Commonwealth Bank of Australia v White

5. A number of affidavits were relied upon by the parties before me:

9. I should say at the outset that a similar application for severance made by the Bank was refused by Warren J on 21 June 2000[1]. That application, however, was debated against the background of the pleadings as they then stood and, further, against the background that Mr White was a party to proceedings in London, the Jaffray proceeding[2], in which he and the other defendants were counterclaiming against Lloyd's for relief, raising the issue of fraud and unconscionable conduct against Lloyd's. It was submitted on behalf of the Bank that the subsequent resolution of the English proceeding adversely to Mr White and the substantial amendments which he has recently made to his claim against Lloyd's represents new circumstances which should entitle, if not encourage, me to re-visit the question of severance.

12. To my mind, it is correct to say that the circumstances as they now exist are significantly different from those in June 2000. Accordingly, I will not treat her Honour's rejection of the Bank's earlier application as warranting a refusal to entertain the present application for severance.

15. One of the contentions of Mr White before the Master and before me was the interrelationship between the issues raised in the principal claim and those in the third party claim. Having lost before the Master, Mr White, on 27 February 2003, obtained leave to file a fourth amended statement of claim. This document, containing substantial amendments, was filed on 28 February 2003. This meant that the argument before me on this point was very different from that addressed to the Master.

18. It was accepted by all parties that, absent exceptional circumstances, the principal claim and the third party claim should be heard together. This is to ensure that the third party is bound by findings and conclusions in the principal claim, to eliminate any delay between the time when the defendant, if unsuccessful, must satisfy the judgment obtained by the plaintiff and the time when the defendant, if successful, can obtain indemnity or other relief against the third party. Furthermore, it ensures that the costs of duplicated trials are avoided and it avoids the possibility of inconsistent findings in the two claims[3]. The Bank contended that there were exceptional circumstances in this case:

(a) There is no common factual substratum between the Bank's claim and Mr White's third party claim.

(b) Mr White's claim is not a third party claim within the meaning of Rule 11.01.

(c) The trial of Mr White's claim is not likely to take place in the near future so that a concurrent trial represents an unnecessary delay for the Bank's claim.

No Common Factual Substratum

24. The starting point must be the degree of overlap in the issues and the evidence likely to be led in the Bank's claim and in Mr White's claim.

28. The claim of the Bank is that set out in its amended statement of claim filed on 11 December 1997. The plea of Mr White in response is his further amended defence filed on 2 March 2000. The Bank alleges that on or about 22 December 1980 it entered into a letter of credit agreement in writing with Mr White whereby it agreed to provide letter of credit facilities in favour of Lloyd's in the sum of £60,000. This agreement and its terms are not in issue. The letter of credit to be provided under the facility was to be irrevocable and payable at sight at Lloyd's London office and would expire on 31 December 1985 in the country of the beneficiary and subject to four years' notice of cancellation.

31. The Bank says, and for the most part it is admitted, that, from time to time, the facility was extended in point of time to 31 December 1981 and 31 December 1988 and in terms of value to £105,000 and to £168,000. The Bank issued three letters of credit pursuant to this facility:

These letters of credit were provided to Lloyd's to secure Mr White's obligations to Lloyd's as an underwriting name in the Lloyd's insurance market. Disputes arose between Mr White and Lloyd's and on 4 August 1992 he instructed the Bank that he required it to give notice of termination of the three letters of credit. The Bank on 13 November 1992 gave this notice. Given the terms of the letters of credit, the consequence of this notice was that the letters of credit would expire on 31 December 1996. Prior to the expiry date, Lloyd's drew down upon the letters of credit by calling upon the Bank to make payment under them and the Bank did so. There were three drawdowns in March 1995 in the total sum of £88,030.42, three in March and April 1996 in the total sum of £61,725.06 and a further drawdown on 1 November 1996 in the sum of £18,244.52. The claim of the Bank is for the Australian currency value of these drawdowns including interest which, as at 29 May 1997 stood at $427,994.87.

36. The substantial defence[4] of Mr White to the Bank's claims is that he says that the terms of the 1980 facility agreement permitted the Bank to issue a letter of credit for a fixed period expiring on 31 December 1985 unless by four years' notification it expired earlier. This arrangement was extended in terms of the expiry date of the letters of credit to 31 December 1987 in November 1982, to 31 December 1988 in November 1983 and to 31 December 1989 in November 1984. He says, further, that the enlargement of the letter of credit facility to £168,000 in November 1987 carried with it an implied further extension to 31 December 1992 and that the letters of credit as issued and extended should have same expiry date in terms of the 1980 facility agreement. Accordingly, when in August 1992 Mr White directed the Bank to terminate the letters of credit, this termination was effective on the current expiry date, 31 December 1992, so that the Bank ought not to have made payments in 1995 and 1996 against the expired letters.

39. In fact the first letter of credit issued in 1980 for £60,000 has an expiry date of 31 December 1985 with provision for its automatic extension thereafter so that it was always valid for a maximum period of four years until such time as "[the Bank] gives notice that it is not prepared to extend it further". The second letter bears no expiry date; the third speaks of an "initial expiry date" of 31 December 1992. They are both expressed to extend automatically each year so that they are always valid for four years unless notice be given prior to the end of the first year of the current validity period that the bill would not be further extended. There is therefore an issue whether the terms of each of the letters conformed with the facility agreement. The Bank in its reply filed on 24 March 2003 says that these letters were issued in the form requested or authorised by Mr White, namely that required by Lloyd's. It says that the requirements of Lloyd's were communicated to it by Donna Underwriting Agencies Ltd (DUAL) which was acting as Mr White's agent in this respect. It appears from the reply that the Bank's position is that Lloyd's provided DUAL with the forms of letters of credit that it required and that DUAL dealt with the Bank in order for them to be issued and later extended. It is said, not only that DUAL was Mr White's agent in doing this, but that the forms of the letter of credit were those which Mr White was bound under his agreements with Lloyd's to provide. These agreements included three security agreements:

Ø "Underwriting Member's Additional Security" (Bank Guarantee and Letter of Credit) dated October 1980.

Ø "Underwriting Member's Additional Security (Bank Guarantee or Letter of Credit)" executed in 1984.

Ø "Underwriting Member's Security and Trust Deed" dated 29 October 1987.

45. Next it is said that DUAL's provision to the Bank of the forms of letters of credit acceptable to Lloyd's gave rise to an estoppel and waiver which precludes DUAL's principal, Mr White, from contending that the letters were not in a form requested or authorised by him.

48. Before I turn to Mr White's claims against Lloyd's, I pause to make some preliminary observations. First, for the most part, the issues between the Bank and Mr White appear to turn on the construction of various documents passing between them and DUAL. Second, the contentions of the Bank in its reply suggest that its dealings with Mr White on the matters here in issue were conducted with DUAL who is said to be his agent. This agency is in dispute. Third, the Bank in paragraph 1 particular (v) of its reply raises a plea based upon the fact that Mr White was bound, pursuant to his agreements with Lloyd's, to provide the letters of credit in the terms of those which were in fact issued and extended. It was not put that the Bank was a party to these agreements or, even, that it was aware of them: it is said that, since Mr White was bound by them, the Bank in issuing or extending the bills complied with its obligation to him to issue the bills which Lloyd's required.

51. Mr White has now abandoned his further defences contained in paragraphs 34 to 38 of the defence, that the Bank ought not to have paid against the demands of Lloyd's because it had clear evidence of fraud or unconscionable conduct by Lloyd's. The findings of the English Court cleared Lloyd's of the allegations of fraud made against it by the counter-claimants in the Jaffray proceeding, including Mr White.

54. I express no view as to the prospects of success of any of these claims and defences. It is sufficient that I identify the issues in order to determine what is the factual substratum.

58. Mr White's claims against Lloyd's, as they now stand, may be summarised as follows:

(i) Misleading and deceptive conduct by Lloyd's in making a number of representations as to its financial management of the Lloyd's market. These were made in 1980 before Mr White became a name in October 1980 and in the Global Reports and Accounts published by Lloyd's annually in respect of the years ending 31 December 1984, 1985, 1986, 1987, 1988, 1989 and 1990. It is said that, in reliance upon these representations, Mr White became a name in 1980 and remained so for each year until January 1992. Among the things which he said he did in pursuance of this conduct was to enter into the three security agreements with Lloyd's referred to in [11] above, and he procured the issue and extension of the letters of credit which underlie the Bank's claim. He seeks orders that the security agreements are void or should be set aside pursuant to s. 87 of the Trade Practices Act or s.41 of the Fair Trading Act.

(ii) In paragraphs 18A - 19, Mr White alleges that he has suffered loss and damage as a result of the implementation by Lloyd's of certain Re-insurance and Run-off arrangements. I have some difficulty identifying precisely what is the cause of action which is here asserted and shall put it to one side for present purposes.

(iii) In paragraphs 24 - 41, Mr White puts against Lloyd's a claim that it committed contraventions of the interest provisions of ss. 81 to 83 of the Companies Act 1961 and of the prescribed interest provisions of ss. 169-171 of the Companies (Victoria) Code. The contraventions alleged are of no present concern. The consequence of them is that the agreements made between Mr White and Lloyd's, including the three security agreements referred to above, are void or unenforceable

(iv) Next it is alleged in paragraphs 42-47 that a General Undertaking which Mr White was required to and did in fact sign in 1986 is void as contrary to public policy and on the ground that it would be unconscionable for Lloyd's to rely upon it. This claim is not relevant for my present purposes.

(v) Finally, in a new claim, Mr White alleges that it was an implied term of the security agreements made between Lloyd's and him that Lloyd's would not draw down on the letters of credit unless it had first given him notice in writing. Since Lloyd's drew down on the letters of credit without first giving such notice it is obliged to repay to the Bank the sums wrongfully received by it and/or to pay equitable or common law damages to Mr White.

64. As with the Bank's claims, I express no view about the prospects of success of any claim or defence. It is sufficient that I identify what is in issue in order to determine what is the factual substratum.

67. The representations and the acts relied upon in the misleading and deceptive conduct claim and those giving rise to the contraventions of the corporations legislation appear to be documentary. A real issue, however, will be the allegation of Mr White that, in its involvement in these matters, Lloyd's acted by its agent DUAL, so that the role of DUAL as agent for one or other of Mr White or Lloyd's is likely to be a substantial issue.

71. On behalf of Mr White multiple areas of overlap were suggested in response to the submissions of counsel for the Bank that there was none.

(i) Security Deeds. It is likely that there is no issue as to the fact that Mr White executed the security agreements referred to in paragraph [11] above. He says, however, that, in his claim against Lloyd's, by reason of the misleading and deceptive conduct of Lloyd's and by reason of Lloyd's contraventions of the corporations legislation, these are of no effect. In the Bank's claim these agreements are relied upon by it as specifying what security Mr White was required by Lloyd's to provide. But as best I understand the reply, it is the legal effect of these security agreements which is relied upon by the Bank. If this be the case, then their inefficacy would arguably defeat the Bank's contention. To this extent this is a common issue.

(ii) The agency of DUAL. It will appear from my analysis of the respective claims that this is an essential feature of both the Bank's claim and Mr White's claim.

(iii) The unlawful drawdowns contended for in Mr White's fifth claim do not in terms affect the claims of the Bank. The Bank was neither obliged nor entitled on this basis to refuse to honour the Lloyds' demands for payment made in terms of the letters of credit. What was put on behalf of Mr White was that, since its claim would require Lloyd's to repay the Bank, it would be very inconvenient for the Bank to pursue independently its claims against him when it would receive these funds from Lloyd's upon the successful determination of his third party claim.

77. Other matters of suggested commonality pressed on behalf of Mr White I found unconvincing. These included the factual basis for the circumstances of Mr White becoming a name in 1980, Mr White's reliance upon the misleading and deceptive conduct and the Bank's estoppel contentions.

80. To my mind, there is, indeed, an area of common factual substratum in each of the Bank's claim and Mr White's claim, and this cannot be put to one side as inconsequential. This is the role of DUAL in the negotiations in 1980 and in the subsequent dealings between Mr White and the Bank and between Mr White and Lloyd's. This, together with the other areas of commonality which I have identified, means that the primary contention put on behalf of the Bank is not made out.

84. This submission depended upon the requirements in Rule 11.01(c) that a defendant may join a third party where it claims "that any question relating to or connected with the original subject-matter of the proceeding should be determined not only as between the plaintiff and the defendant but also as between either or both of them and the third party". Since Mr White's claim did not now meet this requirement or the other requirements of Rule 11.01, it was no longer a third party claim. The unspoken consequence of this is that the claim should not be the subject of a concurrent trial with the Bank's claim in accordance with Rule 11.12(b).

87. The argument is flawed at every level. First, I have identified some common questions in Mr White's current claim against Lloyd's which might properly be tried with the Bank's claim. Second, even if this were not the case, Mr White's claim was, when it was commenced, a proper third party claim. Rule 11.01 does not have anything to say about the case where the claim ceases to be such a claim. Third, even if it were somehow taken out of Order 11, the trial of Mr White's claim is a matter for the Court. If the justice of the case demanded that it be heard at the same time as the Bank's claim, doubtless an order to that effect might be made. The relevant difference between such a case and one where the claim was truly a third party claim might only be as to where the burden lies of satisfying the Court that there be or not a concurrent trial of the two claims.

91. Finally, it was put that the Bank's claim has been long delayed by the interlocutory skirmishing between Mr White and Lloyd's. It is not suggested that this delay has been wholly or substantially of Mr White's making. As things presently stand, the parties have yet to bring their case to a state of readiness for trial and this might not be achieved until 2004, or even later. The Bank's case, on the other hand, is ready and might be tried within months, if a judge be available. And so, it is said, the Bank should not have to wait further years before it obtains judgment or a determination of its claims. Normally speaking, a delay of this kind would be a matter of concern. But, here, the Bank has demonstrated no prejudice. Its claim, as I have mentioned, is largely a documentary one so that the erosion by the passage of time of the memories of witnesses may not have the significance to its case that it might otherwise have. It is true that the Bank is standing out of a large sum of money. It seems from its statement of claim, however, that the Bank is earning interest on that sum at a substantial rate. It is not suggested that the passage of time is affecting its prospect of recovering the sum which will be adjudged to be payable to it in the event of its success.

95. This case has been managed for many years on the basis that the Bank's claim and Mr White's claim are to be dealt with together. There are some common factual issues which I have identified. Insofar as evidence will be required on those issues it seems to me that it is very likely that the evidence of some witnesses will bear upon both claims. In short, I am not satisfied that the Bank has demonstrated the existence of exceptional circumstances as would warrant a separate trial. The appeal will be allowed and the plaintiff's application will be dismissed.

[1] [2000] VSC 259.

[3] AMP Fire and General Insurance Company Ltd v Dixon [1982] VicRp 83; [1982] VR 833 at 835, 836-7, per Young CJ, McInerney, King JJ.

[4] I put to one side what appeared to be formal denials and disputes as to the amount claimed, including interest.