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  • Unreported Judgment

Bank of Western Australia v Liu

 

[2014] QSC 318

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

7 November 2014 (ex tempore)

DELIVERED AT:

Brisbane

HEARING DATE:

28 October 2014

JUDGE:

Carmody CJ

ORDERS:

1. Leave to amend initiating documents is granted in terms of paragraph 1 of the application filed 12 September 2014;

2. The application for summary judgment is granted;

3. The respondents to pay the applicant’s costs as agreed, or if not agreed by 15 December 2014, to be assessed on the standard basis;

4. Order as per draft as amended.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES – SUMMARY JUDGMENT – where the applicant contends there are no facts to be resolved at trial – where the respondents deny liability to vacate mortgaged residential property for which the applicant claims recovery – where the respondents deny liability to repay loan on property based on misleading conduct by the bank – whether the respondent has any real prospects of successfully defending the claim

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES – PLEADINGS – DEFENCE AND COUNTERCLAIM – where respondents allege that the applicant impliedly warranted the valuation of a mortgage property – where respondents allege that the applicant made representations about the ability to extend the loan term and subsequently departed from those representations – where applicants claim estoppel and consequent entitlement to restitution or, in the alternative, federal Consumer Law contraventions – whether material disclosed in counterclaim evidences any real prospect of success

PROCEDURE – COSTS – DEPARTING FROM THE GENERAL RULE – ORDER FOR COSTS ON AN INDEMNITY BASIS – where contractual clause entitles respondents to pay all costs related to recovery – whether clause entitles applicant to claim or recover costs – whether clause is sufficiently clear to override the court’s discretion to determine whether indemnity costs are appropriate

Chambers v Bryce [2014] QSC 52, cited

Willmott v McLeay [2013] QCA 84, distinguished

COUNSEL:

DA Savage QC with PA Ahern for the applicant.

SC Fisher for the second respondent.

SOLICITORS:

Gadens for the applicants.

Ebenezer Legal for the second respondent.

THE CHIEF JUSTICE:   The parties are a lending bank and co-borrowers in default.  The bank applies for (a) leave to amend the initiating documents in terms of the exhibited draft, (b) summary judgment for the claimed relief, (c) dismissal of the counter-claim, and (d) costs calculated on a full indemnity basis under the facility or, alternatively, on a standard assessment under the rules. 

 

The bank proposes to substitute a claim for interest fees and charges at the rates agreed in the written loan document, to take advantage of the decision of Chambers v Bryce [2014] QSC 52.  The change does not prejudice the respondents and is not opposed.  Leave will be granted in terms of paragraph 1 of the application.

 

The bank also claims recovery of a mortgaged residential property at Park Ridge and the debit balance of a loan account in the amount of $3,246,909.08, comprising $2,350 still owing for the principal under a fixed term commercial advance loan and $883,924.84 for unpaid interest fees and charges debited to an overdraft account set up to meet monthly interest repayments and accrued but not debited interest fees and charges. 

 

The respondents admit to accepting and not repaying the loan on maturity or since, but deny liability to vacate the property or remedy the default based on alleged misleading conduct of the bank.  The bank, by contrast, contends that the asserted grounds of defence have no real prospects of success and a trial of the claim is not needed because there is no factual or legal issue requiring investigation and resolution by the Court.  The focus, therefore, is on whether the respondents have put on enough material to persuade me that it would be unjust not to allow their defence and/or counter-claim to proceed. 

 

The Court must, of course, be careful to avoid dismissing viable defences and valid claims on a summary basis, except in clear cases.  On the other hand, justice should not be delayed or defeated by spurious or false controversies being allowed to continue when they should be halted.  The latest version of the defendant’s pleading, filed on 24 October 2012, asserts that by obtaining a Herron Todd White HTW valuation of the Park Ridge property at $3.8 million “on or about 14 July 2007” and later providing it to the respondents with an offer to lend $2.6 million, the bank at least impliedly warranted the 2007 valuation and its methodology.

 

The respondents allege they were induced to accept the bank’s loan offer and mortgage conditions because of the valuation representations and an assurance that the facility term would be extended beyond the nominal expiry date of 21 December 2010 as long as they kept the interest repayments up to date.  The respondents complained the bank later “departed” from the valuation and extension representations to their likely “detriment ... leading to an estoppel and claim grounded in restitution” and, in the alternative, amount to federal consumer law contraventions.

 

At issue, therefore, is whether either the valuation or extension representations are disputed facts, the resolution of which the respective rights of the parties depend and which, assuming they exist, are capable of establishing a defence or right to relief. 

 

The context

 

The first respondent contracted to buy the 9.9 hectare property at Park Ridge on 6 June 2007 for $3.8 million.  On 10 July 2007, after other banks had refused finance and the settlement date extended for lack of funds, CBRE valued the property at $1.6 million for the ANZ bank.  On 13 July 2007, the applicant bank emailed an indicative funding proposal subject to “satisfactory valuation” of a $2.3 million interest-only cash advance for three years with monthly interest being serviced via direct debit arrangements on a nominated account, secured by a mortgage and a $250,000 term deposit to guarantee interest servicing.  On 14 July 2014, HTW assessed the current market value of the property as a potential redevelopment site on a “as is” basis at $3.8 million.  Page 1 of the valuation document expressly states that the report is not to be relied on or used other than by the bank for “first mortgage security” purposes and “only suitable for an approved lending institution”. 

 

Even in such a case, the valuer explicitly disclaimed liability or responsibility for reliance on the valuation without its prior written authorisation.  Section 2.1 of the appraisal identifies the market risks, including the dependency on demand for residential “en globo” parcels on the underlying redevelopment potential and zoning requirements.  Section 2.2 refers to the contract of sale over the property for $3.8 million, which, according to 8.4, was a relevant valuation factor.  This was the first contract the first defendant signed as a buyer on 6 June 2007.  Other comparable sales are noted in the schedule at 8.5, rated at between $400,000 and $450,000 per hectare. 

 

A revised conditional facility proposal in the amount of $2.6 million was emailed by the bank to the respondent on 17 July 2007.  An approval in those “broad terms” was confirmed on 19 July 2007.  The respondent signed the contract to buy the property unconditionally 23 July 2007.  The bank forwarded a copy of the valuation to the defendants the next day.  Thus, the respondents were committed to the contract before receiving the disputed valuation. 

 

The bank’s formal letter of offer received on 28 August 2007 was for a commercial, rather than a cash advance, with an expiry of three years from initial drawdown.  The defendants were told that the initial term of the loan would be hard to change so that it would not expire after three years, but that if the repayment schedule was complied with, the bank “would extend the loan at the borrower’s request”.  The facility offered was accepted on 3 September 2007 despite discrepancies with the alleged extension representation.  The contract settled on 8 October 2007.  Under the terms of the facility, the bank required an updated valuation in September 2010.  It suggested that the valuation be done on the same basis as the 2007 HTW valuation, but the respondents were only willing to pay for a “land-only” appraisal.  As the bank predicted, the market value on the land-only basis came in at a much lower figure than the alternative potential development basis, that is, at $1.65 million. 

 

The disparity between the new market valuation and the HTW assessment in 2007 meant that the loan to value ratio (LVR), which was required to be no more than 70 per cent, grew to over 200 per cent.  The bank refused to look at an extension of the loan term with the LVR at that rate and suggested that the respondents either pay off principal or have the property re-valued on the development basis.  Any extension would only be allowed if the LVR was at between 50 and 55 per cent.  To achieve this, the respondents would have had to reduce the loan by between $510,000 and $700,000.  The bank advised the defendants that if a new appraisal was proposed to try and achieve a much higher valuation, they would have to show an ability to service the facility interest and possible principal reductions after the expiry on 22 November 2010 solely from income from Australian sources. 

 

The respondents contend that exhibit AL25 evidences the bank’s agreement to extend, despite the LVR, to November 2012.  However, it is clear that the bank’s concession in that email was based on the mistaken assumption that the facility was initially drawn in 2009 when, in fact, it was drawn in 2007.  The $250,000 set-off deposit was transferred to the loan account on 25 February 2011 and the facility was extended to 30 June 2011, provided that a further $250,000 reduction in principal was made by 31 March 2011. 

 

Refinancing attempts by the respondents failed.  The bank terminated the facility on 3 August 2011. 

 

The respondents argue that the HTW valuations in 2007 and 2010 could not both be right and suggest at paragraph 62 of their outline that the reason for the disparity was the bank’s use of “special criteria” to mislead them into believing the 2007 $3.8 million valuation was accurate so that they would be induced to accept the terms of the offer letter on 3 September 2007. 

 

The key defence claim – that by obtaining and providing the 2007 valuation to the respondents, the bank represented that “it accepted the valuation methodology” – is not only untenable, but it provides no defence on the respondents’ own case, taken at its highest.  The 2007 valuation was independent of the bank for its exclusive use, qualified and, most importantly, there is no evidence that, whether accepted by the bank or not, the valuation methodology was flawed in any material way or that the property was not worth $3.8 million on a redevelopment basis. 

 

Even if the methodology was flawed or the assessment erroneous, the respondents have not put on enough material to demonstrate on a prima facie basis the assertion that they entered into the contract to buy the Park Ridge Property at $3.8 million on an unconditional basis “in reliance on the 2007 valuation”.  The known facts point strongly to the contrary.  Not only were the terms of the valuation so heavily qualified that no reasonable person would have been induced or even encouraged to rely on it for the purposes of deciding whether or not to contract, but there is no evidence-based reason to believe that the respondents themselves were misled, either about the value of the property or the valuation methodology at the time of contracting.  The first respondent had previous agreed to pay the same price for the same property before the HTW valuation was even sought.  The second respondent was, obviously, a nominee party to the transaction.  Moreover, the contract was unconditional before the respondents even knew what the HTW valuation was.  They may have read too much into the bank’s willingness to lend but the risk was one they voluntarily and independently assumed.  Having misgivings or being reticent about entering into the contract is not sufficient to lay the blame at the feet of the bank. 

 

There is no substance in the so-called valuation representation ground of defence.  Nor, again, assuming it was made, does the extension representation assist the respondents.  At best, the respondents’ case is that the bank represented that despite the nominal expiry date of the facility being 31 December 2010, it would be extended, as long as the repayments were up to date.  Ironically, the respondents’ asserted case in these proceedings was that the facility was extended to 2012 in reliance on exhibit AL25.  In any case, the facility was extended by the bank to 30 June 2011.

 

The respondents’ material does not say how long the extension they were induced to believe they were given by the bank after the maturity date of 31 December 2010 was intended to be.  The respondents’ material is not sufficiently certain as to the period of extension or its terms to provide them with a viable defence to the bank’s claim.  At any rate, it is now four years since the facility expired and the debt has not been serviced beyond the $250,000 off-set. 

 

The respondents have no real prospect of successfully defending on the pleaded basis that either or both the valuation and extension representations were acted on or, in the case of the extension valuation, was certain enough or that, in either case, were departed from by the bank.  A full hearing is not needed because the rights of the parties do not depend on the resolution of disputed facts.  Even if the facts were resolved in the respondents’ favour on the material put on, the Defences would fail because the valuation representation clearly did not induce the contract as alleged and there is no reason for thinking that the property was not worth in the order of $3.8 million in 2007 or, if valued on the same basis in 2010, was worth any more or less.  The alleged extension representation is far too uncertain to support the allegation that it was departed from by the bank. 

 

The debt is proven, no ground of defence with any reasonable prospect of success exists and no contested facts need investigation at a trial.  The application for summary judgment is granted. 

 

The successful applicant seeks costs on the indemnity basis in reliance on cl 12.1(b) of the facility – which, in terms, records the respondents’ agreement to pay all the bank’s recovery costs or costs in connection with the enforcement of its rights in the event of default.  The question is whether by that clause the parties have contracted “plainly and unambiguously” for the payment of costs on an indemnity basis.  In Willmott v McLeay [2013] QCA 84, the Queensland Court of Appeal did not think a clause in the following terms was sufficiently plain and unequivocal to establish a clear right under the contract to indemnity costs:

 

The seller may claim damages for any loss it suffers as a result of the buyer’s default, including its legal costs on an indemnity basis and the cost of any work or expenditure under (other clauses).

 

The difference between that clause and the one in question here is that the former referred to what the seller may claim and on what basis, whereas the latter specifically directs its attention to what is payable by the respondent.  

 

In the end, an order for costs calls for an exercise of the Court’s discretion, even when there is a contractual right to indemnity costs.  I think this is a borderline case and my discretion is informed by the contractual provision.  I think the provision is stronger than the one considered in Willmott v McLeay but, ultimately, just falls short of being strong enough to plainly and unambiguously constitute a clear contractual right to recover as opposed to claim indemnity costs so as to warrant the exercise of the discretion in favour of granting costs on an indemnity basis.  Accordingly, paragraph 4 of the order will be amended by deleting the word “indemnity” and adding the word “standard”.  After “12 September 2014” the balance of the term is deleted and replaced withas agreed, or if not agreed by 15 December 2014, to be assessed on the standard basis.” 

 

Order as per draft, signed and amended by me.

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Editorial Notes

  • Published Case Name:

    Bank of Western Australia v Liu & anor

  • Shortened Case Name:

    Bank of Western Australia v Liu

  • MNC:

    [2014] QSC 318

  • Court:

    QSC

  • Judge(s):

    Carmody CJ

  • Date:

    07 Nov 2014

Litigation History

No Litigation History

Appeal Status

No Status