Bank of Western Australia v Daleport Pty Ltd
[2011] NSWSC 819
•04 November 2011
Supreme Court
New South Wales
Medium Neutral Citation: Bank of Western Australia v Daleport Pty Ltd [2011] NSWSC 819 Hearing dates: 26 July 2011 Decision date: 04 November 2011 Jurisdiction: Common Law Before: Davies J Decision: 1. The parties should bring in Short Minutes to reflect these reasons.
2. The Plaintiff is given leave to tender any further certificates showing how much is owing in respect of the facilities for which summary judgment is to be given.
3. The First Defendant is given leave to serve (but not file) any proposed amended Defence within 14 days.
4. The Plaintiff is to advise the First Defendant within 7 days thereafter if there is any objection to the filing of that Defence. If there is no such objection the Defence is to be filed within a further 7 days.
Catchwords: PROCEDURE - Summary Judgment - claim arising out of loan facilities - lending terms precluding set-off and cross-claim - defence raising statutory and equitable rights from misrepresentations and unconscionable conduct - whether a set-off - guarantee - whether terms of guarantee require payment by guarantor before claim can be made against creditor - cross-claim earlier dismissed for failure to provide security ordered - whether defendant confined to non-monetary remedies. Legislation Cited: Australian Securities and Investment Commission Act 2001
Competition and Consumer Act 2010
Trade Practices Act 1974Cases Cited: Bank of Western Australia v Daleport [2010] NSWSC 1207
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238
GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 11 BPR 20,529
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Graeme Webb Investments Pty Limited v St George Partnership Banking Limited [2001] NSWCA 93
Marks v GIO Australia Holdings (1998) 196 CLR 494
Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540
Perpetual Trustee Company Ltd v Michael Wilson Kwok [2011] NSWSC 422Category: Interlocutory applications Parties: Bank of Western Australia (Plaintiff)
Daleport Pty Ltd (First Defendant/First Cross-Claimant)
Alexander Raymond Wilson (Second Defendant/Second Cross-Claimant)Representation: P Dowdy (Plaintiff)
B Ledger (Defendants)
Gadens Lawyers (Plaintiff)
Ledger & Co Lawyers (Defendants)
File Number(s): 2008/287869
Judgment
The Plaintiff entered into 4 loan facilities with the First Defendant (Daleport) and these facilities were guaranteed by the Second Defendant (Mr Walton). The Plaintiff alleges that there has been default in relation to the repayment of the facilities and now seeks summary judgment against both Defendants. Although the Statement of Claim sought possession of one property which secured the facilities, that property has now been sold. The claim is only for a monetary judgment against both Defendants.
The Plaintiff, in its motion, seeks further and in the alternative that paragraphs 40A, 42A, 43A, 44(e) and 44(f) of Daleport's Defence be struck out and that paragraphs 5(a), 5(b)(ii), 5(d)(i) and (iii) and 14 of Mr Walton's Defence to the extent that they claim relief under the Competition and Consumer Act 2010 be struck out. The Defendants concede that paragraphs relating to that Act cannot remain. They also concede that paragraphs referring to the Trade Practices Act 1974 cannot remain although they seek leave in that regard to substitute the provisions in the Australian Securities and Investment Commission Act 2001.
Background
The First Facility is dated 12 August 2003 and was for an amount of $4 million for the purpose of refinancing facilities Daleport had at that time with Donovan Oates Hannaford. The loan was made to Daleport as trustee for the Walton Family Trust. The security for the loan was (inter alia) Registered First Mortgage over what was described as "The Residential Unit Complex consisting of 24 units at Warwick Farm". The mortgage dated 4 September 2003 identified the property as folio identifier 1/1038339.
The facility terms provided a credit limit of $4 million reducing to $3 million by no later than 31 October 2003. The credit limit was duly reduced. In a letter dated 12 September 2003 from the Bank to Mr Walton at Daleport the cheques paid on settlement were set out with 2 amounts totalling $3,824,041.23 being paid to Donovan Oates Hannaford.
The terms of the facility required an unlimited guarantee and indemnity from Mr Walton as well as from Daleport in its corporate capacity.
Clause 10 of the facility terms attached to the letter of offer said this:
(c) By accepting this Offer Letter the Borrower and each Guarantor acknowledges and agrees that:
...
(ii) the Borrower and each Guarantor has made its own independent decision and has not relied on any representation made by the Bank, its officers or agents.
The Letter of Offer also incorporated the Plaintiff's General Terms for Business Lending dated November 2002. Clause 9.1 of those General Terms relevantly provided:
9.1 Manner of payments
All payments to the Bank under the Facility Documents must be made:
...
e) In full without set off or counterclaim and without any deduction in respect of Taxes unless prohibited by law.
On 29 November 2004 the Bank agreed to lend to Daleport by way of a Home Loan Facility an amount of $2.5m for the purchase of a unit in the Waterline Apartments at Broadbeach, Queensland. The amount was repayable over 30 years, and one aspect of the security required was a guarantee from Mr Walton.
On 9 February 2005 the Bank agreed to provide a commercial advance facility to Daleport as trustee for the Walton Family Trust of $2 million with the purpose "to provide funds to refinance existing facility with Grenfull Mortgages" (the Second Facility). On the same day the Bank agreed also to provide to a further facility of $1.7 million with the stated purpose "to provide funds to complete stage 1 of the development of community titled town houses at Leura" (the Third Facility).
In respect of both facilities the guarantors were to be Mr Walton and Daleport in its own corporate capacity, and the expiry date for both facilities was to be 24 months after the first draw down date but no later than 31 December 2006.
The First Facility, now reduced to $3 million, was rolled over and had a new expiry date of 24 months after the draw down but no later than 31 December 2006.
The security for these loans was a first registered mortgage by Daleport in both capacities over the following properties:
(a) 31-33 corner Hume Highway and Mannix Parade, Warwick Farm,.
(b) 6 Governors Way Macquarie Links NSW,
(c) 59 Broadbeach Boulevarde, Broadbeach,
(d) Corner Pollar and Herbert Streets, Leura.
These facilities were said to be subject to the General Terms for Business Lending dated July 2004. Relevantly, clause 9.1(e) was in identical terms to the 2002 General Lending Terms.
Also on 9 February 2005 the Bank agreed to make available to Daleport a bank guarantee facility in the sum of $50,000. That facility was repayable on demand.
On 21 November 2006 there was a further variation and roll over of facilities. The First Facility of $3 million was rolled over to expire on 30 June 2007. Similarly, the Second Facility of $2 million was extended to expire on 30 June 2007. The Third Facility of $1.7 million was increased to $4.7 million and that expired also on 30 June 2007. The bank guarantee of $50,000 was continued, and that facility remained repayable on demand.
In February 2008 the facilities were rolled over and became repayable on 28 February 2008. A fresh facility was entered into for $1.45 million "to cover construction shortfall, payoff equity release balance, and interest capitalisation and line fee until expiry". This facility also expired on 28 February 2008. Those facilities became subject to the General Terms for Business Lending dated December 2007. Paragraph 10.1(e) was in identical terms to cl 9.1(e) of the earlier General Terms (set out in para [7] above).
The guarantee provided by Mr Walton and Daleport in its personal (or corporate) capacity was dated 2003 without greater specificity. The Plaintiff says the reasonable inference is that it was signed at or about the time of the First Facility Agreement on 12 August 2003 because one of the requirements of that facility was that there be an unlimited guarantee and indemnity from both Defendants with Daleport's guarantee being given in its corporate capacity.
In that regard it should be noted that the Defence of Daleport concerning the guarantee puts in issue the true meaning and effect of the guarantee. It does not dispute that such a guarantee was entered into. Paragraph 21 of the Statement of Claim pleads as follows:
21. In order to secure the obligations of the first defendant under the Agreements, the second defendant entered into a written guarantee and indemnity with the plaintiff whereby the second defendant guaranteed due and punctual:
(a) payment by the first defendant of the debt owing under the First Commercial Agreement, Second Commercial Agreement, Third Commercial Agreement, Home Loan Agreement and Guarantee Agreement (the Loan Facilities); and
(b) the performance by the customer of the first defendant's liabilities and obligations under or by reason of the Loan Facilities.
Particulars
Clause 2.3 of the written guarantee and indemnity between the plaintiff and second defendant undated (Guarantee).
Mr Walton's defence to this is found in paragraph 4 of his Further Amended Defence:
In relation to paragraph 21 of the Claim, the Second Defendant: (sic) does not admit the allegations therein as the true meaning and effect of the guarantee is a matter of construction and for the court to determine.
These paragraphs are silent about the date of the Guarantee.
One matter which leads strongly to the view that the guarantee was signed in 2003 at the time the First Facility was granted is that, when the First Facility was rolled over and the Second and Third Facilities were entered into on 9 February 2005, a condition of the agreement at that time was that there be a commercial guarantee and indemnity in the Bank's standard form from Daleport in its corporate capacity and from Mr Walton. A note attached to that condition said that such a guarantee was "currently held by the Bank". The only transaction between August 2003 and February 2005 was the Facility to enable the purchase of the Broadbeach property in November 2004. The requirement for a guarantee attached to that Facility was only that Mr Walton provide a guarantee. Since the guarantee which was executed by the Defendants accorded with the requirements of the First Facility, and bears the date 2003, the overwhelming inference is that the guarantee must have been signed at the time of the August 2003 Facility.
Relevant provisions of the guarantee are these:
2.3 Obligations guaranteed
The Guarantor guarantees to the Bank the due and punctual:
(a) payment by the Customer of the Guaranteed Money; and
(b) performance by the Customer of the Obligations.
...
2.5 Bank not liable
The Bank is not liable for any loss suffered by the Guarantor as a direct or indirect result of:
(a) the Bank's exercise or attempted exercise of, or failure to exercise, any of its rights contained in this document; or
(b) any release or dealing with any other Guarantee or Security Interest (including any prejudice to or loss of the Guarantor's rights of subrogation).
...
5. Payments
Each Guarantor must make each payment to the Bank under this document by delivering an unendorsed bank cheque to the Bank at the place, or by direct transfer of cleared funds to the credit of the account that the Bank nominates.
...
6.5 No representations by the Bank
The Guarantor acknowledges that it has not relied upon and will not rely on any representation, statement or promise made by or on behalf of the Bank in deciding to enter into this document or to exercise any right under it.
...
12.1 Nature of obligations and enforcement
The Guarantor's obligations in this document:
(a) are principal obligations, and not ancillary or collateral to any other right or obligation; and
(b) may be enforced against the Guarantor without the Bank first being required to:
(i) exhaust any remedy it may have against the Customer; or
(ii) enforce any Collateral Security.
12.2 Preservation of Guarantor's obligations
The Guarantor's obligations in this document are absolute, unconditional and irrevocable. The liability of the Guarantor under this document extends to and is not affected by any circumstance, act or omission which, but for this subclause, might otherwise affect it at Law or in equity including:
(a) the grant of any time, waiver or other indulgence or concession;
(b) the discharge or release of the Customer, any other guarantor or any other person;
(c) any transaction or arrangement that may take place between the Bank and the Customer, the Guarantor or any other person;
(d) the occurrence of an Insolvency Event in relation to the Customer, the Guarantor or any other person;
(e) the Bank or any other person dealing or not dealing in any way with any other Security Interest, document or agreement;
(f) the Bank or any other person:
(i) exercising or not exercising any other Security Interest or any right or remedy conferred on it by
Law or by any document or agreement; or
(ii) not recovering any money owing by the Customer;
(g) any variation (including a variation which increases or. extends the duration of, the Guaranteed Money or the Obligations), replacement, extinguishment, unenforceability, failure, loss, abandonment or transfer of any Facility Document (including this document and any other Collateral Security held by the Bank from any person at any time);
(h) the Obligations or the obligations of the Guarantor or any other person under this document or any other Facility Document (including any other Security Interest) being or becoming illegal, void, voidable, unenforceable or disclaimed by a liquidator or trustee for creditors or in bankruptcy;
(i) the Bank not giving the Guarantor notice of any default by the Customer or any other person;
(j) the Bank not disclosing any information to the Guarantor;
(k) any representation made or information given by the Bank to the Guarantor;
(l) any change in the legal capacity, rights or obligations of, or other circumstance related to, the Customer, the Guarantor or any other person;
(m) any legal limitation, disability, incapacity or other circumstance related to the Customer, the Guarantor or any other person;
(n) any invalidity or irregularity in the execution of this document or any deficiency in the powers of the
Customer or the Guarantor;
(o) any assignment by the Bank, with or without the knowledge of the Customer or the Guarantor;
(p) any obligation of the Customer being discharged by operation of Law;
(q) any person who was intended to be bound as a guarantor or surety in relation to Guaranteed Money or the Obligations not becoming bound or ceasing to be bound;
(r) any laches, acquiescence, delay, act, omission or mistake on the part of, or suffered by, the Bank or any other person, in relation to this document or any other Security Interest, document or agreement;
(s) the receipt by the Bank or any other person of any dividend or money after an Insolvency Event in relation to the Customer, the Guarantor or any other person;
(t) any judgment or right which the Bank may have or exercise against the Customer, the Guarantor or any other person;
(u) the opening or operation of a new account by the Customer with the Bank or any other person;
(v) the amendment of the constitution, trust deed or other constituent document of the Customer or the Guarantor;
(w) if the Customer or the Guarantor is a member of a partnership, firm, joint venture or association, any change in the structure, membership, name or business of that partnership, firm, joint venture or association;
(x) if the Customer or the Guarantor is a trustee of a trust, any breach or variation of the terms of that trust;
or
(y) if the Guarantor is a director or shareholder of the Customer, any change in that directorship or shareholding.
12.3 Continuity
This document is a continuing security, and remains in full force until the Guaranteed Money has been irrevocably paid in full and the Obligations have been performed in full despite any transaction or other thing (including a settlement of account or intervening payment).
...
12.6 Limitations on Guarantor's rights
Until the Guaranteed Money has been irrevocably paid and the Obligations have been performed hi full, the Guarantor may not:
...
(e) in reduction of its liability under this document, raise a defence, set off or counterclaim available to itself, the Customer or a co-surety or co-indemnifier against the Bank or claim a set off or make a counterclaim against the Bank; ...
On 2 July 2008 Gadens, acting on behalf of the Bank, wrote to the Directors of Daleport giving notice of a default, in particular that the Company had failed to pay the facilities by the expiry date. That date was originally 28 February 2008, but in a further letter of 19 September 2008 by Gadens to the Directors of Daleport it was pointed out that the Bank had said on 17 April 2008 that it was prepared to extend the term of the facilities to 30 June 2008.
When the facilities were not repaid the Bank commenced these proceedings on 22 October 2008. The last form of the Defences are Further Amended Defences of each of the Defendants filed 19 April 2011.
Defences
In its Defence Daleport denies it is in default because of the matters pleaded in paragraphs 38 to 43A of the Defence. In turn, paragraph 38 incorporates paragraphs 21-24 and 25-28, asserting that the conduct in those paragraphs amounts to unconscionable conduct.
There is considerable detail provided in these paragraphs of the Defence but it may be summarised as follows:
(a) In May 2003 Mr Walton and a Graham Campbell (Daleport's broker) met Bank representatives at a cafe in the Rocks to discuss the refinancing with the Bank of an existing loan Daleport had from Donovan Oates Hannaford secured by the Warwick Farm property;
(b) a property development at Leura was discussed and the Bank indicated it would like to be involved;
(c) In September or October 2004 Mr Campbell told the Bank that Daleport would only refinance a loan from Grenfell Securities with the Bank if the Bank provided the necessary finance for all stages of the Leura development;
(d) Between 9 February 2005 and 12 December 2007 the Bank represented to Daleport that it "would finance all stages of the Leura development and or at the least stage 1 to completion of the Leura development". Representations included a statement that Daleport could ignore the expiry dates in the various loan facilities because the Plaintiff would roll over the facilities when they approached their expiry date or when they expired. The dates given for the making of the representations are said to include numerous times on the telephone between February 2005 and 12 December 2007, in meetings at the Leura site on 1 June 2007, and on Macquarie Links Golf Course on 23 May 2005 and 29 May 2006;
(e) The Bank ratified the representations by rolling over the facilities when they expired and for providing what is said to be "a substantial percentage" of the cost of construction of stages 2 and 3 of the Leura development;
(f) Between 1 June 2007 and 12 December 2007 the Bank did not advise the Defendants that the Bank required all of the facilities to be repaid by 28 February 2008 and that it would not roll over or extend the facilities after that date. The Defendants were so advised of that on 12 December 2007. Further, after receipt by Daleport of a letter of 8 August 2007 from Angus Begg Solicitors, for the Bank, advising that Daleport was in default, no demand was made for repayment, and the Bank subsequently said that Daleport could ignore the letter because the loan facilities would be rolled over;
(g) A meeting was held on 13 February 2008 between Mr Walton and others and Bank representatives because the Defendants had not signed the loan offer of 1 February 2008 which rolled the facilities over to 28 February 2008. Because the Bank said that if the Defendants did not sign the loan offer the Bank would not provide any more funding for the Leura development, Mr Walton felt threatened, financially compelled and forced to sign and accept the loan offer;
(h) All of these matters caused Mr Walton to be of the honest and reasonable belief that the Plaintiff would roll over and extend the facilities until such time as the development at Leura was completed "or in the alternative stage 1 of the development was completed".
As I have said, the matters detailed above are said in paragraph 38 of Daleport's Defence to amount to unconscionable conduct. It is not made clear in the pleading if this is unconscionable conduct in its general law understanding or whether it is some form of statutory unconscionable conduct. However, the better view is that it is not conduct in contravention of statutory provisions concerning unconscionability because paragraphs 41-43A of the Defence make specific reference (albeit wrongly) to ss 51AB and 51AC Trade Practices Act and s 22 Australian Consumer Law - being Schedule 2 of the Competition and Consumer Act 2010 (all of which deal with unconscionable conduct).
In fact these sections (except s 51AC) are not relevant. The conduct concerned predated the enactment of the Competition and Consumer Act 2010 in any event, and Pt IVA of the Trade Practices Act (dealing with unconscionable conduct) does not apply to conduct engaged in relation to financial services - s 51AAB TPA . The making of the loans was the provision of a financial service within the definition of s 4 TPA because it falls within the definition of financial service in s 12BAB Australian Securities and Investment Commission Act 2001.
Otherwise the Defence denies that Daleport is indebted to the Bank because it is said that the terms and conditions are only contractually enforceable in circumstances where the Plaintiff has not acted unconscionably towards Daleport in the manner referred to in paragraphs 38 and 41 - 43A of the Defence and did not act in a misleading and deceptive way in contravention of s 52 TPA and s 18 of the Australian Consumer Law .
Paragraph 44 of Daleport's Defence says that because of the matters pleaded in that Defence Daleport denies that the Bank is entitled to relief, and then claims the following relief as follows:
(a) that the loan facilities be set aside;
(b) the mortgages granted by Daleport to the Bank be set aside; and
(c) relief be granted under s 87 of the TPA as the Court considers appropriate and s 87 Competition and Consumer Act 2010 .
Mr Walton's Defence seeks to incorporate paragraphs 38 to 43A of Daleport's Defence and says by reason of those matters he is not in default.
In answer to paragraph 25 of the Statement of Claim, which pleaded the service of a demand on Mr Walton, Mr Walton said this in his Defence:
In relation to paragraph 25 of the Claim, the Second Defendant denies that he has never received the Notice dated 15 October 2008 and otherwise repeats and relies on paragraph 6 herein.
There seem to be 2 errors about this pleading. The double negative ("denies that he has never received") must be a mistake. Secondly, what was contained in paragraph 6 before it was amended might have been thought to have some relevance to paragraph 25 of the Statement of Claim, but the amended form of paragraph 6 of the Further Amended Defence appears to have no relevance to it. Paragraph 6 now denies paragraphs 23 and 24 of the Statement of Claim and repeats and relies upon paragraph 12 of Daleport's Defence. Paragraphs 23 and 24 of the Statement of Claim alleges that Daleport was indebted to the Bank and had failed to pay the debt. Paragraph 12 of Daleport's Defence denies that it is indebted to the Bank because of the matters pleaded in paragraph 38-43A of its Defence (the complaints of unconscionability).
There is evidence from a person who was previously employed as an administrative assistant at Gadens who, on 15 October 2008, posted a copy of the demand to Mr Walton at the address 19/59 Broadbeach Boulevarde, Broadbeach, Queensland, 4218. That is in fact the address of the property purchased in November 2004 with the facility of $2.5 million from the Bank.
There was abundant evidence of correspondence written by and to Mr Walton at that address from July 2007 (when Mr Walton entered into a lease of that property from Daleport) to 15 December 2008 when Mr Walton said in a letter, "both the Plaintiff and their lawyers are well aware that I currently reside at the above address" which was the address at 19/59 Broadbeach Boulevarde.
I note that although two affidavits of Mr Walton were read at the hearing of the motion, there was no evidence from Mr Walton that he did not receive the demand as he asserts in his Defence.
I am satisfied on all of the evidence that Mr Walton did receive the notice. In any event, cl 14 of the guarantee says that a notice is effective if it is sent by pre-paid mail to the person's address which is the address in the Schedule (a different address from the Broadbeach address) or another address that the person notifies the sender. Mr Walton had written a number of letters to Bank West in August 2008 giving the Broadbeach address as his address and the Bank had responded to the same address. In my opinion, that was a sufficient notification, with the result that the demand was properly served upon Mr Walton even if he did not receive it for some reason.
Cross-Claim
Daleport filed a cross-claim in the proceedings and the final form of this claim was an Amended Cross-Claim filed in August 2009. In the very unfortunate manner of pleading employed by the Defendants in this matter the Amended Cross-Claim merely said that Daleport repeated and relied on paragraphs 1 - 43 of its Amended Defence filed 5 August 2009. That was a forerunner of the Further Amended Defence relied upon on the present application. In substance that Defence was the same as the Further Amended Defence where unconscionability was pleaded by virtue of the same representations now alleged to have been made. Sections 51AB, 51AC and 52 TPA were relied upon, and the final paragraph of that Defence claimed relief in the same terms as the Further Amended Defence with 2 differences. First, the Competition and Consumer Act 2010 was not referred to. Secondly, a claim was made for damages under s 82 TPA.
The Bank sought by Notice of Motion that Daleport provide security for the Plaintiff's costs of that Cross-Claim. On 28 October 2010 Hislop J ordered that Daleport provide security for the Plaintiff's costs in relation to the Amended Cross-Claim in the sum of $60,000 and that the Amended Cross-Claim be stayed until such security was provided: Bank of Western Australia v Daleport [2010] NSWSC 1207. The security was not provided and the Cross-Claim was ultimately dismissed.
In the present Motion the Bank seeks in the alternative that any relief to be granted by the Court to Daleport under s 87 TPA be confined to non-monetary relief. The basis for the seeking of that order is the order made by Hislop J in requiring the provision of security for costs of Daleport's Cross-Claim. Because one of the orders available under s 87(1A) is an order directing a person who engaged in the contravention of one of the provisions of Pt IVA or V to pay the amount of loss or damage suffered, a claim for relief under s 87 contained in the Defence, although otherwise allowable (see Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238 at [11]) would simply be a way of avoiding the requirement to provide security for costs and the consequential striking out of the Cross-Claim when it was not provided.
Mr Ledger, who appeared for the Defendants, submitted that a claim for relief under s 87 could be made in a Defence, and he referred to Bitannia . He also made reference to what was said in Marks v GIO Australia Holdings (1998) 196 CLR 494 at [56], [99] and [151] concerning the wide construction to be given to s 87 and the remedies contained therein. In particular, Mr Ledger referred to what Kirby J said at [151] that "[j]udges should not narrow or confine what Parliament has so amply provided". None of that can be gainsaid.
But any such right is subject to a procedural order which may have the effect of preventing such a claim being brought in a defence or cross-claim. One such order is an order that security be provided for a claim by the Defendant against the Plaintiff in a cross-claim. No-one can suggest that such an order limits the scope of s 87 and its remedies. Similarly, where such a claim is being made in a defence (as Bittania allows), a similar order may be made for security, and if security is not provided the claim may not be able to be made.
In Bank of Western Australia v Daleport Hislop J said at [16]:
In my opinion, the cross claim arises out of the same matters as the claim. However, it extends beyond being purely defensive and seeks to claim substantial damages far exceeding any alleged liability to the plaintiff. That claim will involve the plaintiff incurring costs which it would not have incurred had the cross claim been confined to matters relating to the defence of the plaintiff's claim. The first defendant has become, in substance, a plaintiff to the extent of the damages claimed by it and is, to that extent, susceptible to an order for security for costs. Any such order, however, would not include security for any part of the costs incurred in the defence of the proceedings.
In circumstances where security was not provided for the bringing of a cross-claim, and the cross-claim was dismissed, it would be an abuse of process for a similar claim to be made in a defence. Some of the remedies provided for in s 87 are effectively defensive remedies, but some provide for compensation and damages for contraventions of the Act. The defendants should not be deprived of the benefit of any of the defensive remedies but, where security has not been provided when ordered, It is appropriate that an order should be made limiting any relief under s 87 to non-monetary relief.
Summary judgment
The application for summary judgment must be decided according to the
principles set out in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 - 130.
First Facility Agreement
This was the Facility obtained to refinance a loan from Donovan Oates Hannaford and to provide for some out of pocket expenses and interest on the proposed facility. Daleport was required to reduce the indebtedness by $1 million by 31 October 2003. It did this. Otherwise the Facility was for a 3 year period and was, therefore, repayable by 31 October 2006. It was a condition of the Facility that Mr Walton and Daleport in its corporate capacity provide an unlimited guarantee and indemnity.
Subsequently the First Facility was varied on 9 February 2005 so that it expired on 31 December 2006. It was varied again on 21 November 2006 so that it expired on 30 June 2007. It was varied again on 1 February 2008 so that it was repayable on 20 February 2008. Thereafter it was extended so that it was repayable on 30 June 2008. There was no subsequent variation.
The Defendants resist a judgment in relation to that Facility on the basis that representations were made in relation to the Leura development before and after the facilities were made available for the Leura development. The Defendants say that, because the First Facility was rolled over at the time of the provision of the facilities in relation to the Leura Development and at subsequent roll over dates in relation to the Leura Development, the First Facility is affected by the case the Defendants wish to make in relation to the representations.
It is not clear why the obligations under the First Facility as varied should be affected in any way by reason of those representations. The pleadings do not allege that any representations were made which induced Daleport to borrow the monies the subject of the First Facility, nor that there were any representations which induced the Defendants to guarantee the repayment of the First Facility. The fact that the First Facility was varied by extending its repayment date on a number of occasions at concurrent times with the facilities connected with the Leura Development says nothing about the obligations that the Defendants undertook when the First Facility was obtained and subsequently varied.
If it is assumed that the rollover of the First Facility was tainted by the representations and was set aside as a result (as Daleport claims), then Daleport would be liable to repay the Facility as a result of its repayment date (unaffected by the rollover) being reached.
As far as Mr Walton is concerned even if Daleport had a defence in relation to the First Facility by reason of the representations (which it does not), there is no evidence that Mr Walton relied upon those representations in his role as guarantor: Perpetual Trustee Company Ltd v Michael Wilson Kwok [2011] NSWSC 422 at [34] - [36].
The Bank shows that it lent the funds in the First Facility and that Daleport has not repaid them. It proves that it served a demand upon Mr Walton and that he has failed to pay the monies pursuant to the guarantee. The only defence relied upon by both Defendants is the unconscionability defence arising out of the representations said to have been made in relation the Leura Development.
In those circumstances, no defence to the claim under the First Facility is demonstrated by either Defendant and the Plaintiff must be entitled to summary judgment in relation to that Facility.
Home Loan advance
The Bank lent to Daleport $2.5 million to purchase the Broadbeach property. The term of the loan was for 30 years and was repayable by monthly instalments. It was a term of the home loan advance that the facility would be in default if Daleport breached any other contracts it had with the Bank, and would be in default if a receiver was appointed to Daleport. Daleport does not dispute those matters in its defence but says that the contract is only enforceable in circumstances where the Bank has not acted unconscionably, nor engaged in misleading and deceptive conduct. Such an assertion involves implying such a term into the home loan contract between the Bank and Daleport.
It does not seem to me that the implication of such a term satisfies the business efficacy test. This is particularly so where a party has a right both at general law and under statute to resist the enforcement of a contract by virtue of some behaviour on the part of the other party that is said to be wrongful. So, if the Bank has acted unconscionably or engaged in misleading and deceptive conduct the Defendants here would, or may, have remedies such as those provided in s 87(2) TPA or some similar remedy under the general law. There would be no need in those circumstances for the courts to imply a term into the contract which amounts to a negative covenant preventing enforcement in those circumstances.
The representations in relation to the Leura Development are not alleged to have been made until 9 February 2005 at the earliest. The pleadings do not allege any representations in relation to the Home Loan Facility. However, the justification for the relief sought by the Bank in relation to the Home Loan Facility is the breach or breaches in relation to other facilities with the Bank. If, therefore, there is a triable issue in relation to a breach of those facilities, the Bank will not show that there has been a breach in relation to the Home Loan Facility until those issues have been determined.
What is clear, however, is that there has been a breach in relation to the First Facility. It was rolled over a number of times but, ultimately, was not repaid on the last date for its repayment being 1 June 2008. That may or may not have entitled the appointment of a Receiver to Daleport (one of the breaches relied upon), but there was certainly a breach in the failure to repay the principal sum borrowed. In those circumstances, and where I have held that the First Facility was not affected by the representations concerning the Leura Development, the demand in respect of the Home Loan Facility was properly made. No other defence in relation to the Home Loan Facility is pleaded. In those circumstances the Bank is entitled to judgment in relation to that Facility.
That was also a Facility guaranteed by Mr Walton. He has no other defence to this claim, and the Bank is entitled to judgment against him in relation to the Home Loan Facility.
Bank Guarantee Facility
This was entered into on 9 February 2005 and was repayable on demand. On 19 September 2008 a demand was served for its repayment. It has not been repaid. Daleport admits that a demand has been made but says the demand was not lawful because of the matter set out in paragraphs 38 - 43A of the Further Amended Defence.
It is not clear how the allegations of unconscionability, and misleading and deceptive conduct have any relationship to the Facility. They were said to relate to matters concerning the Leura Development and alleged failures to roll over the facilities. This Facility, repayable on demand, can scarcely be affected by such allegations. A facility repayable on demand cannot be rolled over. It remains in place until a demand is made. That is what happened.
There is no defence to the claim under this Facility and the Bank is entitled to judgment.
Second and Third Facilities
The allegation in the Statement of Claim about the provision of these Facilities is contained in paragraph 8. Daleport's Defence simply denies the allegations. The Bank proves clearly that these Facilities were entered into as alleged on that day. The denial is difficult to understand and should not be allowed to remain in any amended Defence.
Daleport further defends the claim in relation to the Second and Third Facilities by reference to the representations that I have mentioned, alleging that the Bank's conduct in relation to them was unconscionable. Although the pleadings are inadequate for the way they are set out and expressed, it is tolerably clear that the allegation is that representations were made from about, or immediately before, the entry into the Second and Third Facilities in about February 2005.
The Bank argues that by reason of the terms of the Facility Agreements, and in particular cl 10 of the Facility Terms (para [6] above) and cl 9.1 of the General Terms for Business Lending (para [7] above) the complaints of Daleport about representations and unconscionability cannot remove the obligations of Daleport under those conditions and particularly cl 9.1. That is, the Bank says that Daleport has agreed absolutely and unconditionally to discharge its obligations to the Bank under the Facilities without reference to any rights of setoff or counter-claim. The Bank argues that my judgment in Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 and the decision of Bryson J in GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 11 BPR 20,529 at [93] - [99] should be applied analogously with the result that Daleport must repay the Facilities and have any claims it makes arising out of these representations determined separately and at a later time.
I do not consider that the position is sufficiently analogous to that of the guarantors in AGB Developments . If all that Daleport was doing was claiming damages for the representations made, or even some sort of reduction in what it should have to pay (the latter does not appear to be made) there would be some strength in what the Bank argues. A few things suggest that the issue does not concern a cross-claim for damages or a claim that diminishes what is owing. First, the Trade Practices Act gives statutory rights and remedies in relation to breaches of s 52, and the ASIC Act gives similar remedies in relation to unconscionable conduct. Some of those remedies (as I have discussed above when dealing with the cross-claim) involve the setting aside of contracts or some other order that takes account of the representations and/or the unconscionable conduct.
In the first place the statutory rights and remedies cannot be ousted by contract. Further, if the remedies might have the effect of impugning the arrangements (at the most extreme, by declaring them void or setting them aside) that cannot be seen as a setoff or a counter-claim. Daleport is entitled to rely on its statutory remedies in a way that can be said not to be a setoff or counter-claim. It is possible, if Daleport makes out a case based on the representations or based on some unconscionability, that the Court could make an order that sets aside the contracts of loan or otherwise varied them in some way. The order made might be one which goes beyond merely reducing any amount that has to be paid. To require Daleport to pay in full any amount the Bank claims is owing would result in the clause in the Agreement that entitled such a payment overriding the statutory rights given to Daleport under the Trade Practices Act and the ASIC Act . This is because the orders that might be made under s 87 TPA and equivalent statutory provisions might be orders that impugn the Agreement from the outset rather than merely giving rights to damages or some other form of compensation as a result of the breaches alleged.
Secondly, when Hislop J made the security for costs order in relation to the cross-claim he drew a clear distinction between what were purely defensive matters on the one hand and matters that went beyond defensive matters where damages were sought (set out in para [42] above). That suggests to me that his Honour had in mind that any claim for relief under s 87 and similar sections which did not involve a claim for damages or compensation but went only to the defence of the claim were not prevented by a failure to provide the security ordered. It was for that reason that I earlier determined that the Defendants should not be deprived of the benefit of any of the defensive remedies, but should only be prevented from making claims for damages or compensation.
Thirdly, even if (as seems likely from the pleading) Daleport is chiefly relying on general law remedies (and to the extent that it is), those remedies might themselves result in the setting aside of some or all of the arrangements between the Bank and Daleport. Whilst it is unlikely that equity would do that without imposing an obligation on Daleport to refund or pay some moneys to the Bank, that seems to be a matter which must be determined at a final hearing. Whether the particular clauses in the Facility Agreements (such as clause 9.1 (e) and its later equivalents) would operate in such a way that would preclude a court from permitting something less than full repayment is also something which must be determined at a trial after all of the evidence is heard.
An alternative way of expressing these matters is to say that Daleport has an arguable case that it has statutory rights and remedies under the various Acts mentioned, and rights under the general law, which go beyond a damages claim and beyond a setoff or counter-claim as referred to in cl 9.1 of the Agreement.
I cannot forebear from observing that, if the evidence contained in Mr Walton's affidavit filed 3 February 2011 is the totality of the evidence in support of the representations, the case in that regard would appear to be a fairly weak one. It seems to consist of what was said by Mr Walton to the Bank Manager or what Daleport's agent Mr Campbell said to the Bank Manager, coupled with the expectations that the Defendants had in relation to what the Bank would do. However, I cannot say that the defence case is so obviously untenable that it cannot possibly succeed nor that it can be described in the other ways set out in General Steel Industries at 129. Accordingly, the Bank is not entitled to summary judgment in respect of the Second and Third Facilities.
As far as the claim in relation to these facilities against Mr Walton as guarantor is concerned, two things are clear. The first is that the guarantee was entered into before the representations were made. Secondly, the representations were not made to Mr Walton as guarantor but were made to the principal debtor Daleport in its capacity as trustee of the Walton Family Trust. Certainly, it is not pleaded in Mr Walton's Defence that the representations were made to him as guarantor.
The issue concerning Mr Walton is whether, because Daleport has an arguable case with respect to the representations of unconscionable conduct concerning the Second and Third Facilities, that operates to the benefit of Mr Walton because he is guaranteeing the payment of money by Daleport and the performance of its obligations.
In Davis Bryson J made clear that although the obligation of a guarantor to the principal creditor arises under the contract of guarantee made between them, Equity extended its protection to the guarantor so that the guarantor could raise an equitable defence, in part or in whole, against a claim for its contractual liability. His Honour went on to say at [85]:
The obligation of the guarantor to the principal creditor arises under the contract between them; however protection extended in Equity to the guarantor has the effect that the guarantor can raise an equitable defence in part or in whole against a claim for its contractual liability. The protection extended to the guarantor in Equity is related to the guarantor's right to be subrogated to the rights of the principal creditor against the security if the guarantor pays out all the secured debt. The protection extended in Equity may have had its origin in this right of subrogation. The availability of protection is subject to any provision in the contract between the guarantor and the principal creditor which qualifies or limits the guarantor's rights; in this case the qualification is of high importance, because of provisions of the guarantee with which I will deal. The guarantor cannot complain of any conduct of the creditor, or of any dealing with the secured security property which was authorised by the terms of the contract of guarantee, or by the terms of the security granted by the debtor.
Similarly, the Court of Appeal in Graeme Webb Investments Pty Limited v St George Partnership Banking Limited [2001] NSWCA 93 at [90] said that a surety's equitable rights are subject to the terms of the contract between the creditor and the surety.
It must first be determined whether, as a matter of principle, that position applies to a guarantor where statutory rights given to a principal debtor. In other words, does the giving of statutory rights, such as I have discussed, to the principal debtor benefit a guarantor so that the guarantor ceases to be subject to the guarantor's obligations under the guarantee and, particularly, those obligations such as those that I have set out in para [20] above? In my opinion they do not.
In their terms, the statutory provisions seek to prohibit certain behaviour by making it wrongful. Such behaviour relevantly includes engaging in misleading and deceptive conduct and unconscionable conduct.
In the present case the making of the representations (effectively said to be misleading and deceptive) are said to amount to unconscionable conduct towards Daleport. They are nowhere said to have been unconscionable conduct towards Mr Walton.
Accordingly, the only way Mr Walton can derive any benefit or advantage in the proceedings from the unconscionable conduct towards Daleport is if Equity extends its protection to the guarantor so that he can raise an equitable defence by pointing to the wrongful conduct towards Daleport. As Bryson J makes clear the extension of that protection is related to the guarantor's rights to be subrogated to the rights of the principal creditor. Ordinarily that right of subrogation would not arise until there has been payment of the debt by the guarantor. But in any event, the guarantor's rights in that regard are subject to the terms of the guarantee that he has given.
For similar reasons to those given by Bryson J in Davis in relation to clauses 8.1, 9.1 and 9.2 of the guarantee in that case (set out in paras [17] and [18] of Davis ) and for similar reasons I gave in Permanent Custodians v AGB Developments concerning the clauses in that guarantee (set out in para [46]), the relevant provisions of the guarantee in this case effectively preclude the guarantor being able to rely on any statutory rights given to the principal debtor. I draw attention, in particular, to cl 12.1(a) and cl 12.2(l), (m), (n) and (p) as well as cl 12.6(e).
Further, nothing in legislation like the TPA states, or suggests, that the ordinary law and principles concerning guarantors is affected by the protection offered to persons and companies in the position of a principal debtor. The rights of a guarantor continue to arise (here) by subrogation when the guarantor pays the debt owed by the principal debtor and they remain subject to the terms of the guarantee.
The result is, therefore, that Mr Walton has no defence to the claim based on the Second and Third Facilities and the Bank is entitled to summary judgment in respect of those Facilities.
Further conduct of the matter
Although the matter should proceed to a final hearing in relation to any defence concerning the Second and Third Facilities, the matter should not proceed on the present pleading. Daleport acknowledges that it cannot rely on those paragraphs referred to in paragraph [2] above. Subject to hearing from the Bank about any prejudice it could suffer I would be minded to allow an amendment to enable Daleport to rely on the unconscionability provisions of the ASIC Act.
The denial in relation to the provision of the Second and Third Facilities may not be pleaded. It is clear that the only real issue concerns representations associated with those Facilities which are said to constitute unconscionable conduct.
Further, the quite unsatisfactory cross-referencing between pleadings, some of which have, in any event, been superseded, should be removed from any new pleadings filed. Any relief claimed is limited to non-monetary relief, and the nature of the relief is to be specified.
I make the following orders and directions:
(1) The parties should bring in Short Minutes to reflect these reasons.
(2) The Plaintiff is given leave to tender any further certificates showing how much is owing in respect of the facilities for which summary judgment is to be given.
(3) The First Defendant is given leave to serve (but not file) any proposed amended Defence within 14 days.
(4) The Plaintiff is to advise the First Defendant within 7 days thereafter if there is any objection to the filing of that Defence. If there is no such objection the Defence is to be filed within a further 7 days.
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Decision last updated: 04 November 2011
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