Secure Funding Pty Ltd v Stark Secure Funding Pty Ltd v Conway

(1) Background 7The dispute between the parties arises out of a loan facility provided by Secure Funding and its parent company Liberty. That loan facility was provided to Staway Pty Ltd ("Staway"), the company operating the car dealership, known as Dale Ford. Staway was controlled by Mr Stark and Mr Conway. The Starks and Mr Conway were all employees of Dale Ford. The loan facility was supported by a charge given to Liberty. Dale Ford's business had been affected by the GFC. The number of car sales had decreased. 8In October 2010, Secure Funding and Liberty (the "lenders") provided increased financing to Dale Ford. However, the lenders required that the Starks and Mr Conway refinance their residential loans with Secure Funding and provide Secure Funding with registered mortgages over their properties to secure those loans and also secure additional funding given to Dale Ford. 9The Starks and Mr Conway executed those residential loans and mortgages in favour of Secure Funding. Those loans and mortgages are the subject of these Stark and Conway proceedings. 10By February 2012, Dale Ford had fallen behind on some of its payments. On 14 February 2012, the lenders, Mr Stark and Mr Conway held a meeting. At that meeting, according to the evidence of Mr Stark, the lenders agreed to allow for the deferral of Dale Ford's repayment obligations provided certain addition conditions were met. 11From now on, I have for the purposes of this application only, accepted the Starks' and Mr Conway's version of events. In fairness to Secure Funding I acknowledge that these allegations will be contested should there be a trial. 12The additional conditions imposed were that Staway make regular repayments to the lenders and that Mr Stark was required to provide further security to Secure Funding in the form of his boat. Dale Ford and Mr Stark agreed to these conditions and security was taken over Mr Stark's boat. 13On 7 March 2012, notwithstanding this agreement and the steps that Dale Ford and Mr Stark took, Secure Funding purported to appoint receivers to Dale Ford. The alleged basis for the appointment was that Dale Ford was late in its payments to Secure Funding. However, Dale Ford and Mr Stark say that at the prior meeting on 14 February 2012, Secure Funding agreed to defer these payments. 14On 7 March 2012, representatives of Secure Funding requested a telephone conference in the evening with Mr Stark and Mr Conway. The telephone conference did not eventuate. Instead, it is alleged that representatives of Secure Funding and the receivers arrived at the Dale Ford business premises accompanied by trucks, locksmiths and security guards that evening. Mr Stark and Mr Conway were allegedly told to sign a form agreeing to the appointment of the receivers. Mr Stark and Mr Conway stated that they wished to obtain legal advice. 15Mr Stark and Mr Conway say that were ultimately induced to consent to the appointment of the receivers by a promise made by Secure Funding and the receivers that, if the receivers were appointed, Mr Stark and Mr Conway and the other staff would keep their jobs and every effort would be made to find a purchaser of the business. 16Staway, the Starks and Mr Conway have three complaints about the purported appointment of the receivers. (1) The appointment was contrary to the agreement between the parties, or alternatively, the representations made by Secure Funding. (2) Secure Funding was not entitled to appoint receivers under the terms of the relevant charge. (3) Secure Funding demanded that Mr Stark and Mr Conway sign a document consenting to the appointment of receivers in circumstances where Secure Funding made threats to Mr Stark and Mr Conway about shutting down the business and denied them the opportunity to obtain legal advice. 17The defendants say that once the receivers were appointed, Secure Funding acted contrary to the representations it made to Mr Stark and Mr Conway for the purpose of inducing them to agree to the appointment of the receivers, in that the Starks and Mr Conway were sacked a day or two after the receivers were appointed. The remaining staff were sacked a few weeks after the receivers were appointed; and no attempt was made to find a suitable purchaser of the business. Secure Funding refused to take any steps to sell the business, including not responding to offers from third parties; and Secure Funding failed to sell the stock at Staway's premises, but instead instructed the sales people to leave and take the sales orders with them. 18In April 2012, the receivers vacated the premises. By that time, Dale Ford's franchise with Ford had been terminated, the staff had been sacked and the motor vehicles had been disposed of under cost price. Dale Ford's business was worthless. 19In September 2012, Staway, the company operating Dale Ford was placed into liquidation. The Starks and Mr Conway allege that they suffered substantial losses as a result of Secure Funding and Liberty's conduct. They lost their incomes and have not been able to find alternative employment. They lost the value of their interest in the Dale Ford business. Mr Stark has provided a detailed estimate of the value of the business. He estimates that it was worth in excess of $12 million. They are exposed to claims by Secure Funding and Liberty as a result of guarantees they gave to secure Staway's loans. Those claims are for approximately $5 million. 20The Starks and Mr Conway say that they are currently attempting to mitigate their losses. They are funding their legal costs for the Commercial List proceedings from their superannuation benefits.

(2) Procedural history of the litigation 21It is necessary to briefly refer to steps taken in the Stark and Conway proceedings and the Commercial List proceedings. The history of the litigation is relevant to defendants' explanation for delay and what Secure Funding alleges to be an abuse of process, a topic covered later in this judgment.

(a) The Stark proceedings 22On 11 September 2012, the Starks were served with the statement of claim in the Stark proceedings. 23In October 2012, Mr Graeme Veitch, a solicitor, was instructed in the Stark proceedings. Mr Veitch considered that the best way to prevent the sale of the Starks' home was to commence the Commercial List proceedings against Secure Funding and seek a stay of enforcement of the Stark possession proceedings until the determination of the Commercial List proceedings. 24On 21 February 2013, Mr Veitch received a letter from Secure Funding's solicitors advising that Secure Funding had obtained default judgment against the Starks in the Stark possession proceedings for possession of their property and a judgment debt in the sum of $787,645.26. Prior to receiving that letter, Mr Veitch had not received any notice that Secure Funding intended to enter default judgment. He was not served with any affidavit in support of an application for default judgment.

(b) The Conway proceedings 25On about 28 February 2013, Mr Conway was served with the statement of claim in the Conway Proceedings. 26Mr Veitch intended to adopt a similar strategy in these proceedings to the Stark Proceedings, namely, to seek a stay in the event that default judgment was entered against Mr Conway. 27On 25 July 2013, Secure Funding's solicitors advised Mr Veitch that Secure Funding had obtained default judgment in the Conway proceedings on 2 July 2013. Prior to receiving that email, Mr Veitch did not receive any notice that Secure Funding intended to enter default judgment.

(c) Proceedings in the Commercial List 28On 26 February 2013, Mr Veitch filed the Commercial List proceedings seeking orders pursuant to s 511 of the Corporations Act 2001 (Cth) or alternatively in the court's inherent jurisdiction that Mr Stark and Mr Conway have leave to commence the Commercial List proceedings in the name of Staway against Secure Funding and Liberty ("the Leave Proceedings"). The Leave Proceedings were necessary because Staway was in liquidation. The liquidator could not bring the Commercial List proceedings because, at a creditors' meeting, Liberty voted against a resolution authorising the liquidator to obtain funding for the proceedings. The Commercial List proceedings also sought orders that first, the default judgment against the Starks be set aside; and second that the Stark proceedings be stayed until the determination of the Commercial List proceedings. 29Also On 26 February 2013, Mr Veitch filed a motion seeking an order that default judgment against the Starks be set aside and that the Stark proceedings be stayed until the determination of the Commercial List proceedings. 30On 25 March 2013, Brereton J heard the motion filed on 26 February 2013 in relation to the Stark proceedings. Mr Lazarus of counsel appeared for the Starks and Mr Conway. The following exchange took place. HIS HONOUR: What's your case in a nut shell, to set aside the default judgment? LAZARUS: Perhaps, I can answer that question by reference which it is not. It is not in a classic sense a claim that the defendants have a defence on the merits. It's that they have, through another entity, a claim that they can bring separately and unless they are permitted to bring that claim under the name of the company will be left in the invidious position of having their house taken away from them in circumstances where if they're ultimately successful Staway stands to benefit to the tune of the millions of dollars; well and truly sufficient to meet the liability under the home loan. There is evidence to support everything that I have just said. Everything that I've said and the proposed proceedings were notified to Liberty and Secure. They were kept abreast of developments and without any notice to us proceeded to obtain default judgment despite the fact that they were told that we intended to commence, first of all, the commercial list proceedings and when a meeting of the company failed to produce that outcome that we propose to seek leave to commence the proceedings in the company's name. What you have is action being taken preemptively. HIS HONOUR: Have you filed a defence or a cross-claim or something? LAZARUS: We couldn't. HIS HONOUR: You don't have one. LAZARUS: It's not a claim by either of the defendants to claim by the company. If it were a claim by them then that could have been brought in these proceedings by way of set off and default judgment would inevitably be set aside assuming that I could persuade your Honour that that claim had reasonable prospects and that the quantum of that claim exceeded the amount of the debt. I can do all that save for this fact that it's not a cross claim that they could bring themselves. 31On 22 March 2013, Brereton J ordered that execution or other enforcement of the default judgment be stayed until the hearing of the Leave Proceedings or earlier further order of the court. Brereton J dismissed the balance of the notice of motion. 32On 21 June 2013, in the Leave Proceedings, Black J delivered his judgment in the matter of Staway Pty Ltd (in liquidation)(Receivers and Managers appointed) [2013] NSWSC 819 (the leave judgment). Black J (at [63]) granted leave to Mr Stark and Mr Conway to commence the Commercial List proceedings in the name of Staway. Black J stated that the claim for unconscionable conduct, have "some solid foundation, in that it exhibits a degree of merit such as to be neither vexatious or oppressive and to present reasonable prospects of success" [48]; and the Commercial List proceedings were "properly arguable and has at least a prospect of recovering damages" [53]. 33On 21 June 2013, Black J extended the stay of enforcement of the default judgment in the Stark proceedings until 26 July 2013 to allow the parties to consider whether the stay should be extended by consent or whether the matter required a contested hearing.

Commencement of Commercial List proceedings 34On 3 July 2013, the Commercial List proceedings 2013/202486 were commenced in the name of Staway Pty Ltd (in Liq) (Receivers and Managers appointed) with Liberty Funding as first defendant and Secure Funding as second defendant. 35On 9 August 2013, in the Commercial List proceedings, Liberty and Secure Funding filed a Commercial List response, a cross summons and a Commercial List cross claim statement. 36In the cross summons and Commercial List cross claim statement, Liberty and Secure Funding alleged that the Starks and Mr Conway had failed to comply with their obligations under guarantees given to Secure Funding and Liberty.

Determination of motions seeking a stay of the Stark and Conway proceedings 37On 23 August 2013, Black J heard the Starks' and Mr Conway's applications for a stay of enforcement until determination of the Commercial List proceedings. His Honour granted a stay of enforcement of the default judgments in the Stark proceedings and Conway proceedings up until 13 September 2013. 38On 23 August 2013, at the commencement of the hearing in relation to a stay of the possession of proceedings, the following exchange took place in relation to whether the Starks and Mr Conway had defences to the common law proceedings, at T3.22: "HIS HONOUR: The second question is whether your clients' reliance on the commercial list proceedings was by way of matters that might have been raised in defence in the earlier proceedings or as a fund of money or both or neither. LAZARUS: It is what your Honour referred to as a fund of money, but it is a lot more than that. Perhaps if I could clarify. We do not suggest that the matters raised in the commercial list proceedings amount to a defence, strictly speaking, to an application for possession. And for that reason, we do not seek to set aside either of the default judgments...." (My emphasis added) 39The concession made by counsel for the Starks and Mr Conway was reflected in the judgment. In his judgment dated 5 September 2013 at [19] Black J stated: "The circumstances in which the Court may grant a stay of a writ of possession were summarised by Johnson J in GE Personal Finance Pty Ltd v Smith [2006] NSWSC 889. Such a stay may be granted, first, where a defendant, indicates that the proceedings are to be defended, and a draft notice of grounds of defence should then be provided and the defendant should be in a position to make submissions concerning the merits of the proposed grounds; second, where the defendant indicates the loan is to be refinanced, proof of steps undertaken to refinance will be required on the application; and, third, where a defendant indicates that the property is to be sold, copies of certain documents should be provided. The applicants do not suggest that this application falls within those categories. In particular, it is not suggested that they have a defence to the claim for possession that could have been raised in the Common Law proceedings." (My emphasis added) 40The result was that Black J refused to grant a stay of the default judgment until the determination of the Commercial List proceedings but gave a temporary stay until 16 September 2013. 41On 22 October 2013, Black J ordered that the Starks and Mr Conway pay the costs of and incidental to the respective applications determined in his judgment dated 5 September 2013. 42I accept that prior to these current application, the Starks and Mr Conway had previously sought orders that the default judgment in the common law possession proceedings be set aside or, alternatively, there be a stay on the enforcement of those proceedings. However, counsel for the Starks and Mr Conway conceded in the prior applications that they did not have defences to the common law possession proceedings. Now the Starks' and Mr Conway's position is that they have arguable defences. The merits of the defences have never previously been the subject of argument before this Court.

The law on setting aside default judgment 43The power to set aside judgment is contained in Rule 36.16 the UCPR. It relevantly reads: "36.16 Further power to set aside or vary judgment or order (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court) or (b) 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, or ..." 44The principles governing setting aside default judgment are summarised in Perpetual Ltd v Dilati [2011] 891 NSWSC at [22] - [24]. While there are many authorities on these topics I shall refer to only a few, namely Evans v Bartlam [1937] 2 All ER 646; Vacuum Oil Pty Ltd v Stockdale (1942) 42 SR (NSW) 239; Cuttle v Brandt (1947) 64 WN (NSW) 96; and Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503. In Adams v Kennick Trading (International) Ltd, Hope JA (with whom Glass and Mahoney JJA agreed) held that in determining whether "sufficient cause" has been shown to set aside a default judgment, the court must look to the whole of the relevant circumstances which include the existence of a bona fide grounds of defence on the merits and an adequate explanation for the failure to defend the proceedings. In determining whether there are bona fide grounds of defence the court must not try the issues to be determined at the trial: what is required is that the court determine that the facts sworn to as providing a defence, if established at the trial, would afford a defence and that the defence is set up bona fide. 45It is necessary to briefly examine Cohen v McWilliam (1995) 38 NSWLR 476, as both parties relied upon it as authority to support their proposition. In Cohen the failure to plead particular matters in a defence was attributed to Mrs Cohen's solicitor. In Cohen, Priestly and Sheller JJA (Cole JA dissenting) stated that he was unimpressed with the proposition that Ms Cohen should bring proceedings against her solicitor. Sheller JA at 492 said that "One way or another it seems to me that the merits of [Mrs Cohen's] defence will have to be resolved and it is far preferable that they be resolved in these proceedings rather than in some other proceedings." 46Also in Cohen, Priestley JA at 481 quoting from the Federal Court in Davies v Pagett (1986) 10 FCR 226 stated: "It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct, in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation. ..." 47Consideration should now also be had to the overriding purpose set out in s 56 of the Civil Procedure Act 2005 that is the just, quick and cheap resolution of the real issues in the proceedings: see CKM (Mortgages) Limited v Burtenshaw [2010] NSWSC 1044 at [12]. 48This court should look to the whole of the relevant circumstances including an adequate explanation for delay and the existence of a bona fide defence on its merits. Overall the fundamental duty of this court is to do justice between the parties. 49Secure Funding submitted that firstly, the Starks and Mr Conway have neither an adequate explanation for delay; secondly, an arguable defence; and finally, it is not in the interests of justice to set aside the default judgments. It also asserts that the applications are an abuse of process.

The explanation for delay 50On 6 September 2013, Mr Veitch, the solicitor acting for the Starks and Mr Conway, filed and served Commercial List response to the Commercial list cross claim statement. At [40] and [41] of Mr Veitch's affidavit sworn 13 September 2013 he says that in the course of finalising the Commercial List response, it became apparent to Mr Veitch that the defendants in the Stark possession proceedings and the Conway possession proceedings had a defence to the statements of claim filed in those proceedings substantially on the same basis as the defence set forth in the Commercial List response to the Commercial List cross claim statement. Mr Veitch arranged for the preparation of draft defences to the statements of claim together with motions and his affidavit in support. Since 5 September 2013, different counsel has acted for the Starks and Mr Conway. Mr Veitch was not cross examined. Nowhere does he say that the earlier applications were made because of forensic tactical decision that favoured his clients. 51On 3 September 2013, these current notices of motion seeking to have the default judgments set aside were filed. 52As in Cohen, the Starks and Mr Conway relied upon their legal representatives, in this case, for legal advice and they acted in accordance with that advice. They could not be expected to know what constituted a defence to the possession proceedings. Once the solicitor became aware that the Starks and Mr Conway had defences to their possession proceedings, he acted expeditiously in filing both the notices of motion seeking to set aside the default judgments and the draft defences. 53It is my view that the Starks and Mr Conway have provided adequate explanations for their delay in filing their notices of motion seeking to set aside default judgments.

Whether the defendants have an arguable defence 54Whether the Starks and Mr Conway have arguable defences is perhaps the more difficult issue to determine. The Starks and Mr Conway submitted that they have arguable defences that warrant setting aside of the default judgments in their proceedings. The Starks and Mr Conway submitted that Secure Funding's conduct is unconscionable under s 12CB of the Australian Securities and Investments Commission Act 2001 ("the ASIC Act") and that they are entitled to make an application for a court order for the loss or damage suffered under s 12GM(2) of the ASIC Act. Sections 12CB and 12GM of the ASIC Act and ss 21 and 237 of the Australian Consumer Law are in similar terms.

Principles of unconscionable conduct 55The predecessor provisions of the relevant Australian Consumer Law (as set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) provisions may be found in ss 51AA - 51AC of the Trade Practices Act 1974 (Cth) ("TPA") and it is accepted that the authorities concerning the interpretation of the TPA "unconscionability" regime are applicable to the current statutory regimes. 56It is important to keep firmly in mind that this legislation is remedial and protective legislation. As Allsop P in Bullabidgee v McCleary [2011] NSWCA 259 at [69] stated, the TPA is: "..."fundamentally remedial and protective legislation" giving effect to "matters of high public policy"; and is thus to be construed so as to give the fullest relief which the fair meaning of the legislation will allow: Marks v GIO Australia Holdings Ltd [1998] HCA 69 ; 196 CLR 494 at 528-529 [99]-[103]. These descriptors of the legislation are apt because the legislative purpose is to promote, in the broad sphere of Australian economic activity (trade and commerce), informed commercial activity, not based on misinformation, but rather on accurate information. That purpose goes beyond honest dealing in good faith" 57It is accepted that "unconscionable" under the statutory provisions is not limited to the cases of equitable or unwritten law on unconscionability: see ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 at [31] per Sundberg J. It is also accepted that the list of factors are non-exhaustive. The Court is "aided but not controlled by the factors listed...": Simply No-Knead at [37]. 58Nevertheless, the provisions set a high bar to be met by the party seeking to rely upon it. As stated in Hurley v McDonalds Australia Ltd [1999] FCA 1728, (2000) ATPR 41-741 the Full Court (Heerey, Drummond and Emmett JJ) said at [22]: "For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated - Cameron v Qantas Airways Ltd [1995] FCA 1304, (1994) 55 FCR 147 at 179 Whatever 'unconscionable' means in sections 51AB and 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term 'unconscionable' import a pejorative moral judgment - Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246 at 283-4 and 298." 59Similarly, in Canon Australia Pty Ltd v Patton [2007] NSWCA 246, Campbell JA elaborated at [41]-[43]: "[41] In Attorney General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557, Spigelman CJ (at [119], 583) said, concerning a different statutory provision, 'Over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard.' [42] He continued (at [121], 583): 'Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what is "fair" or "just", it could transform commercial relationships...' [43] Those remarks can equally, in my view, be applied to the notion of 'unconscionable conduct' in section 51AC." 60Further, ordinarily, it may be necessary to demonstrate some special disadvantage: see CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757; (2001) 185 ALR 555 at [70] per Hill, Tamberlin and Emmett JJ.

The Starks' and Mr Conway's argument - unconscionable conduct 61The relevant provisions that the Starks and Mr Conway relied upon, namely, ss 12CB, 12CC and 12GM(1) all fall within Division 2 of the ASIC Act. 62In Australian Securities and Investments Commission v Bank of Queensland [2011] FCA 1361, Foster J stated that the phrase in 12GM(1) "conduct of another person that was engaged in contravention of this Division" refers to Pt 2 Div 2 of the ASIC Act. His Honour stated at [31]: "...It comprises of ss 12AA - 12HD of the ASIC Act. Section 12GM is directed to compensating a party who has suffered or is likely to suffer loss and damage..." 63How the Starks and Mr Conway argue their case on unconscionable conduct is difficult to articulate properly. The best way I can do it, I think, is to reproduce the relevant parts of the legislation and insert the defendants' proposed argument as to how it applies to their situation in bold print. 64Section 12CB of the ASIC Act reads: "12CB Unconscionable conduct in connection with financial services (1) A person [Secure Funding] must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services [credit services] to a person [Staway]; or ... engage in conduct that is, in all the circumstances, unconscionable. (2) ... (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract." 12CC Matters the court may have regard to for the purposes of section 12CB (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient [Staway through its directors Mr Stark and Mr Conway] was able to understand any documents relating to the supply or possible supply of the financial services [because the directors did not have the opportunity obtain legal advice in relation to the appointment of a receiver]; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient [Staway through its directors] or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the supplier is a corporation - the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier [Secure Funding] unreasonably failed to disclose to the service recipient [Staway]: (i) any intended conduct [contrary to what they told Staway they sacked the staff and did not intend to find a purchaser for Dale Ford] of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) if there is a contract between the supplier and the service recipient for the supply of the financial services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (l) the extent to which the supplier and the service recipient acted in good faith. 12GM Other orders (1) Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage. (2) Without limiting the generality of section 12GD or 12GNB, the Court may, on the application of: (a) a person [Mr Stark and Mr Conway] who has suffered, or is likely to suffer, loss or damage by conduct of another person [Secure Funding] that was engaged in contravention of a provision of this Division [losing their jobs]; or (b) ASIC in accordance with subsection (3) on behalf of such a person or persons; make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7)) if the Court considers that the order or orders concerned will: (c) compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or (d) prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person or persons. [prevent the Starks and Mr Conway from losing their homes] ..." 65Counsel for the Starks and Mr Conway submitted that s 12GM of the ASIC Act and s 237 of the Australian Consumer Law provide that a Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by the conduct of another person that was engaged in contravention of s 12CB or s 21 respectively, make such orders it considers appropriate against the person engaged in the conduct. This is conditional upon the Court considering that the orders will prevent or reduce the loss or damage suffered, or likely to be suffered, by the person making the application. 66The main issue to be determined is whether the alleged unconscionable conduct by Secure Funding can only be in relation to Staway or can it include both Staway and the Starks and Mr Conway? Leave has already been granted in the Commercial List proceedings for Staway to claim that Secure Funding engaged in unconscionable conduct. As Black J stated in his judgment dated 21 June 2013, Staway's claim for unconscionable conduct had some solid foundation, in that it exhibited a degree of merit. 67Counsel for the Starks and Mr Conway explained that the way their defences are constructed consists of two elements. The first element is that Secure Funding has engaged in unconscionable conduct against any person; it does not have to be against the Starks and Mr Conway. It can be against Staway. The second element is that the Starks and Mr Conway have suffered or are likely to suffer loss by that conduct, regardless whether the conduct was directed against them. Whether the conduct was directed against them, they say is not important. According to the Starks and Mr Conway, what is important is that they have suffered loss or are likely to suffer loss by the conduct, and the loss suffered is that Mr Stark lost his salary and was unable to find alternative employment and Mrs Stark and Mr Conway are in a similar position. Further, the Starks and Mr Conway were also beneficiaries under the car dealership and they have lost the opportunity to receiving distributions from the car dealerships and therefore have lost forever the opportunity to get a distribution out of the business. 68As a result the Starks and Mr Conway say that they are not able to make their repayments under the loans because they no longer have the ability to fund the repayment and unless the proceedings are dismissed against them they are likely to lose possession of their properties and have judgments entered against them. In these circumstances, counsel for the Starks and Mr Conway contend that if the alleged conduct constituted an offence within s 12CB, the Starks and Mr Conway are entitled to seek an order under s 12GM of the ASIC Act. 69Counsel for Secure Funding argued that s 12CB of the ASIC Act does not apply to unconscionable conduct upon third parties. In support of this proposition it relied upon Monroe Topple & Assocs Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110 to establish that the unconscionability provision in (as stated in s 21 of the ACL and its predecessor, s 51AC of the TPA is not concerned about the effect of unconscionable conduct on third parties. 70Counsel for Secure Funding submitted that if the Starks and Mr Conway had defences, the defences would be directed towards the alleged unconscionable conduct by Secure Funding against Dale Ford and that the Starks and Mr Conway are relevantly third parties because the commercial facilities were provided to Staway. 71In Munroe Topple the brief facts are that the Institute of Chartered Accountants in Australia (the Institute) provided support services for candidates undertaking its professional year program. It was a necessary element of qualification for membership of the Institute to successfully complete this program. The Institute established the requirements for membership, set the necessary standards, set the curriculum and conducted the examinations. Monroe Topple (MTA) was one of several providers of training for candidates seeking membership to the Institute. It sold support materials to assist the candidates with the assessments and examinations. In 2000 the Institute began providing support materials free of charge when candidates paid the enrolment fee for a module. Monroe Topple claimed that the Institute contravened ss 45, 46, and 51AC of the Trade Practices Act 1974 (Cth). (My emphasis added). 72In Munroe Topple the Full Federal Court at [114] - [117] per Heerey J (with Black CJ and Tamberlin J agreeing) considered Monroe Topple's claim for unconscionable conduct. It stated: "[114] As a matter of language s 51AC(1) is directed not to conduct in trade or commerce generally, but rather to conduct in trade or commerce in connection with a particular kind of transaction, namely the supply or acquisition of goods or services to or from a person (other than a listed public company). This may be contrasted with s 52(1) which simply provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive. [115] That s 51AC(1) is concerned only with conduct in relation to dealings between the corporation in question and a particular kind of person (a person other than a listed public company) is confirmed by s51AC(3) and 51AC(4). In each case some 12 factors which may be taken into account are stipulated. It is true that they are non-exclusive but they are all concerned with dealings between "supplier" and "business consumer" (subs(3)) or between "acquirer" and "small business supplier" (subs(4)). They contemplate that the Court is engaged in the task of determining whether there has been a contravention of s51AC(1), and thus are confined to a particular kind of transaction, namely the supply or acquisition of goods or services as between stipulated categories of person. [116] The conclusion that s 51AC is not concerned with the impact of conduct on third parties is confirmed by the legislative history: see Australian Competition and Consumer Competition v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 at 494-496. In the present case his Honour (at [255]-[259]) recounts in detail the legislative history. It is not necessary to repeat that history in these reasons. In my view it shows convincingly that the present s51AC can be traced back to the original recommendation of the Swanson Committee in 1976 that unconscionable conduct be prohibited 'to give the Act a greater ability to deal with the general disparity between buyers and sellers.' [117] I would therefore agree with his Honour that s 51AC has no application." 73However, it is important to observe that Heerey and Tamberlin JJ, in Monroe Topple, nevertheless went onto consider that in the event s 51AC was applicable, whether the Institute engage in unconscionable conduct. The answer to that question was no because at [118] Heerey J stated: "[118] MTA was far removed from those persons disadvantaged by age, illiteracy, drunkenness, emotional dependence and the like whom Equity, by the doctrine of unconscionability, has sought to protect from harsh bargains: see Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and Louth v Diprose (1992) 175 CLR 621. (As to the concept of unconscionability in s 51AA, s 51AB and s 51AC, reference should be made to the valuable discussion by French J in Berbatis at [5]-[28].) In the present case there is in my view an unchallengeable finding that the Institute had acted in good faith for the improvement of the practical education of persons seeking to obtain the valuable right to practice as Chartered Accountants. The worst that could be said is that the Institute, or perhaps some of its officers, did not think much of MTA's role and were not particularly concerned that changes in the Institute's programmes might damage MTA's business. This does not strike me as conduct which "shocks the conscience"." 74While Tamberlin J agreed with Heerey J on this topic Black CJ offered no opinion in relation to s 51AC. 75While counsel for the Starks and Mr Conway agreed that the impact on unconscionability on third parties should be considered, these proceedings could be distinguished from Monroe Topple. In Monroe Topple, it was alleged the Institute was acting unconscionably but not in relation to the recipient of the services (the students). The Institute was acting unconscionably in relation to a third party competitor, MTA. According to the Starks and Mr Conway, the focus of unconscionability was on the recipient of the services and the Institute's dealing with them was not unconscionable. 76The factual situation in these current proceedings is very different to that in Monroe Topple. The Starks and Mr Conway, in order to continue to keep Staway afloat, at Secure Funding's behest, had to change the refinance of their personal home loans with them. That meant that not only Staway's finances were controlled by Secure Funding but so too were the Starks' and Mr Conway's personal finances. Then when Secure Funding appointed the receiver to Staway, the Starks and Mr Conway had no opportunity to obtain legal advice, the result being that Staway was not able to trade, the Starks and Mr Conway lost their jobs and as a consequence they were unable to make repayments of their home loans to Staway. 77To my mind, Staway, the Starks and Mr Conway both as directors (except for Mrs Stark) and as individuals are all tied up to the financial arrangements with Secure Funding and they all have been affected by the alleged unconscionable conduct of Secure Funding. Staway, Starks and Conway are seeking to invoke remedial legislation. In my view, it is arguable that the Starks and Mr Conway as individuals and directors of Staway's financial dealings with Secure Funding are so interrelated that they may be regarded as related parties and not third parties under ss 12CB and 12GM of the ASIC Act. Hence, in my view the factual situation in Monroe Topple is distinguishable.

Prejudice 78I accept no repayments have been made by Mr Conway to Secure Funding since 22 February 2012. I also accept that no repayments have been made by the Starks to Secure Funding since 27 March 2012. However, the Starks and Mr Conway are alleging that it was Secure Funding's unconscionable conduct that caused them to be unable to make repayments their home loans. 79So far as prejudice is concerned, Staway has an order for costs in relation to earlier Commercial List applications to set aside default judgment and stay proceedings in their favour. 80Another consideration as to whether or not the Starks and Mr Conway should be permitted to have their default judgments set aside, is that there is going to be a trial in any event concerning Secure Funding's alleged unconscionable conduct in relation to its dealings with Staway. The issues in that trial will raise essentially the same facts and circumstances and relevant law. 81Subject to the outcome as to whether or not these motion constitute an abuse of process, it is my view that as the Starks and Mr Conway have shown that they have an adequate explanation as to delay, an arguable defence and it is in the interest of justice that the default judgments be set aside. The Starks and Mr Conway should be afforded the right to a trial on its merits. 82The result is that, subject to whether these applications constitute an abuse of process, the default judgments should be set aside and the the Starks and Mr Conway have 14 days to file and serve their defences.

Abuse of process 83Secure Funding submitted that the Starks' and Conway's actions in their applications to set aside the default judgments constitutes an abuse of process. 84Counsel for Secure Funding referred to Levy and Bablis [2012] NSWCA 128 at [19] - [20] where Barrett JA stated: "In Nominal Defendant v Manning [2000] NSWCA 80 (2000) 50 NSWLR 139 Heydon JA said (at [72]): '[T]he Nominal Defendant's proposition is that no second interlocutory application can be entertained unless there is a change of circumstances or unless evidence is relied on which could not reasonably have been obtained earlier is too extreme, but a litigant bringing a second application where circumstances have not changed on evidence available earlier is facing serious and self-created risks of an adverse exercise of judicial discretion.' As this Court recognised in Fletcher v Besser [2010] NSWCA 30 at [17], the subsequent enactment of ss 56 to 60 of the Civil Procedure Act 2005 raises a real question whether a second application should ever be granted where it is based on evidence that was available at the time of the earlier unsuccessful application." 85Counsel for Secure Funding also referred to Aon Risk Services Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, where French CJ at [34] cited Lord Bingham of Cornhill in Johnson v Gore Wood & Co [2002] 2 AC 1 who stated that: "...The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all." 86Secure Funding submitted that there is no new evidence brought by the Starks and Mr Conway and that the current applications are also inconsistent with previous concessions made by the defendants' previous counsel that there is no defence to the possession proceedings. Secure Funding also submitted that the argument in the current proceedings should have been brought in prior applications to set aside the default judgments before Brereton J. 87As I have previously stated, the change of approach in relation to whether or not the Starks and Mr Conway have defences to the common law proceedings cannot be said to arise because of a prior forensic decision having been made earlier by them or their solicitor that was thought to be to their advantage. Before Staway could commence proceedings, leave had to be granted because Staway had receivers and managers appointed. Once that leave was granted, proceedings were commenced in the Commercial division. The reason for the change of approach by the Starks and Mr Conway was because in the course of finalising the Commercial List response that it became apparent to Mr Veitch that the defendants in the Stark proceedings and the Conway proceedings had a defence substantially on the same basis as the defence in the Commercial List response. 88As previously stated, the Starks and Mr Conway followed the advice of their legal representatives. The blame for the change in approach cannot be sheeted home to them. It is not the situation that the Starks and Mr Conway have now sought to argue a defence on different grounds. They have never previously sought to argue the case that they had arguable defences to the possession proceedings. It is my view, in these circumstances, that the Starks' and Mr Conway's applications to set aside the default judgments are not an abuse of process.

Other orders sought in the motions 89I make an order that the two common law proceedings be heard together as they relate to the same facts and circumstances. I make an order that proceedings 2012/266739 Secure Funding Pty Ltd v John Charles Stark and Jennifer Gloria Stark be heard together with proceedings 2013/62391 Secure Funding Pty Ltd v Rex Anthony Conway. 90Whether the Stark and Conway proceedings are to be heard with the Commercial List proceedings depends upon the decision of the Commercial List Judge. 91Paragraphs [4] and [5] of both motions filed on 9 October 2013 are stood over to the directions list of the Commercial Division at 9.45 am on Friday, 5 December 2013.

The Court orders that: In proceedings 2013/62391 Secure Funding Pty Ltd v Rex Anthony Conway: (1) The default judgment entered on 2 July 2013 is set aside. (2) The defendant is to file and serve a defence within 14 days. In proceedings 2012/266739 Secure Funding Pty Ltd v John Charles Stark and Jennifer Gloria Stark: (3) The default judgment entered on 20 February 2013 is set aside. (4) The first and second defendants are to file and serve a defence within 14 days. (5) Proceedings 2012/266739 Secure Funding Pty Ltd v John Charles Stark and Jennifer Gloria Stark are to be heard together with proceedings 2013/62391 Secure Funding Pty Ltd v Rex Anthony Conway. (6) Paragraphs [4] and [5] of both motions filed on 9 October 2013 are stood over to the directions list of the Commercial Division at 9.45 am on Friday, 6 December 2013. (7) Costs of the amended notices of motion filed 9 October 2013 are reserved.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 November 2013