Commonwealth Bank of Australia v Jalee Consulting Group Pty Ltd

[2012] VCC 1954

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-12-00523

COMMONWEALTH BANK OF AUSTRALIA	Plaintiff
v.
JALEE CONSULTING GROUP PTY LTD & ORS	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	7 December 2012
DATE OF JUDGMENT:	7 December 2012 (revised 10 December 2012)
CASE MAY BE CITED AS:	Commonwealth Bank of Australia v. Jalee Consulting Group Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2012] VCC 1954

REASONS FOR JUDGMENT

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Catchwords:            Practice and procedure – Application to set aside default judgment – Guarantee by director of company’s indebtedness to bank – Default by company – Appointment of receiver by bank to company’s business – Sale of assets of business – Whether best price achieved – Whether evidence on this issue sufficient to establish that defence had a real prospect of success.    

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms H. Aprile	Corrs Chambers Westgarth
For the Defendant	Mr J. Kohn	Rockwell Bates  (as town agents for Argyle Lawyers)

HIS HONOUR:

1The third defendant, Susan Heathwood, seeks to set aside a judgment entered in default of appearance against all defendants on 8 August 2012, for $139,344.87. The judgment amount had been varied after application by the plaintiff to the Court following an earlier judgment entered on 7 June 2012 for $236,521.12.

2The third defendant was sued as a guarantor of the obligations of the company Jalee Consulting Group Pty Ltd, the first defendant, pursuant to financial arrangements with the plaintiff. The first defendant was a company involved in providing financial services. It provided those services pursuant to an arrangement with a holder of a financial service license, Guardian FP Ltd. The directors of the business were the second and third defendants. They were husband and wife, but they separated in late 2010. The third defendant worked in the first defendant’s business between 2005 and 2008. She resigned as a director on 1 September 2008, some months before she executed the guarantee.

3In an affidavit in support of her application to set aside the judgement, the third defendant said that the business of the first defendant suffered as a result of the global financial crisis, she had little involvement in the business and in 2009 she was suffering from depression. In November 2011, the plaintiff appointed receivers to the business conducted by the first defendant. The business was sold by the receivers to Guardian FP Ltd.

4The only asset of the business was the list of financial planning clients. The receivers apparently formed the view that the only realistic buyer for the business was Guardian FP Ltd.  The business was sold to Guardian FP Ltd on 6 March 2012 and was later on-sold by Guardian FP Ltd for a higher price. The evidence suggests that after Guardian FP Ltd purchased the business, it expended significant sums on the business and, at the time of the purchase, it had foregone set off rights that it may have had in respect of fraudulent activities of the third defendant whilst she was involved in the business.

5The third defendant has provided an explanation for her failure to file an appearance. The sufficiency of that explanation was not the primary matter for my determination. The issue argued on the application was whether the third defendant has established an arguable defence. She asserts that she has an arguable defence to the plaintiff’s claim because the receivers under-sold the business, effectively by deciding that Guardian FP Ltd was the only realistic purchaser.

6The only basis for the suggestion that the business has been under-sold are statements made to the third defendant by her estranged husband in text messages which are referred to in her affidavit. These included a statement in a text message from her husband at some time after May 2011 that, “The bank sold the business to Guardian for nothing, about 1 times (the trail/renewal income). Its all gone. Thanks to you, I have lost everything”, and a text message in mid 2012 that, “Guardian ended up on-selling it a few months later for double the amount they paid the bank for it”.

7The paucity of material available to the third defendant is underlined by the fact that in related Federal Magistrates Court proceedings to set aside a bankruptcy notice issued by the plaintiff, the third defendant sought leave to issue subpoenas, including against Guardian FP Ltd, to ascertain details of the purchase of the business and its on-sale. The Federal Magistrates Court refused to grant the leave sought.

8The third defendant filed her summons in this Court seeking to set aside judgment on 19 November 2012. However, it was not until 3 December 2012 that she served a notice to produce on the plaintiff, seeking copies of the documents evidencing the sale of the first defendant’s business to Guardian FP Ltd and the subsequent sale by Guardian FP Ltd to a third party. In my view, it is unlikely these documents would go very far in assisting the third defendant to establish that the sale price by the receivers was in breach of their obligations, and therefore a possible set off against amounts owing by the third defendant pursuant to the guarantee she entered into with the plaintiff.

9At present, there is no evidence in relation to the value of the assets of the business, save for the unsubstantiated assertions of the second defendant and the contrary evidence in the affidavit filed by the plaintiff in the Federal Magistrates Court proceeding concerning the difficulties selling the only asset of the business to any party other than Guardian FP Ltd without the expenditure of significant further costs by the receiver. Before Guardian FP Ltd on-sold the business, it apparently needed to expend further sums itself. Guardian FP Ltd had also forgone rights it may have had as a consequence of liabilities the business had incurred to it through the fraudulent activities of the third defendant relating to the writing of insurance policies.

10These activities appear to be the matters noted by the second defendant in his comment to the third defendant, to which I have already referred, namely, “Thanks to you, I have lost everything”. Plaintiff’s counsel also referred to the terms of the guarantee, which provides in Clause 11 that, “As long as an amount owing under a guaranteed agreement remains unpaid, you may not without our consent…reduce your liability under this guarantee by claiming that you or the borrower or any other person has a right of set-off or counterclaim against us…”.

11I consider in the circumstances that:

a.    the defendant’s application should not be further delayed to require the plaintiff to comply with the notice to produce. The notice was not served until 3 December 2012 and would not, in my view, be likely to reveal facts which would establish the basis for a defence on the part of the third defendant;

b.    the application should not be adjourned to give the third defendant the opportunity to issue subpoenas against Guardian FP Ltd or any other body to obtain details of:

i.the transactions involving the purchase and on-sale of the business of the first defendant;

ii.issues relating to the limitations on the sale of the business to a party other than Guardian FP Ltd, because of the existing arrangements with Guardian FP Ltd as the licence holder;

iii.after the purchase of the business by Guardian FP Ltd, the expenditure by Guardian FP Ltd in respect of the business before it was on-sold; and

iv.the issue of the possible set-off that Guardian FP Ltd had as a result of the third defendant’s fraudulent activities through the first defendant regarding life insurance policies;

c.     the present material filed in support of the application does not provide any basis for concluding that the third defendant presently has, or is likely to have following further investigation, a defence on the merits that would have any real prospect of success.

1. Accordingly, the third defendant’s summons filed 19 November 2012 will be dismissed with costs.

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Certificate

I certify that these 3 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 7 December 2012 and revised on 10 December 2012.

Dated:      10 December 2012

Philippa Gilkes

Associate to His Honour Judge Anderson