ANZ Banking Group v Australian Securities and Investments Commission
[2017] VSC 288
•26 May 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 06487
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (ABN 11 005 357 522) | Plaintiff |
| v | |
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION and ANOTHER (according to the Schedule attached) | Defendants |
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JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 and 24 August 2016 |
DATE OF JUDGMENT: | 26 May 2017 |
CASE MAY BE CITED AS: | ANZ Banking Group v ASIC & Ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 288 |
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PRACTICE AND PROCEDURE – Setting aside of judgment – Declaration by Court that plaintiff equitable mortgagee of land of deregistered company – Plaintiff obtaining judgment that the mortgage secures debt and for possession – Company subsequently reregistered – Company applies to apply to set aside judgment – Principal issue whether company has a real prospect of establishing that it is not indebted to the Bank – Commercial Bills of exchange discounted by Bank – Whether Bills discounted by Bank and where the proceeds paid – Discrepancies raised by customer – Investigations and reconciliations of accounts by the Bank answer all the alleged discrepancies – Application refused – Ying v Perpetual Trustees Victoria Ltd & Ors [2012] VSCA 316; Kaur v Kooner [2013] VCC 1788.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Rubenstein | Kemp Strang |
| For the Defendant | Mr F Lim, Solicitor | Francis Lim, Barristers & Solicitors |
HIS HONOUR:
Introduction
PBS Development (Vic) Pty Ltd (‘PBS’)[1] has applied to be joined as a defendant and to set aside orders of T Forrest J made on 22 January 2015 and by Derham AsJ on 5 October 2015. In substance, PBS seeks to set aside a judgment entered in its absence, but the circumstances giving rise to that absence are somewhat tortuous.
[1]By summons filed 22 March 2016.
Procedural Background
The proceeding was commenced by the plaintiff (‘ANZ’ or ‘the Bank’) by originating motion filed on 5 December 2014. The defendants to the proceeding were the Australian Securities and Investment Commission (‘ASIC’) and the Registrar of Titles (‘Registrar’). PBS was not a defendant because it had been deregistered and the land registered in its name, situate and known as 123 Monkey Gully Road, Mansfield, Victoria (‘the Land’)[2] had vested in ASIC. ANZ sought a declaration that it is entitled to be registered as mortgagee of the Land and claimed that the Land was provided by PBS as security for commercial bill facilities (‘Bill Facilities’) provided pursuant to letters of offer dated 13 February 2013 and 31 January 2014.[3] The originating process sought many orders including that the Registrar register the mortgage.
[2]Being the whole of the land comprised in Certificate of Title Volume 9559 Folio 753.
[3]Affidavit of Ezra May affirmed 5 December 2014 (‘First May Affidavit’), EM-15 and EM-17.
The originating motion was later amended claiming ANZ held an equitable mortgage over the Land to secure the Bill Facilities and sought against ASIC specific performance of an obligation to execute a registrable mortgage.[4]
[4]Amended Originating Motion filed 17 December 2014.
By order made on 22 January 2015, T Forrest J observed that:
The plaintiff has an equitable mortgage over [the Land] … to secure payment to the plaintiff of any amounts owed by [PBS] … following an advance of funds by the plaintiff to [PBS] as referred to in its letter of offer dated 31 January 2014 (being exhibit EM-17 to the affidavit of Ezra May affirmed 5 December 2014).[5]
[5]Omitting unnecessary detail.
The proceeding was then referred into a Commercial Court list. On 28 August 2015, ANZ applied by summons for judgment for possession of the Land and for a sale of the Land by it pursuant to s 91 of the Property Law Act 1958 (‘PLA’), with consequential orders relating to the conduct of the sale and repayment of the proceeds of the sale to ANZ.
ASIC did not oppose the application on the basis that there be no order as to the costs as between it and ANZ and that any surplus from the sale of the Land after repayment of the debt, costs and expenses be paid to ASIC.[6] The Registrar confirmed he did not intend to take part in the hearing of the application.[7]
[6]Second May Affidavit, [5(i)].
[7]Second May Affidavit, [5(j)].
ANZ’s application for possession of the Land came on before me on 5 October 2015. At that time, notice of the application had been given to ASIC, the Registrar and, as well, to the former sole director and shareholder of PBS, Mr Peter Adrian Schierholter (‘Schierholter’). Schierholter appeared in person and informed the Court that he had possession of the Land and applied for an adjournment of ANZ’s application so he could apply to reinstate the registration of PBS and following that, enable PBS to dispute ANZ’s debt and mortgage. The adjournment application was refused.[8] However, in the event that Schierholter did successfully apply to reinstate the registration of PBS, I qualified the orders made in favour of ANZ so that they were subject to any further or other order of the Court.
[8]For reasons set out in the order made on that day.
The orders made on 5 October 205 were, in substance that:
(a) the amount secured by the equitable mortgage held by ANZ over the Land was $953,935.59 plus interest accruing at the rate of $287.48 per day (‘the debt’);
(b) the Land is charged with payment of the debt;
(c) ANZ recover possession of the Land; and
(d) the Land be sold by the plaintiff pursuant to directions included in the order and the net proceeds of the sale be paid to ANZ.
ANZ’s solicitors served the order on Schierholter on 7 October 2015 together with a copy of the First May Affidavit.[9] ANZ issued a warrant for possession on 27 October 2015.[10]
[9]Affidavit of Danelle Suzanne Wortman sworn 26 April 2016; Second May Affidavit, [5(m)].
[10]Second May Affidavit, [5(n)], EM-28.
PBS had been deregistered on 9 August 2014. On 18 January 2016, Schierholter commenced proceedings for the reinstatement of the registration of PBS.[11] On 28 January 2016, Francis Lim, solicitor (‘Mr Lim’), wrote to the Bank’s solicitors requesting a stay of execution of the warrant of possession for 2 months to, amongst other things:
…enable our client to find alternative accommodation for his young family and to enable us to fully peruse the documents in the above proceeding so that we can properly advise our client.[12]
[11]Supreme Court Proceeding S CI 2016 00156.
[12]Second May Affidavit, [5(p)], EM-29.
On 3 February 2016, ANZ’s solicitors agreed to hold in abeyance execution of the warrant for 2 months, expiring on 28 March 2016.[13] On 4 February 2016, Mr Lim wrote to ANZ’s solicitors requesting copies of all relevant commercial bills discounted by the Bank for PBS.[14]
[13]Second May Affidavit, [5(q)], EM-30.
[14]Second May Affidavit, [5(r)], EM-31.
On 8 March 2016, Gardiner AsJ ordered the reinstatement of the registration of PBS.[15] The effect of this is that PBS is taken to have continued in existence as if it had not been deregistered.[16]
[15]In proceeding S CI 2016 00156, affidavit of Peter Adrian Schierholter sworn 21 March 2016 exhibit PAS-1 at p 88 (‘First Schierholter Affidavit’).
[16]Section 601AH(5) Corporations Act 2001 (Cth).
On 22 March 2016, PBS issued its summons to be joined as a defendant to this proceeding and to set aside the orders of T Forrest J made on 22 January 2015 and Derham AsJ on 5 October 2015.
In support of its application, PBS submitted that ANZ does not have an equitable mortgage over the Land. Even if it does, that equitable mortgage secures nothing because PBS is not indebted to ANZ.
The application by PBS came on before Cameron J on 18 May 2016, after directions were made by Digby J on 30 March 2016. Prior to that date, the Registrar notified the Court that he did not intend to appear on the return of the application. Cameron J noted that ASIC had no further interest in the matter, that ANZ had agreed it would not execute its warrant of possession until the hearing and determination of the application and ordered that; PBS be joined as the third defendant in the proceeding and the two of the applications made by PBS were dismissed (that is, an application made to set aside the declaration that ANZ held an equitable mortgage over the Land, being the declaration made by T Forrest J on 22 January 2015, and the application for a stay of that order). The result was that what remained in the application by PBS was an application to set aside the order made by me on 5 October 2015. Cameron J referred that application to me.
Setting Aside Judgment
The guidelines that have been developed in the area of setting aside judgments obtained at trial where a party failed to attend, follow those identified by the Full Court in Rosing v Ben Shemesh,[17] Kostokanellis v Allen[18] and Ying v Perpetual Trustees Victoria Ltd & Ors.[19] They are, in summary:
[17][1960] VR 173; See also Evans v Bartlam [1937] AC 473; Grimshaw v Dunbar [1953] 1 QB 408.
[18][1974] VR 596.
[19][2012] VSCA 316 [39] (‘Ying’).
(a) the reason why the party failed to appear when the case was heard;
(b) whether there had been any delay by the absent party in launching the application for a new trial;
(c) whether there was a bona fide issue to be tried; and
(d) whether the other party would be prejudiced by a new trial in any respect which could not be adequately compensated by a suitable award of costs and the giving of security.[20]
[20][1960] VR 173, 176 (Herring CJ, O’Bryan and Dean JJ).
The Court of Appeal in Ying emphasised that the discretion is not fettered by these four considerations and referred to what was said by the Full Court in Kostokanellis v Allen,[21] quoting Smith J in Shepperdson v Lewis,[22] that:
…the adoption of a formula created by erecting what are merely relevant factors into arbitrary principles so as to allow the automatic production of a solution in all but the exceptional case, is a quite fallacious approach to the exercise of a discretion.
[21][1974] VR 596 at 605; Ying [70].
[22][1966] VR 418 at pp. 423-4.
It is clear law that there is no point in granting the defendants’ application if the case is untenable or hopeless. Conversely, that conclusion cannot be reached on a mere conflict of affidavits.[23] The appropriate test (given the changes brought about to the test for applications for summary judgment by the CPA) is whether the merit of the absent parties’ case can be described as one having a real as opposed to fanciful prospect of success.[24]
[23]Vimplane Pty Ltd v Cirss [2005] VSC 45 [38].
[24]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158.
The affidavits show a full account of the dealings between the parties. It is functionally equivalent to an application by ANZ for summary judgment where all the elements of the Bank’s claim are established and the evidential burden passes to PBS to show that there is a real prospect of it defending the claim on the facts. It is important in such an application for PBS to show that its defences raise issues that should be allowed to go to trial, having regard to, and weighing in the balance, the other considerations relevant to the application; the delay, the reasons for delay, prejudice to the Bank and any other relevant consideration. In some cases, it will be necessary for the applicant to introduce more evidence, and establish with greater persuasive force the merit of their defence that they have been unable to advance at trial. Even after it is established that there is such an arguable defence, that is not the end of the matter.
I agree with Judge Cosgrave in Kaur v Kooner,[25] where he observed that it cannot be said to be an invariable rule that the presence of an arguable defence must take precedence over other considerations which the Court can take into account in deciding whether or not to set aside the judgment. Each case depends on the facts and circumstances and whether the presence of sufficiently arguable case depends on a balancing of the strength of that case, the other relevant factors and ultimately the attainment of justice between the parties.
[25][2013] VCC 1788 [62].
The Evidence
ANZ’s evidence is primarily based on its business records. Its principal deponent is Mr Ezra May, a Commercial Collections Services Manager.[26] His evidence is based partly on his own knowledge but, evidently, largely on the Bank’s files, transaction documents, diary notes, bank statements and other records. Some documents relevant to the basis of the Bank’s claim have been lost or destroyed, and the evidence depends in part on piecing together the facts from available evidence and drawing on his experience at the Bank.[27]
[26]There are 3 affidavits by Ezra May, affirmed 5 December 2014 (‘First May Affidavit’), 27 April 2016 (‘Second May Affidavit’) and 24 August 2016 (‘Third May Affidavit’).
[27]First May Affidavit, [2].
The evidence for PBS was given by Schierholter, who is and was the sole director and shareholder of PBS.[28] The documents he produced and exhibited to his affidavits were primarily sourced from the Bank’s documents, his solicitor’s files and public registers.
[28]Affidavits of Schierholter sworn 21 March 2016 (‘First Schierholter Affidavit’), 30 March 2016 (‘Second Schierholter Affidavit’), 9 May 2016 (‘Third Schierholter Affidavit’) and 19 August 2016 (‘Fourth Schierholter Affidavit’).
The affidavits filed by the Bank and Schierholter involve a paper chase through the records of ANZ. Central to the application is a challenge to the Bill Facilities established by ANZ as a part of its proofs leading to the judgment on 5 October 2015. That has involved the Bank’s officers tracing the rollover of commercial bills discounted by the Bank for PBS from 2010. This was partly occasioned by claims by Schierholter that the Bank had not credited to the relevant bank account the proceeds of the sale of several properties sold and settled in 2011 and 2012, but also by claims that, in effect, someone else other than Schierholter had been operating the PBS Account on behalf of PBS.
ANZ relied on the First May Affidavit to obtain its judgment. This was responded to by the First and Second Schierholter Affidavits.[29] The Bank then filed the Second May Affidavit. The application came on for hearing on 4 August 2016. On that day, Mr Lim, solicitor, appearing as counsel for PBS, referred to this evidence and made submissions in support of the application. Mr Rubenstein, counsel for ANZ, commenced his response but had not completed so the matter was adjourned to 24 August 2016.
[29]The First Schierholter Affidavit, exhibit PAS-1 was comprised of a bundle of 105 pages. The original exhibit appears to have been filed and lost and I was given a copy.
During the intervening period, Schierholter served and filed a Notice to Produce and the Fourth Schierholter Affidavit. ANZ resisted reliance by PBS on the Fourth Schierholter Affidavit because PBS had closed its case on 4 August 2016. I ruled that the affidavit should be admitted because it contained evidence that was material to the issues in dispute, to refuse leave to rely on it would be to deny procedural fairness to PBS and it was in the interests of justice to admit it. ANZ then sought leave to introduce further responsive evidence of its own to the Notice to Produce and the Fourth Schierholter Affidavit, and to cross-examine Schierholter. That leave was not opposed, and the result was the Third May Affidavit and some limited cross-examination of Schierholter.
First May Affidavit
From at least 2008, ANZ offered financial facilities to Schierholter, either individually or through entities controlled by him, to assist with property developments.[30] PBS was incorporated on 15 September 2008. Schierholter was at all times sole director and shareholder, save during the time when he was disqualified as a director by ASIC, that is for a period of 3 years commencing 16 March 2012 and ending on 15 March 2015.[31] It was not until about 11 September 2014 that ANZ was made aware that Schierholter had been disqualified as a director.[32] ANZ initially provided financial facilities to PBS pursuant to a mortgage debenture dated 5 November 2008.[33]
[30] First May Affidavit, [8] and EM-3.
[31]First May Affidavit, [9] and EM-1. First Schierholter Affidavit, exhibit PAS-1, page 41A.
[32] First May Affidavit, [38].
[33] First May Affidavit, [10]-[11] and EM-5.
On about 29 March 2010, the Bank opened account numbered 3700-78083 (‘the PBS Account’) in the name of PBS. The PBS Account was a transaction account into which deposits were made and amounts withdrawn from time to time. The PBS Account was used for crediting amounts advanced by ANZ to PBS pursuant to commercial bills discounted by the Bank (‘Bill’ or ‘Bills’).[34]
[34]First May Affidavit, [12[-[13] and EM-6; Second May Affidavit, [11, 12].
PBS purchased the Land in about October 2010.[35] The Transfer of Land signed by the vendors and Schierholter on behalf of PBS was dated 1 October 2010. The Transfer was not stamped for duty until 31 October 2013,[36] and it was not registered on title until 4 November 2013.[37] The lodging party was the Bank.[38] The consideration stated in the Transfer was $360,000.00. Between the date of the Transfer and its lodgement, PBS lodged a caveat claiming an estate in fee simple under a contract dated 8 April 2010.[39]
[35]First May Affidavit, [14] and EM-7, 8 and 9; First Schierholter Affidavit, [11].
[36]First May Affidavit, [14] and EM-7.
[37]First May Affidavit, EM-2; First Schierholter Affidavit, [11].
[38]First May Affidavit, EM-7, noted as ‘ANZ Retail 15314Q’.
[39]First May Affidavit, [1] and EM-11.
By letter dated 14 February 2012, ANZ wrote to Schierholter on behalf of PBS enclosing a letter of offer for finance and a mortgage over the Land for execution and return.[40] PBS executed and returned the mortgage. ANZ retains a copy of the undated executed mortgage and the duplicate certificate of title for the Land. However, the original executed mortgage was not registered and is unable to be located. It is believed to be lost.[41] The Bank lodged a caveat on the title to the Land on 30 December 2013, claiming an interest as mortgagee under a mortgage dated 11 January 2013.
[40]First May Affidavit, [16] and EM-10
[41]First May Affidavit, [16] and EM-11; Affidavit of Nikolas James Rowe sworn 9 December 2014, exhibit ‘A’.
Schierholter says that he signed the mortgage over the Land in or about February or March 2011.[42] The Bank contended, however, that it is more likely that he signed the mortgage in 2012 (rather than 2011) because the letter to Schierholter enclosing the mortgage was dated 14 February 2012.
[42]First Schierholter Affidavit, [14].
The centre of the dispute between the Bank and PBS concerns whether there is an outstanding indebtedness of PBS as a result of the discounting of Bills by the Bank and the crediting of the discounted amount to the account and, on maturity of the Bill or Bills, the debiting of the face value of the Bill or Bills to the PBS Account. Although the bills the subject of the debt claimed by the Bank originate in 2014, the history of the discounting of Bills of exchange by the Bank is relevant.
The first record of the discounting of Bills drawn on the Bank is on about 9 April 2010, when the sum of $199,663.03 was credited to the PBS Account. This sum was the proceeds of the discounting of a Bill with a face value of $200,000.00.[43] The operation (including roll over, increase and decrease in face value from time to time and maturity) of the commercial bills held by PBS is described in some detail in Second May Affidavit.[44]
[43]First May Affidavit, [12]-[13] and EM 6; and see [11]-[13] of the Second May Affidavit.
[44]Paragraphs [6] to [34] of the Second May Affidavit.
On about 17 December 2010, ANZ advanced further funds to PBS. Those funds were described as a rollover of the commercial bill facility and were credited to the PBS Account. On 17 December 2010, a further $546,904.34 was advanced to PBS. This resulted in the combining of the original commercial bill with the face value $200,000.00 with the further commercial bill with a face value of $550,000.00, to make a combined commercial bill of $750,000.00.[45]
[45]Second May Affidavit, [20]- [21].
Between December 2010 and January 2012, further funds were credited and debited to the PBS Account, and the Bill was decreased to $550,000.00 and then increased again to $750,000.00.[46]
[46]This is explained in detail at paragraphs [23] to [26] to the Second May Affidavit.
ANZ continued to roll over existing commercial bills and enter into new commercial bills with PBS between March 2012 and August 2014. The face value of the commercial bills entered into at that time ranged from $450,000.00 to $800,000.00. ANZ entered into the commercial bills on the basis of among other things its mortgage over the Property.[47]
[47] First May Affidavit, [21]-[23] and EM-15.
By letter of offer dated 31 January 2014, the Bank renewed the commercial bill facility in the amount of $800,000.00. That letter of offer expressly provided that the commercial bill facility was secured by the mortgage over the Property. Schierholter signed the letter of offer on behalf of PBS.[48]
[48]First May Affidavit, [26] and EM-17, and Second May Affidavit, [31] to [32].
On about 6 March 2014, Schierholter together with his legal representatives met with staff of ANZ. At that meeting he was informed that as PBS was subject to a strike off action by ASIC the ANZ loan was in default. Schierholter informed staff of ANZ that he ‘did not know’ how PBS would repay the loan.[49] PBS was deregistered under section 601AB of the Corporations Act 2001 (Cth) (‘the Corps Act’) on 9 August 2014. The commercial bill matured on about 15 August 2014 and was not renewed. On 15 August 2014, the amount of $800,000.00 was debited to the PBS Account. That amount was immediately due and payable.[50]
[49]First May Affidavit, [29] and EM-19.
[50] First May Affidavit, [30] and EM-6; and First Schierholter Affidavit, [33] and [34].
The First and Second Schierholter Affidavits
Schierholter’s First Affidavit gives evidence of his disqualification of managing corporations for three years from 16 March 2012 and states that between 28 March 2012 and July 2012 he went to Cambodia three times for business,[51] and that on 8 August 2012, he went to Cambodia and did not come back until 23 December 2013. He gives evidence of the deregistration and reinstatement of the registration of PBS and, in particular, that his daughter Bianca Petra Schierholter was appointed as the sole director of PBS on 16 March 2012 and he was reappointed a director and the secretary on 15 December 2015. Bianca resigned as a director and secretary of PBS on 15 March 2016.
[51]Staying there for about two to four weeks each time.
He gives evidence of the purchase of the Land but gives no explanation for the delay between the settlement of the purchase of the Land on 28 January 2011 and the registration of PBS as proprietor on 4 November 2013. He refers to the caveat lodged by ANZ claiming an interest as mortgagee under a mortgage dated 11 January 2013 and says that he was not in Australia between 8 August 2012 and 23 December 2013, and produces copies of his passport to confirm that evidence. Moreover, by way of submission, he asserts that because he was disqualified as acting as a director at that time, PBS did not have any director. Nevertheless he says that he may have signed the undated mortgage of the Land in about February or March of 2011.
He states that the duplicate certificate of title was held by ANZ as security for advances provided under a commercial bill facility which he believes was fully settled on about 18 January 2012. On that date, the PBS Account shows a credit balance of $65,066.28. He states his belief, without identifying any basis for it, that the original signed mortgage of the Land was destroyed by Mr Stephen Leverett, ANZ Manager with whom he dealt, when the commercial bill facility was settled in January 2012 and that he did not take back the duplicate certificate of title because he travelled to Cambodia several times in 2012 and went to live there from August 2012 until December 2013.
In relation to the commercial bill facility of $800,000.00, he says that when ANZ purportedly sent a letter on 13 February 2013 to PBS he was overseas and did not make any application for a commercial bill facility and did not sign the letter of offer. Further, the security for the facility was stated to include a registered mortgage over a property owned by PBS at 80 Henry Street, St Albans (‘80 Henry St’), a registered mortgage over the Land, a registered company charge or mortgaged debenture over the assets and undertakings of PBS and a general security agreement given by PBS over all present and after acquired property. He says that ANZ’s mortgage over 80 Henry Street, which had been given in December 2008, was discharged in December 2010, that there was no registered mortgage over the Land, that there was no mortgaged debenture over PBS (as it was satisfied in July 2009 and discharged in January 2011) and that he believes no general security agreement was given.
In relation to the second $800,000.00 commercial bill facility dated about 31 January 2014, he says he did sign the letter of offer but could not in fact represent PBS because he was disqualified as acting as a director.[52] The 2014 Bill Facility also referred to the same securities being held by the Bank. He disputes the crediting of the drawdown of the $800,000.00 Bill and claims that the statements for the PBS Account do not reflect the credit. He believes that no money was released to PBS by ANZ under the 2014 Bill Facility.
[52]In argument Mr Lim, on behalf of Schierholter and PBS, did not press this proposition: 4 August 2016, Transcript 28.23.
Schierholter also says that he always dealt with Mr Leverett and trusted him as his banker. When bank cheques were handed to Mr Leverett after the settlement of three properties belonging to PBS, he expected Mr Leverett to deposit these bank cheques into the PBS Account. He states that it ‘looks from the material he has seen’ that Mr Leverett did not deposit certain bank cheques into the PBS Account totalling $849,344.00, as follows:
(a) 28 Victoria Street Mansfield (‘Victoria Street Property’) was sold by PBS and settled on 1 June 2011. A bank cheque for the net proceeds of sale of $292,330.07 was handed by him to Mr Leverett for payment into the PBS Account. It was not paid into the PBS Account;[53]
(b) units 1/49 and 2/49 Highton Lane, Mansfield (‘Highton Land Units’), were sold by PBS and settled on 13 February 2012. On that day, the purchaser delivered to Mr Leverett a bank cheque for unit 1/49 Highton Lane in the name of ANZ for $267,694.25,[54] and another bank cheque for unit 2/49 Highton Lane in the name of ANZ for $255,801.98;[55] and
(c) on about 18 January 2012, the selling agents for the sale of the Highton Lane units posted to ANZ cheques for $7,187.50 (for unit 1/49 Highton Lane) and $21,162.50 (for unit 2/49 Highton Lane) to ANZ.[56]
[53]First Schierholter Affidavit [37(a)], PAS-1 p 55A.
[54]First Schierholter Affidavit [37(b)] and Second Schierholter Affidavit [5], PAS-2 p 2.
[55]First Schierholter Affidavit [37(b)] and Second Schierholter Affidavit [5], PAS-2 p 4.
[56]First Schierholter Affidavit [37(c)], PAS-1 p 58 and 59.
In addition to failing to deposit the above amounts into the PBS Account, Schierholter claimed that ANZ had debited to the PBS Account with $311,584.57 without written authority and without providing PBS with full particulars and relevant documents. He set out a table of those amounts.[57]
[57]First Schierholter Affidavit [39].
He says that except for commercial bills discounted by the Bank on 8 April 2010 for $199,663.03 and 15 July 2011 for $189,387.32, the statements for the PBS Account produced by ANZ do not show that it had paid into the PBS Account funds from the discounting of another six commercial bills. He refers to the fact that his solicitor had requested documentary evidence for all of the alleged bills being discounted and other matters but had not received that documentary evidence. He makes specific responses to the First May Affidavit in relation to not having received copies of the commercial bills referred to.
The Second May Affidavit
The Second May Affidavit responds in considerable detail to Schierholter’s application to set aside the order of 5 October 2015. Mr May explains how the commercial bill facilities the Bank claims were granted to PBS operated, saying:
A commercial bill is an instrument by which a borrower or customer promises to pay the value of the bill at a later point in time (being when the bill matures). On the establishment or settlement of the bill, the lender advances to a customer the purchase price, being the face value of the bill less the discount amount. On maturity of the bill, the customer pays back the face value.
In the case of bills offered by ANZ, the term of the bill is ordinarily agreed between ANZ and the customer with the customer providing instructions for a further term (rollover) prior to maturity. If the customer provides such instructions (and there is no default) ANZ will rollover the commercial bill on the term instructed. In the absence of instructions, ANZ may rollover the commercial bill, in this case a variable rate bill, as if instructed. The term of rollover will be the same of [sic] the maturing commercial bill pursuant to section 9.1 of ANZ’s Specific Conditions of Use exhibited to my first affidavit marked with the letters EM-15 (Special Conditions of Use).
A rollover involves the acceptance of ANZ of a new commercial bill to replace the commercial bill that is maturing. The discount amount of the new commercial bill may vary from that of the commercial bill it is replacing, even though the face value of the commercial bill may remain the same. This is because the actual value of the commercial bill depends on market conditions, which is reflected in the yield rate.
If ANZ is obliged to discount one or more further replacement commercial bills on the maturity date, or the rollover date, for a commercial bill, ANZ or the customer (as the case requires) is only required to pay the difference (net amount), being the difference between the face value of the maturing commercial bill and the purchase price of the replacement commercial bill pursuant to section 13 of the Special Conditions of Use (EM-15).
The Second May Affidavit then goes on to identify every commercial bill discounted by ANZ for PBS from 9 April 2010 to 15 August 2014. Mr May conducted an analysis of the commercial bill facility and its evolution from a commercial bill with a face value of $200,000.00 to a commercial bill with a face value of $800,000.00 by cross-referencing each confirmation letter with the statements on the PBS Account for that period. He produces several tables, separated by any change to the face value of the bills, which explains how every rollover and increase or decrease in the face value of bills occurred. He produces true copies of every letter confirming details of the commercial bills and tracks the bill referred to in each letter to the relevant entry in the statements for the PBS Account.
He then responds to the First Schierholter Affidavit (as amended by the Second Schierholter Affidavit) relevantly that:
(a) he refers to the statement by Schierholter that the title to the Land was held by ANZ as security for advances provided to PBS under a commercial bill facility which he (Schierholter) believed was fully settled on 18 January 2012, and refers to his evidence that demonstrates that in January 2012, the face value of the commercial bill was reduced from $750,000.00 to $450,000.00 but not settled as Schierholter claimed;
(b) in relation to Schierholter’s claim that no money was released to PBS by ANZ under the commercial bill facility for $800,000.00, (established on 13 February 2013) he refers to his evidence which demonstrates an increase of the face value of the commercial bill from $450,000.00 to $800,000.00 and a resultant credit to the PBS Account in the sum of $348,114.26 on 15 February 2013;[58]
[58]Second May Affidavit [35(f)].
(c) he exhibits all the letters confirming details of the commercial bills purchased from ANZ by PBS for the period of 9 April 2010 to 13 July 2014;
(d) in relation to the evidence of the sale of the Victoria Street Property, he produces evidence of a credit in the sum of $292,330.07 being paid into the PBS Account;[59]
[59]Second May Affidavit [35(l)].
(e) in relation to the sale of the Highton Lane units, he gives evidence that on 13 January 2012, ANZ received three cheques totalling $521,702.02 and demonstrates how these funds were applied: $440,702.02 was paid into the PBS Account on 13 January 2012 and $81,000.00 was credited to the company Waterfall Mews Pty Ltd (ACN 140 633 218), in its account held in the ANZ with number 1825-00048 (‘Waterfall Mews Account’). Schierholter was a director of Waterfall Mews from 18 November 2009 to 16 March 2012. Waterfall Mews was deregistered on 11 April 2014;
(f) the sum of $28,350.00 received from the selling agents for the Highton Lane units was credited to the PBS Account on 19 January 2012; and
(g) in relation to the allegation made by Schierholter that ANZ debited $311,584.57 to the PBS Account without written authority and without providing PBS with full particulars and relevant documents, the Second May Affidavit sets out at length and by reference to bank statements, drawing and deposit vouchers, cheques and other documents that each matter of concern raised by Schierholter was answered by reference to the receipt of funds by PBS, either in the PBS Account or in a second account,[60] the payments of funds to Waterfall Mews or the payment of funds to a personal account of Schierholter.[61] The documents that are produced and exhibited to the Second May Affidavit that show where these funds were paid give rise to a strong inference that the allegations made by Schierholter are without foundation and that he indeed authorised the payments.[62]
[60]Account no. 2790-85055 (‘Second Account’).
[61]Account no. 3646-15364 (‘Personal Account’).
[62]Second May Affidavit, [35(p)].
The Third Schierholter Affidavit
The Third Schierholter Affidavit was made to reply to the Second May Affidavit. For the first time, Schierholter deposes that in about March 2010 he had separated from his wife and left the matrimonial home at 7 St Austell Court, Croydon Hills, Victoria (‘Austell Court’). Schierholter told the manager at the Camberwell Branch of the Bank, Mr Leverett, that he had separated from his wife and ceased to live at Austell Court. He then says:
(a) about 29 March 2010, Mr Leverett assisted him to open the PBS Account in the name of PBS. Statements for that PBS Account numbers 1 and 2 from the period from 29 March 2010 to 29 May 2010 were addressed to his former matrimonial home at Austell Court. Statement number 3 from the period from 28 May to 29 June 2010 was not sent out as it bears a note ‘address not found’.[63] From 29 June 2010 onwards, the bank statements were addressed to PO Box 201, Ferntree Gully 3156;[64]
[63]Second May Affidavit, EM-6 at p 1-9.
[64]Second May Affidavit, EM-6 at p 10-130.
(b) his ex-wife still has a key to that post office box and she ‘may have collected all my mail and the bank statements and thrown them away because I did not receive any of the bank statements from ANZ Bank since March 2010’;[65]
[65]Third Schierholter Affidavit, [5].
(c) from March 2010, he did not receive any correspondence or bank statements from ANZ ‘if they were sent to my former matrimonial home’. He believes his ex-wife has thrown away letters sent to him. All the letters relating to the discounting of commercial bills allegedly sent to PBS from 23 April 2010 to 14 July 2014 produced as exhibits to the Second May Affidavit were addressed to Austell Court;
(d) Schierholter then addresses the transfer of monies from the PBS Account to the Waterfall Mews Account, the Second PBS Account and to the Personal Account. In relation to those three accounts, he says ANZ did not produce any documentary evidence to prove that he (or on his own behalf or on behalf of PBS or Waterfall Mews) signed any form to open any of the bank accounts, receive any bank statements for any of them, operate any of them, authorise ANZ or anyone else to operate on the accounts or apply for a bank loan under any of the accounts;
(e) he believes (without identifying any basis for the belief) that Mr Leverett worked for ANZ for more than 30 years but towards the end of 2013 he was either dismissed or was asked to leave the Bank; and
(f) he then analyses the first commercial bill of $200,000.00 discounted on 9 April 2010, the second commercial bill of $550,000.00 allegedly discounted on 17 December 2010, the third commercial bill of $190,000.00 discounted on 15 July 2011, the fourth commercial bill of $450,000.00 allegedly discounted on 16 January 2012, the fifth commercial bill of $350,000.00 discounted on 15 February 2013, an analysis of the Personal Account, the Second PBS Account and the Waterfall Mews Account. In this respect, the affidavit is a mixture of assertion, submission and demands that the Bank produce evidence for PBS having authorised the various transactions referred to.
I will not set out here the detail of the analyses referred to in the Third Schierholter Affidavit of the various commercial bills and other accounts. In the main, ANZ analysed all of the transactions and explained where the particular monies went. Counsel for PBS in his submissions did not rely on all of the questioned transactions referred to in the Third Schierholter Affidavit. A feature of that affidavit is that Schierholter does not positively swear that any of the particular transactions were not authorised by him. He says that the obligation lies upon ANZ to produce documentary evidence to prove that he authorised the various transactions and that they have not done so. For example, on 18 February 2013, ANZ debited the PBS Account with the sum of $320,761.53 and recorded it as ‘Loan Final Payment to – 3646-15364’ (that is the Personal Account of Schierholter). Schierholter states:
The plaintiff did not produce any documentary evidence to prove that I had authorised the plaintiff to transfer the sum of $320,761.53 from the PBS Account to this account in my name. Further, the plaintiff did not produce any documentary evidence to prove that I did personally owe the plaintiff this amount as 18 February 2013.
The Fourth Schierholter Affidavit
The Fourth Schierholter Affidavit refers to requests by Mr Lim for the advices and the relevant authorities for the debit or withdrawal of the eight amounts totalling $311,584.57 (referred to above at 44) and for documents evidencing that payments were made to PBS by ANZ for commercial bills for $550,000.00 dated 17 December 2010 and $750,000.00 for the Bill dated 16 January 2012 and a copy of each of the commercial bills allegedly drawn by PBS and discounted by ANZ.[66] ANZ’s solicitors responded that they would not provide the copy documents requested as PBS had not been reinstated to the register and the request was premature.[67] Reference is also made to letters of request sent by Mr Lim for copy of each of the bank statements for each of the Second Account, the Waterfall Mews Account and Schierholter’s Personal Account from the date they were opened until the date they were closed, all documents relating to the each of these three bank accounts and a copy of each of the documents authorising ANZ to withdraw from or debit any of the three bank accounts. At the time of the affidavit, that information has not been provided. On 9 August 2016, Mr Lim sent a Notice to Produce to ANZ’s solicitors, but none of the documents requested were produced, other than the documents that are exhibited to the First and Second May Affidavits.
[66]Exhibit PAS-1 at p 82-84A.
[67]Exhibit PAS-1 at p 89-90.
Schierholter states that he does not know how to use internet banking and did not use that facility to withdraw money from any of the accounts. He says that ‘at the present moment I believe I did not’, open any of the Second Account, Waterfall Mews Account or Personal Account, receive any bank statements for any of those accounts, operate any of those accounts, authorise ANZ or anyone else to operate any of those accounts or apply for or obtain a bank loan under any of those accounts. He also says that as the sole director of PBS ‘I can only say at the present moment I believe I did not authorise’ ANZ:
(a) to withdraw or debit the sum of $541,226.42 from the Account on 17 December 2010. It seems that this is based on the fact that ANZ did not produce any documentary evidence that it had provided to PBS the details of the withdrawal of this sum. It was not drawn to settle the purchase of the Land as ANZ’s counsel alleged initially.[68] PBS had obtained a $400,000.00 loan from Equity-One to settle its purchase of the Land;[69]
[68]This referred to a submission made on 4 August 2016 by Counsel for the Bank.
[69]Exhibit PAS-4 at p 10.
(b) to withdraw or debit the sum of $747,954.35 from the Account on 18 January 2012. The Second May Affidavit at paragraph 30(d) did not explain why ANZ withdrew that sum. It only explained that there was a $300,000.00 mistake rectified by the withdrawal of $1,047,954.34;
(c) to transfer the sum $320,761.53 from the PBS Account to his Personal Account on 18 February 2013;
(d) to make 26 withdrawals totalling $433,068.61 from his Personal Account;
(e) to make 20 withdrawals totalling $60,844.79 from the Second Account; and
(f) to make the 10 withdrawals totalling $91,159.83 from the Waterfall Mews Account.
In summary, Schierholter maintains that without ANZ verifying source documentation establishing to his satisfaction that he opened the Second PBS Account, the Waterfall Mews Account and the Personal Account, and that he gave authority to ANZ to withdraw or debit the various sums referred to, he believes he did not authorise those withdrawals or debits.
The Third May Affidavit
The Third May Affidavit was filed on 24 August 2016 after PBS was given leave to rely on the Fourth Schierholter Affidavit. It deals with the Notice to Produce served by PBS.[70] To the extent that documents referred in the Notice to Produce could be found, they were exhibited to the affidavit. Otherwise, the inability of the Bank to produce them was explained. The affidavit also responds to the Fourth Schierholter Affidavit. In relation to the account opening documents regarding the Second PBS Account, the Waterfall Mews Account and the Personal Account, searches were undertaken but no such documents were found. Mr May notes that the difficulty of locating documents of this kind is not unusual given the ongoing changes to internal banking processes which have moved to a paperless system.
[70]Dated 9 August 2016.
I will not go into all of the answers that are given in this affidavit to the questions that are raised by PBS in the Third and Fourth Schierholter Affidavits. Suffice it to say, by way of example:
(a) in relation to Schierholter’s suggestion that he did not operate any of the Second PBS Account, Waterfall Mews Account or Personal Account, Mr May’s reconciliation of those accounts shows that substantial payments were made from the PBS Account to each of those accounts. He undertook an electronic search of cheques drawn on the Second PBS Account and produced a bundle of the cheques.[71] Those cheques were later confirmed by Schierholter in cross-examination to have been signed by him;
(b) in relation to the sum of $541,226.42 withdrawn from the PBS Account on 17 December 2010, Mr May shows through a reconciliation and analysis of the debit of that amount from the PBS Account, that it was deposited into a further ANZ business account in the name of PBS, account no. 3654-94314 (‘Third PBS Account’),[72] an account Schierholter confirmed in cross-examination that PBS had with the Bank; and
(c) in relation to the debiting of the PBS Account on 18 February 2013 of $320,761.53 and the deposit of that sum in the Personal Account, Mr May identifies the bank statement for the Personal Account for the period from 14 January to 18 February 2013 and the credit to that account of the sum of $320,761.53. He also notes that notwithstanding having no memory of the Personal Account, Schierholter does not assert that he did not receive the benefit of the monies.
[71]Third May Affidavit [13(i)(c)] and EM-63.
[72]Third May Affidavit [13(j)].
It is quite apparent from this affidavit that Mr May has investigated each and every matter raised in the Third and Fourth Schierholter Affidavits. His investigations reveal that PBS, Waterfall Mews and Schierholter, in his personal capacity, received funds or the benefit of funds which Schierholter had previously asserted were misappropriated by ANZ.
Cross-examination
On 24 August 2016, Schierholter was cross-examined by ANZ’s counsel. He demonstrated by his answers that he was resistant to any suggestion that was made by Mr Rubenstein and gave non-responsive answers to many questions, answered questions with questions of his own and was argumentative. He maintained, for example, that he only ever opened up one account in the name of PBS, but it was demonstrated that PBS had other accounts, including the Third PBS Account (number 6354-94314), and that there was an account in the name of Waterfall Mews.[73] He did not know or remember that there was an account for Waterfall Mews.[74] At one point, he said that the Third PBS Account was not an account of PBS,[75] but later conceded that it was.[76] He denied the opening of the Second PBS Account,[77] and when shown a statement for it, said it was ‘new to me’.[78] But he identified his signature on copies of cheques drawn on the Second PBS Account,[79] contradicting his affidavit evidence that he believed he did not operate the Second PBS Account.[80] He did not remember whether or not he had a personal account with ANZ.[81] He contradicted his affidavit evidence in relation to not living at the Austell Court address after March 2010, saying that he was still there ‘off and on’ during 2010.[82] When showed the statements for the PBS Account, he at first denied having looked at them before the proceeding and said that he had engaged his lawyer to go through the paperwork. Later accepted that he had seen the statements for the PBS Account but ‘refused the contents of the statements’.[83]
[73]See Transcript 24 August 2016, 132.15-25; 137 and 150.6.
[74]Transcript 24 August 2016, 152.
[75]Transcript 24 August 2016, 136.20-22.
[76]Transcript 24 August 2016, 137.17.
[77]Transcript 24 August 2016, 142.23.
[78]Transcript 24 August 2016, 143.28.
[79]Transcript 24 August 2016, 144.28 and exhibit 2 tendered on 24 August 2016 at transcript 146.32.
[80]Fourth Schierholter Affidavit [9].
[81]Transcript 24 August 2016, 152.
[82]Transcript 24 August 2016, 131.26, 164.30.
[83]Transcript 24 August 2016, 131.10-13.
He demonstrated that his memory was very poor regarding the events between 2009 and 2014. He had no memory of the Third PBS Account opened at the Bank’s Camberwell branch.[84]
[84]Exhibit 1, 4 page statement for ANZ Business Loan Account No. 3654-94314 in the name of PBS.
He accepted that he had signed the letter of offer dated 31 January 2014 for the provision of a variable rate commercial bill facility of $800,000.00 to assist with property purchases,[85] but denied that PBS had any facilities as recorded in the statements for the PBS Account and denied that there were any loans advanced pursuant to that facility, saying that the only loan advanced was for the acquisition of the Henry Street property which was repaid.[86]
[85]First May Affidavit, EM-17.
[86]Transcript 24 August 2016 138-139.
When questioned about the circumstances surrounding the opening of the PBS Account (referred to in the Third Schierholter Affidavit), he denied that what he had said about being assisted by Mr Leverett to open the PBS Account was true. This was contrary to what was said in that Affidavit. He insisted that Mr Leverett had opened the PBS Account ‘off his own bat’.[87] He even quarrelled with the language that had been used in his affidavit where he said that Mr Leverett had assisted him in opening the PBS Account saying, ‘assist could mean many things couldn’t it?’[88] He had no recollection of the opening of the Second PBS Account.[89] When confronted with statements from the Second PBS Account he denied having opened it or used it.[90] He was shown cheques drawn on that Account and identified that he had signed them, contradicting his earlier evidence and Second Affidavit.[91]
[87]Transcript 24 August 2016 140-141.
[88]Transcript 24 August 2016 142.
[89]Transcript 24 August 2016 142.
[90]Transcript 24 August 2016 143.
[91]Transcript 24 August 2016 144-148; Exhibit 2, 8 pages of copy cheques and Third Schierholter Affidavit, [9].
He gave evidence that he trusted Mr Leverett who was his banker and looked after him.[92] This was confirmation of the statement in his First Affidavit where he said he always dealt with Mr Leverett and trusted him as his banker.[93] That trust extended to relying on Mr Leverett rather than checking properly PBS’ monthly bank statements.[94]
[92]Transcript 24 August 2016 157. See also the First Schierholter Affidavit, [34].
[93]First Schierholter Affidavit, [34].
[94]First Schierholter Affidavit, [35].
He refused to accept that the documents in evidence and shown to him revealed that the ANZ loan secured by a mortgage over the Henry Street property was discharged by the proceeds of a commercial bill discounted on 17 December 2010 and that discharge enabled PBS to borrow further funds from Equity-One on the security of Henry Street, deposit the funds into the PBS Account and use those funds to settle the purchase of the Land.[95]
[95]Transcript 24 August 2016, 157-161.
Overall, my assessment of the evidence given by Schierholter in cross-examination is that unless it is corroborated by documentary evidence, it cannot be relied upon. This is reinforced by the manner in which his solicitor has drafted his affidavits. Mr Lim, solicitor, appearing as counsel for Schierholter, admitted in the course of discussion that he drafted the affidavits carefully so as not to overstate Schierholter’s concerns. Thus, expressions such as ‘at the present moment I believe I did not’ and ‘the plaintiff did not produce any documentary evidence to prove that I had authorised’ were crafted because of the absence of records kept by PBS and the inability of Schierholter to recall events. I add, that the approach by Schierholter to the review of documents put before him in the witness box also showed that he was not familiar banking records and was not a ‘documents person’.
PBS
Mr Lim made both written and oral submissions. The application was limited to setting aside the order made on 5 October 2015 and no application was pursued to set aside the order of T Forrest J declaring that the Bank held an equitable mortgage over the Land.[96] Thus, everything turned on whether PBS could establish a real prospect that there was no debt secured by the equitable mortgage.
[96]Transcript, 4 August 2016, 40.1-15.
PBS submitted:
(a) it could not attend the hearings prior to the judgment because it was deregistered.[97] Its registration was ordered to be reinstated by Gardiner AsJ[98] and the registration of PBS was reinstated by ASIC on 15 March 2016;[99] and
(b) ANZ’s equitable mortgage regarding the Land secured nothing because PBS is not indebted to ANZ.
[97]On 9 August 2014.
[98]On 8 March 2016; Exhibit PAS1 – Page 88.
[99]First Schierholter Affidavit, exhibit PAS1 – Pages 91-92.
PBS neither disputed that Schierholter, as PBS’ sole director, had actual and ostensible authority to bind PBS when he signed the letter of offer for the Bill Facility on about 31 January 2014, nor that s 206A of the Corps Act does not invalidate acts carried out by a disqualified director.[100]
[100]Transcript, 4 August 2016, 77.21-30; 78.1-19.
Mr Lim’s submissions referred to the following facts so as to explain why there was no debt secured by the mortgage:
(a) in or about March 2010, Schierholter was separated from his ex-wife and left their matrimonial home. Mr Leverett knew of Schierholter’s separation from his wife as Schierholter had told him about this in or about March/April 2010;[101]
(b) in March 2010, Mr Leverett assisted Schierholter to open the PBS Account. Statement numbers 1 and 2[102] were allegedly sent to Austell Court, his former matrimonial home. Statement number 3[103] was not sent out as it bears a note, ‘Address Not Found’.[104] When the PBS Account was opened, Mr Leverett knew that Schierholter had already moved out of Austell Court and was unsure why ANZ continued to send statements there. From 29 June 2010 onwards, the statements for the PBS Account were allegedly sent to Schierholter’s post office box and Schierholter says he did not receive any ANZ statements since March 2010;
(c) from about March 2010, Schierholter did not receive any correspondences or bank statements from the Plaintiff ‘if they were sent to his former matrimonial home’. Schierholter believed his ex-wife had thrown away letters sent to him at Austell Court as he did not receive any correspondence or bank statements from ANZ from March 2010. All the letters relating to the discounting of commercial bills allegedly sent by ANZ from 23 April 2010 until 14 July 2014 produced by Mr May were allegedly sent to Austell Court.[105]
[101]Outline of Submissions for PBS, 11 May 2016, [21]. There was no evidence for this statement.
[102]For the period from 29 March 2010 to 28 May 2010.
[103]For the period from 28 May 2010 to 29 June 2010.
[104]First May Affidavit, EM-6 pages 1-9.
[105]First May Affidavit, EM-40 to 46.
It was contended that:
(a) the onus was on ANZ to establish that the transactions on the PBS Account, and the other accounts referred to in the evidence, were authorised by PBS or Schierholter, and that the transactions were in accordance with the Bank’s mandate from its customer;
(b) in relation to the Personal Account, the Waterfall Mews Account and the Second PBS Account, into which flowed moneys from the sale of the Victoria St property and the Highton Lane units, that the Bank did not produce any documentary evidence to show that Schierholter on behalf of himself or on behalf of PBS or Waterfall Mews signed any form to open any of the 3 bank accounts, received any bank statements for any of the 3 bank accounts, operated any of the 3 bank accounts, authorized ANZ or anyone else to operate any of the 3 bank accounts, or applied for or obtain a bank loan under any of the 3 bank accounts;
(c) in relation to the Bills discounted by ANZ, Schierholter disputed the second Bill of $550,000.00 said to have been discounted on 17 December 2010,[106] the fourth Bill discounted on 16 January 2012,[107] and the $800,000.00 Bill Facility the subject of a letter of offer dated 13 February 2013;[108]
[106] Transcript, 4 August 2016, 3; Outline of Submissions for PBS dated 11 May 2016, [31]-[35].
[107]Transcript, 4 August 2016, 9; Outline of Submissions for PBS dated 11 May 2016, [40]-[43].
[108]First Schierholter Affidavit, Exhibit PAS-1 – Pages 2-31; First May Affidavit, EM-15.
(d) ANZ did not produce any documentary evidence to show that Schierholter had authorized any of the 26 withdrawals from the Personal Account, any of 20 withdrawals from the Second PBS Account or any of the 11 withdrawals from the Waterfall Mews Account;
(e) ANZ did not produce any documentary evidence to account for monies withdrawn from the PBS Account on 19 July 2011, 1 September 2011, 2 June 2012, 18 February 2013, and 22 October 2013;[109]
[109]Outline of Submissions for PBS dated 11 May 2016, [62]-[67].
(f) ANZ neither accounted to PBS for monies withdrawn from the PBS Account nor provided documentary evidence of its proper mandate to withdraw:
(i) $541,226.42 from the PBS Account on 17 December 2010;[110]
[110]First May Affidavit, EM-6, Page 25.
(ii) $300,954.35 ($367,775.99 - $1,717.66 - $65,103.98) from the PBS Account on 18 January 2012;[111]
[111]First May Affidavit, EM-6, Page 60; Outline of Submissions for PBS dated 11 May 2016, [52].
(iii) $320,761.53 from the PBS Account on 18 February 2013 and recorded it as ‘Loan Final Payment to – 3646-15364’ which is the Personal Account;[112]
(g) ANZ did not account to PBS as to what happened to the funds withdrawn from the PBS Account and deposited into the Second Account, the Waterfall Mews Account or the Personal Account.[113]
[112]First May Affidavit, EM-52.
[113]Outline of Submissions for PBS dated 11 May 2016, [70(d)].
ANZ
ANZ submits that:
(a) it holds an equitable mortgage over the Property,[114] and that mortgage secures PBS’s obligations under the commercial bill facility offered to PBS by the letter of offer dated 31 January 2014. Schierholter (on behalf of PBS) agreed to that offer,[115] and signed the mortgage. The only dispute is when this occurred;[116]
[114]Exhibit A to the Rowe Affidavit; also at page 60 and 61 to exhibit PAS-1 to the First Schierholter Affidavit; and see memorandum of common provisions at exhibit 11 to the First May Affidavit.
[115]First May Affidavit, [26] and EM-17.
[116]First Schierholter Affidavit, [14].
(b) as sole director of PBS, Schierholter had actual and ostensible authority to bind PBS. If the mortgage was executed prior to 16 March 2012 (when he was disqualified), he validly executed the mortgage and it is binding upon PBS. Further, ANZ is entitled to rely upon the assumptions in ss 128 and 129(5) of the Corps Act including that PBS duly executed the mortgage. There is no dispute that it was signed before he was disqualified;
(c) even if he executed the mortgage while he was disqualified as a director, the mortgage is still binding on PBS. This is because s 206A of the Corps Act, which prohibits a disqualified director from engaging in the management of a company, does not provide that an act performed by a former director after being disqualified is invalid. Rather, s 206A of the Corps Act simply makes management whilst disqualified an offence. It does not invalidate acts carried out by a disqualified director.[117] This is supported by s 128(3) of the Corps Act, which provides that the assumptions under ss 128 and 129 of the Corps Act, may be made even if a company’s officer or agent acts fraudulently in connection with the dealings. This supports the contention that illegality does not necessarily invalidate the acts of that officer;
[117]See Multitec Fbm (Asia Pacific) Pty Ltd v Seong Myeon (Chris) Han (2008) 69 ACSR 106 at [36] and [51]-[55].
(d) thus, if the mortgage was executed after Schierholter was disqualified, ANZ is entitled to rely on Schierholter’s ostensible authority to execute a mortgage on behalf of PBS. ANZ is also entitled to rely on the assumptions in ss 128 and 129 of the Corps Act. ANZ was not aware that Schierholter was disqualified, and was not on notice that he may not have been so authorised;
(e) in the Second May Affidavit,[118] Mr May refers to bank documents including statements for the PBS Account[119] and correspondence to PBS confirming each rollover or purchase of a further Bill,[120] of the operation of the PBS Account and the drawing down, rolling over, increase or reduction in each commercial bill and maturity of the final bill on 15 August 2014;
[118]At [6] to [34].
[119]First May Affidavit, EM-6.
[120]First May Affidavit, EM-40 to 46.
(f) the Bill with a face value of $800,000.00 matured on 15 August 2014 and was not repaid by PBS. The PBS Account was debited with the amount of $800,000.00 representing the maturity of the commercial bill on 18 August 2014 (but the effective date of the debit was noted as 15 August 2014);[121]
[121]First May Affidavit, EM-6 at p 127.
(g) the PBS Account was thereafter in significant debit, in respect of which interest was payable to ANZ.[122] Mr May’s First Affidavit[123] also includes the associated Finance Conditions of Use, which provides at clause 10 for payment of interest on overdue amounts due and payable to ANZ;
(h) bank statements for the PBS Account disclose that as at approximately 29 July 2016, the balance due was $953,935.59.[124] This provided the basis for the amount of the debt identified in paragraph 1 of the order of the Court made 5 October 2015. Nothing has been repaid since the making of that order; and
(i) Mr May examined (and in the Second May Affidavit clearly explained) all of the transactions questioned by Schierholter, including the operation of the commercial bill facility, the so-called unauthorised transactions on the PBS Account totalling $311,584.57, and the proceeds of the sale of the Victoria Street Property and the Highton Lane Units.
[122]First May Affidavit, EM-15 (ANZ Specific Conditions of Use).
[123]First May Affidavit, EM-15.
[124]Affidavit of Joshua Kyle Hawes sworn 24 August 2015, JKH-14.
PBS and Schierholter have had an extensive period of time within which to deal with the issues that have been raised and have failed or refused to do so until after the warrant of possession for the Land was issued. It is clear, and admitted, that Schierholter signed the mortgage on behalf of PBS when he was director of it and was empowered to execute it. From February 2011 to August 2014, the face value of the Bill Facility fluctuated between $450,000.00 and $800,000.00. At no time in the period was the facility settled as contended by Schierholter.
Consideration
A remarkable aspect of Schierholter’s application is the proposition advanced by Mr Lim that the Bank bears the burden of now establishing that the transactions on the PBS Account, which are the source of the debt secured by the mortgage, were authorised by him. As I have recounted above, Mr Lim advanced the proposition that merely by questioning what had happened in relation to certain transactions, the burden was cast upon ANZ to prove those transactions were genuine and authorised by Schierholter. It is trite law that on an application to set aside a judgment regularly entered the burden is on the applicant to satisfy the Court that it has a meritorious defence to the claim.
A further remarkable aspect of this application is that PBS and Schierholter produce virtually no documents and almost never positively assert that they have not authorised particular transactions. One of the exceptions to the failure to assert a lack of authorisation is in relation to the withdrawal or debiting of sums totalling $311,584.57 from the PBS Account.[125] But even in this case, the Bank’s reconciliation of the PBS Account and the related accounts show the assertion to be wrong. What emerges from a review of the material and the cross-examination of Schierholter is that he is not a ‘documents person’. He was not apparently familiar with his own company’s banking facilities and arrangements and depended on Mr Leverett in relation to that banking. PBS and Schierholter produced no accounting records in relation to the matters the subject of dispute. No profit and loss account nor any balance sheet was ever referred to - let alone tendered - into evidence. No management accounts, cash book or any other material relating to the transactions that were questioned by PBS and Schierholter were referred to or introduced unless they had been obtained from the Bank or from Schierholter’s solicitor, Mr Lim, who had acted in relation to sales of properties developed by PBS.
[125]First Schierholter Affidavit, [39].
Even though the first letter of offer of a commercial bill facility dated 13 February 2013[126] was not signed by Schierholter and was sent when Schierholter was living in Cambodia, it is quite plain that PBS traded with the benefit of funds advanced by the Bank under discounted bills. I have no hesitation in concluding that Schierholter authorised the Bank’s manager, Mr Leverett, to undertake transactions on the PBS Account even when he, Schierholter, was in Cambodia. There is no other reasonable explanation for the transactions that were undertaken.
[126]First May Affidavit, EM-15.
The second letter of offer of a commercial bill facility dated 31 January 2014[127] was admittedly signed by Schierholter and authorised facilities up to $800,000.00.
[127]First May Affidavit, EM-17.
The transactions which ultimately were the subject of dispute for PBS are the second commercial bill for $550,000.00 discounted on 17 December 2010, the fourth commercial bill discounted on 16 January 2012 and a variety of payments made out of the PBS Account to the other accounts.
I am satisfied from the analysis undertaken by Mr May in relation to the second commercial bill that, contrary to PBS’ suggestion, the proceeds of this bill were not only credited to the PBS Account in the first instance but were substantially withdrawn and paid into the PBS Third Account and used to reduce that account’s debit balance.
In relation to the fourth commercial bill discounted on 16 January 2012, I am also satisfied with the explanation and reconciliation given in the Second May Affidavit. The accounting in the statement for the PBS Account of the discounting of this commercial bill as explained by Mr May,[128] (involving an apparent error), shows to my satisfaction that all that occurred in the result of the transactions is the discounting of a commercial bill with a face value of $450,000.00.
[128]Second May Affidavit, [28]-[30].
An element PBS’ claim was that, notwithstanding several requests, ANZ has never produced any physical commercial bill that was discounted. The evidence from Mr May is that there is no formal bill of exchange raised. The process under the bill facilities involves a confirmation letter being sent to PBS each time a Bill is discounted, rolled over or settled. Every confirmation letter has been produced. Each such letter, however, was sent to Austell Court and Schierholter has complained that he never received any, nor did he receive any of the statements on the PBS Account.
The evidence given by Schierholter in his third affidavit that he had left Austell Court in March or April 2010 was contradicted by him in cross-examination. He clearly said that he was there, on or off, throughout 2010. It is likely that he has been in receipt of communications sent to that address after 2010 because even after reinstatement of the registration of PBS, the registered office for that company has been recorded with ASIC as at the Austell Court address.
After the initial bank statements from April 2010 to June 2010, all subsequent bank statements were sent to his post office box. Even though Schierholter suggests that his former wife has access to that post office box, he does not say that he did not have access. In his First Affidavit, Schierholter said at one point that he did not properly check the monthly bank statements for the PBS Account.[129] Later, in the Third Schierholter Affidavit, he says he did not receive any of the PBS bank statements from March 2010. Not only do these two statements directly conflict, the latter is inherently unlikely. Clearly, Schierholter executed the second commercial bill facility letter of offer in 2014. This was done for the purposes of raising funds for property development. He must have been aware of the general state of the PBS Account. Moreover, when Schierholter handed Mr Leverett cheques from the sale of the Victoria St Property and the Highton Lane Units,[130] he was plainly operating the PBS Account and the very strong inference is that he gave instructions to Mr Leverett to make the payments out of the PBS Account to the other accounts as occurred.
[129]First Schierholter Affidavit, [35].
[130]In June 2011 and January and February 2012.
There is also a very strong inference from the fact that Schierholter was unable to remember how many accounts had been opened in the name of PBS, that he paid little attention to such matters. He indicated in cross-examination that he would have cheque butts in a box somewhere for the accounts upon which he admitted to having written cheques (the PBS Second and Third Accounts). That he has produced no documents (save for those that I have mentioned having being obtained from the Bank or his solicitor or the public register) speaks volumes about his records keeping practices and abilities.
In the reconciliation of the PBS Account undertaken by Mr May, a number of transfers of funds between accounts is undertaken by an internal ANZ voucher. These enable the tracing of the funds and provide the authority within the Bank for the funds to be moved between accounts. It was undisputed that none of these vouchers were signed by Schierholter. Although there is no direct evidence about who did sign them, the strong inference is that they were signed or authorised by Mr Leverett. This is consistent with the way Schierholter apparently carried on the business of PBS.
The facts revealed by the Banks records, and the verification of those records by the painstaking investigations undertaken by Mr May, also show that the Bank recorded transactions on the PBS Account and from that Account through to the other accounts, by employing a system of record keeping. The results of the operation of that system are themselves admissible evidence.[131] From that evidence and the judgment entered, there is a rebuttable presumption of regularity.[132] Schierholter’s evidence does not displace or rebut the presumption that the internal vouchers of the Bank were authorised by him. In any event, in general he does not say that transactions were not authorised by him, merely that, in effect, he does not know or remember whether they were.
[131]Potts v Miller (1940) 64 CLR 282, 302-5 (per Dixon J); Re Action Waste Collections v Crawford [1981] VR 691, 704 (per Tadgell J).
[132]Omnia praesumuntur rite esse acta.
My approach to the application is consistent with that adopted by Schierholter when he met with officers of the Bank on 6 March 2014, accompanied by his solicitor Mr Lim. He raised no dispute about the outstanding debt at that meeting. The clear inference from the notes kept by the Bank of that meeting is that Schierholter acknowledged PBS’ indebtedness. Mr Lim was present at that meeting and in the course of submissions revealed that he kept no notes himself.
The extent of the delay in making the application to set aside the judgment for possession given on 5 October 2015, and the delay that preceded that judgment, is significant in any assessment of whether the judgment should be set aside. Moreover, the reasons for the delay were entirely within Schierholter’s control as the sole director and secretary and shareholder of PBS. As I have said, PBS was deregistered on 9 August 2014 and Schierholter’s disqualification from acting as a director expired in March 2015. On 4 September 2015, Schierholter was served with a notice of the application for judgment for possession on 5 October 2015.[133] Indeed, as I recorded in the order made on 5 October 2015, the Bank’s solicitor had sent letters to him in September 2014 alerting him to the Bank’s claims and he took no steps to dispute them save for asking for documents.[134] No explanation is given in the affidavits in support for the delay between March 2015 (when Schierholter’s disqualification from acting as a director expired) and the date of judgment, nor from the date of judgment to the application by summons on 22 March 2016.
[133]See ‘Other Matters’ in the order of the Court made on 5 October 2015.
[134]First May Affidavit, EM-21.
The delays occasioned by both the deregistration of PBS, the disqualification of Schierholter from acting as a director and the delay from the date of judgment to the date the application to set aside the judgment, are likely to have increased the difficulty for ANZ to find the records enabling it to reconcile and verify that the debt it claims is properly based. The delays are a factor to be taken into account in assessing the Banks material and the merit of the defences attempted to be raised by PBS, and are also relevant in exercising the discretion whether to set aside the judgment.
I have come to the firm conclusion that there is no merit in the defences raised by PBS to the indebtedness claimed by ANZ against it. The defences have no real prospect of success. Each matter of concern raised by Schierholter in his several affidavits has been addressed in the affidavits of Mr May. There is no issue properly raised in relation to what happened to the funds paid into the Second and Third PBS Accounts, the Waterfall Mews Account or the Personal Account. The status of those accounts is not an issue because no claim is made by ANZ in this proceeding for the recovery of monies under them. There is no doubt, however, that monies paid into the PBS Account about which Schierholter has alleged misappropriation by the Bank or some other person, are unfounded.
All of the matters raised by PBS amount to no more than complaints that he cannot really recall what had happened. His own record keeping would appear to have been quite deficient. PBS was deregistered under s 601AB of the Corps Act, and that is likely to be a consequence of a failure to pay the annual review fee or to lodge documents as required, or both. Schierholter’s disqualification as a director was apparently in consequence of the liquidation of two or more companies of which he was the director.[135] All of these matters go some way to confirm the impression that I obtained when Schierholter was cross-examined that he was not proficient with documents and relied very much on his admitted relationship with the ANZ manager concerned with the undertaking of transactions on the PBS Account, and indeed on the other accounts.
[135]See s 206F of the Corps Act.
Conclusion
For these reasons, the application to set aside the judgment for possession given on 5 October 2015 will be refused with costs.
SCHEDULE OF PARTIES
| S CI 2014 06487 | |
| BETWEEN: | |
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (ABN 11 005 357 522) | Plaintiff |
| - v - | |
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | First Defendant |
| REGISTRAR OF TITLES | Second Defendant |
| PBS DEVELOPMENTS (VIC) PTY LTD (ACN 133 252 883) | Third Defendant |
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