Litig8: We either live with intention or exist by default

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Each month as a part of Mills Oakley’s Litig8, we bring to you snapshots of eight key cases, legislative changes or other legal events. The summaries are not comprehensive and do not constitute legal advice. You should seek professional advice before taking any action based on the content of this email.

Part 1 of Litig8 Edition 3

A notice of credit default issued pursuant to the relevant State-based legislation may be enforceable, even when there is a settlement agreement in place between the credit provider and the borrower, and in circumstances where the credit provider breaches a key term of that settlement agreement.

In the case of Tomcsanyi v NAB (2015) WASC 448, a dispute arose after Tomcsanyi borrowed approximately $4.4 million from the National Australia Bank (NAB). A settlement deed dated 21 February 2012 (Deed) included terms where Tomcsanyi’s liability to NAB would be reduced to $765,000.00 (MR Facility), the MR Facility was to be paid by 21 February 2013, and NAB would close an overdraft facility (Overdraft Facility).

NAB continued to send Tomcsanyi automated bank statements which charged interest and fees on the MR Facility. NAB also failed to close the Overdraft Facility (together, NAB’s breach). Tomcsanyi did not pay the $765,000.00 when due under the Deed (Tomcsanyi’s breach).

On 13 January 2014, NAB served a notice of default on Tomcsanyi asserting that $878,564.69 (plus accrued interest, fees, costs and expenses) was due. Tomcsanyi did not comply with the notice of default.

The Supreme Court of Western Australia determined that:

  1. NAB breached the terms of the Deed;
  2. Whilst Tomcsanyi could potentially have terminated the Deed for NAB’s breach, he was not entitled to also breach the Deed;
  3. The notice of default was valid and the amount stated in the notice of default was due and payable by Tomcsanyi (notwithstanding the Deed);
  4. Tomcsanyi may have had a claim in damages for loss suffered as a result of NAB’s breach (which would offset any amount due to NAB under the notice of default) but could not establish that any loss he suffered was caused by NAB’s breach.

Had Tomcsanyi acted differently during the period of the breach, the outcome may have been different.

A credit provider entering into payment or settlement agreement should ensure that the terms of any such agreement are clearly followed, especially if the borrower is likely to be able to establish loss as a result of any breach by the credit provider. Credit providers should also carefully manage automatically generated records and correspondence during times of settlement and/or forbearance.

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