D A Shannon v G A Shannon; D & W Shannon Pty Ltd v G A Shannon

Judgment 1On 28 June 2013, the Court dealt with motions in which the applicant was the Commonwealth Bank of Australia. Each motion sought to set aside a judgment of Davies J in each of two matters, 2013/117170 and 2013/123931 between D A Shannon and G A Shannon and between D & W Shannon Pty Ltd and G A Shannon respectively (hereinafter referred to collectively as "the judgment proceedings" and respectively as "the individual judgment proceedings" and "the corporate judgment proceedings"). 2The Commonwealth Bank of Australia (hereinafter, "the CBA") relied on the provisions of r 36.15(1) and the provisions of r 36.16 of the Uniform Civil Procedure Rules 2005 (hereinafter, "UCPR"). 3Rule 36.15 describes the power of the Court to set aside an order of the Court if judgment was given or entered, or the order was made, irregularly, illegally or against good faith. Rule 36.16 deals with a further power to set aside in circumstances where judgment has not yet been entered, including in the case of computer entry, where a notice of motion for the setting aside or variation of the judgment has been filed within 14 days of its entry on the computer system: see UCPR r 36.11(2).

Facts 4Generally, at least for the purpose of the motion before the Court, the background and underlying facts are uncontentious. They are set out in the affidavit of Justin Gibb Bates whose evidence, for the purposes of the motion, I accept. He was not cross-examined. 5Mr Bates is a partner at Gadens Lawyers, who are the solicitors for the CBA, through its Bankwest division (hereinafter, the division will be referred to as "Bankwest"). In that capacity Mr Bates has carriage of Supreme Court proceedings 2009/296947 (hereinafter, "the Guarantor Proceedings") between the CBA and Geoffrey Anthony Shannon, which, generally, are proceedings seeking to enforce a guarantee in which G A Shannon is the guarantor. 6The Guarantor Proceedings, to which reference has just been made, commenced before Sackar J on 21 May 2013 and, at the time of swearing the affidavit of Justin Gibb Bates of 3 June 2013, were estimated to conclude on 17 June 2013. (The Court records, being the judgment in the Commonwealth Bank of Australia v G A Shannon [2013] NSWSC 1076, the judgment of Sackar J, disclose that the last day of evidence was 13 June 2013, oral submissions occurred on 16 July 2013, with further written submissions on 17 July 2013. Judgment issued on 12 August 2013.) 7The proceedings before Sackar J involved a claim by Bankwest and/or the CBA against G A Shannon, as earlier stated, as guarantor of facilities extended to G A Shannon's companies, being 33 Electra Pty Ltd and C2C Investments Pty Ltd. The total debt claimed was $8,508,963.55, as at 21 May 2013. 8The Guarantor Proceedings also involved cross-claims by each of the companies against Bankwest and/or the CBA and other persons for breach of contract and breach of s 420A of the Corporations Act 2001 (Cth). 9The cross-claim by C2C Investments was dismissed on 26 April 2013. The cross-claim by 33 Electra was dismissed on 24 May 2013. The effect of the judgment issued by Sackar J on 12 August 2013 was to dismiss all remaining cross-claims and to determine that the CBA was entitled to judgment. 10G A Shannon's solicitors changed as a result of the unavailability of the solicitor initially appearing for him and his companies. It is unnecessary to recite the details, or the representation, that may or may not have thereafter followed and the role played by subsequent lawyers. 11It is sufficient for these facts to report that the original solicitor (Mr Gillroy) was present (as was Mr Bates) at the first meeting of the creditors of 33 Electra (the company now being in administration) at which Mr Gillroy, according to Mr Bates, appeared to be marshalling proofs of debt from D & W Shannon Pty Ltd and Platinum Lawyers. 12The final hearings of the Guarantor Proceedings were preceded by a number of events. On 5 October 2012, Bergin CJ in Eq, set down the Guarantor Proceedings for hearing to start on 21 May 2013 with an estimate of three weeks. On or about 26 April 2013, G A Shannon and 33 Electra made an application for mediation in which they were represented by senior and junior counsel. 13The application for mediation was heard on 8 May 2013. The Court (Hammerschlag J) ordered mediation, subject to certain conditions, which included a condition directed at avoiding a vacation of the hearing dates. G A Shannon and 33 Electra had applied for the vacation of the dates. 14The mediation occurred on 14 May 2013. Settlement did not eventuate from that mediation. 15On or about 16 May 2013, G A Shannon and 33 Electra filed a motion seeking to vacate the hearing date. On 16 May 2013, Bergin CJ in Eq heard the motion and dismissed it, with costs. 16At 5.07pm on Monday 20 May 2013 (i.e. the day before the first day of the hearing of the Guarantor Proceedings), a solicitor acting on behalf of Mr Shannon advised Gadens Lawyers that G A Shannon intended to enter into a Part X Arrangement and appoint a controlling trustee. 17At 9.23am on 21 May 2013 (immediately before the Guarantor Proceedings were to commence), G A Shannon, in his capacity as the sole director of 33 Electra, purported to resolve to appoint Mr Justin Cadman and Mr Justin Sheldrake of McLaren Knight as voluntary administrators of 33 Electra. He also executed an instrument of appointment. 18At 10.16am on 21 May 2013, G A Shannon purported to execute a Controlling Trustee Authority, appointing Mr William Roland Robson of Robson Cotter Insolvency Group as controlling trustee. 19Notwithstanding the foregoing steps, the Guarantor Proceedings commenced at or about 10.00am on 21 May 2013. At that time Mr McClelland (the same solicitor that purported to take the steps referred to in the two immediately preceding paragraphs) appeared for G A Shannon and sought an adjournment. The application for adjournment was refused. 20On 22 May 2013, Mr Robson, purporting to act as the Trustee in Bankruptcy of G A Shannon, filed an application in the Federal Circuit Court of Australia seeking interim orders to have G A Shannon bankrupted. The application also sought a stay of the Guarantor Proceedings. 21The documentation in the Federal Circuit Court proceedings discloses the opinion, expressed by G A Shannon, that he was solvent save for the alleged debt to the CBA. Further, the statement of assets and liabilities, provided for the purpose of the Federal Circuit Court proceedings, attested the fact that total liabilities were $3,287,000. It also referred to a non-current liability to an unsecured creditor, being "D & W Shannon" of $2,700,000. No other relevant liability was disclosed. 22The application included, as is usual, a Statement of Affairs prepared by G A Shannon, which disclosed a total liability to unsecured creditors of just over $37,200,000. Those debts to unsecured creditors included debts said to be owing to D & W Shannon Pty Ltd in the sum of $8,671,798 and to Dallas Shannon in the sum of $12,989,925. 23The draft Deed of Personal Insolvency Agreement, dated 21 May 2013, utilised for the purposes of the Federal Circuit Court proceedings, stated that Mr and Mrs D & W Shannon were major creditors to the estate and agreed to waive their rights to participate in a distribution out of the funds. 24On 29 May 2013, the application in the Federal Circuit Court was dismissed by consent. Mr Slater, solicitor, appeared for the controlling trustee in the Federal Circuit Court proceedings and he had appeared, on several occasions, for G A Shannon in the Guarantor Proceedings. 25An historical search of D & W Shannon Pty Ltd ACN 001 696 546 was conducted and the Application for Voluntary Deregistration of a Company, filed in relation to D & W Shannon Pty Ltd, disclosed that the company was not carrying on any business and had assets worth less than $1,000. 26The historical search shows that the last time the company lodged an annual return with ASIC was in January 2003 and that the company has a paid up capital of $6. 27The Federal Circuit Court proceedings commenced on 19 October 2012 when the CBA (otherwise than through its Bankwest division) filed a creditor's petition seeking to obtain a sequestration order against G A Shannon. The service of the bankruptcy notice was disputed. The petition was heard by Judge Driver (then Federal Magistrate Driver) and judgment was reserved. Because of the filing of the Personal Insolvency Agreement, the proceedings were stayed and judgment has not been delivered. 28The judgment in the judgment proceedings was delivered by Davies J on 21 May 2013. The proceedings, as earlier stated, were between G A Shannon and D & W Shannon Pty Ltd and D A Shannon. G A Shannon is D A Shannon's son. Wilma Shannon is the W Shannon in D & W Shannon Pty Ltd and is G A Shannon's mother. 29On 30 May 2013, solicitors acting for the CBA in the Guarantor Proceedings first became aware of the judgment of Davies J in the judgment proceedings. The judgment refers to Mr Murphy, whom is described as the accountant for D & W Shannon Pty Ltd. Mr Murphy is also the accountant for G A Shannon.

Conclusions of fact 30On the foregoing, the Court can confidently arrive at the following conclusions of fact. 31The judgment proceedings were between members of the one family who are closely related and are not at arms length and/or a company, the sole directors of which are members of that same family and/or the same persons. 32Between 5 February 2013 (the date of G A Shannon's affidavit in the Guarantor Proceedings) and 21 May 2013 (the date of the Statement of Affairs in the personal bankruptcy proceedings), a period of just over three months, there appears a gross disparity between the debts said to be owed by G A Shannon. That disparity affects the position of the CBA significantly and adversely in relation to the enforcement of the Guarantor Proceedings. 33On the basis of the material read on the motion, and purely for the purposes of the interlocutory proceedings, it is more than arguable that the judgment proceedings were taken for the purpose of affecting the standing of creditors, rather than the obtaining of moneys arising from the debt, if it were to exist. 34Lastly, there is, at least arguably, arising from the aforesaid disparity, a suggestion that one or other of the affidavit or Statement of Affairs is inaccurate and possibly deliberately so. Whether or not deliberately, arguably full disclosure was not made to Davies J in the judgment proceedings.

Issue 35The respondents to the motions do not cavil, at least for the purposes of the motion, with the aforesaid facts (as distinct from conclusions). Their opposition to the motion seeking to set aside the judgment of Davies J was that the allegation of the CBA in the motion amounts to fraud, as a consequence of which separate proceedings should be filed. 36In that regard, the respondents rely upon the judgment of the Court of Appeal in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 and, in particular, the discussion by Handley JA (with whom Mahoney and Clarke JJA agreed) at 699 and 701, the effect of which is that where a new trial is sought upon the ground of fraud, the procedure should not be by motion and affidavit. Rather, the procedure should be by the institution of separate proceedings. 37To the same effect is the judgment of the Court of Appeal in Teoh v Hunters Hill Council (No 5) [2012] NSWCA 75 in which the Court (Allsop P, Beazley JA and Handley AJA, as they each then were) said: "[11] It has long been established that 'the convenient practice' where a judgment is attacked for fraud is for that claim to be brought in a new action, and not by motion: Ainsworth v Wilding [1896] 1 Ch 673, and Kinch v Walcott [1929] AC 482, 494. In Hip Foong Hong v H Neotia & Co [1918] AC 888, 894, this was said to be 'the better course'. [12] In Jonesco v Beard [1930] AC 298, 300 it was said to be 'the proper method'. In McDonald v McDonald [1965] HCA 45, 113 CLR 529, 533 Barwick CJ said 'A separate proceeding is clearly the preferable course'. [13] If proceedings are brought by motion any objection should be taken at an early stage: Ainsworth v Wilding (above) at [679]. [14] In Jonesco v Beard (above) at 301 Lord Buckmaster, who gave the principal speech, said: 'If ... for any special reason departure from the established practice is permitted, the necessity for stating the particulars of the fraud and the burden of proof are no whit abated and all the strict rules of evidence apply.' [15] In Spies v Commonwealth (1991) 24 NSWLR 691, where the Court directed that separate proceedings be brought to set aside a consent judgment for fraud, Handley JA said at p 700, after a review of the cases, with the concurrence of Mahoney and Clarke JJA, that 'a departure from the practice should not be allowed except in the simplest of cases.' [16] In Kuwait Airways Corp v Iraqi Airways Co [2001] 1 WLR 429, 434 Lord Slynn, who gave the principal speech, approved the established practice and directed that proceedings to vary a judgment of the House of Lords alleged to be tainted by fraud at the trial, should be brought in separate proceedings (at p 434). The facts were complex and this was the suitable and convenient course. [17] Mrs Teoh alleged fraud in her notices of motion of 20 March and 27 March 2009 (167 LGERA 432 [8]) which came before Biscoe J on 27 March. He told Mrs Teoh that if she wished to proceed with an allegation of fraud it had to be properly pleaded and probably should be the subject of separate proceedings. The transcript records Mrs Teoh accepting this position (Ibid [12]). Both notices of motion were then dismissed." 38The motions before the Court, on one view, allege fraud. Nevertheless, the motions before the Court allege matters that go beyond fraud, including the failure to inform the judicial officer fully as to the circumstances surrounding the proceedings and the debt, including the position of the CBA, and an abuse of process. Nevertheless, the allegations, in part, involve fraud. 39The CBA submitted that, given the promulgation of the Civil Procedure Act 2005 and the duties imposed upon the judiciary and parties (and their legal representatives) to facilitate the quick, cheap and just resolution of the real issues between the parties, the requirement to file separate proceedings under the general law ought not prevail. 40Further, the CBA submitted that it was prepared and consented to pleadings, to which objection could be taken or in relation to which further and better particulars could be requested, outlining its case in relation to the matters. That pleading, on the submission of the CBA, would take the form of points of claim with adequate directions by the Court to ensure appropriate particularity and the application of the rules as if the Points of Claim were a Statement of Claim. 41The judgment of the Court of Appeal in Teoh was issued at a time that the Civil Procedure Act applied. I am bound by it. There is much force in the submission of the CBA as to the consistency of the approach adopted in Teoh and the injunction contained in ss 56 and following of the Civil Procedure Act. 42The issues raised by the CBA going to the setting aside of the orders are, at least, arguable. The overwhelming balance of convenience, particularly in light of bankruptcy proceedings, dictates that the CBA should not be disadvantaged (nor D & W Shannon or Dallas Shannon advantaged) pending the outcome of the resolution of the issues raised by the CBA on the motion. 43In those circumstances, so much of the motion that does not raise fraud, even on the authorities, may be raised by motion and the motion should not be summarily dismissed. On the authorities, by which I am bound (and which are based on extremely potent policy considerations), so much of the motions that rely on fraud should be the subject of separate proceedings. I need not discuss that aspect further. 44For the foregoing reasons, on 28 June 2013, the Court made the following orders and directions: (1)Separate proceedings be commenced by the applicant on the motion seeking to set aside the judgment of Davies J. (2)The entry of that judgment be set aside. (3)The execution or enforcement of the judgment of Davies J be stayed pending the outcome of the motion and the separate proceedings. (4)The motions be stood over to be heard together with the separate proceedings to be commenced by the Commonwealth Bank as earlier stated. (5)Costs be costs in the cause on the motion and the other proceedings commenced pursuant to these directions. (6)Any proceedings, commenced pursuant to these orders, be commenced within 14 days hereof.

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