Bendigo and Adelaide Bank Limited v Benedetta Russo and Sid Russo; ; Bendigo and Adelaide Bank Limited v Sid Russo

Supreme Court of NSW|2016-08-02|Before: Bellew J, Street ACJ

THE PRINCIPAL PROCEEDINGS

By a statement of claim filed in proceedings 337145 of 2015 ("the 145 proceedings") Bendigo and Adelaide Bank Limited ("the plaintiff") brought proceedings against Benedetta Russo ("the first defendant") and Sid Russo ("the second defendant") seeking recovery of a total of $821,940.23. The 145 proceedings were brought on the basis of a loan agreement which had been entered into between ABL Nominees Pty Limited ("ABL") and the first defendant on 26 April 2009, pursuant to which an amount of $464,033.63 had been advanced to the first defendant for the purposes of investing in one or more "Great Southern Management Investment Schemes" ("the schemes"). The case brought against the first defendant was that she had failed, on and from 15 October 2009, to make monthly repayments in respect of the sum advanced. The statement of claim further pleaded that the second defendant had unconditionally guaranteed the first defendant's performance under the loan agreement.
Importantly for present purposes, the statement of claim also pleaded a number of matters (commencing at paragraph 13) in respect of what I will refer to as "the Victorian proceedings". In short, the Victorian proceedings comprised class actions brought against the plaintiff arising out of loan agreements similar to that entered into by the first defendant. For the reasons more fully set out below, the provisions of a Deed of Settlement ("the Deed") which was entered into in respect of the Victorian proceedings are relevant to the primary question of whether the first and second defendants have established a triable issue, such that the respective default judgments entered against them should be set aside.

THE NOTICES OF MOTION

The following notices of motion are before the court: 1. a notice of motion filed by the first defendant in the 145 proceedings seeking (inter alia) an order that the default judgment entered against her be set aside; 2. a notice of motion filed by the second defendant in the 145 proceedings seeking (inter alia) an order that the default judgment entered against him be set aside; 3. a notice of motion filed in the 116 proceedings by the second defendant (as the sole defendant in those proceedings) seeking (inter alia) an order that the default judgment against him be set aside.
The plaintiff opposes the orders sought.

The evidence

The motion in 7 above was supported by an affidavit of the first defendant of 8 June, 2016.
The motion in 7 above was supported by an affidavit of the second defendant of 25 May 2016;
The motion in 7 above was supported by an affidavit of the second defendant of 25 May 2016.
The plaintiff relied upon several affidavits of Stephen Flamer-Smith as follows: 1. 21 June 2016 (incorporating Exhibit SFS-1) in respect of the 145 proceedings; 2. 28 June 2016 (incorporating Exhibit SFS-2) in respect of the 145 proceedings; 3. 26 July 2016 (incorporating Exhibit SFS-3) in respect of the 145 proceedings; 4. 21 June 2016 (incorporating Exhibit SFS-1) in respect of the 116 proceedings; and 5. 26 July 2016 (incorporating Exhibit SFS-2) in respect of the 116 proceedings.
The various affidavits of Mr Flamer-Smith, and the accompanying exhibits to those affidavits, extended over almost 2,400 pages. In the course of argument, I was taken to what might be described colloquially as a handful of documents contained within that material. There was no reference at all to the overwhelming majority of it.
It has been observed that the reproduction of vast amounts of documentary material to which no reference is made during the course of a hearing is both unnecessary and inappropriate: Insurance Australia Limited trading as NRMA Insurance v Milton [2016] NSWCA 156 at [60]-[70] per Leeming and Simpson JJA. It is all the more so in proceedings such as the present, where the court's function does not involve the determination, to finality, of any substantive issue between the parties.

The case for the first defendant

In her affidavit of 8 June 2016, the first defendant (who is the former spouse of the second defendant) said that after she was served with the statement of claim in the 145 proceedings she instructed a firm of solicitors to act for her, but terminated their retainer on about 30 May 2016.
Much of the first defendant's affidavit dealt with various matters concerning her personal health which, she said, rendered it difficult for her to "focus on issues, including the issues the subject of these proceedings". She said that having instructed lawyers to act for her, she had believed that they were addressing the issues raised in the proceedings, and that judgment would not be entered against her. She said that she was not aware that she would be required to file a defence, nor was she aware that a default judgment could be entered against her in the absence of doing so. She said that it was not until her new solicitor informed her on 1 June 2016 that she first became aware that judgment had been entered.
In oral evidence, the first defendant confirmed (in general terms) that in about June 2008 she had been approached by her accountant, a Mr Darwich, who had informed her (and the second defendant) that he expected that they would have an indebtedness to the Australian Taxation Office in a sum of approximately $400,000 unless they invested in the schemes. She said that although she signed the relevant documents giving effect to a loan, she did not read them at any stage prior to doing so, and did not receive any legal or financial advice in relation to their contents. She asserted that she did not understand the effect of the documents, and that she only signed them out of fear of reprisals from the second defendant.
The first defendant agreed (commencing at T39 L4) that in about September 2009 she decided to be part of the Victorian Proceedings, although she had never signed any retainer agreement with McPherson and Kelley, a firm of lawyers who acted for a number of the plaintiffs in those proceedings. She said (T41 L7 and following) that she was aware that in the Victorian Proceedings she was "asking the Supreme Court of Victoria to declare loan agreements invalid or unenforceable". However, she maintained that she did not know that any settlement of the Victorian proceedings had been reached, and did not know that she may be entitled to receive part of any settlement sum. She agreed (T41 L45-47) that she had never made any application to the Supreme Court of Victoria to be removed or excluded from any settlement of the Victorian proceedings, and maintained that she had not received any part of the settlement monies (T42 L3-4).

The case for the second defendant

The second defendant stated that in or about early December 2015 he was contacted by a process server wanting to serve the statement of claim issued in these proceedings. He referred the process server to his former solicitors, The Fortis Law Group. He said that he was subsequently contacted by a Mr Safi from that firm, who confirmed that he had received the statement of claim. The second defendant said that he subsequently attended upon Mr Safi and gave him instructions to defend the proceedings.
According to the second defendant, he believed that the proceedings were being defended in accordance with his instructions. He said that this remained his belief until 7 May 2016, when he was served with a Bankruptcy Notice. This, he said, was when he first became aware of default judgment being entered against him. He said that Mr Safi failed to follow his instructions to defend the proceedings, and that as a consequence he terminated Mr Safi's instructions and appointed a new solicitor.
The second defendant said that he had engaged in discussions with his accountant, Mr Darwich, in relation to an investment in the scheme which Mr Darwich had recommended. He said that Mr Darwich had advised him, in effect, that if he did not proceed with the investment as a matter of urgency he would be faced with a significant tax liability. According to the second defendant, in about June 2008 Mr Darwich attended his business premises and provided him with a number of documents which he signed, in order to obtain funds to proceed with the recommended investment.
In oral evidence, the second defendant confirmed (commencing at T14 L21) the advice which had been given to him by Mr Darwich concerning his tax affairs, and those of the first defendant. He agreed (T22 L28-30) that he had ceased making repayments in about September 2009. He also agreed that in about September 2009 he became part of the Victorian proceedings, represented by McPherson and Kelley Lawyers. He agreed that he signed a retainer with that firm on 30 September 2009 (T23 L5-6; Ex. B). He said (T26 L10-13) that as far as he was aware the first defendant had signed a similar retainer.
The second defendant said (commencing at T23 L31) that Mr Darwich recommended that he join the Victorian Proceedings in order to "recover a bad investment". He agreed (T24 L33-36) that one of the things that he hoped to achieve from the Victorian Proceedings was to avoid paying any more money to the plaintiff.
The second defendant said (commencing at T25 L35) that at some point he became aware that the Victorian Proceedings had settled. He said (commencing at T26 L33) that on about 2 May 2016 he signed a document requesting a distribution from the settlement of the Victorian proceedings. However he said (commencing at T32 L39) that he did not agree with the settlement, and that he had conveyed these views to his solicitor.

The settlement of the Victorian proceedings

The Victorian proceedings were settled and the terms of settlement were reflected in the Deed. Some of the provisions of the Deed are relevant to the present notices of motion.
Under the heading "Background" the following paragraphs (inter alia) appear: J. The Group Proceedings are representative proceedings within the meaning of Part 4A of the Supreme Court Act 1986 (VIC) and the Lead Plaintiffs bring the Group Proceedings on their own behalf and on behalf of Group Members. K. The Lead Plaintiffs on their own behalf and on behalf of all Group Members make allegations against the defendants and claim relief as set out in the statements of claim in each of the Group Proceedings. Substantially similar allegations and claims for relief are made by the M+K Counterclaim Claimants against the defendants in the M+K Counterclaim Proceedings. The plaintiffs by counterclaim in the Uplifted Proceedings are Group Members. L. As against the BEN Parties and Javelin, the Lead Plaintiffs on their own behalf and on behalf of all Group Members, and the M+K Counterclaim Claimants, seek orders declaring the Loan Deeds void and unenforceable. The BEN Parties and Javelin say that the Lead Plaintiff's, Group Members and M+K Counterclaim Claimants are not entitled to the relief sought and say that the Loan Deeds are valid and enforceable. M. The defendants deny that they are liable to the Lead Plaintiffs or any Group Member in the Group Proceedings and deny that the Lead Plaintiffs are entitled to relief sought or any relief against them. The defendants also deny that they are liable to the M+K Counterclaim Claimants and deny that the M+K Counterclaim Claimants are in entitled to the relief sought or any relief against them. … O. The Liquidators have commenced the Liquidators' Claims against the defendant referred to therein, including the Directors. The Liquidators' Claims are not resolved by entry into this Deed.
The Deed also contained the following relevant definitions: (i) "Claim" means any claim, demand, action, suit or proceeding for damages, debt, restitution, equitable compensation, account, injunctive relief, specific performance, declaratory relief or any other remedy, whether by original claim, cross-claim, claim for contribution or otherwise whether presently known or unknown and whether arising at common law, in equity, under statute(?) or otherwise and whether involving a third party or party to this Agreement and all liabilities, losses, damages, costs (including legal costs on a full indemnity basis), interest, fees and penalties of whatever description (whether actual, contingent or prospective) arising out of, or in connection with the contents or the facts giving rise to, the PDSs, the Loan Agreements and/or the allegations made in or the facts giving rise to each of the Proceedings; (ii) "Group Members" means each person or entity falling within the definition of a group member in any one or more of the Group Proceedings and who has not opted out of the Group Proceedings. (iii) "Group Proceedings" means Supreme Court of Victoria proceeding numbers … SCI 2011 04001; (iv) "Interest relating to overdue amounts" means the interest that is charged on the Money Payable under the Loan Deeds, which is due and payable but unpaid, and which is: (a) additional to interest charged at the standard interest rate under each Loan Deed; and (b) charged at a rate calculated by the difference between the standard interest rate and the overdue interest rate set out in the schedule to the Loan Deed; (v) "Lead Plaintiffs" means Clark, Murray, Drummond, Hogan, Williams, Prasad, Micallef, Fisher and Ford; (vi) "Loan Agreements" means the loan agreements under which moneys were advanced to Scheme Members to finance their interest in managed investment schemes of which GSMAL, and (in the case of the Great Southern 2008 Future Forestry Investment Scheme) GSMAL and Rural Funds Management Limited (formerly Great Southern Funds Management Limited), is or was the responsible entity; (vii) "Loan Balance" means the Money Payable to one of the BEN Parties under a Loan Deed less any Interest Relating to Overdue Amounts waive under clause 4.1.1; (ix) "Loan Deeds" means the Loan Agreements the subject of the Group Proceedings and the M+K Counterclaim Proceedings entered into between: (a) The Lead Plaintiffs, Group Members or M+K Counterclaim Claimants and GSF, which were subsequently assigned by GSF to one or more of the BEN Parties or Javelin; or (b) The Lead Plaintiffs, Group Members or M+K Counterclaim Claimants and ABL Nominees Pty Limited, which were subsequently assigned by ABL Nominees to one or more of the BEN Parties; (x) "M+K Clients" means the persons referred to in Schedule 4 and (xi) "M+K Counterclaim Claimants" means each of the plaintiffs by counterclaim in the M+K Counterclaim Proceedings.
Schedule 4 to the Deed was headed "M+K Clients". That was a reference to those persons who were represented in the Victorian proceedings by McPherson and Kelley Lawyers. Listed under the heading "Client Name" were the names of the first and second defendants.

THE APPLICABLE PRINCIPLES

There was no issue between the parties as to the principles applicable to the present motions. They were succinctly set out in the written submissions of the second defendant.
In order to have the respective default judgments set aside, each of the first and second defendants must establish firstly, that there is an adequate explanation for the default in each case, and secondly, that there is a triable issue to be determined: Vacuum Oil Pty Limited v Stockdale (1942) 42 SR (NSW) 239 at 243; Reinehr Industrial Lease and Finance Pty Limited v Jordan (Court of Appeal (NSW) Street ACJ; Hardie and Glass JJA 4 June 1974, unreported).

THE ISSUE

There is no issue in the present case as to the explanation advanced by each of the first and second defendants for the default. The question is whether or not there is a triable issue. In determining that question, it is not the function of the court to embark upon an adjudication of the merits of the respective cases raised by each of the defendants.
Although the written submissions of the parties raised a multiplicity of matters in respect of the existence or otherwise of a triable issue, the approach which was ultimately adopted renders the question that I have to determine a narrow one. In short, the plaintiff argued that on a proper construction of the Deed, the first and second defendants were precluded from raising any defence in each set of proceedings. The first and second defendants argued that this was not so, and that there was a triable issue as to whether they were bound by the terms of the Deed.
In advancing his client's position, counsel for the plaintiff conceded that if I was satisfied that there was a triable issue as to whether the first and second defendants were bound by the Deed, it would not be necessary for me to consider any of the remaining arguments which were raised in the course of submissions. In these circumstances it is appropriate that I go directly to the identified issue.

Submissions of the second defendant

Counsel for the second defendant submitted that the fundamental question of whether, on its proper construction, the Deed provided a basis on which to preclude the second defendant from defending the claims against him was, of itself, a sufficiently complex matter to give rise to a triable issue. It was submitted that a proper construction of the Deed required a full understanding of all of the pleadings in the various actions in the Victorian proceedings which it encompassed. It was submitted that such an investigation necessarily went substantially beyond the task of the court on the present applications.
Counsel further submitted that there were more specific issues arising from the contents of the Deed. They included the fundamental question of whether the second defendant was a "group member" for the purposes of the Deed, such that he was bound by it.
In advancing these submissions, counsel for the second defendant took me, at some length, to what were said to be relevant provisions of (inter alia) the Deed.

Submissions of the first defendant

In circumstances where the issues were essentially identical in the respective cases, counsel for the first defendant adopted the submissions advanced on behalf of the second defendant.

Submissions of the plaintiff

Counsel for the plaintiff emphasised that all group members in the Victorian proceedings had acknowledged and admitted the validity and enforceability of the Deed. The primary position of the plaintiff was both defendants were seeking to litigate issues which had already been the subject of the Victorian proceedings, in respect of which a binding settlement had been reached by virtue of the Deed. It was submitted that as a consequence, each of the first and second defendants were part of the settlement of the Victorian proceedings, had either received, or expressed a willingness to receive, proceeds of the settlement, and had enjoyed a waiver of the additional interest charges which were otherwise owing to the plaintiff. It was submitted that as a consequence of all of these matters, each of the defendants was precluded from the defending the proceedings brought against them.
Counsel for the plaintiff argued that on a proper construction of the Deed, both the first and second defendants were bound by its terms because each was a group member, and an identified client of McPherson and Kelley Lawyers. In advancing these submissions, counsel for the plaintiff also took me to various provisions in the Deed.

Consideration

It is clear that the Deed bound only those persons who were "group members". In order to understand that term, even at a prima facie level, it is necessary to go to the Further Amended Statement of Claim ("FASOC") filed in the relevant action which was part of the Victorian proceedings, and which was encompassed in the Deed.
Paragraph (2) of the FASOC defined a "group member" and was in the following terms: This proceeding is commenced by the Plaintiffs on their behalf and on behalf of all persons who: 1. at any time during the period between: 2. 4 April 2007 and 15 June 2007 inclusive acquired and/or held an interest as a member in the 2007 Diversified Olives Scheme; and/or 3. 16 June 2007 and 15 June 2008 inclusive acquired and/or held an interest as a member in the 2008 Diversified Olives Scheme; 1. entered into a lease and management agreement with GSMAL for grovelots in the 2007 Diversified Olives Scheme and/or the 2008 Diversified Olives Scheme; 2. entered into a loan with ABL Nominees to fund payment of the application fees in respect of the 2007 Diversified Olives Scheme and/or the 2008 Diversified Olives Scheme; 3. suffered loss or damage by reason of the conduct of the defendants alleged herein; and 4. are not: 1. a defendant in this proceeding; 2. parents, siblings, spouses or children of a defendant in this proceeding; 3. a body corporate of which a defendant was an officer or majority shareholder at any time during the relevant period; or 4. a beneficiary of any trust, the trustee of which is or at any time during the relevant period was an officer or majority shareholder of a defendant 1. (Group Members).
The Deed was obviously binding only upon group members. In order to be a group member, it was necessary to satisfy each of the requirements in paragraphs 2(a) to (e) of the FASOC.
It was, as I understood it, common ground between the parties that no relevant interest was acquired by either the first or second defendant by virtue of paragraph 2(a)(i). That leaves the question of whether the first and second defendants acquired or held an interest in the 2008 scheme by virtue of paragraph 2(a)(ii).
There is evidence that each of the first and second defendants signed an application for finance on 13 June 2008. There is, in my view, necessarily an issue as to whether, by virtue of nothing more than applying for finance, the first and second defendants "acquired and or held an interest as a member in the 2008 Diversified Olives Scheme".
More importantly however, the relevant Loan Deeds, which expressly referred to the 2008 Diversified Olives Scheme, were not executed until 26 April 2009. There is an obvious question as to how an interest could have been acquired in that scheme between 16 June 2007 and 15 June 2008 (and thus come within 2(a)(ii)) if the relevant Loan Deed was not executed until 2009.
In either case, it follows that there is a triable issue as to whether the first and second defendants were group members. If they were not, then the Deed is not binding upon them. There may well be other issues arising from the Deed but for present purposes it is not necessary for me to consider them. The first and second defendants, having satisfied the relevant test, are entitled to have the default judgments entered against them set aside.
Finally, I should note that following the hearing of these motions the solicitor for the plaintiff referred me to the decision of the Victorian Court of Appeal in Byrne v Javelin Asset Management Pty Limited [2016] VSCA 214. The email under cover of which a reference this decision was forwarded made reference to the fact that the judgment "appears to be relevant to the present dispute". How this was said to be so was not further articulated.
The applicant in Byrne (supra) had entered into a series of loan agreements, one of which was to fund an investment into the 2008 Diversified Olive Scheme. The enforceability of the loan agreements was challenged in group proceedings brought in the Supreme Court of Victoria. Those proceedings were settled by a Deed which entitled the respondent, in default of certain steps being taken by a borrower, to enter judgment against that borrower in respect of the loan balance. Judgment was duty entered by the primary judge against the applicant, who sought leave to appeal. Leave was refused.
Whilst the case has some factual similarities to the present, the Court's judgment revolved around (inter alia) construction of specific provisions of that particular Deed, notably those provisions which governed the nature of the evidence which was required in order to prove the amount of the loan balance. That issue does not arise in the present case. The decision does not, in my view, bear upon any issue that I am required to determine.
I was also referred by counsel for the second defendant to the decision of the High Court in Timbercorp Finance Pty Limited (in liquidation) v Collins; Timbercorp Finance Pty Limited (in liquidation) v Tomes [2016] HCA 44 although once again, the relevance of that decision was not articulated. In that case, group proceedings had been brought by persons who had acquired or held an interest in a certain managed investment scheme. Those group proceedings were not successful. Some of the members of the group proceedings, including the two respondents, had applied for loans from the appellant to fund investments. Proceedings were brought against them alleging that they had defaulted in their payments under the relevant loan agreements. The respondents filed defences in those proceedings and the appellant, in its reply to each of those defences, pleaded that the respondents were precluded from raising such defences on account of their membership in the group proceedings. The appellant contended that the respondents were either estopped from defending the proceedings, or that the defences constituted an abuse of process. In essence, the appellant contended that the respondents could and should have raised their defences for determination in the group proceedings. The primary judge found that the respondents were not so precluded, and an appeal against that decision was dismissed. A subsequent appeal to the High Court was also dismissed.
Again, although there are some broad factual similarities with the present case, the issues considered by the High Court were different. In particular, no submission has been made in the present case regarding an abuse of process. In these circumstances, and notwithstanding the factual similarities, the decision appears to have little bearing upon the issues before me.

ORDERS

I make the following orders: 1. The default judgment entered in proceedings 2015/337145 is set aside. 2. The default judgment entered in proceedings 2015/337116 is set aside. 3. Both proceedings are adjourned for further directions before me at 9.15 am on 2 December 2016, at which time the parties are to provide Short Minutes of Order setting out a timetable for the advancement of both of the proceedings to hearing. 4. Absent agreement being reached as to the costs of the Notices of Motion: 1. the plaintiff is to file written submissions (not exceeding one page in length) by 4.00 pm on 23 November 2016; and 2. each of the first and second defendants is to file written submissions in reply by 4.00 pm on 28 November 2016. 1. The submissions in orders 4(i) and (ii) above are to be filed directly with my Associate. 2. Judgment on the question of costs is reserved until 2 December 2016.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 November 2016

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