C2C Investments Pty Limited v Commonwealth Bank of Australia
[2013] NSWSC 256
•27 March 2013
Supreme Court
New South Wales
Medium Neutral Citation: C2C Investments Pty Limited & Ors v Commonwealth Bank of Australia [2013] NSWSC 256 Hearing dates: 18 March 2013 Decision date: 27 March 2013 Jurisdiction: Common Law Before: Slattery J Decision: Defendant's motion for summary judgment fails. But its motion under UCPR r 14.28(1) results in statement of claim being struck out with liberty to replead. The Second and Third Plaintiffs' motion for a stay of the Bank's prior judgments adjourned until the Second and Third Plaintiffs provide a draft amended Statement of Claim, when the full terms of the Stay will be decided. In the meantime a stay is granted.
Catchwords: PROCEDURE: Defendant Bank seeks summary judgment against the plaintiffs under Uniform Civil Procedure Rule r 13.4(1)(b) and (c) and for the plaintiffs' pleadings to be struck out under UCPR r 14.28(1)(a) and (b). Second and Third Plaintiffs seek a stay of the Bank's money judgment in certain earlier proceedings. Legislation Cited: Uniform Civil Procedure Rules 2005, Corporations Act (Cth) 2001, Civil Procedure Act 2005, Supreme Court Act 1970 Cases Cited: C2C Developments v Commonwealth Bank of Australia [2012] NSWSC 1162; Stafford and Anor v Kekatos and Anor [2008] NSWSC 810; Macatangay v State of New South Wales (No.2) [2009] NSWCA 272; Macquarie Generation v Hodgson [2011] NSWCA 424; Kuligowski v Metrobus [2004] HCA 34, (2004) 220 CLR 363; Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Webster v Lampard (1993) 177 CLR 598; AWA Ltd v Exicom Australia Pty Ltd(1990) 19 NSWLR 705; GE Capital v Davis [2002] NSWSC 1146 Category: Interlocutory applications Parties: C2C Investments Pty Limited (First Plaintiff)
C2C Developments Pty Limited (Second Plaintiff)
Geoffrey Anthony Shannon (Third Plaintiff)
Linda Shannon (Fourth Plaintiff)
Commonwealth Bank of Australia (Defendant)Representation: Counsel:
S Lipp (Second and Third Plaintiff)
P Newton, A Kaufmann (Defendant)
Solicitors:
Platinum Lawyers (Second and Third Plaintiff)
Gadens Lawyers (Defendant)
File Number(s): 2012/293690
Judgment
The Court is hearing competing motions in these proceedings. A bank moves to strike out a statement of claim that its former customers bring for an account and for damages. And the former customers move to stay the bank's existing judgment debts against them. In the result, neither motion is wholly successful.
Since about 2004 Geoffrey and Linda Shannon through two family companies have developed commercial properties and operated businesses in the Taree-Forster district. Bank West provided banking facilities to these family entrepreneurs and their corporate entities. But in 2008 the Shannon parties defaulted on the facilities, so in 2009 the bank brought two proceedings against them, as lender for debt and as mortgagee to recover the properties securing the facilities. Those two proceedings settled in 2010 with the entry of judgment for agreed sums. The bank then caused the sale of most of the security properties. Later, in 2012, the Shannon parties commenced the current proceedings, alleging that the bank had failed in duties it owed them when selling the security properties.
The parties bring their presently competing motions across all these various proceedings. The bank brings its strike out motion in the current proceedings. The Shannon parties bring their stay motions against enforcement of the judgments in the two settled proceedings.
The Commonwealth Bank of Australia has now assumed all Bank West's rights and obligations and is either the judgment creditor or the defendant in these various proceedings. It is convenient in these reasons simply to refer to it as "the Bank".
Mr Newton and Mr Kaufman of counsel appeared for the Bank and Mr Lipp appeared for the two represented Shannon parties.
This bare outline introduces a more complex commercial and procedural history. But despite that greater complexity, should this matter go to final hearing on the predicted issues, it should be fully heard within no more than two hearing days. As will be explained later in these reasons, if some of the plaintiffs' pleading survives the strike out motion there is much to be said for making a single set of pre-trial directions and referring this matter for the fixing of a date for hearing.
Two Facilities go into default
In September 2004 the Bank provided separate loan facilities to Mr and Mrs Shannon's companies, C2C Developments Limited ("Developments") and C2C Investments Pty Limited ("Investments"). The Bank provided a consumer loan facility to Developments, secured by registered mortgages over three properties Developments then owned near Taree: a property at Iluka Circuit, Taree ("the Iluka Property"), a property at Manning River Drive, Taree ("the Manning River Property") and a property in Harrington ("the Harrington Property").
In October 2004 the Bank also provided a consumer loan facility to Investments. This facility was secured by a registered mortgage over a property Investments then owned on Chapmans Road, Tuncurry ("the Chapmans Road Property"). These mortgaged properties will be referred to collectively as "the Properties".
In conformity with the Court's policy of reducing the risk of identity theft arising from publication of its judgments, the precise addresses of the Properties and the account numbers of the respective loan facilities are not recorded in these reasons.
Mr and Mrs Shannon executed guarantees securing the loan facility to Developments. They also executed other guarantees of the Bank's loan facility to Investments.
Investments and Developments failed to make due repayments and each defaulted under their respective loan facility in December 2008. Mr and Mrs Shannon in turn failed to pay on the Bank's demand to them as guarantors of the facilities and therefore defaulted under their respective guarantees.
In November 2009 the Bank commenced proceedings against Developments as borrower on its facility and Mr and Mrs Shannon as guarantors ("the Developments Proceedings"). At about the same time the Bank commenced separate proceedings against Investments as the borrower on the other facility and against Mr and Mrs Shannon as guarantors ("the Investments Proceedings"). In each of these proceedings the Bank sought a money judgment against the respective company as borrower, and against the Shannons as guarantors, and the Bank sought orders for possession of the Properties, owned respectively by Developments and Investments.
Mrs Shannon filed a Defence in both the Developments Proceedings and the Investments Proceedings, raising defences under the Code of Banking Practice and under the general law. But the other defendants did not file defences before all the parties reached a settlement. On 28 September 2010 this Court entered judgments by consent in the Developments and Investments Proceedings ("the Consent Judgments") totalling $1,571,958.88.
The Consent Judgment in the Investments Proceedings provided:-
1. The Plaintiff be given possession of [the Chapmans Road Property].
2. Judgment in favour of the plaintiff against [Investments] and [Mr Shannon] in the amount of $419,386.46 being the amount owing under the Agreement as at 10 September 2010.
The Consent Judgment in the Developments Proceedings provided:-
1. Judgment in favour of the plaintiff against [Developments] and [Mr Shannon] in the amount of $1,152,572.42 being the amount owing under the Agreement as at 10 September 2010.
The expression "the Agreement" in the Consent Judgments, is defined in the Statement of Claim in each of the Developments and the Investments Proceedings, as respectively the Investments' loan facility and the Developments' loan facility.
Mrs Shannon was treated differently from the other parties in the September 2010 settlement: Mrs Shannon's defence was struck out in both proceedings; and no Consent Judgment was immediately given against her. But as part of the overall settlement then achieved the Bank received executed Consent Judgments from her in both proceedings in the same form as the two Consent Judgments entered against Mr Shannon. The Bank held Mrs Shannon's executed Consent Judgements in escrow, pending compliance with the other terms of the September 2010 Settlement.
The September 2010 settlement was reached in an exchange of correspondence between the parties' lawyers. It provided for an immediate sale of the Chapmans Road Property as well as for Mrs Shannon's escrow position in the following terms:
The Consent Judgments against Mrs Shannon be held in escrow, and the judgments to be entered against C2C Investments Pty Ltd, C2C Developments Pty Ltd and Mr Shannon will not be enforced provided your clients comply with the following conditions:
a. By 5.00 pm on Monday, 27 September 2010, your clients to provide our office with a copy of the proposed contract for sale (and any special conditions) for the [Chapmans Road Property].
b. By 5.00 pm on 30 September 2010, contracts for the sale of [Chapmans Road Property] must be exchanged on terms and at a price acceptable to our client.
c. If contracts are not exchanged by 5.00 pm on 30 September 2010, your clients to deliver vacant possession of the [Chapmans Road Property] by 5.00 pm on 1 October 2010.
d. Following the sale of [the Chapmans Road Property] and [Manning River Property] your clients are to pay any shortfall in respect of [Investments' loan facility] and [Developments' loan facility] within 3 months.
To satisfy the September 2010 settlement conditions (a) and (b), Investments entered into a contract to sell the Chapmans Road Property for $320,000 within the time allowed. But the proposed purchaser was a company that the Shannons' then solicitor controlled. The Bank did not accept this as an "arm's length" transaction. The Bank took the view that conditions (a) and (b) were not satisfied within the time prescribed in the settlement. The agreed restrictions on the enforcement of the Consent Judgments against Mrs Shannon no longer applied. So the Bank filed the Consent Judgments signed by Mrs Shannon, which were entered in this Court on 14 October 2010.
The Bank sold the Iluka Property, the Manning River Property and the Harrington Property. But the proceeds of those sales did not cover the whole amount of the debts described in the Consent Judgments. So the Bank took steps to enforce the Consent Judgments for the shortfall. It commenced bankruptcy proceedings against Mr Shannon, served a bankruptcy notice on Mrs Shannon, and commenced the winding up of Investments.
On 20 September 2012 Mr and Mrs Shannon, Developments and Investments together commenced these proceedings as plaintiffs against the Bank ("the Account Proceedings"), alleging that the Bank, as mortgagee in possession of the properties owned by Developments and Investments, failed to comply with its sale obligations under Corporations Act 2001 (Cth) s 420A. The plaintiffs claimed in consequence that the Bank must provide an account of the funds it has received through the sale of those properties and various related fees.
In the Account proceedings the plaintiffs allege that the Bank's efforts to sell the Properties were inadequate, causing the remaining shortfall for which they are liable under the Consent Judgments. They contend that the amount owed by them under the Consent Judgments should be reduced by the difference between the sale price which the Bank would have received for the Properties if it had properly complied with its obligations under s 420A of the Corporations Act 2001 and the proceeds it in fact received from those sales.
The plaintiffs' allegations in relation to the Bank's breach of duty in selling the Properties initially involved the Chapmans Road Property. But the Bank has responded to their allegations by saying that Investments sold this property itself, not the Bank as a mortgagee. To support this the Bank adduced in evidence a copy of the front page of an undated contract for the sale of that property for $325,000, which lists Investments as the vendor, not the Bank exercising a power of sale. Curiously this sale is also described in the valuation of the Chapmans Road Property the plaintiffs rely on in the Account proceedings. Counsel for the plaintiffs in the Account proceedings conceded that the claims in relation to the sale of this Investments property, the Chapman's Road property, are no longer pressed. They only press the claims in relation to Developments' properties.
The Parties to the Motions
By Notice of Motion filed on 23 November 2012, in the Account proceedings the Bank moved to strike out the Statement of Claim ("the Strike Out Motion"). The Bank claims the Statement of Claim does not disclose a reasonable cause of action, (Uniform Civil Procedure Rules 2005 ("UCPR") r 13.4(1)(g)), or is an abuse of process of the Court (UCPR r 13.4(1)(c)). The Bank's r 13.4 (1) points are also argued as pleading issues under UCPR r 14.28(1). In substance the Bank contends that the plaintiffs' claim should be dismissed on three grounds: (1) that the Statement of Claim is defective as a pleading, (2) that it is not supported by evidence, and (3) that it merely repeats allegations in previously dismissed proceedings. The Bank asks for those proceedings to be dismissed.
By a counter Notice of Motion filed on 5 February 2013, Mr Shannon and Developments moved to stay the Consent Judgments entered in 2010 ("the Stay Motion") against each of them. The Stay Motion was filed in each of the Account Proceedings, the Developments Proceedings and the Investments Proceedings. In the Stay Motion Mr Shannon and Developments seek to stay the execution of the Consent Judgments entered against each of them, until the issues in the Account Proceedings are resolved.
But not all the original parties to these proceedings still remain as contestants before the Court. Mrs Shannon and Investments were initially moving parties under the Stay Motion. But since the filing of the motion: Mrs Shannon has filed a debtor's petition in bankruptcy with the Official Trustee on 5 March 2013 and the same day a trustee was appointed to administer her estate; and, Investments was placed into liquidation by order of this Court on 28 February 2013. Mrs Shannon's bankruptcy has stayed her action: Bankruptcy Act 1966 (Cth) s 60. I am satisfied that Mrs Shannon's trustee and the liquidator of Investments were both informed about the hearing of these proceedings. Neither has appeared to indicate any intention to pursue a case for either for Mrs Shannon or for Investments on either motion.
Developments went into voluntary administration on 26 September 2008. It is now the subject of a deed of company arrangement. Mr Shannon's Control of Developments was temporarily suspended during the company's administration but it now lies with Mr Shannon, its sole director and secretary. Thus, only the second plaintiff, Developments, and the third Plaintiff, Mr Shannon, advanced both motions on the plaintiffs' side.
The Strike Out Motion and the Stay Motion were heard together on 18 March 2013.
The First Account Proceedings
One other set of proceedings is relevant to the issues before me. In July 2012 (about two months before commencement of the Account proceedings) Developments commenced proceedings in this Court against the Bank seeking an account in relation to the sale of the Developments Properties ("the First Account Proceedings"). In September 2012 the Bank filed a Notice of Motion seeking that those First Account Proceedings be dismissed. And Macready As J dismissed the proceedings on 11 October 2012: C2C Developments Pty Ltd v Commonwealth Bank of Australia [2012] NSWSC 1162.
The effect of the dismissal of the First Account Proceedings is much in dispute on the Stay Motion. The Bank argues that Macready AsJ's judgment in the First Account Proceedings creates a res judicata in relation to the claim for an account now being made in the Account Proceedings, and that as a result the Account Proceedings are an abuse of process. Mr Shannon and Developments contest this argument.
The Parties' submissions - the Strike Out Motion
On the Strike Out Motion the Bank submits that the Statement of Claim in the Account Proceedings does not disclose a reasonable cause of action and/or is an abuse of the Court's processes. The Bank in short submits that (1) a claim similar if not identical to the claim for an account in the Account Proceedings was dismissed in the July 2012 Proceedings; (2) the Bank never had an obligation to give an account because no surplus exists here requiring the Bank as mortgagee to account to the mortgagor; (3) Mr Shannon and Developments do not plead any facts suggesting that the Bank did not fulfil it obligations when selling the Properties, instead they just allege that the sale price the Bank achieved was less than the market value of the properties; and, (4) Mr Shannon has no standing to bring an action for damages for breach of the Bank's obligations in relation to the sale, because he was not the registered owner of the Properties which Developments and Investments held.
Mr Shannon and Developments resist the Strike Out Motion. They submit in reply that the plaintiffs' pleadings in the Account Proceeding are not "absolutely hopeless" nor can it be said that there is no possibility of the facts pleaded giving rise to a good cause of action"; the applicable test for successful summary dismissal: Stafford and Anor v Kekatos and Anor [2008] NSWSC 810 Brereton J. They further submit that it cannot be said that the Statement of Claim in the Account Proceedings discloses "no reasonable cause of action" or "is otherwise an abuse of process", the applicable tests for strike out of a pleading: Stafford and Anor v Kekatos and Anor [2008] NSWSC 810.
Moreover Mr Shannon and Developments submit that the applicable strike-out tests are not satisfied here as the contentions in the Statement of Claim are clearly pleaded. At this stage Mr Shannon and Developments have not had the opportunity to investigate the circumstances in which the Properties were sold and cannot point to any specific breaches of the Bank's obligations under s 420A of the Corporation Act 2001. But they submit that the fact that the Bank's sales proceeds were less than 50% of the Shannon parties' evidence of the contemporaneous valuations of the Properties, suggests that the Bank breached its obligations in some unidentified way. Moreover they submit the Bank did not provide any evidence of the sale process in relation to the Properties and has refused to make any disclosure on the subject. The Bank, in contrast, denies that any requests for information in relation to the sales were ever submitted to it. Mr Shannon and Developments say that the resolution of these issues requires further evidence which can only be done through a full hearing, not as part of a strike out/dismissal application.
The Parties Submissions - the Stay Motion
In support of the Stay Motion Mr Shannon and Developments submit that this Court has the power to prevent the Bank from taking any further steps for the enforcement of the Consent Orders under Civil Procedure Act 2005 s 135(2)(c), and in its inherent jurisdiction, to stay enforcement where a cross-claim is made against a judgment debtor. They further submit that stay jurisdiction should be exercised here because there is a direct connection between the amount owed under the Consent Judgments and the prospective outcome of the Account Proceedings: if the plaintiffs are successful in the Account Proceedings, the amount of the outstanding debt under the Consent Judgments would be reduced, in part or in full.
On Mr Shannon's and Developments application for a stay of the Consent judgments (which application was made both in the Statement of Claim in the Account Proceedings and in the Stay Motion) the Bank submits that: (1) no proper basis either for seeking an account or for damages in relation to the sales of the Properties was identified; (2) the Court should find that the Statement of Claim in the Account Proceedings discloses no reasonable cause of action and strike it out; and therefore (3) no reason exists to stay the Consent Judgments, pending the outcome of the Account Proceedings.
Valuations and Sales of the Properties
As part of its ordinary sale procedure, the Bank obtained a valuation of each of the Properties before their sale. The Harrington Property was valued on 6 July 2010 for $100,000 (or $90,000 in case of a forced sale by a mortgagee). The Iluka Property was valued on 6 July 2010 by one valuer for $490,000 (or $440,000 in case of a forced sale by a mortgagee) and on 14 July 2010 by another valuer for $475,000 (or $430,000 in case of a forced sale by a mortgagee). The Manning River Property was valued on 6 April 2011 for between $255,000 to $285,000. This was a market price valuation; it did not include an alternative forced sale price.
The Bank exchanged contracts for two of the Properties before the entry of the Consent Judgments, and one property afterwards. On 21 September 2010 it sold the Harrington Property for $85,000 (just below the Bank's forced sale value of $90,000). And on 23 September 2010 it sold the Iluka Property for $410,000 (just below the Bank's own lower forced sale value of $430,000). The Bank sold the Manning River Property a few months after the Consent Judgments, on 14 June 2011, for $260,000 (within the Bank's Market price range of values).
In October 2012 after commencing the Account Proceedings, Mr Shannon and Developments obtained their own comparative valuations of each of the Properties. They adduced these valuations in evidence on the two motions. They valued each of the Properties as at 28 September 2010, the date of the Consent Judgments. Their valuer valued the Iluka Property at $500,000 to $550,000, the Manning River Property at $525,000 and the Harrington Property at $120,000. All these valuations were market price valuations without alternative prices for a forced sale and were (depending on which property was being valued) between $20,000 and $250,000 higher than the Banks' market valuations.
Correspondence in relation to the sales
Each party adduced affidavit evidence in relation to the circumstances in which the Bank sold the Properties. Some of this evidence is relevant to the issues now joined on the motions.
Mr Shannon in his affidavit made specific allegations in relation to the sale of the Manning River Property. He says that in October 2010 Developments received an offer for the purchase of that property for $550,000 and that the details of the buyer were provided to the Bank's solicitors on 8 October 2010. He further says that in November 2010 the buyer's representative informed him that he learned from the Bank's real estate agent that he would be able to buy the property significantly more cheaply from the Bank. Mr Shannon further says that these events were contemporaneously described in his then solicitor's letter to the Bank's solicitors on 1 November 2010. A copy of the letter was not exhibited to Mr Shannon's affidavit. And the Bank did not reply to those allegations in its evidence on the Strike Out Motion. But it did provide the Court with copies of subsequent correspondence in relation to the same property.
On 21 January 2011 the Bank received a letter from Developments' then solicitor seeking instructions in relation to a prospective sale of the Manning River Property. The letter suggested that Developments had identified a buyer prepared to pay $500,000 for the property and to settle within 42 days of the contract. The letter inquired whether the Bank would authorise such a sale. On 31 January 2011 the Bank received a follow up letter from the same solicitor restating that the purchaser was anxious to proceed. The Bank responded to both January letters by fax on 15 February 2011, requesting a copy of the contract for sale and evidence establishing that the purchaser's finances were approved. The Bank sent another fax in relation to the same queries on 2 March 2011. It says that it has no record of receiving any reply to either of those faxes. The Bank ultimately sold the Manning River Property well below these offers in June 2011, for $260,000.
The Current Shortfall
The Bank has applied the proceeds of the sales of the Properties to reduce the judgment debts on the Consent Judgments. It is accepted by all parties that the rate of interest accruing on the Consent Judgments is that applicable from time to time under Civil Procedure Act s100. The Bank calculated the current balance outstanding under the Consent Judgments has been reduced in this way from the total of $1,571958.88 outstanding at the time of the Consent Judgments. Now it is said that there is a total of $789,194.70 outstanding, being $184,323.20 outstanding in the Investments Proceedings and $604,871.50 outstanding in the Developments Proceedings.
With this background the motions may be decided. The parties accepted that if the Bank's Strike Out Motion was successful that the Shannon parties' Stay Motion could not succeed. The Court will first deal with the Strike Out Motion.
Consideration of the Strike Out Motion
Abuse of process - UCPR r13.4(1)(c). The Bank ultimately abandoned its abuse of process argument. The Bank had argued that for the account proceedings the Shannon parties were attempting to relitigate issues which had been decided against them in the First Account Proceedings by Macready AsJ. But to found such a strikeout under UCPR r 13.4(1)(c) on the basis of an abuse of process an applicant must establish, that the parties in the two proceedings were the same, that the issue was necessarily determined in the earlier case and was of importance to the final result, that the issue was properly argued, and that the decision disposing of the issue is final and is not subject to appeal: Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 at 414A-D ("Haines").
But the strikeout of the pleadings in the First Account Proceedings does not have the necessary characteristic of finality required by Haines at 414. The Bank has now recognised this. The Bank now concedes, correctly in my view, that Macready AsJ's judgment on 11 October 2012 on the strikeout in the First Account Proceedings (C2C Developments v Commonwealth Bank of Australia [2012] NSWSC 1162) is of an interlocutory nature such that leave is required to appeal against the decision under Supreme Court Act 1970 s 101(2)(e): Macatagnay v State of New South Wales (No.2) [2009] NSWCA 272 at [11]-[13] per Allsop P, Tobias JA and Handley AJA. But although no application for leave to appeal against the judgment has been made and in that sense it remains undisturbed it is nevertheless not a final and conclusive decision on the merits precluding Developments then bringing another claim: Macquarie Generation v Hodgson [2011] NSWCA 424 at [31]-[32] per Handley AJA, Whealy and Meagher JJA agreeing and Kuligowski v Metrobus [2004] HCA 34 at [25], (2004) 220 CLR 363. So the Bank does not press its submission that Developments claim for accounting of damages may be dismissed on res judicata principles.
Of course, as Haines (at 414AE) also makes clear, Mr Shannon's pleading in the Account Proceedings could not in any event be struck out as an abuse of process. Mr Shannon was not a party to the First Account Proceedings. He would not have been bound by an issue estoppel.
But there would have been yet another obstacle to the success of the Bank's claim for dismissal on the basis of abuse of process. In the Account Proceedings the plaintiffs not only claim an account; they also claim damages based on alleged breaches of the Bank's duty under Corporations Act s 420A. The summary dismissal of the first account proceedings did not involve any findings in relation to the performance of the Bank's duty under Corporations Act s 420A. Such matters were not covered by the fairly basic account pleading in the First Account Proceedings.
The pleadings in the First Account Proceedings were not complex. They were set out in full in Macready As J's judgment (at [2]):
1. At all relevant times hereto, the Plaintiff [Developments] was the owner of the undermentioned properties:
(a) [Iluka Property];
(b) [Manning River Property];
(c) [Harrington Property]
2. During the course of 2010, the Plaintiff [Developments] agreed to give to the Defendant [the Bank] possession of the properties as chargee/mortgagee in possession pursuant to consent orders made by this Honourable Court on 28 September 2010.
3. The Defendant duly took possession of the aforesaid properties and sold them and retained the proceeds.
4. Notwithstanding demand, the Defendant has failed and or refused to account to the Plaintiff [Developments] for the aforesaid sales.
None of this pleading in the First Account Proceedings raises an allegation of breach of duty by the Bank as mortgagee. Although in my view there are deficiencies in the Shannon parties' pleading of the Bank's claimed breach of duty, as these reasons explain, there is no doubt that such a plea was introduced for the first time in the Account Proceedings and founds in those proceedings not only a claim for an account but a claim for damages. These circumstances it would not be apt to describe the Account Proceedings as an abuse of process in the sense considered in Haines.
The Bank did not press any other basis for alleging abuse of process such as the bringing proceedings for an ulterior purpose: Williams v Spautz (1992) 174 CLR 509. Nor in my view does the course of the Account Proceedings readily suggest such a purpose. Developments' and Mr Shannon's financial positions are substantially affected by the Consent Judgments, if they are not reduced or stayed through these proceedings. Moreover, such allegations of collateral purpose encounter many of the same obstacles as they did during the First Account Proceedings; the Bank has not cross-examined Mr Shannon to suggest a collateral motive and there is sufficient evidence of a difference between the market value of the properties and their actual sale values to infer that the purpose of the proceedings is the raising of a genuine issue and not the pursuit a collateral purpose: C2C Developments Pty Ltd v Commonwealth Bank of Australia [2012] NSWSC 1162 at [36] and [37] per Macready As J.
No reasonable cause of action - UCPR r13.4(1)(b). The Bank put its strike out application in two other ways: that the statement of claim is defective as a pleading; and that it is not supported by evidence. The Bank's pleading point is its strongest but I will first briefly deal with the Bank's point on the evidence adduced.
The Bank submitted that the plaintiff's claim was not supported by evidence. The Bank argues that there is not evidence that the Bank in any way breached its alleged duty under Corporations Act s 420A. Counsel for the Bank, Mr Newton, pointed to Mr Shannon's affidavit evidence identified earlier in these reasons about the purchase of the Manning River property. Counsel comments adversely upon the quality of that evidence.
The Bank's counsel's submission is partly correct: at this stage most of the Shannon parties' evidence to support a case of breach of section 420A is not admissible, or in only very sketchy form. But to attack a party's evidence at this stage on a UCPR r 13.4(1)(b) application is rarely a productive exercise. This is not a case where the Bank can show by reference to evidence that the Shannon parties' claim to damages and an account under s 420A is "so obviously untenable that it cannot possibly succeed" or is "manifested groundless" or "discloses a case which the Court is satisfied cannot succeed" General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. The Court must exercise exceptional caution where it is apparent that the ultimate outcome turns upon a resolution of a disputed issue of fact: Webster v Lampard (1993) 177 CLR 598. It can be accepted that the Shannon parties' evidence as it currently stands may not make out a Corporations Act s 420A case. But that is not to say after deploying appropriate interlocutory processes that such a case may not be maintainable, particularly in circumstances where the differential between actual sale prices and market valuations has been established to the prima facie level, as it has been on this motion. Provided it is properly pleaded, this is an issue in my view, which should go to trial.
Pleading embarrassing or discloses no reasonable cause of action - UCPR r14.28 (1)(a)&(b). But the underlying question is whether the plaintiffs' breach of duty case is indeed properly pleaded. In my view it is not. Shannon parties really conceded this in the course of argument and correctly so. The Bank's short point is that the statement of claim in the Account Proceedings simply pleads, the market value of the Properties and an actual sale at less than market value and then seeks, without more, to infer from such pleaded facts that there has been a breach of Corporations Act s420A. The Bank's submission is that such pleaded facts do not disclose that the Bank breached its duty under Corporations Act s420A or its other duties as a mortgagee.
I agree with the Bank's UCPR r 14.28(1) submission. The present pleading in the Account Proceedings is too simplistic in my view and does not plead sufficient facts to ground a cause of action for Corporations Act s420A breach of duty. The Bank's failure to obtain market value on these sales may have occurred despite the Bank making reasonable efforts to market the properties. A difference between the market value of these Properties and the amount realised upon their sale may be the result of unexpected market forces and does not necessarily indicate breach of duty by the Bank.
I will therefore strike out the statement of claim in the Account Proceedings. But I will give the Shannon parties an opportunity to put on an amended pleading. In re-pleading their case the Shannon parties will have to decide on the materials available to them whether they can allege some breach of duty by the bank and plead the essential facts of such a breach. That should be done within 28 days, subject to what is set at the conclusion of these reasons.
I am prepared to allow both Developments and Mr Shannon to replead the case in the Account Proceedings despite two other arguments, which the Bank advanced, with which I will now briefly deal.
Mr Shannon did not own any of the Properties, and the Bank is correct that the Bank's duty as mortgagee in selling the properties is therefore not owed to him. But he is a co-judgment debtor with Developments and Investments on the two Consent Judgments. He became a co-judgment debtor because of his original position as surety of Investments and Developments' respective obligations. In that role, once the principal debtor is joined, he would have a right to argue that the principal debtor's debt should be reduced by reason of the creditors conduct: GE Capital v Davis [2002] NSWSC 1146 at [93]-[100] per Bryson J. In the same way that the Bank's obligations as mortgagee in disposing of the property survived the Consent Judgments, it is at least arguable in my view that Mr Shannon's right to contest that the judgment debt has been reduced by the sales may also survive the entry of the Consent Judgments. But the terms of the agreement for the Consent Judgments and how Mr Shannon is himself entitled to an account or damages will have to be more clearly pleaded in any amended pleading.
Investments' claim is struck out, but it may need to replead. I will not strike out a claim against Investments as. If Mr Shannon wishes to pursue a claim in relation to the Tuncurry property, Investments may, for the reasons indicated, need to be necessary party to the proceedings. For that reason I will give Mr Shannon an opportunity to have discussions with the liquidator of Investments to see whether any decision will be made by the liquidator to leave Investments as a party in an amended pleading.
The Bank contends that a claim for an account could not be brought unless the plaintiffs could demonstrate that there would be a surplus as a result of the account being taken: cf. the authorities Macready AsJ refers to in C2C Developments v Commonwealth Bank of Australia [2012] NSWSC 1162 at [21] to [28]. But it seems to me that once the plaintiffs ground their case in alleged breaches duty by the mortgagee as they have now done in the account proceedings, this issue falls way. This is because if the plaintiff's claim for damages for breach of the mortgagee's duty succeeds it will arguably result in a recalculation of the amount for which the Consent Judgments will be enforced. This will itself be a form of taking of accounts.
Finally the Bank took issue with the application of Corporations Act s420A in the present circumstances. But whether or not Corporations Act s420A applies, in selling the Properties the Bank has other applicable duties and if they are to be relied upon by the Shannon parties should be properly pleaded in the amended pleading.
It is necessary therefore to consider what should happen to the Stay Motion.
Consideration of the Stay Motion
The Consent Judgments should be stayed. The Court has ample power to prevent further enforcement under Civil Procedure Act s 135(2)(c). The Shannon parties' claims in these proceedings are in the nature of a cross claim, with a close connection to the judgment debts in the Consent Judgments, which could in the circumstances be stayed on general principles of equitable set off: AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705.
But I will not resolve the full terms of the stay, until the Shannon parties' amended pleading is available. The parties are at issue on the calculations as to whether on the Shannon parties' best case some money will still be owed to the Bank. The Bank needs an opportunity to respond to the Shannon parties' latest calculations of this amount. I will consider what amount, if any, should be paid into Court as a term of the stay when an amended pleading is served.
Conclusions and Orders
At the conclusion of argument, these proceedings took an unusual turn. Mr Lipp, who had until then been speaking on behalf of Mr Shannon and Developments, vacated his place at the bar table to allow Mr Geoffrey Slater to speak on behalf of his clients. Mr Slater apparently acts for the Shannon parties "in other litigation". The Court pointed out that it would be normal practice for Mr Slater to appear by motion, but in the short term the Court would at least hear Mr Slater to ascertain the nature of his application.
It turned out that Mr Slater was foreshadowing an application to prevent Mr Newton and Gadens from any longer acting against the Shannon parties in this or other litigation. Mr Slater was not speaking to any formal filed legal process. But to use his own words, he was "foreshadowing that I will be making a motion which I will be asking you to list as part of this proceeding".
Mr Slater summarised his prospective application thus. He claimed that in the past Mr Newton had acted for one or more of the corporate Shannon parties. He was apparently unsure for which parties Mr Newton is alleged to have acted in the past. He explained that the true situation was difficult to ascertain at present, because the files in question were subject to a claim for a solicitors lien. He surmised that if his clients were to seek access to these files they would need to do so by subpoena. Whether or not that procedural course is appropriate, the Court certainly has ample power to deal with such matters under Legal Profession Act 2004 s 728.
The Court asked Mr Slater why it was that proper notice was not given of this application before today. It was pointed out to him that ordinarily the judge hearing a motion or a trial would not decide the question of whether there was any basis to restrain solicitors or Counsel from acting in such a motion or trial. Ordinarily the party seeking to restrain the lawyers for the other party from acting, would be required to apply for injunctive relief to the Equity or Common Law duty judge in advance of the motion or trial. The Court asked Mr Slater why that the application was being foreshadowed only at .3.40 pm, when all the day's argument was over.
In response Mr Slater explained that he had only been briefed on the previous Saturday afternoon, 16 March 2013. The Court was asked to infer that there had been insufficient time for an application for an injunction to be brought before 10.00 am. Mr Slater said that he was before another judge on the morning of 18 March and was unable to appear in this matter to foreshadow his present application until after argument in these proceedings had commenced.
The Court responded to Mr Slater and the parties that the Court regarded the barristers and solicitors presently appearing on the motions as properly appearing, unless and until some other judge were to make an order preventing one or other of them appearing. All the parties have a right to legal representation of their choice, which right cannot be interfered with except on proper grounds pursuant to a properly constituted motion.
But all of this is very unsatisfactory. It is quite clear that there is at present no sworn or other evidence filed or being proffered to the Court to substantiate any claim that Mr Newton or Gadens should not act any longer in these proceedings. The Court pointed this out to the parties on 18 March. The Court's absolute privilege seems now to have been used to propound public allegations adverse to one party's legal representatives, for which no evidentiary foundation is yet advanced.
The matter cannot simply be left in this state of semi-suspension. The Shannon parties must only use the Court's processes fairly and responsibly. If they genuinely wish to challenge the Bank's retainer of its current legal representatives they should have an immediate but brief opportunity to formulate and pursue that claim. The Bank needs to know whether its current legal representatives will be continuing in the matter. If a claim is not to be pursued, the Court may well wish to know what evidentiary basis Mr Slater had for making these allegations under the Court's privilege and may ask the Shannon parties publicly to withdraw the allegations made, without evidence or motion, under privilege.
But such a foreshadowed application may be too late. This motion has been almost fully argued. All that remains is to review any amended statement of claim in the Account Proceedings, which process may well result in the consumption of no further Court time. It is not as yet clear when the Shannon parties first became aware that Mr Newton was alleged to have acted for them in the past. Presumably it was sometime before 16 March. It may well be a matter for future argument before another judge but by their apparent delay in not raising this matter at 10.00am on 18 March, the Shannon parties may well have waived their rights to object to Mr Newton in Gadens continuing to act on these present motions.
The Court will make directions to balance the interests of all the parties in this unusual situation. The Shannon parties will have one week to bring such application as they are minded to bring, to restrain Mr Newton and Gadens from continuing to act in this matter. In the meantime the Bank will not be required to expend any further costs on this motion. The Court should be informed whether or not a motion of this character has been filed. Either way the Court may need to make supplementary directions for final disposition of these proceedings. These directions are built into the orders below.
The Court will therefore make the following orders and directions:
(1) Strike out the plaintiffs' statement of claim;
(2) Grant leave to the plaintiffs to replead within 28 days of today;
(3) Direct the second and third plaintiffs to inform the Court within 7 days whether they intend to bring proceedings to restrain the present legal representatives of the defendant from acting in these proceedings;
(4) Stay the Consent Judgments until the final determination of the plaintiffs' present motion;
(5) Adjourn the proceedings to a date to be fixed with my associate.
Decision last updated: 27 March 2013
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