James v Australia and New Zealand Banking Group Ltd

1. [1]

   BASTEN JA: Between August 2005 and April 2010 David Anthony James (the applicant) entered into guarantees in favour of the Australia and New Zealand Banking Group Ltd (“ANZ”) as security for loans made to a number of companies he controlled. By 2013 the companies had outstanding liabilities to ANZ in excess of $14 million and were in default of the terms of the various financial agreements, triggering repayment liabilities under each. On 11 October 2013 ANZ commenced proceedings against Mr James claiming an amount of $14,133,818.66 under the guarantees. On 16 May 2014 Mr James consented to judgment in an amount of $13,928,818.66 together with interest from 19 August 2013 to 16 May 2014.

2. [2]

   On 19 September 2017 the applicant filed a motion seeking to set aside the consent judgment on the ground of misleading and deceptive conduct by ANZ, causing him to enter into the agreement to consent on a false understanding of the financial circumstances of the companies. Due to other court proceedings involving the same parties, the motion was not heard until June 2019, judgment dismissing the motion being delivered by Ball J on 5 July 2019. [1]

3. [3]

   Being an interlocutory judgment, the applicant needed leave to appeal, which was sought by way of summons filed on 3 October 2019. ANZ accepted that it was convenient that there be a concurrent hearing of the application for leave and the proposed appeal, but submitted that leave should be refused. It submitted that, although the applicant’s liability under the consent judgment was substantial, the usual grounds which might warrant the grant of leave were not present. While Mr James did not dispute the statement of legal principles by Ball J, he challenged two aspects of the judge’s findings with respect to the circumstances relied upon to support the application. Accordingly, it is necessary to set out briefly the essential factual background to the present application.

Factual and procedural background

1. [4]

   The debtor companies controlled by the applicant carried on business as wholesalers of alcoholic and non-alcoholic beverages. In April 2013 ANZ had appointed PricewaterhouseCoopers (PwC) to carry out an investigation as to the assets and liabilities of the companies. That investigation relied, at least in part, on information provided by the applicant. On 31 May 2013 a report was sent to ANZ. In late June and early July 2013 a stocktake was undertaken at the primary warehouse operated by the companies at Homebush Bay in Sydney. On 1 and 8 August 2013 notices of demand were served on the three primary debtors in the group. On 19 August 2013 ANZ appointed PwC as receivers and took possession of the companies’ inventory. On the same date, administrators were appointed to each of the five corporate entities involved in the group.

2. [5]

   On 30 August 2013 a notice of demand was served on the applicant seeking payment of the amount outstanding under the four guarantees. Shortly thereafter, on 11 September 2013, the administrators provided a report to creditors (the creditors’ report) noting that they were currently conducting a sale of the business and assets. They anticipated a “significant shortfall” with respect to the secured creditor (ANZ), leaving the return to unsecured creditors as “remote.” [2]

3. [6]

   On 19 March 2014 the receivers filed accounts with the Australian Securities and Investments Commission (ASIC) for the period 19 August 2013 to 18 February 2014. The total receipts for the two major companies totalled a little under $4 million, of which approximately half resulted from the sale of stock and a large part of the balance from recovery of receivables.

4. [7]

   The four companies which were party to loan agreements or other forms of financial accommodation provided by ANZ (together with the abbreviations used in the judgment) were as follows:

5. [8]

   On 16 May 2014 a motion for summary judgment was listed before Hammerschlag J. In his response to ANZ’s commercial list statement, the applicant had admitted liability under the guarantees, but filed a cross-claim against several parties, including ANZ. However, he then withdrew the cross-claim against ANZ, which sought summary judgment on the basis of the admissions. In support of its notice of motion seeking summary judgment, ANZ relied upon two affidavits, being (i) an affidavit of John Symons, dated 19 December 2013, identifying the amounts outstanding on the accounts of each of the four companies, and (ii) an affidavit of David Michael Popkin, a solicitor with Allens who acted for ANZ, filed on 23 April 2014, noting that summary judgment was sought on the basis that the applicant had offered no defence to ANZ’s motion. The applicant attended the hearing on 16 May 2013, with senior counsel, and sought to be credited with an amount of $205,000 which had been held as a cash deposit in a separate facility. [3] ANZ accepted that he was entitled to a credit of that amount and the judgment sought was reduced accordingly.

6. [9]

   It had become clear to ANZ prior to 16 May 2014 that it was likely to obtain less than one-third of the outstanding debts as a result of the receivers realising the assets of the companies. The judge stated:

7. [10]

   Prior to 16 May 2014, the applicant did not have access to that assessment, nor to the final report provided by PwC to ANZ on 31 May 2013, with which the comparison was made. The applicant had, however, been provided with a draft redacted version of the draft report on 23 May 2013 which had identified inventory at four locations, totalling in excess of $10.7 million. It had also identified $9.1 million in receivables, excluding intra-company receivables, bad and doubtful debts, and inter-company balances.

8. [11]

   An affidavit of David Paul Merryweather of ANZ, dated 3 June 2016, established that between 25 September 2013 and 28 January 2014:

Issues on appeal

1. [12]

   In these circumstances, the applicant complained as to two matters, expressed in counsel’s outline of submissions in this Court in the following terms:

2. [13]

   Counsel’s submissions continued:

3. [14]

   In order to succeed on his appeal, the applicant recognised that he needed to overturn the two principal dispositive findings of fact reached by the primary judge. (The judge held, favourably to the applicant, that there was no separate discretionary ground for declining relief if it were otherwise available.)

4. [15]

   ANZ submitted that there is no issue of principle or question of public importance involved in the application for leave, and that no injustice has been occasioned by reason of any error on the part of the primary judge. The applicant’s submissions challenging findings of primary fact as being “unavailable” are said to be without substance. Accordingly, leave to appeal should be refused.

5. [16]

   There is one matter which ANZ did not challenge, either before the primary judge or in this Court: rather it accepted that it was open to the Court to set aside the summary judgment if it could be shown that ANZ had engaged in misleading or deceptive conduct which would warrant the setting aside of the underlying agreement upon which the judgment was based. On one view, that underlying premise was flawed. The judgment was indeed a summary judgment; it was not a “consent” judgment except in the sense that the applicant capitulated. He did so on the basis of his own admissions which left no room for defending the proceedings. Where a consent judgment is challenged on a basis which seeks to avoid the underlying agreement, there must be an underlying enforceable contractual agreement between the parties upon which the judgment is based. Mere non-resistance does not give rise to a contract.

6. [17]

   Because this fundamental flaw was not relied upon by ANZ, it cannot form the basis of a refusal of leave to appeal. However, as will be explained below, the absence of a relevant agreement results in an artificial exercise in seeking to apply legal principles which only operate with respect to the validity of such an agreement. It does, however, affect the manner in which this Court is able to address the submissions relied on by the applicant.

(a) grounds for setting aside judgment

1. [18]

   It is convenient to commence by identifying the relevant legal principles relied upon to set aside the consent judgment. The principles were identified by the primary judge, in a passage to which no objection was taken in this Court:

2. [19]

   The written submissions for the applicant confirmed that reliance was placed upon the acting “against good faith” ground in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 36.15(1). Accordingly, it is necessary to address that ground for setting aside a judgment; it is not in terms limited to consent judgments, or summary judgments. The rule is entirely general and reads as follows:

3. [20]

   The principle identified in Coles v Burke, [5] cited by the primary judge, was made with respect to the District Court Rules as then in force, but the language of the rule is relevantly identical to r 36.15(1) of the UCPR. [6] The reasoning in Coles v Burke was approved in Kendell v Carnegie. [7] There is much to be said for the proposition that there is a single “genus” created by the three terms used in the rule and that little is achieved by seeking to break it into separate species. Nor is it clear that the rule expands or varies the grounds for setting aside a consent judgment under the general law; indeed it may cover only a subset of the common law grounds. The rule may be seen as reflecting the language used in Cameron v Cole, [8] a bankruptcy case concerning a challenge to a judgment debt obtained without serving the supposed debtor. Rich J described the ground as involving a fundamental “irregularity”, [9] and giving rise to a judgment obtained by “fraudulent abuse of the process of a court” and incapable of supporting a “bona fide” claim. [10]

4. [21]

   The primary judge stated that the applicant’s case depended on establishing misleading or deceptive conduct “of a type that would be amenable to relief under the Australian Consumer Law.” If that claim failed, there was no basis upon which to allege that the same conduct was “against good faith.” [11] That proposition was not challenged in this Court and was correct. Indeed, it is important to note that the language of r 36.15(1) applies to cases where orders have been entered following a trial and as to which there would usually be no basis to challenge the orders otherwise than by appeal, or by establishing fraud. This scope of the rule is not to be expanded so that it has some broader operation with respect to summary judgments or consent judgments. The case presented by the applicant did not purport to engage the criteria relevant under r 36.15(1).

5. [22]

   The applicant submitted that the appropriate course was to identify a ground which would allow the underlying agreement to be set aside, in accordance with the principle stated in Harvey v Phillips, [12] set out in the passage quoted by the trial judge at [65]. He relied upon the allegation that ANZ had engaged in misleading or deceptive conduct in obtaining his consent to the orders sought. As noted above, the availability of such a ground was not in dispute; nevertheless, its application in the present case requires consideration.

6. [23]

   The principle identified in Harvey v Phillips must be understood by reference to the context in which it arose. The underlying case was a claim in damages for medical negligence. Before the trial commenced, there was discussion of settlement. Early offers were rejected, but under some duress, the plaintiff accepted an offer made after the jury had been empanelled. The High Court identified the manner in which settlement was reached: [13]

7. [24]

   Terms of settlement were drawn up and presented to the trial judge. The contents read:

8. [25]

   The judgment stated: [15]

9. [26]

   This context explains what was meant by the Court in referring to the terms on which the “compromise is to be set aside”, that being said to depend upon “the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it”. Judgment depended upon the terms of a valid agreement, pursuant to which the defendant was required to pay a sum of money, in consideration for which the plaintiff agreed to forego a trial. By contrast, the present case involved the plaintiff (ANZ) obtaining the judgment which it sought, subject to accepting that credit should be given for a particular allowance. There was no compromise; there was no contract. Judgment was entered in the terms proposed by ANZ.

10. [27]

    For these reasons, it may very much be doubted that (i) this was a case in which the orders depended upon the existence of a contractual agreement, and (ii) the orders could be set aside even had there been some misleading or deceptive conduct on the part of ANZ, not amounting to fraud or lack of good faith.

11. [28]

    Furthermore, this was a case in which judgment had been entered. The observation of the High Court that “it may be doubted whether it was open to the plaintiff” to challenge a judgment once signed or entered, is not to be dismissed as immaterial dicta. The observation reflected a well understood view as to the finality of orders, once entered. [16] In DJL v The Central Authority [17] the plurality (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) reaffirmed the statement made by Barwick CJ in Bailey v Marinoff, noting that there remained an equitable jurisdiction with respect to the impeachment of judgments for fraud, preferably by instituting a separate proceeding. [18] No broader power to reopen judgments once entered was found with respect to the Family Court of Australia.

12. [29]

    Judgment was entered in the present case in accordance with the UCPR. Apart from r 36.15, which will include the fraud exception, and no doubt other considerations, [19] it is doubtful that there is any other basis other than those provided under r 36.16 (which is not and cannot be invoked in the present case) for setting aside a judgment once entered. [20] There are indications in the judgment of this Court in Logwon that the Land and Environment Court may have a broader power to relieve against the effects of judgments “obtained by fraud or by compromise the result of mistake.” [21] Harvey v Phillips was relied upon by Sheller JA in the reasons in Logwon, [22] but without express reference to the doubts expressed in that case as to whether the powers to reopen would apply had the orders been entered.

13. [30]

    To similar effect, observations of Mason J in Taylor v Taylor [23] were relied upon for the proposition that “a jurisdiction to set aside its orders is inherent in every court unless displaced by statute”. However, that unqualified proposition was drawn from the reasoning in Cameron v Cole, discussed above, and was followed by the next sentence which qualified the scope of what had just been stated:

14. [31]

    Taylor was a case in which orders had been made in the absence of a party; it provided no basis for the broader proposition than that enunciated in Cameron v Cole which, it is suggested above, is encapsulated in the present r 36.15.

15. [32]

    The inability of a court to reopen orders which have been entered, otherwise than pursuant to statutory authority (including rules made under statutory authority), reflects the importance of the value of finality as an element of the rule of law. “[T]he principal qualification to the general principle of finality is provided by the appellate system.” [24] An attempt to have a trial court reopen its orders after the time for appeal has expired, without recourse to that procedure, is to undermine the statutory constraints imposed on appeals. A power to reopen would not likely be construed to allow such a course.

16. [33]

    In Achurch v The Queen, [25] French CJ, Crennan, Kiefel and Bell JJ stated:

17. [34]

    Achurch was concerned with a power to correct a sentence that is “contrary to law”, pursuant to s 43 of the Crimes (Sentencing Procedure) Act 1999 (NSW), a power which the court read narrowly in accordance with the principles set out above. It is clear from the reliance on the civil cases noted above, and in particular at [17] in Bailey v Marinoff, that the Court was not restricting its consideration to matters in criminal jurisdiction; indeed the refusal to correct an acknowledged error of law on the part of the sentencer should apply a fortiori to a power to reopen a civil order.

18. [35]

    As was acknowledged by Gageler J in Achurch, such an approach may involve reading an implied limitation into the statutory conferral of jurisdiction on a superior court. Nevertheless Gageler J accepted such a qualification, stating:

19. [36]

    As the parties did not address these issues, leave should not be refused on that legal basis. However, because leave should be refused for other reasons noted below, it should not be thought that the exercise undertaken before the primary judge complied with legal principle. In short the case was determined on a basis which was too favourable to the applicant; arguably, it should have been dismissed without consideration of the factual assertions.

(b) when non-disclosure is misleading or deceptive

1. [37]

   Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [39] involved a claim for damages resulting from misleading or deceptive conduct in contravention of s 52 (and s 82) of the Trade Practices Act 1974 (Cth). The insurance broker (Miller) failed to disclose an important fact, namely that the insurance policy proffered was neither assignable nor cancellable and therefore of little use as security for the loan intended to be covered. [40] The joint reasons of French CJ and Kiefel J dealt specifically with the issue of “non-disclosure as a species or element of misleading or deceptive conduct”. [41] After noting the limitations in the general law as to claims involving mere silence as to a material fact where there is no legal obligation to divulge the information, the joint reasons noted that in Demagogue Pty Ltd v Ramensky [42] the Federal Court had held that the statutory provision was not to be read as limited by common law constraints on what might constitute misleading or deceptive conduct. Black CJ had observed: [43]

2. [38]

   In similar language, in a passage approved by Gummow J in Demagogue at 41, French J had stated in Kimberley NZI Finance Ltd v Torero Pty Ltd: [44]

3. [39]

   As further noted by French CJ and Kiefel J in Miller, [45] “[t]he language of reasonable expectation is not statutory”. Their reasoning continued:

4. [40]

   The exercise of determining whether non-disclosure can constitute misleading or deceptive conduct is an exercise in fact-finding. While the phrase “reasonable expectation” is not contained in the statute, its use indicates that the exercise is an objective one and does not turn on the subjective beliefs or expectations of the party claiming to have been misled or deceived. A similar inference can be drawn from the use of the statutory phrase, “likely to mislead or deceive”.

5. [41]

   None of these principles appeared to be in dispute, but at the trial before Ball J significant weight was placed on the evidence given by the applicant as to his knowledge, beliefs and expectations, submissions which were repeated in this Court. His evidence was of limited, if any, relevance.

Application of principles

1. [42]

   In the present case, the elements entitling ANZ to a summary judgment were admissions made by the applicant in his commercial list response filed on 13 March 2014. Had there been a statement in that response which ANZ knew to be based upon a false premise there could have been an obligation in some circumstances to correct the premise; whether such an obligation would arise must depend upon the circumstances in question. There was, in fact, no statement made by the applicant which demonstrated any reliance upon the ability of the receivers to recover the whole or substantially the whole of the liabilities of the four companies from realisations of their assets and collection of receivables. Nor was there any basis for ANZ to expect any assumption in that regard on the applicant’s part.

2. [43]

   The only remaining consideration, being that now relied upon, is that if assets had been realised at a value which bespoke negligence (or worse) on the part of the receivers, the applicant, as guarantor, might have sought to demonstrate the failure and so to reduce his own liability by the amount foregone. [47] Once judgment was entered, the applicant lost the status of guarantor and became a judgment debtor without rights to reduce his liability according to that principle. No doubt for this reason, he sought to set aside the consent judgment when other avenues of resistance to payment were closed.

3. [44]

   An unstated premise of the application before Ball J was that disclosure of the amounts recovered by realising stock would itself have demonstrated that sales by the receivers had been made at less than market value. The applicant’s case did not address or seek to justify that assumption. Furthermore, since the only relevance of the amounts obtained by realising assets was to demonstrate that the assets had been sold below value, it was necessary to demonstrate that ANZ had, or should have had, some basis for believing that they had been sold at less than market value. The law imposed no obligation on ANZ to disclose information the relevance of which was not known to, and should not reasonably have been appreciated by, ANZ. Again this issue was not addressed by the applicant. Had it been, it would have been necessary to confront the fact that ANZ was told that the stock on hand when the receivers were appointed was not the stock on hand when the valuation was undertaken in April 2013. On the other hand, ANZ was told that the receivers did not have the co-operation of the applicant. These statements, which were not challenged, provided a ready explanation as to why the sum realised was well below that expected on the basis of the April 2013 report. They demonstrate the absence of anything more than a weakly arguable basis imposing a disclosure obligation on ANZ.

4. [45]

   Otherwise, objectively there is no basis in the evidence to infer that the receivers did not take reasonable care to obtain market value for the stock in circumstances where the amount being recovered did not reflect the earlier assessment of their own firm, and was not nearly sufficient to satisfy the liabilities of the companies to the secured creditor which had appointed them. Plausible claims of undervalue sales generally arise where the assets are expected to realise more than the liability to the secured creditor, which has no immediate interest in recovering the extra value. This was not such a case.

5. [46]

   There was ambivalence in the submissions for the applicant as to whether the material fact which was not disclosed was either (i) that the assets of the companies were likely to fall well short of the amount of their liabilities to ANZ, or (ii) the assets were being realised at less than their market value. Point (i) was that articulated in identifying the relevant issues, as set out at [12] above. However, (i) alone could not provide a basis for setting aside the consent judgment; the putative basis for setting aside the consent judgment could only be that it deprived the applicant of the opportunity to exercise his rights as guarantor (not available to a judgment debtor) to reduce his liability. No doubt (i) could, in some circumstances, provide evidence in support of (ii). It has been dealt with on that basis above; the evidence did not support such an inference. It followed that ANZ was not required to disclose that fact to the applicant before seeking his agreement to judgment on the guarantees.

Challenge to findings of fact

1. [47]

   The trial judge engaged in a comprehensive review of the various factors relied upon by the parties in addressing what the applicant knew as to the activities of the receivers and what his subjective intentions may have been. For reasons noted above, there is no basis to review those factual findings; the applicant’s case failed at the more basic level of principle addressed above and must be dismissed for that reason. The applicant’s subjective beliefs were immaterial on that issue.

Orders

1. [48]

   An applicant for leave to appeal must satisfy the Court that there is an issue of principle, a question of general public importance, or an injustice to the applicant which is reasonably clear, in the sense of going beyond what is merely arguable. [48] There are issues of principle raised by this case, of potential importance beyond the particular interests of the applicant, but they were not relied on by the applicant and their resolution would not assist his case; they might well destroy it. Otherwise, the matters raised do not provide an adequate basis to doubt the correctness of the orders made in the Division.

2. [49]

   The Court should make the following orders:

   1. (1)

      Dismiss the summons filed on 3 October 2019 seeking leave to appeal from the order of Ball J dismissing an application to set aside the judgment entered on 16 May 2014.

   2. (2)

      Order that the applicant pay the respondent’s costs in this Court.

3. [50]

   EMMETT AJA: The applicant, Mr David James, seeks leave to appeal from an order made by a judge of the Equity Division declining to set aside a summary judgment entered against Mr James in favour of the respondent, Australia and New Zealand Banking Group Ltd (ANZ). The basis upon which the applicant sought to have the judgment set aside was a claim that he was induced to withdraw opposition to the entry of summary judgment because of misleading and deceptive conduct on the part of ANZ.

4. [51]

   The claim by ANZ against the applicant was under guarantees given by him in respect of the indebtedness to ANZ of companies controlled by him. He alleged that, at the time of the judgment, he believed that the companies still had sufficient unrealised assets to discharge the greater part of their indebtedness to ANZ and that it was misleading and deceptive for ANZ to fail to disclose to him that the level of recovery of the guaranteed debts from the companies would result in a substantial shortfall.

5. [52]

   I have the advantage of reading in draft form the proposed reasons of Basten JA. I agree with Basten JA that the principle of finality of judgments would have been a basis for declining to set aside the judgment. In any event, there was no error on the part of the primary judge in concluding that there was no misleading or deceptive conduct established on the part of ANZ and in concluding that the applicant was not induced to act to his detriment by reason of any misapprehension on his part. I agree that the summons seeking leave to appeal should be dismissed with costs.

6. [53]

   SIMPSON AJA: I have read in draft the judgment of Basten JA. I agree that, on the application of the legal principles stated in [18] – [41], no error has been shown in the conclusions of the primary judge.

7. [54]

   I do not share the view that the judgment the applicant sought to have set aside was not a consent judgment, but a summary judgment. The record of the judgment commences:

8. [55]

   The terms of the judgment followed negotiations by the parties, in which the applicant was represented by senior counsel; as a result of those negotiations ANZ reduced, by $205,000, the amount it claimed.

9. [56]

   The application was presented to the primary judge as a claim for an order:

10. [57]

    I see no reason to doubt that the orders were consent orders and the judgment was a consent judgment. The primary judge proceeded on that basis, as did the argument in this Court.

11. [58]

    I agree with the orders proposed by Basten JA.