Shalhoub Holdings Pty Ltd v Commonwealth Bank of Australia

[2006] NSWSC 607

CITATION:	Shalhoub Holdings Pty Ltd & Ors v CBA [2006] NSWSC 607
HEARING DATE(S):	24 April 2006
JUDGMENT DATE :	23 June 2006
JURISDICTION:	Common Law
JUDGMENT OF:	Rothman J at 1
DECISION:	(i) The proceedings be dismissed pursuant to Rule 13.4 of the Uniform Civil Procedure Rules 2005; (ii) The plaintiffs pay the defendant's costs of and incidental to the proceedings.
CATCHWORDS:	Common Law - civil - whether no prospects of success in claim - principles applicable to strike out on basis of frivolous and vexatious or abuse of process where based on other than pleadings - whether vexatious litigation - insolvency - representation to creditors - whether causative of the appointment of receivers
LEGISLATION CITED:	Trade Practices Act 1974 Uniform Civil Procedure Rules 2005
CASES CITED:	Brimson v Rocla Concerete Pipes Ltd [1982] 2 NSWLR 937 Dey v Victorian Railway Commissioners (1949) 78 CLR 62 Burton v The President of the Shire of Bairnsdale (1908) 7 CLR 76 Cox v Journeaux (1935) 52 CLR 713 Charles Forte Investments Ltd v Amanda [1964] 1 Ch 240 Peter Kent Development Propriety Ltd v ANZ Banking Group Ltd (unreported, NSWSC, Hunt J, 6 May 1980) Pountney v Dang (unreported, NSWSC, Barr J, 22 August 1997) Bayne v Baillieu (1908) 6 CLR 382 at 387 General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125 Shalhoub Holdings Pty Ltd v Donnelly (unreported, NSWSC, Young J, 25 June 1992)
PARTIES:	P1: Shalhoub Holdings Pty Ltd P2: Neville John SHALHOUB P3: Lorna Rose SHALHOUB D: Commonwealth Bank of Australia
FILE NUMBER(S):	SC 19295/1993
COUNSEL:	P(1-3): Mr M Licha D: Mr R G Forster SC & N Manousapidis
SOLICITORS:	P(1-3): Ms Jill Yates D: Henry Davis York

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ROTHMAN J

23 June 2006

SHALHOUB HOLDINGS PTY LTD AND ORS v COMMONWEALTH BANK OF AUSTRALIA
19295 of 1993

JUDGMENT

1. HIS HONOUR

: The plaintiffs seek damages against the defendant, the Commonwealth Bank, for the consequences of the liquidation of the corporate plaintiff and the loss of their business. This is said to arise because the Commonwealth Bank, contrary to an agreement, dishonoured a cheque and failed, for a period of two weeks, to cover the amount. Initially it was alleged that the Commonwealth Bank put the corporate plaintiff into liquidation but that is no longer the plaintiffs’ position. The plaintiffs continue, nevertheless, to claim that the defendant caused the liquidation. The defendant moves the Court, on notice, to strike out the proceedings. While both the substantive hearing and the motion came before the Court, to be heard together, for the reasons that I now explain, this judgment deals only with the motion.

2. On 10 December 1993 the plaintiffs, Shalhoub Holdings Pty Ltd, Neville John Shalhoub and Lorna Rose Shalhoub, commenced proceedings by the filing of a Statement of Claim. The Statement of Claim was not served. On 1 March 1994 an Amended Statement of Claim was filed and served. The matter has been set down for hearing on two previous occasions and on each has been adjourned on the application of the plaintiffs.

3. When the matter first came before me, on 24 April 2006, a short adjournment was sought and obtained by the plaintiffs, in order for counsel to appear. The matter was stood over for hearing on 26 April 2006 on which date Counsel appeared and sought a further adjournment on behalf of the plaintiffs. That adjournment was refused.

4. Also before the Court on 24 and 26 April 2006 was a notice of motion filed by the defendant seeking to strike out the proceedings on the basis of want of prosecution; on the basis that the proceedings are vexatious and that no reasonable cause of action is disclosed; and/or on the basis that the proceedings are an abuse of process. The notice of motion also sought to strike out the latest pleading by the plaintiff.

5. This judgment deals with the motion to strike out on the basis of Uniform Civil Procedure Rules (UCP Rules), Rule 13.4, i.e. not on the basis of want of prosecution and not the pleading motion. Because the plaintiff was technically willing to proceed to hearing, once the adjournment application had failed, the defendant did not, at the hearing, press the motion on the basis of want of prosecution.

6. It is necessary to explain some of the tortuous history of this proceeding; the facts that are said by the plaintiffs to give rise to a cause of action; the principles to be applied to a motion of this kind; and, then, answer the question: whether those principles warrant the summary dismissal of these proceedings.

History of the Proceeding

7. As previously stated, the plaintiffs commenced proceedings in 1993 but did not, at that time, serve the Statement of Claim. On 1 March 1994 the plaintiffs served an Amended Statement of Claim and on 30 May 1994 a Defence was filed to the Amended Statement of Claim.

8. On 8 January 1996 the plaintiffs proposed a timetable including an order that the plaintiffs file a motion for expedition. On 3 April 1996 a further timetable was proposed. On 16 April 1998 status conference directions were made and the plaintiffs served the DCM document. The plaintiffs did not comply with the status conference directions made on 4 August 1998. On 11 May 1999 the plaintiffs did not appear at a compliance conference and leave was granted to the defendant to move to strike out the plaintiffs' claim for want of prosecution.

9. On 15 June 1999, the Court made orders consequential upon the continuing default of the plaintiffs. After a number of conferences, including further compliance conferences, the Court warned the plaintiffs “failure to comply with the directions set out hereunder may result in the matter being dismissed for want of prosecution”. The plaintiffs continued to default.

10. The same warning was again made at a further status conference on 25 July 2000. The default continued.

11. Between October 2000 and April 2001 the plaintiff sought to amend their pleading but leave was denied. On 5 April 2001 the Court granted leave to amend the Amended Statement of Claim; there was a further compliance conference; the Court made further orders; and the Court issued a warning to the plaintiffs in the same terms as earlier warnings. The plaintiffs defaulted these further orders.

12. On 6 December 2001 the Court issued another warning in the same or similar terms as previously. Notwithstanding these repeated warnings, the plaintiffs continued not to comply with orders of the Court.

13. The Court issued another warning on 7 May 2002. The default continued. On 26 June 2002 the defendant filed a notice of motion seeking to dismiss the proceedings. On 26 September 2002, at the return of the motion, the Court made orders staying the proceedings and a self-executing order to the effect that the proceedings would stand dismissed if the stay had not been set aside by 6 November 2002.

14. On 1 November 2002 the plaintiffs moved for the Court to set aside the stay and on 9 December 2002 the Court directed the plaintiffs to take certain steps in default of which the proceedings would stand dismissed. At the hearing on 9 December 2002 the plaintiffs gave undertakings that they had filed all evidence upon which they intended to rely at the hearing, both as to liability and as to damages. It was on the basis of that undertaking that the Court made the orders to which reference has been made. One or more of the orders related to the filing of an amended pleading. Subsequently, the plaintiffs determined they would not file an amended pleading. Instead, on 20 January 2003, the plaintiffs filed a notice of motion to have the matter set down for hearing. The last mentioned notice of motion was set down for hearing on 8 May 2003, but was not heard on that date. The plaintiffs filed a further notice of motion seeking an extension of time within which to comply with the orders made by the Court on 9 December 2002. The further notice of motion was specially fixed for hearing on 14 July 2003. It was then stood over to 18 August 2003, 15 September 2003 and 22 October 2003. Ultimately, judgment was reserved and on 26 February 2004 orders issued extending the time for the plaintiffs to file amended pleadings. Amended pleadings were filed on that date.

15. On 30 November 2004 the Court required the defendant to file and serve its affidavits and the matter was listed in the call over list on 10 December 2004 for the allocation of a hearing date. On 10 December 2004 the matter was given a hearing date commencing 27 June 2005 with an estimate of 10 days. The plaintiff, Mr Shalhoub, complained of the delay and sought an earlier hearing date. The defendant's solicitors and the legal representatives of the plaintiffs communicated in relation to the state of the evidence. On 3 June 2005, some six months after the allocation of a hearing date and three weeks before the hearing was due, the plaintiffs filed a notice of motion seeking to vacate the hearing. The plaintiffs' solicitors ceased to act on their behalf and the Court vacated the hearing dates. The proceeding was placed in the next call over list.

16. A second set of hearing dates was set commencing 31 October 2005. The plaintiffs were ordered to file any evidence in response to the defendants' evidence by 5 August 2005. Again, the plaintiff, Mr Shalhoub, complained about the delay and sought a hearing date earlier than was set. New solicitors represented the plaintiffs and no evidence in reply was filed on their behalf. The new solicitors ceased to act for the plaintiffs on 26 September 2005. On 28 September 2005 the defendants put the plaintiffs on notice that any application to adjourn the hearing dates commencing 31 October would be opposed. This notice was reiterated on 10 October 2005, 21 October 2005 and, although less directly, on 25 October 2005.

17. On 31 October 2005, on the application of the plaintiffs and over the objection of the defendant, the Court ordered that the hearing dates be vacated and that the plaintiffs pay the defendant's costs thrown away by the abandonment of the hearing. The matter was listed for directions on 21 November 2005.

18. On 14 November 2005, the defendant filed a notice of motion to have the proceeding struck out. It is that notice of motion that is currently before the Court and is dealt with by this judgment.

19. On 21 November 2005, the substantive proceedings and the last mentioned notice of motion were before the Court. Hislop J was informed that new solicitors were representing the plaintiffs and that they were ready to take a hearing date. His Honour listed a matter for hearing commencing 24 April 2006 and stood over the notice of motion for hearing on the same date. As is clear from the above, on 24 April 2006, the plaintiffs sought a further adjournment. At that time, the solicitor representing the plaintiffs was not in a position to run the hearing and sought a short adjournment for the purpose of having counsel attend. That short adjournment was granted by me and on 26 April 2006 counsel attended. Counsel was not in a position to be able to run the proceedings. By that statement, the Court ought not to be taken to be implying any criticism of counsel who attended. The plaintiffs sought a further adjournment on the basis that counsel could not properly represent their interests.

20. The Court determined that the most expeditious method of dealing with the various applications was to deal with the adjournment application and the notice of motion on a preliminary basis. Counsel for the plaintiffs indicated that, if the adjournment were not granted, the plaintiffs would proceed unrepresented. Senior Counsel representing the defendant sought to agitate only those parts of a notice of motion that did not include “want of prosecution”. After the hearing of the preliminary matter, given its history and the opposition of the defendant to such an adjournment, the Court announced that the adjournment was not granted and reserved judgment on the notice of motion. Since that time, the plaintiffs have, without leave, filed a substantial amount of further material, which, they say, assists the Court in the determination of the proceedings before it.

The Plaintiffs' Cause of Action

21. As one would expect, the plaintiffs' claims have altered over the years. In the form that it was originally served, namely the Amended Statement of Claim, apart from the description of the parties, it referred to a banking agreement for an overdraft of $175,000, and the terms thereof; the terms of securities executed and delivered to the Challenge Bank; a deed of charge with the defendant as mortgagee; a further agreement in relation to providing funds on a temporary basis to cover the presentation of a particular cheque just under $30,000; a failure by the defendant to adhere to the cheque agreement; allegations of misrepresentation by the defendant; and defamatory comments made by the defendant or its servants or agents.

22. As originally framed, the plaintiff's claims included the avoidance of the deed of charge, damages for breach of contract, damages for negligence, damages for misrepresentations, remedies under the Trade Practices Act 1974, equitable compensation, damages for defamation and other ancillary orders.

23. The essence of the dispute between the plaintiffs and the defendant is that the defendant acted as the plaintiffs' banker for a relevant period. During that time the plaintiffs were also indebted to the Challenge Bank in relation to a foreign currency loan. The plaintiffs had an overdraft account with the defendant for an amount of $175,000. At one point, because of an expected short delay in receipt of a cheque, the plaintiffs requested the defendant to extend the overdraft so as to cover a cheque for $29,232.15, being the interest cheque to the Challenge Bank. The defendant agreed to this course. When the cheque was presented, it was dishonoured. When the mistake was pointed out to the defendant, the defendant honoured the cheque. The timeframe was a matter of two weeks.

24. Challenge Bank sought to have the corporate plaintiff liquidated. The plaintiffs originally alleged that it was the defendant that moved for the insolvency of the corporate plaintiff. Ultimately the plaintiffs contended that the dishonouring by the defendant of the cheque to Challenge Bank was causative of the insolvency, or was the catalyst, which caused Challenge Bank to move for the liquidation of the corporate plaintiff.

25. At the time that the matter was heard before the Court, on 26 April 2006, there was no claim for defamation. The Third and Further Amended Statement of Claim alleged that Challenge Bank appointed a receiver and manager because of the non-payment of the cheque and the representation that had been made by the defendant. It alleged that the defendant knew or ought to have known that Challenge Bank would rely upon the non-payment and/or the representations to appoint a receiver or otherwise act to the detriment of the plaintiffs and that the defendant was thereby in breach of contract and/or had committed a tortious wrong. The insolvency is said to be the damage for which the plaintiffs sought compensation. Otherwise, in slightly different form, the plaintiffs continued to make the factual claims initially alleged.

26. The defendant, at least for the purposes of the notice of motion, and probably more generally, agreed with the plaintiffs' version of events as described in the plaintiffs' affidavits. In other words, the defendant admitted it was the plaintiffs' bank and admitted the overdraft agreement, the extension to meet the cheque and the temporary dishonouring of the cheque. The defendant took issue with the proposition that such a temporary dishonouring was capable of giving rise to the damage alleged and/or did in fact give rise to such damage. Further, to the extent that the plaintiffs continued to allege that the defendant had moved for the plaintiffs' insolvency or had caused Challenge Bank to move for the plaintiffs' insolvency, it denied each and relied upon both the plaintiffs' affidavits and a judgment of the Court.

27. While the plaintiffs sought other remedies, each remedy depended upon the last mentioned allegation or was ineffective and academic in nature.

The Legal Principles to Be Applied

28. Rule 13.4 of the Uniform Civil Procedure Rules (UCP Rules) empowers the Court, in its discretion, to order that proceedings be dismissed where the proceedings are frivolous or vexatious; or no reasonable cause of action is disclosed; or the proceedings are an abuse of the process of the Court. The usual application, which seeks to rely on this Rule, depends upon an examination of the pleadings.

29. The usual course is for such an application to be made in circumstances where the pleadings do not disclose a cause of action and there is no possibility of the facts pleaded giving rise to a good cause of action: Dey v Victorian Railway Commissioners (1949) 78 CLR 62. This application is not a usual application. It depends upon the inherent jurisdiction, described in the Rule, to strike out the plaintiffs' case because it is so weak and/or because it depends upon facts, which, on the plaintiffs' case, cannot be proven. It is a most unusual course, upon which the Court would embark only in exceptional circumstances and only where it came to the view that to proceed further would be futile.

30. Notwithstanding that the course impressed upon the Court is unusual, it is a course which has been discussed by this Court, and others, over a long period of time. Often, the Court discusses the principles associated with the exercise of discretion agitated in the course of refusing to exercise that discretion.

31. The High Court, in Burton v The President of the Shire of Bairnsdale (1908) 7 CLR 76, referred to the discretion in the following way:

“The rule is that every plaintiff is entitled to have his action tried unless it can be shown obviously that the action is frivolous or vexatious, or otherwise an abuse of the process of the Court. A litigant is entitled to use, not to abuse, the process of the Court… So, there is power to strike out a pleading on the ground that it discloses no reasonable cause of action or of defence; and in any such case, or in the case of the action being shown by pleadings to be frivolous or vexatious, the Court may order the action to be stayed or dismissed, or judgment to be entered. This rule applies to a wider area of cases than the general power; and yet it has been held not to apply except in plain or obvious cases; and if there is a point of law that requires any serious discussion, it should be set down for argument: Hubbuck v Wilkinson . The pleading must be ‘obviously frivolous or vexatious, or obviously unsustainable,’ if it is to be struck out (per Lindley LJ in Attorney General of the Duchy of Lancaster v London and North Western Railway Co ). The pleading must be ‘so clearly frivolous that to put it forward would be an abuse of the process of the Court’: Young v Holloway .” (Per Higgins J at 98, 99, 100)

32. In Cox v Journeaux (1935) 52 CLR 713, the principles relating to a strike out of this kind were once more discussed. That case concerned an allegation of conspiracy by the defendants, as co-directors of the plaintiff, to injure the plaintiff by false representation. There are significant similarities between the allegations made in Cox v Journeaux and the present proceedings. Sir Owen Dixon, who dealt with the notice of motion then before the Court, said:

“The inherent jurisdiction of the Court to stay an action as vexatious can be exercised only when the action is clearly without foundation and when to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff. The principle, in general paramount, that a claim honestly made by a suitor for judicial relief must be investigated and decided in the manner appointed, must be observed. A litigant is entitled to submit for determination according to the due course of procedure a claim which he believes he can establish, although its foundation may in fact be slender. It is only when to permit it to proceed would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party that it should be stopped. But the Court is not concluded by the manner in which the litigant formulates his case in his pleadings. It may consider the undisputed facts. Further, it is not limited to cases where there is no dispute of fact….

In the present case I am satisfied that the Court should exercise its power to stop the action summarily. The plaintiff's case is clearly hopeless. It is true that some examination of the facts is necessary before this appears.” (Per Dixon J at 720)

33. The Court of Appeal in England has expressed the view that in order for the inherent jurisdiction to be invoked successfully it must be “impossible for the party concerned to succeed on his claim”: Charles Forte Investments Ltd v Amanda [1964] 1 Ch 240 at 250-251.

34. This Court has dealt with the principles and application of them on a number of occasions, the three best known examples of which are: Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937; Peter Kent Development Propriety Ltd v ANZ Banking Group Ltd (unreported, NSWSC, Hunt J, 6 May 1980); Pountney v Dang (unreported, NSWSC, Barr J, 22 August 1997).

35. In Brimson, Cross J dealt with both a claim that the pleadings did not, themselves, disclose a cause of action and a claim that the plaintiff's case was so weak as to warrant summary dismissal. The latter claim was, with respect rightly, dealt with under both the inherent power of the Court and under the Supreme Court Rules, then applicable, which reflected the inherent power. The UCP Rules also reflect the inherent power. Justice Cross referred to: Bayne v Baillieu (1908) 6 CLR 382 at 387; Dey v Commissioner of Railways; and General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125. His Honour said:

“Where the court is asked to reject the plaintiff's case, either under its statutory rules or its inherent jurisdiction, the fundamental principle is that prima facie a plaintiff is entitled to have his case come to trial; and applications to deprive him of that right will succeed only in the clearest of cases. True, the court will not look merely at the suggested weakness of the plaintiff's case… but... at the suggested strength of the defendant's case; and, true, forensic argument and subsequent judicial reflection are not necessarily inconsistent with a firm conclusion that the cause of action should not be allowed to proceed. But fatal defects in the plaintiff's case must be very clear before the court will intervene in this fashion.” (at 944)

36. The principle is that the defendant must show that there is no possibility that there could be a good cause of action consistent with the pleadings and the facts. These same principles and this same approach were adopted in the other two judgments; Hunt J in Peter Kent Development, supra, described the power here discussed as “much wider” than the power to strike out pleadings. His Honour went on to say:

“Both Rules reflect the inherent jurisdiction of the Court to deal with the abuse of its process… Under that inherent jurisdiction - although now more properly under Part 13 Rule 5 [now UCP Rules Rule 13.4] - there is power to stay an action which, although properly pleaded, is bound to fail. Such an action may be called either vexatious or an abuse of process.

One such case would be where the legislature has provided an absolute defence…

Another such case would be where a second action was brought seeking to litigate an identical issue to that already decided against the plaintiff…

Such cases are very rare; the genus of which they are but species is aptly named an abuse of the Court's process, for relief will not be given in such cases unless the claim or defence being dismissed or struck out under such power amounts to an improper use of the machinery of the Court.”

37. I apply the above principles to the notice of motion and the case now before the Court. While there is a broad discretionary power to strike out the plaintiffs' case, it can be exercised only in circumstances where giving the plaintiffs their day in court would be an improper use of the machinery of the Court, or, in the words of Sir Owen Dixon, “would clearly inflict unnecessary injustice upon the opposite party”. In utilising that phrase, I emphasise that the injustice must be unnecessary, which imports the necessity to show futility in the proceedings continuing, and the use of the word “clearly” requires that the injustice be manifest. In turn, this necessarily involves the application of the onus principles, in Dey and General Steel, which onus the moving party must satisfy; it is much more than an improbability of their opponent’s success; it is the hopelessness of the claim.

Is Summary Dismissal Warranted?

38. As earlier stated, the kernel of the issues between the parties is that the cheque was dishonoured. A subsidiary claim is that the charge was induced by misrepresentation; namely, that a deed executed by the plaintiffs was different in substance to an earlier charge, contrary to representations made by the defendant. The pleadings did not allege or particularise damage arising from a misrepresentation nor reliance thereon and the affidavits that have been filed are no more informative. The only damage alleged, which arises from the dishonoured cheque, is the aforementioned insolvency.

39. It is now conceded that the moving party in the insolvency was Challenge. There is no evidence that the dishonouring of the cheque, or, for that matter, any indebtedness caused by the subsequent Deed of Charge, occasioned the insolvency or informed the decision by Challenge to render the plaintiffs or any of them bankrupt.

40. The grounds for the appointment of a receiver by Challenge are listed in an affidavit of Mr John Best sworn 14 February 1991. They included: a failure to pay interest due on 30 November 1990; the indication by the corporate plaintiff that it would cease carrying on its business; the proposal to sell its nursing home business; the sale of the certificate of approval to operate a nursing home without the prior consent of Challenge; the plaintiffs' agreement of 17 September 1990 to transfer the certificate of approval of the nursing home, which adversely affected the validity of the security held by Challenge; a motor vehicle, subject to a bill of sale to Challenge, was sold without its consent; the nursing home suffered material adverse changes and trading losses of $103,000 to June 1990; the plaintiff company had not paid, on its due date, its group tax instalment to the Commissioner of Taxation; the plaintiffs failed to cause their books to be forwarded each year and to furnish a copy to Challenge; the plaintiffs granted a charge to the defendant on 20 December 1986 without the consent of Challenge; and the plaintiffs had otherwise and at different times threatened to cease to carry on their business.

41. I have set out the grounds above in a manner consistent with the judgment of Young J (as he then was) in Shalhoub Holdings Pty Ltd v Donnelly (unreported, NSWSC, Young J, 25 June 1992). In that case the current plaintiffs sued the receiver and Challenge alleging the invalidity of the appointment of the receiver because there had been no default, damages in trespass and in detinue and unlawful interference with commercial relations. They also sued for losses on a foreign currency transaction, wrongful dismissal and damages for personal injury. In dismissing the plaintiffs' suit with costs, Young J determined the acts of default upon which Challenge relied in appointing a receiver. I do not need to rely upon the judgment of Young J. There is no possibility on the basis of either the pleadings or the evidence relied upon by the plaintiffs or defendant of any other finding. The plaintiffs were clearly in default in their arrangement with Challenge, which default was unquestionably the basis of the appointment of the receiver.

42. Further, the appointment of the receiver was either lawful or it was not. As Young J makes clear the appointment was lawful and was not dependent on the actions of the defendant about which complaint is made.

43. Applying the principles set out above relevant to a motion of this kind, the plaintiffs' case is clearly hopeless; without foundation on the facts that the plaintiffs, themselves, allege; would clearly inflict on the defendant an unnecessary injustice; and amounts to an improper use of the machinery of the Court.

44. The Court makes the following orders:

i. The proceedings be dismissed pursuant to Rule 13.4 of the Uniform Civil Procedure Rules 2005;

ii. The plaintiffs pay the defendant's costs of and incidental to the proceedings.

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