New South Wales Supreme Court CITATION : ABA-SOLD v COMMONWEALTH BANK [1999] NSWSC 467 CURRENT JURISDICTION : COMMON LAW FILE NUMBER(S) : 12355/1990; 21484/1996 HEARING DATE(S) : 10 May 1999 JUDGMENT DATE : 20 May 1999 PARTIES : ABA-SOLD PTY LTD ACN 002 437 498 v COMMONWEALTH BANK OF AUTRALIA ACN 123 123 124 JUDGMENT OF : Master Malpass COUNSEL : PLAINTIFF: MR R J BURBIDGE QC/MR D R STACK DEFENDANT: MR A G BELL SOLICITORS : PLAINTIFF: STACKS - THE LAW FIRM DEFENDANT: L E TAYLOR CATCHWORDS : Setting aside default judgment; discretion; bona fide defence on the merits; each case will turn on its own particular circumstances. Income Tax Assessment Act 1936 s 261. ACTS CITED : Limitation Act 1969. Supreme Court Act 1970 s 81. CASES CITED : David Securities Pty Limited & Ors v Commonwealth Bank of Australia 175 CLR 353. DECISION : SEE PARAGRAPH 25 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER MALPASS THURSDAY 20 MAY 1999 12355/1990 ABA-SOLD PTY LTD ACN 002 437 498 v COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 21484/1996 ABA-SOLD PTY LTD ACN 002 437 498 v COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 JUDGMENT 1 The plaintiff has instituted two proceedings against the defendant. The first was commenced by the filing of a Statement of Claim on 24 May 1990. The second was commenced by a Statement of Claim filed on 25 November 1996. The relief sought in the process has been said to overlap. 2 In each proceeding, the plaintiff has filed an Amended Statement of Claim. As process had not been served, the pleadings were amended without consent or leave. 3 The original 1990 process propounded a claim for damages founded on breach of duty. The amended process added new allegations. Relief was sought in respect of moneys allegedly paid under the mistaken belief that the defendant was entitled to the payments as a matter of law and it was alleged that the Bank acted unconscionably and was unjustly enriched. There is a claim for damages and interest. There is also a claim made in respect of the sum of $492,504-82. 4 The 1996 process also sought the recovery of the sum of $492,504-82. The amended process restricted the claim to that part of the sum of $492,504-82 as was paid by the plaintiff to the defendant on or after 25 November 1990. The Court has been told that this amendment was made to circumvent any potential limitation period problem. 5 The amended process in both proceedings was filed in November 1998. There was purported service of the amended process in November 1998 (by letter to the defendant). The process in the 1990 proceedings was then stale (the purported service took place many years after the then two year period for validity of service had expired). It appears that an ex parte application was made to a Duty Registrar in Chambers on 31 December 1998. He made an order to the effect that the purported service of the process in the 1990 proceedings was confirmed and approved. 6 As at 4 January 1999, the defendant had not filed a Notice of Appearance or a Defence in either proceedings. On 4 January 1999, the plaintiff obtained the entry of Default Judgment in both proceedings. In each case, the judgment is to the effect that the defendant is liable to the plaintiff for damages and costs and an order was made that the damages be assessed. The defendant became aware of the Default Judgments on or about 12 January 1999. The plaintiff refused to consent to the setting aside of the judgments. 7 Later in January 1999, the defendant made application to the Court to have inter alia both Default Judgments set aside. The two Notices of Motion came on for hearing on 10 May 1999. The application was supported by two affidavits from Mr Stone (a bank officer) and two affidavits from Mr Lanser (a solicitor). The defendant also tendered documentation. The plaintiff did not adduce any evidence. 8 The proceedings arise out of certain foreign currency arrangements made in the early 1980's. The decline in the value of the Australian dollar as against the Swiss franc saw the plaintiff in default of its obligations thereunder by 1991. 9 For present purposes it is common ground that the arrangements contained a provision which is referred to as clause 8 (see Exhibit RCS1). It is common ground that interest payable to the defendant under the arrangements was liable to withholding tax. It is also common ground that the plaintiff had an obligation to pay this tax, that it paid it to the defendant and the defendant remitted it to the Deputy Commission of Taxation. Clause 8 (b) has been referred to as a "grossing-up" provision. It is a provision intended to ensure that the defendant received its full contractual entitlement to interest. 10 It is common ground that clause 8 is identical to the provision which came under consideration in David Securities Pty Limited & Ors v Commonwealth Bank of Australia 175 CLR 353 and is void by virtue of s 261 of the Income Tax Assessment Act 1936. 11 The question had been earlier dealt with by the Full Federal Court. The decision of that Court had been delivered on 10 May 1990. This Court had held that the provision was void. The decision was in accord with then existing authority (to the effect that payments made under the void provisions were not recoverable because they were made under mistake as to law). Following that decision, there was an exchange of correspondence between the parties (see annexures B and C to the affidavit sworn by Mr Stone on 5 May 1999). Annexure "B" is a letter dated 4 July 1990 from Stacks (the solicitor for the plaintiffs) to the defendant (which refers to a court decision to the effect that banks are not entitled to charge withholding tax in relation to foreign exchange loans). The decision of the High Court was delivered in October 1992. In that decision, the High Court held that a rule precluding recovery of moneys paid under a mistake of law does not form part of the law in Australia. On 19 February 1993, the parties made a Loan Facility Deed (Exhibit RCS 3). This Deed effected a settlement of aspects of the disputes between the parties (see clause 19). There was a "side-letter" to that Deed (see Annexure D to the affidavit sworn by Mr Stone on 5 May 1999). It purported to reserve the plaintiff's rights to institute proceedings in relation to past payments of withholding tax. 12 The Court has a discretionary power to set aside a Default Judgment. The power is exercised having regard to the relevant circumstances of the particular case before it and so that justice is best served between the parties. The applicant bears the onus of demonstrating an entitlement to relief. 13 The applications have been vigorously opposed by the plaintiff. The plaintiff contends that the defendant has failed to demonstrate that it has a bona fide defence on the merits to either of the proceedings. 14 The defendant has prepared a draft Defence to the 1996 proceedings. A copy of that Defence has been admitted as Exhibit 4. If the judgments are set aside, it is contemplated that a Defence along similar lines would be relied on in the 1990 proceedings. 15 Broadly speaking, the plaintiff says that either the proposed Defences are not available to the defendant or there is a lack of evidence to show that they are arguable. It further says that the only evidence placed before the Court is in the 1996 proceedings. 16 Before turning to the proposed Defences, it is necessary to first look at the plaintiff's own process and the judgments that have been obtained. A glance at these matters reveals a somewhat unhappy state of affairs. 17 As previously mentioned, the 1990 process propounds inter alia a claim for damages founded on breach of duty. At the time of the purported service of the amended process, the solicitor for the plaintiff advised that the plaintiff would not be pressing this claim (it is conceded that clause 19 of the Loan Facility Deed is a good defence to it). Despite this, Default Judgment was then obtained for the whole of the claim for damages to be assessed. Arguably, damages are not the appropriate remedy for that part of the claim which is pressed. This part of the claim is said to be for the recovery of the moneys paid pursuant to the "grossing-up" provision. The Court has been informed that the plaintiff does not seek to recover the amounts remitted to the Deputy Commission of Taxation for withholding tax. However, there is issue as to what is actually sought to be recovered by the pleading itself. It may be read as seeking the recovery of the payments for withholding tax. There is material (including an affidavit sworn by Mr Stack) which suggests that this was the purport of the claim. The sum claimed ($492,504.82) is the figure attributed to the amount paid for withholding tax. It is said that the claim for the recovery of the "grossing-up" payments is slightly larger in fact but that the plaintiff is prepared to waive that excess. If it can be read as a claim for the "grossing-up" payment, the pleading may be described as ambiguous and embarrassing. It may require amendment to found a judgment for the recovery of moneys paid under the "grossing-up" provision. This claim is said to be relevant for the period from 25 May 1984 to 24 May 1990. It is conceded that there may well be several small payments that were made prior to 25 May 1984 and that these would now be statute barred. 18 The position with the 1996 proceedings is beset with some similar problems. It is also said to seek recovery of payments made under the "grossing-up" provision (being those relevant to the period 19 November 1990 to 18 November 1996). This claim is pleaded in terms similar to the like claim made in the 1990 process. The relief sought does not include a claim for damages. Despite this, the Default Judgment is for damages to be assessed. 19 The plaintiff sat on the process in both proceedings for lengthy periods. In the case of the 1990 proceedings, it sat on the process for about 8 years. The purported service was irregular. There was an attempt to cure the lack of validity of service problem in the 1990 proceedings by obtaining ex parte relief from a Registrar in Chambers. The defendant seeks to have that decision reviewed. It may be that upon a review the decision could be disturbed. However, at this stage, it would seem to be a pointless exercise to undergo a review process. The purported service can be regarded as an irregularity under s 81 of the Supreme Court Act 1970. It may be that the defendant has now lost the entitlement to apply to the Court to have that service set aside. The Default Judgments were obtained a few days after the Registrar's decision. No notice of intention to move for Default Judgment was given to the defendant. The plaintiff could have expected that its substantial claims would have been the subject of purported defence by the defendant. Indeed, it seemed to be clear to Mr Stack that the claims "would obviously be vigorously defended by the defendant". Ultimately questions of default or delay were not agitated during the hearing of these applications. The defendant does advance material to explain default or delay. 20 The evidence reveals a defendant presently in a somewhat difficult situation. The arrangements between the parties involved a large number of roll-overs (these being occurrences at which withholding tax was paid). There seems to be about 221. There are files dating back to about 1982. The last roll-over was in about 1992 when the facilities were brought "on-shore". Relevant documentation is yet to be located (including some files and other records). Mr Poulter (who was the Chief General Manager (Corporate) in August 1990 has retired). Contact is yet to be made with a potential witness or source of instruction. 21 I now turn to the Defences which are sought to be agitated by the defendant. The defendant seeks to put in issue the allegation that payments were made under a mistaken belief. It says that payments were made voluntarily. There will be reliance placed on inter alia the letter dated 4 July 1990. It may well be of considerable significance. It is said that the plaintiff will have difficulty in demonstrating that there was a mistaken belief as to a legal obligation to make at least those payments effected thereafter. It is also said that in reliance upon receipt of the payments in good faith it changed its position to its detriment. These are Defences recognised by David Securities and are dependent on the evidence that can be relied on by the defendant. In addition to these matters, it looks to the Limitation Act 1969. 22 Senior counsel for the plaintiff has taken the Court to many of the passages in what was said in David Securities and has placed emphasis on the lack of evidence to support the proposed Defences. There is considerable force in those submissions. But there is material which throws up at the very least the real possibility that the defendant's contentions (or some of them) are meritorious. The strength of at least some of the proposed Defences may depend on the evidence that is ultimately available to the defendant. The present position remains somewhat unclear. I do not find it easy to evaluate. The defendant has not had the benefit enjoyed by the plaintiff of a lengthy period to consider its position. The defendant (with some justification) seems to have laboured under the belief that the claim was for the recovery of payment of withholding tax. The "side-letter" may now be seen as being of significance. At best the Limitation Act Defences may have minimal application. 23 The existence of a bona fide defence is usually a relevant consideration. However, each case is going to turn on its own particular circumstances. The extent to which such a consideration may need to be demonstrated will vary from case to case. There will be cases where relief is granted even though no such consideration is made out. 24 It seems to me that questions of liability in both of these cases should be allowed to go to trial. The relevant questions will be of complexity and the defendant should be given the opportunity to defend the substantial claims made by the plaintiff. I bear in mind the circumstances both preceding and attending the entry of the Default Judgments and the plaintiffs' own problems in relation to those judgments. In the relevant circumstances of each case, I am satisfied that justice would be best served between the parties if the Court set aside the Default Judgments. Accordingly, I am of the view that the relevant onus has been discharged. 25 In each proceedings, the Default Judgment is set aside. The plaintiff has not indicated any desire to amend its process. The defendant has indicated that it may wish to agitate the question of disallowance of the amendments made to the 1990 process. Any such application should be brought within 7 days. Otherwise, the Defences are to be filed within 14 days. The costs of the Applications are to be costs in the cause. The exhibits may be returned. ********** Last Modified: 05/21/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.