Koutoumanos v Suncorp Metway Ltd

STEWARD J: 1 Suncorp-Metway Ltd (the "respondent") seeks summary dismissal of Mr Koutoumanos's (the "applicant") action for damages pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (the "FCA") and/or r 26.01(1)(a) to (d) of the Federal Court Rules 2011 (Cth) ("Rules"). For the reasons which follow that application is granted pursuant to s 31A of the FCA.

Legislative Provisions 2 Sections 31A(2) and (3) of the FCA provide: (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. 3 Rule 26.01(1) of the Rules provides: A party may apply to the Court for an order that judgment be given against another party because: (a) the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or (b) the proceeding is frivolous or vexatious; or (c) no reasonable cause of action is disclosed; or (d) the proceeding is an abuse of the process of the Court; or (e) the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding.

Background 4 On or about 12 June 2008, the applicant and his former wife borrowed monies from the respondent by entering into two loan agreements. The loans were secured by a first registered mortgage over 834 High Street, Thornbury (the "Property"). At that time, title to the Property was held by the wife. She was the sole mortgagor. The Property was used as a retail shop from which, what was said to be antiques, were offered for sale using the trading name "Department of History". 5 Clause 17 of each "Offer of Loan", relied upon by the respondent on the question of costs, was in the following form: 17. Enforcement Expenses Enforcement expenses may become payable under this Credit Contract, if an Event of Default occurs. Any enforcement expense which the Bank reasonably incurs or expends in enforcing the Credit Contract, including all legal costs, costs and all reasonable expenses incurred by the use of the Bank's staff and facilities, will be debited to the Account after the day on which the enforcement expenses incurred. You will be notified in writing of any enforcement expense on the next statement, after the enforcement expenses incurred and You agree to pay those enforcement expenses immediately on the date of debiting to the Account. 6 In 2010, the applicant and his wife commenced divorce proceedings in the Federal Circuit Court of Australia. Following a trial in 2013, a Federal Circuit Court judge made the following orders pursuant to which the applicant was to acquire title to the Property upon the making of a certain payment, and failing that, for there to be a sale of the Property with the proceeds being applied, amongst other things, to discharge of the respondent's loan. The orders were: 1. Within 60 days of the date of these orders ("the due date") the [applicant] shall pay to the wife the sum of $202,009 ("the payment"); 2. Contemporaneously with the payment: (a) the wife shall transfer to the [applicant] at the [applicant's] expense all of her right, title and interest in the property at 834 High Street, Thornbury, Victoria ("the property"); … 3. In the event the [applicant] fails to comply with orders 1 and 2 above by the due date, the parties shall forthwith do all acts and execute all documents necessary to sell the property within 3 months of the due date … 4. The proceeds of sale shall be distributed as follows: (a) Firstly, to pay the commission and costs of sale; (b) Secondly, to discharge the mortgage and any other encumbrances; … 7 The applicant failed to make the payment required to his wife. At this time, the loan facilities were apparently in arrears. 8 On 7 April 2014, the Federal Circuit Court made the following further orders: 1. [The wife] have the sole and exclusive conduct of the sale of the [Property] including but not limited to the appointment of an agent to sell the [Property], the nomination of the reserve price, the preparation of the [Property] for sale and the appointment of a lawyer to act on behalf of the parties with respect to the sale. … 3. The [applicant] vacate the [Property] within 7 days from the date of these Orders after which, the [applicant] is restrained by injunction from entering, remaining in or remaining within 10 meters of the [Property]. 4. A Writ of Possession issue addressed to the Marshal and all officers of the Australian Federal Police and of the Police Force of the State of Victoria for the purpose of giving effect to these Orders requiring the [applicant] … to vacate the [Property] … are directed with such assistance as they may require and, if necessary, by force to enter upon the [Property] and cause [the applicant] to vacate the property and vacant possession of the land to be given to [the wife] … … 9 In breach of order 3 above, the applicant remained in possession of the Property. On 27 October 2014, the respondent commenced proceedings in the Supreme Court of Victoria for possession against the applicant's wife. On 25 March 2015, judgment in default of appearance was entered against the wife. The next day, the wife consented to the respondent taking possession of the Property. The Supreme Court then issued a Warrant of Possession for the Property and the Sheriff's Office took possession of the Property on or about 7 July 2015. The Property was ultimately sold for $2,250,000. 10 There remained in the Property a considerable amount of stock. On 9 July 2015, the respondent wrote to the applicant and requested that he remove the goods within 28 days. Failing that, the respondent said that it would treat the goods as abandoned and take steps to have them removed. Thereafter, between October 2015 and March 2016, the respondent made numerous attempts to have the applicant collect his goods. Because the goods were not retrieved by the applicant, the respondent treated them as having been abandoned. Ultimately, the majority of the goods were then sold at auction by Leonard Joel. The net proceeds of sale for all the goods was $57,029.10. From the proceeds of the sale of the Property and goods, the respondent was repaid in full, leaving a surplus of approximately $1.7 million. That surplus, less the legal costs of the respondent, is yet to be fully distributed.

The Applicant's Statement of Claim 11 By a statement of claim dated 19 September 2017, the applicant claimed to have a beneficial interest in the Property. He pleaded that, by reason of cl 24 of the terms of the "Offer of Loan", said to contain the terms of each loan between the applicant and the respondent, the provisions of the Australian Bankers' Association Code of Banking Practice ("Code") applied to govern the relationship between the parties. That Code included a statement, said to be promissory in nature, whereby the respondent agreed to assist the applicant in the event that he encountered financial difficulties. The applicant claimed that he had been in financial difficulty and had sought the assistance of the respondent on a number of occasions. In particular, he sought, and was refused, an interest-only period of time. The applicant contended that the respondent was in breach of the terms of each loan when it refused to assist the applicant in this way. It was said that by reason of the respondent's breach of contract, the applicant had suffered loss and damage. In addition, it was pleaded, that the applicant was under a "special disability" by reason of his financial hardship. It was alleged that the respondent had acted unconscionably for the purposes of ss 20 and 22 of the Australian Consumer Law set out in Sch 2 to the Competition and Consumer Act 2010 (Cth) and ss 12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). It was finally alleged that the respondent, as bailee of the applicant's goods, negligently sold them, for the purposes of s 61 of the Australian Consumer Law and Fair Trading Act 2012 (Vic), for a price that was less than their real value. 12 By its defence, the respondent denied that it was in breach of the loan agreements. It pleaded that it was unable to agree to an interest-only period because the customers had not been able adequately to establish their financial position, or their ability to service over time the loan commitments. It also pleaded that approximately 63% of the goods found at the Property had been sold at public auctions, 2% was sold to Melbourne Second Hand Goods ("MSHG") and 35% were donated or otherwise disposed of by MIL Group Pty Ltd ("MIL Group").

Application for Summary Judgment 13 The application for summary dismissal was supported by six affidavits: (a) an affidavit of Donnacha O'Coilean sworn 12 July 2017. Ms O'Coilean is a manager of the respondent. In this affidavit she swore that the information set out in two earlier affidavits of a Ms Louka (see below) was true and correct; (b) an affidavit of Chantelle Mary Louka, a solicitor at Gadens, sworn on 24 February 2017. This affidavit set out the history pursuant to which the respondent gained possession of the goods at the Property, took steps to have the applicant remove those goods, and described the process by which the goods were sold, mostly via public auction. The affidavit deposed that the respondent held surplus funds of approximately $1.7 million (less ongoing legal costs) arising from the sale of the Property and goods; (c) an affidavit of Chantelle Mary Louka sworn on 12 July 2017. In this affidavit, Ms Louka set out more details concerning the sale of the goods and deposed that, as at the date of that affidavit, the applicant and the respondent had not reached any agreement with respect to the disbursement of the surplus funds; (d) an affidavit of Kirsten Avery, National Operations Manager of Tagma Property Consultants, affirmed on 23 January 2018. Tagma had been engaged by the respondent to manage the sale of the Property and the goods contained in it. In this affidavit, Ms Avery provided further details of that process. She confirmed that approximately 63% of the goods were sold by Leonard Joel at public auctions, 2% were sold to MSHG, and that 35% were not in a saleable condition because they were damaged. The MIL Group arranged for the donation and/or disposal of the latter; (e) an affidavit of Darren Moldrich, Team Leader in Late Stage Retail Recoveries of the respondent, sworn on 24 January 2018. This affidavit affirmed information contained in the affidavit of Ms Avery and exhibited the Federal Circuit Court judgment referred to above; and (f) an affidavit of Anna Marie Koumides, a solicitor employed by Gadens, sworn on 17 January 2019. This affidavit exhibited the loan agreements, referred to above, as well as the mortgage and memorandum of common provisions. 14 In contrast, the applicant has not filed any affidavit material in relation to the respondent's application. Indeed, he has taken no step in the proceeding for over 16 months. The only material steps he has taken in the proceedings has been to file his statement of claim, attend a judicial mediation, and file three affidavits dated 6 October 2016, 8 September 2017 and 15 September 2017.

Section 31A 15 There was no dispute before me concerning the relevant principles for the giving of summary judgment. In White Industries Australia Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298, Lindgren J explained the operation of s 31A as follows at [54] and [59]: Under s 31A I must be satisfied that the applicants have no reasonable prospect of success, but as s 31A(3) makes clear, this does not mean that I must be satisfied that the proceeding is hopeless or bound to fail. I suggest that the legislature's intention in enacting s 31A was to lower the bar for obtaining summary judgment (including summary dismissal) below the level that had been fixed by such authorities as Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91-92, and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130: see Lawrenson Light Metal Die Casting Pty Ltd (in liq) v Cosmick Pty Ltd [2006] FCA 753 at [15]. … I do not propose to add greatly to the discussion of the meaning and effect of s 31A. In the United Kingdom it has been held in the context of the similar rule 24.2 of the [Civil Procedure Rules (UK)] noted at [53] above, that the expressions "no real prospect of succeeding" and "no real prospect of successfully defending" require attention to be given to real, as opposed to "fanciful" or "merely arguable" prospects: Swain v Hillman [2001] 1 All ER 91 at 92; Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 at [90], [95], [133]-[134], [158]-[162]; ED & F Man Products Ltd v Patel [2003] EWCA Civ 472 at [8]. The Queensland Court of Appeal has similarly held, following Swain v Hillman and Three Rivers District Council v Governor and Company of the Bank of England, that the "no reasonable prospects of success" test requires the court to determine whether there are "real" as opposed to "fanciful" prospects of success: Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232 at 235. …

Application of Section 31A 16 The respondent's application for summary judgment has been outstanding for some time. That, in part, is because the applicant had ceased to be represented by legal counsel, and had little ability to represent himself. At a hearing on 10 December 2018, I adjourned the application for summary judgment one final time to give the applicant an opportunity to file affidavits upon which he might seek to rely in answer to the respondent's claims. No affidavits were filed. 17 In essence, the respondent submitted that I should be satisfied that the applicant's claims have no reasonable prospect of success because he has not suffered any loss or damage. He borrowed monies from the respondent and these have now been repaid out of the proceeds of the sale of the Property in accordance with the orders of the Federal Circuit Court. The sale took place, not because of the respondent's alleged breach of contract or alleged unconscionable conduct, but because of those orders. Thereafter, the sale process was also governed by the orders of the Court. His chattels were abandoned, and they were sold for their true value, largely by public auction. There was no evidence that the respondent took steps in selling that property which was negligent; nor was there any evidence before me that the goods were sold at less than their market value. 18 Before me, the applicant complained that he was not in a position to make meaningful submissions, due to ill-health and the respondent's failure to supply unspecified information. He also said that he proposed to re-engage with legal representation. I gave the applicant leave to file further written submissions within 14 days, and liberty to apply if he were to obtain legal representation. No written submissions were filed. 19 In my view, I am satisfied that the applicant has no reasonable prospects of success. Leaving aside his allegations against the respondent concerning its alleged failure to provide assistance, and the claims for unconscionable conduct, the fact remains that the applicant would appear to have suffered no actionable loss or damage. The Property which was sold to repay the loans, was not owned by him at the time of sale. Even if he did enjoy some equitable interest in it, the orders made by the Federal Circuit Court required the Property to be sold, with the sale process to be subject to the exclusive conduct of the wife, and for the proceeds to be used to repay the respondent before any distribution to the applicant or his wife. None of these steps were the product of the respondent's behaviour. The three affidavits affirmed by the applicant, which I have read, do not otherwise disclose evidence of loss or damage, save for very generalised statements of financial grievance. 20 In that respect, I have considered the proposition that the first Federal Circuit Court orders vested in the applicant an immediate equitable interest in the property: see In the Marriage of Michiels (1991) 103 FLR 1 at 6-7; In the Marriage of Bourke (1993) 114 FLR 89 at 94-95; Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217; Jones v Daniel (2004) 141 FCR 148; cf Ellison v Sandini Pty Ltd [2018] FCAFC 44; (2018) 107 ATR 831. The gist of these decisions is, that when the Family Court orders a transfer of real property from a husband to a wife, or vice versa, there arises, eo instanti, complete equitable ownership of the property in the hands of the transferee. 21 In my view, the orders of the Federal Circuit Court here, set out at [6] above, are decisively different from the orders made in Bourke, Mateo and Jones. That is because, the transfer of ownership was not something immediately ordered, but was, instead, postponed to the happening of an event that never occurred, namely, the payment by the applicant of $202,009 to his wife. Because that payment never took place, the order for transfer was never engaged, and no equitable interest in the Property thereby arose in favour of the applicant. 22 As to the goods left at the Property, I am satisfied that the respondent took reasonable steps to bring to the attention of the applicant the need for him to collect his goods, given that the respondent was (at the relevant time) in possession of the Property. Letters were sent to him on 9 July 2015 and on 28 October 2015. Each gave the applicant reasonable time within which to recover his goods. The applicant took no step to recover those goods. 23 I am also satisfied that the respondent sold the goods in a responsible and reasonable way. There is no evidence before me that the goods were sold negligently or at below their market value. Examining the "tax invoice/settlement statement" from Leonard Joel, it would appear that many of the goods might be characterised as "bric-a-brac". Thus, and by way of illustration, there were goods described as "box of retro house hold items including a massager, a speedie sunglow and a hand warmer" and others described as "box of toys including spiderman, soft toys etc" and a "set of twenty industrial stacking chairs with red vinyl seats". It was prudent to sell these items at public auctions where they, necessarily, were realised for their market value. I otherwise have no reason to doubt that about 35% of the goods could not be sold. Nor have I any basis for considering that the sale of 2% of the goods to MSHG was in any way negligent. 24 It follows that I am of the view that the applicant's claims have no reasonable prospects of success.

Costs 25 The respondent sought costs on an indemnity basis. It relied on cl 17, supra, and the memorandum of common provisions governing the mortgage, although I was not referred to any particular provision of that document in argument. It also relied upon the decisions in Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100 and Australia and New Zealand Banking Group Ltd v Mishra [2012] NSWSC 1333. 26 In my view, cl 17 does not compel a conclusion that the respondent is entitled to indemnity costs. Nor, were the two decisions referred to, of much assistance. Neither was concerned with the Court's discretion to award costs. 27 In my view, it would not be appropriate to award costs on an indemnity basis. It is true that the applicant should not have persisted with this proceeding in this Court. But, he has had no legal representation since May 2018. He is also vulnerable. He has not taken any steps that have increased the financial burden on the respondent, other than through the expiration of time. I will make the usual order for costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Steward.