Secure Funding Pty Ltd v Stark;; Secure Funding Pty Ltd v Conway

1. [1]

   HER HONOUR: This judgment determines two appeals against a decision of Harrison AsJ in which her Honour exercised the discretion under r 36.16(2) of the Uniform Civil Procedure Rules 2005 (NSW) to set aside default judgments entered in two separate proceedings: Secure Funding Pty Ltd v Stark; Secure Funding Pty Ltd v Conway [2013] NSWSC 1729. The applications at first instance raised common issues and were heard and determined together by her Honour. The appeals were also heard together.

2. [2]

   In addition to the two appeals, there is an application before the Court by each of the defendants for leave to amend their defences. This judgment also determines those applications.

3. [3]

   An appeal from the decision of the associate judge lies as of right to this Court pursuant to r 49.4 of the UCPR. Secure Funding’s appeals were wrongly instituted in the Court of Appeal and were remitted to this Division by the President: Secure Funding Pty Ltd v Stark; Secure Funding Pty Ltd v Conway [2014] NSWCA 151. The defendants submitted that, as a consequence of those events, the appeals were brought out of time: cf r 49.8(2). However, the defendants consented to an order extending the time for instituting the appeals in this Court. In the circumstances, I did not consider it necessary to determine the correctness of the defendants’ contention on that issue (which was disputed by Secure Funding). At the outset of the hearing, in case an extension of time was required and having regard to the matters set out in the President’s judgment, I granted an extension of time pursuant to r 49.8(4).

4. [4]

   Secure Funding sought leave at that point to file two notices of appeal in court. I have since realised that, in accordance with r 49.8(1), those notices ought to have been drawn as notices of motion rather than as notices of appeal but I do not think it is necessary to rectify that procedural defect, since the notices of appeal otherwise comply with the requirements of r 49.9.

5. [5]

   An appeal pursuant to r 49.4 is by way of re-hearing: s 75A(5) of the Supreme Court Act 1970 (NSW); McGregor v Potts [2005] NSWSC 1098; (2006) 68 NSWLR 109 at [32] per Brereton J. Since the appeals challenge the exercise of a discretion, this Court is entitled to interfere with the decision only if the primary judge has acted on an incorrect principle, or has mistaken the facts or law, or has failed to take into account a relevant consideration or taken into account an irrelevant one, or has reached a result that is plainly unreasonable or unjust: House v The King (1936) 55 CLR 499 at 504-505; Gronow v Gronow (1979) 144 CLR 513 at 519 per Stephen J; at 525 per Mason and Wilson JJ; at 534 per Aickin J.

6. [6]

   As noted by Stephen J in Gronow, in the absence of error of law or mistake of fact, a different conclusion reached by the appellate court can be “due to little else but a difference of view as to weight”. His Honour said: “it follows that disagreement only on matters of weight by no means necessarily justifies a reversal of the trial judge”, concluding that an appellate court should be slow to overturn a primary judge’s discretionary decision on grounds which only involve conflicting assessment of matters of weight.

7. [7]

   The default judgments obtained against the defendants were for possession of three residential properties (one a holiday house) owned by Mr and Mrs Stark and Mr Conway. Prior to October 2010, those properties were mortgaged to other lenders. In October 2010, the defendants refinanced the properties with Secure Funding and the existing lenders were paid out.

8. [8]

   The defendants contend that the refinancing of the residential properties was a requirement imposed by Secure Funding or its parent company, Liberty Financial Pty Ltd, when additional funding was sought in a commercial financing arrangement between Secure Funding and Staway Pty Ltd, a company that operated a car dealership. Staway was trustee for the Dale Ford Trust. Its shareholders were Mr Stark and Mr Conway. JJ Way Pty Limited as trustee for the Stark Family Trust held 50 units in the Dale Ford Trust and Rexway Pty Limited as trustee for the Conway Family Trust also held 50 units in that trust.

9. [9]

   Put shortly, the basis for the applications to have the default judgments set aside was that the defendants have an arguable defence to Secure Funding’s claim on the grounds of unconscionable conduct. The factual basis for the proposed defence was summarised in the affidavit of Graeme Veitch sworn 13 September 2013 (tab 13 of the White Book prepared for the Court of Appeal) as follows:

10. [10]

    It was an express premise of the argument to have the default judgments set aside that the alleged unconscionable conduct was against Staway, not Mr and Mrs Stark or Mr Conway.

11. [11]

    The matter sought to be raised by way of defence is that the unconscionable conduct against Staway, if proven, establishes a contravention of s 12CB(1) of the Australian Securities and Investments Commission Act 2001 (Cth). The defendants contend that they have suffered loss by reason of the unconscionable conduct and that they are entitled to seek relief under s 12GM(2) of the Act. The relief sought would be an order dismissing these proceedings. The defendants contend that an application for such an order may be made in a defence: cf Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238; 67 NSWLR 9 at [8] per Hodgson JA; Tobias JA agreeing at [17]-[18]; and see Basten JA at [124].

12. [12]

    The defences also invoke s 237 of the Australian Consumer Law, which is in substantially the same terms as s 12GM of the ASIC Act.

13. [13]

    The circumstances in which the present appeals are brought were summarised uncontroversially in Secure Funding’s written submissions. Much of that material is repeated verbatim in the following summary.

14. [14]

    The statement of claim seeking possession of the property owned by Mr and Mrs Stark and judgment for the amount owing under the loan secured by that property was served on 11 September 2012. Default judgment was entered against them on 20 February 2013.

15. [15]

    On 26 February 2013, Mr Stark and Mr Conway filed a motion seeking (inter alia) leave pursuant to s 511 of the Corporations Act 2001 (Cth) to commence proceedings in the Commercial List in the name of Staway against Secure Funding and Liberty Financial Pty Limited. On the same day, the Starks filed a notice of motion seeking (inter alia) to have the default judgment entered against them set aside.

16. [16]

    On about 28 February 2013, Mr Conway was served with a statement of claim seeking possession of his two properties and judgment for the amount owing under the loan secured by those properties.

17. [17]

    The Starks' motion to set aside the default judgment against them was heard on 25 March 2013. Justice Brereton ordered that execution or other enforcement of the default judgment be stayed until the hearing of the leave proceedings or earlier further order of the court and dismissed the balance of the motion. During the course of the oral argument before Brereton J, the Starks, by their counsel, conceded that they did not have a defence to the claim for possession and money owed.

18. [18]

    On 21 June 2013, Black J granted the leave sought pursuant to s 511 of the Corporations Act: see In the matter of Staway Pty Ltd (in liquidation) (receivers and managers appointed) [2013] NSWSC 819 at [63]. Pursuant to that leave, on 3 July 2013, Staway commenced Commercial List proceedings against Secure Funding (and Liberty). In those Commercial List proceedings, Staway alleges that Secure (and Liberty) engaged in unconscionable conduct in connection with financial services supplied to Staway in relation to the Dale Ford business.

19. [19]

    On 2 July 2013, default judgment was entered against Mr Conway.

20. [20]

    By notices of motion, the Starks and Mr Conway sought a stay of execution of the default judgments entered against them for possession of the three properties pending determination of the Commercial List proceedings.

21. [21]

    Those applications were heard by Black J on 23 August 2013. Again the defendants, by their counsel, expressly conceded that they did not have defences to the claims for possession. In particular, it was expressly conceded that the matters raised by the Commercial List proceedings (including the allegations of unconscionable conduct) did not provide defences to these proceedings.

22. [22]

    On 5 September 2013, Black J rejected the application to stay execution of the default judgments pending determination of the Commercial List proceedings: see Secure Funding Pty Limited v Stark Secure Funding Pty Limited v Conway [2013] NSWSC 1257. His Honour stayed execution until 16 September 2013.

23. [23]

    On or about 13 September 2013, the defendants filed notices of motion seeking to have the default judgments set aside.

24. [24]

    As already noted, the defendants had by that point twice openly accepted Secure Funding’s contention that the allegations of unconscionable conduct made by Staway in the Commercial List proceedings did not afford a defence to the claims for possession of the properties mortgaged to secure the personal borrowings.

25. [25]

    The solicitor for the defendants subsequently came to a different view, explaining his reasons on affidavit (essentially, the explanation was that counsel had formed the view that a defence was available).

26. [26]

    On the strength of his re-thinking of that issue, Mr Veitch obtained instructions to bring the applications to have the default judgments set aside. The basis for the applications was the contention that, contrary to the concessions previously made by the defendants, they have arguable defences to the claims for possession under ss 12CB(1) and 12GM(2) of the ASIC Act. Specifically, the defendants allege that Secure Funding engaged in unconscionable conduct in connection with the supply of financial services to Staway; that the defendants are persons who suffered loss or damage by that conduct and, accordingly, that the Court has power, on their “application” (within the meaning of s 12GM(2) of the ASIC Act) to make orders which would operate by way of defence to the claims for possession.

27. [27]

    Secure Funding opposed the applications to have the default judgments set aside. It submitted that an application for a remedy under section 12GM of the ASIC Act cannot be brought or maintained by any person other than the relevant “person” referred to in s 12CB (the recipient of the financial services in connection with which the allegation of unconscionable conduct is made).

28. [28]

    On 28 November 2013, Harrison AsJ exercised her power under r 36.16(2) of the UCPR to set aside the default judgments. Secure Funding challenges two aspects of that decision.

29. [29]

    First, her Honour found that the defendants had bona fide, arguable defences on the merits. That finding depended critically on the construction of ss 12CB and 12GM of the ASIC Act.

30. [30]

    Second, her Honour rejected a submission by Secure Funding that she should not exercise the power under r 36.16(2)(a) because of the prior history of the matter (in particular the prior occasions on which the defendants, by their counsel, had conceded that the alleged unconscionability did not provide defences to the default judgments).

Defence under the ASIC Act

1. [31]

   Grounds 1 and 2 are:

2. [32]

   As implicitly recognised in those grounds, the structure of the ASIC Act is, relevantly, that s 12CB of the Act prohibits certain unconscionable conduct, while s 12GM is one of a number of provisions which creates a statutory remedy for loss or damage suffered by conduct in contravention of the prohibition.

3. [33]

   Section 12CB(1) provides:

4. [34]

   Section 12GM(2) provides:

5. [35]

   The “orders mentioned in subsection (7)” are:

6. [36]

   In order to explain Secure Funding’s argument it is helpful to define some terms. Section 12CB prohibits “a person” from engaging in unconscionable conduct in trade or commerce in connection with the supply of financial services to “a person”. For present purposes, those persons may be referred to, respectively, as “a supplier and a service recipient” (adopting the language of s 12CC). Section 12GM creates a statutory remedy for “a person who has suffered, or is likely to suffer, loss or damage by” (relevantly for present purposes) unconscionable conduct of a supplier in contravention of section 12CB. For present purposes, a person claiming to have suffered loss or damage may be referred to as “a claimant”.

7. [37]

   Translating the argument into my terminology, Secure Funding submits that, according to the proper construction of the ASIC Act, a claimant cannot be any person other than the relevant service recipient. That was said to be the principle established by the decision of the Full Federal Court in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; 122 FCR 110. It will be necessary to return to that decision.

8. [38]

   Harrison AsJ rejected Secure Funding’s argument. Her Honour said (at [76] to [77]):

9. [39]

   The defendants each filed a notice of contention in response to Secure Funding’s appeals contending that her Honour should have distinguished the decision in Monroe Topple on different grounds, as follows:

10. [40]

    In their written submissions, the defendants expanded that contention by submitting that the basis on which Harrison AsJ distinguished Monroe Topple was not the correct basis to distinguish that decision. Secure Funding takes that to be a concession that the decision under appeal entailed error of the kind described in House v The King. It was submitted that, in the face of conceded error, this Court must re-exercise afresh the discretion under r 36.16 whether to set aside the default judgments. Support for that contention was said to be found in the decision of the Court of Appeal in Dai v Zhu [2013] NSWCA 412 at [106] per Sackville A-JA; Barrett and Leeming JJA agreeing at [1] and [2] respectively.

11. [41]

    Sackville A-JA said:

12. [42]

    It is not clear from that passage of the judgment whether the Court intended to articulate a proposition of law that, wherever an error meeting the description in House v The King is found or conceded, the appellate court must re-exercise the discretion. Sackville A-JA could equally be understood to have concluded that the error in question was such as to vitiate the primary judge’s exercise of his discretion. Uninstructed by authority, I would have thought an appellate court could properly decline to re-exercise the discretion of a primary judge notwithstanding the discernment of an error of the kind described in House v The King, depending upon the kind of error and its significance in the circumstances. For example, if the primary judge acted on an incorrect principle in a manner that was favourable to the ultimately unsuccessful party (such as by holding the successful party to a higher standard of proof than applied as a matter of law), I would have thought it to be open to the appellate court not to intervene.

13. [43]

    However, I must concede that, although that issue was not expressly considered in Day v Zhu, the Court appears (unanimously) to have proceeded on a different assumption. In particular, Sackville A-JA considered that the conclusion that the primary judge had erred in the evaluative judgment as to whether the explanation for the delay was satisfactory “required” the Court of Appeal to re-exercise the discretion, notwithstanding the fact that the primary judge’s separate finding that there was no evidence of a bona fide defence was not challenged in the appeal: see [99] to [100]. In all the circumstances, I consider the prudent approach is to proceed on the basis contended for on behalf of Secure Funding.

14. [44]

    However, I do not accept that the putative concession as to the correctness of the basis on which Harrison AsJ distinguished the decision in Monroe Topple warrants the conclusion that her Honour’s decision entailed error of the kind described in House v The King. In my view, for the reasons that follow, her Honour was correct to distinguish the decision in Monroe Topple. The failure to distinguish it on the additional ground contended for by the defendants is not properly characterised as acting on an incorrect principle or entailing an error of law.

15. [45]

    The questions of law raised by the application to set aside the default judgments were:

16. [46]

    Secure Funding’s submissions have not persuaded me that Harrison AsJ acted on an incorrect principle or mistook the law. In my view, the construction of the ASIC Act contended for by the defendants is reasonably arguable.

17. [47]

    Nothing in the language of the Act supports the contention (adopting my terminology explained above) that a claimant cannot be any person other than the relevant service recipient. The prohibition in s 12CB is directed to conduct in trade or commerce in connection with the supply of financial services to “a person”. The statutory remedies created by s 12GM may be availed of by “a person who has suffered, or is likely to suffer, loss or damage by” the relevant conduct. Section 12GM does not, in terms, confine those remedies to the person to whom the financial services were supplied.

18. [48]

    The decision of the Full Federal Court in Monroe Topple does not hold otherwise. In the decision at first instance (Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2001] FCA 1056), Lindgren J said (at [260]):

19. [49]

    The term “unrelated third party” adopted in that passage of the judgment does not appear in any of the judgments in the Full Court. The main judgment in the Full Court was given by Heerey J. His Honour said (at paragraphs [114] to [116]):

20. [50]

    The other two members of the bench agreed: at [2] per Black CJ; at [162] per Tamberlin J.

21. [51]

    The critical conclusion was that s 51AC(2) was directed to conduct in trade or commerce in connection with a particular kind of transaction with “a particular kind of person” or the supply of services “as between stipulated categories of person”. The reference to the original recommendation of the Swanson Committee amply explains the conclusion reached by the Court in the facts of that case, where Monroe Topple was on no view a person of the relevant kind or within a relevant category.

22. [52]

    Further, as submitted on behalf of the defendants in the present case, the decision of the Full Federal Court turned on the conclusion that there had been no contravention of the relevant prohibition. The decision said nothing about the persons who may apply for relief under s 87 of the Trade Practices Act 1974 (Cth), which is the equivalent of s 12GM(2) of the ASIC Act.

23. [53]

    In my view, Harrison AsJ was correct to distinguish the decision in Monroe Topple. It did not govern the defendants’ applications. The defence raised by them is, in my view, reasonably arguable.

24. [54]

    For those reasons, in my view grounds 1 and 2(a) raised by Secure Funding must be rejected.

Ground 2(b) – availability of s 12GM as a defence

1. [55]

   By ground 2(b), Secure Funding complains that Harrison AsJ did not deal with its submission that a cross claim or set-off is not a defence to a claim for possession of land. The submission was based on the decision of the High Court in Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; 126 CLR 161 at 165 to 167 per Walsh J, Barwick CJ, Menzies and Gibbs JJ agreeing.

2. [56]

   In my view, the submission misconceives the way in which s 12GM is invoked in the present case. It may be accepted that the decision in Inglis is authority for the proposition that a cross claim or set-off is not a defence to a claim for possession of land, but the defendants do not seek the statutory remedy by way of cross claim or set-off. The defendants invoke the section by way of defence. They contend that is a permissible course in accordance with the decision of the Court of Appeal in Bittania cited above. In that case, the Court of Appeal held that an application under s 87 of the Trade Practices Act for an order dismissing proceedings may be made in a defence. Hodgson JA said (at [8]):

3. [57]

   The defendants rely upon the fact that, in the present case, an essential element of the claim for possession (the element of default in the performance of the defendant’s obligations under their loan agreements) was created by Secure Funding’s unconscionable conduct against Staway. The power of the Court to grant relief in accordance with the statute on that basis is not confined by equitable principles: see Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd (1988) 20 FCR 540 at 544 to 545 per Davies, Gummow and Lee JJ.

4. [58]

   The defendants relied upon the decision of Johnson J in Westpac Banking Corporation v Corry [2011] NSWSC 1014 at [34] as authority for the proposition that the principle in Inglis does apply in the circumstances of the present case. However, as noted on behalf of the defendants, the Court does not appear to have been taken to the decision in Town & Country in that case.

5. [59]

   I am not persuaded that ground 2(a) is established. In my view, it is plainly arguable that the statutory remedy invoked in the present case may be relied upon by way of defence.

Grounds 3 and 4 – procedural history

1. [60]

   Grounds 3 and 4 allege that the trial judge erred by concluding that the default judgments should be set aside despite the procedural history.

2. [61]

   I do not think there is any substance in those grounds. The defendant’s challenge to Harrison AsJ’s treatment of this issue amounts to a challenge to the weight given by her Honour to considerations which were plainly taken into account. As submitted on behalf of the defendants, Harrison AsJ did not ignore the procedural history. She considered it at length and came to the conclusion that the matters relied upon should not preclude the defendants from having the proposed defences determined on the merits. Her Honour accepted, reasonably in my view, that the defendants had at relevant times relied upon their lawyers and acted in accordance with their advice. I have not been persuaded that her Honour’s conclusion in that respect was plainly unreasonable or unjust.

Application to amend the defences

1. [62]

   In light of the conclusion I have reached as to the appeals, I do not think there is any reason not to allow the proposed amendments. They are based on the same circumstances as the defences of unconscionable conduct, raising a new legal argument on the same facts. Secure Funding did not strongly oppose the grant of leave to amend in that event.

Orders

1. [63]

   The orders are:

   1. (1)

      That the appeals from the decision of Harrison AsJ be dismissed.

   2. (2)

      That leave to amend the defences be granted as sought.