been satisfied that the Defence was embarrassing within the meaning of the Rule.
Ordinarily, in those circumstances, a defence would be struck out with leave given to replead so that the matter could be pleaded in clear and non-embarrassing terms. However given that the pleading had already been otherwise disposed of, and because the borrower had already been given two chances to replead, this was not offered and summary judgement was entered.