Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2014] NSWCA 304 | Case summary

Judgment 1Thirty-six appellants appeal, as of right, from money judgments and, in some cases, orders for possession of mortgaged property, ordered against them following a hearing lasting 101 days before the primary judge, whose reasons for judgment occupy 913 pages and 2472 paragraphs. I have been told that the parties' written submissions at first instance exceeded 7500 pages. The appeal is listed for hearing in February 2015 for five days. 2By motion filed 26 June 2014, the appellants seek stays of the money judgments and the orders for possession. The primary judge granted a limited stay in respect of the orders for possession (it is not clear on the materials before me whether that was following argument or by consent). I have been told that a consensual regime has obtained subsequently, until the determination of the motion. 3Evidence has been led from most of the appellants as to their financial position, and (there are exceptions to which I shall return) undertakings are proffered not to dissipate their assets pending the determination of the appeal. Further, the litigation, both at first instance and on appeal, has been funded by the company now known as Bentham IMF Limited (formerly, IMF (Australia) Limited). There is no question raised by the Bank of Queensland (the Bank) as to any prejudice in relation to its rights under the favourable costs orders it presently enjoys or in relation to the costs of the appeal. That is a matter of no small practical significance. In the (unusual) circumstances of this litigation, it was common ground that legal costs were the largest component of the amount in issue. Unlike the judgment debts and orders for possession, those costs have not presently been quantified and are not presently enforceable. However, the costs are enormous. There is no evidence before me as to their size. However, I was told that they were comparable to the judgment debts, which themselves exceed $8 million. 4The appellants have, to date, complied with an expeditious timetable. Red books have been filed and written submissions for the hearing of the appeal have been served. The respondent Bank's written submissions on the appeal have not been served. 5There was no dispute as to the applicable principles. It is clear that it is necessary for the appellants to demonstrate an appropriate case to warrant the exercise of discretion in their favour, for a successful party is prima facie entitled to the fruits of his, her or its judgment. As Campbell JA explained in Vaughan v Dawson [2008] NSWCA 169 at [16], that "prima facie entitlement" means, speaking practically, that the onus is on the applicant to make out a case that is suitable for the award of a stay. The underlying question is that it is for the applicant to demonstrate a proper basis for a stay that will be fair as between the respective interests of the parties: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694. These principles have been very often applied. 6By way of summary, the appellants say that given (a) the protection of the Bank's position as to costs, (b) the undertakings as to non-dissipation of assets, and (c) the relative proximity of the hearing of the appeal, they have established a proper basis for a stay. They point to the possibility of disproportionate prejudice if the writs of possession are enforced or if bankruptcy notices or statutory demands are issued. 7The Bank's primary contention is that the appellants have not shown that there are any arguable grounds of appeal. It is that contention, and its elaboration, that caused this application to occupy a full day of oral hearing, supplementing written submissions exchanged in the previous week. Alternatively, if that basis of the Bank's opposition is not accepted, then the Bank says that, in the case of some 13 of the 36 appellants, a stay should be refused or only granted upon terms additional to those proffered. The 13 appellants in that position are Mr Chapman, Mr Gardner, Mr and Mrs Nolan, Ms Yang, Ms Johnson, Mr McCoy, Ms Smith, Mr Xu, Mr Versace, Mr Bradley, Mr Murad and Mr Hassan. 8In seeking to persuade the Court that grounds of appeal are not arguable, the Bank assumes a very substantial burden. The burden is especially heavy having regard to the particular facts of this appeal, for these reasons. 9First, despite the extreme length of the trial and judgment, the notice of appeal has been drafted with care and identifies 14 grounds. It does so with particularity, and by reference to the particular paragraphs where errors are alleged to have been made. 10Secondly, the written submissions of the appellants have plainly been drafted carefully, by senior and junior counsel, and, if I may say so, articulate arguments which to say the least pass superficial scrutiny. Indeed, they have been drafted with some flair. I am conscious that the Bank's submissions have not been filed, but it is the Bank that has chosen to apply for extra time and pages to respond and to have this application determined without the benefit of its written submissions on the appeal. 11Thirdly, senior counsel for the appellants (who did not appear at the trial) articulated those submissions orally, with some force, so as to identify what I regard as reasonably arguable errors in the reasoning process. 12Fourthly, there is, if I may say so, real tension between the Bank's submission before me that the appeal is not reasonably arguable, and its submission before the Registrar, to which he acceded, that very substantially more than the two days which the appellants urged would be sufficient for the hearing was in fact required. 13Fifthly, the Bank has not moved for summary dismissal of the notice of appeal. I am not suggesting that it should do so, but there is little if any difference in the principles applicable to such an application and the Bank's primary response to the appellants' application for a stay, and so it seems a little strange for the resources which have been directed to the latter not to have been directed at the same time to an outcome which goes beyond the short-term position of the parties pending the resolution of the appeal. 14Sixthly, where the question turns not on the ultimate merits of the appeal but instead on merely whether it is reasonably arguable, I am of the view that I can and should have regard to the facts that (a) a listed company has made a considered decision (and notified the Australian Stock Exchange of its decision) to fund the appeal, (b) in all probability, it would only do so upon receipt of advice that it is, at the very least, reasonably arguable, and (c) that advice will rest upon a more detailed consideration of what will become the appellate record than has been made available to me. 15Ultimately it will be for this Court, of course, to determine the outcome of the appeal, by reference to the material placed before it. However, as will shortly be seen, the material available to me scarcely permits a proper determination of those issues. In particular, the actual documents provided to the appellants by the Bank officer in the course of which the various representations are alleged to have been made, are only before me insofar as aspects are referred to in the primary judge's reasons. I am not to be taken as saying that the materials necessary for the determination of the appeal will be overly voluminous. I merely observe that in a case where it was not seriously disputed that "context is all" in determining whether a series of oral representations contrary to s 52 of the (former) Trade Practices Act 1974 (Cth) was made to the appellants, none of the contemporaneous documentary materials were before me. 16Some care needs to be taken by respondents to appeals in asserting the absence of reasonably arguable grounds. The problem recurs: see, for example, Taheri v Vitek [2013] NSWCA 438 at [6]-[12]. Respondents to appeals must be conscious of the ethical and statutory obligations upon legal practitioners not to bring proceedings that do not have a reasonable prospect of success: see Legal Profession Act 2004 (NSW), s 347, on which Beazley JA relied in Chen v Lym International Pty Ltd [2009] NSWCA 121 at [15]. Her Honour there said (at [30]) that: "The proceedings at first instance were lengthy and his Honour's judgment was likewise lengthy. The complexity of the matter is reflected in the fact that the settling of the final orders in the matter took a further two days argument after judgment was delivered. Given that the Court need only make a preliminary assessment of whether there is an arguable case on the appeal (assuming that question is a prerequisite) the matters relied upon above are sufficient to establish that Mr Chen's appeal is arguable." The magnitude of the present appeal dwarfs that to which her Honour referred. 17Finally, the foregoing is supported by s 56 of the Civil Procedure Act 2005 (NSW). The "real issue" in many if not most appeals is not whether the grounds of appeal are reasonably arguable, it is whether they are made out. 18For all those reasons, where an appellant is represented by counsel and submissions have been filed which on their face withstand scrutiny, the Court will readily be satisfied that the grounds are reasonably arguable. 19In deference to the quality of the submissions advanced on both sides, I will descend to the findings, the grounds of appeal and the challenge to their arguability (it should not be thought that it follows from my doing so that it is necessary to do so in order to resolve an application of this nature.) 20The essential facts are that the Bank granted what it described as "franchises" to the appellants to operate "owner-managed branches" or "OMBs" in New South Wales. The franchisee was a corporation of which the "owner-manager" was a director and shareholder. The 36 appellants represent 11 OMBs, 10 in metropolitan Sydney, 1 in Bathurst. The Hurstville and Maroubra OMBs were operated by related companies, associated with Mr Chapman. 21There is no doubt that Mr Garry Allsopp, the Bank's "Regional and Accreditation Manager for NSW and the ACT" on behalf of the Bank interviewed many hundreds of potential franchisees, spoke to them about the proposal, and gave them an "expression of interest" letter for their signature and return. In the course of the interview, Mr Allsopp completed a "Checklist". The Checklist seems to have gone through a number of iterations, but at least some included a line "NECESSARY LEVEL OF BUSINESS - quoted level of business $4.25m". Applicants were required to prepare a business plan to be submitted to the Bank. There was, in the case of suitable applicants, a further meeting and, if an applicant were approved, the applicant would be sent an Approval letter. 22It is clear that the documents supplied by the Bank to the potential franchisees (as opposed to the Bank's internal documents such as the Checklist) referred to writing $4 million in lending drawdowns on a monthly basis in the initial 12-month period. For example, the Approval letter reproduced at [176] records "Please note that the Bank will expect the new OMB at location to be writing $4 MILLION in lending drawdowns on a monthly basis in the initial 12-month period." For OMBs outside the metropolitan area, $3 million per month was the threshold. 23Mr Allsopp said, and the primary judge accepted this, that he had no particular recollection of the individual meetings with the particular appellants, who were a tiny fraction of the 1200 interviewed by him many years ago. The primary judge found that in the first meeting, Mr Allsopp mentioned the $4 million threshold. 24It appeared to be common ground that the threshold mattered very much to the franchisees' decision. For the purposes of this application, the parties accepted (at my invitation) that the business model was essentially as follows: (a) a franchisee would receive up-front fees of some 0.5% of the value of loans written, coupled with trailing commissions, (b) inevitably, the franchisee would lose money in the first few months of operation, (c) however, as loans continued to be written, and trailing fees continued to be remitted, there would come a break-even point, (d) the timing of the break-even point was essential to threshold decisions such as the amount of working capital which was required to open an OMB. 25The primary judge noted (at [2031]) that the Bank did not have reasonable grounds for any representation made by it to the effect that a regional OMB could write loans of $3 million per month after approximately four months of operation. It was conceded that the Bank had conducted no investigation into that question. Further, although this was contested, the primary judge found that the Bank lacked reasonable grounds for a representation to the effect that a Sydney metropolitan OMB could write $4 million in new lending per month within four months: at [2036]. However, the primary judge rejected a submission (based in part by the keenness of some of the Bank's officers to open branches as quickly as possible, and the (relatively small) bonuses paid to Mr Allsopp and others when a franchise was granted) that Mr Allsopp deliberately misled any franchisee: at [1150]. (That of course is of itself no answer to a claim for misleading or deceptive conduct.) 26Against that background, many issues were litigated (including claims of unconscionable conduct and under s 106 of the Industrial Relations Act 1996 (NSW)), a minority of which are pressed on appeal. The appellants' focus is on misleading and deceptive conduct by oral representations, bolstered by the primary judge's findings as to the absence of reasonable grounds. 27The primary judge did not accept the testimonial evidence of the appellants, and formed the view that there was no misleading or deceptive conduct. I am conscious that I am not able to do justice in these reasons to a fair summary of his Honour's reasoning process, nor is it, in an application such as this, necessary for me to do so. It suffices to say that in large measure his Honour proceeded on the basis that what was said did not convey three pleaded positive representations and one non-disclosure case. His Honour also found that there was no reliance, partly because the appellants' business plans did not turn on the $4 million mentioned (some plans were more optimistic, others less so) and because of the independent research the appellants did and said that they had done. 28I am not satisfied that the appellants' case is so weak that it is not arguable, for these reasons. First, I am not able to reach that state of satisfaction without seeing such contemporaneous documents as exist (the Checklist, the Expression of Interest letter, the Approval letter and the appellants' business plans). Where as here a representation is oral, and the representor has a generalised recollection, determining the legal character of what was said is especially contextual, consistently with what was said (and applied by the primary judge) in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304. Such matters are very often highly contestable. That is particularly so where, as here, quite fine distinctions were relied upon, something of which the primary judge was acutely aware, having regard to his example (at [1128]) of the distinction between the business which a franchisee should be able to write and the business which it was possible for a franchisee to write. Illustrative of this is the finding at [1271] that "Mr Allsopp simply explained that the Bank's modelling showed that, on the assumptions made in the [Bank's] model, a branch writing $4 million in loans per month would be profitable", which his Honour regarded as a statement of what was possible, as opposed to a statement concerning a future matter. 29I indicated during the hearing that I was satisfied that the challenges to the primary judge's findings of no contravention of s 52 were reasonably arguable. The Bank also pointed to findings of no reliance by the appellants. I think it is fair to say (and Mr Lee of senior counsel did not disagree strenuously) that the appellants may not all fall in the same class in this respect. Mr Couper of senior counsel pointed in particular to the findings of absence of reliance in the case of the 33rd-36th appellants at [1951], [1954] and [1976]. IT may well be that the appellants fail on this issue. But I have concluded that I should accept what is put by the appellants that it is at least reasonably arguable, in respect of all of the appellants, that findings of reliance are affected by the findings as to what the representations were: cf Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; 62 IPR 184 at [132]-[146]. 30In short, I am not satisfied that the appellants' case is so weak that no arguable grounds of appeal have been established. It is neither necessary nor desirable to say anything more.

Balance of convenience 31As clarified during the course of the hearing, the Bank was pragmatic in relation to its fallback submission as to the terms of a stay. Three appellants had not given an undertaking not to dissipate their assets (the terms of the undertaking were familiar and, ultimately, uncontroversial and need not be repeated here). Of these, the first and second are Messrs Hassan and Murad (the 35th and 36th appellant). The unchallenged evidence is that these two men are presently residents of Sri Lanka. They did not appear at the trial (and their non-appearance was relied on by the primary judge at [1954]), and there is no evidence of any assets held by them in Australia (nor conversely is there evidence that they do not hold Australian assets against which execution could be levied). However, Mr Chowdhury, who is a resident of Australia, is jointly liable for the same judgment debt. He has given an undertaking, and property in his name at Lakemba is the subject of an order for possession. In the circumstances of this case, most important of which is the practical unlikelihood of any effective steps of enforcement in a foreign jurisdiction within the likely timeframe of the appeal, as well as the fact that the Bank is adequately protected in respect of the largest element of its entitlement (namely, costs), I regard that as sufficient. 32The third natural person appellant who has not given an undertaking is Mr Johnson (the 19th appellant). However, that is of little moment because Mr Johnson swore that he had no interest in real property, did not own a car, did not have a personal bank account, had limited total assets and - even excluding the judgment against him - had gross liabilities of some $171,448. True it was that he said that "I have been engaged as a financial consultant by a family trust (sic) pursuant to a contract which was worth $215,000 per annum". One is left with an impression that there may be substantial assets in respect of which Mr Johnson, or companies associated with him, or members of his family, may have recourse to the extent that the trustee of a family trust chooses to make distributions. It was said that the "gross annual income of the family trust from all sources is approximately $305,000". However, I am also left with the impression that efforts have been made on behalf of Mr Johnson fairly fully to explain his position as to assets and income (for example, I am conscious that a less candid approach would be not to mention the family trust). 33Given that background, I consider that it is appropriate that Mr Johnson proffer an undertaking in the terms proffered by other appellants as the price of a stay. I was told that he was willing to do so if I reached that conclusion. 34The Bank did not oppose a stay of writs of possession in relation to family homes, but said that there was no reason why investment properties should not be sold in the meantime. I disagree. Investment properties are, presumably, let, else they are very poor investments. It is entirely unclear what the terms of the tenancy are, and whether it would be desirable to sell with vacant possession or subject to a lease. In the overall scheme of this appeal - where the Bank is adequately protected in respect of costs including future costs, and where the non-dissipation undertakings adequately protect it for the additional relatively short time pending the hearing and determination of the appeals - the stay should include the possession orders relating to all properties, including the investment properties. 35The same considerations tell against the need for a different regime for those amongst the appellants whose income is relatively substantial. To the extent that some appellants enjoy significant income, that fact coupled with their undertakings goes far to constitute an appropriate basis for a stay. 36The seventh appellant, Mr Chapman proffered an undertaking but did not give evidence as to his assets and liabilities. I was asked to infer from that failure (conspicuous as it was in contrast to the other appellants) that there were assets available to meet the judgment debt against him. I do draw that inference. 37The judgment debt against Mr Chapman is easily the tiniest of the debts: it is $59,784 plus interest of $36,620. The second smallest judgment debt is more than five times greater (it is $333,214 plus interest of $154,793). 38Mr Chapman is one of seven judgment debtors jointly responsible for that debt. A judgment creditor is, of course, free to pursue whichever judgment debtor it chooses, leaving it to that judgment debtor to obtain contribution from his, her or its co-obligors. The difficulty with permitting enforcement by the Bank against Mr Chapman in the particular circumstances of this case is that I cannot ignore his rights to attempt to pass the majority of that burden to the other judgment creditors, who have given undertakings and disclosed their asset position. 39I also think I can have regard to the fact that the judgment against Mr Chapman represents a fraction of 1% of the total amount at stake, as to the vast majority of which the Bank is either adequately secured or else its position will not deteriorate substantially between now and the appeal. I have so far accommodated the Bank's enthusiasm to descend into the detail of the appeal, both as to its merits and in respect of the balance of convenience of individual appellants. However, ultimately I think I am also entitled to take the view that where, as here, there is a single appeal, with a great deal of commonality of issues, the question of fairness may be addressed at least in large measure at a relatively high level. Taking that approach, I do not think Mr Chapman's presumed ability to meet the small judgment debt stands in the way of its being stayed in the meantime, along with every other judgment debt. 40Accordingly, I will make orders substantially in accordance with the notice of motion as follows:

Traderight (NSW) Pty Ltd v Bank of Queensland Ltd

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