Devon v Thirteenth Kaysan Pty Ltd

1. The application for leave to appeal is dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MIDDLETON J: 1 This is an application for leave to appeal a judgment of the trial judge in Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 357 delivered on 13 April 2016 (the 'Reasons'), dismissing the proceeding against four respondents pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (the 'Federal Court Act'). 2 The trial judge has also dismissed the proceeding against all the other respondents. On 11 July 2016, the trial judge entered summary judgment for the 27th respondent against the applicant: see Devon v Ji [2016] FCA 797. On 18 August 2016, the trial judge entered judgment for the 4th to 11th respondents and the 13th to 26th respondents against the applicant: see Devon v Ji [2016] FCA 988. No applications have been brought for leave to appeal in respect of the last mentioned judgments, although the time for such an application has not yet lapsed in relation to the judgment delivered on 18 August 2016. 3 The general principles as to when the Court should grant leave to appeal are clear: see, eg, Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. The issue in this application is whether the decision of the trial judge was attended by sufficient doubt to warrant the grant of leave to appeal. 4 Mr Devon (the applicant for leave) commenced action against 27 respondents primarily under the National Consumer Credit Protection Act 2009 (Cth) (the 'Act'), but also alleged unconscionable conduct, and misleading or deceptive conduct on the part of the 27 respondents. The four respondents before me (namely, the 1st, 2nd, 3rd and 12th respondents) sought summary dismissal of the action against them, which related to two loans advanced to a company or companies controlled by Mr Devon. The loans were guaranteed by Mr Devon and secured by a mortgage over property owned by Mr Devon. The four respondents sought, and the trial judge granted, summary dismissal on the grounds that the Act did not apply to the loans, as the loan agreements were not 'credit contracts' entered into by a natural person for the purposes of ss 5 and 7 of the National Credit Code (the 'Code'). The trial judge held the alternative claims of unconscionable conduct and misleading and deceptive conduct did not disclose a cause of action against the four respondents. 5 I have had the opportunity of reading the transcript of the hearing before the trial judge and considering the evidence before her. Mr Devon appeared in person before me, and articulated his claims against the four respondents. 6 A number of grounds of appeal were raised in the submissions of Mr Devon, including: (1) whether the trial judge failed to properly construe the mortgage as being a separate credit contract that did not secure obligations under the loan agreement; (2) whether the trial judge erred by failing to find that the mortgage agreement was subject to the Code to the extent that it secured obligations under the loan covenants in it; (3) whether the trial judge erred by summarily dismissing the application where evidence of a 'sham company structure' could only be discovered at a trial and with further discovery; (4) whether the trial judge erred by failing to take into account or give sufficient weight to evidence of events that lead to 'finance entrapment', including valuations and 'unwarranted caveats' which prevented any future refinancing; (5) whether the trial judge erred by failing to consider the unconscionable conduct of the four respondents in providing two loans to Mr Devon in order to 'charge substantially more'; and (6) whether the Court should lift the corporate veil to reveal the true nature of the transactions. 7 The central allegations concerned the Code, and otherwise the general tenor of the complaint was that there was a concerted action by the four respondents to treat Mr Devon unconscionably and to mislead him. 8 The history and subject matter of this proceeding have been set out by the trial judge, and need no repeating. I will assume the reader is familiar with this history and subject matter. 9 The trial judge correctly set out the principles relevant to the application of s 31A(2) of the Federal Court Act at [15] of the Reasons. 10 Essentially, the trial judge found that: none of Mr Devon's claims against the four respondents raised a triable issue in fact or law; the Code did not relevantly apply; insofar as there was a claim that the second loan transaction was 'tainted' or impugned by the first loan transaction because the transactions were related, such a claim was bad in law and had no reasonable prospects of success; the unconscionable conduct allegation and the misleading and deceptive conduct allegation articulated by Mr Devon were also wholly unsupported by the material before the Court, save for some generalised assertions; and as to the allegation that the loan transactions were structured as a loan to a company, not to Mr Devon personally, to avoid the requirements of the Code, if this was intended to be an allegation of sham, there was nothing in the evidence before the Court to support a claim that it was the common intention of all the parties to the loan transactions that the transactions should not create the legal relations which the documents on their terms created. 11 I have come to the view that, on the basis of the material before the Court, the trial judge was correct in her approach and decision. 12 As to the application of the Code, it is a requirement that the loan be made to a natural person (or strata corporation). The trial judge's analysis was correct: the mortgage agreement itself was not a 'credit contract' (either in its terms or operation), and the mortgage was clearly given as security. The actual loan or credit contract (if not a sham) was clearly not made to a natural person. 13 Therefore, the principal basis for Mr Devon's claim was untenable, as the Code did not apply to Mr Devon's situation. 14 As to the 'sham' argument, after correctly stating the principles to apply, her Honour said as follows: [26] In the present case there is nothing in the evidence before the Court to support a claim that it was the common intention of all the parties that the loan agreements should not create the legal relations which the agreements on their terms created. To the contrary, the evidence showed (at least in relation to the first loan) that the loan transaction was intended by the parties to have legal effect as a loan to Southco. The Applicant, as the sole director of Southco: (1) agreed to, and entered into a, guarantee of the loan "in consideration of the lender…at the request of the [Applicant] having agreed to make the advance referred to in the Loan Agreement"; (2) agreed to and gave a charge over the assets of Southco as security for the loan from the First and Second Respondents; and (3) sought and obtained independent legal and accounting advice in respect of the loan and security to be provided. In other words, the security provided in respect of the loan was consistent with a loan to the company. [27] The existence of an ulterior purpose on the part of the First to Third Respondents in lending to the company and not to the Applicant himself (as appears to be asserted by the Applicant) does not gainsay that the loan transaction was a genuine transaction which was intended to have effect on its terms. Furthermore, although there is an absence of documentary evidence concerning the second loan, there is no suggestion in the Applicant's material that it was the common intention of the parties to that loan to create legal rights and obligations different from the actual legal rights and obligations created. 15 In my view, this conclusion was correct. 16 The trial judge then considered the claims of unconscionable conduct, and misleading and deceptive conduct. The trial judge had before her a great deal of documentation relevant to the transactions. There was nothing in that documentation that supported Mr Devon's generalised claims. 17 Her Honour referred to the comments of Reeves J in Dowling v Commonwealth Bank of Australia [2008] FCA 59. There his Honour gave summary judgment for the respondent on the basis that the applicant had not 'been able to delineate the factual foundation for a claim involving a breach of s 52 of the Trade Practices Act, or any other valid claim against the [respondent]…[and] there is no reasonable prospect of her ever being able to do so': at [57]. 18 On this aspect, the trial judge concluded at [32]: I am conscious that the Applicant prepared his own Court documents and the Court should be cautious to find that he has no reasonable prospect of prosecuting his claims of unconscionable and misleading and deceptive conduct, but no real basis for a triable issue either in fact or law is demonstrated either in the pleadings or on the evidence relied on by the Applicant. 19 I am also conscious that Mr Devon has been preparing his own Court documents. Mr Devon would desire a full investigation of all the transactions and the involvement of the four respondents. In the course of the hearing for leave before me today, he elaborated on a number of his submissions, pointing to his own financial position at the time of entering into the relevant transactions, and his feeling of being under duress and vulnerable. However, this is an example of where the allegation he makes is not enough to sustain any action for unconscionable conduct: see Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447. It must at least be demonstrated that the alleged wrongdoer unfairly took advantage of an opportunity given to it. 20 Mr Devon has been given ample opportunity to put his case in proper form, both before the trial judge, and before me on this application. It is to be recalled that before the trial judge, Mr Devon was represented by Counsel. Nevertheless, there is still a complete lack of identification of any claim that could be based upon legal principle as far as relevant to Mr Devon's complaints. 21 The general statements made by Mr Devon in his affidavit sworn on 31 August 2015 ('primary affidavit') and in the statement of claim are mostly based upon his claims relating to the Code. Insofar as there are separate references to unconscionable conduct and misleading and deceptive conduct, these references do not lead to any material conduct on the part of any of the four respondents that could substantiate the relief that Mr Devon ultimately seeks in this proceeding. In this regard, I do not consider there would be any utility in giving Mr Devon yet another opportunity to articulate a claim divorced of any reference to the Code. 22 I am mindful of the caution that one must exercise in entering judgment on a summary basis, as was the trial judge. However, the inevitable conclusion is that Mr Devon had no prospects of prosecuting his proceeding to a successful conclusion, based upon the material before the Court, accepting it all to be admissible. The trial judge considered the material before her and whilst she indicated that the grounds supporting the originating process and the primary affidavit were not easy to follow nor articulated an intelligible claim, in my view, her Honour was able to distil the arguments put by Mr Devon: see [5] and [6] of the Reasons. Before the trial judge, Counsel for Mr Devon conceded that the pleading was defective, a concession that was correctly made by him. Nevertheless, no attempt has been made to remedy this situation. 23 The trial judge did not specifically consider the residual discretion the Court has to reject the summary dismissal claim, and give to Mr Devon another opportunity to articulate his claims on this basis. However, the trial judge was clearly of the view that there was no reasonable prospect of Mr Devon ever being able to formulate a proper claim, and acted accordingly in applying s 31A of the Federal Court Act.