Nigel Keith Flowers v National Australia Bank Limited

EX TEMPORE Judgment 1The current proceedings arise in relation to a margin lending agreement entered into between the plaintiff and the defendant on 1 April 2005. 2On 14 November 2005, the defendant required the plaintiff to pay all the money owing under the agreement. The plaintiff did not do so and the defendant commenced proceedings in this list to recover the amount owing. Those proceedings were settled following a mediation. The terms of settlement are embodied in a settlement deed dated 29 June 2010. 3Clause 2 of the settlement deed provides that the plaintiff must pay the settlement money on or before 30 April 2011 to the defendant in immediately available funds. The "settlement money" is defined in cl 1.1 to mean $2.8 million. Clause 3(a) of the settlement deed records the fact that the parties had executed a consent judgment. Clause 3(c) provides: If the Settlement Money is not paid in accordance with clause 2 of this document, the Parties agree that [the defendant] may, in its absolute discretion, file the Consent Judgment with the Supreme Court of New South Wales and proceed to enforce the judgment against [the plaintiff]. 4Clause 12.12 of the deed relevantly provides that the document contained the entire understanding between the parties as to the subject matter of the document. 5The plaintiff did not pay the settlement money and on 10 May 2011 the defendant entered the consent judgment in accordance with its rights under the deed. 6On 18 May 2011 the defendant served a bankruptcy notice on the plaintiff in respect of the judgment debt. The plaintiff has made an application to have that bankruptcy notice set aside. The Federal Magistrate who heard that application has reserved judgment. In the meantime the plaintiff commenced these proceedings in which he originally sought the following orders: (a)to restrain the defendant from seeking orders to bankrupt him until the defendant complies with the Code of Banking Practice; and (b)variation of the terms and conditions of the settlement deed with respect to payment of security. 7Two applications are before me today. The plaintiff seeks to amend his summons and commercial list statement to seek among other things an order that the consent judgment be set aside pursuant to Uniform Civil Procedure Rules ( UCPR ) r 36.15 or r 36.16(2)(b). The defendant on the other hand seeks an order pursuant to UCPR r 13.4(1) dismissing the proceedings on the basis that they are frivolous or vexatious or disclose no reasonable cause of action. The defendant resists the plaintiff's amendment application on the basis that that application is futile. 8It is convenient to begin with the plaintiff's application. In my view, unless that application succeeds the proceedings must be dismissed. That is because, if the consent judgment is not set aside, the defendant has a clear defence of res judicata to any claim arising out of the margin lending agreement or the settlement agreement: Chamberlain v Deputy Commissioner for Taxation (ACT) [1988] HCA 21; (1988) 164 CLR 502 at 508. 9The amendment should be allowed unless it would be struck out if allowed. The question, then, is whether the plaintiff has an arguable case that the consent judgment should be set aside: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. Under UCPR r 36.15 the court may set aside a judgment or order if, among other things, the judgment was given or entered or the order was made against good faith. Under UCPR r 36.16(2)(b), the court may set aside or vary a judgment after it has been entered if it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order. The plaintiff accepts that under each of those rules the relevant question in this case is whether he has an arguable case that the judgment obtained by the defendant was obtained contrary to the terms of the settlement deed: see Singh v Ginelle Pty Ltd [2010] NSWCA 310. 10In answering that question the plaintiff says that the settlement deed contained various implied terms. Mr Higgs, who appeared for the plaintiff, conceded in oral submissions that all of those implied terms depended on the Banking Code of Practice which was said to be binding on the parties in relation to the dealings between them, including dealings in relation to the settlement deed. Ms Dawson, who appeared for the defendant, submitted that by its terms the Code of Practice was only incorporated into agreements that specifically provided for its incorporation. However, in my opinion, it is at least arguable that the Code is an open offer to anyone that if that person becomes a customer of the defendant then the defendant will deal with that person in accordance with the Code of Practice. It does not need to be specifically incorporated in an agreement, although its operation can be excluded by agreement. 11Clause 2.2 of the Code of Practice provides: We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us . That obligation is clearly intended to be an obligation imposed on the defendant where it provides banking services. "Banking services" is defined in the Code to mean any financial service or product provided by the defendant in Australia. 12Clause 25.2 of the Code of Practice provides: With your agreement we will try to help you overcome your financial difficulties with any credit facility you have with us . We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them. 13Two issues arise in this case. One is whether it is arguable that the Code of Practice, by its terms, applied to the settlement deed. The second is whether it is arguable that the terms of the Code are not excluded by the express terms of the settlement deed. The plaintiff must establish that both points are arguable in order to succeed. In my opinion, neither point is arguable. 14As to the first issue, the answer depends on whether the settlement deed can be characterised as a credit facility or as being provided in connection with the provision of banking services for the purposes of the Code. In my opinion it is clear that it meets neither of those requirements. Properly characterised the settlement deed is an agreement to settle a dispute between the parties arising from a credit facility. It does that by substituting for the rights arising under that credit facility the rights arising under the settlement deed. The rights that are settled include rights arising under the Code of Practice in connection with the margin lending agreement. One of the rights arising from the settlement deed is a right on the part of the defendant to be paid a specified amount by a fixed date. However, it does not follow from the fact that the money is not payable immediately that the defendant is agreeing to give credit in relation to that amount. It simply means that the parties have agreed to settle their dispute by a payment that is to be made at a future time. 15Nor do I think that the settlement deed can be characterised as the provision by the defendant of a banking service to the plaintiff. It is the settlement of a dispute with a customer in respect of services it did provide. It is not itself the provision of a service to its customer. 16As to the second issue, in my opinion, it is clear that the rights and obligations created by the settlement deed are not ones that operate subject to the Code of Practice. The right given by cl 3(c) to the defendant is a right to file the judgment after a specified date in its "absolute discretion". Clause 12.12 of the settlement deed makes it clear that the agreement of the parties in relation to the settlement is embodied in the deed and not elsewhere. 17The context in which the deed was agreed supports this conclusion. The parties had been in dispute for a number of months concerning the defendant's right to recover amounts payable under the margin lending agreement. In accordance with the Code of Practice that dispute was the subject of a mediation and was compromised. The parties could not have intended that that compromise itself would be the subject of an obligation on the part of the defendant to consider a further compromise. 18It follows that the plaintiff's motion dated 22 June 2011 and the proceedings should be dismissed. 19I order the plaintiff to pay the defendant's costs of both motions and of the proceedings.