The decision of the Victorian Court of Appeal in favour of the NAB highlights some difficulties that might arise between lenders and recalcitrant borrowers in relation to terms of settlement for the compromise of repossession proceedings. The Court of Appeal’s decision demonstrates that borrowers who enter terms of settlement must comply with the conditions of the terms of settlement.
- The NAB provided Mr Sgargetta with a $300,000 home loan secured by a mortgage over property in Kalorama, Victoria. A dispute arose in relation to the figure required to pay out that loan. As a result of the dispute, Mr Sgargetta refused to make any further payments of principal or interest to NAB in relation to the loan.
- NAB commenced proceedings against Mr Sgargetta seeking possession of the property. A deed of settlement was subsequently executed. The terms of settlement required Mr Sgargetta to provide to NAB a conditional letter of approval for finance for an amount required to settle the amount owed under the loan, and to pay that amount to NAB. Mr Sgargetta failed to comply with the terms of settlement.
- The proceedings continued to trial in the County Court. At the trial, Mr Sgargetta attempted to pay the sum required to settle the dispute by bank cheque. Mr Sgargetta alleged, among other things, that the NAB had contravened sections 76 and 77 of the National Consumer Credit Code by failing to provide him with a payout figure within 7 days of settlement, and that NAB acted unconscionably in this regard. Mr Sgargetta also sought specific performance of the terms of settlement.
Decision of trial judge
- The trial judge dismissed Mr Sgargetta’s claims. The trial judge held that the relevant provision of the NCC, s 83, did not operate as a condition precedent to the NAB bringing possession proceedings against a borrower. The trial judge also rejected the claims that the NAB had acted unconscionably (including in relation to the deed of settlement).
Court of Appeal decision
- Mr Sgargetta unsuccessfully appealed to the Victorian Court of Appeal.
- The Court of Appeal held that the requirement of Mr Sgargetta to provide a conditional letter of offer of finance was not complied with, and that the NAB was entitled to proceed with its proceedings on the basis the terms of settlement had not been complied with.
- The Court of Appeal also held that:
- because the terms of the deed had not been complied with, the NAB was within its rights to reject the bank cheque proffered by Mr Sgargetta at the trial (in purported conformity with the terms of settlement);
- the conduct of the NAB in relation to the deed of settlement was not ‘such as to attract moral opprobrium’, and was not unconscionable;
- it accepted the trial judge’s finding that the payout request had been retracted, which resulted in the NAB not having contravened the requirements of the NCC;
- the NAB was entitled to possession of the property.