Watson v National Australia Bank

1. The application for leave to appeal is dismissed.
2. The applicants pay the respondent's costs of and incidental to the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GREENWOOD J: 1 These proceedings are concerned with an application for leave to appeal from interlocutory orders made by Dowsett J on 27 October 2016. 2 The orders made by the primary judge were these: (1) The application for leave to amend the originating application filed on 9 August 2016 be refused. (2) The proceedings be dismissed. (3) The applicant pay the respondent's costs of the application. 3 There is no dispute about the principles to be applied in determining such an application. In Bienstein v Bienstein (2003) 195 ALR 225, McHugh, Kirby and Callinan JJ said this at [29]: … The principles that govern the grant of leave to appeal are well established. An applicant for leave must establish that the decision in question is attended with sufficient doubt to warrant the grant of leave. The applicant must also show that substantial injustice will result from a refusal of leave to appeal. 4 Those observations are entirely consistent with the two-part test identified in Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-400 and the observations of the Full Court in Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238 at [25] to [33]. Thus, there are two considerations. First, whether in all the circumstances of the case, the decision is attended by sufficient doubt to warrant its being reconsidered by the Full Court; and second, whether substantial injustice would result if leave were refused supposing the decision to be wrong. 5 The applicants for leave to appeal are Mr Wezley Watson and Mrs Gloria Watson. They were the applicants before the primary judge in proceedings QUD 633 of 2016 commenced against the National Australia Bank ("NAB"). The dismissal of those proceedings was the subject of Order 2 described above. 6 Before addressing the question of whether Mr and Mrs Watson have been able to satisfy the two-part test, it is necessary to identify the material, relied upon by them, which I have considered in addressing that matter. The material is this: (1) the sequestration order dated 5 April 2016 by which the estates of Mr and Mrs Watson were sequestrated under the provisions of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act"); (2) the originating application filed in this Court by Mr and Mrs Watson against the NAB on 9 August 2016; (3) the amended originating application filed by Mr and Mrs Watson on 11 October 2016; (4) the orders of Dowsett J made on 27 October 2016; (5) the reasons for judgment of the primary judge published on 27 October 2016 in support of the orders made that day; (6) Mr and Mrs Watson's application for leave to appeal filed on 9 November 2016; (7) Mr Watson's affidavit sworn and filed 9 November 2016 in support of the application (which attaches a determination made by an officer of the Financial Ombudsman Service dated 10 February 2014 concerning a claim by Mr and Mrs Watson that the NAB as a Financial Services Provider engaged in maladministration in lending when it provided a series of loans to them from 2005 and a claim that the NAB failed to meet its obligations to them as customers "experiencing financial difficulty", and which attaches a further determination dated 4 March 2016); (8) an "Amended Notice for Leave to Appeal" and an attached "Amended Notice of Appeal" dated 9 November 2016; (9) an interlocutory application for leave to file an amended application for leave to appeal; (10) an affidavit of Mr Watson affirmed and filed on 30 November 2016; (11) an application to file an amended notice for leave to appeal dated 1 February 2017 and filed on 5 February 2017; (12) an affidavit of Mr Watson sworn 3 February 2017 and filed on 5 February 2017 in support of the application for leave to file an amended application for leave to appeal; (13) an affidavit of Mr Watson sworn 6 October 2016 and filed on 10 October 2016 relied upon by the applicants in the proceeding before the primary judge; (14) a further affidavit of Mr Watson dated 15 October 2016 and filed on 17 October 2016 relied upon by the applicants in the proceeding before the primary judge. 7 Apart from the material described at [6] of these reasons, I have also considered an affidavit of Mr Michael Buckingham affirmed and filed on 30 August 2016 and relied upon by the NAB in the proceedings before the primary judge and I have also considered the written submissions of Mr O'Higgins, counsel for the NAB, put on before the primary judge. The NAB places some reliance upon those submissions in the application of Mr and Mrs Watson for leave to appeal on the footing that the submissions indicate the scope of the issues alive before the primary judge not all of which were addressed in the reasons of the primary judge. 8 Although, of course, reasons for judgment are written for the benefit of the parties in order to explain the basis for the orders made by the Court (and in other respects for wider purposes), it should be noted that Mr and Mrs Watson are not represented by lawyers although they have attempted to obtain some legal assistance. In each case, their estates have been sequestrated and Mr Watson makes the point that he and his wife have lost everything. They do not have the resources to obtain legal advice. On the other hand, the NAB is assisted by solicitors and counsel. 9 Accordingly, I propose to adopt a slightly unusual course of seeking to write these reasons predominantly for the benefit of Mr and Mrs Watson in order to explain the principles which guide the Court's decision-making and the application of those principles in the circumstances of the decision of the primary judge. 10 The material referred to in [6] of these reasons is quite extensive. I do not propose to recite in these reasons large parts of the factual matters. 11 The relevant matters are these. 12 On 5 April 2016, the estates of Mr and Mrs Watson were sequestrated by order of the Court. The applicant for the relevant orders on that day was an entity described as "Owners Corporation Strata Plan 79827". Prior to the sequestration order, Mr and Mrs Watson had engaged extensively from 2005 with the NAB in relation to a proposal to borrow funds for a particular property and a project related to that property, and then a sequence of further loans and financial facilities for a range of related purposes. Although Mr Watson, who addressed the Court on behalf of Mr and Mrs Watson, challenged a number of propositions set out in the determination of the Financial Ombudsman Service arising out of the complaint Mr and Mrs Watson made to that body, Mr Watson accepted that the original financial facility provided by the NAB arose in these circumstances. Mr and Mrs Watson approached the NAB for finance for the purchase of 60 Bold Street, Laurieton in New South Wales. They had already contracted to buy the property for $670,000 and had paid in full a deposit of $67,000. Mr and Mrs Watson had also apparently obtained development approval for the site. Thus, the applicants required funds to complete the purchase of the site ($603,000) and were then at risk of losing the deposit if they could not complete the purchase contract. A series of financial transactions took place thereafter with further funding in 2005, 2006, 2007, 2009, 2010, 2011 and 2012. The nature, content and exchanges between Mr and Mrs Watson and the NAB throughout this entire period is set out in the material. Mr and Mrs Watson say that it ought to have been clear to the NAB from the very outset that there never would be sufficient income to support the loans made to them. Throughout the period, exchanges took place which resulted in the sale of properties and attempts to pay down the debt to the NAB. There were a number of financial facilities entered into between Mr and Mrs Watson and the NAB and a range of steps taken to realise assets to try and retire debt as it accumulated from time to time. These steps taken by Mr and Mrs Watson to try and retire debt were said to be taken under pressure from the NAB to reduce the debt and address the way in which the outstanding debt and interest would be paid. 13 Mr Watson says that these engagements with the NAB from 2005 onwards ultimately brought Mr and Mrs Watson to a position where they have "lost everything" and have suffered significant emotional stress, tension and injury by reason of the contended "wrongs" done to them arising out of contended breaches of obligations owed by the NAB to them. 14 Those contentions led to Mr and Mrs Watson filing an originating application in this Court on 9 August 2016 in which they assert these things. 15 First, Mr and Mrs Watson have suffered stress arising out of breaches of privacy and confidentiality. That matter is not taken any further in the originating application. 16 Second, they say that a wrong was done to them by reason of the NAB granting a loan application which contained figures falsely inflated by an officer of the Bank. 17 Each of those matters at [15] and [16] are set out at para 2 of the originating application. 18 Third, Mr and Mrs Watson seek an order against the NAB "for wrong done to the Watsons with unconscionable and unjust conduct in the loan approval process in 2005 for the purchase of 60 Bold Street Laurieton NSW". They say that they had a relationship of trust with the NAB Loans Manager, Mr Lewis, and were encouraged by him "to borrow above their means". They say that, without their knowledge, he filled out a credit memorandum with false information to have the loan approved: para 3. 19 There is no para 4. 20 Fifth, they seek an order against the NAB for "wrong" done to them by reason of contended "unconscionable and unjust conduct" of the NAB in the loan approval process for the commercial loan relating to 60 Bold Street, Laurieton on the footing that the loan was "deceptively approved" with "false and incorrect figures" inserted in the application/memorandum by the Credit Manager so as to ensure that the loan would be approved. 21 Sixth, they seek an order against the NAB for "wrong" done to them by reason of contended "unconscionable and unjust conduct" in the loan approval process for a home loan provided to them in respect of a property at 30 The Anchorage, Port Macquarie. They say that this loan was approved on the basis of an incorrect loan to value ratio and incorrect incomes recited for each of them. 22 Seventh, they seek an order against the NAB for "being wronged" by reason of "breach of confidentiality" arising out of disclosures on 21 August 2015 by the NAB to their family, friends and business associates. 23 Eighth, they seek an order against the NAB for wrongs arising out of "unconscionable and unjust conduct in the loan negotiations in February 2016" by which it is said that the NAB used "unfair tactics" and caused "undue pressure" to try and secure the execution of a deed by Mr and Mrs Watson. 24 Ninth, they say that all of these claims represent a continuation of action commenced by them prior to their bankruptcy by which they made complaint about the NAB's conduct to the Financial Ombudsman Service. 25 Tenth, they say that they were not afforded natural justice or procedural fairness in the bankruptcy hearing on 5 April 2016. 26 It should be noted, of course, that each of these claims at [15] to [25] of these reasons represent contention on the part of Mr and Mrs Watson. 27 On 11 October 2016, Mr and Mrs Watson filed an amended originating application. The primary judge noted that no leave had been granted to amend the originating application. The primary judge, on the interlocutory application made before him by the NAB for dismissal of the proceeding, elected to treat Mr and Mrs Watson as having made an application for leave to amend the originating application. Thus, the primary judge treated the amended originating application as framing the claims Mr and Mrs Watson would seek to make in their principal proceeding although it should also be noted that the primary judge had regard to the claims for relief in the application as filed on 9 August 2016. 28 As to the amended application, the applicants amended the claim described at [15] of these reasons to add that the stress caused injury to the "health, reputation, credit and character" of the Watsons. 29 As to the claim described at [18] of these reasons, Mr and Mrs Watson say that Mr Lewis engaged in conduct with a certain state of constructive knowledge and encouraged them to borrow above their means. 30 As to the claim described at [20] of these reasons, the same point is made about the state of knowledge of the Credit Manager. The application then sets out references to four authorities and quotes passages drawn from those authorities. 31 As to the claim at [21] of these reasons, the same point about knowledge is made. Mr and Mrs Watson say that the approval of the loan in relation to the property at 30 The Anchorage, Port Macquarie put them in a position of "special disadvantage". Mr and Mrs Watson quote six authorities with extracts drawn from five of those authorities. 32 As to the claim at [22] of these reasons, that claim is deleted in the amended originating application. 33 As to the claim at [23] of these reasons, no change is made. 34 As to the matter at [24] of these reasons, Mr and Mrs Watson say that the determination of the Financial Ombudsman Service is affected by Wednesbury unreasonableness due to the presence of missing and incorrect information used in the decision-making. 35 These are the matters Mr and Mrs Watson sought to agitate by their amended principal proceeding (for which leave was sought). 36 The NAB, by interlocutory application, sought summary judgment in the proceeding. As mentioned, apart from that application, the primary judge treated the amended originating application as an application for leave to amend. 37 Before turning to the decision of the primary judge, it is necessary to say something about the relevant provisions of the Bankruptcy Act. Section 58(1) provides, relevantly, that where a debtor becomes bankrupt, the property of the bankrupt vests forthwith in the Official Trustee. Section 58(3) provides that (except as provided for by the Act itself), after a debtor has become a bankrupt, it is not competent for a creditor to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt or, except with the leave of the Court (and on such terms as the Court determines) to commence any legal proceeding in respect of a provable debt or to take any fresh step in such a proceeding. 38 Section 60 of the Bankruptcy Act addresses a circumstance in which the Court may stay various proceedings. 39 The Court may, relevantly, at any time after the presentation of a petition, stay any legal process against the person or property of the debtor in respect of the non-payment of a provable debt. Section 60(2) provides that an action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes an election in writing to either prosecute or discontinue the action. 40 However, notwithstanding anything contained in s 60, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became bankrupt in respect of any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family: s 60(4). 41 It will be immediately apparent that s 60 has no application in the present circumstances because the principal proceeding commenced in this Court by Mr and Mrs Watson was filed after the sequestration order was made, that is, after 5 April 2016. The question in issue here is not whether Mr and Mrs Watson are entitled to continue a pre-bankruptcy principal proceeding by reason of s 60(4). That section has no application because their proceeding was commenced on 9 August 2016. Had the present claims been the subject of a proceeding prior to the sequestration order, the same question that arises under s 116(2)(g) (discussed in the following paragraphs of these reasons) would have arisen, in substance, under s 60(4). 42 Section 116 relevantly provides that all property that belonged to or was vested in a bankrupt at the commencement of the bankruptcy, or has been acquired or devolved upon the bankrupt after the commencement of the bankruptcy and before discharge is "property divisible amongst the creditors of the bankrupt". 43 By s 5(1) of the Bankruptcy Act, "the property of the bankrupt" in relation to a bankrupt means the property divisible among the bankrupt's creditors (as contemplated by s 116). The term "property" means real or personal property of every description, whether in Australia or elsewhere and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property: s 5(1). 44 It can be seen that the definition of the term "property" is very wide and this wide notion is brought into s 116(1) rendering property, otherwise falling within the elements of s 116(1), "property divisible among the creditors of the bankrupt". It follows that all rights of action the bankrupt has against a third party, at the commencement of the bankruptcy (which might result in a remedial order), is property divisible among the creditors if that right belonged to or was vested in the bankrupt at the commencement of the bankruptcy. That would apply to all claims of Mr and Mrs Watson against the NAB unless a relevant claim is reserved to the bankrupt by operation of s 116(2). That subsection provides, put simply, that certain rights of action in the bankrupt at the commencement of the bankruptcy do not form property divisible amongst the creditors. The relevant "carve out" is to be found in s 116(2)(g) which is in these terms: [section 116(1)] does not extend to the following property: (g) any right of the bankrupt to recover damages or compensation: (i) for personal injury or wrong done to the bankrupt, the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; or (ii) in respect of the death of the spouse or de facto partner of the bankrupt or a member of the family of the bankrupt; and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person. [emphasis added] 45 On the interlocutory application of the NAB for summary judgment, the primary judge examined the claims in the originating application and the amended originating application to determine whether any or all of those claims were now vested in the trustee. The primary judge concluded that the claims in paras 1, 2 and 4 of the originating application and paras 1, 2, 3 and 5 of the proposed amended application were claims now vested in the trustee: PJ at [6]. The primary judge observed that the claims of want of procedural fairness in para 5 of the originating application and para 6 of the proposed amended application relate to the proceedings leading to the sequestration orders. The NAB was not a party to those proceedings. The primary judge observed that any absence of procedural fairness is not a matter to be established as against the present respondent: PJ at [6]. 46 The primary judge then considered whether the claim in para 3 of the originating application concerning wrong done to Mr and Mrs Watson by reason of contended unconscionable and unjust conduct in the loan approval process in 2005, on the part of the "bank manager", giving rise to stress described as injury to the health, reputation, credit and character of the Watsons, is a claim falling within s 116(2)(g) which would then, in effect, be reserved to Mr and Mrs Watson and, more particularly, not form part of property divisible amongst the creditors of the bankrupt. The primary judge also examined that question in the context of the claim contained in para 7 of the proposed amended application to the effect that the NAB caused injury to each of the applicants' health, reputation, credit and character: PJ at [7]. 47 The primary judge reached these conclusions: 8 The respondent submits that there is a strong line of authority which suggests that where claims for damages for matters such as undue stress or injury to health, reputation, credit or character arise out of transactions which otherwise concern rights in respect of property, which rights would otherwise vest pursuant to s 116(1), the damages claims also vest and do not continue as rights personally enforceable by the bankrupt. The most enlightening discussion of the principle appears in the decision of the New South Wales Court of Appeal in Moss v Eaglestone (2011) 257 FLR 96. In that case Allsop P (as his Honour then was) considered a wide range of authorities. At [73], his Honour effectively summarised the law by reference to the decision in Bryant v Commonwealth Bank of Australia (1997) 75 FCR 545 as follows: In Bryant, Lockhart J held (at 554) that general damages for loss of business reputation, loss of standing in the community, loss of amenities of family life, stress and suffering and exemplary damages were "consequential upon the loss or damage … which is referable to the proprietary claims" and thus passed to the trustee. O'Loughlin J and Merkel J likewise (at 564) said that injuries arising as a direct result of infringements of financial or property rights passed to the trustee. [emphasis added] 48 The primary judge concluded that the claim identified in para 7 of the proposed amended application vested in the trustee pursuant to s 116(1). 49 The primary judge also said this at [9]: It occurred to me that the position may be somewhat different with respect to the claim made in para 3 of the originating application, which claim was for undue stress caused by the negligence of the bank manager. In the originating application, there is no plea of agency as between the respondent and the bank manager so that the claim, on its face, might be read as a claim against the bank manager personally. However, that person is not a party, and so I infer that the claim is against the respondent, arising out of the alleged conduct of its servant or agent. It follows that such claim also vests in the trustee. 50 In the material relied upon by Mr and Mrs Watson, much discussion occurs about s 60(4) of the Bankruptcy Act. As I have indicated (and as I identified for Mr and Mrs Watson in the course of the hearing), that provision of the Act has no application in the circumstances relevant to Mr and Mrs Watson. In addition, Mr and Mrs Watson place a lot of emphasis upon the notion that "property" was sold, by which they mean particular pieces of "real property", before the bankruptcy and thus that property could not pass to the trustee. However, the relevant "property" comprises the claims of Mr and Mrs Watson for remedial entitlements in respect of contended wrongs. Those remedial entitlements, to be vindicated by action, vested in them at the commencement of the bankruptcy (to the extent that they enjoy such vested entitlements), became property divisible among the creditors unless exempted by operation of s 116(2). 51 Mr Watson, in the course of the oral hearing, accepted (consistent with his written material) that the stress which is said to have caused injury to the health, reputation, credit and character of Mr and Mrs Watson, arose out of the sequence of engagements between Mr and Mrs Watson and the NAB commencing in 2005 and progressing through the sequence of events relating to the provision of the further financial facilities (and the circumstances in which they were provided) and steps taken to cause asset realisations to occur to reduce the debt, over time, arising out of the advances made by the NAB pursuant to the various facilities and instruments. 52 The various "wrongs" asserted against the Bank comprehend a range of contentions. They include matters concerning the completion of credit documentation, the state of knowledge of bank officers, the conduct of bank officers and whether the bank discharged obligations cast upon it either by the Uniform Credit Code or other regulatory instruments in the context of the provision of the financial services. Nevertheless, however the particular "wrong" might be formulated and whether it is expressed as unconscionable conduct or unjust conduct, all of the conduct is in connection with the engagement between Mr and Mrs Watson and the Bank concerning the various financial facilities commencing with the very first facility in relation to the purchase of the property at 60 Bold Street, Laurieton, in 2005 and the facilities thereafter. 53 I am satisfied that there is no error of principle in the reasons of the primary judge (and thus the decision is not attended by doubt so as to warrant the grant of leave) and that the authorities identified by the primary judge support the propositions reflected in the conclusion of the primary judge. I accept that the claims of injury by reason of stress, loss of amenities of family life, injury to health, reputation, credit and character are claims consequential upon the loss or damage referable to the proprietary claims and are not "severable" from the proprietary claims. I also accept that apart from those authorities, the proposition is supported by the following authorities: Faulkner v Bluett (1981) 52 FLR 115 (where Lockhart J recognises that the right of action does not pass to the trustee if the damages are to be estimated by immediate reference to "pain" felt by the bankrupt in respect of his "body, mind and character" and without immediate reference to his rights of property reflecting the test in Cox v Journeaux (No 2) (1935) 52 CLR 713 at 721, Dixon J); Mannigel v Hewlett Phelps [1991] NSWCA 186, Handley JA; Kirby P and Meagher JA agreeing; Samootin v Shea [2010] NSWCA 371 at [67] to [82], Campbell JA; Beazley JA and Hodgson JA agreeing; and Fletcher v Westpac [2012] WASCA 154. 54 I also accept that the claims are not properly formulated, as they stand. The claim for relief in each paragraph would need to be identified clearly and be properly supported by a statement of claim. Nevertheless, for present purposes, the essential contention is reasonably clear. 55 As mentioned at [34] of these reasons, Mr and Mrs Watson challenge the "legality" of the determination of the Financial Ombudsman Service on the ground that the decision is affected by unreasonableness in the decision-making. The determination of that body is not something that can be challenged in a proceeding against the NAB. 56 Mr and Mrs Watson only seek leave to agitate, personally, those claims that they say concern matters of stress giving rise to injury to their "health, reputation, credit and character". As to the other claims dismissed by the primary judge, no assertion is made that that part of the decision of the primary judge is attended with sufficient doubt to warrant the grant of leave. 57 As to the second part of the test for leave, it is important to remember that the claims that Mr and Mrs Watson wish to agitate are not entirely lost or foreclosed simply because they are claims consequential upon and not severable from the proprietary claims. The claims and the issues sought to be agitated can properly be the subject of proceedings brought by the trustee. Obviously enough, judgements would have to be made by the trustee as to whether the claims have merit and ought to be pursued and are able to be pursued. However, the claims are not foreclosed per se simply because they vest in the trustee. I note Mr Watson's comments in the course of the hearing that he is in discussions with the trustee about whether claims (and if so, which claims) might be brought against the NAB. 58 The application for leave to appeal must be dismissed with costs. I certify that the preceding fifty eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.