Bendigo and Adelaide Bank Ltd v Weaver
[2012] VCC 36
•28 March 2012
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted |
AT MELBOURNE
COMMERCIAL LIST
BANKING & FINANCE DIVISION
Case No. CI-11-00721
| BENDIGO AND ADELAIDE BANK LIMITED & ANOR | Plaintiffs |
| v. | |
| KAREN WEAVER | Defendant |
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JUDGE: | HIS HONOUR JUDGE ANDERSON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 & 25 January 2012 | |
DATE OF JUDGMENT: | 28 March 2012 | |
CASE MAY BE CITED AS: | Bendigo & Adelaide Bank Ltd & Anor v Weaver | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 36 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure – Application to file amended defence and counterclaim – Whether proposed pleading adequately particularised and disclosed causes of action.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D.C. Gration | Turks Legal |
| For the Defendants | Mr R. Newlinds SC with Mr P. Newton | ERA Legal |
HIS HONOUR:
1 In a series of proceedings brought by Bendigo and Adelaide Bank Limited to recover advances made on behalf of investors in various Great Southern managed agricultural investment schemes, the defendants, including Karin Weaver in this proceeding, seek leave to file amended defences and counterclaims. The application for leave relates to a proposed pleading in each proceeding headed “Fourth Amended Defence & Counterclaim”.
2 On 26 August 2011, His Honour Judge Lacava ordered that earlier versions of the pleadings be struck out on the basis that they were embarrassing and did not disclose a cause of action. In paragraphs 15-17 of His Honour’s written Reasons for Decision, he set out the “three principal bases” upon which the defendants sought relief against the plaintiffs (defendants by proposed counterclaim) as follows:
a) relief sought under s.1022C of the Corporations Act 2001 (Cth);
b) relief on the basis that the loan deed relied upon by the plaintiffs was unconscionable or alternatively the second plaintiff (ABL) had engaged in unconscionable conduct;
c) breach of fiduciary duty.
3 Essentially, Judge Lacava determined that none of the causes of action had been adequately pleaded either because of the absence of a necessary party, the lack of appropriate particulars or because the cause of action was unsustainable. Mr Newlinds SC (with whom Mr Newton appeared) for the defendant in each proceeding submitted that the proposed fourth amended pleading addressed each of the matters decided by His Honour. He submitted that the present application did not involve the Court reaching a decision which might conflict with the determination of Judge Lacava.
4 Mr Newlinds submitted that the nature of the counterclaim now pursued was in substance significantly different from that discussed in the hearing before Judge Lacava. It is necessary, therefore, to first articulate the nature of the claim now made by the defendant before determining whether the particularisation of the claim and the basis of the claim are adequate for the dispute to proceed to trial.
First claim: Section 1022C Corporations Act 2001 (Cth)
5 Before His Honour Judge Lacava, it was submitted by the plaintiffs that before a claim could be made for orders pursuant to s.1022C (declaring the loan deed void or otherwise unenforceable and, after setting aside the deed, ordering the repayment of all monies advanced pursuant to the deed) it was necessary for an action to be brought against the person liable for the relevant product disclosure statement, namely, Great Southern Managers Australia Ltd (in liquidation). The defendant has since obtained the necessary leave to proceed against the company in liquidation. Accordingly, the principal impediment to the defendants proceeding with this claim has been removed.
6 Further, in Clarke v Great Southern Finance Pty Ltd [2010] VSC 473, Croft J considered the appropriateness of the issue being “determined as a preliminary question under Rule 47.04…rather than in the course of an application to strike out the Statement of Claim under Rule 23.02”. At paragraph 42, he concluded that he was “not satisfied in the context of the present application that it can be said that the…claim…based as it is on the operation of s1022C, is untenable and should be struck out”. He considered that, if the issue were “to be pursued further it should be the subject of an application under Rule 47.04 and argued fully utilizing the preliminary question procedure”.
7 The present version of the pleading asserts that “representations” were made by Great Southern Managers Australia Ltd in the product disclosure statement (paragraph 9), and that the representations constituted “misleading or deceptive conduct” (paragraph 17) for the purposes of s.1022A of the Corporations Act.
8 Although these pleadings form the basis of the claim based on the Corporations Act, the particularisation of the claim requires attention in the following respects:
a) in relation to each of the representations alleged in paragraph 9, the defendant should identify the relevant part or parts of the product disclosure statement which are said to constitute the representation;
b) in relation to the allegation in paragraph 17 that the product disclosure statement was defective because of the misleading and deceptive nature of those representations, the defendant should identify in relation to each representation the respect in which it is alleged each particular representation was misleading or deceptive. At present, paragraphs (i) to (xix) of the particulars to paragraph 17 are not related to any particular representation.
9 During the course of the hearing before me, Mr Newlinds and Mr Newton produced overnight a document detailing the specific pages of the product disclosure statement relied upon as each relevant representation. It is likely that the defendant should not have any difficulty providing the required particulars.
Second claim: Unconscionable conduct
10 The defendant alleges that the loan deed upon which the plaintiffs sue in the proceeding should be set aside as “unjust and unconscionable in the circumstances relating to it at the time it was made” and because the conduct of ABL “in executing the loan deed on or about 27 April 2009 was unjust and unconscionable”. The defendants rely upon ss.51AA, AB and AC of the Trade Practices Act 1974, ss.20-22 of the Competition and Consumer Act 2010 and ss.12CA, CB and CC of the Australian Securities and Investments Commission (ASIC) Act 2001. Claims of this nature under the Trade Practices Act and the Competition and Consumer Act would appear to be specifically excluded, in respect of the provision of financial services, by s.51AF of the Trade Practices Act and s.131A of the Competition and Consumer Act. The claim under the ASIC Act does not, however, have a similar restriction.
11 Before His Honour Judge Lacava, this claim was pleaded against ABL on the basis that ABL “knew and approved or ought to have known” of the relevant representations. At that stage, the representations were not simply the statements in the product disclosure statement which are now relied upon, but also included unparticularised oral statements allegedly made “at a presentation at the Sofitel Hotel in Melbourne on or about 28 February 2008”. The pleading and particularisation of the claim in that form was clearly deficient.
12 The present proposed pleading (with the further abandonment of paragraphs 22(c) and 26) simply alleges:
a) ABL knew about the representations because it must have known that the Corporations Act required a product disclosure statement to be given by Great Southern Managers Australia Ltd when it offered a financial product to a potential investor and because ABL had negotiated with Great Southern Managers Australia Ltd to become a preferred financier for the purposes of the product disclosure statement;
b) the representations included statements concerning the financial strength of Great Southern Managers Australia Ltd and its capacity to complete the long-term agricultural projects comprising the investment schemes;
c) the loan deed was executed on 27 April 2009. It was executed on behalf of ABL by attorneys from Great Southern Finance Pty Ltd, whom ABL had appointed for that purpose. It was executed on behalf of the defendant by persons also from Great Southern Finance Pty Ltd, whom the defendant had appointed as her attorney for that purpose in her loan application;
d) the relevant persons who executed the loan deed were:
i. for ABL, Mr Bruno Romeo and Mr Graeme Perich; and
ii. for the defendant, Mr Cameron Rhodes and Mr Neil Hackett;
e) the date of execution of the loan deed, 27 April 2009, was less than one month before administrators were appointed to Great Southern Managers Australia Ltd and Great Southern Finance Pty Ltd. The companies were wound up on 19 November 2009;
f) because of the respective positions with the Great Southern companies of the attorneys who executed the loan deed on behalf of ABL and the defendant (Mr Rhodes as a director of Great Southern Managers Australia Ltd and other Great Southern companies and as a member of the executive committee of the Great Southern Group responsible for corporate strategy and operational performance of the group, and Mr Romeo as the finance manager of Great Southern Managers Australia Ltd and responsible for Great Southern Finance Pty Ltd in providing finance to investors and securitisation of its loan portfolio), it must reasonably be inferred that they would have known when they executed the loan deed that the representations contained in the product disclosure statement (upon the basis of which the defendant entered into the investment and made application for finance for the investment from ABL) were misleading and deceptive and the investment schemes must inevitably fail.
13 The loan deed is alleged to be unconscionable because of the circumstances in which it was executed, namely:
a) it was executed on behalf of both ABL and the defendant by attorneys on their behalf. Two of the persons executing the document, Rhodes and Romeo, were persons holding senior positions in the Great Southern Group companies;
b) it is probable, in view of the financial difficulties the Great Southern Group companies found themselves in shortly after the deed was executed, that at that time, those persons knew that the statements made in the product disclosure statement about the successful realisation of the agricultural investment schemes, could not possibly be achieved; and
c) it was unconscionable for these persons to have disregarded the interests of the defendant and to have executed the loan deed.
14 To succeed in this defence, a number of matters would need to be established:
a) that the product disclosure statement contained information or assertions about the likelihood of financial returns based upon the successful management of the scheme over a number of years;
b) that the attorneys who executed the loan deed on behalf of both ABL and the defendant knew at the time the deed was executed:
i. the product disclosure statement contained statements to that effect;
ii. the successful completion of the agricultural scheme depended on the ongoing financial stability of the operator and manager;
iii. the defendant must have relied upon the statements in the product disclosure statement in making her decision to invest in the scheme and to borrow money for that purpose;
iv. the operator and manager of the agricultural scheme was in serious financial difficulties and accordingly, the agricultural schemes had no possibility of being successful; and
v. the defendant would be severely prejudiced by the execution of the document.
c) that Rhodes and Romeo had the requisite knowledge, and that information gained in other capacities could be imputed to them for this purpose.
d) that the execution of the loan deed was significant in terms of the defendant’s obligations to repay ADL, although the defendant had signed a loan application and ADL had probably advanced money at an earlier time to enable the defendant to participate in the scheme.
15 Notwithstanding the difficulties the defendant may have in establishing these matters, I consider that there are issues of fact and law which, if properly articulated, should be permitted to be determined at trial. However, at present, the draft pleading is in a most unsatisfactory state. The claim is now very different to the way in which it was earlier drafted. Much of the factual basis of the earlier claim is now redundant as it has no relevance to the very limited claim now advanced. This includes the reference to earlier paragraphs and particulars in the pleading which are no longer relied upon. Unless and until the present draft pleading is stripped of this irrelevant material, it should not be allowed to proceed.
Third claim: breach of fiduciary duties
16 Because of the circumstances in which the loan agreement was executed, the defendant alleges that the attorneys breached the fiduciary duty owed to her. The relevant circumstances relied upon are as follows:
a) the power of attorney was executed by the defendant as part of the application for finance;
b) the defendant retained the right to revoke the power of attorney;
c) when the attorneys executed the loan agreement on behalf of the defendant, Mr Rhodes knew that it was contrary to the defendant’s interests to execute the document as the financial position of the Great Southern companies was so precarious that the agricultural schemes in which the defendant had invested must inevitably fail.
17 The critical issue for determination is whether the terms of the power of attorney imposed fiduciary obligations on the part of the attorneys which might have led them to refuse to execute the loan agreement. Ordinarily, it would be expected that the purpose of having an applicant for finance appoint attorneys with the power to execute documents in her name, would be to enable the completing or perfecting of the security documentation. Invariably, the completing or perfecting of that documentation would rarely be for the benefit of the appointer. The appointment would usually be to ensure that the attorney is a person who will exercise the power in the interests of the other party to the agreement, in this case the finance provider.
18 The Loan Application signed by the defendant on 24 April 2008 noted in section 7 of the “Checklist for applicants”, that “the applicants…are not required to sign the loan deed attached to this application (and other documents connected with, or related to, the loan deed) as the loan deed will be completed and signed by the lenders (or the lenders’ attorney) as attorney for the applicants…”.
19 The Loan Application in section 7 contained a power of appointment authorising attorneys to “enter into and execute a loan deed or loan deeds in the form attached to this finance application (Loan Deed) on behalf of the Appointer”. By clause (c), “The Appointer authorises the Attorney to exercise the powers under the Power of Attorney even if the exercise of that power involves a conflict of interest”.
20 By clause (e), “The Power of Attorney granted by way of the Appointer’s signature on this finance application will remain in full force and effect until notice of the death of the appointer or notice of the revocation of the Power of Attorney is received by the Attorney”.
21 The defendant submitted that the fact that the power might be revoked was significant. A provision that the power could not be revoked would support the conclusion that it was not the appointing party’s intention that any exercise of the power must take account of the interests of the appointer. In this case, the defendant submitted that the reverse proposition must also hold, that the fact that the power might have been revoked before it were exercised, leads to the conclusion that the attorneys owed a fiduciary duty to the appointer.
22 Mr Newlinds relied upon statements in the New South Wales Supreme Court –
a) In Cordiant Communications (Australia) Pty Ltd v. The Communications Group Holdings Pty Ltd [2005] NSWSC 1005, Palmer J at paragraph 152 stated: “An irrevocable power of attorney, by its very nature, is very different from a revocable power of attorney whereunder the donee is constituted the agent of the donor and has fiduciary duties of loyalty to the donor”.
b) In Saad v. Doumeny Holdings Pty Ltd [2005] NSWSC 893, Burchett AJ at paragraph 24 referred to a power of attorney as “a species of agency” and the general rule that “requires the agent to give an exclusive allegiance to his principal and to promote his interests with singleness of purpose” and (at paragraph 25) not to depart “from his duty of undivided loyalty to his principal’s interests [and] to place his own view of economic reasonableness ahead of his allegiance to his principal”.
23 For the purposes of determining whether this counterclaim should be summarily dismissed, I consider it appropriate to assume that, by executing the Loan Agreement, Mr Rhodes and Mr Romeo, as the attorneys for the defendant and ABL respectively, knew that the defendant was being bound to an agreement to repay the monies she had borrowed to invest in an agricultural project which was likely to fail because of the financial position of the Great Southern companies which would not have the capacity to carry the project through to successful completion. I am also prepared to assume that, for the purposes of executing the loan agreement as attorneys under power, the knowledge of Romeo was to be imputed to ABL.
24 Notwithstanding these assumptions, I consider that this counterclaim has no real prospect of success for the following reasons:
a) the loan agreement did no more than provide additional formality to the obligations already assumed by the defendant by executing the application for finance, pursuant to which funds were advanced at the request of the defendant for the purposes of the agricultural scheme. Paragraph 5 of the statement of claim asserts that, “On or about 15 June 2008, the Second Plaintiff [ABL] loaned the defendant the sum of $109,444.50 (the Loan] pursuant to the Loan Deed”. This pleading may require amplification to refer to the basis upon which the monies were advanced in June 2008;
b) the loan agreement was executed as a more formal document to allow ABL to pursue its right of repayment against the defendant in respect of the advances made on her behalf. This was clearly stated in the loan application as the purpose for which the defendant was required to execute a power of attorney;
c) notwithstanding the right of the defendant to revoke the power of attorney before the attorneys had exercised their powers (including the execution of the loan agreement on behalf of the defendant), this should not, in my view, affect the abilities of the attorneys to exercise the powers granted by the defendant, including executing the loan agreement on her behalf. This had been anticipated in the loan application signed by the defendant. Accordingly, I do not consider that there is any real prospect of this part of the defendant’s counterclaim succeeding. Leave will not be given allowing the pleading of such a claim to be made.
Conclusion
25 The defendant will again be given the opportunity to deliver a further proposed amended defence and counterclaim in line with the decisions I have reached. The proposed amended pleading will be permitted to be filed unless the plaintiff objects that the document contains allegations and particulars which are not appropriate or sufficient for the claims which have been permitted to proceed.
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Certificate
I certify that these 9 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 28 March 2012.
Dated: 28 March 2012
Caroline Dawes
Associate to His Honour Judge Anderson
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