Commonwealth Bank of Australia v Xiong & Ors; Landmax Developments Pty Ltd v Commonwealth Bank of Australia

Supreme Court of NSW|2010-12-13|Before: Slattery J

Background 3 A little background is required to see how this issue arises. The proceedings are listed today before me for two days. The plaintiff bank originally commenced proceedings in the District Court against the first and second defendants to recover a loan advance made by the Colonial State Bank in 1999 in respect of a property in Ashfield, and a further loan advance in 2001 in respect of a property at Double Bay. The Colonial State Bank took mortgage securities over each of the Ashfield and Double Bay properties. 4 One of the matters in issue in the proceedings is whether indeed the Colonial State Bank did make those advances, and if so, whether the original advances by the Colonial State Bank must now be proved by the plaintiff. 5 The Colonial State Bank was taken over by the Commonwealth Bank of Australia in 2001. As a result of Commonwealth legislation passed at that time it does seem that the contention is open, and I put it no higher than that, that upon the takeover, the Colonial State Bank's assets and liabilities became assets and liabilities of the Commonwealth Bank. 6 It is common ground in the proceedings that shortly after the takeover the securities in respect of the Ashfield and Double Bay loans were discharged. It is apparently contended on the part of the Commonwealth Bank that this discharge occurred by mistake on its part. 7 After the discharge of the securities the loan accounts in question were conducted by the defendants with the Commonwealth Bank for many years. The plaintiff bank says they operated from 2002 through until about 2009, on an unsecured basis, falling occasionally into arrears. But the defendants assert the arrears were rectified. In this judgment I make no findings of fact about these matters. Most of them are contentious. It is only necessary for the purposes of this procedural judgment for me to record these matters as allegations. 8 The Commonwealth Bank asserts that the arrears on the two loan accounts began to increase in 2008. Whether it was the result of that circumstance or was due to other broader changes in financial policy, the bank decided in early 2009 to issue notices accelerating the payment of principal on these loan accounts on account of the defendants' alleged default in making regular payments. Shortly thereafter the bank commenced these proceedings. 9 The defendants contend that they were not in default at the time that these acceleration notices were issued. The defendants also take issue with whether the terms and conditions relied upon by the bank to accelerate principal were indeed the terms and conditions of any loan agreement between the defendants and the Commonwealth Bank. 10 The defendants say that on the available evidence the plaintiff cannot establish what the applicable terms and conditions were for the loan, at the time of the alleged acceleration of principal in the first half of 2009.

The Course of these Proceedings 11 The proceedings have had a slightly unusual procedural history. After the discharge of the securities, the bank asserts in substance that the relationship between itself and the defendants was that of simple creditor and debtor. After the purported acceleration the amount in issue between the parties was within the jurisdiction of the District Court. The bank commenced proceedings in the District Court to recover the debt. 12 Negotiations commenced between the defendants and the bank resulting in a security being provided to the bank by Landmax Pty Limited, a company associated with the defendants. Landmax provided that security by way of guarantee of the defendant's obligations to the bank. The bank amended its District Court pleadings to join Landmax as a party. Landmax then commenced proceedings against the Commonwealth Bank. Landmax took the view that in order to set aside its guarantee it would need to avail itself of the jurisdiction of this Court. The District Court proceedings were then transferred to this Court by Justice Ward. The matters were then case managed by the Chief Judge in Equity and some 2 months ago were listed before me for hearing today. 13 When the proceedings came before the Court this morning the Court was told that late last week an administrator had been appointed to Landmax. This had the effect of staying the bank's proceedings against Landmax. The administrator of Landmax, by his legal representative Mr Farrer, informed the Court that Landmax did not now wish to proceed upon its Supreme Court claim against the bank to set aside the Landmax security. The administrator merely sought for that claim to be adjourned. 14 There has been a substantial amount of work done by the solicitors and counsel on both sides in this case in preparation for this trial. This is quite obvious from what I have seen in the course of the opening and the argument this morning. This preparation has resulted in amendments of pleadings, part of which I now have to examine for the purposes of deciding the interlocutory question before the Court. 15 As a result of the Landmax claims not proceeding today the matter now is a relatively straightforward debt claim structured in much the same way as the case was originally commenced by the bank in the District Court. 16 The point at issue has tactical significance for the parties. If the defendant can rely upon the current defence which puts many matters in issue, then the plaintiff: will be put to proof of the original Colonial State Bank advance; will be required to establish the effect of the legislation which enabled the takeover of the Colonial State Bank by the Commonwealth Bank and the assumption, so it is said, of Colonial State Bank liabilities; and, will be put to proof of the reissuing of account numbers, the creation of new Commonwealth Bank accounts and of the issuing of Commonwealth Bank terms and conditions associated with those new accounts. The issues raised by the current defence may even be wider. 17 The plaintiff bank says that without leave, which it says has not yet been sought or granted, the defendants cannot rely upon the current form of defence putting all these matters in issue. The bank says that it should not now have to prove these matters. But the bank says it can rely upon the prior defence, which admits that there is a banking relationship between the Commonwealth bank and the defendants and which concedes the matters that the plaintiff would have to prove under the current form of Defence to Further Amended Statement of Claim. The bank says that as no leave was given for the defendants to withdraw the admissions that they formally made in the prior defence, the defendants may not now depart from the admissions in that prior defence. 18 To decide these questions the course of pleading needs briefly to be examined.

The Course of the Pleadings 19 The pleadings were first formulated in the District Court. In the original District Court Statement of Claim the Commonwealth Bank pleaded that it had itself agreed to provide credit to the defendants for the Double Bay and Ashfield home loans and that the Double Bay loan was varied by agreement between the bank and the defendants in April 2009. On any view of the currently available evidence this pleading was not correct. The original home loan was provided by the Colonial State Bank, not the Commonwealth Bank. The original District Court defences filed by the first and second defendants may reasonably be read as admitting that the Commonwealth Bank made home loan agreements with the defendants for both the Ashfield and Double Bay properties. An Amended Statement of Claim in the District Court dated 16 March 2010 and a defence to that Amended Statement of Claim dated 3 May 2010 may be reasonably be read as making the same admission. 20 The effect of these pleadings, was that the there was in substance a concession that the Commonwealth Bank had agreed to provide the defendant with a loan facility in respect of the Ashfield loan. In respect of the Double Bay loan the admissions were slightly less fulsome but read together with the Ashfield admissions may be taken the same way. 21 Communications in August and September this year about further amendments to the pleadings have become the source of the differing contentions between the parties. The bank notified the defendants in May that year that it wished to further amend its Statement of Claim, to join Landmax and it supplied the defendants with a proposed Further Amended Statement of Claim. Although this pleading was set out so as to accommodate the addition of Landmax to the proceedings, it essentially repeated the allegations in the earlier pleadings. Correspondence passed between the parties as to how the amendments should be accommodated. The solicitors for the defendants, having seen the bank's proposed Further Amended Statement of Claim, proposed on 9 August 2010 they offered a form of defence to the Further Amended Statement of Claim.

22 The proposed defence annexed to the defendant's solicitors' letter of 9 August 2010 provides for the form of defence which is now found in the filed Defence to the Further Amended Statement of Claim. This withdraws the identified admissions previously contained in all the previous defence pleadings. Without setting out the substance of the then proposed Defence to the Further Amended Statement of Claim it is sufficient to say that in respect of both loans it substituted denials for admissions of a banking relationship between the Commonwealth Bank and the defendants going back as far as 2001. 23 Proposed Short Minutes of Order were provided with the defendant's 9 August letter. Those short minutes provided for the defendants to serve any draft amended defence by 9 August and the defendants would by 13 August 2010 file and serve any notice of motion for leave to amend. Such motion was planned to be returnable on 20 August 2010. 24 The idea that the defendants would file a motion for leave to amend by 13 August returnable by 20 August was appropriate in the circumstances given the withdrawal of admissions contained in the proposed Defence to Further Amended Statement of Claim. But this course was overtaken by correspondence from the solicitors for the bank, who correctly indicated that it was premature to file a defence before the proposed Further Amended Statement of Claim was itself filed. What ultimately happened was that, by agreement on 9 August 2009, the plaintiff filed its Further Amended Statement of Claim in the form foreshadowed on or before 2 September 2010. The defendants then filed their defence to that Further Amended Statement of Claim (in the form foreshadowed on 9 August 2009) on 7 October 2010. 25 This occurred at a time when the parties were under very close case management in this Court for fixing a hearing date, just after the matter was moved into this Court. The idea of seeking the Court's leave to withdraw the admissions already made was abandoned. 26 The matter has been expedited because, in part, I am told that the continued assertion by the Bank of default on the part of the defendants is affecting their credit ratings. The matter is sought to be resolved as quickly as possible.

The Contentions 27 The last piece of evidence in this history comes from Mr Bates the solicitor for the plaintiff. He explains that the attorneys for the plaintiff did not pick up the fact that there was a withdrawal of an admission in this last round of defence. He frankly concedes this was an oversight. 28 That last piece of evidence from Mr Bates is of considerable importance to the disposition of this matter. Mr Bates' firm was not alerted by the defendants in the course of amendments to the withdrawal of the admissions. It is quite understandable that Mr Bates did not notice the withdrawal of the admission. He was entitled to assume in my view that specific leave to withdraw any admissions would be sought.

29 Mr Smallbone says on that history that, in substance, he has been given leave to amend because of the ultimate agreement of both parties to permit filing of the Defence to the Further Amended Statement of Claim. Mr McInerney says that specific leave should have been sought from the Court to the extent that there was a withdrawal of an admission already made in the pleadings. 30 There has not been much debate about the applicable law on this application. The position on the authorities seems to be that express formal admissions made either in pleadings or in special notices for admission, or made orally in the course of the hearing of the proceedings, may all be withdrawn but only with the Court's leave: McFadden v Snow (1952) 69 WN (NSW) 8 at 94, Nominal Defendant v Gabriel [2007] NSWCA 52;(2007) 71 NSWLR 150. An application for leave must establish proper grounds for withdrawal of the admission: Rigato Farms Pty Ltd v Ridolfi [2001] 2 QdR 455 and SLE Worldwide Australia Pty Limited v Wyatt Gallagher Bassesst Pty Limited [2005] NSWSC 826. The Court will normally require an explanation of the circumstances in which the admission was made and which are relied upon to justify the withdrawal: Maile v Rafiq [2005] NSWCA 410 and Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738. The general principles as to the exercise of the Court's discretion to allow withdrawal of an admission and the principle that leave is not freely granted were summarised by Santow J in Drabsch v Switzerland General Insurance Co Ltd (unreported 16 October 1996), which summary was adopted by the Full Court of the Federal Court of Australia in Jeans v Commonwealth Bank of Australia [2003] FCAFC 309; (2003) 204 ACR 327 at [17] and [18]; see also Silver v Dome Resources NL [2005] NSWSC 265. Leave may more readily be given to withdraw an admission in a defence where the matter sought to be put in issue in an amendment to the Statement of Claim has changed the significance of the matter admitted: Demasi v Linfox Transport (Aust) Pty Limited (unreported, NSWSC,14 June 1995, per McLelland CJ in Eq). 31 The Uniform Civil Procedure Rules ("UCPR"), r 17.2 provides:- "17.2 Voluntary admissions of fact (cf SCR Part 18, rule 1; DCR Part 15, rule 1; LCR Part 14, rule 1) (1) The admitting party may, by a notice served on the requesting party, admit, in favour of the requesting party only and for the purposes of the proceedings only, the facts specified in the notice.

(2) The admitting party may, with the leave of the court, withdraw any such admission." 32 Counsel have not referred me to any particular authority that indicates exactly what UCPR 17.2 means. But Mr Smallbone says that the exchange of correspondence, the agreed short minutes, and one other matter I will shortly mention, make clear that the defendants were entitled, on their side, to assume that they had leave to amend which included leave to withdraw the prior admissions. 33 The additional matter to which Mr Smallbone points is the Commonwealth Bank's pleading against Landmax which, if I may say so, takes evidence a more detailed and arguably more accurate (on the available) view of the historical legal relationship between the parties to these proceedings. It pleads the original banking relationship with the Colonial State Bank. It pleads the transfer of liability legislation upon the Commonwealth Bank takeover of the Colonial State Bank. It pleads the creation of new Commonwealth Bank accounts. 34 Mr Smallbone says that the defendants were entitled to read the plaintiff's agreement to short minutes of order, which provided for the filing of the Defence to the Further Amended Statement of Claim as also indicating an agreement to the withdrawal of the admissions in the prior pleading and that the amendments were, without more, properly made.

Decision 35 I disagree with that contention. It overlooks the function of the Court and the importance of drawing close attention to the proposal to withdraw any admission in the proceedings. Litigators are busy, indeed, impossibly busy at most times. The purpose of UCPR r17.2 is an important one. It is: (1) to draw the attention of the other party and the Court to the fact that an admission is being withdrawn, and (2) to ensure the Court's leave to withdraw that admission. 36 In my view, it is not possible to satisfy UCPR r17.2(2) without the withdrawal of the admission being expressly drawn to the attention of the Court and the Court's leave being asked for the withdrawal of the admission. When UCPR r 17.2 says that the admitting party may "with the leave of the court" withdraw "any such admission" given on notice, it means that the Court's leave so given must expressly identify the fact that an admission is being withdrawn and give express leave for that withdrawal to occur. Otherwise the rule, which is designed to ensure that parties are generally to be held to admissions made after due consideration, would be defeated. Moreover, cases such as Demasi v Linfox Transport (Aust) Pty Limited (unreported, NSWSC, 14 June 1995, per McLelland CJ in Eq), Silver v Dome Resources NL [2005] NSWSC 265 and Jeans v Commonwealth Bank of Australia Pty Limited (2004) ALR 227 assume that leave must be expressly sought. 37 Mr Smallbone contends that an admission may be withdrawn by consent orders reached between the parties. The unfortunate course of these proceedings is a clear demonstration why that cannot be so. The result of the earlier failure to seek leave is that at the end of the first day of these proceedings the parties are now debating whether or not leave is required for the withdrawal of this admission. The Court would have dealt with this issue at a directions hearing had it been raised before trial. The time now taken for this application could have been more efficiently used in adducing evidence in the proceedings. 38 It seems to me that if UCPR r17.2 (2) had been followed in the way that I have construed it, that the very issue which is before the Court now would have been drawn to the attention of either Ward J, when she dealt with the application to transfer the proceedings to this Court, or drawn to the attention of the Chief Judge, when she gave final procedural directions before this hearing was set before me. The issue of leave to withdraw the admission and its possible consequences for the conduct of this hearing could then have been debated. 39 The question of withdrawal of admissions is not to be dealt with, in effect by a side wind when orders are made by consent to amend a defence. If the proposed amendment to the defence involves the withdrawal of an admission then that specific subject matter must be drawn to the attention of the other party and the Court. The Court must be clearly asked to give specific leave to withdraw the admissions in addition to any orders involved in the amendment of the defence. That has not occurred in this case and therefore leave is now required. 40 For that reason, in my view, if Mr Smallbone's clients wish to rely upon the provisions of the Defence to Further Amended Statement of Claim, then they must now seek the Court's leave to do so. Upon the defendants' application for leave to withdraw admissions 41 I have given my reasons for concluding that Mr Smallbone needs leave to withdraw the admissions made in the prior defence. Submissions in relation to whether or not that leave should be granted have already been put. The question of leave can now be decided. 42 It is a difficult balancing exercise. This is so partly because the estimated prejudice to the plaintiff from any grant of leave may not be able to be determined until I have ruled tomorrow on the admission or otherwise of the evidence to be tendered on both sides. 43 Not withstanding the fact that the potential prejudice is somewhat inchoate for this reason, certainty for the parties is an essential consideration at this point in the trial. The parties need immediately to know what matters will be in issue. 44 I will grant leave. It is desirable that the cases be determined on the basis of all the parties' disputes. Otherwise a sense of injustice may linger. The defendants have given a reasonable explanation for not seeking leave earlier. They took a view of UCPR r 17.2 which I have now ruled to be incorrect. They had the bank's apparent consent to the course they took. The admitted matters do involve arguable and genuine disputes. Indeed it is clear that the admissions conceded facts that were probably incorrect. The admission has only been on foot for a few months. The case now seems unlikely to finish in the allotted time tomorrow, so any additional evidence can be served before the adjourned date. 45 But in granting leave I will be sensitive to any prejudice that may occur to one or other party as a result of that grant. I will hear further submissions in due course about what should be done to alleviate the prejudice, if any, to both sides, but particularly to the bank, at the conclusion of my rulings on the admission of evidence. Any prejudice that might arise presently seems curable.

22/03/2011 - typographical error - Paragraph(s) coversheet

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CITATION : Commonwealth Bank of Australia v Xiong & Ors; Landmax Developments Pty Ltd v Commonwealth Bank of Australia [2010] NSWSC 1518 This decision has been amended. Please see the end of the judgment for a list of the amendments.

Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 Demasi v Linfox Transport (Aust) Pty Limited (unreported, NSWSC,14 June 1995) Drabsch v Switzerland General Insurance Co Ltd (unreported 16 October 1996) Jeans v Commonwealth Bank of Australia (2003) 204 ACR 327 CASES CITED : Maile v Rafiq [2005] NSWCA 410 McFadden v Snow (1952) 69 WN (NSW) 8 Nominal Defendant v Gabriel (2007) 71 NSWLR 150 Rigato Farms Pty Ltd v Ridolfi [2001] 2 QdR 455 Silver v Dome Resources NL [2005] NSWSC 265 SLE Worldwide Australia Pty Limited v Wyatt Gallagher Bassesst Pty Limited [2005] NSWSC 816

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