Commonwealth Bank v Iinvest

Introduction

1. Stating the matter generally and by way of introduction, the cross-claimants wish to amend to raise for the first time claims for relief under the Contracts Review Act 1980 (NSW), and under the National Credit Code. The cross-claimants also wish to amplify claims already brought relying upon the Banking Code of Practice, and to expand the particulars of financial loss claimed in the cross-claim.

Principles

1. As I have been reminded in the helpful submissions of Mr King of Counsel and Mr White of Counsel, the starting point for an exercise of a discretion of this type in relation to case management are the efficiency provisions to be found in ss 56 - 61 of the Civil Procedure Act 2005 (NSW). The overriding purpose of civil litigation in New South Wales is set out in section 56 of the Act and it is to be applied in the exercise of all powers or discretions when managing proceedings. Fundamentally the Court is to have regard to the dictates of justice and must have regard to the provisions of section 57 of the Act. Section 58(2) sets out a number of flexible or discretionary considerations.
2. It is unnecessary in these oral reasons to set out the statutory provisions as they are well known. It is important, however, for me to bear in mind that regard to the requirements of sections 56 and 57 is "statutorily compulsory" as Allsop P (as his Honour then was) put it in Hans Pet Construction Pty Limited v Cassar [2009] NSWCA 230 at [38].
3. The s 57(1) factors are: the just determination of the proceedings; the efficient disposal of the business of the Court; the efficient use of available judicial and administrative resources; and the timely disposal of the proceedings, and all other proceedings in the Court, at a cost affordable by the respective parties.

History of the dispute

1. These matters are of some significance in the present case because the matter has had a long history in terms of the origin of the commercial dispute and also in terms of its longevity in the Possession List of this Court. The core dispute between the parties arose in the year 2008. As Mr White pointed out in his helpful chronology, orders for possession of the secured properties were made by default in this Court on 17 June 2013. They were eventually set aside by me in the second of my previous judgments on 21 November 2014.
2. After case management, including the preparation of four volumes of court book, on 17 November 2014, the matter was fixed for a hearing to commence on 15 August 2015. Those hearing dates were vacated by orders of N Adams J made on 10 August 2015 for reasons her Honour then published.
3. Essentially it had been necessary for Mr Harker-Mortlock, the first cross claimant and the controller of the second cross claimant, to change legal representatives because he was unable to satisfy his existing lawyers financially in expectation of the hearing. That those previous lawyers would cease to act became apparent in July 2016 and the application for adjournment in August was made by Mr Storie, the present solicitor. He, at that time, had in mind briefing Mr King of counsel, who appeared before me yesterday and who will appear in the hearing in January.
4. If the application for leave to amend is granted, this will be the fourth iteration of the statement of cross claim in a matter, as I have said, where the genesis of the dispute occurred eight years ago and perhaps longer if one looks at the origin of the loans made by the bank to entities controlled by Mr Harker-Mortlock.

The legal arguments

1. I accept, as I was reminded by Mr King, that the efficiency provisions of the Civil Procedure Act "make plain and more prescriptive what was always the case, namely that the processes of the court are to be utilised for proper purposes and in a way that is efficient, cost effective and in accordance with the dictates of justice. Section 58(2)(vi) makes it explicit that the dictates of justice require consideration of the position of both parties": Lachlan v HP Mercantile Pty Limited [2015] 89 NSWLR 198; [2015] NSWCA 130 at [30], by the Court.
2. Mr King submits that the proposed amendments do no more than better elaborate claims which have essentially been those advanced by the cross claimants from the outset.
3. Mr White reminded me of Aon Risk Services Australia Pty Limited v ANU [2009] 239 CLR 175, [2009] HCA 27. Upon reviewing that authority, I found it helpful to consider what the plurality said, at 208 [82]: "The need for amendment will often arise because of some error or mistake having been made in the drafting of the existing pleading or in a judgment about what is to be pleaded in it. But it is not the existence of such a mistake that founds the grant of leave...although it may be relevant to show that the application is bona fide. What needs to be shown for leave to amend to be given... is that the controversy or issue was in existence prior to the application for amendment being made. It is only then that it is necessary for the court to allow it properly to be raised to enable a determination upon it." [Emphasis in original] [Citations omitted]
4. Although Mr White refers to Aon to remind me of the more stringent attitude adopted by civil courts to amendment in the 21st century, Mr King also relies upon the passage to point out that different judgments may be made about how a case should be pleaded and, in any event, he argues fundamentally that what is sought to be raised by the proposed amendments arise out of the controversy or issue that was in existence prior to the application for amendment being made.

Consideration

1. It seems to me that given the history of the matter, and particularly given that six hearing days have already been lost in the management of this case because of the need for an adjournment, it is of particular importance, having regard to each of the matters referred to in section 57, that the hearing dates commencing on 30 January are preserved, virtually, in my view, at all costs.
2. I accept, with respect, that different legal minds may see things differently and that when there has been a change of lawyers necessitated by circumstances, as occurred here, the new legal team will bring fresh eyes to bear on the controversy and perhaps seek to refashion it in a way that better accords with their view of how their client's case may be presented to the best advantage. Accepting that reality, however, is not, and cannot be, the end of my consideration.
3. It seems to me that the primacy of preserving the hearing dates arises out of a number of considerations. First, is the consideration that the bank is a secured creditor and it has already taken longer for these proceedings to come to hearing than is usually permitted in the Possessions List. Secondly, as hearing time has already been lost, it would be contrary to the public interest in the administration of justice if the new hearing dates were put at risk. Thirdly, there is limited time between now and January, particularly having regard to the intervention of the long vacation, for the bank to respond to any amendments by way of gathering fresh evidence if necessary. The cross claimants would also be at some disadvantage in that regard, I acknowledge. But, given that these matters are propounded by the cross claimants, that is a matter of little significance in my judgment in the circumstances of this case.
4. With these factors in mind, it seems to me that as a guiding principle for determining this case, no amendment should be permitted that involves any averment of any material fact not already raised in the existing pleading. It seems to me that any amendment which may be permitted ought not put the bank, as the responding party, in a position where it will need to marshal further evidence to meet a new case.
5. It is essential to bear in mind, in the circumstances of this case, that subject to formal proof of certain matters, the bank is likely to be prima facie entitled to possession and that the real moving party on the hearing will be the cross claimant or claimants.
6. Attempting at this time of year to avoid an overly lengthy judgment, I propose to go through the first cross claim, proposed fourth statement of cross claim, which I marked MFI 1 at the hearing yesterday, and indicate what amendments I will permit and briefly why in relation to the considerations I have stated. In the course of that discussion I will deal briefly with some of the specific legal objections that Mr White raised to various formulations of the cross claimants' causes of action. I will pass over the proposed amendments in terms of relief claimed to deal with the pleadings in relation to those claims.

First tranche

1. The first series of amendments are to be found on pages 9 to 12 of the proposed document commencing at paragraph 37A and concluding at 37J. These are essentially further averments of primary fact which in my judgment amplify only what is already pleaded. They relate in particular to the circumstances of the provision of a temporary overdraft facility in the sum of $200,000 in January 2008 and the various matters - I will put it neutrally - in relation to the bank's attempts to have that amount repaid promptly. I acknowledge that they are advanced from a slightly different angle and for the purpose of advancing other claims. Mr White conceded, in relation to most of these matters, I think is fair to say, that they were of no real moment, although he objected to them to the extent to which they were to lay the foundation for other more significant amendments.
2. It seems to me that what is averred in paragraph 37E should not be permitted. It is essentially embarrassing. Although it alleges facts that have been in factual matrix of this case, it does raise the spectre that what is complained of by the cross claimants of the bank's conduct in relation to the overdraft deprived it of the opportunity to achieve a satisfactory or beneficial settlement of the litigation in the United Kingdom. In particular, it avers that the bank's conduct adversely impacted on the cross claimant's ability to continue that litigation.
3. There is no, and never has been, any claim for losses in relation to that litigation brought against the bank and it seems to me that, although that litigation might be relevant in a broad general sense to the dynamic of the relationship between banker and customer at this time, it is, as I have said, embarrassing and should not be permitted. I reject paragraph 37E in its entirety.
4. Otherwise I am of the view, as I have said, these proposed amendments basically put from a slightly different angle what has been put previously. I appreciate that Mr White objected to allegations that the bank had failed to provide legal or financial advice or, rather, the opportunity for such advice on the basis that there was no averment of a lack of understanding on the part of Mr Harker-Mortlock. I am of the view that that, as is evident from about the middle of page 12, it is averred that he did not fully understand the operation of the documents or the consequences of any breach, a matter that no doubt can be readily explored at the hearing, and I will otherwise permit those proposed amendments.

Second tranche

1. The next series of amendments are to be found at paragraph 105A on pages 22 and 23. Again, these averments relate to claims already advanced in earlier iterations of the pleading in relation to the farm debt mediation legislation. I need not descend into detail for present purposes. It seems to me that claims were made about those matters and what is advanced refines those claims but does not add to them, and does not bring forward, in my judgment, a necessity for any further evidence on either side of the record. These can be dealt with at the hearing on their merits.

Third tranche

1. The next amendments are at paragraph 119 and substantially at pages 25 and 26. They relate to the provision of further particulars about the financial losses claimed by the cross-claimants and are related to a proposed further affidavit of Mr Harker-Mortlock sworn on 3 December 2016. It seems to me that the new or fresh matters are from subparagraphs (I) to subparagraphs (S). As Mr White pointed out in argument, there is an ominous conclusion to these matters in that, it is averred, further particulars of loss will be given in evidence.
2. I reject the whole of that material essentially for the reasons I discussed with counsel in the course of the hearing. These matters are so general that it is just simply unreasonable to expect the bank to have to meet them on the run at the hearing. However, Mr King argued that all of these matters were to be proved by reference to evidence already exchanged and I will make some directions after the conclusion of these reasons for the provision of a detailed statement of particulars of financial loss to be provided to the bank.

Fourth tranche

1. The next matters are to be found at paragraph 119A, pages 26 to 27. Again, these matters seem to be refinements of what has previously been said. Those refinements proceed in no small measure by reference to the amplification of complaints made about the bank's conduct by reference to the Banking Code of Practice and I think they should be permitted on that basis. They do not add materially to the factual burden of the case or to the evidential burden of the case, as I see things.

Fifth tranche

1. Some additional particulars have been added to the averments at paragraph 126 on pages 28 to 29 and it seems to me there is no real complaint about those matters. To the extent to which they simply particularise an existing averment, they probably assist the bank to understand what will be said in relation to that existing averment at the hearing.

Sixth tranche

1. The next matters relate to a new cause of action based upon alleged breaches of the National Credit Code arising under the National Consumer Credit Protection Act 2009 (Cth). Those averments are at paragraphs 126A and cover most of page 29; all of pages 30 and 31; and part of page 32. Although the word "unjust" is not used, as far as my reading discloses, the averments are relevantly intelligible, if I can put it that way, as allegations arising under section 76 of the Code which deals with unjust contracts.
2. As I have said already, essentially the claims which are advanced on behalf of the cross claimants relate to statutory species of unconscionability, essentially arising, as the pleadings presently stand, under the ASIC legislation. It may well be that there are nuances of advantage arising under the National Credit Code, in particular, by reference to the presumption of its application arising under s 13 of the Code. However, as I have already pointed out, the complaints in this matter, as the particulars appearing after paragraph 126A make clear, relate to matters which occurred, essentially, in 2008. Moreover, at the time those events occurred, the customer was a corporation and the trust, which forms part of the basis for the cross claims, had not yet been created. I will leave aside the controversy about the creation of the trust.
3. Acknowledging Mr King's argument that questions of law are better decided at the trial after the evidence is in, I think there is virtually overwhelming force in Mr White's argument that the National Credit Code can have no application to the resolution of the controversy in this case. In particular, the Code relates to transactions occurring after 1 July 2010. By section 5, it applies only where the debtor was a natural person or a strata corporation. In this case the debtor at all material time was a trading corporation, not a strata corporation and not a natural person.
4. Although Mr Harker-Mortlock provided a guarantee of the company's performance, the Code only applies, by s 8, to guarantees which guarantee obligations under a credit contract. A contract with a corporation is not a credit contract within the meaning of the Code.
5. It seems to me that the whole of that pleading should be rejected and I observe in passing that, apart from the tactical advantage which may arise out of the presumption created by s 13, the substance of the controversy can still be advanced at the hearing under the other statutory causes of action pleaded.

Seventh tranche

1. The next aspect of amendment are additional Code of Banking Practice claims appearing in paragraph 131A to 131J set out between pages 35 and 40 of the proposed amended pleading. Following argument yesterday, Mr King did seek to withdraw some of these matters, particularly those matters which related to fresh averments of fact which would require the bank to marshal further evidence.
2. I do propose to permit much of this material given that reliance on the Code of Practice was advanced in earlier versions of the pleading, but I do not propose to allow the following matters: I reject paragraph 131A(b) on page 35 as it raises new questions which would require evidence as to the training, competency and efficiency of the bank officers involved. I also reject (j) appearing on page 36 for largely similar reasons, mainly relating to the need for the bank to gather further evidence to meet those matters.
3. I also reject the whole of paragraph 131C on pages 36 and 37, raising issues which would require additional evidence to be met, and I reject the whole of paragraph 131F on page 38 as it too would require additional evidence to be garnered by the bank.
4. I interpolate that I made some findings about the proceedings being brought to the attention of Mr Harker-Mortlock in one of my earlier decisions, although that was an interlocutory decision. I there set out all the evidence in relation to this issue and indicate an affirmative conclusion, which was a necessary conclusion to make at that time, that the matter had been duly brought to his attention.
5. I also reject paragraphs 131D, 131H, 131I relating to internal dispute resolution procedures. Certainly the farm debt mediation material was the subject of previous pleadings but this raises something new which would require the bank, eight years later, to investigate its own independent procedures available at that time. Although the bank may well have records, even in such a large organisation as the CBA, corporate memory can be fallible and it would put an unreasonable burden on the bank to have to investigate those matters.
6. This leads me back to something I overlooked. I also, going back to page 36, reject subparagraphs (k), (l) and (m) of proposed paragraph 131A.
7. I will allow the averments contained in paragraph 131J as they fall under the category of, putting it in a somewhat different way, matters already clearly raised.

Eighth tranche

1. That brings me finally to paragraph 136A on pages 41 to 43 of the pleading, relating to relief under the Contracts Review Act. This is another statutory avenue of an allegation that the various transactions or contracts are unjust. I must say, although Mr White presented what I regard as a strong argument as to the unavailability of this relief in relation to the cross claimants, particularly by reference to the provisions of section 6(1) of the Act, I have been persuaded that that is a matter probably better decided at the trial given the exception appearing in paragraph 6(2).
2. It seems to me, undoubtedly, that the contract or contracts the subject of these proceedings were made by a corporation controlled by Mr Harker-Mortlock. At the same time he was a person who controlled them more or less as private corporations, and it is arguable on the material that the principal contracts, perhaps not the extended overdraft facility, related to a farm undertaking carried on by him of a pastoral nature.
3. At first blush the bank's argument seems the stronger but I am persuaded that little extra time will be spent at the trial on either evidence or argument about these matters and that the matter is best resolved when all the evidence is in and all the arguments had been had.
4. For those reasons, I will permit a fourth amended statement of cross claim be filed in accordance with the reasons I have just given.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 December 2016