Shah v Commonwealth Bank of Australia (No. 2)

[2016] NSWSC 592

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Shah v Commonwealth Bank of Australia (No. 2) [2016] NSWSC 592
Hearing dates:	10 May 2016
Date of orders:	10 May 2016
Decision date:	10 May 2016
Jurisdiction:	Equity
Before:	Slattery J
Decision:	Summary judgment not granted. Pleading struck out in part and leave to re-plead granted. Plaintiff directed to file all her evidence by Friday 10 June 2016. Costs of the motion will be the successful party’s costs in the proceedings.
Catchwords:	PROCEDURE - defendant bank seeks summary judgment against plaintiff wife - whether proceedings should be dismissed under Uniform Civil Procedure Rules, r 13.4 - whether proceedings should be struck out under Uniform Civil Procedure Rules, r 14.28 - whether plaintiff wife should be granted leave to re-plead paragraphs in Statement of Claim that raise general allegations of knowledge against the defendant bank.
Legislation Cited:	Australian Securities and Investments Commission Act 2001 Contracts Review Act 1980, s 17 Uniform Civil Procedure Rules 2005 (“UCPR”), rr 13.4, 14.28
Cases Cited:	Euroasia (Pacific) Pty Ltd v Michael & Ors [2008] VSC 153 Siwicki v National Australia Bank Limited [2010] VSC 547 Tresize v National Australia Bank Limited (1994) 50 FCR 134
Category:	Procedural and other rulings
Parties:	Plaintiff: Vicki Shah Defendant: Commonwealth Bank of Australia (ACN 123 123 124)
Representation:	Counsel: Plaintiff: D. Allen Defendants: B. Koch   Solicitors: Plaintiff: Russell Phair, Proctor Phair Lawyers Defendant: Fiona Reynolds, Turks Legal
File Number(s):	2015/293957
Publication restriction:	No

EX TEMPORE Judgment

1. The Commonwealth Bank of Australia (“the Bank”), the defendant in these proceedings, moves by a motion dated 27 November 2015 to dismiss the proceedings under Uniform Civil Procedure Rules 2005 (“UCPR”), r 13.4, and further in the alternative, to strike out the pleadings pursuant to UCPR, r 14.28.

2. The plaintiff resists this strike out application. Mr B. Koch of counsel appears on behalf of the Bank, the applicant on the motion, instructed by Turks Legal. Mr D. Allen of counsel appears for the respondent plaintiff, instructed by Proctor Phair Lawyers.

3. In her Statement of Claim filed in October 2015, the plaintiff seeks to avoid a deed of settlement that she entered into in July 2014 to settle proceedings brought by the Bank against her. In substance she then seeks to to re-agitate her Defence to the Bank’s proceedings that were the subject of that settlement deed. Much of the relevant history of these proceedings is not in contest.

4. The plaintiff is married to Mr Syed Tufiq Hyder Shah. Her husband, Mr Shah, operated medical centres through a corporate entity, General Practice Support Services Proprietary Limited, which for convenience will be called “GPSS” in this judgment. GPSS is now in liquidation.

5. The Bank provided a line of credit facility to GPSS on 8 October 2008. And on 17 October 2008, Mrs Shah signed a guarantee of GPSS’s liability to the Bank.

6. On a series of occasions in November 2009, March 2010, October 2010, and March 2011 Mrs Shah agreed with the Bank to extend the guarantee. She alleges she did this at the request of her husband, but that she never had any interest in the underlying business of GPSS. She says that she is neither a director nor shareholder of GPSS. She disclaims any other proprietary interest in GPSS.

7. Unhappily the financial affairs of GPSS fell into default. The Bank made demands on GPSS and the guarantors. These demands were partially met. Mrs Shah sold the family home in Hunters Hill and refinanced other real property and was able to pay the proceeds of sale of over $1 million to the Bank.

8. But this was insufficient to satisfy the total liabilities then due to the Bank. Notwithstanding the earlier sales, on 2 October 2013 the Bank filed a Statement of Claim in proceedings numbered 2013/297223 seeking judgment against Mrs Shah and her husband pursuant to their guarantees in the further sum of $887,211.39 (“the 2013 proceedings”).

9. Those proceedings continued for a period. But they settled after negotiations. Before the proceedings settled, Mrs Shah filed a Defence in the 2013 proceedings. The Defence, relied upon Mrs Shah's lack of involvement in the business of GPSS, and alleged that entering into the guarantee and its extensions was not only unjust within the meaning of the Contracts Review Act 1980, but was unconscionable conduct at general law and within the Australian Securities and Investments Commission Act 2001. Particulars of the conduct relied upon were set out in the Defence.

10. The 2013 proceedings settled in the deed of settlement of 14 July 2014. Mrs Shah commenced the present proceedings numbered 2015/00203957 by filing a Statement of Claim on 8 October 2015 (“the 2015 proceedings”). The ultimate relief that she seeks in the 2015 proceedings is an order that the guarantees which had been the subject of the 2013 proceedings, should be set aside pursuant to the Contracts Review Act 1980, and in the alternative an order be made that they be set aside under s 238 of the Consumer Law, or under general law.

11. Mr Allen of counsel correctly concedes in argument today that setting aside the July 2014 settlement deed is the threshold for all Mrs Shah’s claims for relief in these proceedings. And he also correctly concedes that he is not able to rely upon the Contracts Review Act for the purposes of setting aside the 2014 settlement deed. Contracts Review Act, s 17(4) prevents the Contracts Review Act being used to set aside a settlement in proceedings in which the Contracts Review Act itself had previously been pleaded. Her Defence in the 2013 proceedings had done just that.

12. That means that the Statement of Claim ultimately could only lead to a successful setting aside of the July 2014 settlement through the application of principles at general law. Under the Contracts Review Act, it is possible for a claimant to successfully obtain relief notwithstanding that the claimant cannot show that the respondent was guilty of unconscionable conduct, or that the respondent was aware of any special disadvantage alleged by the plaintiff. In contrast, at general law it is necessary to show that the conscience of the defendant is affected.

13. In this case, the way Mrs Shah seeks to show that the conscience of the defendant is affected is through a general pleading of events that occurred and matters at the time of the settlement. These are set out at paragraphs 33, 34, 35, 36 and 37 of the Statement of Claim in the 2015 proceedings, which are set out for convenience below:

“33.   On 21 July 2014 the proceedings were settled in writing.

34.   At no time before settlement was the plaintiff told:

a.   That she had defences available to her different to that of her husband;

b. That she had a defence that in essence the guarantee as extended could be set aside, avoided or not enforced under the Contracts Review Act, Trade Practices Act or the law of equity by reason of the defendant's conduct being unconscionable;

c.   That by reason of the possibility that she may have such a defence the legal representative had a conflict of interest in representing the plaintiff and her husband;

d.   That she ought to obtain independent advice to that procured by her husband.

e.   That she had the defence that the guarantee did not exceed $1 million plus interest and that the plaintiff had already paid that amount under the guarantee.

Particulars

34.   The documents signed 6 November 2009, 5 March 2010, 29 October 2010 and 7 March 2011 are not enforceable as there was no consideration given by the defendant.

35.   The legal representative sought to compromise the proceedings on behalf of both the plaintiff and her husband.

36.   At the time it was known to the defendant that the legal representative had a conflict of interest, and that in fact, he was preferring the interest of the husband to that of the plaintiff in trying to settle the proceedings.

37.   The defendant took advantage of that conflict by accepting a settlement from the plaintiff and her husband advantageous to it.”“

14. Paragraph 36 alleges that the Bank knew that the legal representative of Mrs Shah at the time of the settlement "had a conflict of interest", and also knew that that legal representative was "in fact...preferring the interest of the husband to that of the plaintiff in time to settle the proceedings".

15. Mr Koch for the bank has rightly pointed out that, in order to succeed in such an action, the plaintiff bears a heavy burden. Mr Koch has taken the Court to three cases on point: Tresize v National Australia Bank Limited (1994) 50 FCR 134 (“Tresize”), Euroasia (Pacific) Pty Ltd v Michael & Ors [2008] VSC 547 (“Euroasia”), and Siwicki v National Australia Bank Limited [2010] VSC 547 (“Siwicki”).

16. The effect of all of these authorities is much the same. In order to succeed in setting aside a settlement transaction with another party, such as for example a bank, where the person seeking to set aside the transaction is legally represented, the plaintiff encounters the problem that the defendant owes no duty to take steps to protect the interests of the plaintiff from his or her own lawyers. And that is so even if conflicts of interest between a number of plaintiffs or plaintiffs and their lawyers are foreseeable by a defendant. The defendant does not owe a duty to enquire into the resolution of such possible conflicts.

17. Mr Koch points out that there are a number of close similarities between the structure of the problem that the Court faced in Euroasia and the present case. In Euroasia the defendant bank was on notice: (1) of a potentially meritorious defence available to the guarantor wife; and (2) that this defence may not have been advanced due to the possible negligence of the wife’s solicitors, causing judgment to be entered against the wife on the guarantee. The Court held in the Euroasia proceedings that this knowledge was not a basis for setting aside the settlement so as to allow the underlying security and loan documents to be challenged.

18. In the circumstances of that case, the argument that the bank or its solicitor should have made enquiries to satisfy themselves that the guarantor was not subject to undue pressure was held not to be persuasive. Siwicki does not add much more to this.

19. But there are at least two differences procedurally between Siwicki and Euroasia and the present case. They are both cases in which all the evidence that the plaintiffs were relying upon was before the Court. And in substance the case was argued on the basis that all that evidence was accepted in the plaintiff's favour, as highly as the plaintiff was able to put it.

20. A summary judgment application can be brought in proceedings where a plaintiff puts on all the plaintiff’s evidence, and indeed has the opportunity to subpoena evidence from the Bank. Then the bank seeks to strike out the plaintiff's claim based upon the full evidence and says, accepting it all, that such evidence could never amount to a case to set aside a settlement. But that is not this case.

21. What has occurred here is the Bank has moved to strike out the pleaded Statement of Claim before any evidence has been filed. That is done with some justification. The only allegation here of the Bank having unconscionable knowledge of special disadvantage on the part of the plaintiff, Mrs Shah is paragraph 36, which does not tell the Bank or the Court very much.

22. For example, one could imagine circumstances, within what is pleaded in paragraph 36, in which the legal representatives for the plaintiff had during the settlement negotiations put the legal representatives of the Bank on express notice that the plaintiff was being disadvantaged and not being properly advised. It may be that if such a contention were established, then the plaintiff’s case would go beyond mere allegations of a failure to follow up on an alleged duty to enquire on the part of the Bank that were unsuccessful in Siwicki and Euroasia.

23. Mr Allen says that paragraph 36 of the pleading points to actual knowledge. The trouble is, it is hard on the basis of the pleading in its current form to work out whether it falls within cases such as Euroasia and Siwicki, and is just an allegation of a failure to discharge a duty to inquire, or whether it is really alleging something more in the nature of direct knowledge on the part of the Bank.

24. Mr Koch says in reply that the Court should construe paragraph 36 of the pleading in the light of paragraph 34(c), and that the conflict of interest alleged should be no wider than the content of 34(c). But I do not think that cases such as this should be decided on contests about the proper construction of pleadings. The real substance of what is to be in contest between these parties on the evidence should be the Court’s focus.

25. It seems to me that the best course is for the plaintiff to be required to plead her case properly and put on all her evidence in chief. Paragraph 36 on any view is unsatisfactory by reason of its generality.

26. But it would be unfair to strike out these proceedings if they can be put in proper form, and if there is evidence which shows direct knowledge on the Bank's part, which goes beyond a mere failure to enquire on its part. If there is a case of direct knowledge leading to unconscionable conduct, then the case falls outside cases such as Euroasia and Siwicki and plaintiff should be permitted the opportunity to go to trial.

27. It should be remembered that the summary judgment jurisdiction is one which should be sparingly exercised. If successful it involves a denial of procedural fairness ultimately because it involves trial without a full hearing.

28. This is a fair course to both parties. It is fair to the plaintiff because she will have the opportunity to put her best case forward in the pleadings and in evidence before she is perhaps faced with a further application for dismissal. And it is fair to the defendant Bank because it can then decide once it sees that case whether it wants to proceed to summary disposal or to allow the matter to go to hearing.

29. The parties took a number of other points, but they are not critical to the reasoning to resolve this application.

30. This is the Court’s second judgment in these proceedings. In the Court’s first judgment the Court gave directions for the plaintiff to indicate by today whether she wished to join the lawyer acting for her at the time of the 2014 settlement as a second defendant in these proceedings: Shah v Commonwealth Bank of Australia [2016] NSWSC111. Through her counsel Mr Allen she has affirmed that she has no such intention.

31. Accordingly the orders of the Court will be:

1. Dismiss paragraph 1 of the defendant’s motion of 27 November 2015 (“the motion”).

2. In relation to the relief sought in paragraph 2 of the motion, strike out the current Statement of Claim, paragraphs 34 to 37 and give leave for them to be re-pleaded, so as to make clear precisely on what basis it is alleged that the defendant Bank knew of the alleged conflict of interest and knew that the common legal representative of the plaintiff and her husband was preferring her husband’s interests to hers.

3. Direct the plaintiff to file by Friday, 10 June 2016 all the evidence in which she seeks to rely in the proceedings.

4. List the proceedings before the Equity Registrar on 27 June 2016.

5. The costs of the motion will be the successful party’s costs in these proceedings.

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Amendments

13 May 2016 - Title (No. 2) added

Decision last updated: 13 May 2016