Bank of Western Australia Limited v Leila El-Khoury & Ors

The Parties' Submissions 46Summary judgment and striking out the Cross-Claim. The Bank submits that it did not vary the expired Third Loan facility and did not extend the time of repayment of that facility. But the Bank says that even if such an extension were to have occurred, the ElKhourys do not have a defence to the Bank's claim on the guarantees in these proceedings because of the operation of Clause 10. As indicated above, that clause provides that no changes to the relevant guaranteed agreement, here the Third Loan, can affect the liability of the guarantor under the guarantee. The El-Khourys are still bound to pay the full guaranteed amount on demand. 47The Bank submits further that even if the El-Khourys had an available defence, Clause 11 prevents them from relying on that defence. It also prevents them from seeking relief under the Cross-Claim. Clause 11 suspends any rights of the guarantor to rely on a defence or a Cross-Claim, until the guaranteed moneys are paid in full. 48The Bank submits further that Clauses 10, 11 and 14 are valid, do not oust the jurisdiction of the Court and are not otherwise contrary to public policy. They are not exclusion clauses and should not be construed as such. The Bank contends that these provisions preclude the guarantors from relying on matters that go to the enforcement of the guarantees. But the Bank says these provisions are not matters that go to invalidity or complete discharge of the guarantees. 49In contrast, the defendants submit that the Bank's application for a summary judgment should fail. The defendants contend that the Bank cannot demonstrate that the prerequisites for a summary judgment under r 13.1 of the Uniform Civil Procedure Act 2005 (UCPR) are satisfied. 50This is said to be so for several reasons: (1) the Bank has not discharged the onus of demonstrating that the Defence cannot succeed; the Defence will involve determination of serious conflicts on matters of fact and complex questions of law in relation to the representations the Bank allegedly made, and if the factual matters are determined in favour of the defendants, the Defence has good chances of success; (2) the Bank has not adduced evidence as to its belief that the defendants have no defence to the claim as required under r 13.1(b) of the UCPR; and (3) although the Bank presents evidence in support of its claim, parts of that evidence are disputed by the defendants/cross-claimants, and the Court will need to decide upon those disputed facts, but the Bank's evidence is not so cogent or clear as to permit the Court to conclude that there is a proper basis for summary judgment. 51The defendants submit further and in the alternative that even if the prerequisites for a summary judgment were otherwise satisfied that this Court should not enter summary judgment as a matter of discretion. The defendants contend that the lending practices of the Bank in 2008-2009 were the subject of a Senate Parliamentary Committee Inquiry. The practices explored by that Inquiry included allegations similar to the ones pleaded in the Cross-Claim: the Bank abandoning otherwise binding arrangements to extend time and facility limits on particular loans to customers. The defendants contend they should have the opportunity to explore those practices in cross-examination of the Bank's employees. Moreover the defendants say in the alternative that the summary judgment should be stayed pending the determination of the Cross-Claim. 52The defendants oppose the strikeout of the Cross-Claim and: (1) rely on their submissions as to the cogency of their claims based on the Bank's alleged misrepresentations; and (2) say that the Bank's submissions in relation to the effect of Clauses 10, 11 and Clause 14 ignore the fact that the defendants were not only guarantors but also borrowers in their own right (under the First Loan), and in that capacity have claims against the Bank, which cannot be defended by reference to the provision in the guarantees. 53The Consumer Credit Code. In the course of submissions the Court raised the possible application of the Consumer Credit Code and Banking Code to the issues in these proceedings. The defendants have taken up this issue and submit that: (1) the Bank bears the responsibility of establishing that the Code does not apply and has not discharged it; (2) the Code applies if more that half of the amount borrowed under a particular facility is intended to be used for personal purpose. And 80% of the First Loan is attributable to a personal purpose, refinancing of a home loan with ANZ; (3) the Bank has the onus to demonstrate the compliance with the Code, and it did not. This would prevent summary judgment being entered in relation to the First Loan. And as the summary judgment is sought in relation to all three loans it should not be issued. 54The Bank submits that the Code does not apply because: (1) the Second and Third Loans did not provided credit to natural persons; and (2) none of the three loans provided credit wholly or predominantly for personal, domestic or household purposes. They submit further that although section 11 of the Code creates a presumption that the Code applies, that presumption is triggered only if a party claims under the Code. There is no such claim in these proceedings. 55The Bank is prepared to concede that the Banking Code applies. But says that there is no pleading suggesting that this would affect these proceedings in any way. 56Dismissal for want of Prosecution. The Bank also submits, in the alternative, based on its Amended Motion, that the Cross-Claim should be dismissed for want of prosecution. Since December 2011 the defendants/cross-claimants have defaulted several times in relation to the Court's orders to file lay evidence supporting the Cross-Claim. Moreover, the Bank submits that the defendants have still not filed any expert evidence in these proceedings. 57The defendants oppose the dismissal of the Cross-Claim for want of prosecution. They submit that: (1) the delay in complying with the Court's directions was caused by the defendant's solicitor; (2) the lay evidence has now been filed; (3) the expert evidence has not been filed due to lack of funds, but there is some evidence that funds will be available shortly; (4) even if struck out for want of prosecution the Cross-Claim is still within time and could be recommenced, albeit at significant cost to the defendants; (5) the Bank has not specified what prejudice was caused to it by the delay; and (6) the Bank did not pre-warn the defendants about its intention to attempt to strike out the Cross-Claim for want of prosecution in the Amended Motion. 58It is convenient to deal with the issues the parties have presented for determination in this order: the application of the Code, Summary dismissal based on the guarantee clauses 10.1, 11 and 14, and dismissal of the Cross-Claim for want of prosecution. The Application of the Code 59In its Statement of Claim (paragraph 64(f)) the Bank has pleaded that the Code does not apply to this transaction in the sense that the commencement of the proceedings is not barred by Code s 80. In its evidence in support, affidavit of Charles Perry of 14 September 2012 (paragraph 13), the Bank advances material to the effect that Mr and Mrs El-Khoury have no defence to the whole or any part of the Bank's claim, and to support its contention that the Code does not apply to this transaction. 60The El-Khourys' current defence to the Statement of Claim does not plead that the Code applies to any part of this transaction. That being so the El-Khourys do not get the immediate benefit of the presumption in the Code s 11 that the Code is presumed to apply "unless the contrary is established" where a party in proceedings claims that it applies. But it seems at least arguable that the Code may apply to the First Loan. This is because a substantial part (80% the El-Khoury's say) of this advance was to pay out a facility with the ANZ Bank for the purchase of the Dural property, their family residence. 61The Code does not relevantly apply unless: the debtors are natural persons (s 6(a)); and the credit is "provided or intended to be provided wholly or predominantly for personal, domestic or household purposes" (s6(b)). This term has been recently analysed by Davies J in Bank of Queensland Ltd v Dutta [2010] NSWSC 574. The Code applies to a guarantee if it guarantees obligations under a Credit Contract to which the Code applies and the guarantor is a natural person: Code s 9. If the "personal, domestic or household purposes" test is passed for the Code's application it may otherwise qualify for the Code's application because Mr and Mrs El-Khoury are personally parties to the First Loan. But the Second and Third Guarantees do not so qualify because the Second and Third Guarantees guarantee the obligations of corporate borrowers. 62The Bank rightly argues that its path to judgment does not depend on the First Loan. Default on the First Loan was consequential on the alleged default on the Third Loan to El-May and the guarantee obligations under the Second and Third Guarantees are triggered by default on the Third Loan. But despite this argument, what remains quite uncertain in my view and is a matter for evidence, is the effect that a need to comply with the Code with respect to the First Loan, especially Code s 80, would have had on the Bank's overall enforcement of all its remedies. I also regard the question of the purpose of the First Loan, as possibly attracting the Code, as a matter for evidence. 63But why should defendants/cross-claimants be able to claim the benefit of the Code when they have not pleaded it? This in my view is a discretionary matter. The issue of the application of the Code emerged in the course of submissions on 13 February 2013. The El-Khourys then, through their counsel, Ms Lowson, put on submissions claiming that the Code applies Code s 11. In my view that written submission is part of proceedings "in which a party claims that the credit contract is ... one to which this Code applies". Even if it were not, I would give leave to the defendants/cross-claimants to plead the Code because of the circumstances in which this application was argued. On Monday, 11 February 2013, Ms Lowson, of counsel for the El-Khourys, sought an adjournment of the summary judgment application. The Bank opposed it She had only been briefed the previous Friday. The Court declined to allow the adjournment and the matter proceeded on Wednesday, 13 February 2013. Both Ms Lowson and Mr Russell for the Bank capably advanced their clients' cases on 13 February 2013. But it is appropriate in my view to allow a degree of latitude in relation to amendments on a point such as this, for counsel so recently briefed. Summary Dismissal based on guarantee clauses 10.1, 11, and 14. 64The Bank contended in written and oral submissions that there is no doubt about the validity of suspension of rights clauses such as clause 11(a). The Bank is correct that such cases have been considered and upheld in many cases both by this Court and in any other jurisdictions: see for example GE Capital Australia v Davis & Ors [2002] NSWSC 1146 at [17], [93]-[100] per Bryson J, Bank of Western Ausralia Ltd v O'Brien [2012] NSWSC 456 at [7] and [25]-[32] per McDougall J and Bank of Western Australia v Hoy [2012] NSWSC 518 at [9] and [16]-[17] per Adamson J. 65But many of these cases advert to an important distinction between a defence that impeaches a guarantee itself and a defence that impeaches the exercise of rights under the guarantee. As McDougall J pointed out in St George Bank Limited v Field [2007] NSWSC 902 at [18], clauses of this kind (suspension of rights clauses) "may not prevent a defence being raised to liability under a guarantee where it is said (for example) the taking of the guarantee was itself affected by some vitiating circumstance. But no such issue is raised in this case. There is no challenge to the validity of the guarantee. The allegations that I have summarised seek to attack the exercise of rights under it. In my view that is the kind of exercise prohibited by the terms of the guarantee which terms, as I have said, are to be enforced according to their wording." 66Holmes J expressed a similar view in the Queensland case of Capital Finance Australia Pty Ltd v Airstar Aviation Pty Ltd [2003] QSC 151 (2004) 1 Qd R 122 at [17]. When referring to a similar clause, her Honour said that matters raised in a cross-claim which are more properly matters of defence "allegations of misrepresentation or misleading conduct, and breaches of conditions which may lead to vitiation of the guarantees or discharge of the guarantors' liability under them", because they go to "invalidity or complete discharge of the guarantees, could properly be repleaded in the defence". McDougall J referred to her Honour's reasoning in a recent case in this court and summarized it thus that "such a clause would not preclude the guarantor from relying on matters which went to the invalidity or complete discharge of the guarantee": Bank of Western Australia v O'Brien [2012] NSWSC 456 at [32]. 67Finally, in another Queensland case on the subject, Westpac Banking Corporation v Helicopters Brisbane Pty Ltd [2012] QSC 263 at [23] and [24], Martin J, in declining to grant summary judgment, expressed the view that "no set-off" clauses could not prevent a guarantor from seeking certain kinds of relief under the Trade Practices Act, especially relief which sought to impeach the validity of the guarantee or at least its continuing operation. 68Although clauses such as clause 10, 11(1) and 14 are not exclusion clauses that bar the making of claims or enforcing of rights, and instead operate as suspensions of rights so long as the guaranteed money remains unpaid, Martin J reasons that the cases with respect to exclusion clauses and the Trade Practices Act may be able to be applied by analogy: see for example the reasoning of Henjo Investments Pty Ltd v Collins Marrickville (No 1) (1988) 39 FCR 546 and [1988] FCA 40 at [49] and [50] per Lockhart J. 69But have the El-Khourys made a claim which impeaches or vitiates the guarantee, and in particular clauses 10.1, 11 and 14? Ms Lowson of counsel indicated that the cross-claimants challenge to these clauses in the Second and Third Guarantees. But the Bank is correct, that this is less than entirely obvious from paragraph 3 of the amended Cross-Claim that seeks "varying the Third Loan Agreement" and "refusing to enforce the First and Second Guarantees". If the El-Khourys say that something which was agreed on 21 August 2012 somehow extinguishes or alters the operation of clauses 10, 11 or 14 for a period then they must articulate their case with greater clarity. If such an effect on these clauses is said to flow from misleading or deceptive conduct in contravention of the ASIC Act then the decisions of the Queensland Supreme Court I have quoted would suggest that the point is at least arguable and is not apt for summary judgment. But I will direct the defendants cross-claimant to articulate this issue by a further amended pleading. Dismissal for want of prosecution 70The Claim for dismissal on the basis of want of prosecution is not successful at this time. But for the reasons which follow the Court will adjourn it for determination after the defendants have had an opportunity to file their expert evidence. 71This is not a case where the Amended Cross-Claim should be dismissed under UCPR r 12.7(1) for want of due dispatch, despite a most unfortunate procedural record over the last two years. As my interlocutory judgment on 11 February 2013 makes clear Mr Mahony, the solicitor with carriage of the matter for the El-Khourys, has explained some of the defaults on the El-Khourys' side in recent times are due to the other pressing business of his practice. But there is evidence that such issues have now been addressed. Some funds are to become available for the future conduct of the proceedings from the sales of property. 72It seems to me that the El-Khourys should be given one last chance to file their expert evidence with the benefit of the funds they say they will have available. Subject to hearing from the parties I would direct that this valuation report must be filed or served within 28 days. If not the Bank should be at liberty to relist this part of the motion and to strike out the cross-claim for want of due disposal. I will adjourn the proceedings to a suitable date for that purpose. Conclusions and Orders 73In the result therefore the Court has concluded: that it is arguable that the Code applies to the First Loan; that there is no evidence in support of the Bank's summary judgment application that shows that the defendants cannot maintain that the Code applies to the transactions the subject of these proceedings; and that there is no evidence that the Bank has complied with the Code in the actions that the Bank has taken in relation to the enforcement of the guarantees relied upon. The Court has concluded that the defendants cannot maintain that the Second and Third Guarantees are governed by the Code. But it is not easy to see on a summary judgment application whether or not the First Loan had been subject to the Code, that enforcement of the Second and Third Guarantees may yet have taken a different course. The defendants should not be deprived of the procedural fairness of a final hearing, at which the Code's application and its overall effect, if it applies, can be considered. 74In light of the Court's conclusions in relation to the possible application of the Code, it is not necessary for the Court to decide whether or not to strike out the El-Khourys' Cross-Claim or their defence on the basis of Clauses 10, 11 or 14 of the guarantees. But their pleaded case must be clarified to see how they are impeaching these clauses as they claim to be doing. 75Finally the Court has not upheld the Bank's claim for dismissal for want of prosecution but has decided to adjourn it. Although the defendants/cross-claimants have undoubtedly been tardy in their recent conduct of these proceedings, they have declared that their evidence is complete. They should now be put on a strict timetable to file their expert evidence, which on the evidence of their solicitor has been substantially paid for and should be able to be produced and served. If their expert evidence cannot be filed strictly on time then the Bank should still have liberty to apply to seek to strike out their Cross-Claim on this basis. 76In the result therefore I will direct the parties to bring in short minutes of order to give effect to these reasons.

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