Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja

[2018] NSWCA 26

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja [2018] NSWCA 26
Hearing dates:	29, 30 January 2018
Decision date:	26 February 2018
Before:	Basten JA at [1]; Gleeson JA at [2]; Leeming JA at [3]
Decision:	1.   Appeal allowed. 2.   Set aside the orders made on 6 November 2017 refusing to admit the documents which now comprise pages 1099-1110 of the Blue Book (“the Baycorp file notes”), orders 1-12 made on 6 December 2017, and order 2 made on 19 December 2017, and in lieu thereof, remit the proceedings for a retrial, that remitter to include the costs of the first trial. 3. Note that (a) the previous representations contained in the Baycorp file notes, insofar as they include representations as to the possibility of litigation and the offer by Ms Calleja to pay $60,000 to Baycorp from funds borrowed from Prime, fall within s 69(2) of the Evidence Act 1995 (NSW), and (b) the form of the written Loan Agreement executed by the parties is not in issue. 4. The respondents to pay the appellant’s costs of the appeal, but to have a certificate under the Suitors’ Fund Act 1951 (NSW).
Catchwords:	APPEAL - numerous grounds of appeal - primary grounds successful and retrial ordered - consideration of circumstances in which appellate court should address non-dispositive grounds of appeal EVIDENCE - documents - business records exception to hearsay rule - inferences available from production of documents pursuant to subpoena - inferences available from form and context of documents - Evidence Act 1995 (NSW) ss 47, 48, 51, 69, 183 - National Australia Bank Ltd v Rusu (1997) 47 NSWLR 309; [1999] NSWSC 539 considered - discretionary rejection of documents pursuant to Evidence Act s 135 - requirement to assess probative value as well as risk of unfair prejudice - requirement to determine whether former was substantially outweighed by latter - decision of primary judge to reject tender of documents produced on subpoena set aside
Legislation Cited:	Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB, 12CC Civil Procedure Act 2005 (NSW), s 56 Contracts Review Act 1980 (NSW), s 9 Evidence Act 1898 (NSW), s 14CL Evidence Act 1995 (NSW), ss 47, 48, 51, 59, 69, 135, 136, 142, 146-163, 169, 183 Real Property Act 1900 (NSW), s 57
Cases Cited:	Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 Australian Competition and Consumer Commission v Air New Zealand (No 1) (2012) 207 FCR 448; [2012] FCA 1355 Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342 Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) (2011) 244 CLR 1; [2011] HCA 18 Australian Securities and Investments Commission v Rich [2005] NSWCA 152; 218 ALR 764 Averkin v Insurance Australia Ltd (2016) 92 NSWLR 68; [2016] NSWCA 122 Bobolas v Waverley Council (No 4) [2015] NSWCA 337 Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214 Commissioner of Taxation v Rozman (2010) 186 FCR 1; [2010] FCA 324 Cornwell v The Queen (2007) 231 CLR 260; [2007] HCA 12 Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25 Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22 Hatziandoniou v Ruddy (No 2) [2015] NSWCA 277 James Hardie Industries NV v Australian Securities and Investments Commission [2009] NSWCA 18 Krnjulac v Lincu [2015] NSWCA 367 Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 Lee v Minister for Immigration and Multicultural Affairs [2002] FCA 303 Lin v Tasmania [2012] TASCCA 9 Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 Morgan v District Court of New South Wales (2017) 94 NSWLR 463; [2017] NSWCA 105 National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539 Panayi v Deputy Commissioner of Taxation [2017] NSWCA 93 R v Giovannone [2002] NSWCCA 323 Re Wollongong Coal Ltd (formerly known as Gujarat NRE Coking Coal Ltd) [2014] NSWSC 1952 Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 984 Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858 Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300; [2003] FCA 977
Texts Cited:	V Bell, “Documentary Evidence under the Evidence Act 1995 (NSW)” (2000) 5 The Judicial Review 1 J D Heydon, Cross on Evidence (LexisNexis Butterworths Australia, 11th ed 2017) N Williams et al, Uniform Evidence in Australia (LexisNexis Butterworths Australia, 2015) P Wood “The Admissibility of Business Records with Special Reference to New South Wales” (1986) 14 Australian Business Law Review 245
Category:	Principal judgment
Parties:	Capital Securities XV Pty Ltd (Appellant) Elizabeth Ann Calleja (First Respondent) Calleja PJC Furniture Freighters Pty Ltd (Second Respondent)
Representation:	Counsel: M Young SC (Appellant) N Obrart (Respondents)   Solicitors: Summer Lawyers Pty Ltd (Appellant) Atticus Lawyers Pty Ltd (Respondent)
File Number(s):	2017/375892
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court Jurisdiction: Common Law Division Citation: [2017] NSWSC 1694 Date of Decision: 06 December 2017 Before: Wilson J File Number(s): 2016/00155378, 2016/00260959

Judgment

1. BASTEN JA: I agree with Leeming JA.

2. GLEESON JA: I agree with Leeming JA.

3. LEEMING JA: At the time of the events giving rise to this litigation, and throughout the trial over six days in October and November 2017 before the primary judge, the appellant was known as Prime Capital Securities Pty Ltd and it will be convenient to refer to it as “Prime”. Prime is a non-bank lender. Prime appeals from the dismissal of proceedings brought by it seeking possession of a property at Heatherbrae owned by the first respondent, Ms Elizabeth Ann Calleja, and orders made in proceedings commenced by Ms Calleja and her company Calleja PJC Furniture Freighters Pty Ltd (“Calleja PJC”) declaring various facility agreements, mortgages, guarantees and other security deeds void, directing Prime to discharge its registered mortgage on the Heatherbrae property, and ordering it to pay Ms Calleja’s costs on an indemnity basis: Prime Capital Securities Pty Ltd v Elizabeth Ann Calleja; Calleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities Pty Ltd; Elizabeth Ann Calleja v Prime Capital Securities Pty Ltd [2017] NSWSC 1694. In the interests of concision in what follows, where there is no confusion references to “Ms Calleja” will denote both the natural person and the company she owned and controlled.

4. In summary, Prime said that Calleja PJC had borrowed $290,000 under a $360,000 facility provided by it in April 2015, with obligations to make 12 interest-only monthly repayments with repayment of the principal in full thereafter unless the account had been maintained “in good order”, in which case the loan would be rolled over for a further period. Calleja PJC’s obligations were guaranteed by Ms Calleja, and her obligations were secured by a mortgage over the Heatherbrae property. Prime said that in April 2016, Calleja PJC was in default and that it was entitled to enforce its security.

5. For her part, Ms Calleja maintained that most of the disbursements of the $290,000 borrowed from Prime were not authorised, and denied that there was an obligation to repay the principal after 12 months. Ms Calleja said that aspects of Prime’s conduct were misleading and deceptive and unconscionable within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) and also (insofar as concerned Ms Calleja, as opposed to her company) unjust within the meaning of the Contracts Review Act 1980 (NSW).

6. There are no fewer than 38 grounds of appeal. All were pressed, although most were developed only briefly, with most attention being directed by both sides to grounds 1, 2 and 3. The grounds range widely over the reasoning leading to the orders made at first instance. Prime accepted that the best it could achieve was setting aside the orders made against it and a remitter for rehearing. For the reasons which follow, the appeal should be allowed and the matter reheard by a judge sitting in a Division. That result flows from Prime’s success on its first three grounds of appeal, which challenged the interlocutory decision of the primary judge to reject the tender of 12 pages of documents purporting to be electronic file notes made on behalf of Baycorp (Aust) Pty Ltd (“Baycorp”) relating to that company’s dealings with Ms Calleja at around the time the facility granted by Prime to her was entered into.

7. In many cases, it is desirable to deal with the non-dispositive grounds of appeal: Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12]; Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) (2011) 244 CLR 1; [2011] HCA 18 at [56]. The main reason for this is to overcome the need for remittal in the event of a further appeal. But the present appeal presents large difficulties on that front. It is not only that the remaining grounds are numerous and not fully developed. The findings of credit made by the primary judge were highly significant in determining a suite of contested findings of primary fact, including oral representations said to have induced Ms Calleja to take out the loan, and the circumstances in which Ms Calleja nevertheless maintained interest payments over the following 11 months. It would be highly artificial to hypothesise that the Baycorp documents were properly excluded, and on that basis to test the correctness of other aspects of her Honour’s reasoning. Further, to proceed on that basis is apt to present difficulties at the retrial. For example, there may be arguments about the binding or persuasive value of statements made in those parts of this Court’s reasons at a retrial when the file notes will have been tendered and cross-examined upon. Finally, it may be noted that on the second day of the appeal, and after obtaining instructions, Ms Calleja conceded that she could not defend all aspects of the relief ordered by the primary judge. This has a direct bearing on the prospects of an application for special leave to appeal to the High Court; cf Morgan v District Court of New South Wales (2017) 94 NSWLR 463; [2017] NSWCA 105 at [38].

8. Although there have been statements in the judgments of some intermediate appellate courts referring to what was said in Kuru as an “injunction” or a “rule” that all grounds of appeal be determined, the High Court has made it quite plain that there is no universal rule that requires non-dispositive grounds to be addressed: Cornwell v The Queen (2007) 231 CLR 260; [2007] HCA 12 at [105]; Kuru at [12]. Bearing in mind (a) the potential for difficulties at the retrial, which I regard as real, and (b) the risk of additional cost and delay in the event that special leave is sought and granted and the appeal allowed in circumstances where it is common ground that some of the orders made by the primary judge cannot be defended, which I regard as negligible, I have concluded that this is a case where it is inappropriate to determine all of the grounds of appeal which do not affect the orders resolving the appeal.

9. Accordingly, these reasons take the following form. First, they summarise the factual background, doing so on the basis of what was either uncontroversial or clearly established by contemporaneous documents. Secondly, they summarise the reasons of the primary judge. Thirdly, they deal with grounds 1, 2 and 3 of the appeal, which I have concluded are dispositive of the whole appeal, and which were the grounds to which the parties devoted most attention. Fourthly, they address 10 grounds of appeal which are less closely connected with the credit-based findings of primary fact, relatively concisely because they are not dispositive, and pass over the remaining grounds which are either challenges to the findings of credit or closely connected to those findings.

Uncontroversial factual background

10. What follows in this section is derived from contemporaneous financial records admitted into evidence before the primary judge without objection or matters which were common ground between the parties.

11. Ms Calleja was the sole director and shareholder of Calleja PJC. In late 2014 and early 2015, that company owed a relatively small amount to Capital Finance Australia Ltd (“CFAL”) (the debt was some $28,000 in April 2014, reducing to less than $10,000 at all times in 2015) and a larger amount (in the vicinity of $60,000) which appears to have been assigned to Baycorp. The former reflected an initial borrowing of $118,863.36 made in February 2011 with fixed monthly repayments of $2,476.32. It was (and is) unclear whether the assignment to Baycorp was legal or merely equitable. This is relevant because CFAL’s solicitors, Kemp Strang, had registered a caveat over the property in 2012. (The precise nature of the caveatable interest relied upon is not clear, but the caveat asserted that CFAL had acted in accordance with clause 5 of a guarantee and indemnity given in 2007.) The caveat was required to be removed before Prime’s mortgage could be registered.

12. Ms Calleja was also personally indebted to a different financial institution, Bankwest, under three facilities. One was an “Easy Doc Home Loan” made in 2009 for $580,000 initially at a rate of 6.22% pa repayable over 30 years, the purpose of which was stated to be “Purchase Established Dwelling for Rent or Resale”. That loan was secured by mortgages over the Heatherbrae Property and also a property at Minimbah. A second loan was made in 2011 for some $45,000; its purpose was stated to be “Home Improvements”. Bankwest statements dated May 2015 disclosed that the outstanding balances on those facilities in April 2015, before the refinancing with Prime, were $549,996 and $61,999 respectively, and the interest rate on each facility was 5.52% pa.

13. An email from Bankwest in early April 2015, sent to all parties, referred to those two facilities and also a third, in the amount of $42,043, which was also said to be secured by the Heatherbrae and Minimbah properties. That email attached another, dated 1 April 2015, which was from a Bankwest employee stating that the largest facility was in arrears. The same email stated that the Heatherbrae property was valued at $700,000 and another property at Minimbah was valued at $530,000 but that the bank was only prepared to lend to a value of 75% against the Minimbah property. It will be seen that the contemporaneous documents suggested that Ms Calleja owed a total of some $654,000 to Bankwest.

14. The position in general terms in the months leading up to April 2015 was that Ms Calleja owed some $654,000 to Bankwest, and was in arrears in her repayments. Ms Calleja’s obligations to Bankwest were secured by mortgages registered on both properties. Calleja PJC had borrowed two amounts from CFAL, and was rapidly repaying one, but the other appears to have been assigned in some way to Baycorp and was also in default. CFAL had lodged a caveat over the Heatherbrae property.

15. It was common ground that Calleja PJC wished to borrow further funds, in order to acquire three trailers as part of its business. Given the existing indebtedness of the company and its sole director and shareholder, it was perhaps inevitable that those inquiries were directed to non-bank lenders. It may reasonably be inferred that if further funds were to be lent secured by a registered mortgage over the Heatherbrae property, it would be necessary to obtain Bankwest’s consent and to secure the removal of CFAL’s caveat, and the letters dated 5 December 2014 and 2 February 2015 referred to below both state that conditions precedent of Prime providing any advances were obtaining the withdrawal of the caveat and agreement with Bankwest as to priority.

16. In late 2014 and early 2015 there were communications between Ms Calleja, her husband Mr Michael Calleja, and Calleja PJC’s marketing manager Mr Frank Bugeja on the one hand, and Prime’s sole director Mr Paul Scanlon and its then employee Mr Peter Ainsworth on the other. Much of what each recalled had been said was conflicting and controversial.

17. Ultimately two suites of loan documentation were prepared by Prime’s solicitors, Gadens. The first was supplied directly to Ms Lea Smith, solicitor, under cover of a letter dated 5 December 2014 from Ms Alison Anthony at Gadens. The Court Book included the covering letter, but not the transaction documents enclosed. The covering letter bore the footer “20412037.1 ARA ARA”.

18. It was uncontroversial that Ms Lea Smith, a solicitor who had acted for Ms Calleja for many years, also received a telephone call from Mr Calleja on 17 December 2014. Her file note refers to Mr Calleja wanting to buy a truck, a trailer and minitrucks, to a line of credit up to $350,000, to Mr Calleja thinking he only needs $100,000, and to “Interest paid on amount drawn. Loan for 12 months only”. An appointment was made for Ms Calleja to see her in 2015. She met with the Callejas on 7 January 2015. She advised them not to enter into the transaction with Prime. She telephoned the local manager of Aussie Homes Loans in Raymond Terrace and arranged for them to see him immediately after that meeting. She recalled saying, “Do not do this. This is a bad mistake. You cannot sign these documents.” There was also a second meeting, on 6 February, which Ms Smith said did not last very long. She said of it:

“I was hopeful that they were going to tell me they found alternate finance. I was wrong in my hopes. Michael and Liz wanted to proceed. I said I would not act for them on this any more.”

19. The second Gadens letter was dated 2 February 2015, and was addressed to Mr Frank Calleja (it was common ground that was an error). It was also from Ms Anthony, but the footer was “20412037.1 ARA EVW”.

20. Some of the transaction documents relied on by Prime were witnessed by a separate solicitor, Mr Robert Shacklady, of whom the primary judge was highly critical. There was an issue as to the nature and extent of the advice given by him. Where his signature appears on a document in evidence (including the mortgage given by Ms Calleja in favour of Prime, and one of the execution pages of the Loan Agreement), the document has a footer which includes the letters “ARA EVW”.

21. It was common ground that Ms Calleja signed various documents, both in her own capacity and as director of her company. The form of the Loan Agreement included in the Court Book and tendered without objection at trial was a document comprising an unnumbered coversheet, an unnumbered table of contents, followed by 30 numbered pages setting out the provisions of the agreement, and then two pages each numbered 31. Page 31 was the execution page. The first page 31 was executed by Ms Calleja as director of Calleja PJC. The footer of that page (and of all of the preceding pages) was “20418014.1 ARA ARA”. The second page 31 bore what appeared to be the signature of Mr Michael Calleja on behalf of the company, which had been crossed out and described as incorrect. The same page was signed by Mr and Ms Calleja as guarantors, and witnessed by Mr Shacklady. This second page 31 bore a footer “20418014.1 ARA EVW”. The next page was numbered 32, and appeared to contain a signature on behalf of Prime; this page bore the footer “20418014.1 ARA ARA”. The final page of the document tendered at trial as the Loan Agreement was an unnumbered explanation of the guarantee, signed by Mr Calleja and Mr Shacklady. It bore the footer “20418014.1 ARA EVW”.

22. At the end of the trial, Ms Obrart (appearing for the respondents) tendered as Exhibit D the original of the Loan Facility. The original of that document was provided to this Court. In the form provided (which was a bundle of pages held together by a bulldog clip), it is plain that the paper on which the second “EVW” page 31 has been printed is different. The document provided to the court did not include the last unnumbered page. Finally, although no point was made of this on appeal (or, so far as I can see, at any stage in the trial) every page of the original Exhibit D has been stapled, with one exception, namely, the second “EVW” page 31.

19. It is clear beyond all doubt that the pages tendered as the Loan Agreement have been consolidated from at least two separate documents.

20. The Loan Agreement provided for the progressive drawdown of funds, up to $360,000, for the purpose of “Capital to replace three semi-trailers for freight business”. It seems to have been common ground that none of the amount lent by Prime was used for that purpose.

21. Prime formally advised Calleja PJC that the new facility was drawn down on 17 April 2015. That was incorrect. The advice stated that it had been “drawn down in accordance with your instructions”, referring to an attached “Settlement Statement”. The Settlement Statement was also incorrect, and in a variety of ways.

22. The Settlement Statement identified disbursements and interest totalling $19,811.91, the largest component of which was a “Discount Establishment Fee” of $7,250. (The discount reflected the fact that the ordinary establishment fee was $70,000, which amount Prime sought to charge to Ms Calleja 12 months later upon the account falling, according to it, into default. Ms Calleja’s defence alleged that this was unenforceable as a penalty, an issue which has not been determined.) The balance of $272,188.09 was described as “Balance at borrower’s direction”. The statement described the disbursement of funds as follows (omitting BSB and account details):

“Payee:

1. Gadens Lawyers $8,808.58

2. Prime Capital Securities Pty Ltd $3,093.33;

3. Prime Capital Securities Administration Pty Ltd $7,910.00;

4. Capital Finance Australia Limited $6,805.97;

5. Kemp Strang $2,571.57;

6. Baycorp Collections PDL (Australia) Pty Ltd $62,877.61;

7. Fast Commercial Loans $6,380.00;

8. Bankwest $152,496.44;

9. Calleja PJC Furniture Freighters $41,056.50”.

27. It was common ground when the appeal was heard that, notwithstanding the last entry of $41,056.50, in fact, Calleja PJC only received $34,676.50. It was also common ground that while the amounts of $6,805.97, $2,571.57 and $62,877.61 were paid to CFAL, Kemp Strang and Baycorp respectively on 17 April 2015, the other disbursements were not made until almost a fortnight later (apparently, on 5 May 2015). To take the largest component, the $152,496.44 paid to Bankwest, Ms Calleja’s bank statement showed that amount credited to her home loan on 5 May 2015 with the notation “CHEQUE DEPOSIT AT KING ST STORE 1:58PM”. The ANZ bank cheque which was presented at that branch was in evidence, and was dated 5 May 2015. A trust account ledger provided by Gadens likewise recorded a debit of that amount on 5 May 2015.

28. It is quite unclear when the Settlement Statement dated 17 April 2015 and the (unsigned) covering letter on Prime letterhead came into existence or were sent to Ms Calleja. On the afternoon of Friday 17 April, a couple of hours before settlement, Prime emailed Calleja Freighters and asked “Can you please provide account details where your loan drawdown can be paid to”, and received a response on the morning of Tuesday 21 April containing the BSB and account details which appeared next to the amount said to have been disbursed to Calleja PJC on the Settlement Statement dated 17 April. Prime called Mr Paul Scanlon, who said that he was the author of the document, and that he completed it and posted the document on Tuesday 21 April.

29. One prominent part of Ms Calleja’s case at trial was that Prime had no authority to make any of the disbursements which it made (which, after all, were not for the purposes stated in the loan facility document). For its part, Prime did not suggest that it had any written authority to do so, but said that Calleja PJC had given it authority to do so orally, through Ms Calleja or Mr Calleja or through Mr Bugeja.

30. A smaller component of Ms Calleja’s case at trial was that Prime had computed its entitlement to interest and fees on the basis of a drawdown of the entire $290,000 on 17 April, and that was incorrect. A matter of a few days was quite significant according to the loan facility between Prime and Calleja PJC. The form of the Loan Agreement tendered provided for a limit of $360,000, with interest only payments each month for a term of 12 months, following which the principal was repayable in full. The interest rate was 2% per month accruing daily, unless the account was in default, in which case the rate was 4% per month. There was a “Loan Management Fee” of $580 per month. There was also a “Covenant Breach Fee” which (omitting some of its complexity) was at least $2,000 each default.

31. Ms Calleja maintained that despite two repayments which were at most three days late in the first weeks of June and November 2014 (on the basis of which Prime debited the account with $4,000), and a 26 day delay in the interest payment for April 2015, the account remained “in good order”, not least because for the last nine months she paid not $6,380 per month, but $6,800 per month. The documents do not suggest that Prime ever advised that it had debited the account with $4,000 of fees, on which interest was being calculated, such that additional repayments would be required. It will be seen below that when in May 2016 Prime purported to terminate the agreement and enforce its security, it gave Ms Calleja until late June to do so, notwithstanding which it commenced proceedings later in May. The contrast between the casualness which characterised Prime completing the Settlement Statement and disbursing funds in April and May 2015 and Prime’s alacrity in enforcing its security 12 months later is stark.

Reasons of the primary judge

32. The primary judge made orders on 6 December 2017 dismissing its statement of claim seeking possession of the Heatherbrae property, declaring various facility agreements, mortgages, guarantees and other security deeds in favour of Prime void, directing Prime to discharge its registered mortgage on the Heatherbrae property, and ordering it to pay Ms Calleja’s costs on an indemnity basis. What follows is a summary of the primary judge’s reasons for making those orders.

33. The circumstances leading to the entry into the loan and whether Prime had authority to make the disbursements it did were hotly contested. Her Honour’s resolution of those matters was heavily informed by her assessment of testimonial evidence. Prime called four witnesses: Mr Scanlon, Mr Ainsworth, Ms Lee and Mr Shacklady. Ms Calleja had called four witnesses: Mr and Ms Calleja, Mr Bugeja and Ms Alexandra Doig, the current solicitor for the Calleja interests.

34. In relation to the entry into the loan agreement, her Honour found that on 29 October 2014, Prime offered a loan facility to Ms Calleja for $450,000 which was accompanied by a 12 page offer document. The offer had come one day after Mr Frank Bugeja had made an inquiry with “Fast Commercial Loans”, which he had assumed was a broker. The primary judge held that given the speed with which the offer was made, “Prime was unconcerned as to the capacity of Calleja PJC to repay any loan”: at [283].

35. Mr Ainsworth, whom the primary judge described as an “extraordinarily unsatisfactory and unreliable” witness (at [285]), was the primary representative of Prime dealing with Calleja PJC in the lead up to the entry into the loan. Mr Ainsworth did not keep file notes, and indeed said in cross-examination that he did not know what a file note was. Mr and Ms Calleja had given evidence that Mr Ainsworth assured them that the loan facility allowed them to withdraw such funds as they wished to withdraw, that interest would only be payable on funds actually withdrawn and that the loan was in fact for a period of three years. Mr Ainsworth denied making those representations. The primary judge preferred the evidence of Mr and Ms Calleja in relation to that point, and accepted that Mr Ainsworth had made the representations referred to above: at [293].

36. The primary judge also found, contrary to the denials of Mr Ainsworth, that he had arranged for Mr Shacklady to attend upon the Callejas, and that, contrary to the evidence of Mr Shacklady, the documents were signed without the Callejas having received any advice from Mr Shacklady as to their contents. Mr Shacklady gave evidence that although he had never worked for Prime, Mr Ainsworth, or sometimes Prime’s solicitors, would ring him about once every six weeks to ask him to witness documents for clients of Prime, which he would do for cash payment, without taking file notes, or keeping copies of documents, or opening a file or issuing an invoice for work done. The primary judge also accepted evidence of the solicitor representing the Callejas in this litigation that Mr Shacklady sought to avoid service of a subpoena.

37. The primary judge then turned to the issues raised by the two execution pages numbered 31 and bearing different footers. The primary judge stated at [323] that “in the overall context of the circumstances in which I have concluded that this loan agreement was reached, I am left wondering whether Ex. D is a fraud.” Ultimately, her Honour found at [327] that:

“I am satisfied that Mr and Mrs Calleja signed the distinctive page 31 of the loan agreement, but I cannot be satisfied that the balance of the pages were annexed to it at the time. That is, I cannot be satisfied, even on the balance of probabilities, that the loan agreement Prime relies upon to found its claim for possession of the Heatherbrae property is the loan agreement Mr and Mrs Calleja signed.”

38. On the question of authority, her Honour said that she was “not able to accept Prime’s case that it acted with the authority of Calleja PJC when it made the payments recorded in the settlement sheet”: at [334].

39. Her Honour had ruled inadmissible certain file notes from Baycorp’s records which are the subject of grounds 1, 2 and 3 of this appeal and are addressed in detail below. Consequently, the only evidence on the question of authority consisted of the testimonial evidence of Mr Scanlon on the one hand together with some telephone records and emails which Prime asserted confirmed his account, and the testimonial evidence of the Callejas and Mr Bugeja on the other.

40. The primary judge referred to Mr Scanlon’s evidence that Mr Bugeja instructed him to make the payment to Bankwest on 1 April 2017, and that on 17 April 2017, after payments had been made, he said in a phone call to Mr Calleja that “we have paid out the Bankwest mortgage including arrears, and the Baycorp debt”. Her Honour did not accept that call records demonstrating a number of calls made on 17 April 2017 from Mr Scanlon to Mr Bugeja supported his account, on the basis that the longest of the calls was no longer than two minutes, and that this was not a sufficient length of time for the sorts of conversations to which Mr Scanlon deposed to have occurred.

41. Her Honour resolved the conflict in favour of the Callejas, referring to Mr Scanlon’s policy not to make file notes, her impression of Mr Scanlon’s evidence in light of the documentary evidence which had been admitted and her impression that Mr Scanlon had not been “a persuasive witness”, who “had the veneer of credibility without the substance” and whom she regarded as “insincere”: at [344]. Her Honour concluded:

“On all the evidence I do not accept that Prime has established that it acted with authority before making the payments it did on or around 5 April 2015, and which are detailed in the Settlement Statement dated 17 April 2015. Neither Mrs Calleja nor any person on behalf of Calleja PJC had authorised the payments, orally or in writing, nor had any person associated with the company known what Prime intended to do with the purported loan monies”: at [355].

42. Her Honour said that Prime’s enforcement action taken following the asserted default took place with “what could only be described as extraordinary haste” which was “motivated by a desire to take possession of Ms Calleja’s secured asset as quickly as possible”: at [359].

43. Her Honour concluded as follows:

“It follows from those matters referred to above that Prime has failed to make out its case. It has failed to establish the liability of Mrs Calleja or Calleja PJC for the payment of monies by the Calleja interests; it has similarly failed to establish any entitlement to possession of the Heatherbrae property”: at [365].

In addition to those findings, the primary judge found that Prime had paid the monies in order to secure its own interests in gaining access to the Calleja assets, and that it had acted unconscionably: at [366](21).

44. Under the heading “A Just Resolution”, the primary judge rejected Prime’s fallback submission that, as monies had been paid to the benefit of Ms Calleja, orders should be fashioned such that Ms Calleja not receive a windfall benefit. Her Honour held that because (a) some $87,140 in interest payments had been paid, (b) Calleja PJC had continued to pay truck rental because the loan monies were insufficient to buy trucks and (c) the Callejas were diverted from business activities by the demands of the court case, they had lost amounts which, although unquantified, she was satisfied were equivalent to or exceeded the monies paid by Prime. Her Honour also made a costs order in favour of the Callejas on an indemnity basis, “[h]aving regard to the findings of the Court as to Prime’s unconscionable conduct”.

Grounds 1-3: rejection of the Baycorp documents

45. Prime challenged the rejection by the primary judge of the tender of the Baycorp file notes. In order to deal with these grounds, which are dispositive of the appeal, it is necessary to set out in some detail the way the file notes came to be produced to the court, and tendered in the litigation, as well as to describe their nature.

The production of documents by Baycorp

46. The matter had been listed for hearing in February 2017, but that was vacated on Ms Calleja’s application in circumstances identified in Prime Capital Securities Pty Ltd v Calleja; Calleja PJC Furniture Freighters Pty Ltd v Prime Capital Securities Pty Ltd [2017] NSWSC 116, and the trial was relisted to start on Monday 30 October 2017 with an estimate of 4 days.

47. In belated answer to a subpoena issued on 17 May 2017, Baycorp supplied, under cover of a letter dated 16 October 2017, addressed to the Court’s Registrar, the 12 pages of “file notes” which were the subject of the interlocutory ruling of the primary judge. The subpoena had called for the production of “all documents evidencing or constituting any communication during the 2014-15 financial year in relation to (a) the caveat and/or (b) any debt owing to Capital Finance by Elizabeth Calleja.” Baycorp’s letter stated that it did not hold any documents in relation to the caveat, and further that:

“In the financial year 2014-15 Baycorp did hold an assigned Capital Finance debt in the name of the defendant. We enclose:

• Our file notes for this period.

• A copy of our email communication with the defendant for this period.

We believe this completes our obligations under the Subpoena.”

(Nothing turns on it, but so far as the evidence reveals, there was no debt owing to CFAL by Ms Calleja, but rather, she had guaranteed the loans made to her company.)

48. No objection was taken to the four emails which had been produced which have the appearance of having been printed out and retained in a Baycorp file. Each has had a stamp applied to it in which someone has written in hand details as to the client number, the case number and whether the email is “corro in” or “corro out”. One of those emails was from Ms Amanda Hammond, senior portfolio manager of Baycorp, to Mr Gregory Conomos (of Gadens, Prime’s solicitors) copied to an email address associated with Calleja PJC dated 20 February 2015 at 11:17am which stated relevantly:

“As per our discussion today, please be advised Baycorp are prepared to accept $60,000 as full and final settlement to close the above-mentioned file on the conditions that the funds are cleared into Baycorp’s account by close of business 26/02/2015.”

49. The 12 pages to which objection was taken were a copy of the document provided by Baycorp to the Court in response to Prime’s subpoena. The pages commenced with Baycorp’s logo and the heading “Baycorp Files [sic] Notes from 1 June 2014 to 31 May 2015.” No explanation was given for why they referred to a slightly earlier 12 month period than that required by the subpoena. The pages contained three boxes containing text with the appearance of being derived from an electronic system for maintaining file notes. Each of the boxes appears to be a screenshot from a computer, which has then been copied and pasted into a word processing document. That inference is supported not merely by the form of the boxes, but also by the fact that the 13th character in the second line in a majority of the boxes has a highlighted underscore, consistently with the position of a cursor on the screen.

50. The first box contains details of the debt, the client and the “work” (Baycorp’s business evidently involved taking assignments of debts and enforcing them, and thus it identified the “client” as CFAL and the debtor as Ms Calleja and a Calleja company). All of the other boxes were in the same form. Each line in each box commences with an eight digit number representing a date followed by a variety of information, including payments made by the debtor (in which case an 18 digit identification number as well as the amount was recorded). Other entries included:

“20150131 INTEREST ADDED C 1 months, [email protected]% 503.92”

51. There were many entries giving a date and then stating “DOC SCANNED: CORRO OUT” or “DOC SCANNED: CORRO IN”. On occasion, the file notes included the text of an email. For example, there are the following entries:

“20150209 cld Ruthe – NOA unable to lmtcb

20150209 ********** SENT EMAIL TO ATT: RUTHE…

20150209 Hi Ruthe,

20150209 I have tried to contact you today in relation to our

20150209 conversation last Wednesday the 04/02/2015.

20150209 Could you please return my call on 1300 xxx xxx

20150209 Thank you.”

52. (Other documents identified a Ms Ruthe Glover as an employee of Calleja PJC.) The email of 9 February 2015 was one of those provided by Baycorp to which no objection was taken. It is in identical terms to what is recorded in the file notes.

53. There were numerous entries purporting to record unsuccessful attempts to contact the debtor, and leaving messages to call back. On 4 November there are entries stating that an unnamed person “swd” (which may be “spoke with debtor”) and they continue (what follows is reproduced verbatim):

20141104 Swd cid msd, asked dtr how she was wanting to resolve this

20141104 matter – dtr adv all she can do is pay $500.00 PW , adv

20141104 dtr she is still being charged interest & asked for a lump

20141104 sum to hold interest – dtr adv can’t come up with anything,

20141104 dtr then advised it is hard to pay because people arent

20141104 paying her on time etc.. adv dtr if theres any problems

20141104 with payments i the future to call & stay on top of it ,

20141104 advised if arrangement breaks this file is at risk of litig

20141104 ation. DTR said she understands but thats all she can do

20141104 (time of call 8:30am)”.

54. There were other instances in the file notes recording the possibility of litigation.

55. It is as well to reproduce what, in Prime’s submission, were the most important of the entries included in these file notes, which are entries in three boxes dated 20 February 2015.

text version - first entry in box dated 20 February 2015 (32.3 KB, rtf)

text version - second entry in box dated 20 February 2015 (32.2 KB, rtf)

text version - third entry in box dated 20 February 2015 (32.2 KB, rtf)

56. Finally, each of the twelve pages contained a footer giving not merely the page number but also containing the words “subpoena 2016/00155378 filed 17 May 2017”.

The way the objection was advanced before the primary judge

57. The 12 pages of file notes were included in the Court Book prepared by Prime shortly before the trial commenced. Ms Calleja provided an initial list of objections to evidence, which made no objection to any document in the Court Book. By her amended objections to evidence dated 29 October 2017, Ms Calleja objected to the 12 pages in the Court Book, which were “tab 61”, comprising the Baycorp file notes. There were no other objections to the Court Book.

57. The trial commenced on Tuesday 31 October 2017. The hearing had been set down for four days commencing on the Monday, but could not start on that date due to what has become known as the “Great Flood of 2017”. The hearing took place in a courtroom made available on short notice other than in the Law Courts Building. Mr Young advised that he thought the matter could be heard in three days. Ms Obrart was less confident. An additional day was made available on Friday 3 November.

58. Prime advised that objection had been taken to the Baycorp file notes and that it anticipated that there would need to be some argument over it. Perhaps because Mr Shacklady was attending court to be cross-examined, the primary judge deferred the question of admissibility of the Baycorp file notes until later. Neither side objected to that course.

59. Over the next two days, the trial proceeded. It became obvious that the hearing would not be completed in four days. The primary judge said that in that case, she had no dates until the middle of 2018, because of a large criminal trial. However, at 2pm on 1 November, her Honour advised that her hearing the following week had collapsed, and that she could therefore offer up to four days in that week. At the end of that day, the primary judge said, with the agreement of counsel, that she would set the matter down for four days next week “on the basis they will be needed, and able to be concluded in this year”.

60. On 2 November 2017, Prime closed its case. Thereafter, Mr Bugeja was cross-examined, relatively briefly, and excused. The cross-examination of Ms Calleja commenced on 2 November 2017 and continued on Monday 6 November 2017. On that morning, Mr Young turned to the topic of Ms Calleja’s conversations with officers of Baycorp and the question of admissibility of the Baycorp file notes arose in the following way. Ms Calleja adopted an unusual stance.

OBRART: Tab 61, my friend reminds me. I hope this isn’t too unusual, your Honour, but could I make some brief submissions about these documents without reaching, perhaps, a level of total objection?

HER HONOUR: I should just note, before you go on, this document at tab 61 was only provisionally admitted. It was subject to objection and later ruling. If there is an issue about it, then I may have to determine that at this point.

OBRART: Yes, it may be appropriate to visit that now. Thank you, your Honour. The approach that Ms Calleja wishes to take to these documents is this; she does not wish to keep out of evidence any documents which genuinely could render assistance to the Court. In that regard I wish to just point out some features of these documents, and then perhaps then just even leave it to the Court as to whether they should be admitted into evidence, or on what basis.”

62. When it was confirmed that the tender was based on the business records exception to the hearsay rule, Ms Obrart made a series of points directed to the documents not being business records. She pointed to the title and the footer, each of which plainly had been prepared in answer to the subpoena in 2017. She accepted that the documents “have the appearance of having been derived in some fashion from what would be business records”, but submitted that “these documents themselves were created”. She then said that some of the material in the records was objectively verifiable with other information in evidence, and “in respect to those parts, there would be no objection”. However, she said that “where there is a matter that is not objectively identifiable, there could be real inaccuracy and real prejudice.” She concluded:

“But having said that, the overall position of Mrs Calleja is to the extent that the documents would genuinely be of assistance and conveying accurate facts to the Court, they would not be kept out. It seems to be at least that’s not true in part of these documents. I would take the matter to a formal objection, except that with a proviso if the Court otherwise thought they were helpful--”.

63. Mr Young, understandably, said that it was not clear whether his opponent was objecting to the documents or objecting to part of the documents. On one view, part of what was occurring was an implicit request for Prime to identify the particular representations in the documents which were claimed to be exempt from the operation of the hearsay rule.

64. The primary judge regarded what Ms Obrart had said as amounting to an objection on two bases. First, Ms Calleja was objecting to the whole of the documents on the basis that “they have been specifically produced in response to a subpoena that would suggest that they may not be caught by s 69”. The primary judge said that even if the documents were caught by s 69 and might otherwise be admissible, “the content of them is such as to bring into serious question their accuracy and therefore, as I understand it, the Court may exclude them in the exercise of discretion, even if they come within s 69”. Ms Obrart did not demur from that characterisation of what she had said. Mr Young responded accordingly.

65. Mr Young confined his tender to the black boxes, excluding the title and footer. The parties exchanged submissions in which Mr Young emphasised the inference that the content and detail in the documents suggested that the record had been prepared by someone personally aware of its contents, even though in many cases the individual author of the entry was not named. During her submissions, Ms Obrart pointed to a series of defects in the documents which suggested, in her submission, that the documents were both incomplete and inaccurate, in support of a submission that the whole of the documents should be excluded, subject to the proviso that to the extent there was a particular line that Prime sought to tender that was otherwise corroborated or not objected to, that could be a way to proceed.

66. The primary judge took the short adjournment and rejected the tender on the basis that she was not satisfied that the documents were business records and that even if they were, they should be excluded in the exercise of discretion because they were incomplete or inaccurate. Her Honour gave formal reasons at 2pm.

The reasons of the primary judge

67. The primary judge observed in her reasons that, in order for s 69 of the Evidence Act 1995 (NSW) to be satisfied it was necessary for the Court to be satisfied that the documents were the records or part of the records kept by Baycorp relevant to its dealings with the Callejas, that they contained a previous representation made in the course of Baycorp’s business, and that the representation was made by a person with personal knowledge of it, or who had received that information from someone who did. Her Honour said that:

“the only evidentiary basis upon which the conclusions could be made are the documents themselves”.

68. Her Honour then said, with respect correctly, that the content of the documents could go some way to establishing that, in that parts of the documents had the appearance of the sort of records Baycorp might keep. Her Honour noted that their title was “Baycorp files notes”, and that they were prefaced by a letter from Baycorp’s General Counsel indicating that they were file notes. However, her Honour was concerned about both the authenticity of the documents and whether they contained representations made by a person with personal knowledge of the representations or representations deriving from such a person. The primary judge said that the heading and the footer on each of the pages were not parts of a record contemporaneously made. Her Honour said that both the heading and the footer changed the document and “raises the prospect that what has been produced has been tailored or otherwise edited for production”. Her Honour noted that it was not proposed to call anyone from Baycorp to explain the header or the footer. Her Honour proceeded on the following basis:

“If the Court is to be asked to take the documents as proof of their nature and origin, those things should be unequivocally clear from their face. That is not the position.”

69. On the question of whether the representations had been made by a person with personal knowledge or recorded information from such a person, the primary judge observed that the records “generally have the appearance of a contemporaneous computer record made by a person who undertook the recorded activity”. However, her Honour then identified a series of entries which, in her Honour’s view, called this into question. Those matters were essentially twofold:

1. Each of the telephone numbers identified as that of Ms Calleja was missing its last digit. Her Honour said that the number was “non-existent”, and observed that although it was a small error, which might represent no more than a typographical error, “where records are relied upon to prove themselves, small errors may say a great deal”. Her Honour identified 13 occasions when this occurred.

2. There was also said to be a “significant error” contained in the entry for 17 April 2015, which was “PMT made by debtor to ARL 032003000006092wbc B/CHQ 62877.61”. Her Honour said that “anyone with personal knowledge of this payment would have known that the payment of $62,877.61 was not in fact made by the debtor.”

70. Her Honour said that those aspects called into serious question the authenticity and the knowledge of the person or persons who made the entries in them. Her Honour was not satisfied that the documents were “genuine” business records, being “unamended and unedited business records”, and rejected the tender on that basis.

71. Her Honour also declined to admit the documents under s 135 of the Evidence Act. That section provides:

“The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:

(a)  be unfairly prejudicial to a party; or

(b)  be misleading or confusing; or

(c)  cause or result in undue waste of time.”

72. The entirety of her Honour’s reasons on this basis were as follows:

“If I am wrong in that conclusion, I would reject the tender of the documents in the exercise of the Court's discretion pursuant to s 135 of the Evidence Act.

It is clear that the record is an incomplete record. It does not, as I have already noted, contain any information prior to 1 June 2014, including what seems to be a critical matter to a fact in issue, being the agreement said to have been reached by Mrs Calleja and Baycorp for payment by $500 instalment payments of the debt owed. There are also inaccuracies, as I have noted. The incomplete nature of the record, coupled with the inaccuracies, could work a significant unfairness to the defendant and therefore be unfairly prejudicial. Section 135 of the Evidence Act is thus enlivened.”

73. Grounds 1-3 challenge the rejection of this evidence. Ground 1 is expressed generally. Ground 2 was that there was error in finding that the documents were not business records, and ground 3 was that there was no unfair prejudice because there was no fact in issue concerning the dealings with Baycorp prior to the financial year ended 30 June 2015.

74. It is not necessary to summarise Prime’s submissions in support of those grounds. Ultimately, it became clear in this Court that Ms Calleja sought to maintain the ruling of the primary judge on three bases:

1. the primary judge was correct to conclude that the business records exception to the rule against hearsay had not been established;

2. there was no error in the exercise of discretion under s 135, and

3. in any event, non-admission of these 12 pages did not have a material effect on the trial.

Documents and copies of documents

75. In light of the reasons of the primary judge and the submissions made in this Court as to the significance of the header and footer to the documents, it is necessary to return to first principles.

76. First, Prime did not seek to tender the documents produced on subpoena. Instead, it placed a photocopy of Baycorp’s letter and the documents it enclosed in answer to the subpoena in the Court Book, and it was the copy which was sought to be tendered.

77. This must happen dozens or hundreds of times every day in Australian courts. Rather than tendering an original document, a copy is tendered. The process is ordinarily entirely uncontroversial, although (as this trial illustrates) it is not uncommonly desirable to tender the original documents.

78. The best evidence of the documents produced in answer to the subpoena was the original of those documents. However, the Evidence Act facilitates the tender of secondary evidence of documents, notably by ss 47 and 48, supported by a regime for parties to make requests to test the authenticity of such secondary evidence in Part 4.6. Sections 47 and 48 relevantly provide:

“47(1) A reference in this Part to a document in question is a reference to a document as to the contents of which it is sought to adduce evidence.

(2)   A reference in this Part to a copy of a document in question includes a reference to a document that is not an exact copy of the document in question but that is identical to the document in question in all relevant respects.

48(1)    A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods:

...

(b) tendering a document that:

(i)    is or purports to be a copy of the document in question, and

(ii)    has been produced, or purports to have been produced, by a device that reproduces the contents of documents;

...

(d) if the document in question is an article or thing on or in which information is stored in such a way that it cannot be used by the court unless a device is used to retrieve, produce or collate it—tendering a document that was or purports to have been produced by use of the device,

...”

79. To be clear, the pages sought to be tendered were on no view Baycorp’s actual file notes. They were copies of the pages which had been produced to the Court by Baycorp in answer to a subpoena. I mention this because of its similarity with the different submission which found favour with the primary judge and which was repeated on appeal.

80. The original documents produced on subpoena were, likewise, not Baycorp’s original file notes. Instead, they were pages which had the appearance of having been brought into existence in 2017 from an electronic system to record payments, letters, emails and telephone conversations relevant to a particular debt. Each page contained information which bore two very different characters.

1. On the one hand, there was the footer, and in the case of the first page, the logo and heading, which plainly had been brought into existence in 2017 in answer to the subpoena.

2. On the other hand, there was the information in the black boxes, comprising lines of notations following a date in 2014 or 2015, which appeared to reproduce screenshots of an electronic system for recording file notes.

81. Subsection 47(2) and 48(1) have application here, although they were not drawn to the attention of the primary judge. The fact that the pages produced on subpoena include some words and numbers which were added in 2017 does not preclude the pages from being copies of Baycorp’s file notes from 2014 and 2015. The pages produced on subpoena are not exact copies (because of the logo and the heading and the footers), but admissibility does not depend on the document being an exact copy: R v Giovannone [2002] NSWCCA 323 at [57]. The pages purport to be a copy which is identical in all relevant respects, which is sufficient. The heading and footers are not relevant to any issue in the litigation (and indeed were excluded from the tender). The screenshots “purport to have been produced” by use of Baycorp’s electronic records system, within the meaning of ss 48(1)(b)(ii) and/or 48(1)(d), and the 12 pages purport to reproduce the entirety of the entries in the electronic record system between June 2014 and May 2015, which are identical “in all relevant respects” within the meaning of s 47(2). (It may be that some of the provisions directed to facilitation of proof contained in Div 1 of Pt 4.3 of the Act would also be available to strengthen the inference that the pages are what they purport to be, but it is not necessary to express a view on that.)

82. I have engaged in the detail of what the 12 pages purport to disclose in light of the submissions advanced on appeal and accepted by the primary judge. It may be doubted that in many or most cases, where no question of authenticity arises, that this level of detail would be warranted when a party seeks to tender a document purporting to have been produced from electronic records maintained for the purposes of a business.

The business records exception to the hearsay rule

83. The “hearsay rule” is found in s 59(1) of the Evidence Act. The rule is that “Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.” The rule is subject to various exceptions, of which presently relevant is the exception for business records contained in s 69. That section is in the following terms:

“69(1)    This section applies to a document that:

(a) either:

(i)   is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or

(ii)    at any time was or formed part of such a record; and

(b)    contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.

(2)    The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:

(a)    by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or

(b)   on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.

(3)    Subsection (2) does not apply if the representation:

(a)    was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding; or

(b)    was made in connection with an investigation relating or leading to a criminal proceeding.

(4)    If:

(a)    the occurrence of an event of a particular kind is in question; and

(b)   in the course of a business, a system has been followed of making and keeping a record of the occurrence of all events of that kind;

the hearsay rule does not apply to evidence that tends to prove that there is no record kept, in accordance with that system, of the occurrence of the event.

(5)    For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person’s knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).”

84. The following propositions are applicable to those provisions.

85. First, the onus lay on the party seeking to tender the documents (Prime) to establish that the exception in s 69 applied: Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at [17]. The primary judge proceeded on that basis. It may be noted that although some of the Baycorp file notes referred to the possibility of litigation, the primary judge did not rely on the qualification in s 69(3). Although the matter was raised during the hearing, it was no part of Ms Calleja’s submissions that the documents were made in contemplation of litigation, a stance which in my view it was correct to adopt, because there is insufficient connection with litigation. Thus the qualification in s 69(3) may be put to one side; cf Averkin v Insurance Australia Ltd (2016) 92 NSWLR 68; [2016] NSWCA 122.

86. Secondly, it is important to recognise the distinction drawn in s 69 between a “document” and a “representation”. The first limb of the exception turns on the nature of the document. That in turn picks up ss 47 and 48. Neither party addressed submissions to these provisions. Putting them to one side, the Court needed to be satisfied that the file notes are or form part of the records belonging to or kept by Baycorp “in the course of, or for the purposes of, a business”, or “at any time was or formed part of such a record”.

84. The second limb of the exception turns on the particular representation contained in the document the admission of which would otherwise contravene the hearsay rule. It is necessary for the court to be satisfied that each relevant representation was made “by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact or on the basis of information directly or indirectly supplied” by such a person.

85. To the extent that s 69(2) is satisfied in respect of that representation, then to that extent the hearsay rule does not apply to the document: Lithgow City Council v Jackson at [17]. The distinction between document and representation was not always observed during the submissions made to the primary judge or in this Court.

86. Thirdly, s 69(2)(a) and (b) and (5) all contain references to “or might reasonably be supposed to have had personal knowledge”. It is well settled, as McDougall J observed in Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 984 at [19], that those words indicate that the Court is allowed to draw inferences not just from the form of the document, but from the nature of the information contained in it: see (for example) Lin v Tasmania [2012] TASCCA 9 at [87] (Tennent and Porter JJ) and Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214 at [48] (Hansen, Ferguson and McLeish JJA).

87. Fourthly, the same reasoning as to the availability of inferences applies to the first limb of s 69, when read with ss 48(1)(b). That paragraph refers to “purports to be a copy” and “purports to have been produced”, statutory language which authorises inferential reasoning from the form and context of the document.

88. Fifthly, and consistently with the last two points, s 183 of the Evidence Act authorises a court to draw reasonable inferences from the document itself as well as from other matters from which inferences may properly be drawn. That provision provides that where a question arises about the application of the Act to, inter alia, the operation of s 69 to a document, then the court may “draw any reasonable inferences” from the document as well as from other matters from which inferences may properly be drawn.

89. A similar provision was found in s 14CL of the Evidence Act 1898 (NSW) (introduced in 1976). In Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 at 548B–D, Hope JA relied on s 14CL and the “form and contents of the consultation sheets themselves” to infer that the documents were business records and contained statements made by a qualified person. See further P Wood “The Admissibility of Business Records with Special Reference to New South Wales” (1986) 14 Australian Business Law Review 245 at 254-6.

90. All of these provisions undercut the traditional “best evidence” rule, consistently with s 51 of the Evidence Act 1995 (NSW), which provides “the principles and rules of the common law that relate to the means of proving the contents of documents are abolished.” As Sackar J has observed, such provisions are of considerable antiquity and serve a useful purpose. In Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858 at [81]-[82] his Honour observed:

The special status accorded by the rules of evidence to business records has long been recognised, albeit in varying and more limited degrees (see for example, Thomas Peake, A Compendium of the Law of Evidence, 3rd ed (1808) Luke Hanfard & Sons at page 92 and Edmund Powell, The Practice of the Law of Evidence, (1856) Law Times Office at page 121 and following). The policy underlying the business records provisions (in what was then Part IIC of the Evidence Act 1898) was explained by Hope JA in Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 (at [6]-[7]) and is relevant to the present form of the business records provisions:

[6] ... Pt IIC ... has extended the common law rules of evidence in a way which is of great importance in the search for truth. Any significant organization in our society must depend for its efficient carrying on upon proper records made by persons who have no interest other than to record as accurately as possible matters relating to the business with which they are concerned. In the every-day carrying on of the activities of the business, people would look to, and depend upon, those records, and use them on the basis that they are most probably accurate.

…

When what is recorded is the activity of a business in relation to a particular person amongst thousands of persons, the records are likely to be a far more reliable source of truth than memory. They are often the only source of truth.”

Application of s 69(1) to the Baycorp documents

94. Ms Obrart conceded, very properly, that the file notes were derived from documents which comprised business records of Baycorp. So much is patent on the face of the documents.

95. The primary judge proceeded on the basis that “the only evidentiary basis upon which the conclusions could be made are the documents themselves”. That may have been a slip, in a judgment delivered ex tempore, because her Honour with respect correctly noted that (a) the documents were produced in answer to a subpoena which called for documents evidencing communications during the 2014-15 financial year in relation to any debt relating to Capital Finance by Ms Calleja, and (b) that the General Counsel of Baycorp wrote to the Registrar of the Supreme Court of New South Wales that the documents supplied in answer to the subpoena were “our file notes for this period”.

96. The primary judge was correct to proceed on the basis that the onus lay on Prime to satisfy the conditions in s 69(1) and (2). However, with respect, the “unequivocal clarity” to which the primary judge referred discloses error. It was sufficient for Prime to establish to the civil standard the facts necessary for deciding whether s 69 was satisfied: s 142.

97. The primary judge placed much weight upon the heading and footer which has, quite plainly, been added to the 12 pages at the time they were being prepared in answer to the subpoena in 2017 and could not have been records made in 2014 or 2015. But those parts of the document, which are readily distinguished from what appeared to be the electronic recording system maintained by Baycorp, do not prevent the operation of s 69(1) when read with ss 47(2) and 48(1)(b).

98. There was an overwhelming inference that the documents were copies of business records of Baycorp. The fact of production pursuant to court order is evidence to which the Court may have regard in determining whether s 69 is satisfied. The letter from the General Counsel of Baycorp advising the Registrar that he was supplying his company’s file notes is further evidence supporting a finding that the documents supplied were copies of the file notes and therefore fell within s 69(1) when read with s 47(2) and 48(1)(b). And the content of the documents, replete with entries which could only have been made contemporaneously, confirms this. There was nothing to preclude the conclusion that, to the civil standard of proof, the boxes reproduced on each of the pages were copies of screenshots of electronic records maintained by Baycorp for the purposes of its business; to the contrary, that is the finding which should have been made.

National Australia Bank Ltd v Rusu

99. In support of her objection to the tender of the 12 pages of file notes, Ms Obrart relied upon a single decision, National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539. Neither party made submissions on the decision. In it, Bryson J rejected the tender of documents apparently obtained on subpoena from the Advance Bank and tendered as business records on the basis that:

“So far as I am aware there is no judgment which has decided that under the Evidence Act 1995 the authenticity of a document tendered in evidence may be determined simply on the basis of the form and contents of the document or on that basis taken with information about the source from which it was produced showing that it was produced on subpoena and by whom”: at [28].

100. In making that ruling, Bryson J lacked the benefit of argument. All of the defendants who opposed the tender were unrepresented; further it seems that none of them spoke English, there was no skilled interpreter and the defendant most directly affected by the tender, the second defendant, was not present at the hearing because, so the Court was told, he was in prison: see at [12]. His Honour does not appear to have been taken to s 183, nor do his reasons mention that section. The absence of argument in Rusu was emphasised by V Bell, “Documentary Evidence under the Evidence Act 1995 (NSW)” (2000) 5 The Judicial Review 1 at 3.

101. Regrettably, the primary judge was not referred to s 183, nor the authorities on that section referred to above, nor to the authorities which have either doubted this aspect of the reasoning in Rusu or indeed considered it to be plainly wrong. Without being exhaustive, in Australian Competition and Consumer Commission v Air New Zealand (No 1) (2012) 207 FCR 448; [2012] FCA 1355 at [94]-[104], Perram J held that the decision was plainly wrong and declined to follow it. His Honour’s reasons were approved by White J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342 at [93]-[94]. They have also been endorsed in N Williams et al, Uniform Evidence in Australia (LexisNexis Butterworths Australia, 2015), p 312. On the other hand, parts of the reasoning in Rusu were endorsed in Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25 at [46] and in J D Heydon, Cross on Evidence (LexisNexis Butterworths Australia, 11th ed 2017), pp 1448, 1516. See also the analysis by Brereton J in Re Wollongong Coal Ltd (formerly known as Gujarat NRE Coking Coal Ltd) [2014] NSWSC 1952 at [7]-[15]. Most recently, this Court noted that aspects of Rusu are controversial, without deciding its correctness, in Bobolas v Waverley Council (No 4) [2015] NSWCA 337 at [42].

102. This Court heard no submissions on the correctness of Rusu and it is sufficient to note the foregoing, and to observe that it is regrettable that her Honour was not given the assistance to which she was entitled on this issue.

The application of s 69(2) to the Baycorp documents

103. Turning to the issues raised by s 69(2), the primary judge was also concerned that Ms Calleja’s telephone number was incompletely recorded in the file notes (it appears to have been missing its last digit on every single occasion it was recorded, save for one entry on 24 January 2014). There is no explanation for how this occurred, and it was appropriate for her Honour to have regard to this. However, the question raised by s 69(2) goes to the nature of the particular representation sought to fall outside the hearsay rule. I accept that it is possible in theory for a concern about authenticity of one aspect of a document to inform the question whether a representation elsewhere found in the same document satisfied s 69(2). But if the course required by s 69(2) had been adopted, and Prime had identified the representations sought to be excluded from the operation of the hearsay rule, then it would have been easier for the judge to have correctly framed the concern about the inaccuracy of the telephone number.

104. The primary judge regarded the entry for 17 April 2015 as containing a “significant error” because her Honour formed the view that “someone with personal knowledge of this payment would have known that the payment of $62,877.61 was not in fact made by the debtor.” I respectfully disagree.

105. Documents which were not the subject of objection established with a very high degree of probability that Baycorp was paid on 17 April 2015 by cheque provided by Prime:

1. By email dated 13 April 2015, Baycorp advised Gadens that the outstanding balance was $62,877.61 and Baycorp’s Westpac account details were provided.

2. An email sent from Gadens on the afternoon of 16 April 2015 advised that a settlement had been tentatively booked in for the following day and that three cheques, for Capital Finance, Kemp Strang and Baycorp were required.

3. Primary records showed that Prime’s own bank account was debited in the amount of $62,877.61 on 17 April 2015.

106. It may readily be inferred that Prime supplied a cheque in the amount of $62,877.61 and either delivered it to someone on behalf of Baycorp at a settlement on 17 April 2015 or else presented it to Baycorp’s bank on that day. The “significant error” to which the primary judge referred, as I understand it, was that the file note referred to that payment being made by the debtor (ie Ms Calleja) whereas in fact it was made by cheque supplied by Prime with funds lent by Prime to the debtor. That is a very fine distinction. For example, although it is conventional to say that a customer may “pay” a merchant using a credit card, what may in fact be happening is that the customer’s financial institution pays the merchant’s financial institution and increases the customer’s indebtedness to it: see for example Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300; [2003] FCA 977 at [71]. As Perram J has observed, “only a pedant would protest that a woman who buys a pair of shoes on a credit card has not paid for them”: Commissioner of Taxation v Rozman (2010) 186 FCR 1; [2010] FCA 324 at [20]. His Honour records many authorities to the effect that payment can be by direction at [23].

107. What is more, the numerous entries in the 12 pages of file notes which commence with the words “PMT MADE BY DEBTOR” all have the appearance of having been automatically generated. Each such entry includes a lengthy alphanumeric identification followed by an amount. The earlier instances in the 12 pages appear to involve payments made by BPAY (an example is in the fifth row of the first box reproduced above). There is every reason to think that those entries were automatically generated, for there is no reason for an automatically generated number to be manually typed into the system every time a payment is made. Her Honour’s reasons do not address the significance of this aspect of the file notes.

108. True it is that the identity of the person within Baycorp who made the representations is not known. In cases where the identity is given, that may assist establishing the knowledge requirement of s 69(2) (it may also tend to detract from establishing that requirement). But as is plain from the face of the section, as well as from Hely J’s judgment in Lee v Minister for Immigration and Multicultural Affairs [2002] FCA 303 at [22], it is not necessary that the identity of the person be known.

109. In order to apply s 69(2), it is necessary to look to the particular representations which are said to be outside the operation of the hearsay rule: see for example Panayi v Deputy Commissioner of Taxation [2017] NSWCA 93 at [17]. In this Court, Prime relied on the statements to Ms Calleja that litigation was possible, and Ms Calleja’s offer to pay $60,000 to “settle in full” the indebtedness to Baycorp. The inference to be drawn is that the file notes disclose a series of representations reflecting conversations made at the same time as, or immediately before, the file notes were made, by the person who participated in those conversations.

110. Accordingly, the documents were admissible and the two representations on which Prime sought to rely in this Court are not caught by the hearsay rule.

Discretionary rejection pursuant to s 135

111. The second basis upon which the primary judge excluded the file notes was in the exercise of discretion under s 135 of the Evidence Act. Her Honour stated that the file notes contained no information prior to 1 June 2014. That reflects the limited nature of the subpoena to which they were produced in response. Her Honour also stated that the omission included a “critical matter to a fact in issue”, being the agreement reached between Ms Calleja and Baycorp for payment of $500 per week. Mr Young said that this was neither a fact in issue, nor was it a critical matter. No submissions were made in response to that submission, which I would accept.

112. The reasons of the primary judge on s 135 were confined to explaining why there was the possibility of unfair prejudice to Ms Calleja flowing from the inaccuracies and incomplete nature of the record. I respectfully disagree. I do not regard the reference to a payment being paid by the debtor as inaccurate, let alone prejudicial. There is no prejudice in the fact that most references to Ms Calleja’s telephone number omit a digit. I would not infer prejudice from the possibility that the document has been altered.

113. Further, a determination of the risk of unfair prejudice required attention to the steps, if any, taken between the time when Prime sought to rely on the file notes, and the time when the objection was taken. That is a period of at least a fortnight, and included two working days (Monday 30 October and Friday 4 November) when the trial did not proceed. There is nothing to suggest that Ms Calleja’s lawyers availed themselves of any of the procedures authorised by Part 4.6 of the Evidence Act. Section 167 entitled reasonable requests to be made about the Baycorp file notes, including the particular representations which were claimed to be outside the hearsay rule, or the circumstances in which belated production had been secured. The sanctions for non-response included an order that the documents not be admitted: s 169(1)(c). Or, more directly, Ms Calleja’s solicitor could have written or spoken with Baycorp’s General Counsel and inquired how the documents had been produced, and if it was perceived to be necessary, could have sought leave to issue a further subpoena to Baycorp.

114. But there is a more fundamental reason why this aspect of the decision cannot be upheld. The question of the risk of unfair prejudice is only one of the three matters to which s 135 requires the Court to have regard.

115. Section 135 is a much more complex provision than, say, s 136, which authorises orders limiting the use of evidence merely upon the court being satisfied of a risk of unfair prejudice. In order to apply s 135, it was necessary for the primary judge to consider two further aspects: (a) to make an assessment of the probative value of the evidence and (b) then to assess whether that probative value was “substantially outweighed” by the danger that the evidence might be unfairly prejudicial. With respect, the reasons do not disclose any process of analysis answering what was required in these second and third steps under s 135. The omission is substantially the same as that identified by this Court in Australian Securities and Investments Commission v Rich [2005] NSWCA 152; 218 ALR 764 at [163] and James Hardie Industries NV v Australian Securities and Investments Commission [2009] NSWCA 18 at [31]-[32]. Although Ms Obrart contended to the contrary, it is plain on a fair reading of the reasons that this did not occur. In order to have done so, it would have been necessary for the primary judge to have proceeded, contrary to her view, on the basis that the documents were business records containing representations which were not excluded by the hearsay rule, to have identified the probative value of those representations in light of the issues between the parties, and then asked whether that was substantially outweighed by the risk of unfair prejudice.

116. For all those reasons, the exercise of discretion under s 135 has miscarried.

Utility

117. Ms Calleja’s final submission was that even if the Baycorp file notes were wrongly rejected, it did not affect the outcome of the trial.

118. It will be recalled that hotly in contention between the parties was whether Ms Calleja had authorised Prime, inter alia, to disburse funds to Baycorp. Further, the primary judge found that Mr and Ms Calleja were honest witnesses and made serious adverse credit findings of all of the witnesses called by Prime save for Ms Smith.

117. The records for 20 February 2015 reproduced above provide a powerful basis for concluding that Ms Calleja authorised Prime to pay $60,000 to be provided by it to settle in full her company’s debt to Baycorp. If, as the file note records, Ms Calleja rang Baycorp directly and said that she wanted to “sif account, offered 60k as full and final” and “explained that she is taking out a loan of $360k only drawing out $150k”, that is evidence that Ms Calleja instructed Prime at around the same time to “settle in full”. It is powerful evidence insofar as it is approximately contemporaneous, and has been recorded by a non-party. And it is entirely consistent with the instructions given by Prime to its solicitor at Gadens, copied to a Calleja PJC email address, at 11.17am on the same day, referring to earlier discussions and confirming that “Baycorp are prepared to accept $60,000 as full and final settlement...”

118. Ms Calleja gave different recollections of these events in her affidavits. In her first affidavit, sworn 29 September 2016, which may have been prepared before the email dated 20 February 2015 had been brought to her attention, she said:

“In or around March 2015, I received a phone call from Baycorp to say that if we paid the loan out that day, they would accept $60,000 in full and final settlement of the debt. I told Baycorp that the company did not have the funds available. I did not know that the plaintiff was going to pay this debt from the loan facility and did not authorise this payment.”

121. In her affidavit sworn 13 February 2017, Ms Calleja gave the following evidence:

“Between 16 February 2015 and 20 February 2015, I can’t recall exactly which day, I received a telephone call from Baycorp. I had a conversation with a lady in words to the following effect:

Baycorp representative: Hi Liz, I’m calling about your company’s debt to Baycorp. There’s around $65,000 still owing. but if you pay the full amount today we’ll reduce the total payable to $60,000.

Me: Thanks, but the Company just doesn't have that kind of money at the moment, so I won’t, be able to do that.

I have been shown the email exhibited at page 139 and 140 of exhibit PS-1 to which I was copied. I don’t have a specific recollection of reading that email at the time. I assume I probably read it. I wasn’t asked by anybody from Gadens or Prime Capital whether I agreed to pay out the debt to Baycorp and I had already told Baycorp that the Company was not in a position to pay the debt in full, so I do not recall thinking anything further of it. My intention was to continue with the instalment arrangements with Baycorp which had been in place since 2010 and there was no need or ability in the company to pay the Baycorp debt out in one go.”

122. The Baycorp file note of 20 February 2015 is inconsistent with both accounts given by Ms Calleja. The inconsistency goes not merely to credit, but also to a large issue in the case, namely, whether Prime was authorised to disburse funds to Baycorp as occurred.

123. Ms Obrart submitted that even if the file note had been admitted into evidence, the primary judge would still have found Prime’s witnesses to be discreditable and her witnesses to be honest and credible. It is of course possible, if the file note were admitted, that Ms Calleja might have been accepted as a generally creditable witness, whose recollection was faulty in this respect, or that in some way the file note was inaccurate.

124. But it cannot be concluded that the rejection of the Baycorp file notes would not have affected the outcome, either on the narrow issue of authorisation to disburse funds to Baycorp, or the more general question of the assessment of Ms Calleja’s testimonial evidence. If the file notes had been in evidence, then it would have been necessary for the primary judge to have had regard to their probative value, bearing in mind the possibility that they (no differently from any other business record) were incomplete or incorrect, in assessing whether or not Ms Calleja did give instructions to disburse some $60,000 to Baycorp to discharge her company’s indebtedness.

125. The primary judge found at [366](15) and (16) that “Neither Ms Calleja or Mr Calleja or Mr Bugeja gave authority, or were aware of the use to which Prime intended to put the ‘loan monies’” and that when making those payments “Prime disregarded entirely the wishes and interests of the borrower”. If the file notes had been in evidence, it would not have been open to make those findings without having regard to them, and explaining how the finding was reconciled with the file note.

126. More generally, in order to assess the credibility of Ms Calleja, it would have been necessary to weigh Ms Calleja’s affidavits and her evidence in cross-examination against what was recorded in the file notes. Still further, there would or at least may have been a consequential impact upon the assessment of the credit of the witnesses called by Prime.

Conclusion on grounds 1-3

127. Error is established in the interlocutory ruling on 6 November 2017. The error was one which affected the final result, as that phrase was used in Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22 at [6], in the sense that it has not been demonstrated that the erroneous exclusion of the file notes could not affect the evaluation of the matters in issue and also matters relating to credit. It follows that the appeal must be allowed, the orders made by the primary judge set aside, and a new trial ordered.

128. The Baycorp file notes are business records. The representations to which Mr Young pointed during the appeal were those to the effect that Baycorp had threatened the possibility of litigation, and the conversation on 20 February 2015 reproduced above. Those representations fall within s 69(2), and to the extent that Prime seeks to rely upon them for a hearsay purpose, the hearsay rule does not apply.

129. The Baycorp file notes should not have been excluded under s 135. No practical danger of unfair prejudice was made out, and in any event, the documents were highly probative.

130. The precise basis on which the documents are tendered at a retrial will be a matter for the parties. If Prime wishes to go further than has been set out above, then it should advise the respondents in a timely fashion of the representations on which it seeks to rely. That would entitle the respondents to consider their position, including by exercising the procedures under Division 4.6 of the Evidence Act.

Remaining grounds of appeal

131. None of the other grounds of appeal can affect the orders I propose. However, some of those grounds, which are removed from the assessment of credibility of the witnesses, may be addressed.

Ground 4 – refusal of Prime’s further subpoena

132. Ground 4 was a challenge to the dismissal of Prime’s application for short service to issue a subpoena addressed to Baycorp the following day. However, in circumstances where the inevitable consequence of permitting it to do so would have been the adjournment of the hearing into the following year, in litigation which had already consumed more time than had been allocated, and in circumstances where Prime had permitted its case to close without resolving the objection until the second last day of the trial, I would have concluded that there was no appellable error on the part of the primary judge in the exercise of her discretion having regard to s 56 of the Civil Procedure Act 2005 (NSW). In any event, as the purpose of the proposed subpoena was to fill a gap in the chain of title held necessary to prove the authenticity of the business records, it is now shown to have been otiose.

Grounds 5 and 15 – establishing the loan agreement

133. Grounds 5 and 15 were directed to challenging the conclusion at [323] and elsewhere that, with the exception of the second page 31 (which was the page with the “20418014.1 ARA EVW” footer), Prime had not established that the loan agreement in evidence as exhibit D was the loan agreement signed by Mr and Ms Calleja on 12 February 2015. The primary judge accepted Ms Calleja’s submission that Prime “has not discharged the onus of proving that a document in the form of this document was entered into ... by the parties and formed a final and binding agreement”. I respectfully consider that this aspect of the fact finding by the primary judge has miscarried.

134. The version of the loan agreement on which Prime relied was tendered by it without objection by Ms Calleja at the commencement of the trial. Indeed, although the form of the document contained in the appeal books is that of an unexecuted undated draft, the Court’s file discloses that Ms Calleja verified her company’s Further Amended Statement of Claim, on 2 November 2017, which was filed on that day, and that pleading positively asserts that Calleja PJC agreed to a loan agreement containing clauses 2.1, 2.3, 3.1, 5, 6.5, Schedule 1 and Item 10 (see paragraphs 3(a), (c), (e) and (f)). Those terms were material to Ms Calleja’s case. For example, it was an essential element of the case that the disbursements were unauthorised to establish that the purpose of the loan was to acquire the three semi-trailers.

135. True it is that Exhibit D comprised the originals of the loan agreement together with other documents involved in the refinancing. Exhibit D was tendered by Ms Obrart with a view to establishing that the second page 31 was printed on different quality paper. As much may readily be accepted: it is a paler shade of white and less translucent to the unassisted eye than the balance of the documents. It also has a different footer and has never been stapled.

136. It may readily be inferred that there were at one stage two copies of the loan agreement (and, quite possibly, two copies of the balance of the documents involved in the refinancing) prepared by Gadens, one bearing a footer “2041801.1 ARA ARA” and the other bearing the footer “20418014.1 ARA EVW”. As much is tolerably clear from the two letters sent by Ms Anthony at Gadens on 5 December 2014 and 2 February 2015. But I do not consider that there is a proper basis for the inference that the document executed by the Callejas was in any materially different form from that which had been tendered without objection. There was no testimonial or documentary evidence supportive of that proposition. That absence may in part be a consequence of the fact that no such case had been pleaded by Ms Calleja, and indeed her pleading, to the extent that it identifies the clauses in the loan agreement, is inconsistent with that being the case. That is to say, it was common ground between the parties that an agreement was entered into, and there was only one candidate for the form of that agreement in evidence, which was tendered without objection and which was consistent with what Ms Calleja had verified when updating her pleadings on the third day of the trial.

137. The question was not whether Prime had established beyond reasonable doubt the written terms of the loan facility. On the civil standard, in light of all of the documents and the matters put in issue by Ms Calleja, the only finding available was that the terms were reflected in the “ARA” document in the Court Book.

138. None of the foregoing is to deny that it is highly unsatisfactory that Prime appears to have produced a composite document from two different originals. But the fact that Prime appears to have done so does not sustain the inference that there was some form of the Loan Agreement different from that contained in the Court Book. I do not think that this is a case where it can be said that the plaintiff has failed to establish the terms of the written agreement to which Ms Calleja bound both herself and her company. Were it necessary to do, I would have regarded these grounds as made out. That is less significant in this litigation than it may be in other cases, because it was common ground that Prime was bound to roll over the facility at least in some circumstances after it had expired, even though that was not found in the document.

Grounds 13, 14 and 29 – legal advice

139. These grounds turned in part on the proposition that the loan agreement actually executed was different from that as to which Ms Smith advised. It follows from what has been said in relation to grounds 5 and 15 that the respondents had the benefit of advice from Ms Smith not to enter into the transaction.

Grounds 19, 26 and 27 – matters outside the scope of the pleadings

140. Grounds 19, 26 and 27 were directed to an “unpleaded asset lending case” and the findings made by the primary judge as to the speed with which Prime commenced proceedings to enforce its security. Their gravamen was a challenge to the reasoning of the primary judge at [361]-[364] explaining her Honour’s conclusion that “nothing about this transaction was about fair dealing” and including findings to the effect that neither Mr Ainsworth nor Mr Scanlon was concerned about the capacity of Calleja PJC to repay the loan and were unduly speedy in seeking to enforce the security. It was said that the allegation that Prime’s conduct involved “asset lending” was not pleaded as it should have been and the primary judge was not permitted to make findings about a matter which was “never an issue in the proceedings”. The same was put as to the speed of enforcement.

141. In light of Prime’s success on the earlier grounds, these grounds need not be determined finally. They are, with respect, more complex than appears from the parties’ submissions.

142. First, a remarkable feature of the history is that, in the present case, notwithstanding the extremely high interest rate of the refinancing, the borrower did pay the entirety of the interest throughout the period of the loan (indeed, hundreds of dollars more than the monthly amounts Prime advised should be paid), except for roughly a fortnight in the twelfth month, which, according to Prime, brought it into default such as to disentitle it from a rollover which Prime was otherwise bound to provide.

143. Secondly, contrary to Ms Obrart’s submission, there is no mention in the pleadings of Prime being prepared to lend on a 12 month term in circumstances where it knew or believed that the principal could not be repaid.

144. Thirdly, it was accepted that Prime was under some obligation to roll over the facility, for at least a further 12 months assuming it was in “good order”, notwithstanding the absence of any such obligation in the loan agreement.

145. Fourthly, in her written submissions supplied shortly in advance of the hearing, Ms Obrart had, in a section directed to the “Application of principles concerning guarantees to the present case”, and under the subheading “Contracts Review Act and the guarantee”, said:

“To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests: Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 …”.

146. Contrary to Mr Young’s submission, I would conclude that Ms Calleja was thereby seeking to include, as one of the matters on which a finding of unjustness (within the meaning of the Contracts Review Act) might be made, that Prime had engaged in lending money without regard to the ability of the borrower to repay.

147. Each party opened its case very briefly, with the written submissions having been read by the judge and regarded by the parties as having identified the issues.

148. Fifthly, Ms Obrart proceeded to cross-examine Prime’s witnesses, including as to steps they took at the time of the refinancing to consider whether the loan could be repaid in full after 12 months. This occurred without objection. Ms Obrart also was permitted to ask Mr Scanlon, without objection, why proceedings had been commenced so quickly when the loan had basically been maintained. Prime’s solicitor served a notice of default under cover of letter dated 11 May 2016 giving until 14 June to remedy the defaults. However, Prime commenced proceedings for possession on 20 May 2016, more than three weeks before the time it had stated for remedying the defaults had expired. It is not clear when the originating process was served, but according to Prime’s own document, Ms Calleja continued to make substantial repayments of interest in April, May and June 2016. Mr Scanlon’s response to the haste was that legal proceedings “take a very long time”, and that “my experience is that people are very slow and make these processes go a very long time so we have to work quickly at the start to get people to take care of their affairs”. He added that if clients paid late, that impacted upon Prime’s ability to obtain funding, and concluded:

“I accept that the notices went out quite quickly after the expiry in response to the fact that our experience here is that people don’t take action and these processes take so long.”

149. That answer does not explain why Prime commenced litigation weeks before the time specified in its notice issued pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) had expired.

150. Sixthly, in assessing the credibility of Prime’s witnesses, there could be no error by the primary judge in evaluating their testimony in answer to those questions which were asked without objection. To the extent that these grounds challenge the propriety of the primary judge making findings, I would reject them.

151. Seventhly, it is true that in closing submissions, both in chief and in reply, Mr Young insisted that questions of asset lending and the speed of enforcement went outside of the pleadings. That was factually correct. The submission in reply was in response to extensive submissions by Ms Obrart directed to this issue.

152. Eighthly, there is a little artificiality in submissions to the effect that one aspect of Prime’s conduct was or was not “in issue”. The Contracts Review Act required the Court to have regard to “the public interest and all the circumstances of the case”: s 9(1), and authorised the Court to have regard to the parties’ conduct “in relation to the performance of the contract since it was made”: s 9(5). The ASIC Act likewise required an assessment of the quality of Prime’s conduct “in all the circumstances”: s 12CB(1), and authorised regard to be had to conduct after the contract had been entered into: s 12CC(2)(j). Irrespective of the state of the pleadings, in the circumstances of this litigation there is to say the least much to be said for the proposition that the Court was not able to disregard the circumstances attending the enforcement of Prime’s security.

153. It is not necessary to express a concluded view as to whether this is a case where the parties have chosen to disregard the pleadings and to fight the case on issues chosen at the trial: see the authorities mentioned by Bathurst CJ in Krnjulac v Lincu [2015] NSWCA 367 at [15]. In circumstances where written documents were provided by way of opening, which made it plain that Ms Calleja was relying, in part, upon what her counsel described as the unjustness of “asset lending”, where the speed of enforcement following the relatively minor default in April 2016 in relation to an otherwise well-serviced loan was so remarkable, and where the cross-examination proceeded accordingly and without objection, and the only times that it was said that this was outside the pleadings were in closing address, it is easy to see why the primary judge approached the task in the way that her Honour did.

Ground 35 – failure to find default

154. Prime contended in writing, but did not elaborate orally, that the primary judge should (inevitably) have found that the respondents were in default at the end of the 12 month period. I do not accept this submission. The real question is whether the account was in “good order” when the facility expired. When precisely the facility expired is unclear, having regard to the fact that the large majority of the drawing down not on 17 April 2015, but in May. Further, it is difficult to say what the effect of that would be upon the interest calculations. It is clear that on most occasions, the respondents paid each month hundreds of dollars more than the amount they had been told to repay. Prime took a different view. Prime capitalised the $2,000 fees it imposed, which had the effect of increasing the amount needed to be paid each month – but the Court was told that it never advised the Callejas of any increased monthly payment that was required, let alone what the current position of the account was. A recurring theme in the evidence seems to be that there was delay in Prime providing a record of the day to day status of the account.

154. I would not conclude that a finding that the account was not in “good order” in April or May 2016 was inevitable; far from it.

Grounds connected with witnesses’ credibility

156. Grounds 7, 8, 10, 11, 17 and 18 were challenges by Prime to the unfavourable credibility findings made by the primary judge in relation to Mr Ainsworth and Mr Scanlon, and the favourable credibility findings in relation to Mr Bugeja and Mr and Ms Calleja.

157. All of these findings were based upon lengthy cross-examination, and in circumstances where, to put the matter neutrally, there were irregular aspects of the documentation prepared by Prime referred to above. The findings were made without regard to the Baycorp file notes. There is no utility in reviewing the process, and it is not possible to do so without running the risk of expressing views which will distract from what must occur at the retrial.

158. In a similar category is the challenge in ground 21 to a rejection of part of Mr Scanlon’s evidence as to the absence of documentary records within Prime, a challenge in grounds 12, 16 and 19 to the findings as to the oral representations said to have been made by Prime, a challenge in grounds 20 and 22 to the findings about authority (noting Prime’s concession that any authority it had was oral) and a challenge in ground 25 to the rejection of Prime’s (unpleaded) case of election or affirmation (which turned on the state of mind of Mr and Ms Calleja when they learned of the disbursements). Those findings are heavily dependent upon credibility. So too were the remaining grounds. I do not consider it is appropriate to address them any further.

159. Grounds 28, 30, 31, 32, 33 and 34, which were directed to the appropriate orders, likewise depend upon evaluative judgments which were informed by an assessment of contested primary facts and the witnesses’ credibility. However, it should be noted that, as Ms Obrart ultimately conceded, it is not possible to defend orders which gave to Ms Calleja the benefit of both the amounts paid in interest and fees, and also the rent paid for trailers over the period.

160. Finally, Prime challenged the order for indemnity costs. Ms Calleja sought to defend the order by a notice of contention. It is unnecessary to address any of these submissions. The costs discretion was squarely informed by the same considerations which have been mentioned above, and will have to be re-exercised in any event.

Conclusion and orders

161. I have concluded that there was material error in the rejection of the tender of the Baycorp file notes. The consequence is that the appeal must be allowed, the orders set aside, and there be a retrial.

162. I do not consider that there is scope for relitigating the terms of the loan agreement signed by Ms Calleja, or the advice received from Ms Smith in relation to it.

163. I propose that the appeal be allowed, the orders (including the orders rejecting the admission of the Baycorp file notes) be set aside, and in lieu thereof, the proceeding be remitted for a further hearing. Having sought to defend all aspects of the primary judge’s decision (save for a concession as to the orders made on the second day of the appeal), the respondents must pay Prime’s costs of its appeal, but should have a certificate under the Suitors’ Fund Act 1951 (NSW). The costs of the first trial are to fall within the discretion of the judge who hears the retrial: see Hatziandoniou v Ruddy (No 2) [2015] NSWCA 277.

164. The orders I propose are:

1.   Appeal allowed.

2.   Set aside the orders made on 6 November 2017 refusing to admit the documents which now comprise pages 1099-1110 of the Blue Book (“the Baycorp file notes”), orders 1-12 made on 6 December 2017, and order 2 made on 19 December 2017, and in lieu thereof, remit the proceedings for a retrial, that remitter to include the costs of the first trial.

3. Note that (a) the previous representations contained in the Baycorp file notes, insofar as they include representations as to the possibility of litigation and the offer by Ms Calleja to pay $60,000 to Baycorp from funds borrowed from Prime, fall within s 69(2) of the Evidence Act 1995 (NSW), and (b) the form of the written Loan Agreement executed by the parties is not in issue.

4.   The respondents to pay the appellant’s costs of the appeal, but to have a certificate under the Suitors’ Fund Act 1951 (NSW).

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Amendments

26 February 2018 - Coversheet - name of Australian Securities and Investments Commission Act 2001 corrected; citation for National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539 corrected.

[89] "Tennant and Porter JJ" corrected to "Tennent and Porter JJ"

[92] quoting Hope JA, correct "form and content" to "form and contents"

[99] correct citation for National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539

Decision last updated: 26 February 2018