Commonwealth Bank of Australia v Iinvest Pty Limited (in liquidation) (No 8)

[2017] NSWSC 401

Supreme Court

New South Wales

Medium Neutral Citation:	Commonwealth Bank of Australia v Iinvest Pty Limited (in liquidation) (No 8) [2017] NSWSC 401
Hearing dates:	16 March 2017
Date of orders:	16 March 2017
Decision date:	16 March 2017
Jurisdiction:	Common Law
Before:	Campbell J
Decision:	The cross-claimants are to pay 80 per cent of the bank's costs of and incidental to the notice of motion filed on 13 March 2017.
Catchwords:	CIVIL PROCEDURE – production of and calls for documents – where discovery has been previously agreed between the parties – where the bank’s paper files have been digitised – legitimate forensic purpose test   CIVIL PROCEDURE – further amendment of cross-claim – held that the proposed amendment represents a shift in the cross-claimants’ case – findings of generality and embarrassment in the pleadings
Legislation Cited:	Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	R v Baladjam & Ors [No 37] [2008] NSWSC 1457 R v Saleam [1999] NSWCCA 86
Category:	Procedural and other rulings
Parties:	James Harker-Mortlock (Applicant) J H M Pty Ltd (Second Applicant)   Iinvest Pty Ltd (in liquidation) (First Respondent) Commonwealth Bank of Australia (Second Respondent)
Representation:	Counsel: P King (Applicant) Ms Cheeseman SC with J White (Respondent)   Solicitors: Dentons Australia (Applicant) Roderick Storie Solicitors (Respondent)
File Number(s):	2013/00108514
Publication restriction:	Nil

EX TEMPORE JUDGMENT (REVISED)

1. I am part-heard in this matter. The hearing has so far occupied most of 30 January 2017 to 7 February 2017, a total of seven hearing days, and has been adjourned for further hearing on 26, 27 and 28 April 2017.

2. The case is concerned with the bank's claim for possession of security properties under mortgages for facilities extended to the defendants, who are also bringing a cross-claim. The cross-claim relates to various iterations of unconscionability, mostly arising under statute law.

3. At the conclusion of the hearing on 7 February 2017, it was clear that there were further evidentiary matters which the cross-claimants wished to agitate and I made directions for the parties to confer and agree upon a timetable for dealing with those matters. I congratulate counsel and their instructing solicitors on being able to arrive at an agreement in respect of most outstanding matters, which agreement was reduced to short minutes of order which were entered on 13 February 2017.

4. There are some matters outstanding. They relate to a further quantum report, further production of documents which had been the subject of a call during the hearing and, unexpectedly, a proposed amendment of the cross-claim.

Further quantum report

5. I will deal first with the quantum report. I have already made a ruling under s 192A Evidence Act 1995 (NSW) that the report is not admissible in the proceedings before me. The report was by an organisation, Langford Davis, dated January 2009, and was prepared for use in other proceedings in the Local Court, apparently in relation to a building dispute. I have already given reasons for that ruling which appear on the transcript and I will not repeat them here. I will record, however, that in addition to the matters expressed by me, Mr White of counsel for the plaintiff invoked the provisions of Uniform Civil Procedure Rules 2005 (NSW) r 31.28(4), which, with respect, are clearly applicable.

Production of documents

6. I turn then to the question of the production of documents. If I may put it this way, this question has been a running sore in the case since Mr King of learned counsel and his instructing solicitor, Mr Storey, assumed the conduct of the matter on behalf of the cross-claimants. I record, as has been recorded in other interlocutory judgments, that discovery in this case was the subject of agreement between the parties when the cross-claimants had different representation. The agreement required the bank to produce documents falling into twenty agreed categories on an agreed list of documents and that agreement was complied with.

7. In a ruling I made on 24 January 2017, I refused an application to require the bank to produce documents which fell outside those categories, but on the material then before me I required the production of other documents which I was satisfied were likely to be extant falling within those categories. As a result of that ruling and further enquiries which are described in affidavits read today by Iain Malcolm Stevens sworn 14 March 2017 and Jane Carroll sworn 16 March 2017, further documentation was identified. This documentation related to what has been referred to in Ms Carroll's affidavit as a “pst file”, containing the email box of Mr Howard Ting, a former employee of the bank who was the bank's relationship manager for the cross-claimants at the time the events giving rise to these proceedings occurred.

8. In accordance with my earlier direction of 24 January 2017, an electronic search and inspection of that material was undertaken by the bank's solicitors and documents, that is to say, emails relating to the cross-claimants' contract with the bank and falling within the twenty agreed categories, were identified and produced, marked by me MFI#13.

9. During the course of the hearing, a number of calls were made, and additional calls have now been made, in relation to other documents said to arise out of the production of MFI#13. It is probably best that I identify them as they have been argued before me by reference to Mr King's written submissions.

10. During the hearing Mr White, who appears as junior to Ms Cheeseman SC, and who is responsible for most of the evidential issues arising in the case, explained to me that, following my ruling, enquiries had been made and the pst file had been identified and it was being inspected; this caused Mr King to call for the production of what we now identify as the pst file.

The bank’s “file”

11. Following the inspection of the documents in MFI#13, it was identified that in an email dated 5 May 2008, Ms Abbas, another bank officer who figures in the case, had referred to reviewing a “file”; a call was made for the production of the file. Mr King, I think it fair to say, has always submitted that the previously agreed discovery was, as I understand it, too favourable to the bank, that there are other documents that should be produced and, in particular, he has always identified that there should be such a thing as a “file”. He has referred to it in his written submissions as “the Abbas file".

12. Evidence has been taken from a Mr Craig Matthews, another relationship manager, and during his evidence he referred to a “file”; a call was made for that. Mr Iain Stevens, another bank officer from whom affidavits have been read, as I have said, before me, and I expect will be read in the substantive trial, has also given evidence about a “file”. All of these “documents” are called for by Mr King.

13. Although it may once have been a legitimate expectation that a commercial house like a bank, or an insurance company, or some other financial institution, might have what lawyers may well call a “file”, being a manila folder containing papers and other documents pertaining to a subject matter, the evidence in this case from Mr Stevens persuades me that the bank has moved into the electronic age. I accept that, as at 2008 and prior to about the end of 2009, the bank did maintain the type of file so familiar to lawyers of my generation, but that during that period of time it has undergone a process of reducing its vast stores and archives of paper files to electronic format, referred to by the bank for internal management purposes as "CommSee".

14. I accept that evidence and I accept that the paper “file” which, understandably, Mr King has an interest in, no longer exists and that the circumstances in which it was destroyed, notwithstanding the forceful arguments put to the contrary, are entirely explicable by reference to the evidence of Mr Stevens, which I accept.

15. Accordingly, I am satisfied that there is no paper “file” to be produced, whether one restricts the area of discovery to the twenty categories, on the one hand, or one is tempted to expand it, on the other. Accordingly, I do not propose to make any direction for the purpose of discovery or production of the paper “file”, whether it is the bank's file, the file referred to by Ms Abbas in her email of 5 May 2008 (which I regard as the same thing), or any file referred to by Mr Matthews in his evidence (probably also the same thing). I extend that to Mr Stevens, although when he is called, doubtless, should counsel choose, it will be open to counsel to cross-examine him about the matter.

16. I accept Mr White's submission that Mr Stevens' contribution and the contribution of his predecessors and successors as a manager having responsibility for the facilities operated between the bank and the cross-claimants is fully explained by reference to his affidavit. I accept his evidence that he has been unable to locate any hard copy (or paper) file in relation to "the Iinvest customer relationship" and I accept the explanation for that is that the contents have been digitised and uploaded to CommSee.

Mr Ting’s emails

17. That leaves, so far as production of documents is concerned, the balance of the pst file containing Mr Ting's email box. First, I accept the evidence that no documents from that pst file were previously produced because it was not located during the bank's initial search for documents, largely because of the bank officers’ confidence in the accuracy of the CommSee digitised record, and that when I made my further orders on 24 January 2017, a further search was instituted and, notwithstanding the bank's expectation about turning up a blank, these documents and some documents relating to Mr Matthews turned up.

18. My ruling on 24 January 2017 was that any further documents to be produced as a result of a further search were restricted to the twenty categories agreed between the parties. In accordance with that ruling, a process was gone through in the offices of the solicitors, an appropriate process in my judgment, to identify those documents that relate to the twenty categories and the bank's relationship with Iinvest and Mr Harker-Mortlock; those documents were produced as MFI#13.

19. I do not think it in any way appropriate that the general call for the pst file that was made should be acceded to. It is well-known that:

“before access is granted (or an order to produce made) the applicant must (i) identify a legitimate forensic purpose for which access is sought, and (ii) establish that it is “on the cards” that the documents will materially assist his case”

20. I have quoted from the judgment of Simpson J, as her Honour then was, in R v Saleam [1999] NSWCCA 86 at [11]. That was a criminal case and it is said that the “on the cards” test referred to in such cases "is a relaxation of the test applicable in civil cases because it recognises that an accused person [is] on trial for his or her liberty”: see R v Baladjam & Ors [No 37] [2008] NSWSC 1457 at [11] per Whealy J.

21. Even applying that more relaxed test applicable to criminal cases, I do not think it can be said that the cross-claimants have established any legitimate forensic purpose in either sense discussed by Simpson J for having the bank produce the whole balance of the pst file and obtaining an order for access to and inspection of it. It seems to me, with great respect, that the call is a classic “fishing expedition”, which expression is used to describe a call that relevantly lacks legitimate forensic purpose, the onus being on the party seeking production.

22. In answer to a question of mine, Mr White properly disclosed that there are other emails not produced as part of MFI#13 arising out of the pst file which concern the Iinvest defaults. He has properly argued that I should adhere to my earlier ruling and not allow any extension on the categories of discovery previously agreed. Attracted as I am to this approach, it seems to me, and again this is fairly conceded by the bank, that the production of other emails contained within Mr Ting's email box relating to the Iinvest facilities will involve the bank in little inconvenience or trouble and, provided the period of time is restricted, is likely to result in the production of documents which are relevant to the issues to be determined in this case, especially given that all of the circumstances of the relationship between the cross-claimants and the bank will need to be reviewed to determine the cross-claimants' claim of statutory unconscionability.

23. Accordingly, I direct that the bank produce the balance of emails contained in the pst file relating solely to the Iinvest facilities during the period 1 January 2008 and the date of the issue of the notice of default in 2012 within seven days.

Further proposed amendment to the cross-claim

24. I turn then to the unexpected aspect of today's hearing, that is to say, the propounding of a further proposed amended statement of cross-claim, the fifth such amended statement. That document appears as annexure G to an affidavit of Mr Harker-Mortlock sworn on 10 March 2017, paragraphs 1 to 5 and 23 of which were read in support of the application. Moreover, that document annexes as annexure D1 to D34 documents within MFI#13 coming from the pst file and that has been a convenient place to refer to some of those matters.

25. I do not propose to set out in full the proposed amendments; they are, as I say, identified in annexure G and each of the new averments and claims for relief are identified by a process of highlighting.

26. Having read the material in Chambers and been taken through it by Mr King and Mr White, in turn, I think I can broadly summarise the gravamen of the amendments as representing a proposed shift in the cross-claimants' case. In the most general terms, the present case is that, because of the relationship of banker and customer, informed by the banking code of practice and by the provisions of State and federal statute which regulate commercial dealings between, inter alia, banks and consumers, the bank owed a duty to deal in good faith and fairly with the cross-claimants to assist them to manage the facilities during a period of what is said to be temporary financial difficulty. In particular, it is said that the bank had an obligation in terms of conscionable dealing with the customer to accede to what has been referred to as “plan A”, which was a plan that Mr Harker-Mortlock came up with in consultation with his farm manager as a means of trading out of the difficulty through advancement of the pastoral enterprises on the security properties. As I have said, I have expressed it in the most general terms and without description of the various iterations of the causes of action relied upon.

27. The shift in the new proposed pleading is discernible from proposed paragraphs 30A to 30C. There are qualifications and refinements in the various amendments. What is to be drawn from them is described in the new proposed 126A to 126E.

28. Again, in the most general terms, what is now complained of, in the alternative, is that the bank not only had that obligation imputed by law on the cross-claimants' case, but by virtue of the circumstances known to it, said to be evidenced by the new emails forming part of MFI#13, the bank assumed responsibility, and represented to the cross-claimants that it would, in fact, as it was put in argument, lend them a helping hand to overcome temporary difficulties that might be encountered in the course of establishing the pastoral enterprises, and that the cross-claimants relied upon that representation to its detriment.

29. It is said that, had that representation not been made, the cross-claimants would not have accepted the facilities offered by the bank, secured as they were by first mortgages, but, I suppose by implication, would have gone to another financial institution which might have offered them the terms they thought they were obtaining from the bank, although that latter part of the case, I must say, is not articulated, as I understand it, expressly in the proposed amendments.

30. I have stated this in very general terms because it is expressed in the most general terms. For instance, paragraph 35A is in the following terms:

“Mr Harker-Mortlock was intent on developing [the properties] as a commercial agricultural enterprise of Iinvest. The purpose of [the facilities] was to acquire the rural properties on which to operate an agricultural enterprise. Mr Harker-Mortlock communicated this purpose to the CBA, through Howard Ting, at the time he was seeking a loan to purchase [the first of the properties] and, knowing this purpose, the CBA extended the loans to Iinvest, thereby representing to Mr Harker-Mortlock and Iinvest that the CBA agreed to and supported this purpose".

31. I think it can be seen that this is expressed in the most general terms and the verb "to support" is employed as the critical point of the averment. Mr White, in his submissions, set out that it is a word of great generality, devoid of any real content or meaning in the context of these pleadings.

32. Likewise, in paragraph 35B, Mr Harker-Mortlock's reliance upon the representation of, inter alia, support is also devoid of any practical content. One cannot say what is meant by "support" and, indeed, it surely cannot be the case that any bank would support any customer on any terms by writing a completely blank cheque to enable the customer to carry on its business, regardless of the consequences to the customer or the bank.

33. I will not go through the details of the other averments, but paragraph 126A, which is the first of the paragraphs drawing the new amendments together, avers that the bank, "failed to give Iinvest an opportunity to meet its liabilities to the CBA by allowing the agricultural enterprise to trade through a setback, required the sale of livestock and of the rural properties and by its conduct prevented the agricultural enterprise from operating to meet its liabilities to the CBA …".

34. Again, this is pleaded in terms of the utmost generality and, I must say, it is not obvious what material facts are relied upon, or how the case would be precisely formulated. In that sense, I think the pleading is embarrassing and it is almost impossible for the bank to know the details of the case it is required to meet. Mr White did not use the expression "embarrassing", but his submissions were, I think, to that effect, when he complained of the generality of the language employed in the proposed amendment.

35. Moreover, with respect to the argument put to the contrary, I really find it hard to see how this shift in the case in any way fairly arises out of the contents of the emails forming annexure “D” to the affidavit.

36. I should also say that the case in relation to breach of that obligation was that when Mr Harker-Mortlock proposed plan A, the bank, rather than giving it serious consideration and, I think, rather than accepting it, given its obligation, concentrated its efforts on an exit strategy in the bank's interests and not in the customers' interests.

37. Although there is use of the language "exit strategy" in the emails, there is nothing new about that. The cross-claimants have always said that the bank did not give serious consideration to plan A, but, rather, sought to have its debts repaid by means which were detrimental to the ongoing pastoral enterprise.

38. Focussing on the representation case, I must say, reading the emails with an eye attuned to the cross-claimants' side of the story, I fail to see how anything in the emails gives rise to this case of affirmative representation.

39. Taking these matters together, that is to say, the embarrassing imprecision of the pleading and the consideration that I am enable to see how the new case arises out of MFI#13, I am not prepared to accede to the application to amend in accordance with annexure G.

31. I have said in other judgments in this case that I understand the difficulties of taking over this litigation at the heel of the hunt and that one particularly understands that there is a feeling that the case could have been better put by one's predecessors. But given the consideration that the matter is part-heard, that Mr Harker-Mortlock has given his evidence, and that there are only three days of hearing set aside for the balance of the evidence and legal argument, I am persuaded that the interests of justice, as articulated in Civil Procedure Act 2005 (NSW) ss 56 and 60, require me to refuse this late application for an amendment of the cross-claim.

32. I am not satisfied that there is anything of substance arising out of MFI#13 which changes one's understanding of the relationship between the bank and its customer at the material time. Certainly MFI#13 is additional material, but reading it for myself, none of it really changes my understanding of the events that have led to this litigation. The emails perhaps provide more detail. I do not regard MFI#13 – which was, I accept, produced on the second last day of the first tranche of hearing when counsel were fully occupied with the conduct of the case in Court – as justifying any additional evidence from Mr Harker-Mortlock.

33. I must say that the affidavit I have referred to, which I have read in full in Chambers, really is not evidence in terms of providing an account of matters known to Mr Harker-Mortlock from things he saw, heard or otherwise perceived. It really amount to a commentary on MFI#13 and how those documents affect his view of aspects of his case. If there are evidential representations contained in it, they are buried in it, and the overall impression I have is that it is an argumentative document. Moreover, annexure “E” to the document which is best described a further calculation showing that plan A would have worked. Having considered it, it is effectively a written submission, doubtless if it commends itself to learned counsel, it can be advanced through him in due course, but I do not regard it as an evidential document and were I asked to admit it, I, as presently advised, would reject it.

Costs

43. Finally, Mr White applies for the costs of today, pointing out that on the issues left unresolved by agreement of the parties, the bank has been very substantially successful. Pursuant to the short minutes entered on 13 February 2017, the cross-claimants brought forward a notice of motion for my determination today, and the relief sought in the notice of motion related to an order for the production of the “file” referred to in the email dated 5 May 2008 and also a prayer seeking leave for the cross-claimants to amend, at large, after the production and consideration of that material. That relief was, by implication, refined by the form of short minutes of order Mr King handed up at the start of the day which required provision of an affidavit of documents in relation to the contentious documents I have referred to above, and leave to amend in the form of annexure G.

44. Mr King argues that the request of the parties to list the matter for the resolution of the interlocutory issues in advance of the further hearing was to avoid wasted hearing time dealing with them and this factor tells against dealing with these costs separately. But looking at the draft short minutes Mr King handed up, it must be said that to the extent to which the cross-claimants have been successful in relation to obtaining an order for the production of further documents, it has been only to a very limited extent, and indeed only part of one of three categories sought has been ordered to be produced. I have rejected the application to amend in conformity with annexure G.

45. At the time the matter was set down for directions, it was not expected that the whole day would be taken up dealing with the matter. Having said that, I acknowledge these issues have arisen and it was necessary to resolve them before the resumption of the hearing. Moreover, I am grateful to counsel for making themselves available today, rather than tomorrow at short notice after I became unavailable tomorrow due to other court commitments. At the end of the day, most of the day has been taken up in arguing these matters and it is appropriate, I think, for the Court to make an order in relation to costs.

46. I think the bank has been very substantially successful and I think the appropriate order for me to make is as follows:

1. The cross-claimants are to pay 80 per cent of the bank's costs of and incidental to the notice of motion filed on 13 March 2017.

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Decision last updated: 19 April 2017