COMMONWEALTH BANK OF AUSTRALIA -v- CHENG [No 2] [2021] WASC 291 | Case summary

Supreme Court of WA|2021-09-10|Before: Smith J

Cheng v Lam [No 2] [2018] WASC 199

Cheng v Lam [No 3] [2020] WASC 45

Cheng v Lam [No 4] [2020] WASC 175

English v Vantage Holdings Group Pty Ltd [2021] WASCA 47

Evans v Bartlam [1937] AC 473, 483

High Time Investments Pty Ltd v Adamus Resources Pty Ltd [2012] WASC 295

Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd No.3 [2014] WASC 162

Lee v Australia and New Zealand Banking Group Ltd [2013] QCA 236

Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) CLR 635

Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211; (2008) 38 WAR 276

MPB v LGK [2020] EWHC 90

Patrick Jebb as trustee for The Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121

Skymist Holdings Limited v Grandlane Developments Limited [2018] EWHC 3504 (TCC)

Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1

1.0 The applications to strike out or alternatively to refuse leave to the plaintiff to file an amended defence and counterclaim and the result

1 Without intending any disrespect after the defendants have been introduced, they will be referred to by their first names.

2 The plaintiff, the Commonwealth Bank (the Bank), commenced these proceedings by writ on 15 October 2013. It claims against the first defendants (Mary Yeun Shan Cheng, Francis Hung Lam (Frank) and Andrea Man Yee Cheng) and the second defendant (Chan Thanh Lam) amounts owing pursuant to loan agreements and mortgages. It also seeks possession of specified properties.

3 By way of background, the loans related to property developments that involved (among others) the defendants to these proceedings. In earlier, separate proceedings in this court before Chaney J (the partnership proceedings), Mary (the plaintiff) contended that Frank and Andrea (defendants) along with Chan (defendant by counterclaim) and Mary developed properties pursuant to an oral partnership agreement. Mary sought a declaration of the existence of the partnership and sought an account. Justice Chaney made findings as to the terms of the parties' agreements to develop the properties.[1] These findings formed the basis of an account that was later taken Registrar Whitbread and then adopted in part by Tottle J.

4 These reasons relate to the Bank's application in these proceedings to strike out all, or parts of, Mary's proposed substituted defence and counterclaim dated 29 January 2021 (impugned pleading). Specifically, the Bank has applied to strike out:

(a) the entirety of the impugned pleading as an abuse of process, or alternatively, based on the doctrine of approbation and reprobation; or

(b) parts of the impugned pleading, on grounds set out in O 20 r 19 of the Rules of the Supreme Court 1971 (WA), which includes the ground of abuse of process.

5 Frank and Andrea oppose the filing of the impugned pleading on the same grounds as the Bank.

6 For the reasons that follow, I have found that, if necessary, leave should be granted to the Bank, Frank and Andrea to bring an application out of time to strike out the impugned pleading or parts of it. Further, I have found that the whole of the impugned pleading should be struck out on grounds that:

(a) all of the matters pleaded directly contradict the binding findings and final judgment orders made by Chaney J in the partnership proceedings, which Mary accepted by proceeding with an account of profits, and as such are an abuse of process; or

(b) alternatively, Mary engaged in acts or conduct of approbation by accepting that judgment and proceeding to an account by a registrar, and then engaged in acts of reprobation by the claims she pleads in these proceedings; and

(c) in addition, the plea of a failure by the Bank to mitigate is an abuse of process as such a similar plea by Mary was struck out in these proceedings by Martino J in Commonwealth Bank of Australia v Cheng on grounds of the principle that litigation has no role to play in an action for debt.[2]

7 For these reasons also Mary should not be granted leave to replead.

8 Alternatively, if I were not to find that the entire impugned pleading should be struck out on the grounds set out in [5(b)] of these reasons I would strike out pars 22(b) ‑ (f), 22(g), 25(b) ‑ 25(i), 25(j), 25(k), 26, 30 ‑ 47, 47A and 47B, 48 - 75, 77, 79 - 88 and 103(c) and (d).

9 I have not had regard to Mary's complaints, made on her behalf by her solicitor in pars 3 - 9 of his affidavit dated 21 April 2021.[3] These paragraphs annex communications exchanged by the parties during conferral in respect of leave has not been obtain from the court to refer to such matters or to put the correspondence before the court. In any event, at the hearing of the applications on 28 April 2021 no application for an adjournment of the hearing was made on behalf of Mary on grounds that she had inadequate notice of the grounds of objection, or to respond to the submissions put on grounds of abuse of process and approbation and reprobation.

2.0 History of the proceedings relevant to the application to an extension of time

10 Pursuant to O 20 r 19(3) of the Rules of the Supreme Court 1971 (WA), an application to strike out a pleading must be brought within 21 days of the service of the impugned pleading to which the application refers.

11 Given the impugned pleading was only filed by Mary on 29 January 2021 and the court made programming orders on 4 February 2021 to program the applications for strike out for hearing, it cannot be found there was any delay.

12 However, if it could be said that these applications should have been made much earlier in the proceedings in respect of Mary's minute of proposed re‑amended statement of defence and counterclaim dated 25 January 2018, such that it is necessary for leave to be granted, I am satisfied that the Bank, and Frank and Andrea should be granted leave.

13 An extension of time is opposed by Mary. The principles that apply to an extension of time are generally that delay in bringing an application should be justified. But, irrespective of whether the delay can be justified, time should be extended if it can be established that the interests of justice require that extension because of, for example, irreparable prejudice to a party or prejudice to the trial process or the efficient utilisation of the resources of the parties and of the court.[4]

14 In this matter, I am satisfied that the delay has been adequately explained. Further, in any event where, as in this case, it is overwhelmingly clear that the matters pleaded by Mary in these proceedings are an abuse of process it is also clear that time to bring the applications to strike out her pleading should be extended.

15 Additionally, for the reasons given in 5.0 of these reasons there are so many pleading defects in the impugned pleading that it is in the interests of justice to extend time.

16 As to delay, the Bank's lawyer, Shane Edward Calalesina, sets out in an affidavit, sworn on 7 April 2021, the procedural history of the filing of documents in these proceedings including the filing by Mary of various iterations of a defence and counterclaim since she first filed a defence to these proceedings on 13 November 2013.[5]

17 The relevant history of the progress of these proceedings is as follows.

18 On 20 December 2016, the Bank filed its first application to strike out Mary's further amended defence and counterclaim filed on 16 November 2016.[6]

19 On 24 May 2017, after hearing the Bank's application, Martino J struck out a number of paragraphs of Mary's further amended defence and counterclaim together with her prayer for relief.[7] His Honour also made orders for Mary to file an application to amend her defence and counterclaim together with a minute of the proposed pleading.[8] Mary did not do so until 26 September 2017, following which on 3 November 2017 the Bank filed a document outlining its objections to Mary's minute of proposed re-amended statement of defence and counterclaim.[9]

20 On 25 January 2018, Mary filed a further minute of proposed re‑amended statement of defence and counterclaim. On 21 February 2018, Mary was granted leave to amend her defence and counterclaim in terms of the minute, and an order was made that it stand as the re‑amended defence and counterclaim.[10] Shortly thereafter, the trial of the partnership proceedings took place before Chaney J over seven days on and between 9 and 24 April 2018.

21 At about that time, the parties in these proceedings agreed that no action should be taken until Chaney J had determined the partnership proceedings, the subsequent taking of the account by Registrar Whitbread had been completed, and a judge had determined whether that account should be adopted.[11]

22 On 22 May 2020, Tottle J published reasons for decision in which his Honour found that the report of Registrar Whitbread should be adopted in part.[12]

23 On 4 June 2020, this matter was listed for directions. At the directions hearing, the Bank and Frank and Andrea (who were at that time self‑represented) foreshadowed a strike out application of Mary's pleaded case. Counsel for the Bank informed the court that there should be conferral between Mary and the Bank to ascertain what claims Mary now sought to raise against the Bank (in the further minute of proposed re-amended statement of defence and counterclaim dated 25 January 2018) given that at least some of the issues sought to be pressed by Mary in these proceedings had been the subject of findings in the taking of the account in the partnership proceedings.[13] In response, counsel for Mary sought to delay the matter until the accounts in the partnership proceedings had been referred to an independent expert.[14]

24 The parties then conferred over several months, and this resulted in Mary filing a further minute of proposed substituted defence and counterclaim on 2 November 2020. She subsequently abandoned this pleading as she later filed the impugned pleading on 29 January 2021.

25 Between 4 June 2020 and 4 February 2021,[15] the parties attended four directions hearings in these proceedings at which the progress of conferral about Mary's pleaded case and the Bank's and Frank and Andrea's applications were raised and discussed in detail.

26 In light of the agreement between the parties not to progress this matter until after the report of Registrar Whitbread had been considered by Tottle J, and the fact that extensive conferral between the parties occurred over a period of seven months about Mary's pleaded case, I am satisfied that the delay by the Bank, and Frank and Andrea in bringing these applications has been adequately explained.

27 In Vantage Holdings Group Pty Ltd v Donnelly [No 4] I summarised the principles that apply to the requirements of a proper pleading and the grounds upon which a pleading may be struck out as follows:[16]

(a) the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;

(b) a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;

(d) the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action. While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;

(i) the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and

(ii) 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;

(f) the mere fact that a case appears weak is not of itself sufficient to strike out the action;

(g) in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;

(h) provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;

(i) pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and

(j) irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues. (footnotes omitted)

28 The general principles that apply to the determination of whether proceedings constitute an abuse of the process of the court were summarised by Vaughan J in Patrick Jebb as trustee for The Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd:[17]

What amounts to an abuse of the court's process is insusceptible of a formulation comprising closed categories. It extends to all categories of case in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness. Abuse of process occurs in any circumstance in which the use of the court's procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute. However, the onus of satisfying the court that there is an abuse of process is a heavy one. The power to dismiss proceedings as an abuse of process should be exercised with caution and only in the most exceptional or extreme case. (footnotes omitted)

29 The principles which are of particular relevance to claims that have been either brought in earlier proceedings or should have been resolved in earlier proceedings were referred to by Vaughan J in Patrick Jebb as trustee for The Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd as follows:[18]

The doctrine of abuse of process is informed in part by considerations of finality and fairness. The underlying public interest is twofold: there should be finality in litigation and a party should not be twice vexed in the same matter. Thus abuse of process may exist where a person seeks to re-litigate an issue already decided. There is a general public interest in the same issue not being litigated over again. It has been said that it would be a 'scandal to the administration of justice' if, a question having been disposed of by one case, the litigant were permitted to set up the case again by changing the form of proceedings.

For a step in a proceeding to amount to an abuse of process by reason of impermissible re-litigation of a dispute it is not necessary that one of res judicata, issue estoppel or Anshun estoppel be applicable.

The court is not only concerned with the effect of conduct on the parties but with 'the public interest which is in the maintenance of public confidence in the administration of justice'. The court acts to prevent misuse of its procedure which would 'bring the administration of justice into disrepute among right-thinking people'. Accordingly, as noted, the court may stay or dismiss matters as an abuse of process where a party seeks to re-litigate controversies which have already been decided. Similarly, there may be an abuse of process where a party seeks to re‑litigate an issue decided between it and a third party. There may also be an abuse of process where a defendant seeks to re-litigate an issue that was decided adversely to the defendant. The doctrine does not require identity of parties or mutuality. In short, the fact that the parties may not be identical, or the relief different, does not necessarily disentitle a party to relief under the doctrine of abuse of process.

In applying the principles of abuse of process the focus is on matters of substance rather than form.

Factors relevant to determining whether an attempt to re-litigate is an abuse of process were discussed in State Bank of New South Wales Ltd v Stenhouse Ltd. Those factors have been reproduced with apparent approval in a number of intermediate appellate court decisions. The task necessitates an evaluative judgment sensitive to all the facts and circumstances and informed by the public interest in preventing re‑litigation of disputes. The court conducts an 'overall balancing of justice' having regard, among other things, to the extent of the oppression and unfairness to the other party if the issue was re-litigated and the impact of the re-litigation on the principle of finality and public confidence in the administration of justice. (footnotes omitted)

30 In respect of whether an abuse of process may arise on the basis that matters sought to be litigated should have been raised in earlier proceedings Vaughan J went on to observe:[19]

Abuse of process may arise beyond the circumstance where a person seeks to re‑litigate an issue already decided. There may be an abuse of the process of the court in seeking to litigate matters which could and should have been litigated in earlier proceedings. That possibility was recognised by Lord Bingham in the House of Lords in Johnson v Gore Wood & Co:

The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied ... that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings would be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before ... (emphasis added)

That aspect of the doctrine of abuse of process has been accepted by various intermediate appellate courts in Australia including the Court of Appeal in Western Australia. It has also been expressly confirmed by four members of the High Court in Tomlinson v Ramsey Food Processing Pty Ltd:

... it has been recognised that making a claim or raising an issue which was made or raised and determined in an earlier proceeding, or which ought reasonably to have been made or raised for determination in that earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel ... (emphasis added)

It must be unreasonable to stand by and not proceed in tandem with the earlier proceedings.

It is relevant to ask whether there is no reasonable justification, based on legitimate considerations of convenience, cost or the like, for commencing the second proceedings. Was it unreasonable not to raise the matter in the first proceedings? In a particular case it may be sensible to advance claims separately or for one claim to be deferred pending the determination of another. In that respect the doctrine of abuse of process has parallels with Anshun estoppel. There can be no such estoppel unless it appears that the matter relied on in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to have relied on it.

31 In Mandurah Enterprises Pty Ltd v Western Australian Planning Commission, McLure JA explained the principle of equitable election of approbation and reprobation and considered some examples of authorities where the principle had been applied:[20]

The doctrine of approbation and reprobation was initially part of Scottish law. Its English equivalent was the doctrine of equitable election between estates: Lissenden v CAV Bosch Ltd [1940] AC 412; Douglas‑Menzies v Umphelby [1908] UKLawRpAC 10; [1908] AC 224; Elder's Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd [1941] HCA 31; (1941) 65 CLR 603 at 617 - 618. The notion of approbation and reprobation is used interchangeably in the case law with election, waiver and estoppel. As a result, it is difficult to confidently identify from the cases the material elements of any independent doctrine of approbation and reprobation.

There is authority in Australian law for an independent doctrine of approbation and reprobation: Commonwealth v Verwayen (1990) 170 CLR 394, 421 - 422 (Brennan J); Fried v National Australia Bank Ltd [2000] FCA 910. The doctrine is summarised in Halsbury's Laws of Australia, Vol 190 [190-35] as follows:

'A person may not "approbate and reprobate", meaning that a person, having a choice between two inconsistent courses of conduct and having chosen one, is treated as having made an election from which he or she cannot resile once he or she has taken some benefit from the chosen course.'

In Halsbury's Laws of England, Vol 60 [962] the authors state:

'Thus a claimant, having two inconsistent claims, who elects to abandon one and pursue the other may not, in general, afterwards choose to return to the former claim and sue on it; but this rule of election does not apply where the two claims are not inconsistent and the circumstances do not show an intention to abandon one of them.'

Some examples may illustrate. Douglas‑Menzies v Umphelby is an example of equitable election. By two testamentary instruments called respectively a British will and an Australian will, a testator made a complete disposal of his estate. The testator's widow successfully challenged the British will but sought to claim the beneficial dispositions in her favour in the Australian will. The Privy Council held that the two instruments formed one will containing a coherent scheme of intention and that the widow, having elected to defeat the will in part, could not then claim under it and thus took no interest under the Australian will.

In Express Newspapers plc v News (UK) Ltd [1990] 3 All ER 376 the plaintiff instituted proceedings against the defendant for infringement of the plaintiff's copyright in the text of an exclusive interview. The defendant served a defence and counterclaim which was the exact mirror image of the plaintiff's claim, alleging the plaintiff had, subsequent to instituting proceedings, infringed the defendant's copyright in the text of an exclusive interview with another person. The plaintiff obtained summary judgment on its claim on the basis that copyright subsisted in the whole of the plaintiff's article. The defendant then applied for summary judgment on its counterclaim. The plaintiff said it had an arguable defence to the counterclaim (which would have been equally applicable to the plaintiff's claim). The court held that the defendant was entitled to summary judgment, applying the principle that a person may not approbate and reprobate and adopt two inconsistent attitudes towards another person but must elect between those attitudes and, having elected to adopt one stance, it could not thereafter be permitted to go back and adopt an inconsistent stance. Summary judgment being a final judgment, this decision may be supportable on the alternative ground of issue estoppel.

In Verschures Creameries Ltd v Hull and Netherlands Steamship Co Ltd [1921] 2 KB 608 the plaintiffs were precluded from bringing an action against the defendants for negligence and breach of duty as carriers. The plaintiffs had delivered goods to the carriers to be forwarded to a customer in another city. Before the goods had been delivered, the plaintiffs instructed the carriers not to deliver them to the customer but the goods were nevertheless delivered. The plaintiffs thereafter invoiced the goods to the customer and sued him and recovered judgment for the price of goods sold and delivered. The court held that in suing the customer for the contract price, the plaintiffs had adopted the act of the carriers and having sued the customer to judgment could not then elect to treat the delivery as unauthorised and sue the carrier. That case is better classified as an election between inconsistent rights, the plaintiffs having elected to ratify the unauthorised conduct of its carrier.

A Victorian case decided on the doctrine of approbation and reprobation is Bienvenu v Royal Society for Protection of Animals [1967] VicRp 74; [1967] VR 656. The plaintiff, purporting to be a contributory of the defendant association, commenced proceedings against it. On the basis that the association's by‑laws were valid, the plaintiffs obtained interlocutory orders, including an order for costs which were subsequently paid. Subsequently, the plaintiff issued a writ claiming a declaration that the same by‑laws on which he had earlier relied were invalid as being beyond power. Starke J held that although the association's by‑laws were invalid, the plaintiff was not entitled to succeed because having relied on the validity of, and thereby approbated, the by‑laws in the earlier action and having been paid costs by the association, the plaintiff could not in the current action rely on the invalidity of, and thereby reprobate, the by‑laws. The doctrine of issue estoppel did not apply because the decisions were interlocutory.

Most of the above cases involved preventing a person from relying on a state of affairs which had formed the basis for a judgment or order.

The authorities support the contention that there is an independent doctrine of approbation and reprobation which falls outside the four categories of election to which I have referred. On any view, the independent doctrine requires that there be a choice between two inconsistent courses of conduct or claims.

32 The principles of approbation and reprobation have been summarised into three principles in the High Court of Justice in the United Kingdom in a recent matter[21] which are consistent with the observations of McLure JA in Mandurah Enterprises Pty Ltd v Western Australian Planning Commission. When these principles are considered together with the observations of McLure JA they can be said to be as follows:

(1) The appprobating party must have elected, that is made his or her choice clearly and unequivocal, by an appprobating act or conduct. This has the practical advantage of enabling a proper comparison to be made with the latter allegedly reprobating act, to see if the latter is truly inconsistent with the former.

(2) The party in question must have gained or taken some benefit from the approbation.[22]

(3) The reprobating act or conduct must be clearly inconsistent with the earlier approbating act or conduct.

33 A judgment can be said to constitute a benefit to the successful party who, having accepted that benefit, cannot then challenge its validity.[23]

4.0 The history of these proceedings and the related proceedings in CIV 1706 of 2015 (the partnership proceedings)

4.1 The relationship between the defendants and the partnership to develop properties

34 Mary is an accountant, and the former wife of Chan, and Frank and Andrea are husband and wife. Frank is the brother of Chan.[24] Each were involved in investments in property developments over a period of 12 years between 2001 and 2012.

35 In the partnership proceedings, Mary as plaintiff, claimed against Frank as first defendant and Andrea as second defendant that projects were undertaken pursuant to an oral partnership agreement made in or about September 2001. Mary sought a declaration as to the existence of a partnership on the terms she specified, and for an order that the defendants account to her in relation to the partnership projects.

36 Frank and Andrea joined Mary, Chan and two others as defendants by counterclaim. However, Chan and the two other defendants by counterclaim filed notices of intention to abide the decision of the court and did not thereafter participate in the partnership proceedings, other than as witnesses called by Frank and Andrea.[25] Consequently, the contest in the partnership proceedings was as between Mary as plaintiff and Frank and Andrea as defendants and plaintiffs by counterclaim.

37 In these proceedings, the Bank is seeking possession of two of the properties offered as security for various loan accounts that the parties used in various projects undertaken by the partnership.

38 The Bank's case in these proceedings is about two outstanding loan debts, namely loan account number 511 031 108 (the first loan account) and loan account number 422 911 904 (second loan account) which were used by the defendants to develop a number of properties, which when developed were sold, and then new properties were purchased and developed. There are two remaining properties which have not been sold and are mortgaged by the Bank to secure those debts. The Bank seeks possession of these two properties. The first property is registered solely in the name of Mary (78C Edgecumbe Street, Como) and the second is registered in the names of each of the defendants in equal shares of 25% (167 Lockhart Street, Como).

39 The partnership proceedings were heard in April 2018 before Chaney J. His Honour published his reasons on 28 June 2018. Justice Chaney found that there were eight property investments in which Mary and Chan together with Frank and Andrea joined in the borrowings necessary to undertake the purchases of the properties on the basis that would entitle them to the agreed share of the project, including their proportionate share of the profit. Justice Chaney found that the discussions and understandings between the parties about the developments did not amount to a partnership between them on the terms pleaded by Mary. Rather, from time to time, as investment opportunities were identified, the parties agreed to jointly undertake the purchase and development of the property. The particular parties to each venture, and the interests each participant held, were determined and agreed in relation to each specific venture. The terms of those development agreements were those pleaded by Frank and Andrea, save as to the method of division of profit.[26]

40 The eight properties that Chaney J found were developed under the development agreements were: 17 Darch Street, Yokine; 73 Main Street, Osborne Park; 111 Shakespeare Avenue, Yokine; 78 Edgecumbe Street, Como; 167 and 167A Lockhart Street, Como; 70 Edgecumbe Street, Como; 250 Ewen Street, Woodlands; and 82 and 84 Matlock Street, Mount Hawthorn. The development agreements related to the purchase, development and sale of these properties.

41 Importantly, in the partnership proceedings Chaney J found and ordered an account, and, if necessary, the realisation and distribution of partnership assets, whereby the proceeds of the development and sale of the properties were to be applied first in payment of any mortgage over the property.[27]

4.2 Mary's pleaded case in these proceedings in the impugned pleading

42 In these proceedings, the Bank pleads in its amended statement of claim dated 8 November 2016, read together with its substituted reply and defence to the re-amended defence and counterclaim dated 27 June 2018, that it held security for two loans at various times over the following properties, some of which were subdivided as they were developed: 17 Darch Street, Yokine (subdivided into 17 and 17A); 8 Spencer Avenue, Yokine; 111 Shakespeare Avenue, Yokine (subdivided into 1/111, 2/111 and 3/111); 78 Edgecumbe Street, Como (subdivided into 78A, 78B, 78C and 78D); and 172A McDonald Street Joondanna.

43 Mary's case against the Bank, Frank and Andrea is difficult to discern from the prolix, and in many parts almost incomprehensible, pleas in her further minute of proposed substituted defence and counterclaim dated 29 January 2021, the impugned pleading.

44 Part of the difficulty of understanding Mary's claims is that many of the paragraphs are vague, the pleas are repetitive, and transactions are identified but without a proper plea as to how those transactions are relevant to a particular claim. However, what appears to be Mary's defence and counterclaim in this pleading is as follows.

45 In the impugned pleading Mary admits that loan agreements were secured over 78 Edgecumbe Street, Como and 111 Shakespeare Avenue, Yokine (first loan agreement) and 17 Darch Street, Yokine.[28] She pleads a second loan agreement was secured over 17 Darch Street, Yokine; 8A Spencer Avenue, Yokine; 78 Edgecumbe Street, Como; 172A McDonald Street, Joondanna; and 111 Shakespeare Avenue, Yokine (the second loan agreement).[29] She also pleads that security was substituted over 2/111 Shakespeare Avenue, Yokine that was subject to a sale contract for 167 Lockhart Street, Como.[30]

46 In these proceedings, Mary appears to advance a claim against the Bank on the basis that the proceeds of sales of a development should not have been used to fund other developments. Mary claims that she has no liability to the Bank for some of the borrowings necessary to fund the property developments of the partnership, and makes a counterclaim against the Bank on four grounds:

(1) Breach of contract, which raises the following:

(a) a veracity of signature claim in which she claims that the Bank was on notice as to the veracity of Mary's signature on discharge or refinance authority documents, being a breach of contract claim relating to discharge and refinance authority forms for 17 Darch Street, Yokine; 78A, 78B, and 78D Edgecumbe Street, Como; 172A McDonald Street, Joondanna; and 2/111 and 3/111 Shakespeare Avenue, Yokine;[31]

(b) the Bank discharged mortgages without informing or obtaining the consent of Mary;[32]

(d) the Bank permitted Frank and Andrea to make redraws without Mary's written authorization.[34]

In respect of these alleged breaches of contract Mary pleads the Bank acted contrary to cls 3.7, 10.6, HL9.3 and HL9.4 of the Bank's usual terms and conditions for consumer mortgage lending and cls A16, A23, A24.1 and A.28 of the express terms of memorandum of common provisions. Mary, however, does not particularise how each of these provisions were breached.

(2) Unjust enrichment on grounds that the Bank facilitated Frank and Andrea to unjustly enrich themselves by releasing title securities for the subdivided properties at 17 Darch Street, 8 Spencer Avenue, 78A, 78B and 78D Edgecumbe Street, 172A McDonald Street and 111A, 111B and 111C Shakespeare Avenue, and allowed the properties to be sold by Frank and Andrea without retaining the proceeds of the sale towards the first loan agreement, and by increasing the burden of the parties' loans onto the property owned by Mary at 78C Edgecumbe Street, and the property partly owned by her at 167 Lockhart Street.[35]

(3) The Bank and its employees engaged in unconscionable conduct in relation to its financial dealings with Mary contrary to s 12CB of the Australian Securities and Investments Commission Act 2001(Cth) and/or in breach of s 20 and s 21 of the Competition and Consumer Act 2010 (Cth) and Schedule 2 of the Australian Consumer Law.[36]

(4) The Bank having obtained default judgment against Frank, Andrea and Chan on 26 August 2014 and the whole amount claimed, the Bank has not mitigated its loss and has failed to take any enforcement proceedings against Frank, Andrea and Chan to recover the judgment unreasonably and unnecessarily increasing the financial burden upon Mary in relation to the monies, if any, she may owe to the Bank (which is denied). Further, in not enforcing payment of monies owing by co-borrowers and co‑mortgagors against whom it has judgment and increasing the amount payable unnecessarily and unreasonably, the Bank engaged in unconscionable conduct contrary to s 20 and s 21 of the Competition and Consumer Act 2010 (Cth) and Schedule 2 of the Australian Consumer Law.[37]

47 Mary seeks the following relief against the Bank:

(a) a set off against the claim by the Bank against Mary or payment of a sum of $2,671,337.36, being the balance of net sale proceeds it should have received but were released to Frank and Andrea, pleaded as 17 Darch Street; 78A, 78B and 78D Edgecumbe Street; and 2/111 and 3/111 Shakespeare Avenue;[38]

(b) damages for breach of contract, being the cls 3.7, 10.6, HL9.3 and HL9.4 of the Bank's usual terms and conditions for consumer mortgage lending and cls A16, A24.1 and A.28 of the express terms of memorandum of common provisions.[39] Part of the claim in contract appears to be that, in breach of the terms of the first and second loan agreements, the Bank allowed Frank and Andrea to make redraws (individually) without authorisation to do so, and in any event exceeded the redraw sums or accumulated special repayment amounts in the amount of $5,452,682.25 as pleaded in pars 47 to 52 thereby increasing Mary's liability in relation to the loans and mortgages (which is denied) rather than extinguishing her liability.[40]

(c) a declaration that Mary is entitled to discharges of the mortgages on the properties owned or partly owned by Mary at 78C Edgecumbe Street (100%) and 167 Lockhart Street (25%);[41]

(d) an order setting aside the mortgages on each of the properties in respect of which a declaration sought.[42]

48 The Bank requested that Mary specify which paragraphs of the minute give rise to the relief sought in each paragraph of the prayer for relief. Mary's response was 'The prayer for relief follows from Mary's pleaded case.'[43] As the Bank points out in its written submissions dated 7 April 2021, Mary's response is unhelpful.

49 In her counterclaim against Frank and Andrea, Mary raises an allegation in a plea against the Bank that Frank and Andrea wrongfully converted an amount of $828,444.61 causing loss and damage to Mary in respect of the net proceeds of sale of 8 Spencer Avenue but does not raise a specific plea against Frank and Andrea.[44]

50 Mary specifically pleads against Frank and Andrea:

(1) In breach of their obligations under s 40(1) of the Partnership Act 1895 (WA) and in breach of their fiduciary duty, they derived benefits without the consent of Mary from transactions concerning the partnership and from the use of partnership property they received from the net sale proceeds of partnership assets of property given as security the sum of $5,880,292.14 on the first loan agreement and the second loan agreement, instead of applying the receipt of such monies to repayment of the amounts owing to the Bank or to repayment of the judgment sum, interest and cost to the Bank, or in the alternative, the Bank at settlement received $2,671,337.36.[45]

(2) In breach of their obligations under s 40(1) of the Partnership Act 1895 (WA) and in breach of their fiduciary duty to Mary and Chan:

(a) Frank and Andrea, after the Bank's letter dated 16 April 2012 (default notices in respect to the first and second loan account) sold and settled various properties, namely 78B Edgecumbe Street; 250B and 250D Ewen Street; 3/82 and 84, 4/82 and 84, 6/82 and 84 Matlock Street; and 70A Edgecumbe Street (for a total of $5,968,798.29) funded in part by the loan agreements; and

(b) Frank and Andrea refused and have not applied the net proceeds in payment of the loan agreements and/or the judgment sum, interest and costs.[46]

(3) In the alternative, Frank and Andrea received profits or withheld partnership property or money from Mary totalling $5,805,852.96 together with an amount of $600,487.40 and they wrongfully converted partnership property or money to their own use and benefit and have engaged in conduct in the course of trade or business which is unconscionable conduct contrary to s 11A of the Fair Trading Act 1987 (WA) and s 18 and s 19 of the Fair Trading Act 2010 (WA).[47]

51 Mary seeks relief against Frank and Andrea by claiming:

(a) an entitlement to a portion of the sum of $2,886,462.22 as pleaded in par 22(b) ‑ (f), 25(b) - (d) and (f) - (i), being the proceeds of sale of 17 Darch Street, 78A Edgecumbe Street, 78B Edgecumbe Street, 78D Edgecumbe Street, 1/111 Shakespeare Avenue, 2/111 Shakespeare Avenue and 3/111 Shakespeare Avenue;

(b) the sum of $956,402.82 as pleaded in par 56 (in respect of which there is no sum referred to in par 56 but simply a plea of failing to consult Mary or give notice to Mary in respect to variations of the first loan agreement and the mortgages);

52 When the applications presently before the court were heard, counsel for Mary informed the court that Mary's claim in damages against the Bank, and Frank and Andrea, was $8.8 million (being unauthorised redraws of the Bank loans).[48] However, as Mary's submissions progressed, the amount claimed in damages appeared not to be $8.8 million but $6,406,336.36, being amounts pleaded in pars 58, 59, 60 (tables 2 and 3), 92, 93 and 100 (in particular the amounts of $5,805,852.96 and $600,487.40 pleaded in par 100, being a total of $6,406,700.36).[49]

53 In pars 43, 43(1) ‑ (7), Mary pleads that between 16 January 2009 and 31 December 2011 the Bank permitted Frank and Andrea to make redraws contrary to the terms of the loan agreements without written requests and without authorisation from Mary in breach of the Banks usual terms and conditions for consumer lending and loan portability (cls 3.7, 10.6, HL9.3 and HL9.4). Mary particularises each alleged unauthorised redraw, which amount to a total amount of $4,153,869.[50] Mary claims these withdrawals are unauthorised redraws from the first loan agreement. In par 77 Mary makes a similar plea but claims the redraws as an amount of $5,452,682.25.

54 In par 44 Mary pleads that between 1 July 2010 and 4 April 2011, the Bank permitted Frank and Andrea to make redraws contrary to the terms of the loan agreements and without authorisation from Mary in breach of cls 3.7, 10.6, HL9.3 and HL9.4 of the Banks usual terms and conditions for consumer mortgage lending and portability. Mary provides, in par 44(2), particulars of these redraws as transactions that total an amount of $281,000. In par 44(4) she claims that the Bank, without her request or authorisation, permitted redraws by Frank and or alternatively Andrea in the sums of $5,452,682.25 (first loan) and $3,427,292.81 (second loan), which amounts total $8,879,975.06. These amounts, however, are not supported by her particulars to her pleas in pars 43 and 44, as the total amounts particularised in both these paragraphs only amount to $4,434,869.00.

55 Consequently, it is not clear from Mary's pleaded case what is the total quantum of her claim of damage and loss against the Bank, and Frank and Andrea.

56 Further, some of the redraws pleaded by Mary in par 43(1) to (7) were the subject of amounts agreed as redraws by Mary in the taking of account before Registrar Whitbread.[51]

57 In the partnership proceedings, Frank and Andrea sought an order that the following preliminary issues be determined at trial:

(a) first, what were the terms of the agreements between the parties with respect to the purchase and development of the nine properties referred to in their pleadings.[52] The ninth property referred to was known as the Spencer Avenue property. During the course of the trial, a claim for an account by Frank and Andrea over that property was abandoned on the basis that they accepted that, upon the sale of the second of the two subdivided blocks resulting from the development of that property, all parties received their proper entitlements);[53]

(b) secondly, whether any of the agreements in respect of any of the developments constituted a partnership;[54] and

(c) thirdly, the entitlement of each of the parties to profits arising from the developments and the basis for the calculation of that proportionate entitlement.[55]

58 Mary opposed Frank and Andrea's application to split the trial. Mary's opposition was based on her assumption that, given both parties sought a full and general account of all assets; money; debtors; liabilities; and credits, the account would be taken and settled by the judge at trial. Subsequently, Mary, Frank and Andrea agreed that the preparation and settling of the account was a matter to be undertaken subsequent to the trial, in the light of the findings made by Chaney J at the trial.[56]

59 At the commencement of the trial the parties each provided a list of issues. Frank and Andrea identified two issues. The first was as to the terms of the agreement between the parties in respect of the various developments and the second was as to the meaning of capital contribution.[57]

60 Mary provided a list of nine issues, seven of which were different to those identified by Frank and Andrea. They were as follows:[58]

(3) How each property purchase was funded by the parties including:

(d) Repayment of any loans taken out to fund the purchase and development of the properties;

(e) The repayment of interest on any loans taken out to fund the purchase and development of the property;

(f) Whether the parties made a contribution towards the purchase of the properties as a result of the matters referred to in paragraphs 3(a) to (e) above.

(4) How each property development was funded by the parties including:

(a) Individual cash contributions by each of the parties;

(d) Repayment of any loans taken out to fund the purchase and development of the properties;

(e) The repayment of interest on any loans taken out to fund the purchase and development of property;

(f) Whether the parties made a contribution towards the purchase of the properties as a result of the matters referred to in paragraphs 4(a) to (e) above

(5) Whether in breach of the Partnership Agreement the First and Second Defendant drew monies from four Commonwealth Bank accounts numbers 702643203, 10747764, 422911904[59] and 511031108[60] and paid them into the Commonwealth Streamline saver personal account 100547872 in the names of the First and Second Defendants and if they did, the amount they drew.

(6) The destination and application of the settlement proceeds in respect to all the properties purchased and subsequently developed.

(7) The application of the net proceeds of sale paid to the parties after the development of the properties when those funds were paid and to who?

(8) Whether the parties received the transfer of a property or properties in specie from the net proceeds of the development of the eight properties and if so, when and in what proportions?

(9) Whether the First and Second Defendants received monies which were the property of the Plaintiff because of the sale and the settlement of sale of 8A Spencer Avenue and 17 Darch Street, Yokine and if so, the amounts.

61 His Honour found that some of the issues Mary raised were relevant to the determination of the nature and terms of the agreement under which the property developments proceeded. But, importantly, Chaney J found that for the most part, the matters raised by Mary were issues to be resolved in the context of the accounting process that is, in the taking of an account of the partnership by a registrar.[61]

62 Justice Chaney found that shortly prior to the purchase of the Darch Street property it was likely that Chan and Frank reached a general understanding that they might undertake a series of property transactions. Chan and Frank discussed the developments with their spouses from time to time, and at least in Chan and Mary's case, they agreed between themselves to participate in particular investments.

63 His Honour did not, however, find that those discussions and understandings amounted to a partnership agreement on the terms pleaded by Mary. His Honour found instead, from time to time as investment opportunities were identified, the parties reached agreements to jointly undertake the purchase and development of the identified property and that the interest to be held by the participants was to be determined in the context of each separate venture.[62] His Honour also found that different bank accounts and loans were used to fund investments, and that there appeared to have been a flexible intermingling of the proceeds of sales of one development in accounts used to fund other developments.

64 Of importance to this application, Chaney J found that:

(1) Mary and Chan joined in the borrowing necessary to undertake the purchases on the basis that that would entitle them to the agreed share of the project, including their proportionate share of the profit. His Honour rejected the evidence of the defendants to the effect that the profit was to be shared on the basis of contribution where contribution means only funds advanced towards a project other than by way of joint borrowings.[63]

(2) As between Frank and Chan or Mary, it is clear that Frank assumed responsibility for payment of some expenses such as interest on borrowings and outgoings on the properties and appears to have met a far greater proportion of those expenses than did Chan or Mary. Further, his Honour found, it may well be that Frank made those payments using sums from accounts containing proceeds of the sale of properties to which Mary and Chan had some entitlement - for example from the sale of units from the Shakespeare Avenue property, and 17 Darch Street.[64]

(3) In cross‑examination, Mary asserted that capital contributions were contributed equally through borrowing but accepted that if one party were to contribute a lesser amount of capital than the others, then that party would receive a lesser share of the profit.[65] She also said when cross‑examined that 'We said that we will borrow equally and will contribute equally'.[66] By this evidence her references to 'capital' and 'contribution' should be construed as a reference to joint borrowings.[67]

(4) The terms upon which each of the eight property investments proceeded were those pleaded by the defendants save as to the method of division of profit. That is, any proceeds realised from the sale of the relevant property was to be applied first in payment of any borrowings used to purchase or develop the property; second, in payment of all costs and expenses incurred in the purchase and development of the property; and third, in repayment of any amounts paid by any of the participants towards the maintenance or development of the properties. Any balance then remaining was to be divided between the participants to the project in proportion to each of their interests registered against the title to the project property at the time of its purchase.[68] In particular, his Honour found:

(a) in [133] that Frank and Andrea should account to Mary and Chan in relation to those parties' respective entitlements under partnership agreements relating to the purchase, development and sale of each of the eight properties;

(b) in [134(1)] that the accounts are to be prepared on the basis that each agreement giving rise to the interests of the parties to that agreement provided that the proceeds of the relevant development and sale of the property are to be applied first in payment of any mortgage over the property,[69] then in payment of all costs and expenses incurred in relation to the acquisition, development or sale of the property, and then in repayment of any payments made by a party to the agreement in discharge of such costs and expenses other than by use of the parties' joint funds or joint borrowings, with the balance to be divided in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.

65 On the same day Chaney J published his reasons for the primary judgment, by order he declared and ordered:

1. A declaration that the partnerships in relation to the projects referred to in paragraph 2 is dissolved from the date of commencement of this action.

2. An account be taken between the first and second defendants the plaintiff and the second defendant by counterclaim in relation to those parties' respective entitlements under partnership agreements relating to the purchase, development and sale of each of the following properties:

3. Such account to be taken before a registrar of this Honourable Court.

4. The account is to be based on the following findings:

(a) The accounts are to be prepared on the basis that each agreement giving rise to the interests of the parties to that agreement provided that the proceeds of the relevant development and sale of the property are to be applied first in payment of any mortgage or borrowings over the property, then in payment of all costs and expenses incurred in relation to the acquisition, development or sale of the property, and then repayment of any payments made a party to the agreement in discharge of such costs and expenses other than by use of the parties joint funds or borrowings with the balance to be divided in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.

(b) Entitlements and liabilities of either the Plaintiff or the Second Defendant by Counterclaim, whether separate or [joint], are to be treated in all cases as joint entitlements.

(c) The interest of parties other than the Plaintiff, First Defendant, Second Defendant, and Second Defendant by Counterclaim in any of the projects referred to are to be taken to have been settled upon completion of those projects so that there is no further liability to account in relation to those interests.

(d) For the purpose of the account, costs of development are to be brought to account on the basis of the lump sum building contract prices for the development applicable in each case. Any balance due in relation to a building contract which remains [unpaid] is to be taken as an expense of the partnership and be taken as payable from the net proceeds of sale of the properties concerned.

(e) Proceeds paid to the First and Second Defendants in the sum of $406,998 from the sale of 8A Spencer Avenue are not to be treated as a contribution by the Plaintiff and Second Defendant by Counterclaim to any of the other partnership projects referred to above. Proceeds paid to the First and Second Defendants from the sale of 8A Spencer Avenue are not to be treated as a contribution by the Plaintiff and Second Defendant by Counterclaim to any of the other partnership projects referred to above.

(f) Four accounting, there should be no distinction drawn between the developed properties which were sold, and those that are yet unsold. The value of the unsold properties are to be treated as a receipt of value of those properties in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.

5. By 17 August 2018 the First and Second Defendants are to file and serve upon the Plaintiff and the Second Defendant by Counterclaim an account in relation to each partnership in accordance with the Orders made in paragraphs 2 and 4.

6. Within 28 days of service on the Plaintiff and the Second Defendant by Counterclaim of the accounts in relation to each partnership the Plaintiff and the Second Defendant are to apply to a Registrar for directions as to the way any dispute as to any item of the accounts is to be resolved.

7. Any party to the account found liable to the other party to the account do pay to that other party the amount due within 28 days of the Order being made that such party is liable to another party to make such payment.

8. Each party is to bear its own costs of the proceedings to the date of these orders.

9. The question of costs of the accounts is reserved to the Registrar dealing with the account.

COMMONWEALTH BANK OF AUSTRALIA -v- CHENG [No 2] [2021] WASC 291 (8 September 2021)

At a glance

Court

Decision date

Before

Source

Judgment (413 paragraphs)

Legislation Cited (5)

Cases Cited (5)