FEDERAL COURT OF AUSTRALIA Ottoway Engineering Pty Ltd v Westpac Banking Corporation (No 2) [2017] FCA 39 File number: SAD 90 of 2016 Judge: BESANKO J Date of judgment: 30 January 2017 Date of publication of reasons: 31 January 2017 Catchwords: PRACTICE AND PROCEDURE – application for joinder by a non-party to the proceeding – whether non-party's interest is directly affected by injunction – commercial as opposed to legal interest – whether rights of chargee directly affected by injunction PRACTICE AND PROCEDURE – application for dissolution of injunction – delay in making application seeking dissolution of an injunction – whether grounds for dissolution of injunction shown Legislation: Federal Court Rules 2011 (Cth) rr 1.32, 9.05 Cases cited: Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd and Others [2008] FCAFC 136; (2008) 249 ALR 458 Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 John Alexander's Clubs Pty Limited and Another v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 Kadam v MiiResorts Group 1 Pty Ltd [2016] FCA 1205 News Limited v Australian Rugby Football League Limited and Others (1996) 64 FCR 410 Ottoway Engineering Pty Ltd v Westpac Banking Corporation [2016] FCA 635 Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 Simic v New South Wales Land and Housing Corporation [2016] HCA 47 State of Victoria and Another v Sutton and Another (1998) 195 CLR 291 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 Wood Hall Limited v The Pipeline Authority and Another (1979) 141 CLR 443 Date of hearing: 19 January 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 24 Counsel for the Applicant: Mr N Floreani Solicitor for the Applicant: Mardi Conduit Counsel for the Respondent: Mr M Hoffman QC Solicitor for the Respondent: HWL Ebsworth Lawyers Counsel for the Prospective Respondents: Mr D Solomon Solicitor for the Prospective Respondents: Solomon Brothers ORDERS SAD 90 of 2016 BETWEEN: OTTOWAY ENGINEERING PTY LTD (ACN 125 531 428) Applicant AND: WESTPAC BANKING CORPORATION (ABN 33 007 457 141) Respondent JUDGE: BESANKO J DATE OF ORDER: 30 JANUARY 2017 THE COURT ORDERS THAT: 1. The interlocutory application issued by ECAP Finance Pty Ltd, Troy James Millen and Kelly Jean O'Brien ("the applicants for joinder") dated 19 December 2016 be dismissed. 2. The respective applications of the applicant and the respondent against the applicants for joinder for the costs of the application be adjourned to a date to be fixed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BESANKO J: Introduction 1 This is an application by a corporation and two individuals to be joined as respondents to a proceeding between Ottoway Engineering Pty Ltd ("Ottoway") and Westpac Banking Corporation ("Westpac"). The applicants for joinder are ECAP Finance Pty Ltd ("ECAP"), Troy James Millen and Kelly Jean O'Brien. Ms O'Brien is Mr Millen's partner. ECAP was formerly known as Bluenergy Capital Pty Ltd and Mr Millen is the sole director of the company and, according to the ASIC Current & Historical Extract put before the Court, owns all the shares in the company. Mr Millen is the sole director of, and owns all the shares in, another company called Evolve Industries Pty Ltd ("Evolve"), which was formerly known as Bluenergy Industries Pty Ltd. Ms O'Brien was the sole director of another company, Bluenergy CMC Pty Ltd ("Bluenergy CMC"), and the shares in that company were held by Evolve. Bluenergy CMC was put into liquidation upon Ottoway's petition on 13 April 2016 and receivers and managers were appointed to the company on 14 April 2016. In addition to their application for joinder, the applicants for joinder seek an order that an injunction granted by the Court on 30 March 2016 and extended on 2 June 2016 be dissolved. The Proceeding 2 The proceeding concerns a bank guarantee executed by the National Australia Bank Limited in which Westpac was named as the beneficiary and Ottoway was named as the customer ("the Guarantee"). 3 Briefly put, Ottoway's case is that the Guarantee is a performance guarantee of Ottoway's obligation to repay an advance payment made to it by Bluenergy CMC in connection with a construction contract between it and Bluenergy CMC which repayment has been made, or, if the Guarantee is what Ottoway described as an ordinary commercial guarantee, then it guarantees, and only guarantees, the repayment of the advance payment by Ottoway to Bluenergy CMC and that repayment has been made. Again, briefly put, Westpac's case is that the Guarantee is not a performance guarantee and that it secured and secures Bluenergy CMC's obligations to repay amounts to Westpac. 4 The final relief sought by Ottoway against Westpac is as follows (relevantly): 1. A declaration that: 1.1 in the event that the bank guarantee (No. 247057359) issued by the National Australia Bank Ltd (NAB) dated 12 June 2015 to the benefit of Westpac Banking Corporation (Westpac) (Bank Guarantee) is, properly construed, a performance bond by way of a bank guarantee, the Bank Guarantee: 1.1.1. was procured in circumstances of fraud by Bluenergy CMC Pty Ltd (BCMC); 1.1.2. it would be contrary to the agreement between BCMC and the Applicant for the provision of the Bank Guarantee for Westpac to call upon the Bank Guarantee; 1.1.3. it would be unconscionable and contrary to section 20 of the Australian Consumer Law for Westpac to call on the Bank Guarantee having regard to the circumstances in which it was procured; 1.1.4. the agreement to provide the Bank Guarantee was procured by misleading or deceptive conduct on the part of BCMC in contravention of section 18 of the Australian Consumer Law; and 1.1.5. the Bank Guarantee was given on the basis of an agreement which had been abandoned. 1.2 in the event that the Bank Guarantee is, properly construed, an ordinary commercial guarantee, the Bank Guarantee: 1.2.1. properly construed only affords a guarantee to the respondent in respect of a payment of the Bill Facility to the extent of the failure of the Applicant to repay BCMC the amount of the advance of $1,735,000.00; 1.2.2. alternatively, if properly construed the Bank Guarantee operates as an ordinary commercial guarantee guaranteeing repayment to the Respondent of any and all financial accommodation granted by it to BCMC then the guarantee should be set aside by reason of: 1.2.2.1. misleading or deceptive conduct contrary to section 18 of the Australian Consumer Law; or 1.2.2.2. unconscionable conduct contrary to section 20 of the Australian Consumer Law. 2. An order that the Respondent countermand or cause to be countermanded the written demand made on 29 March 2016 upon National Australia Bank Ltd for payment of the moneys secured by the Bank Guarantee. 3. A mandatory injunction be granted requiring Westpac to deliver to the NAB the original of the Bank Guarantee. 4. Further, or in the alternative, to the extent that Westpac has been paid out any funds in respect of the Bank Guarantee, an order that such funds be repaid by Westpac to NAB. 5. In the alternative to the relief sought at paragraphs 1 to 4 above, if recourse is had to the Bank Guarantee, an order for damages and/or equitable compensation against Westpac for misleading or deceptive conduct or unconscionable conduct contrary to section 18 and/or section 20 of the Australian Consumer Law and/or in equity in having recourse to the Bank Guarantee. … 5 Ottoway also sought interlocutory relief in its Originating Application restraining Westpac from executing on the Guarantee. I made the following interim order on 30 March 2016: 1. Upon Ottoway Engineering Pty Ltd ACN 125 531 428 providing the usual undertaking as to damages, Westpac Banking Corporation ABN 33 007 457 141 be restrained, and an interim injunction be granted pending determination of these proceedings at trial or until further order, restraining Westpac Banking Corporation ABN 33 007 457 141 (either by itself, its servants or its agents) from calling upon, and taking any further steps to demand or obtain payment in respect of the Bank Guarantee dated 12 June 2015, Guarantee No: 247057359, issued by National Australia Bank Limited (NAB) guaranteeing NAB's customer Ottoway Engineering Pty Ltd ACN 125 531 428. On 2 June 2016, I extended that order until trial or further order. 6 I delivered reasons for my decision to grant interlocutory relief: Ottoway Engineering Pty Ltd v Westpac Banking Corporation [2016] FCA 635. Those reasons outline the nature of the dispute between the applicant and the respondent and the reasons I granted the injunction. Those reasons should be read with these reasons. 7 It will be apparent that if Westpac is able to enforce the Guarantee, then that will reduce Bluenergy CMC's repayment obligations to Westpac. As I have said, Bluenergy CMC is in liquidation. It has not sought to be joined to this proceeding and neither of the existing parties to this proceeding has sought to join it. The Application for Joinder 8 The application for joinder is made under the Court's general power in the Federal Court Rules 2011 (Cth) to make any order that the Court considers appropriate in the interests of justice (r 1.32). The power to join a party under r 9.05 may be exercised only on the application of a party to the proceeding (see the discussion in Kadam v MiiResorts Group 1 Pty Ltd [2016] FCA 1205 at [12]-[19] per Edelman J). Ottoway, which otherwise opposed the application for joinder, did not do so on the ground that the Court lacked the power to join the applicants for joinder and it did not suggest that the criteria to be applied on the application should not be the same as the criteria identified in r 9.05. Under r 9.05, the Court may order the joinder of (relevantly) a person who ought to have been joined or a person whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined. 9 The application for joinder is supported by an affidavit of Mr Millen. Mr Millen's affidavit establishes (for the purpose of this application) the following: (1) Until it went into liquidation, Mr Millen was the client liaison and relationship manager of Bluenergy CMC and Ms O'Brien was a director of the company. (2) At the request of Bluenergy CMC, Westpac issued two unconditional bank guarantees in favour of Sino Iron, each for the amount of $1,134,900 ($2,269,800 in total) ("Performance Guarantees"). Bluenergy CMC obtained a bank facility from Westpac for the purpose of acquiring the Performance Guarantees in favour of Sino Iron ("Bank Facility"). The Bank Facility was secured by two term deposits with Westpac made by Bluenergy CMC each in the amount of $1,134,900 ($2,269,800 in total) and a general security agreement between Westpac and Bluenergy CMC over all of Bluenergy CMC's existing and future assets and undertakings. (3) Bluenergy CMC also had a facility with ECAP which was to be used to provide working capital and which was secured by a charge over Bluenergy CMC's assets ("Charge"). Mr Millen was not able to produce the Charge. (4) At the request of Westpac, and as further security for Bluenergy CMC's existing obligations under the Bank Facility, on or about 25 September 2014, Ms O'Brien and Mr Millen executed a joint and several personal guarantee and indemnity in favour of Westpac securing all monies owing by Bluenergy CMC up to $4,025,000. Mr Millen was not able to produce a copy of the Personal Guarantee. (5) On or about 31 July 2015, Sino Iron returned the first Performance Guarantee in the amount of $1,134,900 to Bluenergy CMC. (6) ECAP was responsible for the appointment of the receivers and managers to Bluenergy CMC on 14 April 2016. (7) On or about 18 August 2016, Westpac demanded repayment from Mr Millen and Ms O'Brien under the terms of the personal guarantee for the amount owing to Westpac under the Bank Facility, being an amount of $940,012.29. (8) Mr Millen believes there are two possible further sources of cash flow to Bluenergy CMC and he identifies them as follows (at paragraph 54 of his affidavit): 54.1 the return of the remaining Performance Guarantee held by Sino Iron, in the amount of $1,134,900, which would result in the money held by Westpac on term deposit that presently secures the outstanding Performance Guarantee being available to be applied by Westpac to reduce other secured indebtedness of Bluenergy; and 54.2 payment of retention monies of approximately $529,000.00 on other non-Sino Iron related projects. (9) The Performance Guarantee in favour of Sino Iron as security for the Defects Liability Period in the amount of $1,134,900 (i.e., the second performance guarantee) is due to be returned to Bluenergy CMC on or about late January 2017. (10) The interest in the proceeding which is claimed by the applicants for joinder is identified by them in the concluding paragraphs of Mr Millen's affidavit as follows: 66. But for the Injunction, upon return of the remaining Performance Guarantee by Sino Iron referred to in paragraph 54.1, which I understand is due and will occur in or about late January 2017, the $567,000.00 presently held by Westpac on term deposit as security for the Performance Guarantee would not be applied by Westpac against Bluenergy indebtedness, and would therefore become available to Ecap under the Charge and be paid to the receivers/managers of Bluenergy for the benefit of Ecap. 67. By reason of the foregoing:- 67.1 Ecap and Ms O'Brien and I have been, and continue to be, adversely and directly financially affected by the grant and ongoing effect of the Injunction; 67.2 Ecap and Kelly and I claim, by reason of that direct and adverse financial affect, that we should have been respondents to the Proceedings before the Injunction was granted, and claim to be entitled to now be joined as respondents and to have the Injunction immediately dissolved. 10 In oral submissions, the applicants for joinder focused on the rights of Mr Millen and Ms O'Brien as guarantors and indemnifiers of Bluenergy CMC's debts to Westpac under the personal guarantee, rather than the rights of ECAP as chargee. Nevertheless, I will also consider the rights of ECAP. 11 The applicants for joinder referred to the decision of the Full Court of this Court in News Limited v Australian Rugby Football League Limited and Others (1996) 64 FCR 410 ("News Limited"). The Full Court in that case referred to a passage from Lord Diplock delivering the opinion of the Privy Council in Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 ("Pegang Mining") (at [55]-[56]): 55. The cases illustrate the great variety of circumstances in which it may be sought to join an additional party to an existing action. In their Lordships' view one of the principal objects of the rule is to enable the court to prevent injustice being done to a person whose rights will be affected by its judgment by proceeding to adjudicate upon the matter in dispute in the action without his being given an opportunity of being heard. To achieve this object calls for a flexibility of approach which makes it undesirable in the present case, in which the facts are unique, to attempt to lay down any general proposition which could be applicable to all cases. 56. It has been sometimes said as in Moser v Marsden [1892] 1 Ch 487 and in Farbenindustrie AG Agreement [1944] Ch 41 that a party may be added if his legal interests will be affected by the judgment in the action but not if his commercial interests only would be affected. While their Lordships agree that the mere fact that a person is likely to be better off financially if a case is decided one way rather than another is not a sufficient ground to entitle him to be added as a party, they do not find the dichotomy between 'legal' and 'commercial' interests helpful. A better way of expressing the test is: will his rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action? 12 As I will explain, I think that this is a case where the applicants for joinder are unable to show anything more than that they are likely to be better off financially if the case is decided in favour of Westpac, and the application for joinder should be refused. 13 After setting out the passage from Pegang Mining, the Full Court said (at 525): In our opinion, the question should be decided according to the test proposed by Lord Diplock. The test involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to a greater or lesser extent. This is particularly so with remedies in the nature of an injunction: see Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 at 322 per Kirby P. The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non-parties can be characterised as only indirect or consequential. 14 If it be (as this passage suggests) a question of rights against, or liabilities to, any party in the proceeding, then I conclude that the liability of Mr Millen and Ms O'Brien to Westpac as guarantors is not likely to be directly affected by any order the Court may make and, as far as ECAP is concerned, it has no rights against, or liabilities to, either Westpac or Ottoway. 15 The High Court considered this Court's decision in News Limited in John Alexander's Clubs Pty Limited and Another v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 ("John Alexander"). The Court held that a party which held a mortgage over land was a necessary party to a claim by another party which claimed a constructive trust over the land. The Court said (at [132]-[133]): In News Ltd v Australian Rugby Football League Ltd the Full Federal Court (Lockhart, von Doussa and Sackville JJ) said: "Where the orders sought establish or recognise a proprietary or security interest in land, chattels or a monetary fund, all persons who have or claim an interest in the subject matter are necessary parties. This is because an order in favour of the claimant will, to a corresponding extent, be detrimental to all others who have or claim an interest." The relief claimed and granted – a constructive trust and a transfer of the land subject to the trust to the Club so as to make the interest transferred indefeasible on registration – directly affects the interests of any other person, like Walker Corporation, claiming an interest in the land, because orders in the Club's favour would, to a corresponding extent, be detrimental to those other persons. The Court of Appeal majority then said: "The appeal has only resolved the issues which arose between [the Club] and [JACS]." That would be true if only personal remedies had been granted; but the constructive trust, a proprietary remedy, was granted in a way which resolved issues against Walker Corporation through creating indefeasible proprietary rights without its being heard. In that case, the legal rights claimed by Walker Corporation as a mortgagee would be directly affected by the claim made by the Club if it was successful (see also State of Victoria and Another v Sutton and Another (1998) 195 CLR 291 at [76]-[81] per McHugh J). 16 Counsel for the applicants for joinder also referred to Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 where Buckley LJ (with whom Goff LJ and Sir David Cairns agreed) said (at 978): … Where an injunction has been granted in an action which affects someone who is not a party to the action, he can apply in the action for the discharge of that injunction without himself being made a party to the action (Bourbaud v. Bourbaud (1864) 12 W.R. 1024; Daniell's Chancery Practice, 8th ed. (1914), vol. II, p. 1343, footnote (i); Kerr on Injunctions, 6th ed. (1927), p. 662). Where the interest of the applicant is clear, he may make such application by motion in the action (Jones v. Roberts (1841) 12 Sim. 189) and in my opinion can equally well do so by summons. If it were necessary, it seems that probably there would be power under R.S.C., Ord. 15, r. 6(2)(b)(ii), to add the debenture holder as a party, but in the circumstances I do not consider that this is necessary. The question whether, as between the owners and the debenture holder, the injunction should be discharged can be adequately brought before the court by amendment of the summons so as to make the debenture holder an additional applicant. … I do not think that Buckley LJ is identifying a wider principle than that identified in News Limited and John Alexander, but if his Lordship is, I must follow the two Australian decisions. 17 Mr Millen and Ms O'Brien claim to be guarantors and indemnifiers of Bluenergy CMC's liabilities to Westpac. Their legal liability under the Guarantee will not be directly affected by the outcome of this proceeding. They might be better off financially if Westpac is successful, but that does not give them a sufficient interest for joinder purposes. As far as ECAP is concerned, it has no rights against, or liabilities to, either Westpac or Ottoway and it is not able to identify an existing fund that it has, or claims to have, an interest in. The most that it can say is that monies may come to it if the Guarantee is enforced. The Application to Dissolve the Injunction 18 In case I am wrong and the applicants for joinder have a right to be joined as parties, or at least a right to seek the dissolution of the injunction, I will consider whether the injunction should be dissolved. 19 The injunction has been in place since 30 March 2016 and the trial is listed for four days commencing on 14 March 2017. Mr Millen became aware of the injunction on 8 June 2016 and the interlocutory application seeking (relevantly) the dissolution of the injunction was not issued until 19 December 2016. In his affidavit, Mr Millen provides some explanation of the delay in making this application, but it is by no means a full and satisfactory explanation. 20 The applicants for joinder submitted that Ottoway did not have a prima facie case in relation to the Guarantee because the authorities make it clear that the enforcement of the Guarantee did not depend on proof of a breach of the underlying agreement. They referred to a long line of authority which established that proposition starting with Wood Hall Limited v The Pipeline Authority and Another (1979) 141 CLR 443 at 445 per Barwick CJ; at 451 per Gibbs J (with whom Mason J agreed); at 457-458 per Stephen J, and including Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd and Others [2008] FCAFC 136; (2008) 249 ALR 458 at [75]-[85]; Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [29] per Osborn and Ferguson JJA; at [138] per Kaye JA; Simic v New South Wales Land and Housing Corporation [2016] HCA 47 at [85]-[89]. 21 I was referred to a number of those authorities, or at least the principle which they identify, by counsel for Westpac on the hearing of the application for an interlocutory injunction. It seemed to me (and it still does), the issue in this case is a different one, or arguably a different one, and that is the nature of the obligations referred to in the Guarantee when there are two quite different agreements which might have given rise to the Guarantee. I referred to the two sets of obligations in my earlier reasons (at [37]). In this case, as I understand it, there is no dispute but that Westpac is seeking to enforce the Guarantee in relation to the obligations of Bluenergy CMC to it, whereas Ottoway claims that the Guarantee was given in relation to its obligations to Bluenergy CMC. Arguably, this is a different and prior issue from that which is the subject of the authorities I have identified in the previous paragraph. 22 Nothing was put to me that satisfies me that I should depart from my earlier reasons and I see no reason to dissolve the interlocutory injunction. Conclusion 23 The interlocutory application issued by the applicants for joinder must be dismissed. 24 I should refer to one matter which was raised by counsel for Westpac at the conclusion of the submissions. He referred to the fact that Ottoway's Amended Statement of Claim contains a plea that Bluenergy has engaged in a fraud on Ottoway (paragraph 37.3). Whether that circumstance would give Bluenergy CMC or some other person the right to be joined to the proceeding or to intervene in some way is not before me. That would be a different basis from that advanced on the present application. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 31 January 2017