The Current Shortfall
42The Bank has applied the proceeds of the sales of the Properties to reduce the judgment debts on the Consent Judgments. It is accepted by all parties that the rate of interest accruing on the Consent Judgments is that applicable from time to time under Civil Procedure Act s100. The Bank calculated the current balance outstanding under the Consent Judgments has been reduced in this way from the total of $1,571958.88 outstanding at the time of the Consent Judgments. Now it is said that there is a total of $789,194.70 outstanding, being $184,323.20 outstanding in the Investments Proceedings and $604,871.50 outstanding in the Developments Proceedings.
43With this background the motions may be decided. The parties accepted that if the Bank's Strike Out Motion was successful that the Shannon parties' Stay Motion could not succeed. The Court will first deal with the Strike Out Motion.
Consideration of the Strike Out Motion
44Abuse of process - UCPR r13.4(1)(c). The Bank ultimately abandoned its abuse of process argument. The Bank had argued that for the account proceedings the Shannon parties were attempting to relitigate issues which had been decided against them in the First Account Proceedings by Macready AsJ. But to found such a strikeout under UCPR r 13.4(1)(c) on the basis of an abuse of process an applicant must establish, that the parties in the two proceedings were the same, that the issue was necessarily determined in the earlier case and was of importance to the final result, that the issue was properly argued, and that the decision disposing of the issue is final and is not subject to appeal: Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 at 414A-D ("Haines").
45But the strikeout of the pleadings in the First Account Proceedings does not have the necessary characteristic of finality required by Haines at 414. The Bank has now recognised this. The Bank now concedes, correctly in my view, that Macready AsJ's judgment on 11 October 2012 on the strikeout in the First Account Proceedings (C2C Developments v Commonwealth Bank of Australia [2012] NSWSC 1162) is of an interlocutory nature such that leave is required to appeal against the decision under Supreme Court Act 1970 s 101(2)(e): Macatagnay v State of New South Wales (No.2) [2009] NSWCA 272 at [11]-[13] per Allsop P, Tobias JA and Handley AJA. But although no application for leave to appeal against the judgment has been made and in that sense it remains undisturbed it is nevertheless not a final and conclusive decision on the merits precluding Developments then bringing another claim: Macquarie Generation v Hodgson [2011] NSWCA 424 at [31]-[32] per Handley AJA, Whealy and Meagher JJA agreeing and Kuligowski v Metrobus [2004] HCA 34 at [25], (2004) 220 CLR 363. So the Bank does not press its submission that Developments claim for accounting of damages may be dismissed on res judicata principles.
46Of course, as Haines (at 414AE) also makes clear, Mr Shannon's pleading in the Account Proceedings could not in any event be struck out as an abuse of process. Mr Shannon was not a party to the First Account Proceedings. He would not have been bound by an issue estoppel.
47But there would have been yet another obstacle to the success of the Bank's claim for dismissal on the basis of abuse of process. In the Account Proceedings the plaintiffs not only claim an account; they also claim damages based on alleged breaches of the Bank's duty under Corporations Act s 420A. The summary dismissal of the first account proceedings did not involve any findings in relation to the performance of the Bank's duty under Corporations Act s 420A. Such matters were not covered by the fairly basic account pleading in the First Account Proceedings.
48The pleadings in the First Account Proceedings were not complex. They were set out in full in Macready As J's judgment (at [2]):
1. At all relevant times hereto, the Plaintiff [Developments] was the owner of the undermentioned properties:
(a) [Iluka Property];
(b) [Manning River Property];
(c) [Harrington Property]
2. During the course of 2010, the Plaintiff [Developments] agreed to give to the Defendant [the Bank] possession of the properties as chargee/mortgagee in possession pursuant to consent orders made by this Honourable Court on 28 September 2010.
3. The Defendant duly took possession of the aforesaid properties and sold them and retained the proceeds.
4. Notwithstanding demand, the Defendant has failed and or refused to account to the Plaintiff [Developments] for the aforesaid sales.
49None of this pleading in the First Account Proceedings raises an allegation of breach of duty by the Bank as mortgagee. Although in my view there are deficiencies in the Shannon parties' pleading of the Bank's claimed breach of duty, as these reasons explain, there is no doubt that such a plea was introduced for the first time in the Account Proceedings and founds in those proceedings not only a claim for an account but a claim for damages. These circumstances it would not be apt to describe the Account Proceedings as an abuse of process in the sense considered in Haines.
50The Bank did not press any other basis for alleging abuse of process such as the bringing proceedings for an ulterior purpose: Williams v Spautz (1992) 174 CLR 509. Nor in my view does the course of the Account Proceedings readily suggest such a purpose. Developments' and Mr Shannon's financial positions are substantially affected by the Consent Judgments, if they are not reduced or stayed through these proceedings. Moreover, such allegations of collateral purpose encounter many of the same obstacles as they did during the First Account Proceedings; the Bank has not cross-examined Mr Shannon to suggest a collateral motive and there is sufficient evidence of a difference between the market value of the properties and their actual sale values to infer that the purpose of the proceedings is the raising of a genuine issue and not the pursuit a collateral purpose: C2C Developments Pty Ltd v Commonwealth Bank of Australia [2012] NSWSC 1162 at [36] and [37] per Macready As J.
51No reasonable cause of action - UCPR r13.4(1)(b). The Bank put its strike out application in two other ways: that the statement of claim is defective as a pleading; and that it is not supported by evidence. The Bank's pleading point is its strongest but I will first briefly deal with the Bank's point on the evidence adduced.
52The Bank submitted that the plaintiff's claim was not supported by evidence. The Bank argues that there is not evidence that the Bank in any way breached its alleged duty under Corporations Act s 420A. Counsel for the Bank, Mr Newton, pointed to Mr Shannon's affidavit evidence identified earlier in these reasons about the purchase of the Manning River property. Counsel comments adversely upon the quality of that evidence.
53The Bank's counsel's submission is partly correct: at this stage most of the Shannon parties' evidence to support a case of breach of section 420A is not admissible, or in only very sketchy form. But to attack a party's evidence at this stage on a UCPR r 13.4(1)(b) application is rarely a productive exercise. This is not a case where the Bank can show by reference to evidence that the Shannon parties' claim to damages and an account under s 420A is "so obviously untenable that it cannot possibly succeed" or is "manifested groundless" or "discloses a case which the Court is satisfied cannot succeed" General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. The Court must exercise exceptional caution where it is apparent that the ultimate outcome turns upon a resolution of a disputed issue of fact: Webster v Lampard (1993) 177 CLR 598. It can be accepted that the Shannon parties' evidence as it currently stands may not make out a Corporations Act s 420A case. But that is not to say after deploying appropriate interlocutory processes that such a case may not be maintainable, particularly in circumstances where the differential between actual sale prices and market valuations has been established to the prima facie level, as it has been on this motion. Provided it is properly pleaded, this is an issue in my view, which should go to trial.
54Pleading embarrassing or discloses no reasonable cause of action - UCPR r14.28 (1)(a)&(b). But the underlying question is whether the plaintiffs' breach of duty case is indeed properly pleaded. In my view it is not. Shannon parties really conceded this in the course of argument and correctly so. The Bank's short point is that the statement of claim in the Account Proceedings simply pleads, the market value of the Properties and an actual sale at less than market value and then seeks, without more, to infer from such pleaded facts that there has been a breach of Corporations Act s420A. The Bank's submission is that such pleaded facts do not disclose that the Bank breached its duty under Corporations Act s420A or its other duties as a mortgagee.
55I agree with the Bank's UCPR r 14.28(1) submission. The present pleading in the Account Proceedings is too simplistic in my view and does not plead sufficient facts to ground a cause of action for Corporations Act s420A breach of duty. The Bank's failure to obtain market value on these sales may have occurred despite the Bank making reasonable efforts to market the properties. A difference between the market value of these Properties and the amount realised upon their sale may be the result of unexpected market forces and does not necessarily indicate breach of duty by the Bank.
56I will therefore strike out the statement of claim in the Account Proceedings. But I will give the Shannon parties an opportunity to put on an amended pleading. In re-pleading their case the Shannon parties will have to decide on the materials available to them whether they can allege some breach of duty by the bank and plead the essential facts of such a breach. That should be done within 28 days, subject to what is set at the conclusion of these reasons.
57I am prepared to allow both Developments and Mr Shannon to replead the case in the Account Proceedings despite two other arguments, which the Bank advanced, with which I will now briefly deal.
58Mr Shannon did not own any of the Properties, and the Bank is correct that the Bank's duty as mortgagee in selling the properties is therefore not owed to him. But he is a co-judgment debtor with Developments and Investments on the two Consent Judgments. He became a co-judgment debtor because of his original position as surety of Investments and Developments' respective obligations. In that role, once the principal debtor is joined, he would have a right to argue that the principal debtor's debt should be reduced by reason of the creditors conduct: GE Capital v Davis [2002] NSWSC 1146 at [93]-[100] per Bryson J. In the same way that the Bank's obligations as mortgagee in disposing of the property survived the Consent Judgments, it is at least arguable in my view that Mr Shannon's right to contest that the judgment debt has been reduced by the sales may also survive the entry of the Consent Judgments. But the terms of the agreement for the Consent Judgments and how Mr Shannon is himself entitled to an account or damages will have to be more clearly pleaded in any amended pleading.
59Investments' claim is struck out, but it may need to replead. I will not strike out a claim against Investments as. If Mr Shannon wishes to pursue a claim in relation to the Tuncurry property, Investments may, for the reasons indicated, need to be necessary party to the proceedings. For that reason I will give Mr Shannon an opportunity to have discussions with the liquidator of Investments to see whether any decision will be made by the liquidator to leave Investments as a party in an amended pleading.
60The Bank contends that a claim for an account could not be brought unless the plaintiffs could demonstrate that there would be a surplus as a result of the account being taken: cf. the authorities Macready AsJ refers to in C2C Developments v Commonwealth Bank of Australia [2012] NSWSC 1162 at [21] to [28]. But it seems to me that once the plaintiffs ground their case in alleged breaches duty by the mortgagee as they have now done in the account proceedings, this issue falls way. This is because if the plaintiff's claim for damages for breach of the mortgagee's duty succeeds it will arguably result in a recalculation of the amount for which the Consent Judgments will be enforced. This will itself be a form of taking of accounts.
61Finally the Bank took issue with the application of Corporations Act s420A in the present circumstances. But whether or not Corporations Act s420A applies, in selling the Properties the Bank has other applicable duties and if they are to be relied upon by the Shannon parties should be properly pleaded in the amended pleading.
62It is necessary therefore to consider what should happen to the Stay Motion.
Consideration of the Stay Motion
63The Consent Judgments should be stayed. The Court has ample power to prevent further enforcement under Civil Procedure Act s 135(2)(c). The Shannon parties' claims in these proceedings are in the nature of a cross claim, with a close connection to the judgment debts in the Consent Judgments, which could in the circumstances be stayed on general principles of equitable set off: AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705.
64But I will not resolve the full terms of the stay, until the Shannon parties' amended pleading is available. The parties are at issue on the calculations as to whether on the Shannon parties' best case some money will still be owed to the Bank. The Bank needs an opportunity to respond to the Shannon parties' latest calculations of this amount. I will consider what amount, if any, should be paid into Court as a term of the stay when an amended pleading is served.
Conclusions and Orders
65At the conclusion of argument, these proceedings took an unusual turn. Mr Lipp, who had until then been speaking on behalf of Mr Shannon and Developments, vacated his place at the bar table to allow Mr Geoffrey Slater to speak on behalf of his clients. Mr Slater apparently acts for the Shannon parties "in other litigation". The Court pointed out that it would be normal practice for Mr Slater to appear by motion, but in the short term the Court would at least hear Mr Slater to ascertain the nature of his application.
66It turned out that Mr Slater was foreshadowing an application to prevent Mr Newton and Gadens from any longer acting against the Shannon parties in this or other litigation. Mr Slater was not speaking to any formal filed legal process. But to use his own words, he was "foreshadowing that I will be making a motion which I will be asking you to list as part of this proceeding".
67Mr Slater summarised his prospective application thus. He claimed that in the past Mr Newton had acted for one or more of the corporate Shannon parties. He was apparently unsure for which parties Mr Newton is alleged to have acted in the past. He explained that the true situation was difficult to ascertain at present, because the files in question were subject to a claim for a solicitors lien. He surmised that if his clients were to seek access to these files they would need to do so by subpoena. Whether or not that procedural course is appropriate, the Court certainly has ample power to deal with such matters under Legal Profession Act 2004 s 728.
68The Court asked Mr Slater why it was that proper notice was not given of this application before today. It was pointed out to him that ordinarily the judge hearing a motion or a trial would not decide the question of whether there was any basis to restrain solicitors or Counsel from acting in such a motion or trial. Ordinarily the party seeking to restrain the lawyers for the other party from acting, would be required to apply for injunctive relief to the Equity or Common Law duty judge in advance of the motion or trial. The Court asked Mr Slater why that the application was being foreshadowed only at .3.40 pm, when all the day's argument was over.
69In response Mr Slater explained that he had only been briefed on the previous Saturday afternoon, 16 March 2013. The Court was asked to infer that there had been insufficient time for an application for an injunction to be brought before 10.00 am. Mr Slater said that he was before another judge on the morning of 18 March and was unable to appear in this matter to foreshadow his present application until after argument in these proceedings had commenced.
70The Court responded to Mr Slater and the parties that the Court regarded the barristers and solicitors presently appearing on the motions as properly appearing, unless and until some other judge were to make an order preventing one or other of them appearing. All the parties have a right to legal representation of their choice, which right cannot be interfered with except on proper grounds pursuant to a properly constituted motion.
71But all of this is very unsatisfactory. It is quite clear that there is at present no sworn or other evidence filed or being proffered to the Court to substantiate any claim that Mr Newton or Gadens should not act any longer in these proceedings. The Court pointed this out to the parties on 18 March. The Court's absolute privilege seems now to have been used to propound public allegations adverse to one party's legal representatives, for which no evidentiary foundation is yet advanced.
72The matter cannot simply be left in this state of semi-suspension. The Shannon parties must only use the Court's processes fairly and responsibly. If they genuinely wish to challenge the Bank's retainer of its current legal representatives they should have an immediate but brief opportunity to formulate and pursue that claim. The Bank needs to know whether its current legal representatives will be continuing in the matter. If a claim is not to be pursued, the Court may well wish to know what evidentiary basis Mr Slater had for making these allegations under the Court's privilege and may ask the Shannon parties publicly to withdraw the allegations made, without evidence or motion, under privilege.
73But such a foreshadowed application may be too late. This motion has been almost fully argued. All that remains is to review any amended statement of claim in the Account Proceedings, which process may well result in the consumption of no further Court time. It is not as yet clear when the Shannon parties first became aware that Mr Newton was alleged to have acted for them in the past. Presumably it was sometime before 16 March. It may well be a matter for future argument before another judge but by their apparent delay in not raising this matter at 10.00am on 18 March, the Shannon parties may well have waived their rights to object to Mr Newton in Gadens continuing to act on these present motions.
74The Court will make directions to balance the interests of all the parties in this unusual situation. The Shannon parties will have one week to bring such application as they are minded to bring, to restrain Mr Newton and Gadens from continuing to act in this matter. In the meantime the Bank will not be required to expend any further costs on this motion. The Court should be informed whether or not a motion of this character has been filed. Either way the Court may need to make supplementary directions for final disposition of these proceedings. These directions are built into the orders below.
75The Court will therefore make the following orders and directions:
(1)Strike out the plaintiffs' statement of claim;
(2)Grant leave to the plaintiffs to replead within 28 days of today;
(3)Direct the second and third plaintiffs to inform the Court within 7 days whether they intend to bring proceedings to restrain the present legal representatives of the defendant from acting in these proceedings;
(4)Stay the Consent Judgments until the final determination of the plaintiffs' present motion;
(5)Adjourn the proceedings to a date to be fixed with my associate.
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Decision last updated: 27 March 2013