Coddington v Commonwealth Bank of Australia

Coddington v Commonwealth Bank of Australia - [2010] NSWSC 1330 - NSWSC 2010 case summary — Zoe

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4 In 1989, a family decision was made to purchase a further rural property - Rose Hill. Mr Coddington's daughter, Leanne purchased part of the property and his son, Anthony purchased the other part. Both Leanne and Anthony granted mortgages to the Bank. The debtors under both mortgages were Mr & Mrs Coddington. On 5 April 1989 the Bank advanced approximately $600,000 to Mr & Mrs Coddington to purchase Rose Hill. The indebtedness to the Bank was secured not only by the mortgages and personal covenants in respect of Rose Hill, but also by the previous mortgages and personal covenants given in respect of the Dapper and Leaholme properties. 5 The borrowing to purchase Rose Hill was by a bills discount facility for a two year fixed term with the option of converting to a fully drawn or term loan during the initial two years or at the end of that period. It is a matter of common knowledge and public record that the period immediately following the Rose Hill loan to Mr & Mrs Coddington was a period of record high interest rates. By December 1989 the Reserve Bank of Australia cash rate was 18%. In January 1990 it was 17.5%. It remained at historically high levels until late 1991. Few businesses could have sustained the cost of purchasing and maintaining Rose Hill at the prevailing interest rates - at least on a fully debt funded basis and as a single economic unit. Predictably, there was default under the bills discount facility. 6 In 1996 Mr & Mrs Coddington and their children Leanne and Anthony commenced proceedings against the Bank in this court. A central contention in those proceedings was that the purchase of Rose Hill was not a commercial proposition. They sought relief under the Contracts Review Act, 1980. They claim that, having regard to the Bank's knowledge of the existing indebtedness, cash flow and general state of the farming and grazing activities or Mr & Mrs Coddington, the Bank should have informed them that the purchase was not commercially viable. To my mind, this does not appear to have been a very sound basis for the grant of relief under the Contracts Review Act. 7 The Coddington family had the benefit of legal advice and representation in those proceedings. Their solicitors were Verekers. Counsel was retained. Substantial monies were spent on legal costs and in obtaining expert advice from a consultant named Brian Coggan. The expenditure achieved little. On 4 April 1997, Rose Hill was sold. On 1 May 1997, Dapper was sold. On 1 August 1997, Leaholme was sold. In each case the net proceeds of sale were paid to the Bank in reduction of the indebtedness owing to it. The Bank gave discharges of mortgage but reserved its rights under the personal covenants. As at 1 October 1997, the outstanding indebtedness to the Bank by the Coddington family interests was $1,199,432. Interest was accruing at a daily rate of $442.06.

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Consent Orders 8 In due course, on 13 May 1999, final orders were made by consent disposing of the proceedings. The orders were entered on 22 June 1999. Among other things, judgment was given against Mr & Mrs Coddington individually, and as trustees of the Coddington Family Settlement, and against G H Coddington & Co Pty Ltd, in the sum of $1,470,670. The orders included mutual releases and discharges from all claims, demands and causes of action arising out of the claims made in the proceedings. They also included a warranty by each of the Coddington entities that "he, she or it has obtained legal advice as to the terms and effect of the Short Minutes of Order". 9 In fact Mr & Mrs Coddington and their family interests received legal advice at all times throughout the proceedings, including in connection with the discovery process. In particular, there was a lengthy settlement conference on 12 May 1999. On the Coddington side, the conference was attended by Mr Coddington, his counsel, Mr Bradford, his solicitor, Mr Tassell and his assistant, and his consultant expert, Mr Coggan. The Bank was represented by its counsel, Mr Oakes SC, its solicitor Mr Lee and a Bank officer, Mr Higgs. On 19 May 1999, Verekers wrote a lengthy letter to all of the Coddington entities, referring to the "four long days of negotiations" and summarising the effect of the orders. Public Policy - Settlements 10 Before dealing with the particular allegations on which the plaintiffs rely to set aside the consent orders, I should make some general observations about the policy considerations that are relevant to an application such as this. There is a public interest in the finality of litigation. It is obvious that, unless there are rigorous limits on the ability of an unsuccessful litigant to re-agitate claims that have been resolved by the courts, the system for the orderly and efficient administration of justice would be discredited and would falter: DJL v The Central Authority [2000] 201 CLR 226 at [90]; Bailey v Marinoff (1971) 125 CLR 529; Gamser v Nominal Defendant (1977) 136 CLR 145 at 154; CDJ v AJ (1998) 197 CLR 172 at 204. 11 The principle applies to final orders after a hearing, consent orders following a compromise and interlocutory orders. The considerations will not always be the same however. Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 is an example relating to an interlocutory order. Harvey v Phillips (supra) and Easyfind (NSW) v Paterson (1987) 11 NSWLR 98 are examples relating to consent orders made following a compromise. In all cases, fraud is a well recognised exception, but it has its own limitations. The party alleging fraud must show that there has been a new discovery of something material - fresh facts which alone, or in combination with previously known facts, establish that the judgment was obtained by fraud: Wentworth v Rodgers (No 5) (1986) 6 NSWLR 534 at 538; Spencer Bower & Handley The Doctrine of Res Judicata, 4th edition, 2009 at 17.04. In this case, the plaintiffs are not able to point to anything new. In what follows, I deal with each of their main contentions.

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ATO - Private Ruling 19 I should make one further observation on this issue. I mentioned that Mr Coddington received some false encouragement. The source of some of that encouragement was a Private Ruling dated 15 December 2003 from the Deputy Commissioner of Taxation. The ruling is concerned with the deductibility of interest. The question was whether there was any liability to pay interest. That depended on whether there was any remaining liability on the one of the loan accounts. The Ruling is not free of ambiguity - both as to its substantive conclusions and as to the manner of its expression, particularly its grammar, syntax and general coherence. Among other things, it contains a confusing analysis of the effect of the court orders made on 13 May 1999. It expresses conclusions about whether there was any continuing liability to pay money, including interest, due under the relevant loan account after August 1997. And it contains the following statement: The preceding analysis suggests that the existence of 'shadow ledgers' in relation to the loan account in the books of the bank in itself would not determine whether there is a presently existing liability in respect of the interest on the loan. 20 This last statement does not assist Mr Coddington. But the Ruling is not in any event binding on me. Nor is it binding on the Bank. It depends for its conclusions on the quality and accuracy of the information provided by Mr Coddington. Some of that information was patently incorrect. The Ruling is of no assistance in the resolution of the issues that I am required to determine. That is not only for the reasons that I have explained, but also because of the statutory limitations that apply to such a ruling. In 2003, private rulings were given pursuant to the then Part IVAA of the Taxation Administration Act, 1953. In particular, Section 14ZAF provided that a person may apply to the Commissioner for a ruling on the way in which, in the Commissioner's opinion, a tax law would apply to a person in respect of a year of income in relation to an arrangement. Gummow J explained the private rulings system in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 at 401. The ruling does no more than state the Commissioner's view as to the way in which the tax law would apply to an arrangement described in the ruling. It is not a finding as to the facts. If the Commissioner takes the view that the actual arrangement that is the subject of the tax assessment is different to the arrangement described in the ruling, then the ruling is irrelevant and does not apply to those different facts. As Hill J said in Commissioner of Taxation v Executors of the Estate of Subrahmanyam [2001] FCA 1836 at [49]: …There is no reason why the Commissioner should not issue an assessment inconsistent with the ruling where the assessment proceeds upon a different state of facts or depends on a different assumption … 21 For those reasons, the Private Ruling does not advance the plaintiff's case. I have derived nothing from it. It cannot provide the support which Mr Coddington seeks to obtain from it. The Forgery Claim 22 The second basis of the plaintiffs' claim to set aside the consent orders is that there was no approval for the Rose Hill loan from the Western Division of the Bank. In this connection, it is alleged that a particular loan approval document was "forged". It is not entirely clear what is meant by the descriptive epithet "forged" but the essence of the complaint seems to be that the document was created after the event to cover up the absence of formal approval at the time of the loan. The argument advanced by the plaintiffs has a number of key components. The first is that a particular document (124.18) was not discovered by the Bank. The second is that, if it had been discovered, the alleged forgery and the absence of any contemporaneous approval by the Western Division of the Bank, would have been ascertained. The third is that, if Mr Coddington had been aware of the "forgery" and the absence of approval by the Western Division of the Bank, he would not have agreed to the consent orders on 13 May 1999. 23 This is a complex factual issue which has obviously consumed Mr Coddington and occupied much of his time during most of the last ten years. He has endeavoured to explain to me, orally and in writing, his underlying theory of the supposed conspiracy and the documentary trail on which he relies to support it. I have considered carefully the written material that he has provided, including coloured charts, complex diagrams and cross referenced documents. He has also provided me with a CD entitled "RIS Forgery". Although I was naturally wary of Mr Coddington's lack of objectivity, I endeavoured to give him the maximum reasonable opportunity to demonstrate his point and make good his contentions. At the end of the process, including after considerable time and study spent following the reservation of my decision, I remain unconvinced. 24 This is a fraud case. Mr Coddington's allegations impute deliberate dishonesty to the Bank. The evidence on which he relies is imprecise and ambiguous. Much of it is speculation. To borrow a phrase of Sir Owen Dixon, the plaintiffs' case on this issue consists of inexact proofs, indefinite testimony and indirect references. The seriousness of the allegations require me to have an actual persuasion of the occurrence of the conduct alleged against the Bank. Naturally, the necessary degree of satisfaction will be greater depending on the gravity of the issue. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2; Rejfek v McElroy (1965) 112 CLR 517 at 521. In a case of fraud, although the standard of proof remains according to the balance of probabilities, the court requires "a degree of probability which is commensurate with the occasion": Bater v Bater [1951] P 35 at 36-37 (Denning LJ). For those reasons, I am unable to decide this issue in favour of Mr Coddington. As I said, I remain unconvinced. 25 However, and in addition, I have concluded that the issue can and should be decided by reference to a threshold question. As I have mentioned, the first step in the elaborate and carefully constructed argument of the plaintiffs was that this was a fresh issue and that document 124.18 was not discovered by the Bank. A careful review of the discovered documents and the sequence of events demonstrates that this is not the case. The issue of the absence of formal approval by the Western Division of the Bank, and any legal significance attaching to it, should have been apparent at the time of the consent orders on 13 May 1999. The sequence of events is as follows:

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26 Mr Coddington then points to a handwritten stock summary which relates in part to Rose Hill. Its discovery number is 124.18. He says he first saw this document in 2002 and formed the view that it was in the handwriting of Mr Martin. Although the summary of stock on this document does not correspond with the information set out on the Rural Information Summary referred to in paragraph 25 (b) above, Mr Coddington contends that both are in Mr Martin's handwriting and that, taken together, they evidence the forgery on which this aspect of his case depends. Central to his contention is the proposition that document 124.18 was concealed by the Bank and was not discovered. Mr Coddington's suspicions have been excited because the discovery number is not stamped on the document but has been added by hand. 27 I have already explained that the quality of the evidence does not permit me to accept the underlying forgery claim. But, in any event, the contention that the supposed "forgery" justifies the setting aside of the consent orders, fails at the threshold. That is because the evidence of Mr Perry, and the inferences available from the contemporaneous documents, make it clear, not only that document 124.18 was discovered, but that it, and the other documents to which I have referred, were all available to Mr Coddington's solicitors, Verekers, during the original proceedings. 28 It may be that Verekers did not perceive what Mr Coddington now believes to have happened. On the other hand it may be that they did. They may well have taken the view that the absence of contemporaneous approval from the Western Division, and the completion of an approval after the event, would not necessarily advance Mr Coddington's case for relief under the Contracts Review Act. After all, the file note of 12 January 1989 suggests that Mr Coddington had made up his mind and was not looking to the Bank for financial advice. And does it really matter whether approval was given before or after the loan advance? Mr Coddington now says emphatically that if formal approval from the Western Division had been sought at the time, his application would have been rejected and he would not have proceeded with the purchase and loan. I am not so sure. The evidence did not demonstrate that this would necessarily have been the case. But for the reasons that follow, it does not matter.

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