Chep Australia Ltd v Bundaberg Refrigerated Transport Pty Ltd

ex tempore Judgment (revised)

1. The third defendant, Mrs Jennifer Margaret MacDonald, is sued along with her now ex-husband Allan Cameron MacDonald, the second defendant, and a company called Bundaberg Refrigerated Transport Pty Ltd ("BRT"), the first defendant. The suit arises from a loan/lease agreement between the plaintiff and the first defendant. Mrs MacDonald's liability is said to arise from a guarantee she signed on 19 July 2007. At that stage she was married to the second defendant, who essentially ran the business of BRT. The marriage subsequently came to an end, and property settlement documents are amongst the material before the Court.
2. The proceedings were commenced by statement of claim on 21 May 2020. Mrs MacDonald filed a defence and then an amended defence, the latter document being filed on 30 October 2020. Her defence denies direct knowledge of various dealings between the other parties to the litigation, and does not admit various other matters because, as the defence states, she remains unsure of the truth of those matters.
3. Of most relevance for present purposes is that in paragraphs 6 and 7 of the defence there is a pleading of, what was described in argument as, "equitable unconscionability" as well as "statutory unconscionability". [1] It will be necessary to return to that.
4. The lay evidence of both parties has been exchanged and filed, and the case is listed for hearing in this Court on 11 July 2022 with what I am told is, currently, a four-day estimate.
5. By notice of motion filed 1 December 2021, the third defendant seeks an order for summary dismissal of the plaintiff's claim under r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR").
6. The notice of motion was heard this morning. The third defendant read three affidavits. The first was her own affidavit affirmed 15 June 2021 (filed 1 July 2021). The second was an affidavit of her former husband, that is the second defendant, affirmed 24 November 2021 (filed on 1 December 2021). The third was a further affidavit of the third defendant affirmed (and filed) on 1 December 2021. Annexed or exhibited to those affidavits were various relevant documents.
7. The plaintiff read an affidavit of its solicitor, Ms Wilcock, sworn on 1 March 2022 (filed 2 March 2022). Exhibited to that affidavit was a volume of material which ultimately became exhibit A on the hearing of the notice of motion. The third defendant also tendered, as exhibits B and C, more legible copies of the loan agreement and guarantee. The first was a copy of the filled-out forms and the second was a blank copy of the form, which made legible the fine print, if I can call it that without being pejorative, setting out the terms and conditions of the loan and the guarantee.
8. I heard from Mr Lambert, Special Counsel for the third defendant who appears by video link from Queensland. I had already read the written submissions prepared by the advocates for both sides. I then adjourned to consider Mr Lambert's submissions having asked one question of the plaintiff's advocate in relation to a matter of detail of no present concern (and dealt with below at [15]).
9. Having considered Mr Lambert's submission, I return to the bench having formed the view that it was unnecessary to hear further from the plaintiff. In my view, the orders sought by the third defendant ought not to be made, and the matter must be litigated properly and in full, commencing on 11 July 2022. I can be reasonably succinct in providing my reasons for that conclusion.
10. In short, the third defendant's submission relies on a complete acceptance of assertions made in the affidavits of the second and third defendants. Reliance is then placed on decisions such as Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48.
11. Putting aside the unfortunate gender-laden language in the first of those cases, the third defendant's case is that the plaintiff is acting unconscionably in seeking to enforce the guarantee in circumstances where: 1. Mrs MacDonald did not read, or at least understand, the guarantee document, or even that it contained a guarantee. 2. She had no control over the business dealings of the second defendant or the company, or the circumstances and dealings concerning the loan agreement and the guarantee. 3. She was not provided with any independent legal advice. 4. She was a "volunteer" in signing the agreement, in the sense that she gained no benefit from the transaction or the guarantee (and I am here paraphrasing the third defendant's written submissions) 5. The plaintiff took no steps to explain the transaction to her or to ensure that a third party had done so.
12. Reliance is placed on what Gaudron, McHugh, Gummow and Hayne JJ said in the case of Garcia v National Australia Bank Ltd at [31]. Their Honours held that, even where one spouse does not engage in actual undue influence over the other (referred to as "the surety" in that case), it is unconscionable for a creditor to enforce a guarantee against the other spouse where: "(a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a [spouse], the surety may repose trust and confidence in [their spouse] in matters of business and therefore to have understood that [their spouse] may not fully and accurately explain the purport and effect of the transaction to [the surety]; and yet (d) the lender did not itself take steps to explain the transaction to the [surety] or find out that a stranger had explained it to [them]." [2]
13. One thing that must be observed about the decision in Garcia v National Australia Bank Ltd is that the case came to the High Court of Australia on appeal from the New South Wales Court of Appeal, following a full hearing in front of his Honour Young J. So much is clear from, for example, paragraphs [6] and [7] of the judgment of Gaudron, McHugh, Gummow and Hayne JJ where the findings of Justice Young are set out. There is nothing in that judgment, or in any of the authorities to which I have been referred, to suggest that a Court hearing an application for summary dismissal based on an assertion of this kind of unconscionable conduct is entitled to - or for that matter, permitted - simply to act on the untested assertions of the party claiming that the other party to the financial transaction acted unconscionably. That is particularly important in the circumstances of this case, because it is clear from the evidence before me that the second and third defendants' assertions are not accepted by the plaintiff. Mr Lambert acknowledged that; and also that those assertions are expected to be tested in cross-examination.
14. Ms Wilcock's affidavit and the contents of exhibit A demonstrate that there is likely to be a lively dispute about some of the assertions made by both the second and the third defendant. For example, while the second and third defendants are expected to assert that the third defendant derived no benefit from the transactions or business dealings, there is evidence that she was a shareholder in either or both of the first defendant's company or in companies associated through a series of trust type arrangements at the time the guarantee was entered, and that she was a director of at least one and possibly two companies at that time which were similarly connected through this corporate or trust structure, and that there were loans wherein money was passed between the first defendant and those other associated companies.
15. Criticism was made of Ms Wilcock because her affidavit asserted (in paragraph 7) that there was evidence in the balance sheets, which are a part of exhibit A, that BRT received a loan from a company called Almac MacDonald, that BRT received the benefit of a loan from Almac Trucking, and that BRT received the benefit of a loan from the Almac Trust. Mr Lambert took me to the source documents of those assertions and correctly demonstrated, as was conceded by Mr Jaireth who appears for the plaintiff, [3] that those loan transactions in fact went in the other direction. That is, the balance sheet relevantly establishes (1) a loan to Almac MacDonald from BRT, (2) a loan to Almac Trucking from BRT, and (3) a loan to the Almac Trust from BRT. Even so, those documents demonstrate a financial connection between the parties in circumstances where the evidence also demonstrates that the third defendant was a shareholder in Almac at the relevant time and up until 24 May 2016.
16. Further, the assertions that the third defendant had no financial interest in the company and received no benefit from its activities are brought into question by the contents of Family Court documents also annexed to Ms Wilcock's affidavit, for example, an application for consent orders in the Family Court. [4] The third defendant's income is described as a gross weekly income of $300. Further, and perhaps more importantly, it is said in item 66 of the application for consent order that "the parties" - and "the parties" to that Family Court litigation are the second and third defendants in this litigation: "acknowledge they both have previously relied on income from Bundaberg Refrigerated Transport. As such, the applicant, [that is to say the third defendant here], is receiving a higher proportion of the property pool as she will not have the same financial resource as that of the respondent after settlement [of the Family Court proceedings]." [5]
17. Part of that application for consent orders contains what is referred to as a "Statement of Truth of Applicant" (being the third defendant in these proceedings), as well as an indication that the applicant had received independent legal advice, and had the nature of the effect of the orders explained to her. [6] That document is signed on every page by the third defendant.
18. When asked about those documents in the course of this morning's hearing, Mr Lambert submitted that those statements to which I referred are "not correct" [7] and he instead relied on the contents of the affidavits of the second and third defendants in these proceedings. [8]
19. In argument, Mr Lambert stated that "[m]y instructions are that" it "is not true" that the third defendant was in receipt of the $300 weekly as income, as stated on the application for consent orders, and that "that is housekeeping money". [9] It was submitted that the true situation was reflected in the affidavits in support of the defence and the current notice of motion, and not in the earlier Family Court documents. That may well be so, and if it is so the third defendant may have a case of unconscionability, but the Family Law Court documentation at least gives rise to material that might be used in cross-examination of both the second and third defendant on the final hearing, and may bring into question the assertions made in their affidavits.
20. At one stage earlier in the oral submissions, it was submitted that a finding of unconscionability would "inevitably" be made by the Court hearing the statement of claim. Again, that submission was based on an uncritical and complete acceptance of what is contained in the third defendant's evidence.
21. After attempting to deal with the reality of what was said in the application for consent orders in the Family Court, a more realistic submission was made that "in all likelihood there will be a finding that it was unconscionable to enforce the guarantee obligations against Mrs MacDonald…". [10] Even if I was prepared to act on that last submission, it is not sufficient to justify preventing the plaintiff from having its day in court. It is not a case that can be disposed of summarily.
22. Using the phrases often employed in the case law, the plaintiff's case is not destined to fail, it is not hopeless or manifestly groundless, and it is not so obviously untenable that it cannot possibly succeed. [11] Putting the test from the opposite perspective, there is clearly a triable issue in this case. Adopting the terms of r 13.4 of the UCPR, the litigation is not frivolous or vexatious, an arguable cause of action is clearly disclosed, and the proceedings do not constitute an abuse of the Court's process.
23. Nothing in what I have just said should be taken to mean that the third defendant's statements on affidavit have been rejected by me, or that her defence of unconscionability might not succeed. Had the shoe been on the other foot - that is, had the plaintiff sought to have summary judgment in its favour, or sought to strike out the defence - that application would have failed. The reality is that any decision on the plaintiff's claim and the third defendant's defence can only be made once the evidence is tested properly. That cannot happen before the final hearing, and it cannot be by way of an application for summary dismissal. Nor can an application for summary dismissal be based on an uncritical acceptance of evidence filed by the defendants when the Court is aware that parts of that evidence are in dispute.
24. For those reasons, I refuse the order for summary dismissal and otherwise dismiss the notice of motion. I confirm the hearing date of 11 July 2022.

Costs

1. Having made those orders, the plaintiff sought the costs of and incidental to the notice of motion. Initially, Special Counsel for the Third Defendant indicated he had "no submission to make on that" and that he was "aware of rule 42(1)". [12] Counsel for the plaintiff then indicated that he sought indemnity costs from a date where an offer of compromise was made. Mr Lambert was asked if he was resisting that application and said "I won't at this stage … I'm aware of the indemnity letters." Pressed on the issue, he said he had no instructions to make submissions to the contrary. The matter was adjourned to allow the plaintiff to provide copies of the letters of compromise and the third defendant to make submissions in writing.
2. On 15 October 2021, the solicitors for the plaintiff wrote to the defendant's solicitors. [13] It is implicit in this letter that the third defendant had foreshadowed making an application for summary dismissal. The letter implored the third defendant to reconsider its position. It referred to the timing of the notice of motion and set out, by reference to some of the case law, the principles governing an application for summary disposal. The third defendant was not deterred and pressed on, filing the notice of motion, serving evidence and putting the plaintiff in the position where it was required to serve its own evidence.
3. On 21 March 2022, the plaintiff's solicitors tried again. [14] This letter made a Calderbank [15] offer to settle the notice of motion on the basis of the following consent orders: 1. The motion be dismissed; and 2. The costs of the motion by the Plaintiff's costs in the cause.
4. The third defendant has submitted (in writing) that the costs of the motion be reserved to be dealt with by "the Judge who hears the eventual trial" [16] . It is submitted that the third defendant's defence "may well succeed at Trial". Reliance is placed on certain observations of Morrison JA in Day v Humprey [2018] QCA 321 (at [10], [15] and [24]). Nothing in that judgment, or in the paragraphs referred to, assist the third defendant in the circumstances of the present case. The principles referred to are plainly correct, but the circumstances are quite different.
5. The present application was almost completely devoid of merit. The plaintiff pointed out its obvious problems in its correspondence and made a reasonably generous offer of compromise. I am satisfied that the third defendant should pay the costs of and incidental to the notice of motion, and on an indemnity basis from 29 March 2022.

Orders

1. Accordingly, the orders I make are these: 1. The third defendant's notice of motion filed 1 December 2021 is dismissed. 2. The third defendant is to pay the costs of and incidental to the notice of motion: 1. On an ordinary basis up until 28 March 2022. 2. On an indemnity basis from 29 March 2022. 1. The trial date of 11 July 2022 is confirmed.

Endnotes

1. Tcpt, 26 May 2022, p 10(46-48). The statutory aspect of the defence is said to arise under s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth).
2. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 409; [1998] HCA 48 at [31].
3. This was the one question referred to at [8] above.
4. See Ex A at p 221.
5. See Ex A at p 231.
6. See Ex A at p 235.
7. Tcpt, 26 May 2022, p 17(11).
8. Tcpt, 26 May 2022, p 17(12-15).
9. Tcpt, 26 May 2022, p 16(41-49).
10. Tcpt, 26 May 2022, p 18(13-15).
11. See, for example, Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91; [1949] HCA 1, General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69, Fancourt v Mercantile Credits (1983) 154 CLR 87 at 99; [1983] HCA 25, Spencer v The Commonwealth (2010) 24 CLR 118 at 131; [2010] HCA 28, Boscolo v Consumer Trader and Tenancy Tribunal [2014] NSWSC 997 at [28]-[30], CBA v ZYX [2014] NSWSC 1676; (2015) 103 ACSR 476 at [47]-[71].
12. Tcpt, 26 May 2022, p 20.
13. The letter was marked as Ex 1 in chambers.
14. The second letter was marked as Ex 2 in chambers.
15. Calderbank v Calderbank [1975] 3 All ER 333.
16. The written submissions were marked as MFI 2 in chambers.

Amendments 30 May 2022 - [1] - ins. "who essentially ran the business of BRT" [6] - delete "filed" [26] - [28] - formatting 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: 30 May 2022