Australian and New Zealand Banking Group v RQA Accountants Pty Ltd and ors
[2013] NSWSC 165
•21 March 2013
Supreme Court
New South Wales
Medium Neutral Citation: Australian & New Zealand Banking Group v RQA Accountants Pty Ltd & ors [2013] NSWSC 165 Hearing dates: 12 March 2013 Decision date: 21 March 2013 Before: Adamson J Decision: (1) An order for possession of the Property against the first and second defendants.
(2) An order that the plaintiff have leave to issue a writ of possession forthwith.
(3) That the defence filed 20 August 2012 be struck out.
(4) Dismiss the whole of the first cross-claim filed on 22 August 2010.
(5) Dismiss the first defendant's notice of motion filed on 3 September 2012.
(6) Order the defendants to pay the costs of:
(a) the plaintiff's motion filed on 29 November 2012;
(b) the first defendant/cross-claimant's motion filed on 3 September 2012;
(c) the cross-defendant's amended motion filed on 12 October 2012.
Catchwords: PROCEDURE-application for summary judgment for possession of property-effect of clause in mortgage excluding reliance on defence, counter-claim or set-off in response to claim for possession of secured property
PROCEDURE-application to strike out defence-whether defence discloses a reasonable cause of action per UCPR r. 14.28(1)(a)
EQUITY- whether bank owes fiduciary duty to customer
EQUITY-unconscionability-superior bargaining position of bank
GUARANTEE-nature of bank guarantee- equivalent to cashLegislation Cited: - Civil Liability Act 2002, s 31
- Insurance Contracts Act 1982 (Cth), s 13, s 54
- National Consumer Credit Protection Act 2009 (Cth), sch 1 (National Credit Code), s 88
- Real Property Act 1900, s 57(2)(b), s 60
- Uniform Civil Procedure Rules 2005, r 13.1(1)(b), r. 14.26(1), r. 14.28(1)(a), r. 13.4Cases Cited: - Adams v Bank of New South Wales [1984] 1 NSWLR 285
- Agar v Hyde [2000] HCA 41; 201 CLR 552
- Anthony John Sharp & Anor v Sphere Drake Insurance PLC & Ors [1992] 2 Lloyds Rep. 501
- Claude R. Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1975] 1 Lloyd's Rep. 52
- Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447
- Eureka 2 Holdings Pty Limited v Palasty [2010] NSWSC 526
- GE Capital Australia v Davis [2002] NSWSC 1146; 180 FLR 250
- Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd [2002] NSWSC 1006
- McGuirk v University of New South Wales [2009] NSWSC 1424
- National Australia Bank Ltd v Hokit Pty Ltd [1996] NSWSC 198; 39 NSWLR 377
- National Australia Bank Ltd v Zaza [2009] WASC 314
- Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540
- QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd [2003] NSWCA 356
- Sullivan v Moody [2001] HCA 59; 207 CLR 562
- Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80
-The "Fedora" [1986] 2 Lloyd's Rep. 441
- Wood Hall Ltd v Pipeline Authority [1979] HCA 21; 141 CLR 443Category: Principal judgment Parties: Australian & New Zealand Banking Group (Plaintiff/ First Applicant)
Australian Associated Motor Insurers Limited (Cross-Defendant/Second Applicant)
RQA Accountants Pty Ltd (First Defendant/First Respondent)
Mr S Surana (Second Defendant/Second Respondent)
Mrs S Surana (Third Defendant/Third Respondent)Representation: Counsel:
S Surana (in person and for the first and third defendants)
S Docker (Plaintiff/ First Applicant)
F T Roughley (Cross-Defendant/ Second Applicant)
Solicitors:
Kemp Strang (Plaintiff/ First Applicant)
Corrs Chambers Westgarth (Cross-Defendant/ Second applicant)
File Number(s): 2012/226249
Judgment
Introduction
In these proceedings the plaintiff (the ANZ), by statement of claim filed on 17 July 2012, seeks possession of the residential property at Bridge Road, Westmead (the Property) where the second defendant (Mr Surana) and the third defendant (Mrs Surana) reside with their two children and judgment for monies alleged to be owing to the ANZ by Mr and Mrs Surana.
On 22 August 2012 the first defendant (RQA), a firm of accountants of which Mr Surana is the sole director and Mr and Mrs Surana are shareholders, and Mr and Mrs Surana filed a cross-claim against Australian Associated Motor Insurers Limited (AAMI) and ANZ seeking:
(1) Against AAMI, restitution of losses alleged to have been suffered as a result of wrongful denial of an insurance claim made under a business insurance policy; and
(2) Against ANZ, damages on various bases (the Cross-claim).
The following notices of motion were set down for hearing before me:
(1) AAMI's amended motion filed 12 October 2012 to strike out the cross-claim;
(2) ANZ's motion filed 29 November 2012 for summary judgment for possession of the Property, that the defence be struck out and that the cross-claim be summarily dismissed or struck out; and
(3) The defendants' motion filed 3 September 2012 against ANZ for reversal of certain loan enforcement fees charged to RQA's overdraft account on 22 August 2011; damages for stress and inconvenience suffered by them; and an order restraining the ANZ from dealing with bank accounts in the names of any of the defendants or the Surana Super Self-Managed Fund.
The defendants do not have legal representation. Mr Surana sought, and was granted, leave to appear on behalf of Mrs Surana and RQA at the hearing of these applications. Mrs Surana sat beside him at the bar table and he consulted her from time to time in the course of the hearing.
Facts
In so far as facts are relevant to the individual notices of motion I shall outline them when addressing each motion. The factual background against which these proceedings were brought can be shortly summarised.
Mr and Mrs Surana obtained a home loan for about $310,000 from the ANZ for the purchase of the Property in 2004 (the Home Loan). It was a term of the home loan that a mortgage be granted to the ANZ as security (the Consumer Mortgage). Mr and Mrs Surana subsequently obtained a loan in October 2009 in the amount of $36,000 to buy a car (the Supplementary Loan). This loan was also secured by the Consumer Mortgage.
Mr and Mrs Surana are both accountants. They obtained a licence to practise as tax accountants in Australia and to this end they incorporated RQA. From early 2009, the defendants operated the business of RQA from the Property but later, in August 2010, sought to lease premises from which they could operate the business (the Premises). They approached the ANZ for finance and RQA entered into a business loan agreement dated 18 October 2010 (the Business Agreement) for working capital up to an amount of about $30,000 for RQA's business (the Business Loan) and an overdraft facility (the Overdraft Facility) up to an amount of about $20,000. The $30,000 was drawn down on 6 August 2010. Weekly repayments were required pursuant the Business Loan but not by the terms of the Overdraft Facility. Mr and Mrs Surana guaranteed the indebtedness of RQA to the ANZ under the Business Loan and the Overdraft Facility.
RQA was granted a lease of the Premises in about August 2010 (the Lease). It was a term of the Lease that RQA provide a bank guarantee in the amount of $15,950 to secure RQA's obligations.
Mr Surana, on behalf of RQA, wrote to the ANZ requesting such a bank guarantee, relevantly in the following terms:
"Dear Sir/Madam
To facilitate my business transactions with
Zeaiter Corporate Holdings Pty Ltd ABN 87085604191
(The Favouree) I ask the Bank to execute a guarantee or security in your standard form (from time to time), unless we have attached or provided you with the form of guarantee that we request you to issue under this request, for an amount not exceeding
15,950.00 AUD in all.
In consideration of the Bank giving such a guarantee or security, I ask you to pay to the Favouree and to debit to my account without prior reference to me any sum or sums, not exceeding the amount stated above, which the Favouree may claim from you under the guarantee or security or may require on its termination by you. The Bank will not be responsible in any way for the correctness of any amount or amounts claimed or required."
. . .
The ANZ issued a bank guarantee on 13 August 2010 (the Bank Guarantee) and transferred funds from the overdraft account to another account 905xxxxx9 in the name of RQA, as security for the Bank Guarantee.
AAMI issued a policy of insurance to RQA on 11 August 2010 (the Policy).
The defendants allege that on 26 April 2011 the Premises were broken into and vandalised. RQA made a claim against AAMI, as a result of which total payments in the order of $19,000 were made. The relevant maximum payable under the Policy was $50,000.
The Bank Guarantee was called on by the favouree on 25 November 2011. The ANZ released $15,950, being the full amount of the Bank Guarantee by debiting the account 905xxxxx9 in the name of RQA.
RQA filed a statement of claim in the Local Court at Parramatta against the ANZ on 6 July 2012 (the Local Court pleading). The ANZ commenced the proceedings in this Court by statement of claim on 17 July 2012. The statement of claim was served on Mrs Surana on 21 July 2012. At that time Mr Surana was away in India, visiting his sick father. On 8 August 2012, after he had returned, he was served with the Statement of Claim.
RQA discontinued the proceedings in the Local Court on 11 September 2012 but has incorporated that pleading by reference into its defence to the statement of claim and also into its cross-claim against the ANZ. Because the Local Court pleading was referred to but not attached in full to any pleading in this Court, I have marked it as an exhibit, Exhibit 3, in these proceedings.
Relevant principles
I have had regard to the authorities regarding the power to summarily dispose of proceedings and in particular the following passage from Agar v Hyde [2000] HCA 41; 201 CLR 52 at [57] per Gaudron, McHugh, Gummow and Hayne JJ:
"It is, of course, well accepted that a court whose jurisdiction is regularly invoked in respect of a local defendant (most often by service of process on that defendant within the geographic limitations of the court's jurisdiction) should not decide the issues raised in those proceedings in a summary way except in the clearest of cases. Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way."
[Footnotes omitted.]
The ANZ's application for summary judgment for possession
The ANZ has established that it has two registered mortgages over the Property. It submitted that there were thus two routes by which it was entitled to summary judgment for possession of the Property.
The application based on the Consumer Mortgage
As referred to above, the Consumer Mortgage secures Mr and Mrs Surana's obligations under the Home Loan, pursuant to which the ANZ on 1 September 2004 advanced an amount in the order of $310,000 for the purchase of the Property. The Home Loan provided that they were to make weekly payments, the amount of which varied in accordance with the applicable interest rate but which at its inception were $479.39 per week. They made payments in accordance with the Home Loan until 24 August 2011 when they defaulted.
The Consumer Mortgage also secures their repayments under the Supplementary Loan pursuant to which an amount in the order of $36,500 was advanced to them on 20 October 2009. They were obliged to make monthly repayments in an initial amount of $528.88, which they did, until they defaulted on 20 August 2011. It was a term of the Consumer Mortgage that Mr and Mrs Surana would be in default if they did not pay any part of the money they owed the ANZ when it was due to be paid by them or either of them. The Consumer Mortgage provides that if they are in default, the ANZ is entitled to exercise any right the law gives to a mortgagee, which includes taking and suing for possession under s 60 of the Real Property Act 1900 (the Act) and is entitled to take possession of the Property after giving notice of the default and allowing 30 days for it to be remedied, if it is not remedied.
In addition to the monies owing under the Home Loan and the Supplementary Loan, the Consumer Mortgage secured any amounts Mr and Mrs Surana owed to the ANZ. Therefore the amounts referred to below as being outstanding under the Business Loan and the Overdraft Facility were also secured by the Consumer Mortgage. The Consumer Mortgage also provided that "enforcement expenses" were secured by the mortgage.
Clause 8.4 of the Consumer Mortgage relevantly provided:
"I will pay whatever I have to pay to ANZ under this mortgage without deduction or withholding for tax and without any set-off or counterclaim."
By 12 March 2012, Mr and Mrs Surana were in default under the Consumer Mortgage by failing to pay instalments due under the Home Loan Agreement and the Supplementary Agreement. By notice dated 12 March 2012 pursuant to s 88 of the National Credit Code and s 57(2)(b) of the Act, ANZ notified Mr and Mrs Surana of their default. The notice allowed 35 days for the remedy of the defaults. The ANZ became entitled to possession when they failed to rectify their defaults after having been given notice.
By notice of demand dated 6 July 2012, the Home Loan was terminated and the outstanding balance demanded.
Accordingly the ANZ Bank has established a prima facie right to possession of the Property from a time before it filed the statement of claim on 17 July 2012, by reason of its rights under the Consumer Mortgage. In her affidavit sworn 4 October 2012, Ms Orr deposed, as required by UCPR r 13.1(1)(b), that she does not believe that the defendants have any defence to the claim.
The application based on the Business Mortgage
The second mortgage (the Business Mortgage) secured Mr and Mrs Surana's obligations pursuant to two guarantees and indemnities. The first, dated 4 August 2010, is in respect of the liability of RQA under the Business Loan. The second, dated 18 October 2010, guarantees both the Business Loan and the Overdraft Facility. These guarantees and indemnities will be referred to collectively as the Guarantee.
On 6 August 2010, pursuant to the Business Loan, ANZ advanced $29,664 to RQA. RQA made monthly payments in accordance with the Business Loan from 6 September 2010 until 24 August 2011. From January 2012, RQA has failed to make monthly payments.
The Overdraft Facility was triggered when the account went into debit on 24 November 2010. RQA made withdrawals and drew cheques on the Overdraft Facility. By 7 December 2011 the balance of the account exceeded the overdraft limit. By notice dated 28 February 2012 the ANZ terminated the Business Loan and the Overdraft Facility and demanded the whole of the outstanding balance. On 23 March 2012 the ANZ issued notices of demand to Mr and Mrs Surana in respect of the monies owing under the Guarantee.
By about 30 March 2012, Mr and Mrs Surana were in default under the Business Mortgage by failing to pay $50,326.29 being the amount demanded under the Guarantee. The ANZ sent a further notice of demand dated 4 July 2012 to Mr and Mrs Surana which required the payment of $50,440.20 immediately. Neither notice of demand was complied with.
In addition to the monies owing under the Guarantee, the Consumer Mortgage secured any amounts Mr and Mrs Surana owed to the ANZ. Therefore the amounts referred to above as being outstanding under the Home Loan and the Supplementary Loan were also secured by the Business Mortgage. The Business Mortgage also provided that "enforcement expenses" were secured by the mortgage.
Clause 20(a) of the Business Mortgage provided:
"To the maximum extent that the law allows, you agree to make each payment to ANZ under this Agreement without any:
(i) set-off or counterclaim;
(ii) deduction; or
(iii) withholding for or on account of tax or duty."
Accordingly the ANZ Bank has established a prima facie right to possession of the Property from a time before it filed the statement of claim on 17 July 2012 by reason of its rights under the Business Mortgage. In her affidavit sworn 4 October 2012, Ms Orr deposed, as required by UCPR r 13.1(1)(b), that she does not believe that the defendants have any defence to the claim.
Whether any of the defendants have an arguable defence to the ANZ's claim for possession
There is no defence filed by Mr or Mrs Surana. Accordingly, for the purpose of the proceedings the allegations in the statement of claim are taken to be admitted: UCPR r.14.26(1). The defence filed by RQA on 20 August 2012, which incorporates by reference the Local Court pleading, does not traverse any of the allegations in the statement of claim by denial or non-admission and therefore those allegations are taken to be admitted for the purposes of the proceedings: UCPR r. 14.26(1).
None of the defendants disputed the primary facts set out above. Nonetheless Mr Surana made oral submissions as to why summary judgment ought not be ordered against him and his wife and sought to articulate the basis of their defence to the claim for possession. I propose to address these matters below.
The Local Court pleading aspect of the defence is based on allegations that the ANZ owed a duty, by reason of its pre-existing relationship with Mr and Mrs Surana, to provide the defendants with sufficient working capital for RQA's business to operate from the Premises. The defendants relied on the ANZ's knowledge of RQA's business and alleged, in [16]-[17] of the Local Court pleading:
"The Defendant [ANZ] representatives knew at all material times that the need for working capital loan increase was fair and reasonable and is common for all business owners across the globe in early start-up phase of doing business especially when the new bank facilities were secured to fund an unused new commercial lot in a landmark office building commanding premium rent.
In April 2011 there was clear evidence for the Defendant [ANZ] representatives that an undercapitalised business with a recent episode of forced break in and vandalism was extremely and genuinely vulnerable to 'cash flow squeeze' and 'commercial damage to reputation' due to genuine business disruption and extremely complex insurance claim settlement work requiring the highest level of professional skills due to intangible nature of the services provided by the Plaintiff [RQA]."
The Local Court pleading then alleges that on 5 December 2011 the ANZ released $15,950 to the lessor of the Premises notwithstanding that RQA had specifically instructed the ANZ to stop payment on the Bank Guarantee. RQA alleges, in [28]:
The Defendant [ANZ] at the time of the release of $15,950 of funds which was done at peak holiday period of Dec-2011 knew that the timing was the worst for the plaintiff's [RQA's] business and personal household as there were no funds left in any other business or personal account.
The Local Court pleading claims refund of the $15,950 paid pursuant to the Bank Guarantee, waiver of enforcement expenses of $4,756, cancellation of the loan facilities and credit card debt, waiver of interest on the Home Loan, "service fees" (as recompense for Mr Surana's labour in dealing with the ANZ) reversal of overdraft facilities and:
"Such other Economic (Career opportunities foregone) and Non Economic (Loss of Reputation and Goodwill) losses directly attributable to breach of express and implied contract in commercial business world as deemed fit by the court."
The liquidated amount claimed in the Local Court pleading is $93,827.
The balance of the defence is, in the main, an allegation that the ANZ owed a duty of care to Mr and Mrs Surana not to serve the statement of claim on them personally before giving them adequate prior notice by phone, SMS or email that this was to occur and that they were in breach of such duty by serving the statement of claim personally on Mrs Surana on 21 July 2012 when Mr Surana happened to be overseas in India. As referred to above, Mr Surana was personally served on 8 August 2012 after he returned from India.
The defence pleads breach and causation of loss in the following terms:
The lack of human compassion and failures by a financially superior plaintiff to exercise reasonable care and skill in those circumstances and at that point of time, caused a major social embarrassment for the defendant's representative in his extended family members in India combined with stress, mental anxieties and a wide range of flow through consequences incapable of being described in plain English words in this Statement of Claim due to cultural factors leaving the defendant's representative with no choice but to forgo the urgent trip extension and need to oversee medical rehabilitation which was expected to be around 12 weeks so as to address the statement of Claim for family home repossession in Australia.
Their alleged defences were, in substance, as follows:
(1) Because they were long-standing customers of the ANZ and the ANZ knew that the Property was the family home of the defendants and their two children, the ANZ owed them a fiduciary duty, which it had breached by advancing them money in circumstances where they could not repay it and failing to advance them more money when they needed it.
(2) The filing of the Local Court pleading had the effect of making all agreements between the ANZ and RQA and Mr and Mrs Surana either void or voidable.
(3) Although the ANZ was only in breach of its duty in connection with the Business Loan and the Overdraft Facility, the ANZ's breach affected all loans.
(4) The ANZ fraudulently or wrongfully removed $15,950 from the Business Loan account on 13 August 2010 and transferred it to the IG Facility when RQA needed the money for working capital.
(5) Because the ANZ was in breach by paying the favouree of the Bank Guarantee it is not permitted to rely on any breach by the defendants.
(6) The ANZ acted unconscionably and therefore cannot enforce either of the mortgages.
(7) The ANZ breached its duty to Mr and Mrs Surana by serving the statement of claim on them personally without giving them prior notice.
The relationship between banker and customer is principally a contractual one between debtor and creditor: see the authorities referred to in National Australia Bank Ltd v Hokit Pty Ltd [1996] NSWSC 198; 39 NSWLR 377 at 384 per Mahoney P and Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80. Although the relationship can take on a different flavour in certain circumstances, the only circumstances relied upon by the defendants are that they were long-standing customers of the ANZ (having been customers since 2001) and the property secured by the mortgages is their family home. Neither of these matters is insufficient to establish a duty of care or a fiduciary duty. The duties a bank owes to its customers do not depend on the longevity of the relationship. A bank is entitled to treat prospective customers more favourably than long-standing ones, as long as it does not breach its contractual obligations.
The alleged defence that the ANZ ought not to have lent the defendants money, or that having lent them money, ought to have lent them more when they needed it, is not arguable. That the ANZ advanced certain funds to RQA did not carry with it any obligation to advance more funds outside the agreements already entered into. The ANZ was entitled to act in what it perceived to be its own commercial interests even in circumstances where to do so would have a detrimental effect on the defendants.
The filing of the originating process invoked the Local Court's jurisdiction; it did not render void or voidable an agreement referred to in the pleading. The premiss on which that defence is based is accordingly incorrect.
The basis on which Mr Surana submitted that the Home Loan could also be avoided, if the Business Loan was void or voidable, was expressed by him in oral submissions as follows:
"My argument is, if you break one of those links and you breach any one of the contract the rest of the contracts just fall like a pack of cards because it puts pressure on other facilities."
There is no arguable basis on which I could determine that, if the Business Loan was void, the Home Loan would necessarily also be void.
RQA alleges, in the Local Court pleading, as set out above, that the ANZ was in breach of duty in paying out the Bank Guarantee on demand, contrary to the wishes and instructions of the defendants. Mr Surana submitted orally:
"And the company needs notice before a third party or a bank sweeps the money on whatever ground it might be."
Once again, such a duty would offend the principle of the coherence of the law in circumstances where the ANZ was, pursuant to the terms of the Bank Guarantee, which was issued at the request of RQA, obliged to pay $15,950 on demand by the favouree "without prior reference to" RQA.
The High Court in Wood HallLtd v Pipeline Authority [1979] HCA 21; 141 CLR 443 (Wood Hall) identified the commercial purpose of such bank guarantees as that they be equivalent to cash: Barwick CJ at 445; Gibbs J at 453 and Stephen J at 457-458. As Stephen J said in Wood Hall at 457, to introduce a qualification on the owner to call upon the performance bank guarantees
"would be to deprive them of the quality which gives them commercial currency."
I consider RQA's argument that the ANZ was in breach of any duty it owed to RQA or indeed Mr or Mrs Surana when it met its obligations under the Bank Guarantee to be hopeless and not to give rise to any issue to be tried.
There is no basis for Mr Surana's submission that the ANZ fraudulently transferred the $15,950 from the Business Loan account to the IG account, thereby rendering it unavailable as working capital. The letter from the ANZ to RQA dated 16 August 2010 establishes that the basis on which the Bank Guarantee was issued was that there be such a separate account and that the balance of the account would be not less than the amount of the guarantee.
In any event, even if the ANZ were in breach, it would not prevent it from relying on the defendants' breaches to found its right to possession of the Property under either or both of the Consumer Mortgage or the Business Mortgage. There is no principle that one breach excuses another.
Mr Surana relied on the following passage from Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447 at 461 per Mason J:
"But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability. . ."
Undoubtedly the ANZ was in a bargaining position superior to that of the defendants. For a start, it dictated the terms of the bargain since each of the agreements was in accordance with its standard forms. As Mr Surana submitted:
"The position of the plaintiff is so heavy, your Honour, the bargaining position is so high that it is natural and obvious to expect someone of the might, power and financial resource of the plaintiff, ANZ Bank, to be in a superior bargaining position. In the real world, when you go and sign credit contracts and bank guarantees, you don't go with an expectation that the bank will change those templates and conditions and bank guarantees."
However, far from being at a disadvantage or suffering from a special disability, Mr Surana was anxious to establish his superiority. For example, when making submissions about the indignities and harm to his pride he had suffered at the hands of the ANZ he said:
"The amount of social embarrassment, stress, anxieties, humiliation, if you like, the word, and the dirty feeling of looking small in front of people who are much lower qualified in experience to you is something that cannot be described in words."
Mr Surana submitted that he was amply qualified in financial matters and that had substantial commercial savoir-faire. Though some reduction ought properly be made for obvious hyperbole he submitted that he had:
"dealt with millions of letters of credit, bank guarantees, performance bonds in my past roles overseas."
I do not consider there to be any basis on which it could be argued that any of the defendants suffered from a special disability such as would warrant the conduct of the ANZ being regarded as unconscionable.
It is not arguable that the ANZ had a duty of care not to serve Mr and Mrs Surana personally with originating process. Mr Surana was unable to identify any principle of law but had recourse to a general principle of compassion when he submitted:
"I don't know whether there's a written law or unwritten law on it, but surely there has to be some human element before serving this kind of hostile notices."
Such a duty would be incompatible with the UCPR requirements that originating process be served personally and would, accordingly offend the principle that the law ought be, in so far as possible, coherent: Sullivan v Moody [2001] HCA 59; 207 CLR 562 at [55] per Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ.
In any event the alleged wrongful conduct, the service of the statement of claim on Mrs Surana on 21 July 2012 and on Mr Surana on 8 August 2012, post-dated the ANZ's entitlement to possession and therefore cannot affect its right to such relief.
Even if any of the "defences" which are alleged by RQA were maintainable, they would only, in my view, give rise to a claim for damages by RQA, and possibly by Mr and Mrs Surana, although they have not filed a defence. Clause 8.4 of the Consumer Mortgage and clause 20(a) of the Business Mortgage are binding and effective to prevent Mr and Mrs Surana from raising such matters as a defence, counter-claim or set-off to any of the ANZ's claims.
Similar clauses have been found to have the effect that the guarantors are obliged to pay the whole of the shortfall to the creditor and may not set off any claim or amount that they have or may have against the creditor: Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 (Permanent Custodians) at [55], per Davies J. Such clauses are effective and not contrary to any principle of law: see the discussion of Bryson J's decision in GE Capital Australia v Davis [2002] NSWSC 1146; 180 FLR 250 set out in Permanent Custodians at [47]-[56]. It has also been found that the position is sufficiently clear to warrant an order for summary judgment where the only defence, set-off or counter-claim relied upon is excluded by the Guarantee: Permanent Custodians; The "Fedora" [1986] 2 Lloyd's Rep. 441; Eureka 2 Holdings Pty Ltd v Palasty [2010] NSWSC 526 at [25]-[29], per Price J; National Australia Bank Ltd v Zaza [2009] WASC 314.
I am satisfied that neither Mr nor Mrs Surana has raised an arguable defence to ANZ's claim for possession either on the basis of the Consumer Mortgage or the Business Mortgage. I am satisfied that there is no issue to be tried relating to this claim for relief and that there is no discretionary reason why summary judgment for possession ought not be ordered.
The ANZ's application for the defence to be struck out
In addition, or in the alternative, to its claim for summary judgment for possession, the ANZ seeks an order that the defence filed by RQA be struck out as disclosing no reasonable defence to the ANZ's claims: UCPR r 14.28(1)(a). Although there is no defence filed by Mr and Mrs Surana, Mr Surana has made oral submissions as though the defence filed had been filed on behalf of all three defendants. Accordingly, I have determined the matter as if the defence had been filed by all three defendants although this is formally not the case.
The defence filed by RQA, which incorporates the Local Court pleading, does not disclose, for the reasons set out above, any defence. Even if RQA could establish a right to damages against ANZ, it would not, for the reasons given above, be entitled to set the amount of such damages off against the debt owed to the ANZ. Nor would it be entitled to counterclaim against the ANZ in the proceedings.
Further, had I not been persuaded to strike out the defence filed by RQA pursuant to UCPR r 14.28(1)(a), I would have been disposed to strike it out on the grounds that it has a tendency to cause embarrassment and delay because of the way in which it has been pleaded: see the authorities referred to by Johnson J in McGuirk v University of New South Wales [2009] NSWSC 1424 (McGuirk) at [30]-[35].
The ANZ's application for [27]-[40] of the cross-claim to be struck out
The Court is empowered by UCPR r 13.4 to summarily dismiss any claim for relief it appears, relevantly, that no reasonable cause of action is disclosed or that the proceedings are an abuse of process of the Court. The ANZ submitted that [27]-[40] of the cross-claim ought be struck out on either of these two bases.
In substance the defendant claims in the cross-claim that the ANZ:
"was under reasonable obligations to enter into positive dispute resolution dialogue with the cross-claimant which was declined using unfair means in the position of financially superior person . . ."
RQA, in a paragraph entitled "Conclusion" which appears at the end of the cross-claim alleges:
The Plaintiff's are forced to commence proceedings against the Cross Defendants for Express and Implied combined Breach of Trust and Breach of Commonly known contractual obligations of reputed business bankers and insurers leading to substantial losses, inaction and loss of time magnified further by a hostile, negligent and inhuman claimant family home notice of repossession timed badly and aggressively by a door knock method through the Supreme Court of New South Wales, during an unforeseen family medical emergency situation in the extended family of the Cross Claimants outside Australia. The cross defendants therefore stand liable for all economic, non economic, loss of family ties and other consequential losses directly attributable to their own actions, inactions, negligence and hostility due to "No Fault" on the part of the Cross Claimants.
The principles that apply to an application to dismiss a claim on the basis that it discloses no cause of action or defence have been summarised by Johnson J in McGuirk at [36]-[39]. The ANZ, as cross-defendant, undertakes the burden of establishing that there is no triable issue by contending that there is no cause of action.
I have already, in considering whether the ANZ is entitled to summary judgment for possession and to have the defence filed by RQA struck out, considered whether there is any arguable duty of care or fiduciary duty owed by the ANZ to any of the defendants. For the reasons already given, I do not consider that any such duty arises. The imposition of such a duty would be inconsistent with the terms of the various loan agreements, the Guarantee and the two mortgages. Furthermore no compensable loss has been identified.
There is no rule of this Court that requires pre-commencement settlement negotiations to be undertaken either in good faith or at all.
If damages for pure mental harm are claimed, they are not recoverable since no recognisable psychiatric illness suffered either by Mr or Mrs Surana has been identified: s 31 of the Civil Liability Act 2002.
I do not consider that [27]-[40] of the cross-claim disclose any reasonably arguable cause of action. The cross-claim against the ANZ amounts to an abuse of the process of the Court. Accordingly, [27]-[40] of the cross-claim ought be struck out.
AAMI's application for [1]-[26] of the cross-claim to be struck out
For the reasons given above the authorities establish that AAMI bears the burden of establishing that the cross-claim discloses no reasonable cause of action.
The cross-claim contains allegations regarding the Policy, and AAMI's conduct arising from the claim made by RQA. AAMI accepted, for the purposes of this application, that I should determine its application on the basis that each of the matters of fact alleged in the cross-claim could be made out.
Facts alleged against AAMI in the cross-claim or otherwise germane to the determination of AAMI's application
RQA made a claim on the Policy arising from a theft on the Premises in April 2011. It also alleged that a USB stick had been stolen that contained certain documents.
The Policy relevantly provided in Section 1B, page 1, for theft:
What we cover
What we exclude
6. Rewriting of documents
the value of any reasonable labour costs incurred in reproducing or making good the loss of or damage to documents.
We will not pay more than $25,000 during any one period of insurance.
The Business Insurance Schedule indicated that theft was covered under the Policy. The Schedule provided as follows in respect of theft:
Full theft cover- Office risks
We will pay for a claim for loss of or damage to business contents and stock in Trade at your premises which does not include forcible or violent entry to or exit from the premises subject to a limit of $50,000 (with a sub-limit of $15,000 in respect of computer equipment) or the sum insured shown by "Contents and Stock in Trade" in the schedule, whichever is the less.
Rewriting of computer records- Limit $5,000 (Fortnightly backup)
The most we will pay for rewriting of computer system records under Extra Benefit 6 'Rewriting of Documents' is reduced to $5,000 unless such computer system records are backed up on a fortnightly basis (or more frequently) and backup copies are kept in a locked safe or at other premises.
AAMI accepted, on the basis of these provisions, that the overall limit of liability for theft was $50,000 and the limit for rewriting of computer records was $5,000 unless they had been backed up in accordance with the requirements in the Schedule set out above.
Allegations made in the cross-claim
In its cross-claim RQA alleges, in substance, that it is entitled to damages against AAMI in respect of four causes of action.
[3]-[8] of the cross-claim: alleged failure to warn insured
The first set of allegations made against AAMI, in [3]-[8] of the cross-claim are, in substance, that AAMI owed RQA a duty to warn it of any material exclusions from the Policy. The duty appears to be based in part on representations alleged to have been made by AAMI that:
"the Insurance Premium payable on the purchase of their first Australian business insurance policy & related premium will be sufficient to safeguard against reasonable risks of doing business in Australia, including but not limited to widely known risks of theft and vandalism and consequential losses." [4]
The allegation is made in [5] that AAMI was obliged to warn RQA of any material exclusions and in [6] that it was obliged to warn RQA of a difference between standard exclusion policies in Australia, India and Canada. It is also alleged that AAMI was in breach by failing to undertake a site inspection of the Premises and warning RQA of relevant risks.
The duties which RQA allege are owed by AAMI could arguably be owed by a broker since there is implied in contracts between an insured and a broker that the broker will exercise reasonable care and skill in respect of a contract for the provision of brokering services: Claude R. Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1975] 1 Lloyd's Rep. 52. Brokers are obliged to use reasonable skill and care in advising the client as to completion of the proposal and in procuring the cover which the client has requested, either expressly or by necessary implication; and thirdly, if the broker is unable to obtain the cover required, to report to the client in what respect the broker has failed and seek the client's alternative instructions: Anthony John Sharp & Anor v Sphere Drake Insurance PLC & Ors [1992] 2 Lloyd's Rep. 501 at 523.
Insurers owe no such duties to potential insureds. The relationship between the insured and insurer is governed by the Policy, the principles of general law and the Insurance Contracts Act 1982 (Cth). There is no basis for the allegation that the insurer has a duty to warn of the type and nature alleged in [3]-[8] of the cross-claim.
[11]-[12] of the cross-claim: alleged refusal to pay the limit of the Policy
The allegations made in these paragraphs are, effectively, that AAMI breached the Policy by paying out only 30% of the maximum amount of $50,000 payable. The following allegation is made:
"The remaining balance of 70% of the maximum insurance policy sum of $50,000 or approximately $35,000 was denied by the First Cross defendant [AAMI] on an unreasonable and impossible to understand reason of "Lack of Sufficient Substantiation", rather than based on real world objective assessment of the Cross Claimant's local industry work culture in Australia of similarly highly experienced, qualified and time poor Accountants with Corporate Accounting background of public listed companies."
As far as I can discern, the defendants allege that AAMI had an obligation to pay the whole of the limit of the Policy, $50,000, in the absence of sufficient substantiation because of the defendants' prior experience, expertise and qualifications and because it was the maximum that was payable. Mr Surana expressed his rationale for this argument in oral submissions in the following terms:
"Reasonable cause of action; if I ask a lay person on the street, "look, you paid the full amount of premium to the insurer and the insurer has paid you 30% of the claim", any person will jump up and down, not only me, any person. You don't need to be a corporate accountant of my calibre. It's as simple as that, your Honour."
The cause of action articulated by Mr Surana is not known to the law.
Mr Surana developed this allegation in oral submissions by relying on a Product Disclosure Statement (PDS) produced by AAMI as the basis for an express representation by AAMI as to the insurance which it was providing as part of its standard cover. Mr Surana highlighted the following portion of the PDS:
"The other benefits that you will have experienced through AAMI Business Insurance include:
package discounts
peace of mind
pay by the month
customised cover
hassle-free claims
plain language policy documentation."
Mr Surana particularly emphasised the reference to "customised cover". He did not provide any basis for an argument that the provision of "customised cover" required AAMI to pay the maximum amount of the Policy whenever there was a claim.
Mr Surana, in oral submissions, made reference to s 13 and s 54 of the Insurance Contracts Act 1984 (Cth) and submitted that AAMI was in breach of those provisions and that a cause of action arose in favour of the defendants by reason of the breach.
Section 13 requires parties to an insurance contract to act with the utmost good faith and implies such a term into insurance contracts. I understood Mr Surana to be submitting that it was a breach of AAMI's duty of good faith to the defendants for it to require substantiation of RQA's claim. He also submitted that the doctrine of contra proferentem operated so as to prevent AAMI from refusing to pay the maximum amount under the Policy.
Section 54 provides that an insurer may not refuse to pay claims in certain circumstances. I understood Mr Surana to be submitting that s 54 required AAMI to pay the maximum amount of the claim irrespective of whether it was sufficiently substantiated.
It appeared from Mr Surana's submissions that he was under the misapprehension that an insurer was only entitled to refuse to pay the whole of an amount claimed if it could establish that such loss had not been suffered by the insured. The onus is the reverse of Mr Surana's apprehension.
The doctrine of contra proferentem operates in the context of insurance contracts so as to preclude an insurer from construing an ambiguity in the policy so as to deny liability: Hammer Waste Pty Ltd v QBE Mercantile Mutual Ltd [2002] NSWSC 1006 at [25]-[28] per Palmer J; upheld on appeal: QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd [2003] NSWCA 356. It does not, however, have the effect that an insured is relieved of the obligation to substantiate its claim, or that the insurer is obliged to pay the maximum amount payable under the policy, irrespective of whether the loss claimed has been substantiated.
I am persuaded that these paragraphs of the cross-claim do not disclose any arguable cause of action.
[13]-[21] of the cross-claim: infliction of mental anxieties and trauma due to business cash crisis
In these paragraphs RQA alleges, in substance, that because the claim was not settled to the maximum amount, it created cash flow difficulties for the defendants which resulted in their suffering mental anguish and financial loss. This claim is most forcefully articulated in [15] which alleges:
"As a result of substantial financial under settlement of cash due to the general insurance claim dispute, materially driven by the First Cross Defendant's vague interpretation of the policy clauses and diversion of the Cross Claimants business time to non business activities, the Cross Claimants suffered severe mental anxieties & trauma due to significant cash crisis and constantly underlying threat of moving towards insolvency in the newly located business triggering a long list of adverse consequences and associated personal health and family health issues."
The underlying question is whether AAMI was obliged to pay more than the amount it paid. The only basis on which it is said that AAMI should have paid $50,000 rather than the $19,000 it in fact paid is that it was the limit of the Policy. This is addressed above. If AAMI was not obliged to pay more than it did, then AAMI cannot be liable for the consequences of the defendants not receiving the maximum amount payable under the Policy. Paragraphs [13]-[21] do not disclose any arguable cause of action against AAMI.
[22]-[26] of the cross-claim: forced participating in dispute processes
The defendants allege that they have been forced to spend a substantial amount of time engaging in dispute resolution processes and in endeavouring unsuccessfully to obtain pro bono legal assistance. Mr Surana alleges that he:
"was forced to spend substantial amount of personal time in duplicating provision of uncomfortable and sensitive personal information to new and unrelated irrelevant people."
I am satisfied that no arguable cause of action is disclosed by these or any other paragraphs of the cross-claim.
AAMI has persuaded me that the cross-claim discloses no reasonable cause of action and it amounts to an abuse of process. I do not consider there to be any discretionary matters which ought prevent its dismissal.
RQA's notice of motion filed 3 September 2013
RQA seeks three forms of relief in this notice of motion:
(1) Reversal of $7,512.19 of loan enforcement fees imposed on 23 August 2012;
(2) Costs for time, stress and other inconvenience involved in the notice of motion; and
(3) A restraining order preventing the ANZ from dealing with any of the defendants' accounts.
Although the motion identifies RQA as the only party seeking orders, it is apparent from the context, the form of prayer 2 and from the oral submissions made that Mr and Mrs Surana are also applicants.
Effectively RQA and Mr and Mrs Surana are seeking summary judgment in respect of these three claims for relief. There is no basis on which the Court would, even if it were otherwise inclined to make the orders sought, make them on a summary basis.
Each of the claims for relief sought is misconceived.
As to the first prayer for relief in the notice of motion Mr Surana submitted that the ANZ was not entitled to charge loan enforcement fees once the Local Court pleading had been filed in the Local Court because the effect of filing was to render all agreements between the defendants and the ANZ void or voidable. I have rejected this submission for the reasons given above. The ANZ is entitled, by reason of the terms of its agreements with the defendants, to charge loan enforcement fees to the defendants and to apply such deductions to any account at its discretion.
Furthermore, I accept the ANZ's submission that the line item for $7,512.19 for loan enforcement fees on the overdraft facility of RQA is, effectively, a book entry. The rights as between the ANZ on the one hand and Mr and Mrs Surana on the other are determined by an accounting either when there is an offer to redeem the mortgage or when the either of the mortgages is discharged. The parties are entitled to a single accounting but not a piecemeal one. The first prayer for relief in the defendants' notice of motion is effectively a prayer for a piecemeal accounting relating to an aspect of the total loan enforcement fees. To entertain this application for relief would be to subject the ANZ to futile litigation since the result could have no effect on the legal rights of the parties: Adams v Bank of New South Wales [1984] 1 NSWLR 285, at 296B-D per Hutley JA with whom Moffit P and Samuels JA agreed.
As to the second prayer for relief in the notice of motion, it is not maintainable for the principal reason that the ANZ does not, for reasons given above, owe a duty of care to its customers.
As to the third prayer for relief in the notice of motion, the applicants have not identified any basis on which they invoke the Court's limited jurisdiction to vary the terms of a contract. Accordingly, the agreements between the parties govern their respective rights and responsibilities. Each of the relevant agreements confers a right on the ANZ to combine accounts and an obligation on the customer to pay the ANZ's enforcement expenses. There is no basis on which the Court would interfere with the parties' contractual rights and responsibilities, whether on an interlocutory or final basis.
Orders
I make the following orders:
(1) An order for possession of the Property against the first and second defendants.
(2) An order that the plaintiff have leave to issue a writ of possession forthwith.
(3) That the defence filed 20 August 2012 be struck out.
(4) Dismiss the whole of the first cross-claim filed on 22 August 2010.
(5) Dismiss the first defendant's notice of motion filed on 3 September 2012.
(6) Order the defendants to pay the costs of:
(a) the plaintiff's motion filed on 29 November 2012;
(b) the first defendant/cross-claimant's motion filed on 3 September 2012;
(c) the cross-defendant's amended motion filed on 12 October 2012.
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Decision last updated: 21 March 2013
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