James v Australia and New Zealand Banking Group Ltd (No 2)

1. [1]

   The first plaintiff, Mr James, seeks leave to amend his Commercial List Summons and Statement in accordance with a proposed Amended Commercial List Summons and Amended Commercial List Statement.

2. [2]

   The defendants, Australia and New Zealand Banking Group Limited, and receivers appointed by ANZ over companies associated with Mr James (which I will call “the Companies”), seek to have the proceedings dismissed against Mr James (although not against the proposed second and third plaintiffs, Aramax Nominees Pty Ltd and Primax Nominees Ltd).

3. [3]

   The proposed Amended Commercial List Summons and Amended Commercial List Statement were originally circulated on 23 September 2016. Revised versions of these documents were handed up during argument on 24 February 2017. A further iteration of each was foreshadowed in submissions and was circulated following argument. It is agreed by the parties that I should consider the competing applications on the basis of this most recent iteration.

4. [4]

   The proposed Amended Commercial List Statement directs attention to Mr James’s liability to ANZ in respect of guarantees he gave ANZ concerning the borrowings of the Companies.

5. [5]

   On 16 May 2014, Mr James consented to judgment being entered against him in favour of ANZ for $13,928,818.66 in respect of his liability to ANZ under the guarantees.

6. [6]

   On 23 February 2016, Ball J dismissed an application by Mr James that the judgment be stayed: Australia and New Zealand Banking Group Limited v James [2016] NSWSC 108.

7. [7]

   In the proposed Amended Commercial List Summons, Mr James seeks a declaration that his liability under the guarantees and the judgment “has been discharged”.

8. [8]

   Mr James claims that this result follows from two circumstances.

9. [9]

   The first is the alleged fact that on 19 August 2013, the receivers appointed by ANZ to the Companies (over whose assets ANZ had security) took possession, without right or authority, of stock, plant and equipment owned by a number of other companies (which I will call “the Other Companies”) over whose assets ANZ did not have security.

10. [10]

    Such taking of possession is alleged to have led to the collapse of the Other Companies and to the destruction of the only (but sufficient) means available to Mr James (through his shareholding and loan accounts in the Other Companies) to meet his obligations under the guarantees and the judgment.

11. [11]

    This conduct is said to have “impeached the title” of the guarantee and led to this result. I will refer to this as “the Impeachment of Title Claim”.

12. [12]

    The second circumstance is the alleged fact that the receivers acted in breach of their duty under, amongst other provisions, s 420A of the Corporations Act 2001 (Cth) by selling, “after 16 May 2014, or alternatively between 18 August 2013 and 16 May 2014”, certain assets of the Companies at undervalue. Mr James claims that those companies thereby suffered a loss in the order of $19.5 million and this “should be brought to account” in determining his liability under the guarantee. I will refer this as “the Sale at Undervalue Claim”.

The Impeachment of Title Claim

1. [13]

   In the proposed Amended Commercial List Statement, under the heading “Discharge of Guarantees” it is alleged that:

2. [14]

   The language used at [13(g)] derives from the decision of the Privy Council in Black v The Ottoman Bank (1862) 15 ER 573; 15 Moo. P.C. 472 at 483 as follows:

3. [15]

   In the written submissions made on behalf of Mr James it was stated (referring to Halsbury’s Law of Australia (LexisNexis) at [220-345]) that:

4. [16]

   The written submissions continued:

5. [17]

   The authority cited for that proposition was Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549. But that case dealt with a breach by the creditor of particular terms of the guarantee and, in my opinion, provides no guidance as to whether Mr James’s liability under the guarantees in this case were “discharged” by reason of the facts alleged.

6. [18]

   The written submissions added:

7. [19]

   Mr Sexton SC, who appeared with Mr Baird for Mr James, did not draw my attention to any case where Black v Ottoman Bank has been applied in Australia (although my own researches reveal that it has been mentioned, albeit not in a manner decisive of the result, in Surf Road Nominees Pty Limited v James [2004] NSWSC 61 at [155] (Einstein J); Australian Postal Corporation v Oliver [2006] VSC 318 at [96] (Hansen J); Modderno v Australian and New Zealand Banking Group Ltd [1999] NSWCA 13 at [26] (Handley JA, with whom Stein JA and Fitzgerald AJA relevantly agreed); and Webster Investments Pty Ltd v Anderson Pty Ltd [2016] VSC 620 at [101]-[102] (Croft J)).

8. [20]

   J O’Donovan and J Phillips have expressed the view (in Modern Contract of Guarantee, (4th ed 2015, Thomson Reuters at [8.1100]) that, at least in Australia:

9. [21]

   Ultimately, Mr Sexton SC stated that this aspect of Mr James’s case was put forward on the basis of equitable set-off (in which case it is more appropriately described in the pleading set out at [13(h] above, rather than [13(g)]).

10. [22]

    In that regard, Mr Sexton drew attention to the observation of Barrett JA in Hawes v Dean [2014] NSWCA 380 that “[t]he ‘impeachment of title’ test remains applicable in Australia” at [61].

11. [23]

    As the cases to which his Honour referred make clear, the expression “impeachment of title” is there used in the context of the doctrine of equitable set-off; for example see Forsyth v Gibbs [2008] QCA 103; [2009] 1 Qd R 403 at [10] (Keane JA, with whom McMurdo P and Fraser JA agreed).

The Sale at Undervalue Claim

1. [24]

   In the proposed Amended Commercial List Statement, under the heading “breach of duty and sale at undervalue claims”, it is alleged that:

2. [25]

   On behalf of Mr James it was submitted that:

3. [26]

   My attention was directed to the observations of Bryson J (as his Honour then was) in GE Capital Australia v Davis (2002) 180 FLR 250; NSWSC 1146 at [83]:

4. [27]

   As this passage makes clear, if the receivers have sold the assets of the Companies at an undervalue, and if they have done so in circumstances amounting to a breach by ANZ of its obligations (whether under s 420A or otherwise), the right of the Companies, and the right of Mr James, is to have any loss or damage thereby suffered set-off against what would otherwise be their, or his, liability (as debtors or guarantor, as the case may be).

5. [28]

   The passage also makes clear, as is well established by the authorities, that any such right is subject to the terms of the guarantee. I return to this below.

Res judicata

1. [29]

   Mr Jackman SC, who appeared with Mr Foreman for ANZ and the receivers, submitted that an “insurmountable impediment” standing in the way of Mr James obtaining the leave he seeks is the judgment of 16 May 2014.

2. [30]

   Mr Jackman submitted that Mr James’s rights under the guarantee have merged with the judgment and the present application is precluded by the doctrine of res judicata and, for that reason alone, leave to amend should be refused.

3. [31]

   Mr Jackman further submitted that the claim is also precluded by the doctrines of issue estoppel, Anshun estoppel and abuse of process.

4. [32]

   In Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; HCA 28 at [20], French CJ and Bell, Gageler and Keane JJ said:

5. [33]

   These principles apply to judgments and orders made by consent: see for example Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd (2008) 72 NSWLR 160 at [63] (Barrett J, as his Honour then was); Trustees for the Roman Catholic Church for the Diocese of Bathurst v Hine [2016] NSWCA 213 at [23] (Meagher JA (with whom Leeming and Simpson JJA agreed)), citing (inter alia) Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 508.

6. [34]

   The matter comes down to this.

7. [35]

   Can a guarantor against whom judgment is entered under the guarantee (whether by consent or otherwise), contend in later proceedings that his or her liability under the guarantee and the judgment has been “discharged” by reason of:

   1. (1)

      events occurring prior to the judgment which would otherwise have given rise to an equitable set-off between him or her and the creditor or to have discharged the guarantor from liability (the Impeachment of Title Claim); or

   2. (2)

      events occurring after judgment which would otherwise have entitled the principal debtor, and thus the guarantor, to an equitable set-off or to otherwise be brought to account (the Sale at Undervalue Claim).

8. [36]

   In my opinion, the answer to both of these questions is “no” and that Mr James should be refused the leave he seeks on that basis alone.

9. [37]

   Mr James’s “rights and obligations” (see Tomlinson at [32] above) under the guarantees have merged in the judgment. Mr James cannot now be “discharged” from any obligation under the guarantees because he no longer has any obligation under the guarantees from which he could be discharged: those obligations have merged in the judgment.

10. [38]

    Inherent in each of the Impeachment of Title Claim and the Sale at Undervalue Claim is the proposition that Mr James is entitled in equity to set-off against his liability under the guarantees the damage he claims he has suffered by reason of the alleged events.

11. [39]

    Such right as Mr James had to make such a claim is also now merged in the judgment to which he consented.

12. [40]

    I see no basis upon which any of these matters could have the effect of discharging the judgment itself.

13. [41]

    In my opinion, these matters are a complete answer to the claims that Mr James seeks to propound.

14. [42]

    It is in those circumstances unnecessary to consider whether Mr Jackman’s subsidiary arguments (issue estoppel, Anshun estoppel or abuse of process) take the matter any further.

The clauses in the guarantees

1. [43]

   Each of the guarantees contained clauses purporting to limit the bases upon which Mr James could resist ANZ’s claim under the guarantee.

2. [44]

   In view of the conclusions to which I have come concerning res judicata, it is not necessary for me to consider whether these clauses provide another reason why Mr James cannot make out the case propounded in the Commercial List Statement.

3. [45]

   However, in deference to the detailed submissions made about the clauses, I will deal with them, albeit briefly.

4. [46]

   The clauses are:

5. [47]

   There was no dispute before me that:

6. [48]

   Mr Sexton accepted that (subject to what appears below relating to relief proposed to be sought under ss 12CB or 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”) one or more of the clauses would be an answer to the Impeachment of Title Claim.

7. [49]

   Mr Sexton submitted, however, that the clauses would not provide an answer to the Sale at Undervalue Claim.

8. [50]

   I do not agree.

9. [51]

   If there has been a sale at undervalue, the Companies may (subject to the terms of the loan documents) be entitled to set-off the loss thereby suffered against the debt owing. Mr James, as guarantor (but for the judgment, and subject to the terms of the guarantee), may have been entitled to rely on that entitlement.

10. [52]

    But here, Mr James has agreed not to rely on any such entitlement.

11. [53]

    As Mr Jackman’s and Mr Foreman’s written submissions pointed out, cases such as O'Brien v Bank of Western Australia Ltd (2013) 16 BPR 31, 705; NSWCA 71 and Palaniappan v Westpac Banking Corporation [2016] WASCA 72 establish that summary dismissal may not be appropriate where, for example, the guarantors allege that the debt was not payable by the borrower. As Corboy J (with whom Martin CJ agreed) said in Palaniappan at [133]:

12. [54]

    Similarly, in O'Brien v Bank of Western Australia Ltd at [114], Ward JA (with whom Beazley P and Macfarlan JA agreed) concluded that:

13. [55]

    However, as Mr Jackman and Mr Foreman point out, Mr James does not assert that a liability never arose under the guarantees.

14. [56]

    Rather, Mr James’s allegations relate to alleged conduct occurring after liability under the guarantees had arisen. I accept the submission that this is precisely the circumstance in which clauses of this kind do operate.

Unconscionable conduct

1. [57]

   To meet the clauses in the guarantee so far as they constitute a bar to the Impeachment of Title Claim, Mr James alleges in the proposed Amended Commercial List Statement that:

   1. (1)

      ANZ engaged in unconscionable conduct within the meaning of ss 12CB or 12CA of the ASIC Act by, relevantly, relying (since these proceedings were commenced) on the clauses when it knows or ought to know that:

   2. (2)

      Accordingly there should be an order under s 12GM of the ASIC Act that the guarantees be varied by deleting the clauses, or alternatively refusing to enforce the clauses.

2. [58]

   Mr Sexton made clear that Mr James did not contend that ANZ had engaged in unconscionable conduct by proffering for Mr James’s signature the guarantees containing the clauses, nor that there was any other aspect of the circumstances in which the guarantees were executed that was unconscionable. The alleged unconscionability, so far as concerns the clauses, is said to arise from ANZ’s reliance on them to repel Mr James’s proposed claims.

3. [59]

   In effect, Mr James’s contention amounts to the proposition that it would be unconscionable for ANZ now to hold Mr James to the bargain to which he agreed when he entered the guarantees in circumstances where there is no suggestion that ANZ’s conduct in proposing that bargain can be impugned on any basis.

4. [60]

   My attention was not drawn to any authority in which ss 12CB or 12CA (or their analogues) have provided the foundation for an order that a contract be varied in such circumstances. Indeed, in Palaniappan, in circumstances very similar to those before me, the Western Australia Court of Appeal found such a proposition to be unarguable: at [86] – [90] (Buss JA) and [143] – [150] (Corboy J with whom Martin CJ agreed).

5. [61]

   I have reached the same conclusion here. Mr James’s prospects of making out this case are so remote that, were it necessary for me to decide the issue, I would have denied leave to amend to raise this point.

Conclusion

1. [62]

   Mr James’s application to amend his Commercial List Summons and Commercial List Statement must be dismissed with costs.

2. [63]

   I will now hear submissions as to why the proceedings should not now be dismissed so far as concerns Mr James.

3. [64]

   I will also hear submissions as to what should happen with the proceedings so far as concerns Aramax Nominees and Primax Nominees.