Montevento Holdings Pty Ltd v Secure Funding Pty Ltd
[2018] WADC 44
•4 APRIL 2018
[2018] WADC 44
| JURISDICTION | : | DISTRICT COURT OF WESTERN AUSTRALIA IN CHAMBERS |
| LOCATION | : PERTH | ||
| CITATION |
| ||
| CORAM | : DEPUTY REGISTRAR HARMAN | ||
| HEARD | : 1 FEBRUARY 2018 | ||
| DELIVERED | : 4 APRIL 2018 | ||
| FILE NO/S |
| ||
| BETWEEN |
|
AND
SECURE FUNDING PTY LTD
Defendant
Catchwords:
Practice - Western Australia - Practice under the Rules of the Supreme Court
1971 (WA) - Application of particular documents - Order 26 r 6
Legislation:
Nil
Result:
Application dismissed
[2018] WADC 44
Representation:
Counsel:
| Plaintiff | : | Mrs K A Vernon |
Defendant : Mr J Garas
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
Defendant : Minter Ellison
Case(s) referred to in decision(s):
Nil
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
DEPUTY REGISTRAR HARMAN:
According to the statement of claim, in or about August 2007 the defendant loaned money to the plaintiff pursuant to the terms of an agreement. In the period December 2009 to February 2010, it levied the plaintiff an expired account fee. According to the defence, the term of the loan was for one year commencing 6 September 2007.
I infer that during the relevant period the plaintiff had been in default under the agreement.
The particular of the allegation that the fee was a penalty and was unlawful and void is that the defendant had sustained no loss over and above the interest rate charged to the plaintiff.
With reference to a list comprised of 10 items the plaintiff seeks an order for discovery of particular documents.
Order 26 r 6 of the Rules of the Supreme Court 1971 (WA) is as
follows:
(1) Subject to Rule 7 the Court may at any time, on the application of any party, to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document specified or described is, or has at any time been, in his possession custody or power, and if not then in his possession custody or power when he parted with it and what has become of it. ... (3) An application under this Rule must be supported by an affidavit stating the belief of the deponent that the party from whom discovery is sought under this Rule has, or at some time had, in his possession, custody or power the document or class of document specified or described in the application and that it relates to one or more of the matters in question in the cause or matter.
The application is supported by the affidavit of Victor John Fairley of 30 May 2017. Fairley has been engaged by the plaintiff to provide his opinion regarding the issue raised with the fee.
| 7 | In the affidavit Fairley outlines his background and brief. At par 12 he describes the documents provided to him by the plaintiff and at par 13 those that he has otherwise located. One such document, that |
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
specified at par 13.1 as the Liberty Term Investment Fund product disclosure statement dated 1 February 2011 establishes for the deponent's purposes what he describes as the Liberty Group of companies is a non–bank financial institution; raises money to fund its loans from institutional and retail investors principally via securitisation vehicles and mortgage backed funds; and is a manager in two core competencies, loan origination /management and investment fund management. According to the same document, for the same purpose the defendant is constituted a wholly owned subsidiary of the Liberty Group of companies and a holding vehicle that originates loans and then sells down those loans to mortgage backed funds, institutions, the public, and/ or securitisation issues controlled by the Liberty Group of companies.
It is my assessment of pars 15 to 57 that but for occasional references to the defendant, Fairley canvasses features of the structure and business of the Liberty Group of companies which he designates as Liberty.
He then continues as follows:
58. By reason of the matters outlined above at paragraphs 15 – 57 there are a number of documents that I require in order to finalise my opinion (see Attachment 'VJF 12').
59. Under document retention requirements relating to financial records, both from Liberty's view point, and the investor's view point, and from its customer's view point, loan records must be kept for at 7 years as they are basically financial records. For some considerable time after a loan is finalised a lender still has the possibility of legal action being taken against it for something it may or may not have done or for something its customer has done. Therefore it is very likely that for professional indemnity insurance purposes (unless like a bank itself insures) it would keep all its records for at least 7 years. The loan wasn't repaid until 2010, but given this legal action started some time ago it would be very surprising that Liberty would destroy records that it knows are part of a legal case either threatened or pending. Liberty refers to previous securitisation issues in its latest PDS and clearly needs to have evidence to demonstrate a track record for the purposes of attracting investment funds, leads me to the conclusion that they would behave similar to a bank and keep records for at least 7 years [sic].
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
60. By reason of the matters outlined above in pars 15 - 59, I believe that:
60.1 the documents I require are all documents that would have been maintained by the Liberty Group, including (the defendant) evidencing its transactional lending/funding activities for every loan made, including the Loan; 60.2 by reason of the WA credit licensing requirements, the reporting obligations that [the defendant] would have as a wholly owned subsidiary of Liberty, [the defendant] has, or has had, in its possession, custody of power the Requested Documents. 61. Attached to this affidavit and marked 'VJF 13' is a copy of a table that I have prepared for possession of the documents contained in the List of Documents.
62. The Requested Documents directly relate to the issues outlined above at par 11 which I have been asked to consider, and I cannot complete my report without them.
Attachment VJF 12 is constituted as follows:
1. A copy of the Prospectus of each fund/trust (if more than one) that funded the loan during the period 2007 – 2010. If the funder is not a fund then provision of the equivalent information in relation to each entity.
2. A copy of the Financial Statements of each fund/trust (if more than one) that funded the loan during the period 2007 – 2010. If the funder is not a fund then provision of the equivalent information in relation to each entity.
3. A copy of the Constitution of each fund/trust (if more than one) that funded the loan during the period 2007 – 2010. If the funder is not a fund then provision of the equivalent information in relation to each entity.
4. A manifest of the declared income distribution rate of return to fund investors for each month (or any other period as the case may be) for each fund/trust (if more than one) that funded the loan during the period 2007 – 2010 including the equivalent information if the loan was in a particular pooled class of assets in a securitisation structure.
5. Details of the Relationship between [the defendant] and other Liberty entities for the period 2007 – 2010. In this context Relationship means ownership and related party transaction
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
structures such as the movement of fees, inter-entity borrowings, assignment of loans originated by [the defendant] that would have some connection to the business of commercial lending. This includes details of how defaulting and loss making loans are managed – for example clawback, put back, or loss sharing and so forth and whether there is a transfer of a defaulting loan into a different funder.
6. A copy of the Financial Statements of [the defendant] during the period 2007 – 2010.
7. A copy of a current commercial loan contract document standard terms and conditions.
8. The number of other commercial loan accounts that have been charged an EAF since 2007 to date.
9. The charging methodology for EAF's charged to other loan accounts if it is different to the methodology used for this loan (this loan being 1% per month of the original principal amount lent).
10. What regulatory reporting requirements existed in relation to commercial loans between 2007 and 2010?
11. Copy of commercial loan pricing policy and/or matrix applicable during the period 2007 – 2010.
It is patent that some of the items in the list are not documents.
Paragraph 50 is in part as follows:
50. … I would expect that the funding source for the Loan and any financial incentives existing for the fund manager at the time would be documented by [the defendant], and in the ordinary course of [the defendant's] business such information or parts thereof would most likely be contained in document categories 1 – 6 of the list of documents that I requested from [the plaintiff's solicitor] on 13 January 2017.
In par 52 the deponent introduces VJF 12 as the list of documents requested. It is headed 'Additional information required from Liberty'. In light of par 50 the likely explanation for the heading of the list is that the list predated the affidavit.
Whether jurisdiction to order discovery of documents is established depends upon satisfaction of the test specified in the sub- rule. The onus is on the applicant.
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
The statement of belief at par 60.1 that the documents Fairley requires are all documents that would have been maintained by the Liberty Group of companies is insufficient to establish a case in the application against the defendant. That the defendant may be part of the Liberty Group of companies as it is the subsidiary of an unspecified entity and each is part of the Liberty group of companies is not significant. The defendant is not obliged to give discovery of documents other than those that are or have been in its custody, possession or power. Paragraph 60.1 is clearly insufficient.
The statement of belief at par 60.2 that by reason of the WA credit licencing requirements, the defendant has, or has had, in its possession, custody of power the Requested Documents calls for an assessment of the relevant licencing requirements. I was not taken to any particular legislation, rather to parts of Fairley's evidence as follows:
Consumer credit protection legislation
25. A loan provided to a consumer or for personal purposes falls under various consumer credit protection legislation depending upon the era and the State. That impacts on the type of documentation that is required to be kept and maintained by [the defendant].
26. …
27. …
28. … During the 1990s and 2000s Western Australia had one of the strongest legislative frameworks for non-bank credit providers and required market operators to be licenced and have local participation … Nevertheless, the WA Licencing Regime was principally directed at the consumer market … .
29. Based on my knowledge of the WA licencing regimes and my experience, Liberty would have held a WA Credit Licence during the period of the Loan, and would have had operational processes and systems that would have met the WA licencing requirements of the time.
30. Based on all the material I have reviewed, I believe that [the defendant] was a controlled entity of Liberty and [the defendant] would have naturally fallen under Liberty's credit licence. This means that [the defendant] would have needed to comply with the licencing requirements to avoid Liberty being in breach of its credit licence.
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
31. Nevertheless because the Loan to [the plaintiff] was to a trust with a corporate trustee and for commercial purposes, Liberty would not need to behave with the same standards of care and transparency as it would if it was a consumer loan.
Although the deponent does not identify either the legislation or any particular requirement, the evidence allows for the conclusion that the defendant was not a licence holder but that at the relevant time an unspecified member of the Liberty group of companies would have been. It is not clear whether the deponent contends that the relationship between the defendant and the licence holder created any particular obligation in relation to the particular loan.
In my opinion the evidence at par 60.2 is insufficient to establish a case against the defendant that it was the entity within the Liberty group of companies that has or has had the particular documents in its possession, custody or power.
The sufficiency of par 62 is compromised to the extent that some of the items in VJF 12 are not documents. In my opinion it is also compromised by the part of par 50 that I have cited. It is to the effect that items 1 - 6 of the list would be expected to contain relevant information; not that the documents themselves have any bearing upon the issues in the action.
In my opinion the conclusion that each document the subject of items 1 - 6 is 'directly relevant' is not established. It follows that justification for an order against the defendant would depend upon being satisfied that each document did contain relevant information. That is the case not only by reference to the rule but also because engagement in litigation exposes a party to scrutiny only to the extent of the litigation.
The opening words of par 50 are as follows:
The funding structure in 2007 – 2010 may be different to the current structure …
I take it that the 'funding structure' to which the deponent refers draws upon the content of preceding paragraphs that in turn is drawn from documents relating to funding sources established by the Liberty Group of companies for the purpose of attracting capital for its use. The documents are specified at par 13.1 as the Liberty Term Investment Fund product disclosure statement dated 1 February 2011; par 13.2 as Liberty High Yield Fund PDS dated 9 May 2012; and at par 13.3, as the
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
Liberty Term Investment Fund Financial Statement for the financial year ending 30 June 2015.
Otherwise the evidence that precedes par 50 is as follows:
45. The core issues are whether:
45.1 Liberty had justification for charging the EAF, and if
so, the reasons for the justification;45.2 The EAF was out of proportion to the loss suffered by
Liberty; and45.3 The EAF was unjustified profit-taking. 46. The key aspects that relate to resolving the above issues are:
46.1
the exact source of funding Liberty used to fund the Loan. Liberty had multiple sources potentially including, but not limited to, securitisation issues with institutional investors and mortgage backed funds – either term or high yield;
46.2
exactly how Liberty funded the Loan once it had expired and went into default. It could have kept funding from the original source if that was the policy and the liquidity was available. Equally it could have chosen or had no option other than to rollover or re-finance it into a higher risk/higher yield funding source. This is especially important to understand due to the circumstances created by the GFC at the time. An indication exists in clause (h) at page 21 of the 2014/2015 financial statement (see Attachment 'VJF8') Liberty has a policy of maintaining fund liquidity which means it is theoretically possible, depending on the exact funding source, that the Loan was carried in the fund had not rolled or re-financed out. …
46.3
whether the EAF was 'made up' for the Loan and was an orphan, or whether it was the introduction of a policy that applied to other loans in the same circumstances, and whether it subsequently became part of documentation; and
46.4
the financial and operational environment facing Liberty at the time including provisioning aspects, whether target returns were met to investors and whether performance bonuses were paid to the manager from the source that funded the Loan.
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
47. In the most current PDS I could publicly source being 2011 PDS, the manager (a Liberty entity) effectively receives the 'overs profit' beyond a target rate of return …
48. Therefore Liberty is motivated to boost the yield on loans whenever it can because Liberty as a manager has a clear financial incentive to do so. The actual cost of loss and the risk of loss given default do not appear to be absorbed to any great extent by Liberty or its owners – it appears that it is absorbed by the investors into the various programs.
49. The Performance fee in the Fund is a good example of the incentive on offer to Liberty as manager …
On the basis of the documents to which I have referred; my assessment of the content of pars 15 - 57, specifically the paragraphs that I have just cited; and the heading of VJF 12, I conclude that the reference in par 50 to the funding structure in 2007 to 2010 is to the funding structure established for the benefit of the Liberty Group of companies.
It is noteworthy that absent any evidence, at par 50 the deponent identifies the defendant as the entity within the Liberty Group of companies that would document the funding source for the loan and any financial incentives for the fund manager.
In my opinion par 50 is insufficient to do more than establish that information in items 1 - 6 of the list at VJF 12 would be relevant to the question raised in the pleading regarding the fee.
There is no particular evidence that relates to items 7 - 11 specified in attachment VJF 12 other than the content of VJF 13. It provides evidence that the deponent considers that items 6 and 7 would be held by the defendant.
Turning to the list itself, it is patent that each of items 5, 8, 9 and 10 is not a document. The description of items 2, 4, 6 and 11 is insufficient to establish a case for an order for discovery of a particular document or class of documents.
As for items 1 and 3 there is no evidence to establish the proposition that the defendant would have had any involvement in the process of raising money for the purpose of its lending.
| 30 | With reference to the term 'the financial statements' used in item 6, I am unable to identify a document or documents to which |
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
Fairley refers. That difficulty is significant because to justify an order for discovery of a particular document it is necessary that the court would be satisfied that discovery had not already been given and that there is sufficient evidence to justify the order being made.
In circumstances where the locus of the onus is clear, absent evidence of any difficulty in bringing evidence, there is no reason to draw any inference to assist an applicant.
As for item 7 there is no evidence to support the proposition implicit in the application that the conditions that apply to a loan made at any time after the date of the relevant loan would have a bearing upon the issues presented to the deponent by his brief. It is worth recording that the loan was made more than 10 years ago. In my opinion the date of the loan is so far distant from the present that it is for the applicant to present a case that the terms of a loan presently made by the defendant would have any relevance to the issues in the action.
I note that at par 12 Fairley deposes that he was provided with standard terms and conditions of the Loan Agreement.
Item 1 of the application has no corresponding item in the lists to which Fairley refers. It is in the following terms:
All documents bearing on the loss for which the fee was levied including but not limited to office memos and calculations made at the time the expiry fee was formulated.
It is fair to consider that the item outlines the scope of discovery in the action. According to the entry for trial document filed by the plaintiff it has certified that it has been given inspection.
The balance of the items the subject of the application are in the same terms as those specified in VJF 12 and VJF 13.
It follows that I am not satisfied that the applicant has made out any case for an exercise of jurisdiction under the rule.
[2018] WADC 44
DEPUTY REGISTRAR HARMAN
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MB
COURT OFFICER
9 APRIL 2018
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