Shah v Commonwealth Bank of Australia

[2016] NSWSC 518

Supreme Court

New South Wales

Medium Neutral Citation:

Shah v Commonwealth Bank of Australia [2016] NSWSC 518

Hearing dates:

27 April 2016

Date of orders:

27 April 2016

Decision date:

27 April 2016

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Directions made for plaintiff to inform the Court by 10 May 2016 whether she intends to commence proceedings against the solicitor the subject of her allegations against the defendant Bank.

Catchwords:

EQUITY – application by plaintiff wife to set aside guarantee signed in favour of defendant bank - application by defendant bank to strike out Statement of Claim – plaintiff wife signed guarantee of a company controlled by her husband in favour of defendant bank to provide credit facility to husband’s company – plaintiff wife signed extensions to the guarantee on four subsequent occasions – plaintiff wife claims that she was unaware of poor financial circumstances of the company or the rate of interest accrual on the company’s obligations to the Bank- in prior recovery action by the Bank the plaintiff and plaintiff's husband jointly advised by solicitor, allegedly giving rise to potential situation of conflict of interest – whether Bank aware of alleged conflict of interest - whether plaintiff’s pleading discloses proper cause of action or is bound to fail.

PROCEDURE – avoidance of multiplicity of proceedings – plaintiff asked whether the plaintiff intends to maintain any action against the solicitor who jointly advised the plaintiff and her husband in earlier proceedings and subsequent settlement, for alleged failure to act upon an unresolved conflict of interest - whether any such cause of action against solicitor should be joined to current proceedings in accordance with Civil Procedure Act s 56.

Legislation Cited:

Civil Procedure Act 2005, s 56
Competition and Consumer Act 2010 (Cth)
Contracts Review Act 1980 (NSW)

Cases Cited:

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48

Category:

Procedural and other rulings

Parties:

Plaintiff: Vicki Shah
Defendant: Commonwealth Bank of Australia

Representation:

Counsel:

 

Defendants: B. Koch

  Solicitors:
Plaintiff: Ms D. Phair, Proctor Phair Lawyers Pty Limited
Defendant: Ms F. Reynolds, Turks Legal

File Number(s):

2015/293957

Publication restriction:

No

Judgment

1. The Commonwealth Bank of Australia ("the Bank") seeks by Motion to strike out the plaintiff's Statement of Claim in these proceedings. The plaintiff’s claim is to set aside a guarantee she signed in favour of the Bank. The proceedings are before the Court today for directions in anticipation of a hearing of the Bank's Motion on 10 May 2016.

2. As part of its pre-hearing review of these proceedings, the Court has examined the Statement of Claim. The pleading’s allegations raise the need for the Court to give directions to the plaintiff about the further conduct of the proceedings. The relevant pleaded facts are summarised below.

3. The Statement of Claim pleads that in October 2008 the Bank provided a line of credit facility to General Practice Support Services Pty Limited ("GPSS"), a company controlled by the plaintiff's husband, Mr Syed Tufiq Hyder Shah.

4. The Bank is alleged to have provided financial accommodation to GPSS to assist it with working capital in the conduct of its business. In support of the Bank's advance, it is alleged that the plaintiff Mrs Shah, at her husband's request, provided a personal guarantee to the Bank on 17 October 2008.

5. The guarantee was extended on a number of occasions, presumably with the facility, in November 2009, in March 2010, in October 2010 and in March 2011. The effect of the guarantee as extended was that Mrs Shah would guarantee the financial obligations of GPSS to the Bank.

6. Mrs Shah then pleads circumstances that, if established, may make out the elements of a case against the Bank based on the principles of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (“Amadio”) or perhaps Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48. She contends that at the time she signed the guarantee she was in a position of special disadvantage in relation to the Bank because of her lack of information about the dealings of her husband and the company GPSS with the Bank, and its poor financial position that was said to be known to the Bank but not to her. She says that she was not aware of certain terms and conditions about the accrual of interest on the Bank’s facility with GPSS and was not warned about them.

7. Those allegations never went to trial. The Bank commenced proceedings against Mrs Shah on her guarantee for recovery of moneys owing to the Bank upon GPSS's default. The allegations in the present Statement of Claim arise out of what happened upon the resolution of the Bank’s proceedings.

8. Mrs Shah pleads that in the Bank’s action she and her husband were represented by the one solicitor, who was a friend of the plaintiff's husband. The solicitor negotiated a written settlement agreement for Mr and Mrs Shah and GPSS on the one side and the Bank on the other side, which was executed on 21 July 2014.

9. In her pleading the plaintiff alleges that at no time before the July 2014 settlement was she told by her solicitor: that she had potential defences to the Bank’s action available to her which were different from those of her husband; or that the solicitor for herself and her husband was in a position of conflict of interest, because of the difference between her defences and those of her husband. She says that the joint legal representative did not tell her that she had the right to obtain, and that it would be desirable for her to obtain, independent legal advice separately from her husband. She says that the solicitor did not inform her of her potential defence to the effect that the guarantee may have been limited to $1,000,000 plus interest, a sum which is close to the amount of money she had already paid to the Bank.

10. The solicitor compromised the proceedings on behalf of both Mrs Shah and her husband. It is alleged in these proceedings against the Bank that the Bank knowingly took advantage of the solicitor’s conflict of interest by accepting a settlement from the plaintiff and her husband, which was advantageous to it and disadvantageous to her.

11. In the present pleading Mrs Shah alleges that the Bank was aware, or ought reasonably to have been aware, that the plaintiff may have had a defence to the proceedings based on her position of special disadvantage; and it seeks relief to set aside the settlement under the Contracts Review Act, and under the Competition and Consumer Act 2010 (Cth) in respect of the settlement.

12. The Bank's strike-out Motion is apparently predicated upon a contention that this pleading does not disclose a proper cause of action or is bound to fail. The Motion is listed for hearing before me on 10 May 2016. The merits or otherwise of the arguments for both sides on the Motion will be determined on the day.

13. The Court is concerned about another matter. The Bank's Motion may succeed. The Bank's Motion may fail. It is impossible to tell at this stage. If the Bank's Motion were to fail and the proceedings were to continue to be maintained against the Bank, the structure of the pleading makes clear that there is a distinct possibility that Mrs Shah has a parallel cause of action against the solicitor, who acted for both the plaintiff wife and her husband.

14. The essence of Mrs Shah’s case against the Bank is the Bank's alleged failure to recognise the effect upon its own conscience of the unresolved conflict of interest, which this joint solicitor is said to have had, and which the Bank should have recognised. It seems integral to the case against the Bank that there is also a cause of action against the solicitor for negligence or breach of fiduciary duty or both.

15. Whether any of these allegations are right or wrong is not to the point at present. The Court is more fundamentally concerned under Civil Procedure Act 2005, s 56 to ensure the real questions in dispute between the parties are resolved justly and quickly, and in these circumstances means without unnecessary multiplication of proceedings.

16. If there is a cause of action against the solicitor it should be dealt with at the same time as any cause of action against the Bank. If the plaintiff's claim is struck out, none of this will matter. But the Court wants the plaintiff to be ready for one possible outcome of the Motion on 10 May 2016, which is that the Statement of Claim survives the Bank's attempts to strike it out. In those circumstances, by 10 May 2016, the Court will wish to know whether or not the plaintiff proposes to commence proceedings against the solicitor.

17. If the plaintiff's Statement of Claim survives the strike-out Motion, the Court would expect any action against the solicitor to be determined at the same time as any action against the Bank. It is highly undesirable for two sets of proceedings to be conducted in this Court with their subject matter and issues overlapping as deeply as these allegations appear to do.

18. The Court therefore directs the solicitors for the plaintiff to confer with their client before 10 May so that the plaintiff will be in a position to inform the Court on the morning of 10 May 2016 whether or not the plaintiff proposes to bring proceedings against the solicitor referred to in paragraphs 35, 36, 37 and other paragraphs of the Statement of Claim.

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Decision last updated: 28 April 2016