National Australia Bank Ltd v C & O Voukidis Pty Ltd

1. [1]

   These proceedings concern a number of facilities provided by the National Australia Bank Ltd to the Fourth Defendant, her husband, and companies connected with them including C & O Voukidis Pty Ltd, Jedda Projects Pty Ltd and Koombari Pty Ltd. The Fourth Defendant was a borrower under some facilities and a guarantor in respect of others. She gave a mortgage over two properties she owned at 37 Thompson Street, Drummoyne and 344 Elizabeth Drive, Vincentia.

2. [2]

   The proceedings commenced on 13 March 2012 seeking possession of properties at 5 Wyatt Avenue, Burwood, 60 Belmore Street, Burwood and 9 Chelmsford Avenue, Maroubra in addition to the Drummoyne and Vincentia properties.

3. [3]

   The proceedings also named Nicholas and Georgina Anastasopoulos as Second and Third Defendants respectively and sought possession of their property at 9 Chelmsford Avenue, Maroubra. Leave to discontinue the proceedings against those Defendants was given on 10 September 2012.

4. [4]

   On 3 April 2014 after a contested hearing for summary judgment Campbell J gave a judgment for possession of the properties at 5 Wyatt Avenue, Burwood and 37 Thompson Street, Drummoyne. His Honour found that there was an arguable defence in relation to the Vincentia property and refused summary judgment in respect of that property.

5. [5]

   There have been a number of iterations of the Statement of Claim with the present form of it being a Second Further Amended Statement of Claim filed 17 October 2014. That form of the Statement of Claim significantly changed the claim made from being one simply for possession of properties to one that added a claim for debt under the facilities and the guarantees.

6. [6]

   This judgment relates to a Notice of Motion filed by the Fourth Defendant on 3 November 2014 seeking leave to amend a cross-claim by the Fourth Defendant against the Plaintiff, and a Notice of Motion filed 14 November 2014 by the Plaintiff to strike out certain paragraphs of the Fourth Defendant’s Further Amended Defence filed 3 November 2014. Some of those paragraphs are said to have withdrawn admissions previously made by the Fourth Defendant without the leave of the Court.

7. [7]

   At the hearing of these Motions each side sought and was granted leave to amend their Motions. The Fourth Defendant by her Amended Notice of Motion sought leave to withdraw the admissions challenged by the Plaintiff in its Notice of Motion. The Plaintiff added a prayer that certain paragraphs of the Second Cross-Claim filed by the Fourth Defendant on 7 May 2014 be struck out.

8. [8]

   So that a proper understanding can be gained of the competing positions of the parties on these Motions it will be necessary to set out in some detail both the past pleading and chronology of the proceedings to the present time.

Procedural history and pleadings

1. [9]

   The original Statement of Claim filed 13 March 2012 relevantly pleaded the following matters:

2. [10]

   In the Fourth Defendant’s Defence filed on 21 May 2012 (and then filed again on 2 July 2012) the Fourth Defendant admitted all of those paragraphs, except paragraphs 33 and 35, without qualification. In relation to paragraphs 33 and 35 the Fourth Defendant pleaded as follows:

3. [11]

   Paragraphs 92, 94 and 95 of that Defence were as follows:

4. [12]

   On 12 July 2012 the Plaintiff filed an Amended Statement of Claim which, apart from some cosmetic amendments, pleaded that the various mortgages secured the obligations by the Fourth Defendant under the facilities and the First Guarantee, the Second Guarantee and the Third Guarantee. The First Guarantee executed 14 March 2006 secured the obligations of Jedda Projects Pty Ltd under its overdraft of $500,000. The Second Guarantee secured the obligations of C & O Voukidis Pty Ltd (the First Defendant) in relation to a facility to that company of $1.65 million. The Third Guarantee secured the obligations of Koombari Pty Ltd of two bill facilities totalling $2.5 million.

5. [13]

   The Fourth Defendant filed an Amended Defence to the Amended Statement of Claim on 13 August 2012. The admissions to paragraphs 2, 7, 8, 9, 10, 11, 12, 20.4, 20.5 and 36 remained. The pleading to paragraphs 33 and 35 which were, in substance unchanged, now read as follows:

6. [14]

   Significantly, the pleading in paragraphs 94 and 95 of the first defence was omitted. What had previously been paragraph 92 of the original defence was reproduced in identical terms as paragraph 94. The position was, therefore, that the only substantive defence was that the sale of property owned by Koombari was at a gross undervalue and in breach of s 420A of the Corporations Act.

7. [15]

   On 13 August 2012 the Fourth Defendant also filed a cross claim against the Second and Third Defendants claiming contribution from them as co- guarantors.

8. [16]

   On 27 November 2012 the Plaintiff filed a Further Amended Statement of Claim. Apart from a renumbering of some paragraphs in a manner that was confusing and unnecessary, the only other change made was to what had been paragraph 92 of the Amended Statement of Claim and was now paragraph 86 of the Further Amended Statement of Claim to assert that it was the Fourth Defendant rather than the First Defendant that had failed to comply with the fifth mortgage demand.

9. [17]

   On 13 December 2012 directions were made by Schmidt J providing for the Fourth Defendant to file and serve any notice of motion seeking leave to file an amended defence or cross claim by 18 January 2013 and for the Plaintiff to provide and serve any notice of motion seeking summary judgment by the same date. It is not clear why, when a Further Amended Statement of Claim had been filed, it was necessary for leave to be granted to the Fourth Defendant to file and serve a further defence. However, on 18 January 2013 each of the parties filed a notice of motion. The Plaintiff sought summary judgment. In the case of the Fourth Defendant, she sought leave simply to amend her Defence of 18 January 2013.

10. [18]

    Both Motions were heard by Campbell J on four dates in late February and early March 2013.

11. [19]

    On 3 April 2014 Campbell J made orders for possession of the properties at 5 Wyatt Avenue, Burwood and 37 Thompson Street, Drummoyne: National Australia Bank Ltd v C & O Voukidis Pty Ltd [2014] NSWSC 384. His Honour dismissed the summary judgment application in relation to the Vincentia property and gave leave to the Fourth Defendant to re-plead the Defence that she sought to file. That leave was granted in the light of what his Honour had to say about the proposed defences as follows:

12. [20]

    On 7 May 2014 the Fourth Defendant filed a Second Cross-Claim against the Plaintiff. Although the proceedings had commenced on 13 March 2012 this was the first time a cross-claim against the Plaintiff was filed. No explanation for that delay has been given.

13. [21]

    The Cross-Claim contained what were called Four Complaints.

14. [22]

    Complaint One was entitled “Failure to apply proceeds of sale”. It pleaded that in or around late 2011 the First Defendant entered into a contract for the sale of 64 Belmore Street, Burwood and that sale settled in March 2012. The Fourth Defendant alleged that the Bank was under an obligation to apply the whole of the net proceeds of sale in reduction or extinction of two liabilities owed by the First Defendant to the Bank. These facilities were the FlexiPlus Mortgage Facility (of $1,650,000 to the First Defendant) and the second was the Second Portfolio Facility (of $1.84 million) where the Fourth Defendant was a principal debtor.

15. [23]

    Complaint Two was entitled “Failure to apply term deposit moneys”. This complaint alleged that when the Fourth Defendant and her husband sold their matrimonial home at 5 Appian Way, Burwood for the purpose of reducing their obligations to the Bank, a bank officer, Mr Bradley See, required $725,000 to be placed in a term deposit which would be released for the Fourth Defendant and her husband as they required it. This term deposit was not released in a timely manner leading to the suffering of damage by the Fourth Defendant.

16. [24]

    It appears that the funds the subject of both complaints, were subject to a freezing order imposed by Pembroke J in this Court in separate proceedings. Those proceedings and the freezing order related to proceedings in Victoria involving the Fourth Defendant and her husband.

17. [25]

    The Third Complaint headed “Sale at gross undervalue” was the same complaint that first appeared in paragraph 92 of the original Defence and subsequently as paragraph 94 in the Amended Defence (see [11] above).

18. [26]

    The Fourth Complaint concerned the release of the Vincentia security. The complaint there was that the Bank promised to release the Vincentia property when the portfolio facility was reduced to $1.84 million from moneys from the sale of 5 Appian Way, Burwood and a further mortgage taken over Thompson Street, Drummoyne. That was the matter in respect of which Campbell J determined should go to trial as a defence to the Plaintiff’s claim for possession.

19. [27]

    The matter came before me for judicial directions on 25 July 2014. Counsel for the Fourth Defendant sought an adjournment of two weeks on the basis that the Fourth Defendant had instructed a new firm of solicitors who had received eight boxes of documents from the previous solicitors. It was said that the solicitors needed time to get on top of the material. Counsel frankly acknowledged that the new solicitors had previously acted for the First Defendant in the matter. When there was no explanation about why the solicitors had been changed I refused to adjourn the proceedings and directed that the Fourth Defendant was to file and serve her evidence on or before 22 August 2014. Nothing was said by the Fourth Defendant about a need for expert evidence. This is particularly relevant to the claim based on the breach of s 420A of the Corporations Act.

20. [28]

    Notwithstanding those directions and the refusal of the adjournment, the evidence was not served until 3 September 2014. It did not include any expert evidence.

21. [29]

    When the proceedings came before Campbell J on 3 October 2014 the Fourth Defendant indicated that she wished to serve an amended cross claim against the Bank. She was directed to serve the proposed form of that cross claim by 10 October 2014, and that was done. The solicitors for the Bank said that they would not consent to the proposed Amended Cross Claim and sent a detailed letter on 14 October setting out the reasons why they did not consent.

22. [30]

    On 17 October the Plaintiff filed a Second Further Amended Statement of Claim pursuant to orders made on 3 October 2014 by Campbell J. I shall return to that document presently.

23. [31]

    On 20 October 2014 the solicitors for the Fourth Defendant sent a further proposed Amended Cross Claim to the Bank’s solicitors. The Bank again refused its consent to the filing of that proposed cross claim, and that refusal has led to the Fourth Defendant’s present Motion for leave to do so.

24. [32]

    The Amended Second Cross-Claim sought to be filed by the Fourth Defendant is pleaded as follows:

25. [33]

    A few preliminary matters should be noted about this pleading. First, the Fourth Defendant has pleaded matters concerning the Second Guarantee in paragraphs 9 to 12. The Plaintiff has abandoned its claim on the Second Guarantee in the Second Further Amended Statement of Claim. That Second Guarantee was in respect of the obligations of the First Defendant. Where the Plaintiff is not seeking to enforce rights under the Second Guarantee the pleading in paragraphs 9 to 12 is embarrassing and should not be allowed.

26. [34]

    Secondly, paragraphs 18 to 20, which deal with breaches of the Code of Banking Practice, have been raised for the first time since the proceedings commenced.

27. [35]

    Thirdly, paragraphs 21 to 33 are in effect an expanded version of what was originally contained in paragraph 92 of the original Defence and subsequently paragraph 94 of the Amended Defence (see [11] above]). However, no further particulars have been provided of what was said to be the breach by the Receivers and Managers of their obligations under s 420A of the Corporations Act 2001 (Cth). Moreover, paragraph 27 alleges a duty that is not known to Australian law; Forsyth v Blundell (1973) 129 CLR 477; Australia and New Zealand Banking Group Ltd v Bangadally Pastoral Co Pty Ltd (1978) 139 CLR 195. When that was pointed out to him, the Fourth Defendant’s counsel said that paragraph 27 will be omitted from any cross-claim filed.

28. [36]

    On 3 November 2014 the Fourth Defendant filed a Further Amended Defence. It is the pleading in that Defence which has given rise to the Bank’s present Motion.

29. [37]

    In the meantime on 11 November 2014 the proceedings were listed for directions before Campbell J. Various directions were made in relation to the service of lay and expert evidence. The Fourth Defendant was to serve any proposed expert evidence by 12 December 2014. The matter was fixed for a final hearing for five days commencing 4 May 2015.

30. [38]

    As indicated earlier the Second Further Amended Statement of Claim was a significantly different document from the earlier iterations of the Statement of Claim. Because the properties at 5 Wyatt Avenue, Burwood, 9 Chelmsford Avenue, Maroubra and 37 Thompson Street, Drummoyne had been sold, claims for possession in respect of those properties were omitted. Further, the position with regard to the outstanding debt was now clarified with the exception of what would be received from the sale of the Vincentia property if the Plaintiff was entitled to possession of that property.

31. [39]

    The Second Further Amended Statement of Claim relevantly pleaded as follows (omitting passages struck through):

32. [40]

    The Defence to the Second Further Amended Statement of Claim was relevantly pleaded as follows (omitting underlining):

33. [41]

    The passages marked in italics respond to paragraphs in the Second Further Amended Statement of Claim that are no longer pursued by the Bank and have been struck through in the form of the pleading filed in accordance with the Rules.

34. [42]

    The Fourth Defendant swore and filed an affidavit in support of her Motion to file the Amended Cross-Claim. However, her counsel announced at the outset of the hearing of the Notices of Motion that he did not intend to read or rely on that affidavit. The Fourth Defendant said through her counsel that in relation to delay she relied on the evidence that the Bank put forward in discrete respects. That evidence was not identified.

35. [43]

    The result of this was, therefore, that there was no evidence at all in relation to the Amended Motion by the Fourth Defendant seeking leave to withdraw admissions made in the earlier forms of the Defence. Nor was there any evidence explaining why particular defences and claims which were initially pleaded but then abandoned were now being sought to be relied upon again. This concerned, particularly, claims under the Contracts Review Act 1980 (NSW), claims for unconscionability and what was said to be undue influence. Nor was there any explanation why a claim was being made for the first time in reliance on alleged breaches of the Code of Banking Practice.

36. [44]

    In Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175:

37. [45]

    I expressed the view in Commonwealth Bank of Australia v Hannaford (No 2) [2013] NSWSC 574 at [73]:

38. [46]

    The Court of Appeal apparently accepted this view: Hannaford v Commonwealth Bank of Australia [2014] NSWCA 297 at [21] and [98]-[100].

39. [47]

    As in Aon and Hannaford, there can be no doubt that an explanation was required in this case.

40. [48]

    The Fourth Defendant submitted that I should infer the reason for the desire to file the amended Cross-Claim. It was said that the timing was relevant. It came after evidence had been filed by the husband and immediately after the Plaintiff had provided the form of its proposed Second Further Amended Statement of Claim.

41. [49]

    Whilst I accept that the Plaintiff changed its claim from one seeking only possession of the properties to one seeking debt in addition, that came about because the other properties had been sold and the debt position had been thereby clarified. That change obviously had an impact on defences that could be raised, but it is difficult to see why it had any consequences for the Cross-Claim.

42. [50]

    Further, the evidence of the Fourth Defendant’s husband was evidence filed by the Fourth Defendant’s solicitors. The material in that affidavit concerning the Fourth Defendant, particularly the entry into the various facility arrangements, must have been known to the Fourth Defendant from the outset. What she signed, what advice she received and the circumstances of her signing were not matters that she learnt for the first time from her husband’s affidavit. In any event, as I have mentioned, she had earlier pleaded undue influence and the Contracts Review Act.

43. [51]

    I cannot infer that either the evidence of the husband or the proposed Second Further Amended Statement of Claim provides any reason for the need or desire to amend the Cross-Claim.

Withdrawal of admissions

1. [52]

   This issue concerns paragraphs 2, 7, 8, 9, 10, 11, 12, 20.4, 20.5 and 36 of the Statement of Claim and the Amended Statement of Claim. Of those paragraphs, paragraphs 7 and 9 remain in the Second Further Amended Statement of Claim without any amendment. Paragraph 2 has only been altered in the Second Further Amended Statement of Claim by omitting references to the Second and Third Defendants who are no longer pursued by the Bank. The pleading in paragraph 2 against the Fourth Defendant is unamended.

2. [53]

   Paragraph 11 has not been altered in substance. All that has changed is that the bill facilities referred to were previously defined as “bills facility” and are now defined as “bill facilities”. In the same way paragraphs 20A and 20B (formerly numbered as 20.4 and 20.5) refer to “bill facilities” rather than “bill facility”.

3. [54]

   The Fourth Defendant submitted that what is pleaded by the Plaintiff and what has been admitted are effectively matters of law, and disputed that what was done was withdrawing admissions as to fact. I do not agree. A reading of the paragraphs mentioned above shows that facts are clearly asserted. While some of them may also involve conclusions related to legal matters (“is a guarantor”, “has defaulted” etc) the allegations are essentially factual assertions which even a person without legal training understands. Here, of course, the Fourth Defendant was a practising lawyer. The assertions made in the paragraphs were admitted clearly and without qualification.

4. [55]

   Leave would be necessary to withdraw those admissions.

5. [56]

   In respect of paragraph 8 the underlined words (“or upon cancellation by the Plaintiff of the facility (irrespective of default)”) have been added. Nothing else has been changed. Similarly, in paragraph 10 the underlined words (“or upon expiry of the overdraft on 30 April 2006”) have been added. Otherwise, both paragraphs have simply been amended to show the reduced interest rate that is current at the date of filing the Second Further Amended Statement of Claim rather than the rate current at the time of filing the earlier iterations of the document. Clear and unqualified admissions were made to those paragraphs with the exception of the added underlined words and leave is necessary to withdraw such admissions. However, the Fourth Defendant is entitled to plead other than by admission if there is an appropriate basis for doing so to the added underlined words.

6. [57]

   The Fourth Defendant has purported to plead to paragraph 36 where a clear and unqualified admission had previously been made. Paragraph 36 (which concerns the Fourth Guarantee) is no longer pursued by the Bank and, hence, has not been included in what is set out above at [39] above (the form of paragraph 36 can be seen in the original Statement of Claim at [9] above). It is inappropriate and embarrassing for the Fourth Defendant to plead to that paragraph.

7. [58]

   The principles associated with withdrawal of admissions are set out in Drabsch v Switzerland General Insurance Co Ltd (Supreme Court of NSW, Santow J, 16 October 1996, unreported). In Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 Rogers CJ Comm D held that even if admissions were made in error, in some cases leave may not be given to withdraw them. His reliance in that case on Apex Pallett Hire Pty Ltd v Brambles Holdings Ltd (Full Court of Supreme Court of Victoria, 8 April, 1988, unreported) suggests that if admissions are made by self-induced mistake that may justify a refusal to grant leave to withdraw them - see at 744D, 748G and 749. A failure to explain properly why the admission was wrongly made may be fatal - see at 749-750; and see also Maile v Rafiq [2005] NSWCA 410 at [95]. Nor will it be essential for the other side to show prejudice if the admission is withdrawn: Coopers Brewery at 746.

8. [59]

   In the present case there is no explanation why the admissions were made. There is no evidence to suggest that the facts pleaded and admitted are incorrect. There is no explanation why the Fourth Defendant seeks to withdraw the admissions.

9. [60]

   The Fourth Defendant submitted that because the claim in the Second Further Amended Statement of Claim was changed to include a claim in debt as well as a claim for possession that had fundamentally changed the nature of the proceedings so that the Fourth Defendant should not be held to the admissions previously made.

10. [61]

    Nothing from the change to a claim for debt in addition to possession affects the pleading in the paragraphs that were previously admitted. The facts asserted in those paragraphs apply equally to a claim for possession and a claim for debt. The Fourth Defendant fails to show how reliance upon those paragraphs by the Bank to claim debt as well as possession alters the factual matrix concerning those paragraphs.

11. [62]

    The absence of any of the explanations and evidence referred to in [59] above is fatal to the Fourth Defendant’s application to withdraw. The result must be, therefore, that the Plaintiff is successful in relation to prayer 1(a), (b), (c), (d), (e) and (f) (with the exception of the added underlined words in paragraphs 8 and 10 of the Second Further Amended Statement of Claim) in its Amended Notice of Motion dated 9 December 2014.

Plaintiff’s Motion to strike out parts of Defence

1. [63]

   The Bank asks that paragraphs 48 and 49 of the Defence to the Second Further Amended Statement of Claim be struck out for a number of reasons. The principal basis for the strike-out is submitted to be that the defences pleaded in paragraphs 48 and 49 (n) to (z) were pleaded contrary to Campbell J’s determination on 3 April 2014 (see [19] above).

   1. (1)

      (1) Paragraphs not pursued by Plaintiff (Defence 24-34)

2. [64]

   Paragraphs 46 to 72, formerly contained in the earlier iterations of the Statement of Claim, are no longer pursued by the Bank. Simply put, the Bank does not sue in respect of those matters pleaded in those paragraphs. No explanation has been given by the Fourth Defendant for a need to plead to those paragraphs in the Defence to the Second Further Amended Statement of Claim. Those paragraphs are embarrassing. Accordingly, paragraphs 24 to 34 of the Defence to the Further Amended Statement of Claim should be struck out.

3. [65]

   This claim has been made by the Fourth Defendant since she first filed the Defence on 21 May 2012. The only basis for the claim as pleaded is said to be the difference between the market value of the property of $2.2 million and the price achieved on the sale on 22 December 2011 of $1,236,939.11 (net proceeds).

4. [66]

   A breach of the section is not established merely because a controller does not obtain the market value of property, or the best price reasonably obtainable, but only if the controller failed to take all reasonable care to sell the property for not less than market value or the best price that was reasonably obtainable having regard to the circumstances existing when the property was sold: Artistic Builders Pty Ltd v Elliot and Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16; (2002) 10 BPR 19,565 at [126].

5. [67]

   The Fourth Defendant has never pleaded or particularised the acts or omissions of the Receivers and Managers or of the Plaintiff said to constitute a breach of the duty referred in the section.

6. [68]

   The breach of the section was originally pleaded in the first two Defences filed as well as in the Second Cross-Claim filed 7 May 2014. The pleading alleged that the Plaintiff sold the properties at an undervalue. However, from the time the first proposed Amended Second Cross-Claim was served the breach is alleged to have been by the Receivers and Managers appointed by the Plaintiff. The Plaintiff is said to be liable because it is vicariously liable for the acts or omissions of the Receivers and Managers. The particulars in support of that allegation are that the Receivers and Managers were appointed by the Plaintiff, that they acted on the Plaintiff’s instructions and were under their control and that the sale of the properties was within the scope of their agency.

7. [69]

   The Plaintiff submitted that the Plaintiff could not be vicariously liable for the acts of the Receivers and Managers as a matter of law and relied on that regard on Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21. In that case the joint judgment said at [32]:

8. [70]

   The Plaintiff drew attention to the matters set out in Hollis at [48] – [57] which it was said ought to be contrasted with the relationship between the Plaintiff and the Receivers in the present case.

9. [71]

   The issue in Hollis v Vabu, of course, was whether courier riders were employees or independent contractors and whether the company which engaged them was liable for their acts of negligence. The matter ultimately depended on the assessment of a number of factual matters associated with the engagement of the riders and the work they performed.

10. [72]

    It would not be appropriate to make a determination on the issue of vicarious liability in the present case on an interlocutory application designed to show that the claim could not be said to disclose a reasonable cause of action. Although it might be thought unlikely that Receivers and Managers appointed to sell security property would be regarded as employees or persons for whom the principal would be vicariously liable, the matter could only be determined after hearing all of the evidence at the trial. I note in that regard that no evidence was placed before me by either party showing who it was that appointed the Receivers and Managers nor the nature of the relationship between those Receivers and Managers and their principal. In many cases involving banks and finance providers contractual documents result in Receivers and Managers being the agents of the mortgagor and not the mortgagee. Whether that is so in the present case will only be determined at a final hearing.

11. [73]

    Two other bases are put forward by the Plaintiff for saying that this claim is not maintainable. First, reliance was placed on what Bryson J said in GE Capital Australia v Davis [2002] NSWSC 1146; 920020 11 BPR 20,529 where there was a claim by a guarantor of a similar kind to what is sought to be claimed in the present case. Secondly, reliance was placed on the terms of the Guarantee given by the Fourth Defendant to demonstrate that until the Fourth Defendant has paid her liability to the Plaintiff she cannot maintain the various claims made in the Cross-Claim including the present one.

12. [74]

    The clauses in the Guarantee relevantly provide:

13. [75]

    In answer to both of these matters the Fourth Defendant drew attention to various passages in the online version of O’Donovan, Modern Contract of Guarantee (Thomson Reuters 2014) where the following appears:

14. [76]

    The Fourth Defendant submitted that the clauses in the Guarantee were too broadly expressed and that clear and unequivocal words were needed to shut out the guarantor from reliance on the claims including the claim based on a breach of s 420A.

15. [77]

    In Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 the factual position was very similar to the present. The security property had been sold and the guarantor was being pursued for the debt. The guarantor sought to rely on what was said to be a breach of s 420A by the Plaintiff in selling the land. The guarantor wished to cross-claim and set-off the amount of his damages against what was owing to the bank. Alternatively, he wanted a stay of entry of judgment for the shortfall until the cross-claim was heard.

16. [78]

    I discussed Davis as follows:

17. [79]

    What Bryson J said in Davis has direct application here. The Fourth Defendant has no claim based on s 420A. The rights given by the section are not rights a guarantor has.

18. [80]

    The further point from Davis is that any rights a guarantor has are subject to the agreement made between the guarantor and the creditor. Bryson J said at [85]:

19. [81]

    In Davis the relevant terms of the guarantee were these:

20. [82]

    Of these clauses Bryson J said:

21. [83]

    The position in the present case is indistinguishable. The relevant parts of clauses 14 and 15 are clear and unequivocal. The guarantor must pay her full liability to the Plaintiff before any cross-claim can be brought because the guarantor “gives up any right against the Bank” until the whole liability is paid. Bearing in mind the principles in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, the claim cannot succeed.

22. [84]

    If I am wrong concerning those matters, two other matters cause concerns about this claim being allowed to be maintained. First, as I have said, the claim is not properly pleaded to allege the acts and omissions of the Receivers and Managers that are said to give rise to the breach of duty that s 420A imposes. The Plaintiff says that it is not a matter of particulars only, although even particulars of the breaches have not been provided. Rather, the Plaintiff says, it would be necessary to plead specific acts and omissions to which appropriate response can be made in any pleading that answers the matter. The Plaintiff says that the failure of the Fourth Defendant since at least May 2012 to identify and plead those acts and omissions ought to result in the claim being struck out and the Fourth Defendant prevented from pursuing it.

23. [85]

    Secondly, despite a number of directions requiring the Fourth Defendant to serve evidence including expert evidence, no evidence concerning this claim has been served. There is no evidence, for example, of what is said to be the market value of $2.2 million. There is no evidence of any wrongful acts of the Receivers and Managers. Indeed, there is no evidence at all about what steps the Receivers and Managers took to effect the sale.

24. [86]

    There is no explanation from the Fourth Defendant why no evidence has been served in this regard. I was informed from the bar table that the Fourth Defendant has been reluctant to engage valuers or other experts before she could be certain that she would be allowed to rely on this defence and claim. Quite apart from there being no evidence to support this assertion, it does not withstand scrutiny. The matter has been pleaded as a defence and as part of the cross-claim since May 2012. The Plaintiff did not file its Motion to strike out the claim from the Defence until November 2014. Further, it only refused consent to the proposed amended cross-claim on 14 October 2014 (for the first time). By that time the Fourth Defendant had been directed to serve all of her evidence more than a month before.

25. [87]

    In my opinion, these two matters when taken together, mean that the present pleading in the Further Amended Defence should be struck out and the Fourth Defendant should not be permitted to plead it in its present form in the proposed Amended Second Cross-Claim. If the only problem was that no evidence had been served in respect of the Defence and the claim I would not have considered the mere absence of evidence to be a proper basis for striking out the pleading. The lack of evidence might mean that the Fourth Defendant would fail at the final hearing but the lack of evidence is not sufficient to justify summary dismissal. However, the pleading is also defective. At this relatively late stage in the proceedings, with a hearing date fixed, the defects in pleading may have been able to be overlooked had there been evidence served that demonstrated the basis for the claimed breaches of s 420A. In the absence of evidence it cannot be assumed that any breaches will be able to be demonstrated.

26. [88]

    It is not sufficient, as the Fourth Defendant says in the proposed Amended Second Cross-Claim that further and better particulars will be provided after the completion of discovery. The Fourth Defendant has not, at any stage, sought directions in respect of discovery. Although her counsel said that it was not possible to get discovery until the status of the pleading was known, the claim in respect of s 420A has been one of the issues pleaded since the first Defence was filed. No attempt has been made in that time to obtain the discovery that is said to disclose the further particulars. It is not clear to me how the Fourth Defendant’s solicitors have been able properly to provide the certificate required by s 347 of the Legal Profession Act 2004 (NSW) in respect of this claim.

27. [89]

    No reasonable cause of action or defence is disclosed in the pleading of this issue.

28. [90]

    The Plaintiff objects to what is contained in paragraph 49 (a) to (j) and 49 (aa) and (bb) because the substance of these matters was pleaded in the original Defence, thereafter omitted and not relied upon by the Fourth Defendant to resist the summary judgment application brought by the Plaintiff.

29. [91]

    This issue was pleaded as a defence in paragraph 95 of the original defence filed 21 May 2012. It was omitted from the defence to the Amended Statement of Claim filed on 13 August 2012. It did not appear in the Second Cross-Claim filed 7 May 2014. It then appeared in expanded form in the proposed Amended Second Cross-Claim forwarded to the Plaintiff’s solicitors on 10 October 2014. It was similarly included in the second version of that proposed Amended Second Cross-Claim and it appeared as paragraph 49 in the Defence to the Second Further Amended Statement of Claim filed 3 November 2014.

30. [92]

    Significantly, it was not relied upon as a defence to the summary judgment application before Campbell J. In that application summary judgment was sought of the two properties owned by the Second Defendant which had been provided as security for the facilities and the guarantees. The Drummoyne property was provided as security for the second portfolio facility in respect of which the Fourth Defendant was a primary debtor and in respect of the first and third guarantees for the debts of Jedda and Koombari. The Vincentia property was provided as security for the first and third guarantees for Jedda and Koombari.

31. [93]

    There is no explanation why the Contracts Review Act and undue influence were not relied upon in defence of that summary judgment application. Rather, the admissions in the defences were that the Fourth Defendant had executed the first and third guarantees.

32. [94]

    Counsel for the Fourth Defendant made clear that what the Fourth Defendant relied upon was not unconscionable conduct in what was described by Mason J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 as the narrow sense of the term. Rather, undue influence of the type described by Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134-135 was relied upon. The principle in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395 was invoked. Some of the particulars given of undue influence are more relevant to unconscionable conduct and matters with which the Contracts Review Act is concerned. However, all of the particulars were relied upon for both undue influence and a Contracts Review Act defence. The Plaintiff submitted that the matters pleaded did not demonstrate undue influence in the manner understood by that principle.

33. [95]

    In the absence of any explanation for why these issues were omitted between August 2012 and October 2014, why the Fourth Defendant wishes to reintroduce them at this late stage, and why they were not relied upon as defences to the summary judgment claims, the Fourth Defendant should not be permitted now to rely on these matters whether by way of defence or cross-claim. It would result in the Fourth Defendant adopting an inconsistent position with regard to the mortgages and guarantees from the position that she adopted when the summary judgment application was brought. The effect of that judgment was that she was bound by the guarantees and the mortgages at least insofar as the property in Drummoyne was concerned. Permitting her to rely on these defences to the present claim for debt has the potential to result in inconsistent judgments.

34. [96]

    Further, the Fourth Defendant’s approach is quite inconsistent with ss 56, 57 and 59 of the Civil Procedure Act. The absence of any explanation does not properly enable me to exercise any discretion in favour of the Fourth Defendant where, prima facie, s58(2)(b)(ii) of the Act operates against the Fourth Defendant.

35. [97]

    The Plaintiff also objects to paragraph 49 (e),(f) and (g) because they plead a defence in respect of the Second Guarantee which is not relied upon by the Plaintiff in its claim.

36. [98]

    That is an additional reason why these paragraphs should be struck out. As noted earlier in relation to the proposed Amended Cross-Claim (at [33] above), the Plaintiff makes no claim with respect to the Second Guarantee. There is nothing to defend in that regard. Paragraphs 49(e) to (g) are embarrassing and should be struck out.

37. [99]

    The Plaintiff says that paragraph 49 (k) to (m) should not be allowed because this matter has not hitherto been pleaded as a defence and no explanation has been provided why it is raised at this late stage.

38. [100]

    As noted earlier in relation to the proposed Amended Cross-Claim (at [34] above), the claim based on breaches of the Banking Code has not hitherto been raised. Once again, there is no explanation for this.

39. [101]

    What is pleaded is a claim for breach of contract on the basis that the Banking Code was said to form part of the agreement to sign the guarantees. It is said that by the Plaintiff’s breach of the guarantees and the Code the Fourth Defendant suffered loss and damage which should be set off against any liability she owes to the Plaintiff. The loss and damage is said to be equal to any liability she has under the guarantees.

40. [102]

    As pleaded, this is not a defence to the claim. It is a claim for damages which can form part of any cross-claim that is allowed to be brought but should not form part of the defence. However, for reasons which will be discussed, the claim is not maintainable at the present time in the cross-claim.

41. [103]

    These paragraphs in the defence should be struck out.

42. [104]

    The Plaintiff submitted that the pleading in this paragraph was embarrassing in that it failed to identify the funds referred to, failed to identify the basis for asserting that the Fourth Defendant’s liability would have been discharged and failed to specify the particulars said to have been already provided.

43. [105]

    Campbell J was asked to deal with a summary judgment application for possession of the properties. His Honour refused summary judgment in relation to the Vincentia property and then gave leave to re-plead the Defence with certain restrictions. One of the restrictions was that the defence about the surplus funds did not disentitle the Bank to possession of the Vincentia property. However, as I have noted, since that judgment the Plaintiff has amended to make a claim for debt. The claim that the Bank received funds, from the sale of a property or otherwise, but did not properly apply those funds with the result that the debt claimed exceeds that which is due, must be a defence that a person is entitled to plead. Campbell J did not purport to suggest otherwise.

44. [106]

    The Plaintiff says that any funds not applied were the funds frozen by order of Pembroke J in the other proceedings. That, however, is a matter of fact which will need to be ventilated at a final hearing. In any event, there is minimal evidence before me about the freezing order. The matter cannot be determined on any summary interlocutory basis.

45. [107]

    The difficulty is that in the pleading in paragraph 48 of the Defence there is no identification of the funds the Bank is supposed to have received nor any pleading relating to its obligation to use those funds to discharge or reduce the liability of the Fourth Defendant. The paragraph purports to overcome this by saying that particulars have been provided to the Plaintiff.

46. [108]

    I do not consider that to be adequate pleading having particular regard to the history of this matter. The Defence is filed in relation to an amended Statement of Claim that makes a new claim, namely, a claim for debt in addition to possession of the Vincentia property. Further, particulars cannot take the place of a pleading per se, nor can particulars cure a bad pleading: Dymocks Book Arcade Pty Ltd v Capral Ltd (formerly Alcan Australia Ltd) [2011] NSWSC 1423 at [27]-[30], approved by the Court of Appeal in Hannaford at [36].

47. [109]

    The Defence in relation to the use of funds should be properly pleaded and particularised. Paragraph 48 will be struck out with leave to the Fourth Defendant to re-plead that Defence.

48. [110]

    The Plaintiff seeks that paragraph 37 of the Defence be struck out. This paragraph does not admit the pleading in paragraph 75 of the Second Further Amended Statement of Claim. The pleading in the Defence is consistent with earlier non-admissions to the claim in earlier iterations of paragraph 75.

49. [111]

    The Plaintiff says that the matter in paragraph 75 concerns the claim to possession of the Drummoyne property which has already been the subject of a summary judgment for possession. If that is so, paragraph 75 is irrelevant and ought no longer to be pleaded. If it is pleaded for some other purpose the pleading in paragraph 37 of the Defence must be allowed to remain.

Conclusions on the Defence to the Second Further Amended Statement of Claim

1. [112]

   Since leave is not given to the Fourth Defendant to withdraw admissions, paragraphs 2,3,4,5,9A, 9B and 17 of the Defence to the Second Further Amended Statement of Claim will be struck out to the extent that the pleading in each paragraph extends beyond an admission of the paragraph in the Second Further Amended Statement of Claim to which each responds

2. [113]

   Paragraphs 24 to 34 of the Defence will be struck out.

3. [114]

   Paragraphs 48 and 49 of the Defence will be struck out but leave will be given to the Fourth Defendant to re-plead the matters contained in paragraph 48.

4. [115]

   If paragraph 75 of the Second Further Amended Statement of Claim is withdrawn, paragraph 37 of the Defence should be struck out.

Fourth Defendant’s Motion to amend the Cross-Claim

1. [116]

   A number of the determinations I have made already with regard to the Fourth Defendant’s Defence will have similar consequences for the pleading of the proposed Amended Cross-Claim.

2. [117]

   For the reasons given in paragraphs [65] to [89] above the Fourth Defendant is not entitled to make this claim in the present proceedings.

3. [118]

   For the reasons given at [98] above no claim in respect of the second guarantee should be brought.

4. [119]

   For the reasons given at [90]-[96] above these claims may not be brought.

5. [120]

   The Fourth Defendant claims damages for the breaches of the Code and then wishes to set-off those damages against what is claimed by the Plaintiff to be owing (see proposed cross-claim paragraph 20 at [32] above and Defence paragraph 49 (m) at [40] above). Clauses 14.7, 15.1 and 15.2 of the Guarantee preclude this course. For the reasons given at [77] to [83] above this claim is not currently available.

6. [121]

   There is, in any event, no explanation for this claim being brought at this late stage in the proceedings. The highest the matter was put appeared to be that the new lawyers acting for the Fourth Defendant took the view that such claim should be made notwithstanding the way the matter had hitherto been conducted.

7. [122]

   If I am wrong in my conclusion at [120] above, I would not otherwise have prevented the Fourth Defendant from bringing this claim. It does not seem to me that the Plaintiff will suffer any irreparable prejudice or any real prejudice if this claim is allowed to be brought. Indeed, the Plaintiff’s complaint concerning this claim, apart from general complaints about delay, is that the pleading in relation to the claim is defective. The Bank does not assert prejudice by the bringing of this claim.

8. [123]

   However, I accept the Bank’s submissions that the claim is inadequately pleaded. Particulars (i) and (ii) under paragraph 19 assume defaults on the part of Jedda and Koombari. Were the claim to be maintained, the precise identification of defaults should be pleaded as material facts because they are the specific breaches alleged.

9. [124]

   Further, paragraph 19(e) is embarrassing. It asserts that “it was clear on the facts known to the cross-defendant, or in circumstances where it ought to have known, that the cross-claimant would not receive any benefit under the guarantees”. The facts known are not pleaded, nor are the circumstances that justify the assertion that the Bank ought to have known the matter set out.

10. [125]

    At a time when this claim is able to be maintained, the Fourth Defendant would need to re-plead the claim in accordance with these reasons.

Conclusions on proposed Amended Second Cross-Claim

1. [126]

   None of the claims sought to be made in the proposed Second Cross-Claim may be brought in the present proceedings.

Plaintiff’s Amended Motion to strike out portions of the Second Cross-Claim filed 7 May 2014

1. [127]

   The Plaintiff seeks, presumably on the assumption that it successfully resists the filing of the proposed amended Second Cross-Claim, to strike out those paragraphs of the existing Second Cross-Claim that deal with sale at a gross undervalue.

2. [128]

   The reasons I have given in relation to this claim apply equally to the claim as made in the existing Second Cross-Claim. Principally, the Fourth Defendant is precluded as a matter of law in bringing or maintaining this claim until her whole indebtedness is paid to the Plaintiff. Thereafter, for the reasons given at [84] to [88] the claim is disallowed as a matter of discretion.

Conclusion

1. [129]

   I make the following orders:

   1. (1)

      With regard to the Defence to the Second Further Amended Statement of Claim:

   2. (2)

      Dismiss the Fourth Defendant’s Notice of Motion as amended filed 3 November 2014;

   3. (3)

      Paragraphs 31, 32, 33 and 34 of the Second Cross-Claim filed 7 May 2014 are struck out;

   4. (4)

      The Fourth Defendant is to pay the Plaintiff’s costs of the Plaintiff’s Notice of Motion filed 14 November 2014;

   5. (5)

      The Fourth Defendant is to pay the Plaintiff’s costs of the Fourth Defendant’s Notice of Motion filed 3 November 2014.