Commonwealth Bank of Australia v Codovo Developments Pty Limited
[2016] VSC 122
•1 April 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 03867
| COMMONWEALTH BANK OF AUSTRALIA T/AS BANK OF WESTERN AUSTRALIA (ABN 48 123 123 124) | Plaintiff |
| v | |
| CODOVO DEVELOPMENTS PTY LTD (ACN 122 084 477) & ORS | Defendants |
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JUDGE: | ALMOND J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 March 2016 |
DATE OF JUDGMENT: | 1 April 2016 |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Codovo Developments Pty Limited & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 122 |
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SUMMARY JUDGMENT – No real prospect of success – Issues not suitable for summary determination.
BANKING AND FINANCE – Deed of forbearance – Scope of release.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C. Moller | Corrs Chambers Westgarth |
| For the Defendants | S. E. Marantelli | Wisewould Mahony |
HIS HONOUR:
In this proceeding the plaintiff, Commonwealth Bank of Australia trading as Bank of Western Australia (‘the bank’), sues to recover money advanced pursuant to banking facilities provided to the first defendant, Codovo Developments Pty Ltd (‘Codovo’). The second, third and fourth defendants, Church & Palmer Wines Pty Ltd, Carlo Volpato and Julie Volpato are sued as guarantors of this debt.[1]
[1]At the commencement of the proceeding there were six defendants. The plaintiff has settled with the fifth and sixth defendants. The remaining defendants are the first, second, third and fourth defendants (collectively, ‘the defendants’).
By way of counterclaim, the defendants sue the bank seeking damages for alleged misleading and deceptive conduct, negligent misstatement and unconscionable conduct.[2]
[2]Further Amended Defence and Counterclaim dated 3 February 2015.
The bank applies for summary judgment on both the claim and the counterclaim on the grounds that the defendants have no real prospect of defending the claim for the outstanding debt or prosecuting their counterclaim. In relation to the claim the bank contends there is no defence. In relation to the counterclaim the bank contends that the subject matter of the counterclaim has been released by operation of a release clause in a Deed of Forbearance (‘the Deed’).
The bank’s application for summary judgment is supported by an affidavit of Matthew Richard Critchley, Lawyer, sworn 24 November 2015, and an affidavit of Robert Ralston, Manager, Group Credit Restructuring, sworn 24 November 2015. In opposition to the application, the defendants rely on the affidavits of Carlo and Julie Volpato, each sworn 14 December 2015.
In its affidavit material, the bank proves:
(a) the agreement pursuant to which the bank provided banking facilities to Codovo (‘the Facility’);
(b) the individual and corporate guarantees of the obligations of Codovo to the bank under the Facility;
(c) a default by Codovo under the terms of the Facility, service of a demand and failure to comply with the demand; and
(d) the amount of the outstanding debt ($15,051.85) together with interest accruing.
No issue arises on this material in this application. In his affidavit, Mr Volpato admits the Facility, the individual and corporate guarantees, the default under the Facility, and service of a demand on him. In her affidavit, Mrs Volpato deposes that she has read Mr Volpato’s affidavit and admits the individual guarantees and service of a demand on her.
The issue for consideration for present purposes arises from a complaint made to the Financial Ombudsman Service and the circumstances of its resolution.
On about 22 July 2013, Mr Volpato lodged a dispute with the Financial Ombudsman Service with respect to the Facility. On about 8 October 2013, the parties resolved the dispute and signed a document entitled ‘Resolution and Release Agreement’ (‘the Agreement’) which contains the following relevant clauses:
1.Chas Volpato on behalf of Codovo Developments Pty Ltd of GPO Box 1495 ADELAIDE SA 5001 lodged a dispute with the Financial Ombudsman Service (FOS Case 330965) in respect to Business Edge Loan 122-023623-3 (“the Complaint”).
2.To resolve the Complaint, the parties agree to the following resolution.
3.Codovo Developments Pty Ltd and its Guarantors acknowledge and confirm:
· Their obligations and outstanding liability under the Business Edge loan agreement dated 12 February 2008.
· An Event of default of the Terms and Conditions of the loan agreement dated 12 February 2008 has occurred.
· The current outstanding balance of the Business Edge loan is $203,551.84.
· They will continue to make the regular monthly instalments as required with the next payment due on 20 September 2013.
· They will pay the Business Edge loan in full by 30 April 2014 including any outstanding legal fees.
· They will provide the Bank with registered mortgages over the two properties at 18 and 20 Catherine Gibson Way, ROSETOWN SA 5274
· The interest rate margin on your loan facility will remain at 480bps above the relevant reference rate.
· On return of the signed Deed of Forbearance the interest rate margin will revert to 130bps above the relevant reference rate for the Business Edge Loan account as per Letter of Offer.
· Any amounts in excess of the agreed limit will be charged the normal excess/overdrawn interest rate.
· Their understanding that failure to comply with this arrangement or failure to enter into an acceptable Forbearance Deed by 18 October 2013 may result in the Bank commencing legal action.
4. The Bank will:
· On return of the signed Deed of Forbearance the interest rate margin will revert to 130bps above the relevant reference rate for the Business Edge Loan account as per Letter of Offer.
· Not proceed with legal action against Codovo Developments Pty Ltd and its Guarantors provided the above conditions are met.
· Allow Codovo Developments Pty Ltd seven (7) days to rectify any breach of this agreement.
Relevantly, the Agreement also provides:
· This agreement will be formally ratified in a Deed of Forbearance drawn up by the Bank’s lawyers on terms acceptable to the Bank.[3]
[3]Clause 3, bullet point 7.
Clause 5 of the Agreement contains the following release:
Codovo Developments Pty Ltd and its Guarantors [for present purposes, the defendants] accept the above in full and final settlement of all matters arising out of the Complaint and hereby releases the Bank for all claims, demands or actions out of the matters subject to the Complaint and take no further action in any forum in relation to the Complaint.[4]
[4]Clause 5 of the Agreement. Note my addition in parentheses.
Subsequently, the bank provided the Deed. On about 5 February 2014 executed counterparts were exchanged.[5]
[5]Exhibit RR5 to the affidavit of Robert Ralston sworn 24 November 2015.
The Deed includes the following relevant Definitions:
Claim:Any cost, claim, demand, obligation, remedy, damage, loss, action, proceeding, claim for compensation, requisition or objection, whichever is applicable, howsoever arising, and whether at law, in contract or in equity in connection with:
(a) the Facilities;
(b) the Guarantee;
(c) the Securities; and/or
(d) the Dispute.
Dispute: The dispute lodged by Codovo with the Financial Ombudsman Service with FOS case number 330965.
Facility:The Business Edge Loan made available to Codovo by the Bank with account number 122-023623-3.
Clause 5.1 of the Deed contains a consent to judgment in the following terms:
5.1 Immediate entitlement
If a Default Event occurs and it is not remedied within seven days of the Bank notifying Codovo and the Guarantors of the Default Event…the Bank will become immediately entitled to exercise all rights and powers available to it pursuant to the Facility, the Securities and/or the Guarantees including the right to…seek judgment against Codovo and the Guarantors in respect of amounts payable by them under the Facility, the Securities and/or the Guarantee.
Clause 6 of the Deed contains a release in the following terms:
6 Release
With immediate effect upon execution of this deed, Codovo and the Guarantors release and discharge the Bank from all Claims Codovo and/or the Guarantors may have against the Bank.
It is evident that the release in clause 6 of the Deed is expressed in wider terms than the release in clause 5 of the Agreement. Relying on the release in the Deed, the bank submits that the defendants are barred from making the claims which they now purport to make by counterclaim.
The defendants contend that the bank should not be entitled to rely on the release clause in the Deed because it is of much wider scope than the release contemplated in the Agreement.
Mr and Mrs Volpato have each deposed that the Agreement expressly limited the release to matters which were the subject of the FOS dispute; that it was their understanding that the FOS dispute was confined to the question of the default rate of interest that had been applied by the bank with respect to the loan facility; that when reading the Deed they understood that the Deed, like the Agreement, was only to relate to, and only related to, the FOS dispute.[6]
[6]Affidavit of Carlo Volpato [14], [15] and [19]; Affidavit of Julie Volpato [4] and [8].
Relevant legislation and applicable principles
Section 61 of the Civil Procedure Act 2010 (Vic) (‘CPA’) provides:
Plaintiff may apply for summary judgment in proceeding
A plaintiff in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a defendant's defence or part of that defence has no real prospect of success.
Section 63(1) provides:
Summary judgment if no real prospect of success
(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
Section 64 provides:
Court may allow a matter to proceed to trial
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, the Court of Appeal considered the ‘no real prospect of success’ test for summary judgment under s 63 of the CPA.[7] Warren CJ and Nettle JA observed:
Upon the present state of authority:
a)the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a “real” as opposed to a “fanciful” chance of success;
b)the test is to be applied by reference to its own language and without paraphrase or comparison with the “hopeless” or “bound to fail test” essayed in General Steel;
c)it should be understood, however, that the test is to some degree a more liberal test than the “hopeless” or “bound to fail” test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.[8]
[7](2013) 42 VR 27.
[8]Lysaght Building Solutions v Blanalko (2013) 42 VR 27, 40 [35] (Warren CJ and Nettle JA) (Neave JA agreed).
Debt claim
In relation to the claim for the unpaid debt, counsel for the bank submitted (i) that the defendants admit the transaction documents; (ii) that the bank has proven the amount owed by certificate as permitted by the transaction documents;[9] (iii) that a Default Event (as defined in the Deed) has occurred and has not been remedied; and (iv) in such circumstances, under the terms of the Deed, the defendants consent to judgment.[10] Therefore, it was submitted, the bank is entitled to judgment.[11]
[9]See General Terms for Business Lending, clause 18.2, Guarantee and Indemnity – Terms, clause 16, Exhibit RR7 to the affidavit of Robert Ralston.
[10]Clause 5.1(b) and 5.1(c) of the Deed of Forbearance.
[11]Clause 5.1(a)(iii) of the Deed of Forbearance.
Pursuant to the Agreement, the defendants acknowledge and confirm their obligations and outstanding liability under the Facility, that an event of default had occurred, and the then current outstanding balance of the loan facility. They acknowledge and confirm they will pay the loan in full by 30 April 2014. Clearly, they have not done so. In my view, the bank is entitled to summary judgment on its claim for the debt.
Counsel for the defendants requested a stay on execution of any judgment pending the trial of the counterclaim. In my view, there is no sound basis upon which a stay of execution should be granted. Both the terms of the Facility and the guarantees require payments to be made in ‘full without setoff or counterclaim’.[12] Interest continues to accrue. The bank is entitled to receive payment of the debt, including accrued interest without further delay.
[12]Clause 10.1(e) of the Facility Agreement; clause 14.1 of the Guarantees of Carlo and Julie Volpato; clause 13.1 of the Guarantee of Church & Palmer Wines Pty Ltd.
Accordingly, there will be judgment on the claim for $15,051.85, together with accrued interest with no stay on execution of the judgment.
Counterclaim
The bank contends that the defendants’ counterclaim has no real prospect of success, as the release in the Deed creates an insuperable obstacle. Considered in isolation, there appears to be merit in this submission. I accept that the words of the release are clear. ‘Claim’ is defined broadly to include any claim howsoever arising in connection with the Facility, the Guarantee and the Dispute. Prima facie, the release encompasses and therefore bars the purported counterclaim.
The bank relies on the well-known passage in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, where the High Court said:
Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who had not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution.[13]
[13](2004) 219 CLR 165, 182 [47] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
The bank submits that the law attaches significance to the signature by a person to contractual documents. Applied to this case, the bank submits that by signing the Deed the defendants are bound and accordingly the Deed should be given full effect.
For the purposes of argument the defendants do not take issue with the construction of the release in the Deed. They accept that it is widely drawn. Instead, they focus on the difference between the scope of the release in the Agreement and the release in the Deed.
Counsel for the defendants submits that:
(i)the bank was not at liberty to draw a deed with a much wider release clause than the release clause in the Agreement;
(ii)the parties agreed that the Agreement would be ‘formally ratified’ in the Deed; this connotes confirmation of what has been agreed to, not a rewriting; and
(iii)what the bank sent to the defendants to sign (the Deed) is not what it said it would send them to sign.
The defendants submit they were misled by the bank. In this regard, the defendants rely particularly on the opening words of the covering letter sent with the Deed, which states:
In accordance with the terms of the resolution agreed to on 8 October 2013, we attach a deed of forbearance for your consideration and execution.
Further, they rely on recital F in the Deed, which states:
On 8 October 2013 the parties agreed to settle the Dispute and enter into a forbearance arrangement on the terms set out in this Deed, such agreement to be recorded in a deed.
Insofar as the release is concerned the defendants submit that the Deed was not ‘in accordance with the terms of the resolution agreed to on 8 October 2013’ (despite the covering letter) and the Deed did not set out the forbearance arrangement agreed to on 8 October 2013 (despite recital F); in effect the bank signalled to the defendants that the release in the Deed accorded with the release in the Agreement and this was misleading.
Further, the defendants submit that the bank misled them by omission because it failed to draw to their attention the significant difference in the scope of the release.
Counsel for the defendants relies upon the High Court decision of Grant v John Grant & Sons Pty Ltd:
…equity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.[14]
[14](1954) 91 CLR 112, 129–30 (Dixon CJ, Fullagar, Kitto, and Taylor JJ) (‘Grant v John Grant & Sons’).
In The Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd [No 2], in which the principle in Grant v John Grant & Sons was applied, Pembroke J observed:
The equitable principle only has a role to play when it appears from the terms or the context or other admissible evidence that the enforcement of the legal right would, by a literal application of the general words of a release, be against conscience…[15]
[15][2012] NSWSC 322, [27]–[30] (Pembroke J). See especially [30].
In this case, counsel for the defendants does not seek to set aside the Deed but seeks to limit the operation of the general words, as occurred in Grant v John Grant & Sons.[16]
[16]Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112, 130 (Dixon CJ, Fullagar, Kitto and Taylor JJ).
In my view, a question does arise whether the express words of the release contained in the Deed should be limited so as to bring it into line with the release in the Agreement. Having regard to the matters raised by the defendants, it is not appropriate to determine this question summarily. At the very least it will be necessary to determine whether there is any substance in the allegation that the bank misled the defendants. This will depend on a consideration of the terms of the respective written documents to determine, among other things, whether they are capable of being misleading considered together and in context and any other admissible evidence, including evidence as to whether in fact the defendant releasors were misled.
Further, there is a live issue as to the proper meaning of the expression ‘on terms acceptable to the Bank’ in clause 3 of the Agreement. It cannot have unlimited scope. Otherwise, prima facie, the bank could impose inappropriate or onerous terms on the defendants. This cannot have been intended. Viewed objectively, the scope of clause 3 of the Agreement must be limited by the context. In my view, whether the words of clause 3 of the Agreement permit the bank to expand the scope of the release to the extent reflected in clause 6 of the Deed cannot be determined summarily.
For present purposes, it is appropriate that I go no further than to say I am satisfied that the defendants have a real, as opposed to a fanciful, prospect of success in their quest to limit the scope of the release in the Deed. It follows that I am not satisfied at this stage that the Deed is an insuperable obstacle to the counterclaim. Accordingly, I reject the bank’s application for summary judgment on the counterclaim.
I will hear counsel on the appropriate form of orders.
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