Australia and New Zealand Banking Group Limited v James (No 3)

By a notice of motion filed on 19 September 2017, the defendant, Mr David James, seeks an order setting aside a judgment obtained against him by consent by the plaintiff, Australia and New Zealand Banking Group Limited (ANZ), on 16 May 2014. The judgment, for the sum of $13,928,818.66, was obtained in respect of four guarantees Mr James had given to ANZ of debts owed by various companies controlled by him including TLT Nominees Pty Limited (Receivers and Managers Appointed) (In Liquidation) (TLT), Newcastle Liquor Wholesalers Pty Limited (Receivers and Managers Appointed) (In Liquidation) (NLW), James Australia Group Pty Ltd (In Liquidation) (Receivers and Managers Appointed) (JAG) and Print National Nominees Pty Ltd (In Liquidation) (Receivers and Managers Appointed) (PNN) (together, the Companies).

The Companies primarily carried on the business of a wholesale seller of alcoholic and non-alcoholic beverages. They operated in parallel with another group of companies controlled by Mr James that was primarily in the business of producing and selling wine. That group had borrowed money from Rabobank. Included in the group were Wine National Pty Limited (WN), Liquor National Pty Limited (LN) and James Estate Wines Pty Ltd (JEW), which was a party to a share farming agreement dated 10 July 2002 relating to a winery at Baerami and which jointly operated the cellar door sales from the winery.

As well as the guarantees obtained from Mr James, ANZ had also obtained security for the debts owed to it in the form of charges over the assets of the Companies.

Mr James seeks to set aside the judgment on the ground that he was induced to consent to it by the misleading and deceptive conduct of ANZ. That misleading and deceptive conduct is alleged to have had two components. First, it is alleged that Mr James was misled at the time he agreed to the consent judgment into believing that the security held by ANZ from the Companies was sufficient to repay the borrowings the group had made. The misleading conduct was the failure of ANZ to disclose before judgment was entered that the receivers who had been appointed by ANZ had sold stock belonging to TLT and NLW for amounts that were substantially less than the book value of the stock held by those companies as disclosed in a report prepared by PricewaterhouseCoopers (PwC) at the request of ANZ prior to their appointment as receivers. Mr James says, in effect, that had he known the true position he would not have consented to judgment but instead would have sought to advance a case that the receivers had sold the stock at an undervalue in contravention of s 420A of the Corporations Act 2001 (Cth) and had, in breach of their duties, released the receivers appointed by Rabobank from claims the receivers appointed by ANZ had to stock stored at the Baerami property – claims that he now seeks to advance if judgment is set aside.

Secondly, Mr James contends that ANZ engaged in misleading and deceptive conduct by failing to disclose to him that ANZ had attempted on 10 occasions between 3 September 2010 and 3 February 2012 to manipulate the bank bill swap rate (BBSW) in contravention of s 12CC(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (as it then was) and that that conduct had been the subject of an investigation by the Australian Securities and Investments Commission (ASIC). Mr James contends that had he known those matters he would not have trusted ANZ and therefore would not have been prepared to agree to the consent judgment. Originally, Mr James took the position that if the consent judgment was set aside, he would seek to advance a defence based on that conduct. However, at the hearing of the notice of motion, Mr Pritchard SC, who appeared for Mr James, indicated that Mr James would no longer seek to rely on that defence.

ANZ denies that it engaged in misleading and deceptive conduct or that Mr James relied on any non-disclosure by it. It also claims that, even if Mr James is able to make out a case that he was misled by ANZ’s conduct, the Court should refuse relief on discretionary grounds. Three grounds are identified. First, ANZ submits that it would be futile to set aside the judgment because Mr James has no arguable defence. Second, ANZ relies on Mr James’s delay in seeking to set aside the judgment. Third, in the case of the claim based on the attempt to manipulate the BBSW swap rate, ANZ submits that the Court would not set aside the judgment on that basis to permit Mr James to advance an unrelated case based on a contravention of s 420A of the Corporations Act.

As I have said, Mr James entered into four guarantees. The first was dated 19 August 2005. Under that guarantee, Mr James guaranteed the debts owed to ANZ by JAG. The second was dated 21 December 2005. Under that guarantee, Mr James guaranteed money owing by PNN. The third was dated 16 November 2006. It related to moneys borrowed by PNN and LNW. The fourth was entered into on 9 April 2010. It related to moneys borrowed by TLT.

Each of the guarantees is in substantially the same terms. Each provides that:

Clause 2.4 states:

Clause 4 relevantly provides:

Clause 9 provides:

Clause 13 provides:

Clause 16 provides:

The Code of Banking Practice sets out in Part B a number of general obligations of participating banks. Mr James relies on cl 2, which provides:

The Code of Banking Practice also contains specific obligations of disclosure in relation to guarantees. However, those obligations are excluded by cl 28.15 in relation to a “sole director guarantor”, which is defined to mean “a guarantor of a Facility who is a director of a company that has only one director, and that company is to be the debtor for the Facility”. It is common ground that Mr James falls within the definition of “sole director guarantor”.

By 12 April 2013, a number of the facilities that had been guaranteed by Mr James had fallen due for repayment and had not been repaid. On 12 April 2013, ANZ wrote to Mr James stating that it was prepared to continue to forbear from enforcing its securities on the basis of a number of conditions, including a condition that an independent review be conducted by PwC in relation to various aspects of TLT’s business. That review commenced shortly afterwards.

On 23 May 2013, PwC sent Mr James a draft redacted version of their report. The covering email enclosing a copy of the redacted draft said:

The version of the report sent to Mr James included a section dealing with inventory. That section observed that inventory was situated at four locations, which were warehouses in Sydney and Newcastle, the winery at Baerami and a warehouse leased by TLT at Denman.

The draft report contained the following table summarising the position in relation to inventory:

Commenting on the realisable value of the inventory, the report said:

In relation to debtors, the draft report stated:

A final copy of PwC’s report was provided to ANZ on 31 May 2013. The table set out above was repeated in the final report.

In the “At a glance” section of the final version of the report (which was not provided to Mr James in draft), PwC makes the following observations in relation to the estimated security position:

On 21 June 2013, Allens Linklaters (Allens), acting for ANZ, gave notice of default but indicated that ANZ would forbear from enforcing securities until 26 August 2013.

On 1 August 2013, Allens served a notice of demand on NLW and on 8 August 2013 they served notices of demand on TLT and JAG. On 13 August 2013, Allens sent a letter to TLT withdrawing ANZ’s agreement to forbear from enforcing securities before 26 August 2013.

On 19 August 2013, ANZ appointed PwC as receivers. At the same time, ANZ appointed Mr Shaun Fraser and Mr Christopher Honey of McGrathNicol as joint and several administrators of JAG, TLT, PNN, NLW and Rugama Trading Pty Ltd, the beneficial owner of the shares in TLT and NLW.

Mr James says that on 26 August 2013 he was admitted to the Lake Side Clinic, Warners Bay Private Hospital where he was treated for a major depressive disorder. He remained there until 1 October 2013, when he was transferred to the Mater Mental Health Service at Waratah, where he remained until 4 October 2013.

On 30 August 2013, Allens served a notice of demand on Mr James demanding the payment of $14,133,818.66 under the four guarantees given by him.

On 11 September 2013, McGrathNicol provided a report to creditors (the Creditors Report) of the companies to which they had been appointed as administrators. The report stated:

On 11 October 2013, ANZ commenced these proceedings against Mr James claiming the sum of $14,133,818.66 under the guarantees.

On 15 November 2013, ANZ filed a notice of motion in these proceedings for summary judgment. That notice of motion was supported by an affidavit of Mr David Michael Popkin, a solicitor with Allens. Paragraph 9 of that affidavit states:

At the time the affidavit was sworn, Mr James had not filed an appearance. His brother, Mr Murray James, appeared for him by leave on the first return date of the summons on 1 November 2013.

On 22 November 2013, Hammerschlag J entered summary judgment for ANZ against Mr James for $14,133,818.66 together with interest from 19 August 2013 to 22 November 2013, but stayed that order for a period of 14 days to give Mr James an opportunity to make an application to set aside the judgment.

On 13 December 2013, Hammerschlag J ordered that the summary judgment entered on 22 November 2013 be set aside. Hammerschlag J also gave directions in relation to the further progress of the matter, including a direction that ANZ serve any further evidence in chief by 20 December 2013.

By that stage, the receivers had commenced to sell stock held by TLT and NLW. In all, between 25 September 2013 and 28 April 2014, they sold TLT’s stock for $742,016 (of which $611,828.98 was realised by the receivers) and NLW’s stock for $402,892 (of which $344,169.41 was realised by the receivers).

On 19 December 2013, Mr John Symons, an employee of ANZ, swore an affidavit. Paragraph 31 of that affidavit stated:

Paragraph 34 stated:

On 29 January 2014, Mr James, at a time when he was acting for himself, served a notice to produce on ANZ seeking relevantly documents “recording any defaults, breaches and or notifications of any intended recovery actions as served on the companies and or guarantors” of various companies controlled by Mr James, including TLT. At the same time, he served a subpoena on PwC. The drafting of the subpoena is convoluted, although it is plain that what was sought were documents recording the interest of any person in purchasing, or investing in, “the David James Group” during the period 1 January 2011 to 26 August 2013.

On 3 March 2014, ANZ and PwC filed notices of motion to set aside the notice to produce and subpoena. Subsequently, Mr James advised the solicitors acting for ANZ and PwC that he did not press them.

On 3 March 2014, Mr James filed a Commercial List Response. In that response, he admitted all of ANZ’s allegations, but denied that he was liable under the guarantees on the basis that a sale of his businesses for $60,925,000 pursuant to an agreement entered into on 6 October 2012 did not proceed because of breach of confidentiality obligations owed by Grant Thornton, who had been appointed by ANZ on 13 June 2012 for the purposes of conducting a review of the Companies. At the same time, Mr James filed a cross-claim against Grant Thornton and ANZ relying on the same matters.

On 28 March 2014, Mr James filed a Commercial List Amended Cross Claim Statement, which did not include a claim against ANZ. That prompted Allens to write to Dib Lawyers on 15 April 2014 indicating that in light of the admissions made in the Commercial List Response and the discontinuance of the cross-claim against ANZ, ANZ proposed to seek summary judgment.

On 19 March 2014 the receivers filed Form 524 Presentation of Accounts for TLT and NLW for the period 19 August 2013 to 18 February 2014. The accounts for TLT disclosed that the total receipts for it were $2,236,132.71, which included receipts from the sale of stock of $712,911.11 on 22 January 2014 and $34,710.48 on 23 January 2014. The accounts for NLW disclosed that the total receipts for it were $1,630,408.28, which included receipts from the sale of two lots of stock on 23 January 2014, one of $368,804.89 and the other of $27,739.80.

On 23 April 2014, ANZ filed a notice of motion seeking summary judgment in these proceedings. That notice of motion was supported by an affidavit filed by Mr Popkin sworn on the same day. In that affidavit, Mr Popkin states that he relied on the facts set out in his affidavit dated 15 November 2013 and the affidavit of Mr Symons dated 19 December 2013.

It is common ground that prior to 16 May 2014 the receivers had informed ANZ that their investigations had caused them to believe that:

The motion for summary judgment came on for hearing before Hammerschlag J on 16 May 2014. Mr James, who attended the hearing, was represented by Mr Ashhurst SC instructed by Mr Kekatos of Dib Lawyers. Mr James took issue with the amount claimed by ANZ on the basis that it had failed to give credit for an amount of $205,000 that had been held as a cash deposit in respect of the indemnity/guarantee facility of $290,000. The representatives of ANZ accepted that Mr James was entitled to a credit of $205,000, with the result that judgment was entered by consent for $13,928,818.66 together with interest from 19 August 2013 to 16 May 2014.

Mr James says in his affidavit evidence that, as no amounts for realisation were disclosed in Mr Symons’ affidavit, he “understood and assumed that there had been no realisations to that date, and that accordingly the assets of TLT and NLW had not been sold with the receipts from such sale accounted to ANZ”.

Mr James also says in an affidavit sworn on 12 June 2019 that:

At the time the consent judgment was entered, it was agreed that the judgment would be stayed until 2 October 2014 pending the determination of the cross-claim Mr James had filed against Grant Thornton. That cross-claim was dismissed on 26 September 2014 and, in accordance with its terms, the stay came to an end on 2 October 2014.

Mr Pritchard submitted that the judgment was stayed for two reasons. One was to await the outcome of the cross-claim against Grant Thornton. Another was to give the receivers time to sell the secured property. That submission, however, is inconsistent with the terms of the stay and the evidence given by Mr James. The stay was in these terms:

It is plain from the terms of the order that the purpose of the stay was to give Mr James time to pursue his cross-claim as a source of funds to pay ANZ. Moreover, that was the only reason for the stay mentioned by Mr James in his affidavit evidence. When he was cross-examined on the issue, Mr James initially denied that he had asked for a stay pending realisation of the secured assets, although he later sought to resile somewhat from that evidence. He gave this evidence:

In my opinion, Mr James’s initial denial should be accepted. It is consistent with his affidavit evidence and the terms of the order. It was not qualified substantially by his later evidence.

On 6 June 2014, the receivers distributed $400,000 to ANZ. They distributed further amounts to ANZ of $1,427,211.93 on 13 October 2014 and $350,000 on 13 November 2014.

On 14 October 2014, ANZ issued a bankruptcy notice against Mr James.

At some stage in November 2014, Mr James became aware that the receivers had made some distributions to ANZ. How he did so, is not apparent from the evidence.

On 1 December 2014, the first bankruptcy notice issued by ANZ was set aside by consent, since it had taken no account of the amounts received by ANZ.

On 9 December 2014, ANZ issued a second bankruptcy notice against Mr James, which gave credit for the amounts it had received.

On 24 April 2015, a sequestration order was made against the estate of Mr James on the application of the Commonwealth Bank of Australia. There was an appeal from that judgment and ultimately the sequestration order was set aside by the Full Court of the Federal Court on 18 August 2015.

On 19 August 2015, ANZ issued a creditor’s petition against Mr James based on its second bankruptcy notice.

On 11 February 2016, Mr James commenced proceedings in this Court claiming damages against ANZ and PwC in connection with the sale of the secured assets at what is alleged to have been an undervalue (the 2016 Proceedings). At the same time, Mr James applied for a stay of these proceedings.

The application for a stay was dismissed on 23 February 2016.

On 5 April 2016, the Federal Court dismissed ANZ’s creditor’s petition on the ground that it was not satisfied that the bankruptcy notice on which it was based had been correctly served.

On 1 December 2016, ANZ and PwC filed a notice of motion seeking summary judgment or a strike out of the 2016 Proceedings. That notice of motion was heard by Stevenson J on 24 February 2017. On 9 March 2017, his Honour delivered judgment dismissing the proceedings on the basis that any rights Mr James had had merged in the consent judgment of 16 May 2014. An appeal from Stevenson J’s judgment was dismissed on 15 March 2018 and on 14 September 2018 the High Court refused special leave to appeal from the Court of Appeal’s judgment.

In the meantime, on 23 February 2017 ANZ issued a third bankruptcy notice against Mr James.

There are two bases on which the Court may set aside a consent judgment.

First, the Court has an inherent power to set aside a judgment entered by agreement between the parties on any basis on which the agreement on which it was based could be set aside. As the High Court explained in Harvey v Phillips (1956) 95 CLR 235 at 243-4:

Secondly, a judgment may be set aside under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 36.15(1), which provides:

There is no suggestion in this case that the consent judgment was obtained irregularly or illegally. The question is whether it was obtained “against good faith”. In Coles v Burke (1987) 10 NSWLR 429, Kirby P (with whom Samuels and McHugh JJA agreed) said at 437:

In both cases, the Court has a discretion whether to exercise the power or not: see Dimitrovski v Australian Executor Trustees Limited [2013] NSWSC 337 at [11] (in relation to UCPR r 36.15) and The Owners-Strata Plan No 57164 v Yau (2017) 96 NSWLR 587; [2017] NSWCA 341 at [81]-[83] per Beazley P (with whom Leeming JA and Emmett AJA agreed) (in relation to the inherent power). Matters relevant to the exercise of the Court’s discretion include whether the rights of third parties would be affected, whether the amount in question is insignificant, whether there has been unreasonable delay and whether it would be futile to set aside the judgment because the defendant has no defence.

In the present case, it is said that the judgment obtained by ANZ is liable to be set aside because the agreement on which it was based was induced by the misleading and deceptive conduct of ANZ. Those same facts are said to establish that the judgment was obtained against good faith.

In final submissions, Mr Pritchard submitted that it was possible for the Court to conclude that the judgment obtained against Mr James was against good faith even if the Court was not satisfied that ANZ had engaged in misleading or deceptive conduct of a type that would be amenable to relief under the Australian Consumer Law. How that could be so, however, is not easy to understand. The only conduct relied on by Mr James is the conduct which is said to be misleading and deceptive conduct and which induced Mr James to consent to judgment against him. If that claim fails, it is difficult to see how it could still be said that that same conduct was against good faith.

Mr Pritchard did point to other cases where the Court has held that a plaintiff’s conduct was against good faith even though the defendant was not misled. One such case was Xenos v National Australia Bank Ltd & Anor [2007] NSWSC 973. But that case is of not assistance in this context. It was not concerned with a consent judgment. It was a case where judgment was set aside because the Court was misled by the failure of the plaintiff to disclose a relevant fact on an ex parte application. Plainly, misleading and deceptive conduct is not the only basis on which a judgment can be set aside. The point, however, is that in this case Mr Pritchard was unable to point to any particular facts of the case which might make ANZ’s conduct against good faith even though it was not misleading or deceptive. For that reason, it is appropriate to focus on the question whether Mr James would be entitled to relief for misleading or deceptive conduct.

The case ANZ engaged in misleading and deceptive conduct is a case that it engaged in conduct of that character by silence. Silence is a circumstance like any other to be taken into account in determining whether conduct is misleading or deceptive. The question is whether in all the circumstances the conduct leads or is likely to lead a person into error: Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [15]ff per French CJ and Kiefel J. Normally, a practical way of answering that question is by asking whether the person who is said to have been misled or deceived had a reasonable expectation of being told what the person was not: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 851 at 32. See also OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [178]; Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209]. The test is objective: Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd at [20]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25] per French CJ.

The question whether conduct is misleading or deceptive or likely to mislead or deceive is distinct from and logically anterior to the question whether a person has suffered loss or damage because of the conduct of another person and is therefore entitled to damages under s 236 of the ACL or an order under s 237, although there may be practical overlaps in the resolution of the two questions: Campbell v Backoffice Investments Pty Ltd at [24] per French CJ. In the present case, it was common ground that the question of causation raised by the second issue turned on whether Mr James relied on the conduct said to be misleading and deceptive.

Mr James gave particulars of the misleading and deceptive conduct on which he relies in a document titled “Particulars of Misrepresentation by Silence of ANZ”.

Mr James’s case is that ANZ engaged in misleading and deceptive conduct by failing to disclose to him the fact that the assets of TLT and NLW had been realised before 16 May 2014 and that only $2.177 million was recovered by the receivers. The error that is said to have induced Mr James is a belief that “there had been no realisations or recoveries by ANZ or by the Receivers on its behalf under ANZ’s securities to that date which would materially affect the amount for which ANZ was seeking to obtain judgment against him” (Particulars, para 42). That particular is poorly drafted. On one interpretation, it states that the conduct complained of suggested that ANZ was entitled to judgment in the terms it sought, which plainly (subject to the adjustment of $205,000) it was. As is apparent from Mr James’s affidavit evidence, his real complaint is that ANZ’s conduct gave the misleading impression that the receivers had not sold any assets and that nothing had changed since PwC’s report.

The particulars given by Mr James of ANZ’s misleading and deceptive conduct are extensive. Mr James sought to supplement them in his final written submissions. In substance, though, Mr James contends that ANZ’s silence was misleading and deceptive having regard to the following matters:

The last two of these matters are either wrong factually or irrelevant.

It is not correct to say that ANZ and PwC refused to produce documents in relation to recoveries as requested by Mr James. The “requests” relied on are the notice to produce served by Mr James on ANZ and the subpoena served on PwC. Neither the notice to produce nor the subpoena sought documents concerning recoveries made by the receivers. The notice to produce relevantly sought documents relating to recovery actions served on various companies. The subpoena sought documents relating to any potential sale of or investment in companies controlled by Mr James. Neither could reasonably have been understood to be seeking documents relating to the amounts the receivers had recovered.

Moreover, it is difficult to see how ANZ’s and PwC’s refusal to supply information about the realisation of assets could have led anyone into believing that the position had not changed since the information contained in the PwC report. At most, the refusal to supply information was neutral.

The evidence is that Mr James was discharged from hospital on 4 October 2013. There is no evidence concerning the state of Mr James’s mental health at the time he consented to judgment on 16 May 2014, some seven months later. At that time, he was represented by able senior counsel. Mr James was sufficiently alert to pick up the fact that ANZ had not given him credit for the $205,000 in cash held in respect of the facility for $290,000 and to seek an adjustment in the amount of the consent judgment to reflect that fact. In addition, it is unclear how it is said that Mr James’s mental state contributed to a reasonable expectation on his part that he would be told that the amount realised for the assets was substantially less than the amount of the debt.

At the heart of Mr James’s case is the contention that ANZ created the impression that the secured assets would be sufficient to repay the debt and it was misleading of it not to correct that misleading impression. There are, however, difficulties with that contention.

First, it is not correct to say that, assuming Mr James believed that the secured assets would be sufficient to discharge the debt owed to ANZ, that that belief had been created by ANZ or PwC. The PwC report was based on the information supplied by the relevant companies, which were controlled by Mr James. PwC was not prepared to finalise their report until Mr James confirmed the factual information it contained, which is what it did. It was not Mr James that relied on PwC. Rather, it was PwC that relied on Mr James.

Second, contrary to Mr James’s affidavit evidence, it could not be said that the affidavits relied on by ANZ created the impression that nothing had changed since the PwC report. Those affidavits stated the amount still owing to ANZ at the times the affidavits were sworn. On their face, they did not purport to deal with the recoveries that had been made by the receivers. The receivers were appointed on 19 August 2013. Consent judgment was entered on 16 May 2014. The principal assets of TLT and NLW were debtors and stock. There was no reason to think that the debtors would be particularly difficult to collect or that the stock would be particularly difficult to sell. In the normal course of events, it would have been expected that, by the time the consent judgment had been entered, the receivers would have recovered most of what they could from the secured assets.

Moreover, Mr James’s affidavit evidence is directly contradicted by the evidence he gave in cross-examination, when the following exchange occurred:

The only reasonable inference that could be drawn from the fact that ANZ was still pursuing its claim against Mr James and had not received any amount from the receivers was that recoveries from the sale of secured assets were likely to fall short of the debt owed to ANZ. If it were otherwise, it is to be expected that ANZ would have received at least some amount from the receivers in reduction of its debt. And if the true position is that the secured assets were sufficient to repay ANZ, it is to be expected that that would have become apparent by May 2014, making judgment against Mr James unnecessary. Far from suggesting that ANZ was likely to recover the full amount of the debt owed to it from the securities it held, the affidavits in context and the fact that ANZ was still seeking judgment for the full amount of its debt suggested that the recoveries had been non-existent or minimal.

In final written submissions, Mr James contends that the fact that ANZ chose to pursue him revealed nothing because ANZ had a right to elect in whatever order it enforced its securities. That ANZ had that right may be accepted. The question still remains why it would go to the cost and expense to pursue Mr James when it had already appointed receivers and, as Mr James conceded, it was to be expected that they would already have realised the secured assets.

Third, the Code of Banking Practice does not provide any assistance to Mr James. That Code is incorporated by the terms of the guarantees. Clause 13 of the guarantees specifically states that, except as required by the Code of Banking Practice, ANZ was not required to tell Mr James anything about “the Customer’s financial and business condition and affairs or its transactions with ANZ” or “[I]f anything happens in relation to the Guaranteed Money or the Guaranteed Arrangements or any security or rights. It is my responsibility to find it out”. The specific disclosure obligations contained in the Code of Banking Practice were excluded in the case of Mr James. In any event, none of them required disclosure of the amount realised from other securities.

Mr James relies on the general obligations set out in cl 2.1 of the Code of Banking Practice. But nothing in cl 2.1 can be interpreted as imposing specific obligations of disclosure. They are broad statements of principle that apply to all types of relationships involving the provision of banking services. They set out the standards the relevant bank will seek to apply in discharging specific obligations it has. They are not themselves the source of those obligations.

Fourth, there is no other reason why Mr James could have had a reasonable expectation that ANZ would disclose to him the level of recoveries made by the receivers before he consented to judgment. A normal incidence of the appointment of receivers is that they would set about realising the property in respect of which they were appointed. Mr James understood that, as the evidence quoted in para 84 above demonstrates. The level of recoveries made by the receivers was not directly relevant to the amount for which ANZ was entitled to obtain judgment. Under the terms of the guarantees, ANZ was entitled to judgment for the full amount outstanding at the time judgment was sought. It did not have to give credit for possible recoveries, although of course it did have to give credit for actual recoveries. On its face, the amount recovered by the receivers was irrelevant to the amount for which judgment should be entered.

Mr James’s case is that it was relevant to him because had he known the true position he would not have consented to judgment but instead would have pursued a claim under s 420A of the Corporations Act. But how he could have had a reasonable expectation that ANZ would disclose the amount recovered by receivers for that purpose is unclear. It was not obvious from the fact that there was a large shortfall that Mr James might want to advance a case that the stock was sold at an undervalue rather than agree to judgment against him. If that is why the information was relevant, it is to be expected that Mr James would have made his own enquiries. The information was available publicly. He could have asked ANZ for it at the time he agreed to judgment. However, he did not do so. Why, it might be asked, was it reasonable for Mr James to expect ANZ to provide the information when Mr James did not ask for it in circumstances where he admits that he expected the receivers to have done their job and sold the stock?

There is no basis on which it could be said that Mr James had a reasonable expectation that ANZ would disclose its attempts to manipulate the BBSW rate or ASIC’s investigation of that matter. The fact that certain employees of ANZ had attempted to manipulate the BBSW rate who had nothing to do with the facilities guaranteed by Mr James was entirely irrelevant to the question whether Mr James should consent to judgment.

Mr James attempts to make those matters relevant by saying that he would not have trusted ANZ if he had known the true facts and they were relevant for that purpose. That submission cannot be accepted. Mr James does not explain why those with whom he dealt could not be trusted because employees of ANZ who worked in a different part of the bank and who had nothing to do with the facilities he had guaranteed had attempted to manipulate the BBSW rate. If that contention was correct, the same could be said about any wrongdoing by any employee of ANZ, with the result that any wrongdoing by any employee of ANZ would have to have been disclosed. Plainly, that conclusion is absurd.

The main evidence of reliance is given by Mr James himself. As I have said, he gives evidence that if ANZ had disclosed the amount realised by the receivers he would not have consented to judgment but instead would have pursued a case that the assets of TLT and NLW were sold at an undervalue.

There is a question whether Mr James already knew that there would be a shortfall from the sale of the assets the subject of ANZ’s security. In my opinion, he did.

On 12 December 2013 and 28 February 2014, Black J heard an application to stay the winding up of JAG and Wine Investment Services Pty Ltd, another company controlled by Mr James. Mr James was one of the applicants, for whom Mr Allen appeared. Mr James concedes that he was present on the first day of that hearing. He says that he cannot recall whether he was present on the second day, although the likelihood is that he was. The fate of Mr James’s companies was obviously important to him. He was a party to the proceedings and he had attended the first day of the hearing. It is to be expected that he would also attend the second. On the first day of the hearing, a copy of the Creditors Report was tendered. The likelihood is that Mr Allen was given a copy. That is the normal practice and the transcript records Mr Allen as saying “I have only just been provided with it …”.

Mr James denies in his affidavit evidence that he saw a copy of the Creditors Report. However, I do not accept his denial. In my opinion, Mr James was not a satisfactory witness. Much of the evidence in his affidavits was obviously tailored to suit his case. One example is the evidence he gave about the belief he formed on whether the stock had been sold by the receivers, which was contradicted by the evidence he gave in cross-examination. Another is evidence Mr James gave that he was given a copy and read the Code of Banking Practice on each occasion before he signed the guarantees. That evidence was given for the first time in an affidavit sworn by Mr James on 12 June 2019. In that affidavit Mr James refers to specific clauses of the 2004 and 2013 Codes, even though the last guarantee was entered into in 2010 and he says that as a result of reading the Code he believed that ANZ had an obligation to comply with the Code and that it would have acted ethically in its dealings towards him. That evidence has plainly been manufactured. Having denied emphatically in his affidavit evidence that he had seen a copy of the Creditors Report in connection with the hearing before Black J, he accepted in cross-examination that he may have, but he cannot remember one way or the other.

The likelihood is that Mr Allen at least showed the Creditors Report to Mr James. The report was tendered in relation to the question whether one of the companies controlled by Mr James was insolvent. It would have been natural for Mr Allen to obtain Mr James’s instructions on the report.

On 1 May 2014, Black J delivered judgment (In the matter of Wine National Pty Ltd, James Estate Wines Pty Ltd, Liquor National Pty Ltd [2014] NSWSC 507). In that judgment, his Honour summarised some of the comments of the administrators in the Creditors Report, including a recommendation that “the relevant companies, including JAG, be wound up on the basis that there was no proposal for a deed of company arrangement; the companies were, or were likely to become, insolvent; and a liquidation would facilitate the completion of investigations commenced by the Administrators” (at [9]). Although Mr James denies doing so, it is likely that he read that judgment shortly after it was delivered. As I have said, he was an applicant and the judgment affected the fate of companies he controlled. It is to be expected that he would be keen to know what it said.

The result is that the likelihood is that at the time consent judgment was entered Mr James was on notice from the Creditors Report and Black J’s judgment that there would be a shortfall in the amount that would be recovered by ANZ and that the Companies were insolvent. It follows that Mr James could not have relied on ANZ’s silence to conclude the opposite.

Moreover, Mr James cannot give any satisfactory explanation for why, if it was important to him, he did not ask what recoveries had been made by the receivers before consenting to judgment. It is his case that he expected to be told. But the question is told what? He ended up accepting that he expected some sales to have occurred. He knew that he had not been told what those sales were. In those circumstances, it is to be expected that if the amount of the sales was important to him, he would have asked about them. The fact that he did not ask, strongly suggests that they were not.

On 28 May 2014, Dib Lawyers wrote to PwC and McGrathNicols asking for information, including documents evidencing the sale of any asset and the amount of that sale, for the purpose of preparing an expert report in connection with the claim against Grant Thornton. Allens responded to the letter to PwC on their behalf on 30 May 2014 stating that some of the information was available publicly. Subsequently, on 1 August 2014, Dib Lawyers served subpoenas on PwC and ANZ. The subpoena served on PwC sought, among other things, “”any documents evidencing the sale and/or realisation of all assets” of TLT, NLW and other companies and “all documents evidencing any estimates on valuation of all unsold assets”. In response to that subpoena, on 4 August 2014, Allens indicated that PwC intended to respond by producing copies of their first six monthly report filed with ASIC. Those documents were produced on 11 August 2014. It is likely that Dib Lawyers would have told Mr James the content of those documents because they were important in assessing the amount of the claim against Grant Thornton. Consequently, by about mid-August 2014, it is likely that Mr James knew the amount realised from the sale of stock. On any view, he must have known the true position when the first bankruptcy notice served on him was set aside apparently on the ground that it did not give credit for recoveries made by ANZ. Despite that, Mr James only raised for the first time that he had been misled when he filed the present notice of motion on 19 September 2017. If he had really formed the view in May 2014 as a result of ANZ’s silence that the recoveries were likely to exceed the guaranteed debt, it is to be expected that he would have complained that he had been misled when he knew the true position and when the stay of the judgment against him expired. However, he said nothing.

It is difficult to see how Mr James can maintain a case that he relied on the failure to disclose the attempt to manipulate the BBSW rate and ASIC’s investigation of that matter when he no longer seeks to advance a case that he suffered any loss as a consequence of that conduct. Mr James says he would not have agreed to the consent judgment if he had known the true position in relation to the BBSW rate. However, in my opinion, that evidence cannot be accepted when Mr James accepts that ANZ’s conduct caused him no loss.

Having regard to the conclusions I have reached, it is strictly not necessary to consider the question whether the relief sought by Mr James should be refused on discretionary grounds. However, I should say something about that in the event that I am wrong.

For the purposes of this application, ANZ made the following concession:

The concession made by ANZ reserves the question whether Mr James has an arguable case given the terms of the guarantees.

Generally, any loss in the value of security arising from the neglect or default of a creditor reduces the liability of a guarantor by a corresponding amount, except to the extent that the guarantor bargains away the “right to complain of the act which occasions the deficiency”: Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654; [1981] HCA 62 at 675 per Brennan J (with whom Gibbs CJ, Murphy and Wilson JJ agreed).

In the present case, ANZ submits that Mr James bargained away the right to complain that the secured property was sold at an undervalue by cls 4 and 16 of the guarantees. Clause 4 states that Mr James’s obligations under the guarantees are unconditional and that “[t]hey are not affected by anything which might have released me from all or part of my obligations, or limited them, if I had not agreed to this clause”. By cl 16, Mr James gives up “[t]o the maximum extent allowed by the law” his rights to set off any amounts ANZ owed him. In the present case, Mr James’s right is said to depend on s 420A of the Corporations Act. However, according to ANZ, that makes no difference given Leeming JA and Sackville AJA’s acceptance in James v Australia and New Zealand Banking Group Ltd (2018) 97 NSWLR 663; [2018] NSWCA 41 of the decision of Bryson J in GE Capital Australia v Davis (2002) 180 FLR 250; [2002] NSWSC 1146 that s 420A does not confer any rights on guarantors. Bryson J stated the position in these terms in GE Capital at [53], [56] (quoted with approval by Leeming JA and Sackville AJA at [60]):

Nonetheless, Mr James relies on the following passage from the judgment of Leeming JA and Sackville AJA in James v Australia and New Zealand Banking Group Ltd for the proposition that it is still arguable that clauses such as cls 4 and 16 of the guarantee cannot limit the obligation arising from s 420A:

ANZ submits that this passage is obiter and is inconsistent with Leeming JA and Sackville AJA’s earlier acceptance of the proposition that s 420A does not confer any rights on guarantors, with the result that I should follow the earlier proposition. I do not accept that submission. The point made by Leeming JA and Sackville AJA is that s 420A does not confer any rights itself on guarantors. What it does is alter the standard that receivers must meet. The question they left open is whether, in altering the standard, s 420A prevents affected persons from contracting out of the consequences of a failure to meet that standard. Those consequences still arise at common law, not from s 420A. There is no inconsistency in asserting both that s 420A does not of itself confer any rights and that the section prevents contracting out of a right arising from a failure to comply with it, although it might be thought that if all the section does is alter the relevant standard it should not readily be read into its words a prohibition on exercising rights that have another source. The question, though, in the present context is whether such a proposition is arguable. Having regard to what Leeming JA and Sackville AJA said, in my opinion it is.

It follows that, on the concessions made by ANZ, Mr James would have had a reasonably arguable defence if judgment had been set aside.

The significance of the delay must be tested on the basis that, contrary to the conclusions I have reached, Mr James was misled into consenting to judgment. That still leaves open the question when Mr James became aware that he had been misled. On any view, that must have been by December 2014, when the first bankruptcy notice was set aside. Mr James did not advance a case that he had been misled until September 2017, almost three years later. ANZ submits that that delay would disentitle Mr James to relief. In making that submission, it relies on the decision of the Court of Appeal in The Owners-Strata Plan No 57164 v Yau (2017) 96 NSWLR 587; [2017] NSWCA 341 where the Court refused to set aside a consent judgment obtained 15 months earlier.

In my opinion, the decision in Yau is of limited assistance in this case, turning as it did on its own facts. Of particular relevance in that case was the fact that the consent orders had been fully performed before the application to have the orders set aside was made. In the present case, there has been substantial delay. However, some of that delay can be explained by the fact that Mr James had commenced the 2016 Proceedings and it was only after those proceedings were determined by Stevenson J that it could be said that Mr James suffered real prejudice as a consequence of the consent judgment. Before then, however misguided Mr James might have been, he proceeded on the basis that the consent judgment did not affect his ability to pursue his case based on a contravention of s 420A of the Corporations Act. Unlike Yau, this is not a case where the consent judgment has been fully performed. Mr James has not paid the amount of the judgment and has not been bankrupted. ANZ does not point to any specific prejudice it has suffered as a consequence of the delay. The amount of the judgment is large. On the concessions made by ANZ and the conclusions I have reached, Mr James has an arguable case. Accordingly, had Mr James otherwise made out his case, I would not have refused relief because of the delay.

Even if Mr James had made out his case that he had been misled by the failure to ANZ to disclose its attempts to manipulate the BBSW rate and ASIC’s investigation of that matter, I would still have refused to set aside the consent judgment based on that conduct. In my opinion, it would not be appropriate to set aside the judgment on that ground simply to permit Mr James to pursue a totally unrelated case based on a contravention of s 420A of the Corporations Act. Either Mr James is entitled to pursue a case based on a contravention of s 420A of the Corporations Act because he was misled about that matter into consenting to judgment or he is not. If he is not, he should not be permitted to pursue that case because he was misled about some completely unrelated matter.

On the conclusions I have reached, Mr James is not entitled to have the consent judgment obtained against him on 16 May 2014 set aside. It follows that the orders of the Court are that the defendant’s notice of motion filed on 19 September 2017 is dismissed with costs.