Wells Fargo Bank Northwest National Association v Victoria Aircraft Leasing Limited [2003] VSC 267

Supreme Court of Victoria|2003-07-24|Before: GILLARD J.

SUMMARY JUDGMENT - Seeking possession of aircraft pursuant to mortgage - Contract and equitable estoppel - Contract with and representations made by controller of mortgagee - Arguable case - Application dismissed.

This is the return of a summons issued in the proceeding by the plaintiff seeking summary judgment pursuant to Rule 22.02 of the Rules of Court. The judgment sought, in effect, is possession of a Boeing 737-400 aircraft including its two engines and the aircraft's manuals and technical records, pursuant to the plaintiff's rights as mortgagee of the aircraft. The aircraft is the only aircraft owned by the second defendant Nauru Air Corporation ("Air Nauru") which operates it along the eastern side of Australia and throughout Pacific Islands in the western Pacific under the name, Air Nauru.

The writ seeking possession was filed in the Court on 30 June 2003 and was issued in the Commercial List. The plaintiff sought interlocutory relief in the form of possession of the aircraft, and because of the July vacation, the Judge in the Commercial List referred the matter to the Practice Court for determination. I have made a number of orders concerning the use of the aircraft by Air Nauru. The plaintiff as mortgagee claims that the mortgagor of the aircraft the first defendant, Victoria Aircraft Leasing Limited ("Victoria Leasing'), has failed to pay instalments of the loan made to enable the aircraft to be purchased and by reason of a series of defaults it has accelerated the total amount due which at the date of the writ was in the order of US $13.633 million. The Court permitted Air Nauru to continue to fly the aircraft. It underwent a three month's repair and maintenance service and was only recently returned to Air Nauru. The Court permitted Air Nauru to continue possession of the aircraft upon its undertaking that in the event the Court entered judgment for possession against the defendants or either of them, it would bring the aircraft into the jurisdiction by no later than 12.00 pm on Saturday, 19 July 2003, now extended to 26 July 2003. It was also a condition of permitting Air Nauru's possession that it paid two instalments of money totalling US $1,255,879.78. The amounts have been paid to the plaintiff's solicitors to be held in trust pending the determination of the proceeding or further order.

As there was a degree of urgency concerning the matter, I gave leave to the plaintiff to bring an application in the Practice Court for summary judgment.

The plaintiff Wells Fargo Bank Northwest National Association (in its capacity as Security Trustee for the Export-Import Bank of the United States) ("Eximbank") is a bank and it brings the proceeding in its capacity as security trustee for Eximbank. Eximbank Bank is a corporation under the law of the United States of America and appears to be an agency of the United States Government.

The first defendant, Victoria Aircraft Leasing Limited, is the owner of the aircraft which, pursuant to an agreement, permits the second defendant Nauru Air Corporation to operate the aircraft. The Court granted leave to the Government of the Republic of Nauru to intervene in the proceeding as it is clear that it has a real interest in the outcome of this proceeding. The evidence revealed that the Government has been providing the funds which enabled Air Nauru to pay the amounts recently ordered. The evidence also showed that Air Nauru owns only the one aircraft and if possession is given to Eximbank, there will be severe repercussions for approximately 160 employees, substantial inconvenience to the travelling public and the end of any air service, at least in the short term, to the Republic of Nauru and another island republic in the Pacific area. As against this, Eximbank strongly submits that it is owed a substantial sum of money and wants possession of the aircraft to sell it and liquidate the loan. Shortly after the writ was issued representatives of Air Nauru informed the court that it would hand over the aircraft. After lawyers became involved, Air Nauru changed its mind and now asserts it has a defence to the proceeding. Mr Brett QC, who appears with Mr Peter Gray for Eximbank, has emphasised this change and submits that Air Nauru has no real defence. I do not share his view. At the time when Air Nauru so informed the court it did not have the benefit of legal advice. This application will be decided on the materials before the court and the court's assessment of them. I emphasise that the application is on affidavit and the facts are untested. The evidence revealed that the prospects of Victoria Leasing, Air Nauru or the Republic of Nauru finding the necessary funds to pay out the total loan in the short term are remote in the extreme. Eximbank seeks possession of the aircraft which was given as security for the payment of the loan so that the aircraft can be sold to liquidate the debt. It appears the aircraft is worth approximately US $14 million which if realised would cover the outstanding debt.

"(1) Where the defendant has filed an appearance, the plaintiff may at any time apply to the Court for judgment against the defendant on the ground that the defendant has no defence to the whole or part of a claim included in the writ or statement of claim, or no defence except as to the amount of a claim." (Emphasis added).

Under Rule 22.04 the defendant may show cause by affidavit or otherwise and any information contained in an affidavit may be based upon information and belief if the grounds are set out.

As this is a summary procedure heard on affidavit, the material placed before the Court is untested. The Court would only enter judgment for a plaintiff if it is satisfied that the defendant has no defence, that there is no question to be tried and there is no other reason for a trial. By reason of Rule 22.06(1)(b) the defendant must satisfy the Court that in respect of the claim "a question ought to be tried or that there ought for some other reason to be a trial of the claim".

A summary application involves a two step consideration. First, has the plaintiff established all the elements of its case, entitling it to judgment? Involved in this part of the exercise is evidence from the plaintiff that it is believed the defendant has no defence to the claim or part - see Rule 22.03(1). Secondly, has the defendant established he has a defence to the claim or part thereof, or is there a question to be tried or there is a reason that a trial should occur?

In Australian Can Co Pty Ltd v Levin & Co Pty Ltd[1], the Full Court stated:

"From all this it appears that where there is a real case to be investigated in fact or in law, leave to defend should be given ... whatever the language various Courts have used, it seems to us that the substance of the criterion to be applied is that after the matter involved has been explained to the Judge there must be a real uncertainty without full argument or further investigation of the facts as to the plaintiff's right to judgment".

The High Court expressed the same view in Fancourt v Mercantile Credits Ltd[2] where the Court said:

"The power to order summary judgment or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried."

The Court made it clear at page 99 that the test was whether the Court could conclude on the whole of the material "that there was no question to be tried". The Court may come to the view that although a defendant may not positively establish a defence nevertheless the circumstances may be such that there ought to be a trial and the defendant should not be debarred from defending the proceeding. In Wickstead v Browne[3], Kirby P at page 5 made the same point, namely that sometimes it is necessary for the proceeding to continue to enable the Court to have a full understanding of all the relevant evidence and a full consideration of the legal principles.

The plaintiff, Wells Fargo Bank Northwest, sues as security trustee on behalf of Eximbank. The bank sues on a mortgage dated June 1993 between Victoria Leasing as mortgagor and Citibank NA as security trustee for Eximbank, the mortgagee. The plaintiff is the successor and assignee of Citibank NA. Victoria Leasing is sued as owner and mortgagor of the aircraft. Air Nauru is sued as the entity in possession of the aircraft. By a series of transactions, money was lent to Victoria Leasing in 1993 and by a series of transactions Wells Fargo Bank is now the security trustee for Eximbank. The loan moneys were to be paid by instalments, and in May 2002 Victoria Leasing defaulted on the instalment then payable. In fact, it did later pay most of the instalment but part of it is still due and owing. The August 2002 instalment was not paid and notices were given on behalf of Eximbank requiring payment, calling up a guarantee and accelerating the total amount of the debt. Instalments due in November 2002 and February and May 2003 were not paid and remain unpaid. On 9 June 2003, Eximbank declared all amounts owing by Victoria Leasing to be immediately due and payable.

The mortgage entitles the mortgagee to possession when default has occurred. Default has occurred and the remedies provided by the mortgage are now enforceable.

Having considered the evidence, I am satisfied that Eximbank has established its prima facie case and is entitled to possession of the aircraft. Counsel for the defendants and the intervener did not put any argument to the court that Eximbank has not proven its case.

The real area of dispute on this application concerns a defence relied upon by both defendants to the effect that the United States Government which owns and controls Eximbank has made an agreement or representation binding on Eximbank to the effect that if the Republic of Nauru implemented certain requirements Eximbank would not enforce the right to the payment of the debt. The defence put forward is that Eximbank is an agency of the Government of the United States of America, and that the government of the United States agreed with the Republic of Nauru or alternatively made representations to the Republic or the Government of Nauru promising financial support contingent upon the country co-operating with the United States in respect to certain matters. It was submitted that Nauru co-operated with United Stated in reliance upon the agreement or representations made, that what the United States government did bound Eximbank and accordingly Eximbank is not entitled to the possession of the aircraft or foreclosure of it. It is submitted that Eximbank is bound in contract or is estopped in equity from resiling from the contract or represented situation. In respect of the defence based on estoppel the defendants rely upon the principles expounded in the famous case of High Trees in England[4] and developed in the Australian cases of Walton's Stores[5] and Verwayan.[6]

The defendants contend that the United States entered into an agreement and/or made representations as follows:

"That the United States Government agreed with and represented to the defendants and the Republic of Nauru, that if the Republic acted in accordance with, or acted so as to implement, certain identified requirements of the United States, then the United States would take steps so as to ensure that Nauru would be given additional time to pay its debts to Eximbank sufficient to ensure the operational viability of Air Nauru; that it would provide sufficient funds to Nauru so as to eliminate any problems which it may have in relation to the repayment of the loan to Eximbank; and that it would not permit Eximbank to exercise any strict contractual rights which it might have to take possession of and sell the aircraft."

In support of the defence, a number of affidavits were filed by members of the government, former members of the government and representatives of the Republic of Nauru. Some of them dealt with sensitive matters concerning the relationship between the Republic of Nauru and the United States Government and in the interests of the national security of the Republic of Nauru I have ordered that some affidavits are confidential and the contents are not to be disclosed without order of the court.

It is noted that the alleged agreement and/or representations involve the United States Government and not Eximbank. Evidence emanating from both the plaintiff and the defendants showed contact between representatives of Eximbank and representatives of the Republic of Nauru, but there is no evidence that Eximbank entered into any such agreement or made any such representations. Given that state of affairs, Mr Brett QC, on behalf of the plaintiff, submitted that whatever the government of the United States agreed or represented, it could not bind Eximbank.

Dr Pannam QC who appeared with Mr J. Manetta of counsel for the defendants and the Republic of Nauru, submitted that the connection between the government of the United States and Eximbank was extremely close, that Eximbank was an agency of the United States Government and strictly controlled by it, and that the matters requested of Nauru were matters that directly affected the government of the United States and were made in a context of relieving the defendants of their obligations under the loan agreement and the mortgage. Further, the evidence established that the Republic of Nauru did perform the necessary matters required of it by the United States.

The matters were identified as the issuing of passports, banking through Nauru and a matter which the parties identified as a scientific matter. It is unnecessary to go into any further detail in relation to these matters.

The principles concerning the general doctrine of estoppel by conduct were summarised by Deane J in the Commonwealth v Verwayen, supra, at p.433 et seq. His Honour emphasised that the persons who may be bound by or who may take the benefit of an estoppel extend beyond the immediate parties to it. Hence, "an estoppel by conduct can be the origin of primary rights of property and of contract". Secondly, he observed that the central principle of the doctrine is that the law will not permit an unconscientious departure by one party from the subject matter of an assumption which has been adopted by the other party as a basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption not be adhered to.

The third point his Honour made was that "the resolution of an issue of estoppel by conduct will involve an examination of the relevant belief, actions and positions of that party", that is, the party who is claiming the estoppel. Fourthly, "the question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances." His Honour also stated that the assumption created may be one of fact or law, present or future, and although estoppel by conduct does not constitute an independent cause of action, "the assumed fact or state of affairs ... may be relied upon defensively or it may be used aggressively as a factual foundation for an action arising under ordinary principles with the entitlement to ultimate relief being determined on the basis of the existence of that fact or state of affairs."

The material relied upon by the defendants ranged over meetings in various parts of the world involving representatives of the Republic of Nauru and various individuals, some of whom appeared to be representing the United States Government. Mr Brett QC submitted that there was real uncertainty as to who was representing the United States and, more importantly, what position each occupied in the United States Government and whether any had any authority to bind the government. Dr Pannam QC submitted that the very nature of the request made, the fact of performance by the Republic of Nauru and the satisfaction evidently expressed on behalf of the United States led to the conclusion that the representatives did represent the government of the United States and they had the necessary authority to in effect transact the business.

Eximbank is both a corporation under the law of the United States and an agency of the United States Government. In an affidavit filed by the plaintiff, a Mr Louis Emery produced the charter of Eximbank. The charter revealed that the bank was "an agency of the United States of America". Amongst its objects and purposes was financing of a foreign country or agencies or nationals of any foreign country. Given that the United States is the wealthiest country in the world, and without doubt the most powerful and politically influential, one can readily see the influence the United States could exercise through the provision of financial services to another country. The president of the bank is appointed by the President of the United States by and with the advice and consent of the Senate. There is a board of five directors and not more than three shall be members of any one political party. Importantly, all of its issued capital is held by the United States through the office of the President of the United States. The charter also reveals that the bank is to act in accordance with the policy of the United States.

The affidavits filed by the defendants disclose that discussions took place about the debt to Eximbank and representations were made that if the Republic of Nauru co-operated with respect to the three matters referred to above, then steps would be taken to ensure that Eximbank did not strictly enforce the obligations to it. Various persons were named as persons representing the United States, namely, a Mr Sanders; a Mr Ray, the suggestion being that he was connected with the CIA; and a Mr Pinder, who was of the senior professional staff of the United States House of Representatives' Committee on Financial Services. In addition, a Mr Horowitz was involved and he appears to have some relationship with the United States Government. It is open on the evidence to infer that these men were acting on high executive authority from the United States Government. The fact that requests were made which the Republic of Nauru responded to and promises were made in the context of these matters which were of concern to the United States Government, does lead, on the material, to the conclusion that the people involved did have the necessary authority of the government.

In my opinion, there is evidence to support the conclusion that certain representations were made along the lines asserted by the Republic of Nauru. Given the close relationship between the Republic of Nauru and the two defendants, and also the concerns expressed by the United States which were addressed by the Republic of Nauru, in my opinion there is some evidence which would support the establishment of an estoppel in the terms asserted by the defendants.

There was also evidence that the Republic of Nauru acted in accordance with the represented terms of the agreement and in reliance on the representations in that there is some evidence that the representations were believed and relied upon, that certain things were done in relation to a refugee programme, establishment of a representative in Beijing, dealing with off-shore banking requests, the abolition of off-shore banking by the Republic of Nauru, steps being taken by the Republic of Nauru concerning alleged money laundering, the prevention of abuse of Nauruan passports and completion of the scientific matter.

Mr Brett QC submitted that the evidence was lacking in substance and uncertain and in the light of the fact that Air Nauru was prepared to hand over the aircraft and then changed its mind after consulting lawyers, that the defences raised lack substance and were an afterthought. He said that all discussions appeared to be vague, there was vagueness as to promises made, there was uncertainty as to who made the representations and the authority of such a person, and that the court should view the evidence with scepticism. I hear what Mr Brett QC says. There may be some substance in some of his observations and criticisms of the evidence, but the fact is that there is some affidavit material before the court, albeit untested, and in my view it would be unjust to the defendants and the Republic of Nauru if the court was to deny the defendants the opportunity of placing all the evidence before the court as an answer to the plaintiff's claim. In my opinion, a grave injustice would be caused to the defendants if they were denied the opportunity of seeking to enforce the agreement and/or the representations made leading to an expectation that Eximbank would not seek to enforce its rights against Victoria Leasing. In my opinion, the defendants have satisfied the court that there is a question to be tried. In my view, there should be a trial of the issues and to deprive the defendants of that opportunity would, at this stage, be a grave injustice.

This proceeding is in the Commercial List. One of the objects of the list is to case manage the interlocutory matters so that the proceeding is ready for trial within a period of three months after institution of the proceeding. The judge in the list will fix a date for trial and the trial date should be in the order of six months' time. The question arises as to what the court should do in relation to the claim for interlocutory relief brought by the plaintiff in respect to the aircraft. The effect of the interlocutory relief to date is that Air Nauru has been given permission to continue to fly the plane. It has paid approximately US$1.2 million as a sign of good faith to the plaintiff's solicitors to be held in trust. The aircraft has recently undergone a very expensive repair and maintenance service and in my opinion the value of the aircraft will not deteriorate to any great degree over the next six months. I am prepared to give directions to ensure that the interlocutory steps are carried out expeditiously. Of course, the further conduct of the proceeding will be a matter for the judge in the Commercial List.

Mr Brett QC submitted if summary judgment was denied, the right of the defendants to defend the proceeding should be subject to a condition, namely, payment of the whole or a substantial part of the debt into court. The prospects of the defendants or the Republic of Nauru complying with such a condition, in the short term, are remote. It would be unjust in my opinion in the circumstances of this case if they were denied the opportunity to defend the proceeding. Further, their defence goes to the very question of the liability to pay the amount.

In the course of the interlocutory proceedings before the court, the plaintiff's counsel informed the court that there was power to take certain steps in relation to the aircraft which may have the effect of terminating any insurance cover over the aircraft. In the light of those observations, the defendants' counsel have sought an order restraining the plaintiff from taking any steps which would have the effect of preventing Air Nauru from flying the aircraft in its normal business. I am prepared to make an order, provided that an undertaking is given by the defendants that the aircraft will not be used otherwise than in accordance with the normal business use of Air Nauru.

Subject to submissions by counsel, I propose to make the following orders -

(i) That the plaintiff's summons filed 8 July 2003 seeking summary judgment under Order 22 of the Rules of Court is dismissed;

(ii) that the defendants have leave to joint the Government of the Republic of Nauru as a defendant in the proceeding;

(iii) that the defendants deliver a defence and any counterclaim within 21 days;

(iv) that the plaintiff deliver any reply and/or defence to counterclaim within 21 days of the delivery of any defence and/or counterclaim;

(v) that pending the hearing and determination of the proceeding or further order, the plaintiff its defendants and agents be restrained from taking any step or action whatsoever which would have the effect of preventing the second defendant from using the aircraft in connection with its normal business of Air Nauru;

(vi) that any directions or orders concerning further interlocutory steps in the proceeding be made by the judge in the Commercial List;

(vii) that the interlocutory injunction restraining the plaintiff be subject to an undertaking by the defendants their servants and agents that the aircraft would not be used otherwise than in connection with the normal course of business of Air Nauru.

Of course the defendants must give the usual undertaking as to damages.

The defendants also sought an order that any third party proceeding against the government of the United States of America be instituted by a third party notice within 21 days of this date. I will hear the parties on that question as well as the question of costs.

At a glance

Court

Decision date

Before

Source

Judgment (46 paragraphs)

Parties

Cases Cited (4)