Davidson v Suncorp Metway Ltd [2017] QCA 317

[2017] QCA 317 COURT OF APPEAL MORRISON JA Appeal No 13395 of 2017 SC No 12841 of 2017 WILLIAM ALEXANDER JAMES DAVIDSON First Applicant FAR NORTH QUEENSLAND CATTLE COMPANY PTY LIMITED Second Applicant ACN 131 125 838 v SUNCORP-METWAY INSURANCE LIMITED First Respondent ABN 66 010 831 722 HELEN NEWMAN & ANDREW PETER FIELDING AS CONTROLLERS OF FAR NORTH QUEENSLAND CATTLE COMPANY LIMITED Second Respondents ACN 131 125 838 BRISBANE WEDNESDAY, 20 DECEMBER 2017 JUDGMENT MORRISON JA: This is an application for relief pending an appeal brought against an order by Justice Jackson made on 14 December 2017. His Honour had before him an application by Mr Davidson and Far North Queensland Cattle Company Proprietary Limited for interlocutory relief pending a trial of issues raised in respect of the debt owed by each of them under primary securities and guarantees to Suncorp-Metway. -- 1 of 12 -- 2 His Honour was faced with the proposition that interlocutory relief should be granted, notwithstanding that the case as articulated had been brought on an originating application and there were no pleadings. His Honour did not see that as a reason not to entertain the application, though it seems tolerably clear, as will become evident from what I will say shortly, that it did not assist the case for the applicant. His Honour refused the relief, and the appeal that is sought to be brought challenges the exercise of that discretion on at least three bases. One is that his Honour gave undue weight to the delay which had occurred prior to bringing the application for relief. The second is that his Honour gave undue weight to the fact that nothing had been paid to the lender, Suncorp-Metway, for some considerable period of time. The third identified in the circumstances of the hearing before me and as a consequence of the applicant having, for the first time today, a copy of his Honour's reasons, is that his Honour arguably formulated an incorrect test in relation to whether there was a serious question to be tried, and the fourth area is that, arguably, his Honour did not deal with, or dealt inadequately with, one aspect at least of the case advanced below in terms of the ultimate relief sought below. To paraphrase that, his Honour seems, according to the submission made to me, to have focused on the relief in paragraph 1 of the originating application, and it is contended he did so to the extent of either ignoring or paying insufficient weight to subsequent paragraphs of the originating application where relief was sought going back in time to the securities taken for the loans made to Far North Queensland Cattle Company and touching on the debt that might be properly owed by that company and Mr Davidson, as opposed to the debt asserted by Suncorp-Metway. His Honour's reasons review something of the history of the case. It is convenient to refer to that in short terms, not only because his Honour has done it fairly comprehensively, but also because of the exigencies of time. This application has been brought in circumstances where settlement on contract in respect of some lots of land is due this afternoon at 2.30 and a further contract tomorrow. Yet a third is due to settle on 10 January. If injunctions are granted, they will affect all of those contracts, but the urgency is directed principally at the fact that settlements are due this afternoon. -- 2 of 12 -- 3 The background is that, in 2013, money was advanced under a number of bases to Mr Davidson and Far North Queensland Cattle Company. The total amount advanced was about $8 million, split under several facilities, the principal of which was $6 million, a term loan facility, a second term loan facility for 1.8 million, an overdraft facility for $800,000 and a business premium account overdrawn facility of 200,000. Securities were taken, including mortgages over various properties, as well as charges over the company and guarantees. The matter did not have a happy aftermath. Mr Davidson has alleged, as he did below, that the activities of one of the bank employees, a Mr Houlihan, was unconscionable. The essential circumstances of that, which are dealt with at greater length by his Honour below, are that Mr Houlihan represented at least two things, and maybe more, to Mr Davidson, it is said, by way of inducement to undertake the loans. The first is that he, Mr Houlihan, could buy cheap cattle for Mr Davidson to restock his properties, at a dollar per kilo, and the second is that it was suggested to Mr Davidson by Mr Houlihan that Mr Davidson would be able to sell the cattle as part of his normal business of fattening cattle and sales. The complaint made about that is twofold. First, cattle were purchased by Mr Houlihan, as Mr Davidson says, without his authority; that is to say, transactions were made on the overdraft facility to purchase cattle without consultation with Mr Davidson. In some cases, cattle were purchased at prices that did not reflect one dollar per kilo - in other words, more was paid than the weight of the beast called for under the representation. The difficulty that posed was manyfold, but the essential point was that the cattle might have required a longer time to fatten for sale to generate the normal sort of profits that Mr Davidson would have expected under his business. The second was that some of the vendors of cattle were not paid by Mr Houlihan and some of the money went to Mr Houlihan's own companies. All of that is said to constitute misconduct of one sort or another, affecting, it is contended, ultimately, the relationship between the parties, including the enforceability of the mortgages by way of power of sale and the debt which is truly owing. Mr Davidson contends that the conduct of Mr Houlihan effectively placed him under a position where his working capital was gone in short order, at least by the end of 2013. -- 3 of 12 -- 4 He was left then with cattle that were hard to sell, even if he could, subject to the question of consent, and in those circumstances, he was unable to repay the bank anything when he normally would have done so. That is a short and somewhat inadequate description of what is more generally set out in the reasons below. In 2014, the parties negotiated with one another in circumstances where Mr Davidson, through his solicitors, had raised the allegations about Mr Houlihan's conduct. There were other matters raised as well. By that time, Mr Davidson was in a position where he was not able to pay, and there was a threat, at least, to put receivers in. The parties negotiated over a period of time, ending up with a settlement deed, which included a release given by Mr Davidson and Far North Queensland Cattle Company in respect of all matters concerning the relationship between the parties. As I have mentioned, that settlement was negotiated by Mr Davidson's solicitors, and as the exhibits principally KJA5 through to KJA13 to the affidavit of Ms Arden filed on 13 December 2017 reveal, the negotiations were in detail and on instructions from Mr Davidson. Notwithstanding that settlement, the matter did not progress happily. The settlement resulted in a deed which varied the underlying agreements between Suncorp and Mr Davidson and Far North Queensland Cattle Company. In short, various clauses were varied, the debt recalculated and time was given in order to repay. That time was at least January 2015 or perhaps later. Notwithstanding this change to the relationship, Mr Davidson was unable to pay anything further. The matters raised between the parties then surfaced again in 2015, when a heads of agreement was reached between Suncorp-Metway on the one hand and Mr Davidson and his company on the other. That heads of agreement also contained a release in respect of all matters concerning the grant of the loans and the giving of the securities. Mr Davidson's case below and again here before me was that both of those documents, the deed of settlement and the heads of agreement, were signed under circumstances of economic duress and therefore tainted, and they could be set aside, thus enabling a recalibration of the relationship between the lender and the borrower dating right back to when the loans were first made. It is that that his Honour was dealing with on the application for interlocutory relief. -- 4 of 12 -- 5 His Honour observed that the allegations about Mr Houlihan, made again in the proceedings before him and again today before me, were not new and had been the subject of the dispute in 2014 which resulted in the deed of settlement. Mr Whitton, appearing for the applicants today and below, accepted that the gateway, as he termed it, to relief, was attacking the deed of settlement in 2014. His case goes further than that, but if it does not get further than that, he frankly accepts that the material does not show a serious question to be tried in terms of setting aside the underlying securities. That is subject to the argument that Houlihan's conduct was such that there was a case that, under the Commonwealth legislation, the relevant securities and instruments might be varied so that the borrowers would end up not being in default at the time of the service of the notices of exercise of power of sale. His Honour reviewed the nature of the case brought, and in my view, it is plain that he was doing so within the prism of whether a prima facie case had been raised or a serious question to be tried. His Honour used those express terms. His Honour looked at the allegations by Mr Davidson, particularly in relation to the deed of settlement, and observed that some of the evidence of Mr Davidson was difficult to accept. The plain purpose of the deed of settlement was to give Mr Davidson and his wife and also the company, Far North Queensland Cattle Company, a period by way of moratorium in order to refinance or sell the properties, and neither occurred. His Honour observed that Mr Davidson “doesn't deal with his awareness of the substance of the terms of the deed of settlement in his affidavit”. Mr Whitton attacked that finding on the basis that Mr Davidson does depose to the fact that he did not read the deed of settlement because his solicitors told him that if he didn't sign it, very shortly thereafter, receivers would be put in. In my view, his Honour's observation was wider than that. In light of the dealings between the solicitors over a period of 6 May through to 27 May 2014 and the content of the letters between them which expressly refer to matters of great detail and the obtaining of instructions, his Honour was plainly referring to the fact that Mr Davidson did not respond to the substance of those letters beyond his assertion that he didn't read the deed. His Honour's reference was to Mr Davidson not dealing with his awareness of the substance of the terms. That awareness would clearly have been gained from the toing and froing between he and his solicitors, giving instructions for the deed of settlement. -- 5 of 12 -- 6 His Honour then went on to refer to the claim that all of the documents, including the securities, were unenforceable. That turned on the conduct of Mr Houlihan, which was described below and before me as misconduct affecting the ability of the lender, Suncorp-Metway, to exercise any relief under its securities. The difficulty confronting that, as his Honour recognised, was the release in 28 May 2014 in the deed of settlement and the heads of agreement as well. One of the complaints made by Mr Davidson was that Mr Houlihan suggested to him that he would be able to sell his cattle, when, in fact, when the documents were signed, there was a requirement to obtain consent. The evidence in respect of that is quite limited. Mr Davidson does depose that, at one point in 2014, which, in context, was prior to the deed of settlement, he requested authorisation from Suncorp-Metway “regarding authority to sell, but no such authority was received”. There is nothing deposed to by him of any requests subsequently for consent to sell cattle. That, in my view, puts a complexion upon that aspect of the complaints and the case grounding the claim to relief which causes one to doubt its efficacy or its potential success. However, there is no need for me to pass a final judgment on that in terms of the facts, and neither was it the case for his Honour, and he did not do so. That could not be done on an interlocutory application, except in the most extreme circumstances, and that was not this case. His Honour continued with what he referred to as the applicant's case theory, that the dire financial situation in which Mr Davidson and his company were placed were caused by Suncorp-Metway's misconduct through Mr Houlihan. He reviewed the evidence from Mr Davidson about his financial position, his inability to pay ordinary household expenses or source funds from friends and family and the deterioration of his health. Those circumstances, together with what Mr Davidson said was his absence of choice about signing the settlement deed, form the basis of the economic duress. His Honour the argument advanced that anterior conduct could constitute a basis for relief under the common law for duress, dealing with comments made by Kiefel J in Westpac Banking Corporation v Cockerill (1998) 152 ALR 267. It is unnecessary for me to dwell further on that. His Honour said: -- 6 of 12 -- 7 “Nevertheless, I proceed on the footing that it may be arguable in law that antecedent conduct could constitute the basis for relief for common law duress.” In my view, that comment indicates simply that his Honour was accepting, in the sense of a serious question to be tried, that there was an arguable case, at least on the legal principle. His Honour then turned to the question of what would happen if the securities or the documents were set aside and the securities were varied. As I understand what his Honour said, it was accepted that on no basis could it be varied or could those documents be varied to reduce the debt below what was advanced, namely, $8.8 million. That seems to be right, and that affects the question of serious question to be tried or prima facie case. If the product of the relief granted, at its very best, would leave Mr Davidson and his company in a position of needing to repay $8.8 million, the question to be asked is: could that be done? His Honour was perplexed by that, evidently, from what he said, and absent the equity in the property, that is, the properties the subject of at least the contracts, there is no prospect of anything being paid by Mr Davidson or Far North Queensland Cattle Company. I will return to this subject shortly. His Honour acknowledged the dual basis of the relief sought, affecting paragraph 1 of the originating application, but also the prospect of varying the securities and instruments in such a way that it would produce the effect that Mr Davidson and Far North Queensland Cattle Company would no longer be in default, and certainly not subject to the notices of exercise of power of sale. His Honour referred to the second aspect, that is, the variation argument, in this way: “The detail of how that might be arrived at was understandably not articulated because, as yet, that case has not been formulated with any precision.” In my view, his Honour was right to characterise it that way, given that this is not a case where there are any pleadings that articulate in an appropriate way the precise nature of the case and allow it to be answered. The matter has proceeded only on affidavit so far. His Honour then turned to the balance of convenience, but before I deal with that, I will mention one other comment his Honour made when he gave his final ruling refusing relief. His Honour said: “In my view, taking into account both the degree of the likelihood of success in obtaining relief, which would see successful challenge to the -- 7 of 12 -- 8 right of the bank to exercise its powers of sale, and the balance of convenience, if an injunction were granted, the correct conclusion is that the application should be refused.” The reference to the degree of likelihood of success, in the context of his Honour had discussed prior to turning to the balance of convenience, satisfy me that, fairly plainly, his Honour was applying the test of serious question to be tried and concluded that it was arguable that there was a serious question to be tried, though its prospects might not be particularly attractive. When his Honour turned to the balance of convenience, there were a number of factors which he took into account. The fact is that the contracts of sale had been executed by the controllers of the company, and they are due to settle imminently. His Honour referred to that and to the delay which had occurred in the circumstances. By that, his Honour referred to the delay in two ways, first from the time when the notice of exercise of power of sale was given in May 2017. His Honour was right to refer to that, because from that moment, Mr Davidson and Far North Queensland Cattle Company must have known and could not have failed to appreciate that, at any time thereafter, a contract for the sale of one of the properties might be achieved. Yet no application was brought to restrain any exercise of that power until only a few days ago, on 14 December. That was in the circumstances where, for the first time on 13 December, the applicants became aware of the settlement dates of various contracts that had been executed. However, the material shows quite plainly that, from at least October 2017, and maybe earlier, they were aware that there was a marketing campaign under way and that auctions were proposed, yet nothing was done to approach the court for this sort of relief. The second aspect of delay relates to a longer period, namely, from the beginning of 2015. The relevance of that is that the deed of settlement gave Mr Davidson to about the start of 2015 in order to refinance or sell properties. In fact, there was no refinance, nor were any properties sold, and it does not appear, at least on the limited material I have seen, that there was any attempt to sell the properties. Further, and more importantly from his Honour's point of view, there was no payment made to the lender since the beginning of 2015. That, combined with the delay, were serious factors in his Honour's consideration on the balance of convenience. -- 8 of 12 -- 9 It was argued below and here that that delay should be seen in a mitigated way because of the restricted financial position of Mr Davidson and Far North Queensland Cattle Company, stemming from Mr Houlihan's misconduct. It was said that the misconduct in the first place, the use of the overdraft to buy inappropriate cattle and, in effect, the misappropriation of funds was what started a tsunami of financial impact that inures to this day. His Honour had doubts about that, which he indicated in his reasons, saying that there was indications in the evidence to the contrary of the restriction on the ability of Mr Davidson to carry out his business. That included a loan of about 230,000 or 250,000 – I will correct that on the final draft - made relatively recently, and in respect of which a second mortgage was granted. His Honour referred also to evidence read before him that there had been some agistment agreements under which payments had been claimed or made and some income received over the last year or so. His Honour observed in respect of that: “It seems to me that, by commencing the current proceeding as late as they have and by seeking an interlocutory injunction in the circumstances of urgency as they have, the applicants have delayed until the bank and the second respondents have been able to achieve contracts of sale which, after years of no payment at all, would potentially realise some of the secured property in order to reduce the amount that is payable by way of debt.” The applicants before me and below proposed that the protection for the lender was that there was sufficient value in the properties to far exceed the debt, which currently stands at approximately $12.5 million. The only evidence of that was a letter, or at least a document, produced by a real estate agent by the name of Micola. That was given in March 2017 and simply provided an estimate, in respect of each property, of what Mr Micola thought its value might be. Mr Micola is not a registered valuer, nor did he give any evidence, beyond the statement that he was a real estate agent, that he had any relevant expertise to express that opinion. An objection to his evidence in that respect was taken both below and before me. His Honour acknowledged the weight of those objections, but admitted the letter for what it was worth. The evident worth of it was fairly eloquently described by his Honour as “not of any significant quality”. I respectfully agree. It is an inadequate basis for the court to proceed on the proposition advanced, namely, that there was sufficient value in the properties to more than exceed the debt owed. -- 9 of 12 -- 10 It was accepted by Mr Whitton, very frankly, that apart from the equity in the properties, his clients were not in a position to offer anything of worth to an undertaking for damages. That is a significant consideration, as it was below. Further, it is apparent from the way in which the case has been conducted that even if conditions were imposed on interlocutory relief by way of the necessity to pay, for instance, the interest and/or the outstanding rates on all the properties, the amount for the rates themselves being in excess of $260,000, the applicants are not in a position to do so. In my view, the undertaking therefore must be viewed as one that does not have any substance. The position for the applicants is somewhat more difficult at this point than it was below. There, simply interlocutory relief was being sought by a judge at first instance, and on the basis that it was pending trial. Having failed in that application, and now seeking that relief pending an appeal against the decision below, the situation is even harder for the applicants, in my view. Firstly, they would have to demonstrate that, somehow, the exercise of the discretion miscarried, and not simply that another court or another judge might have made a different decision. One would have to get to the position of saying that his Honour was guilty of errors of the kind in House v The King (1936) 55 CLR 499, or in some other way in respect of the law, or a misapprehension of the evidence, to have any real chance of success. In my view, the prospects of appeal are not particularly attractive. It is fairly plain that his Honour applied a very orthodox approach to the application, both in terms of looking at the question of a serious question to be tried and the balance of convenience. The serious question to be tried was accepted by his Honour, it seems to me, though his Honour took a view that it was not a particularly attractive serious question to be tried in the sense of its ultimate strength, though his Honour made no finding about that, and nor do I. It's the balance of convenience which led his Honour ultimately to refuse the interlocutory relief, and that is the case before me. I do not see a particularly strong case that there was a misexercise of the discretion reposed in his Honour on this particular form of relief, namely, interlocutory relief affecting the exercise of a secured creditor's rights under its registered security. The balance of convenience, in my -- 10 of 12 -- 11 view, does not favour the grant of any relief, notwithstanding the fact that Mr Whitton, for the applicants, has been under the difficulty of truly assessing the nature of the appeal. That is a product of the exigencies in which this application was brought in the first place, so late in the day that time frames have been compressed for all parties and the court. The second aspect that I mentioned is that it is evident from the contracts that third-party interests have intervened, namely, the purchasers at least, but one would imagine that the second mortgagee might have an interest in what happens next. The third aspect that I mention is that, in order to be efficacious, the appeal that is proposed from his Honour’s order on 14 December would have to be not only heard but resolved within three months. I mention that because it seems to be accepted, and was said by Ms Arden in a new affidavit filed today, that the mortgagee had the power to extend the settlement date under the contracts for a period of not more than three months, if the mortgagee was unable to complete for any reason other than wilful default of the buyer. That suggests, unless there is a variation of the contracts - and that is possible but unknown – that, by the time of three months from today, namely, 20 March 2018, this appeal would have to be prepared, on and a decision announced. There is some reason to doubt that that is achievable, though it is not impossible. Were it not for the compelling circumstances on the balance of convenience otherwise, and particularly the inability to provide anything of comfort to the lender in circumstances where what is sought to be restrained is the exercise of a secured registered mortgage, the prospects of getting the appeal on and the impact of that factor can be discounted somewhat. The fact is that contracts will settle this afternoon, or a contract will settle this afternoon; one is proposed for tomorrow and then a third on 10 January. The inability to restrain that stems, as I have said, from the quality of the case that is mounted, the manifest circumstances on the balance of convenience, and particularly the delay and the inability to provide anything to repay or soften the amount owed to the lender. That dictates why this relief should be refused. Therefore, I dismiss the application. Is there anything to be said about costs? -- 11 of 12 -- 12 MR ANANIAN-COOPER: Your Honour, we'd seek indemnity costs, but on the basis that, under the mortgage, there's the ordinary contractual indemnity for legal costs in connection with the enforcement of security. MORRISON JA: Mr Whitton, anything to say about that? MR WHITTON: No, your Honour. Thank you. MORRISON JA: All right. The applicants - I should call them the appellants - the appellants are to pay the respondent's costs of and incidental to the application to be assessed on the indemnity basis. Is there anything further? MR WHITTON: Thank you, your Honour. MORRISON JA: Adjourn the court. -- 12 of 12 --