[1981] HCA 62
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
[2005] HCA 12
Fortson Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162
Source
Original judgment source is linked above.
Catchwords
[1993] HCA 15
Baxter v Obacelo Pty Ltd (2001) 205 CLR 635[2001] HCA 66
Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654[1981] HCA 62
Byrne v Australian Airlines Ltd (1995) 185 CLR 410[2005] HCA 12
Fortson Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162[2008] SASC 49
GE Capital Australia v Davis (2002) 180 FLR 250
[2002] NSWSC 1146
Investec Bank (Australia) Limited v Glodale Pty Ltd (2009) 24 VR 617
[2004] SASC 61
Kennedy v De Trafford [1897] AC 180
Leerdam v Noori (2009) 227 FLR 210
[2009] NSWCA 90
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
[1998] HCA 69
Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773
72 ACSR 684
Morris v Robinson (1824) 3 B & C 196
107 ER 706
Northern Territory v Mengel (1995) 185 CLR 307
[2015] HCA 28
Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646
[2012] HCA 54
Williams v Frayne (1937) 58 CLR 710
Judgment (17 paragraphs)
[1]
mission, A Bill to Consolidate, Amend, and Reform the Law Relating to Conveyancing, Property, and Contract and to Terminate the Application of Certain Imperial Statutes (Report No 16, February 1973)
Category: Principal judgment
Parties: David Andrew James (Appellant)
Australia and New Zealand Banking Group Ltd (First Respondent)
David Paul Merryweather and Greg Hall both in their personal capacities as Receivers and Managers of each of TLT Nominees Pty Ltd (Receivers and Managers Appointed) (in liquidation) and Newcastle Liquor Wholesalers Pty Ltd (Receivers and Managers Appointed) (in liquidation) (Second Respondents)
Representation: Counsel:
D F Jackson QC / J Baird (Appellant)
I M Jackman SC / R M Foreman (Respondents)
[2]
Solicitors:
Allsop Glover Lawyers (Appellant)
Allens (Respondents)
File Number(s): CA 2017/92853
Decision under appeal Court or tribunal: Supreme Court
Jurisdiction: Equity - Commercial List
Citation: James v Australia and New Zealand Banking Group Ltd (No 2) [2017] NSWSC 216
Date of Decision: 9 March 2017
Before: Stevenson J
File Number(s): SC 2016/44772
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
Between 2005 and 2010 Mr David James, the appellant, gave four guarantees to ANZ, the first respondent, in respect of the indebtedness to ANZ of various companies associated with Mr James, including TLT Nominees Pty Ltd ("TLT") and Newcastle Liquor Wholesalers Pty Ltd ("NLW"). In August 2013 ANZ appointed the second respondents (the "Receivers") to be receivers and managers of the companies over which it held security, including TLT and NLW.
In October 2013 proceedings were commenced by ANZ in the Commercial List of the Equity Division against Mr James. In May 2014 judgment was entered by consent against Mr James for the sum of $13,928,818.66.
Between June and November 2014, the Receivers caused distributions totalling $2,177,211.93 to be made to ANZ from realisations of assets of TLT and NLW.
In February 2016 Mr James, on his own behalf and on behalf of a number of companies with which he had been associated but which were by then in liquidation, including TLT and NLW, commenced Commercial List proceedings against ANZ and the Receivers claiming damages for loss resulting from the Receivers committing trespasses to property of certain of the plaintiffs and selling secured property of TLT and NLW at undervalue. On 17 February 2016 Mr James filed a notice of motion, which was dismissed by Ball J on 17 June 2016, seeking leave nunc pro tunc to bring those proceedings as derivative actions on behalf of the companies in liquidation: [2016] NSWSC 833.
On 17 October 2016 Mr James filed a notice of motion seeking leave to amend his Commercial List Summons and Commercial List Statement. By judgment of 9 March 2017, Stevenson J dismissed that motion: [2017] NSWSC 216. Subsequently, on ANZ's motion, Stevenson J ordered that the proceedings be summarily dismissed so far as concerned Mr James. Mr James appealed by leave from the judgment of Stevenson J.
The appeal was dismissed with costs.
Per Macfarlan JA:
(1) Once final judgment was entered against Mr James, the rights and liabilities of the parties were merged in and subsumed by the judgment.
(2) The rule against double recovery applies where there are actual payments of an earlier judgment. ANZ is bound to give credit in its enforcement of the judgment in the present case for any actual receipts, whether resulting from realisation of securities or otherwise, but, contrary to Mr James' case, is not obliged to give credit for any notional or hypothetical receipts.
Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; [2001] HCA 66 and other authorities considered.
(3) Success for Mr James on this issue being critical to the viability of his proposed Amended Commercial List Statement, the primary judge was correct to refuse Mr James leave to amend, and to dismiss the proceedings.
Leerdam v Noori (2009) 227 FLR 210; [2009] NSWCA 90 and other authorities referred to.
Per Leeming JA and Sackville AJA (Macfarlan JA agreeing):
(1) Section 420A(1) of the Corporations Act 2001 (Cth) does not provide a remedy where there is a breach of the duty it imposes.
GE Capital Australia v Davis (2002) 180 FLR 250; [2002] NSWSC 1146 and other authorities considered.
(2) As there is no remedy provided by s 420A(1), a guarantor continues to be entitled to the remedies available under the general law in answer to proceedings to enforce a guarantee. In particular, the guarantor is entitled to insist by way of a pro tanto defence on a reduction in the amount due under the guarantee should the principal creditor breach the duty owed to the principal debtor when realising any assets provided by way of security for the debt.
(3) However, Mr James consented to judgment being entered against him, his rights as guarantor were merged in the judgment debt thereby created and he became liable to the ordinary processes of execution in the same way as any other judgment debtor.
(4) There is no reason to construe s 420A as intending to alter the principles concerning "double recovery" or "double satisfaction".
[5]
Judgment
MACFARLAN JA: Between 19 August 2005 and 9 April 2010 the appellant, Mr David James, gave four guarantees to the first respondent (the "ANZ") in respect of the indebtedness to ANZ of various companies associated with Mr James, including TLT Nominees Pty Ltd ("TLT") and Newcastle Liquor Wholesalers Pty Ltd ("NLW").
On 19 August 2013 ANZ appointed the second respondents (the "Receivers") to be the receivers and managers of the companies over which it held security, including TLT and NLW. The securities provided for the Receivers to be the agents of the companies, not ANZ.
On 11 October 2013 ANZ commenced proceedings against Mr James on his guarantees in the Commercial List of the Equity Division and on 16 May 2014 judgment was entered by consent against Mr James for the sum of $13,928,818.66.
Between 6 June 2014 and 13 November 2014 the Receivers caused distributions totalling $2,177,211.93 to be made to ANZ from realisations of assets of TLT and NLW.
On 10 February 2016 Mr James, on his own behalf and on behalf of a number of companies with which he had been associated but which were by then in liquidation, including TLT and NLW, commenced the present Commercial List proceedings against ANZ and the Receivers claiming damages for loss resulting from the Receivers committing trespasses to property of certain of the plaintiffs and selling secured property of TLT and NLW at an undervalue.
On 17 February 2016 Mr James filed a notice of motion seeking leave nunc pro tunc to bring those proceedings as derivative actions on behalf of the companies in liquidation. On 17 June 2016 Ball J made an order dismissing the motion as a result of Mr James' indication that he no longer pressed it (James v Australia and New Zealand Banking Group Ltd [2016] NSWSC 833). This indication appeared to involve an implicit recognition that the claims already purportedly made on behalf of the companies were ill-founded.
On 17 October 2016 Mr James filed a notice of motion seeking leave to amend his Commercial List Summons and Commercial List Statement. By judgment of 9 March 2017 Stevenson J dismissed that motion (James v Australia and New Zealand Banking Group Ltd (No 2) [2017] NSWSC 216). Subsequently, his Honour ordered, on ANZ's motion, that the proceedings be summarily dismissed so far as concerned Mr James. It is not of relevance to the present appeal but it appears that the other plaintiffs have abandoned their proceedings.
[6]
Mr James' proposed Amended Commercial List Statement
Stevenson J indicated that the allegations contained in the proposed Amended Commercial List Statement fell into two categories, "The Impeachment of Title Claim" and "The Sale at Undervalue Claim". Only the proposed allegations comprising "The Sale at Undervalue Claim" are pressed on appeal.
The essence of those proposed allegations is as follows:
1. The Receivers were "controllers" of TLT and NLW within the meaning of that expression in s 420A of the Corporations Act 2001 (Cth) (see the definition in s 9). Section 420A(1) provides as follows:
"420A Controller's duty of care in exercising power of sale
(1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a) if, when it is sold, it has a market value - not less than that market value; or
(b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold."
1. The Receivers were officers of TLT and NLW to whom the duties imposed by s 180 of the Corporations Act applied. Section 180(1) imposes a duty of care and diligence on officers of corporations and s 180(2) imposes a duty of good faith and to act for a proper purpose.
2. In realising the assets of TLT and NLW, the Receivers owed a duty under the general law to act in the best interests of these companies, and not to act negligently.
3. "After 16 May 2014, or alternatively between 19 August 2013 and 16 May 2014", the Receivers realised assets of TLT and NLW, including stock comprising wine, for less than their market value, causing loss to TLT and NLW in an amount of $19.42 million.
4. By reason of these matters Mr James is, inter alia:
"[e]ntitled in equity to have the aforesaid loss and damage suffered by TLT and NLW ascertained and brought to account in calculating the liability of the principal debtors to ANZ, which in turn determines the amount of [Mr James'] liabilities under the Guarantees."
1. Alternatively, Mr James is entitled to have the amount of the loss and damage "brought to account against the indebtedness of the principal debtors to ANZ named in the Guarantees, and to apply the same in reduction of the balance amount of the ANZ judgment (including interest)".
[7]
The judgment at first instance
The primary judge refused Mr James leave to amend to include the Sale at Undervalue Claim, concluding as follows:
"35 Can a guarantor against whom judgment is entered under the guarantee (whether by consent or otherwise), contend in later proceedings that his or her liability under the guarantee and the judgment has been 'discharged' by reason of:
(1) events occurring prior to the judgment which would otherwise have given rise to an equitable set-off between him or her and the creditor or to have discharged the guarantor from liability (the Impeachment of Title Claim); or
(2) events occurring after judgment which would otherwise have entitled the principal debtor, and thus the guarantor, to an equitable set-off or to otherwise be brought to account (the Sale at Undervalue Claim).
36 In my opinion, the answer to both of these questions is 'no' and that Mr James should be refused the leave he seeks on that basis alone."
His Honour held that such rights and obligations as Mr James had under his guarantees had merged in the consent judgment which had been entered against him in favour of ANZ, and that Mr James was precluded from making his proposed allegations by the doctrine of res judicata.
The primary judge observed that it was inherent in the Sale at Undervalue Claim that Mr James was entitled in equity to set off against his liability under the guarantees the damage he had allegedly sustained by the sale of assets at an undervalue. Any right Mr James had to claim such a set-off had also merged in the consent judgment.
His Honour found it unnecessary to deal with ANZ's alternative arguments founded on issue estoppel, Anshun estoppel and abuse of process.
His Honour found in the alternative that Mr James' allegations were precluded by one or more of four clauses contained in his guarantees (clauses numbered 2.4, 4, 9 and 16) by which, his Honour held, Mr James had agreed not to rely upon any right which he might otherwise have had as a result of the Receivers selling assets of the principal debtors at undervalues.
[8]
The issues on appeal
Mr James first submitted that, subject to the effect of the consent judgment against Mr James and whether the terms of the guarantees precluded his claims, Mr James was entitled to "have his liability as guarantor reduced by the extent to which there had been a failure to comply with the equitable standard, or s 420A(1), in the realisation of the debtor's property" (submissions [47]). This is not a controversial proposition. It is the two provisos to the proposition that require examination.
Secondly, Mr James submitted, in relation to the first of those provisos, that the consent judgment was not a bar to his claims because the judgment only determined Mr James' liability under his guarantees at the date of judgment and did not prevent Mr James contending that subsequent events had led to its satisfaction in whole or in part. He submitted that his Sale at Undervalue Claim was based upon events that occurred after the judgment was entered because the Receivers did not account to ANZ for the proceeds of sale until after that had occurred. Mr James relied upon the rule against double satisfaction of judgments to contend that ANZ could not enforce its judgment against Mr James when there was a deficiency in the proceeds of sale of the principal debtors' assets, caused by the Receivers' breaches of duty, which exceeded the amount of the judgment.
Thirdly, Mr James submitted, in relation to the second of the provisos, that the guarantee provisions relied upon by ANZ conflicted with the duty imposed by s 420A(1), the rights under which he submitted were incapable of being "bargained away". Alternatively, Mr James submitted that the guarantee provisions were inapplicable as a matter of their interpretation.
In response, ANZ submitted that any rights Mr James might otherwise have had were barred by the judgment in favour of ANZ to which he had consented and that the rule against double satisfaction of judgments did not apply because the post-judgment "receipts" upon which Mr James relied were hypothetical, as distinct from actual, receipts.
Alternatively, it submitted that Mr James' Sale at Undervalue Claim was precluded by the terms of his guarantees and that the duty imposed by s 420A(1) of the Corporations Act had been "bargained away" if, contrary to its primary submission, the section applied to guarantors as well as principal debtors.
[9]
DETERMINATION OF THE APPEAL
Prior to judgment against it and subject to the terms of its guarantee, a "guarantor of a secured debt is entitled to show that [its] liability to the secured creditor has been reduced or (it may be) extinguished as a result of some shortcoming in the realisation or management of the security by the mortgagee (GE Capital Australia v Davis (2002) 180 FLR 250; [2002] NSWSC 1146 at [86] per Bryson J; see also Williams v Frayne (1937) 58 CLR 710 at 738; [1937] HCA 16 per Dixon J and Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654; [1981] HCA 62 at 671 per Aickin J and 674-6 per Brennan J). As Bryson J said in G E Capital at [92] "the surety may complain of anything of which the debtor may complain, and has further rights where the value or realisation of the security has been diminished by the creditor's neglect or default" and "[i]f the guarantors show that the mortgagors would, if they made a claim, be entitled to a remedy under subsection 420A(1) [of the Corporations Act], the guarantors are … entitled to a similar remedy by way of an equitable defence to the claim against them, subject to the provisions of the guarantee".
On appeal, Mr James did not contend that he had rights of this character in respect of events occurring prior to the entry of judgment that continued in existence after judgment was entered against him. Thus, it was common ground that the judgment against Mr James had the effect described in Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [20] as follows:
"An exercise of judicial power, it has been held, involves 'as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons'. The rendering of a final judgment in that way 'quells' the controversy between those persons. The rights and obligations in controversy, as between those persons, cease to have an independent existence: they 'merge' in that final judgment. That merger has long been treated in Australia as equating to 'res judicata' in the strict sense" [citations omitted].
Instead, Mr James contended that no relevant merger in the judgment occurred because the matters upon which he relied did not occur, and therefore his rights did not arise, until after the judgment was entered. He submitted in this regard that the exercise of the Receivers' powers of sale was not complete until the Receivers' accounting (after the date of the judgment against Mr James) to ANZ, for an amount that was deficient because of the Receivers' default. The correctness of this proposition may be doubted as the relevant acts of default would appear to have been the sales themselves which largely, if not wholly, occurred prior to the date of the judgment against Mr James. Contrary to Mr James' submission, he would not be assisted in this respect by proof that he was unaware of the Receivers' activities. He gave no reason why his lack of knowledge would assist him.
[10]
ORDERS
For the reasons given above, the appeal should be dismissed with costs.
LEEMING JA and SACKVILLE AJA: We are grateful to Macfarlan JA for setting out the facts and identifying issues that were the subject of debate in this Court. We agree with the orders proposed by his Honour but we prefer to state our own reasons. In doing so, unless otherwise indicated, we use the same abbreviations as Macfarlan JA.
The question before the primary Judge was whether the appellant (Mr James) should be granted leave to amend his Commercial List Summons and Statement in accordance with a proposed Amended Commercial List Summons (Proposed Summons) and a proposed Amended Commercial List Statement (Proposed Statement). The primary Judge dismissed Mr James' notice of motion seeking leave to amend and ordered that the proceedings be summarily dismissed so far as they concerned Mr James' claims against the respondents. [1]
[11]
The allegations
The following is a summary of the allegations in the Proposed Statement material to the present appeal.
On and after 19 August 2013, the Receivers were "controllers" and "officers" of each of TLT and NLW within the meaning of ss 9 and 420A of the Corporations Act 2001 (Cth) (Corporations Act) [2] (pars 91, 97).
When the Receivers took possession of the stock of TLT and NLW on 19 August 2013, the value of the stock totalled $11.9 million (pars 94, 100).
As at 19 August 2013, the amounts owed by the debtors of TLT and NLW together amounted to $11 million (par 103).
After taking possession of the stock, the Receivers sold the stock for a total of $1.145 million (pars 95, 101).
After 19 August 2013, the receivers realised the debtors of TLT and NLW for a total amount of approximately $2.4 million (par 104).
The Receivers, officers of TLT and NLW, owed a duty to each of TLT and NLW under s 180(1) of the Corporations Act [3] to exercise their powers and discharge their duties with the degree of care and diligence that reasonable persons would exercise if they were directors of the corporations (pars 92, 98).
As controllers of TLT and NLW, the Receivers owed a duty to each of TLT and NLW under s 420A of the Corporations Act in exercising the power of sale over the property of both corporations to take all reasonable care to sell that property for not less than its market value (pars 93, 99).
In breach of their duty under s 420A of the Corporations Act the Receivers failed to take all reasonable care to sell the stock of TLT and NLW at not less than the market value (pars 96, 102).
In breach of their duties owed as officers of TLT and NLW, the Receivers realised the amounts owing to TLT and NLW for less than their value (pars 105, 106).
The conduct and breaches of duty alleged against the Receivers caused loss and damage to each of TLT and NLW amounting to $19.355 million (par 112).
ANZ was aware and approved the conduct alleged against the Receivers and thus the Receivers were acting as agents of ANZ and ANZ is liable for their conduct (par 115A).
Between 6 June 2014 and 13 November 2014, the Receivers made distributions to the first respondent (ANZ) totalling $2.177 million (par 107.)
[12]
Comments on the Proposed Statement
Four matters should be noted concerning the Proposed Statement. First, in his oral submissions in this Court Mr Jackson QC, who appeared with Mr Baird for the appellant, acknowledged that any cause of action, including a right of set off, that accrued to Mr James against ANZ prior to the consent judgment merged with that judgment. [4] Mr Jackson also acknowledged that the Proposed Statement is vague in relation to the dates on which the Receivers allegedly breached the duties they owed to TLT and NLW. Mr Jackson submitted, however, that it was open to Mr James to argue at the trial that his entitlement to bring the losses sustained by TLT and NLW into account in assessing the amount due to ANZ under the judgment arose only after the date of the consent judgment. Mr Jackson made it clear, in any event, that Mr James was not seeking to rely on any cause of action or entitlements against ANZ that arose before the date of the consent judgment.
Secondly, Mr Jackson did not dispute that the Proposed Statement is infelicitously drafted insofar as it asserts that Mr James is entitled to reduce the "amount of his liability as guarantor to ANZ under the [consent] judgment" (par 116). As Mr Jackman SC, who appeared with Mr Foreman for the respondents forcefully pointed out, once the consent judgment was entered, Mr James' rights and obligations under the guarantee ceased to have an independent existence. His rights and obligations thereafter flowed from his status as a judgment debtor, not as guarantor of the indebtedness of TLT and NLW. Mr Jackson's answer was that any infelicity in the drafting of the Proposed Statement did not detract from the validity of Mr James' argument.
Thirdly, the Proposed Statement relies on the Receivers' alleged breaches of s 420A(1) of the Corporations Act to support Mr James' claim that he is entitled to take into account the losses occasioned by the Receivers' sale of stock at an undervalue. However the Proposed Statement relies on the Receivers' alleged breaches of duties owed by them as officers of TLT and NLW, in particular the duties owed pursuant to s 180(1) of the Corporations Act, to support Mr James' claim to take into account the losses occasioned by the Receivers' failure to realise for full value the debts owed to the corporations. The Proposed Statement does not allege that the failure to realise the debts at full value was a breach of s 420A of the Corporations Act. This feature of the Proposed Statement received little attention in argument in this Court.
[13]
Matters not argued
There was no dispute between the parties that equity prevents a judgment creditor from enforcing a judgment debt to the extent that the judgment debt has already been satisfied. This is the case, for example, where a judgment creditor, having obtained judgment against a guarantor for the full amount due from the principal debtor, subsequently exercises a power of sale over the principal debtor's assets and receives the net proceeds of sale. There was no dispute that ANZ was prepared to credit the net proceeds actually realised by the Receivers against Mr James' liability under the consent judgment.
Although the rule against double satisfaction or double recovery was frequently referred to in argument, we did not understand Mr Jackson to rely on that rule independently of the operation of s 420A of the Corporations Act. Specifically, we did not understand Mr Jackson to submit that the rule applies to reduce Mr James' liability under the judgment by the amount the Receivers should have obtained had they acted in good faith and with reasonable care in realising the assets of TLT and NLW. Mr Jackson expressly accepted that any entitlement in Mr James to offset against his judgment debt amounts the Receivers should have obtained (but did not obtain) had to find its source in s 420A of the Corporations Act.
If, contrary to our understanding, Mr Jackson intended to submit that the rule against double satisfaction or double recovery should be extended to apply to "notional" recoveries of the judgment debt by a judgment creditor, we agree with Macfarlan JA that the submission should not be accepted. In Tomlinson v Ramsey Food Processing Pty Ltd [5] the joint judgment referred to the so-called rule against double recovery as: [6]
"the distinct rule, equitable in origin, which prevents a person from actually recovering more than once for a given loss that results from breach of a given obligation".
[14]
The argument
The argument advanced by Mr Jackson involved the following steps:
(i) The guarantor of a secured debt is entitled to a credit by way of an equitable defence to the creditor's demand for payment under the guarantee, for the amounts lost or foregone by the creditor's neglect or default in realising the security held over the principal debtor's assets.
(ii) Entry of judgment against the guarantor determines the amount due under the guarantee at the date of judgment.
(iii) Upon entry of the judgment, any right the guarantor then had to a credit for amounts lost or foregone by the creditor's neglect or default in realising the principal debtor's assets merges in the judgment.
(iv) The principle under which the guarantor's rights merge in the judgment has no application to rights arising by reason of the judgment creditor's neglect or default in realising the principal debtor's assets after the date of the judgment.
(v) The effect of s 420A(1) of the Corporations Act is that if the judgment creditor, after the date of the judgment, causes loss to the principal debtor by failing to take all reasonable care in the exercise of the power of sale, the judgment debtor's liability under the judgment debt is reduced by the amount of the loss occasioned by the judgment creditor's breach of s 420A(1). This result comes about because s 420A(1), properly construed, obliges a judgment creditor who exercises a power of sale over the assets of the principal debtor to take all reasonable care to obtain market value, notwithstanding that the power of sale is exercised after judgment has been entered against the guarantor for the full amount of the guaranteed debt.
(vi) Section 420A(1) of the Corporations Act imposes a standard of behaviour on "controllers" not only for the benefit of the corporation whose assets are being realised but for the benefit of various classes of the public. These classes include the corporation's shareholders, its creditors and others, like guarantors, who will be adversely affected if the principal creditor fails to conform to the statutory standard. It follows that although a guarantor may agree with the secured creditor to forego rights that otherwise would arise if the creditor breaches the general law duties governing realisation of the debtor's assets, a guarantor (or judgment debtor) cannot bargain away the protection afforded by statute.
(vii) In any event, the terms of the guarantee executed by Mr James should not be construed as preventing him from relying on the Receivers' contravention of s 420A(1) of the Corporations Act for the purpose of determining the extent of his liability under the consent judgment.
[15]
Reasoning
The principal difficulty with Mr James' submissions lies in the fifth and sixth propositions set out above. In addressing this issue we are prepared to assume that the whole of the Receivers' conduct which is alleged to have contravened s 420A(1) of the Corporations Act occurred after entry of the consent judgment against Mr James.
Section 420A(1) provides as follows:
"Controller's duty of care in exercising power of sale
(1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a) if, when it is sold, it has a market value - not less than that market value; or
(b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
(2) Nothing in subsection (1) limits the generality of anything in section 180, 181, 182, 183 or 184."
The section neither provides a remedy for any breach nor identifies the persons who may be able to enforce the provision. In GE Capital Australia v Davis, [7] Bryson J, in a detailed and careful judgment, pointed out that there is nothing in the text of s 420A to indicate that there should be any particular remedy for a breach of s 420A(1). [8] His Honour also said that there is nothing in the language of s 420A or elsewhere in the Corporations Act: [9]
"which indicates that [s 420A(1)] was enacted for the protection of persons who do not have interests in the property of the corporation, such as guarantors who incur obligations by reference to the obligations of the corporation. Their obligations are not obligations to the corporation, they do not have an interest in its relevant property and they have not entered into any relevant contractual relationship with the corporation, in respect of its property or otherwise; they have guaranteed an obligation of the corporation to a third party. There is in my opinion no basis for the view that s.420A, alone or with the aid of context, operates or was intended to operate so as to confer a right to recover damages or any other right to a remedy on guarantors."
After reviewing the authorities, [10] Bryson J concluded that: [11]
"the requirement imposed on the controller by subs.420A(1) takes the place of, or it may be operates cumulatively to the obligation otherwise existing with the general law of a controller exercising power of sale in respect of property of a corporation. In so doing the section enhances the duty of the controller and the protection afforded to the corporation. This is achieved, and the apparent legislative intention is fulfilled without altering the remedies available to the corporation for breach of obligation in exercising the power of sale, and without altering the means available for obtaining remedies. Where real property subject to a mortgage has been sold and the mortgagor succeeds in establishing that there has been a sacrifice of the mortgagor's interest in the exercise of the power of sale the mortgagor's remedy is to be credited compensation when accounts are taken of the mortgage debt. Subsection 420A(1) alters this scheme by inserting a more stringent rule, but does not otherwise change the scheme.
…
In my opinion the equitable remedies which in an earlier state of the law were available to a guarantor where there was a breach of the mortgagee's duty to a mortgagor corporation are now to be tested by reference to whether there was a breach of the duty stated in subs 420A(1)."
[16]
Endnotes
James v Australia and New Zealand Banking Group Ltd (No 2) [2017] NSWSC 216 (Primary Judgment).
Section 420A of the Corporations Act is reproduced at [10(1)] above. Section 9 of the Corporations Act defines "controller" in relation to the property of a corporation to include a receiver of that property. The term "officer", in relation to a corporation, is also defined to include a receiver.
Section 180(1) of the Corporations Act relevantly provides that an officer of a corporation must exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if that person were a director or officer of a corporation in the corporation's circumstances.
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [20] (French CJ, Bell, Gageler and Keane JJ).
(2015) 256 CLR 507; [2015] HCA 28.
Tomlinson v Ramsey Food Processing Pty Ltd at [27] (French CJ, Bell, Gageler and Keane JJ).
His Honour referred to O'Connor v SP Bray Ltd (1937) 56 CLR 464; [1937] HCA 18, Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397; [1967] HCA 31, Northern Territory v Mengel (1995) 185 CLR 307; [1995] HCA 65 and Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24.
GE Capital at [53], [56].
[2009] FCA 773; 72 ACSR 684 at [7]-[14] (Mijac Investments).
(2004) 60 NSWLR 646; [2004] NSWSC 114 at [52]-[59].
Mijac Investments at [15]-[16].
[1897] AC 180.
[1971] Ch 949.
Queensland Law Reform Commission, A Bill to Consolidate, Amend, and Reform the Law Relating to Conveyancing, Property, and Contract and to Terminate the Application of Certain Imperial Statutes (Report No 16, February 1973) at 68.
(2009) 24 VR 617; [2009] VSCA 97 at [42].
(2008) 100 SASR 162; [2008] SASC 49 at [27] (Debelle J, Doyle CJ and Bleby J agreeing).
See above at [59]-[60].
(2004) 87 SASR 570; [2004] SASC 61 at [115]-[116] (Besanko J, Mullighan J agreeing; Gray J dissented on this issue).
[17]
Amendments
19 March 2018 - [25]: "extent, that" changed to "extent that,".
[27]: Cross-reference [22] changed to [24].
[37]: Cross-reference [21] changed to [23].
[42]: After word "pointed" the word "out" inserted.
[69]: "we agree with Macfarlan JA that" changed to "we".
Footnote 3: "of the corporation" changed to "of a corporation".
Footnote 4: "Ramsay" changed to "Ramsey".
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Decision last updated: 19 March 2018
The present appeal is brought by leave from the judgment of Stevenson J. For the reasons given below, I consider that the appeal should be dismissed with costs.
In reply, Mr James noted that an allegation that the Receivers acted as ANZ's agents in effecting the sales of secured assets was intended to be included in the current draft of the proposed Amended Commercial List Statement, as it had been in the previous draft.
It is however significant that Mr James' submissions implicitly accepted that his case would fail if, and to the extent that, the relevant acts occurred prior to the judgment. For the purposes of this appeal it is therefore convenient to assume, in Mr James' favour, that the alleged defaults occurred after the date of the judgment.
The gravamen of Mr James' case on appeal is that the rule against double satisfaction of judgments applies to prevent a judgment creditor enforcing its judgment to the extent, not only that it has received money in satisfaction of the judgment, but also to the extent that the creditor would have received further money in satisfaction of the judgment if the creditor had not defaulted in performance of a duty owed to the judgment debtor or to a guarantor in respect of the realisation of assets held as security for the debt.
I note at the outset that Mr James does not contend that he is entitled to pursue against ANZ a claim for damages which he is entitled to set off against his judgment debt. Instead, Mr James submits that the rule against double satisfaction of judgments applies because the judgment was "satisfied" when the Receivers accounted to ANZ in the sense referred to in [24] above.
To deal with this submission it is necessary to review the following authorities which establish the existence of the rule against double satisfaction of judgments.
In Morris v Robinson (1824) 3 B & C 196; 107 ER 706 the plaintiffs' cargo had been improperly sold in the course of a sea voyage. The plaintiffs obtained judgment against the shipowners for breach of their duty as carriers but the judgment was not satisfied. The plaintiffs then brought an action against the purchasers who had bought the cargo. It was held in that action that the former action did not constitute a bar to it. In so holding, Bayley J said:
"If … the plaintiffs were to recover the full value of the goods in each action, a Court of Equity would interfere to prevent them from having a double satisfaction, but there is nothing in the former action which can, in a Court of Law, prevent the recovery in this" (ER at 710).
Similarly in United Australia Ltd v Barclays Bank Ltd [1941] AC 1, the House of Lords held that a previous action against the converter of a cheque (in which a final judgment had not been obtained) did not prevent the plaintiffs bringing an action for conversion against the bank which had collected the cheque. As Viscount Simon LC held, for the earlier action to have constituted a bar, "the appellants should have received satisfaction" (at 21).
That decision was followed in Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR (NSW) 159, in which this Court held that an action against a tortfeasor was barred as the plaintiff had earlier obtained satisfaction of a judgment against a concurrent tortfeasor who was liable in respect of the same damage. In the words of Asprey JA at 181, "double satisfaction cannot be recovered by a plaintiff in respect of the wrong done to him".
In the Registrar-General (New South Wales) v Behn (1981) 148 CLR 562; [1981] HCA 36, the owner of land of which he had fraudulently been deprived obtained a judgment against the transferee. The judgment was not able to be satisfied. The owner was held to be entitled to claim damages from the Registrar General out of the assurance fund constituted under the Real Property Act 1900 (NSW). In so holding, Gibbs CJ observed at 569 that the owner would not be entitled to proceed to execution on both judgments due to the rule against double satisfaction of judgments.
In Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 at 608; [1996] HCA 38, Gummow J cited Morris v Robinson and other authorities for the proposition that "equity would interfere by injunction to restrain the plaintiff receiving double satisfaction upon execution of a plurality of judgments which had been recovered by the plaintiff".
In Baxter v Obacelo Pty Ltd (2001) 205 CLR 635; [2001] HCA 66, former clients of a solicitor sued both the solicitor and his employee. They settled their action against the solicitor for $250,000 inclusive of costs and released him from all claims. The High Court held that in the action against the employee, whilst the plaintiff would have to give credit for the $250,000 received from the solicitor, that receipt was not to be treated as having been in full satisfaction of the loss or damage such that it precluded the balance being claimed from the employee. Their Honours confirmed that the rule of double recovery prevents a plaintiff recovering from one or more defendants an amount in excess of its loss (see [39], [57] and [89]).
The rule against double recovery was described in similar terms by Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68 at [99]. In Tomlinson v Ramsey Food Processing at [27] the plurality described the rule as equitable in origin and one which "prevents a person from actually recovering more than once for a given loss that results from breach of a given obligation".
None of these authorities addressed an argument such as Mr James puts in the present case, but their description of the rule against double satisfaction of judgments does not provide any support for the argument. They proceed on the assumption that the rule applies where there are actual payments of the earlier judgment, without suggesting that the rule may extend further. Moreover, Mr James was not able to refer the Court to any authority that supported his argument.
As a matter of principle, acceptance of Mr James' submission would in my view undermine the principle of finality which the plurality in D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1; [2005] HCA 12 at [45] described as "a fundamental and pervading tenet of the judicial system, reflecting the role played by the judicial process in the government of society". This principle was the basis of the statement of the plurality in Tomlinson v Ramsey Food Processing quoted in [23] above as to the effect of a final judgment.
Once final judgment is entered, as it was against Mr James in the present case, the rights and liabilities of the parties are merged in and subsumed by the judgment. In the case of an action on a guarantee, the rights of the creditor and guarantor are converted into the rights of a judgment creditor and a judgment debtor respectively. This means that rights which the judgment debtor may have had in its capacity as guarantor are no longer available to it to raise in opposition to enforcement of the judgment. The judgment debtor can claim no special status on the basis that the debt that founded the judgment was a guarantee debt. As with other judgment debtors, it cannot claim that the judgment creditor could, and should, have obtained payment of the judgment by proceeding against other persons or realising securities in a different way. To hold otherwise would raise the spectre of a multiplicity of assertions and counter assertions that would hinder the enforcement of judgments and detract from their finality in resolving disputes.
Assuming that the principle for which Mr James contended was limited to requiring account to be taken of amounts constructively received, in the sense of amounts that would have been received but for breach by the creditor of a duty owed to the principal debtors in their capacity as such or to Mr James as a guarantor, the principle would impermissibly call in aid a status of Mr James, as guarantor, that ceased to be relevant once judgment was entered against him.
Moreover, if he had a right to damages that did not conflict with the judgment, it was for him to pursue it as such. Such a right was not, and was not contended on this appeal to be, available to Mr James to raise in answer to ANZ's enforcement of the judgment. Nor was any such right that the principal debtors might have, or have had, so available. If the principal debtors had any relevant right it was conceivable that it might have been sought to be enforced by the liquidators, or by Mr James on behalf of the companies in a derivative action, but there is no suggestion that the former has occurred and Mr James abandoned the derivative action he commenced, or sought to commence.
The result is that ANZ is, as it accepts, bound to give credit in its enforcement of the judgment for any actual receipts, whether resulting from realisation of securities or otherwise, but, contrary to Mr James' case, is not obliged to give credit for any notional or hypothetical receipts. Success on this issue being critical to the viability of Mr James' proposed Amended Commercial List Statement, the primary judge was correct to refuse Mr James leave to amend and to dismiss the proceedings so far as he was concerned.
Although summary judgment should not be given, or leave to amend pleadings refused, on the ground of lack of merit except in clear cases, the opportunity to take such a course will, as I pointed out in Leerdam v Noori (2009) 227 FLR 210; [2009] NSWCA 90 at [75] (with the concurrence of Spigelman CJ and Allsop P), often arise where questions of law are involved. At [76] and [77], I cited a number of cases in which claims were summarily dismissed or struck out as a result of the determination of questions of law. In contrast, where questions of fact are involved, summary determination will frequently be precluded by the Court's inability to foresee the precise manner in which the evidence will unfold.
So far as s 420A of the Corporations Act is concerned, I agree with the reasons given by Leeming JA and Sackville AJA that that section does not assist Mr James' case.
Finally, I refer to ANZ's Notice of Contention seeking to rely upon issue estoppel, Anshun estoppel and abuse of process in the alternative to the principle of res judicata that the primary judge relied on. None of these principles arise for consideration as Mr James' argument on appeal was confined to contending that events occurring after judgment was entered against him gave rise to deemed receipts by ANZ which amounted to satisfaction of the judgment. As Mr James submitted, this contention was not defeated by the principle of res judicata (although it failed for the reasons I have given above). ANZ accepted this to be the case and was not able to identify how its position would be improved by application of the principles of issue estoppel or abuse of process (its reliance on Anshun estoppel having been withdrawn).
Mr James is entitled to have the loss and damage suffered by TLT and NLW
"ascertained and brought to account in calculating the liability of TLT and NLW as principal debtors to ANZ, which in turn determines the amount of his liability as guarantor to ANZ under the judgment" (par 116).
(The judgment referred to in par 116 is the judgment by consent obtained by ANZ against Mr James on 16 May 2014 in the sum of $13,928,819 (par 118).)
Mr James is entitled to apply against the balance of the judgment debt the amounts that are to be brought to account in determining his liability under the judgment debt (par 120).
Fourthly, neither the Proposed Statement nor the Proposed Summons seeks damages from the receivers or ANZ. Mr James' case is that his liability to ANZ under the consent judgment is to be reduced by the amount of the loss and damage sustained by TLT and NLW in consequence of the breaches by the receivers of their duties.
Bryson J's construction of s 420A of the Corporations Act receives support from the legislative history. Section 420A was inserted into the former Corporations Law by the Corporate Law Reform Act 1992 (Cth). The background to the enactment of the provision was described in detail by Gordon J in Mijac Investments Pty Ltd v Graham (No 2) [12] and by Young CJ in Eq in Ultimate Property Group Pty Ltd v Lord. [13] Both Gordon J and Young CJ in Eq expressed the view that the legislative history supported Bryson J's analysis in GE Capital. Gordon J concluded that: [14]
"[15] … the dominant (and I consider more persuasive) view is that s 420A of the Law does not expressly confer a right to damages or any other remedy on the corporation or anyone else: see Florgale Uniforms Pty Ltd (Receiver and Manager Appointed) (in liq) v Orders (2004) 11 VR 54 at [357]-[388] and the authorities cited including Bryson J in GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250 at [45].
[16] If that view is correct (and I consider that it is), then as a matter of statutory construction, what s 420A of the Law does is to redefine the general law duty and what must be done to protect the corporation and its property when affected by exercise of a power of sale so that 'the corporation, as mortgagor … retain[s] its existing available remedies, tested by reference to the [higher] duty in s 420A(1)': see Florgale Uniforms 11 VR at [370]."
It is not necessary for present purposes to repeat the detailed account of the legislative history. It is, however, notorious that notwithstanding the traditional view reflected in Kennedy v De Trafford [15] that a mortgagee exercising a power of sale owed no duty at common law but was accountable in equity if the mortgagee failed to act in good faith, there had been statements in the authorities to the effect that a mortgagee was required to take reasonable care when exercising a power of sale. Some, notably the then-recent decision of Cuckmere Brick Co Ltd v Mutual Finance Ltd, [16] attracted the attention of the Queensland Law Reform Commission in a 1973 report. The Commission stated that: [17]
"It seems to us that on a matter of such importance, clarity and certainty are essential and that the conflict of authorities referred to above should be resolved in favour of the imposition of a duty to take reasonable care to ensure sale of the mortgaged property at the 'market value'."
The Commission's report led to the enactment of s 85(1) of the Property Law Act 1974 (Qld), which provides as follows:
"It is the duty of a mortgagee … in the exercise … of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value."
In Investec Bank (Australia) Ltd v Glodale Pty Ltd [18] the Victorian Court of Appeal said that despite the slight variation in wording, the duties in s 85 of the Property Law Act 1974 (Qld) and s 420A of the Corporations Act should be regarded as identical. The same view had been expressed by the Full Court of the Supreme Court of South Australia in Fortson Pty Ltd v Commonwealth Bank of Australia. [19]
Those statements as to the equivalence of s 85 of the Property Law Act 1974 (Qld) and s 420A of the Corporations Act must be read as references to the test of "all reasonable care", because there is a marked difference between the two provisions. Section 85(3) of the Property Law Act 1974 (Qld) expressly provides a remedy for breach of s 85(1) as follows:
"The title of the purchaser is not impeachable on the ground that the mortgagee or receiver has committed a breach of any duty imposed by this section, but a person damnified by the breach of duty has a remedy in damages against the mortgagee exercising the power of sale."
In contrast, as has been noted, s 420A of the Corporations Act is conspicuously silent as to the remedies available for a breach of the provision. The background to the enactment of the section and its obvious link to the Queensland provision confirm that the principal purpose was to clarify and, in all probability, extend the duty imposed by the general law upon a person exercising a power of sale. As Bryson J said in GE Capital, [20] s 420A is not intended to confer new rights upon third parties who might be affected by the exercise of a power of sale such as guarantors. That this was the legislative intention is confirmed by the Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth), which explained the purpose of what is now s 420A of the Corporations Act as follows:
"[406] It is sometimes said of receivers that they are prepared to sell property at a price less than the best obtainable, so long as it is sufficient to cover the debt of the chargeholder who appointed them. Proposed section 420A will make it clear that, in selling company property, a controller (to be defined in section 9 to mean a receiver and any other person who has control of company property under a charge, such as a mortgagee in possession) must take all reasonable care to sell the property for its market value (if, when sold, it has a market value) or otherwise for the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. The controller's duty under proposed subsection 420A(1) will be owed to the company. Proposed subsection 420A(1) will not affect any duties the controller may owe to others under the common law or otherwise."
In our view, Bryson J's analysis in GE Capital as to the construction of s 420A of the Corporations Act is correct. Not only has it been followed in the first instance decisions to which we have referred, but it was endorsed by the Full Court of the Supreme Court of South Australia in Jovanovic v Commonwealth Bank of Australia. [21] We certainly do not consider that the construction of s 420A adopted in Jovanovic or in the other decisions is plainly wrong. [22]
It follows from what we have said that a guarantor continues to be entitled to the remedies available under the general law in answer to proceedings seeking to enforce the guarantee. Specifically the guarantor is entitled to insist by way of a pro tanto defence on a reduction in the amount due under the guarantee, should the principal creditor breach the duty owed to the principal debtor when realising any assets provided by way of security for the debt.
Generally speaking, the guarantor's entitlement is subject to the terms of the guarantee. In the present case, the contract of guarantee purported to confine Mr James' rights and those of the companies whose obligations he guaranteed to a fraudulent exercise by the receivers of the power of sale. If Mr James' case depended on whether the terms of the guarantee precluded Mr James' reliance on s 420A we would be reluctant to uphold the summary dismissal of his claim. The general principle that a surety may "bargain away his right to complain of the act which occasions the deficiency" is established by Buckeridge v Mercantile Credits Ltd. [23] Nonetheless, we accept that there is some force in Mr James' submission that permitting a mortgagor or guarantor to contract out of the protection afforded by s 420A(1) would be inconsistent with the mandatory terms of the provision and the purpose it evidently seeks to implement. [24] However, it is not necessary to decide this question and we should not express a final view.
The critical point in the present case is that when Mr James consented to judgment being entered against him, his rights as guarantor were merged in the judgment debt thereby created. As we have pointed out, those rights and obligations ceased to have an independent existence. [25] He was liable to the ordinary processes of execution in the same way as any other judgment debtor.
There is no reason to construe s 420A of the Corporations Act as intended to alter the principles concerning "double recovery" or "double satisfaction". As we have explained, there is nothing in the language or context of s 420A to suggest that it is directed to the remedies available in the event of breach, let alone the remedies available to a guarantor who has consented to judgment. Having ensured that a controller is under an obligation to exercise all reasonable care when selling a corporation's property, the provision proceeds on the basis that questions of who may enforce that obligation and what remedy may be obtained are governed elsewhere. In so doing, it follows the same course as has been taken in ss 180-184 of the Corporations Act (to which s 420A refers in terms) as well as in provisions such as s 18 of the Australian Consumer Law (formerly s 52 of the Trade Practices Act 1974 (Cth)). In Marks v GIO Australia Holdings Ltd, [26] Gummow J said of s 52 of the Trade Practices Act 1974 (Cth) that it "establishes a norm of conduct but imposes no sanction and specifies no remedy".
What was held in GE Capital and confirmed in Jovanovic as to a guarantor being unaffected by s 420A applies a fortiori to a former guarantor whose obligations under the guarantee have merged with a judgment. A judgment debtor, who was formerly a guarantor, may in an appropriate case take advantage of the rules against "double recovery" or "double satisfaction". As we have has noted, the respondents accept that credit must be given for actual receipts whether resulting from the realisation of securities or otherwise. But s 420A says nothing as to this.
For these reasons the appeal should be dismissed with costs.
Cf Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 at 492.
(1981) 147 CLR 654; [1981] HCA 62 at 675 (Brennan J, Gibbs CJ, Murphy and Wilson JJ agreeing).
Cf Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129; [2012] HCA 54 at [46].
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [20].