Supreme Court New South Wales Medium Neutral Citation: ANZ Banking Group Ltd v Suja Pty Ltd & Ors [2011] NSWSC 1079 Hearing dates: 12/04/2011; 20/05/2011; 28/06/2011; 07/07/2011 Decision date: 15 September 2011 Jurisdiction: Common Law Before: Fullerton J Decision: 1. Cross claim dismissed. 2. First cross claimant to pay the costs of the cross defendant on an indemnity basis. Catchwords: POSSESSION - order for possession of property - default of business and home loans - cross claim seeking declaration that company had not exceeded overdraft limit and was not otherwise in breach of its terms - whether bank's payment of money from overdraft facility was unauthorised Legislation Cited: Civil Procedure Act 2005 Cases Cited: Christianos v Aloridge Pty Ltd (1995) 131 ALR 129 Ireland v Livingstone (1872) LR 5 HL 395 Kyabram Property Investments Pty Ltd v Murray [2005] NSWSC 1202; 13 BPR 24,293 Westpac Banking Corporation v Sansom (1994) 6 BPR 13,790 Category: Principal judgment Parties: Australia and New Zealand Banking Group Ltd (Plaintiff/1st Cross Defendant) Suja Pty Ltd (1st Defendant/1st Cross Claimant) Suzanne Harper (2nd Defendant/2nd Cross Claimant) Jason Mitchell Harper (3rd Defendant/3rd Cross Claimant) Representation: P Dowdy (Plaintiff/1st Cross Defendant) In person (2nd Defendant/2nd Cross Claimant) Gadens Lawyers (Plaintiff/1st Cross Defendant) In person (2nd Defendant/2nd Cross Claimant) File Number(s): 2009/296126 Judgment 1HER HONOUR : By statement of claim filed on 9 September 2009 the Australia and New Zealand Banking Group Ltd ("the Bank") brought proceedings for an order for possession of a property at Winston Hills of which the second and third defendants were the registered proprietors, and judgment in varying amounts in excess of $450,000 as a consequence of their default under the terms and conditions of a Business Loan and a Home Loan. 2Judgment was also sought against the second and third defendants for $222,887 as guarantors of an overdraft facility extended by the Bank to the first defendant ("the company") and utilised by it in the course of its business. The company designs bags, wallets and related products which are manufactured in China and then sold at local trade fairs and other outlets. Judgment against the company was also sought in the same amount for its failure to maintain the overdraft facility within the agreed limit of $200,000. This entitled the Bank to demand full repayment of all monies owing as at the date of default. The second and third defendants signed the overdraft as directors of the first defendant. 3On 18 November 2009, at a time when the defendants were represented by solicitors, a cross claim was filed variously seeking a declaration that the company had not exceeded the overdraft limit (as claimed) and was not otherwise in breach of its terms. They also sought damages for breach of contract and interest pursuant to the Civil Procedure Act 2005. On 10 February 2010 the Bank filed a defence to the cross claim. 4The cross claim was the only aspect of the proceedings that remained in dispute when the matter was listed before me for a final hearing on 20 May 2011. 5On 5 April 2011, a week before the proceedings were listed for hearing, the defendants' solicitors filed a notice of ceasing to act. On 12 April Mr Collinge, solicitor, appeared to formally advise that he no longer acted for the defendants/cross claimants. 6The proceedings were conducted thereafter by the second defendant on her own behalf, on behalf of her husband, the third defendant, and on behalf of the company. Mr Dowdy of counsel appeared on behalf of the Bank. 7At the conclusion of proceedings on 12 April 2011 the Bank obtained judgment against the company in the sum of $293,705.98; judgment against the second and third defendants in the sum of $734,356.97 and an order for possession of the secured property with a writ of possession to issue forthwith. The execution of these orders was stayed pending determination of the cross claim. Certain undertakings of the parties were noted. The hearing of the cross claim was fixed for a one day hearing on 20 May 2011. 8On that date, the second defendant appeared again on behalf of herself and her husband and the company as the first, second and third cross claimants. At the conclusion of the hearing the matter was adjourned for submissions to 28 June 2011. On the adjourned date Mr Saunders, solicitor, appeared for the cross claimants having been retained the previous day. He sought an adjournment to enable him to consider the evidence and prepare final submissions. I granted the adjournment over the Bank's opposition but directed that the submissions on the adjourned date be confined to the issue of liability only since if the cross claim were dismissed because the cross claimants failed to make out their case as pleaded, the issue of damages would not need to be considered. 9On 30 June 2011, seven days before the hearing was listed, Mr Saunders advised that his instructions had been withdrawn. 10On 7 July 2011 the second defendant again appeared in person and on behalf of the third defendant/third cross claimant and the first defendant/cross claimant. Preliminary submissions of law 11At the commencement of the hearing on 20 May 2011, Mr Dowdy submitted, correctly in my view, that the only cross claimant with any legal right and entitlement to make any claim arising out of the relationship of customer and banker was the company as the entity entitled to draw on the overdraft and to utilise the trade facility (see Christianos v Aloridge Pty Ltd (1995) 131 ALR 129 at [136]). He also submitted, again correctly, that the second and third defendants cannot recover damages on behalf of the company, nor seek to be compensated for damage allegedly done to them as joint shareholders of the company. Accordingly, to the extent that the second and third cross claimants as directors of the company claimed loss of income by reason of the company's claim for business losses said to be the result of the Bank's conduct, that relief would be refused. Since the cross claim was defeated on other grounds, this is not an issue that requires further elaboration. I will, however, continue to refer to Mr and Mrs Harper as the third and second cross claimants respectively in the balance of these reasons. 12Mr Dowdy also directed argument to making good the submission that where, as here, it is alleged that the Bank effected telegraphic transfers of funds held in the company's overdraft account contrary to instructions, the relief sought does not extend to consequential losses. There is sound authority for that submission and its particular application in the context of the relationship of bank and customer however, again given the basis upon which I have determined that the cross claim should be dismissed, it also does not warrant further elaboration other than to make clear my view that even were I satisfied that the Bank was contractually liable, issues of causation and/or remoteness would be fatal to the company's claim for damages in any event. Issues raised by the cross claim 13It was common ground that by May 2008 (the relevant date so far as the cross claim is concerned) the Bank had extended to the company a line of credit for its business purposes. The line of credit had at all relevant times from September 2005 up to and including April 2008, consisted of a trade facility to facilitate payment to the company's offshore manufacturers/suppliers of the company's products and an overdraft account for the company's day to day local operations. In April 2008 the limit of the overdraft was $155,000. On 23 April 2008 the trade facility was cancelled by the Bank due to the past and persistent defaults of the company in its utilisation of the facility. The overdraft remained available. 14In summary, the success of the cross claim relies upon proof of the fact that on or about 15 May 2008 the Bank made an unauthorised payment of $31,557.83 from the overdraft facility ("the wrongful payments") to Letwin Company (an overseas supplier of goods to the company) thereby extending the overdraft limit and causing the company to suffer loss and damage. Damage was said to result from delay in delivery of the imported goods depriving the company of the opportunity of exhibiting the goods for sale at various trade shows and, further, that because substitute goods were not able to be purchased to offer to sell or supply to the company's customers for the 2008 Christmas season which resulted in a loss of income depriving the company of its ability to meet its liabilities to the Bank. 15In its defence to the cross claim, the Bank says the impugned payments were made at the company's direction and drawn against the overdraft facility, also at the company's direction. 16In the alternative, assuming that the instructions were susceptible to two different meanings (which was not conceded), the Bank submitted that it was not liable for any losses said to be occasioned by the impugned payments because the payments were made bona fide based upon a fair reading of the company's written instructions. In support of that submission, the Bank relied upon the principle in Ireland v Livingstone (1872) LR 5 HL 395: If a principal gives an order to an agent in such uncertain terms as to be susceptible to two different meanings, and the agent bona fide adopts one of them and acts upon it, it is not competent to the principal to repudiate the act as unauthorised because he meant the order to be read in the other sense of which it is equally capable. It is a fair answer to such an attempt to disown the agent's authority to tell the principal that the departure from his intention was occasioned by his own fault, and that he should have given his order in clear and unambiguous terms. 17Further, and in the alternative, the Bank relied upon a governing clause in the overdraft (and in the guarantee entered into by the second and third defendants to similar effect) which expressly provides that the company would make all payments to the Bank in relation to the overdraft without set off, counterclaim or deduction. Again, it is not necessary to construe either clause, or to consider the authorities to which I was referred, since I am satisfied that the cross claim fails on other grounds. 18The parties each relied upon affidavit evidence. Only the second cross claimant was required to attend for cross-examination. I note that in advance of the hearing, the Bank contacted her and enquired whether arrangements should be made for the accounts manager, Mr Ferguson, to travel to Sydney for the hearing of the cross claim. The Bank was not notified of a requirement that he attend. At the hearing, the second cross claimant complained that she was not able to test his evidence but, in the result, made no application for the proceedings to be adjourned to allow for his attendance. 19The second cross claimant was cross-examined at some length. Although she was placed at some forensic disadvantage being self-represented, every effort was made to ensure she understood the import of the questions asked of her. She was also given every opportunity to respond to questions as fully as she wished. That said, I did not find her an impressive witness. She was prone to histrionics and overstatement and in some instances gave what I regarded as either incomplete or unresponsive answers to direct questions of significance to her case. I did not, however, have the need to resort to concerns as to her credibility generally, or in any particular respect, in resolving the factual disputes to which the evidence gave rise since I was satisfied that the company simply failed to prove any entitlement to relief under the cross claim, having failed to discharge the burden of establishing the impugned payments were made without its authorisation. 20I am satisfied that the evidence in the proceedings established the following facts: 21The company's business was undercapitalised, generating little in the way of sustainable profits over a number of years such that it was almost wholly dependent upon the Bank to finance its forward operations and, in particular, at the time the impugned payments were made in May 2008. 22The second and third cross claimants were frequently in monetary default under the Home Loan and Business Loan and the company in non-monetary default from at least July 2007 due to non-payment of the trade loans under the trade facility which gave rise to a corresponding increase in the overdraft (albeit not such as to exceed the overdraft limit) and because annual financial accounts were outstanding (see [25]). 23In September 2007 a fire at the company's business premises destroyed its business stock thereby impeding its capacity to acquire goods from overseas suppliers to sell during the pending Christmas season or to display stock for sale at trade fairs at that time. 24The relationship between the second cross claimant (on behalf of herself, her husband and the company) and the Bank (through Mr Ferguson as the accounts manager) was cordial but at times strained due to the Bank's frequent and repeated requests to be provided with financial information concerning the company and the significant and largely unexplained, or inadequately explained, delays in the provision of that information. In particular, it was not until November 2007 that the (unaudited) financial statements of the company for the year ended June 2006 were provided. They had been signed by the company accountant in May 2007. A net loss of $69,897 was recorded. 25On 22 February 2008 the company's (unaudited) financial statements for the year ended June 2007 were provided to the Bank, again after repeated requests. A net loss of $140,266 was recorded. On the same date the company's (unaudited) financial statements for the seven months from 1 July 2007 to 31 January 2008 were provided. A net profit of $7538 was recorded. (Somewhat curiously this was during the period when the fire had rendered the company unable to trade and where in the Bank's view the tangible value of the business was questionable. Nothing turns on this issue.) 26At the time of the fire the company had outstanding orders with Letwin Company and Top Price (two overseas suppliers whose invoices were paid by the Bank in May 2008, and which comprise the disputed payments the subject of the cross claim). The company was unable to meet the invoices at the time of their issue in mid 2007 or later that year because of its parlous financial circumstances and the interruption to its business as a result of the fire. The company was insured but received no payments under the policy prior to Christmas 2007. In January 2008 it received a one-off payment of $30,000. It would appear that the insurers were not persuaded of the extent of the business losses claimed by the company. The company instituted proceedings in the District Court against the insurer which were either heard and determined or settled in 2010 . The outcome of those proceedings is of no relevance to the cross claim. 27Between September and November 2007 the overdraft was in excess of the agreed limit. Cheques drawn on the account were frequently dishonoured and the Business and Home loans in permanent arrears. 28On 29 February 2008 the second cross claimant requested, on the company's behalf and in writing, an advance of $30,000 under the company's current trade facility to finance the import of goods "under current order" in part with a view to demonstrating to the insurer that the company was continuing to trade and that its business losses were as claimed. Mr Ferguson regarded the request as reasonable and arranged to have the advance transacted through the Bank's International Department. He confirmed that the limit of the advance was $30,000 and that it was to be repaid within 90 days. 29On 23 April 2008 (without processing the advance) the Bank's International Trade Department cancelled the company's trade facility altogether due to what it regarded as the company's past defaults. Mr Ferguson wrote to the second cross claimant and formally advised her of the Bank's decision as follows: Dear Ms Harper, Cancellation Standby Letter of Credit/Foreign Currency Loan Trade Facility I refer to our Letter of Offer to you dated 13 November 2006 and phone discussion today and confirm that our International Trade Office have determined they can no longer offer this facility and accordingly the Limit has been cancelled today. The reason for the cancellation is due to the current credit profile of your accounts with ANZ due to ongoing loan arrears and past inability to meet scheduled repayments as they fall due. Taking [in]to account the historical trading losses of the business and lack of operations further concerns exist with ability of the business to meet its future commitments as they fall due. Yours Faithfully, Donald Ferguson Manager 30Mr Ferguson also advised the second cross claimant by telephone of the Bank's decision and, appreciating that the company's business was dependent on trade facilities to finance the purchase of goods from overseas suppliers, that she may have to seek an alternate financier as the Bank was not prepared to provide financial assistance through a trade facility. He did, however, discuss an extension to the overdraft and the information the Bank required to consider any application to extend the overdraft, including additional security. 31On Mr Ferguson's return from leave on 5 May 2008 he again confirmed by email to the second cross claimant that the International Trade Department of the Bank was not prepared to take the risk of extending the trade facility on its balance sheet given the company's credit profile and past account history (and its express concerns about the personal credit profile of the second and third cross claimants). He offered to advance $30,000 either by an increase in the overdraft or a New Business Loan to enable the company "to fulfil the order". 32On 12 May 2008 at 9.52am the second cross claimant sent an email to Mr Ferguson in the following terms: Dear Don, I will take the option of extending the overdraft for the purpose of completing the pending order . Please see attached order for OS supplier part #1. Thank you Don. Kind regards, Suzanne (emphasis added) 33The "attached order" was a sales confirmation from Letwin dated 26 July 2007 in the amount of US$29,174 which specified that payment was to be by telegraphic transfer remitted to a nominated Hong Kong bank. Account details were also supplied. 34At 9.53am on the same day, the second cross claimant sent a further email which attached "part #2 of the order". This order was dated 1 March 2008 in the name of Top Print. It referred to invoices dated between June and July 2007 in a total amount of US$7,600. No bank details were supplied to enable the funds to be remitted. 35At 3.35pm that afternoon a Bank officer sought the bank details. In the email the Bank officer informed the second cross claimant that she was at that time in the process of organising the telegraphic transfer of funds. 36That same day Mr Ferguson instructed telegraphic transfers to be processed in respect of both invoices, complete with full bank details of the receiving bank in each case. He prepared a diary note of the same date confirming the company's acceptance of the Bank's offer to extend the overdraft to enable "the orders" to be processed and that details of both orders were supplied. (Self evidently he was referring to the emails received from the second cross claimant that morning.) He also directed that the company's overdraft account be debited in the Australian dollar equivalent of the two invoices and that the overdraft limit be increased for 180 days in the same amount. 37On 16 May 2008 at 10.58am the second cross claimant sent an email to the Bank officer with whom she dealt by email on 12 May and enquired whether "the TT had been paid". She was advised by return email that it had been paid the day before and "therefore the overdraft was (now) overdrawn with the new balance at $192,060.62". She was also advised that a new letter of offer would be issued to confirm "current existing facilities". 38At 3.51pm that same day the second cross claimant emailed the Bank officer and directed that the transfer of funds to Letwin be reversed. She claimed that "the only TT to be paid this week was the balance of the Top Print Company as per our email". (No email was produced that contained these instructions.) At 3.58pm she was advised that the International Department had been instructed to reverse the funds and that she would be advised of the outcome. 39On 19 May 2008 the second cross claimant forwarded the following email to the Bank officer: Dear Mona, Thank you for your email. As I mentioned on the phone to you last week I only received confirmation by email regarding paying a T.T for Top Print Co which I confirmed the balance required and I forwarded you their bank details. As far as Letwin Plastics Co. is concerned no mention of payment was made last week we only pay them 30% deposit and the balance is paid on completion in 60 days, this is why I was so surprised when you mentioned that you had paid the two Hong Kong suppliers. I need this payment to Letwin Plastics [reversed] immediately. Regards Suzanne 40I also note that on the same day Mr Ferguson forwarded a letter to the second and third cross claimants drawing their attention to continuing defaults under their Business Loan and emphasising that the Bank had cancelled the trade facility due to general concerns not only with the company's financial structure but also with their personal credit profile. 41On 22 May 2008 a further detailed file note was prepared by Mr Ferguson in which he noted that the increase in the overdraft was intended to cover the importation of stock from China previously covered by the trade facility. He then noted that the current position was that funds had been drawn and remitted to meet the current orders but that the second cross claimant "now claims" that she only wanted 30 per cent of the cost remitted and that the Bank had not been able to recover the remitted funds. He went on to say that his review of the email correspondence prior to the funds being transferred revealed no indication that the second cross claimant intended or directed other than that the invoices be fully paid, and that discussions with Bank officers confirmed that she had never directed them that her intention was other than that they be fully paid. He went on to say, "it is clear in our minds that Suzanne (the second cross claimant ) was aware that we were sending the TT". As a consequence he noted the necessity to increase the overdraft limit to $200,000. 42On 30 May 2008 the Bank forwarded a letter of offer extending the overdraft to $200,000 until 31 December 2008, reducing to $150,000 thereafter, subject to review. The overdraft was secured by individual guarantees from the first and second cross claimant and supported, inter alia, by a first registered mortgage over the Winston Hills property. The letter of offer was accepted by the second cross claimant on behalf of the company on 16 June 2008. 43On 12 June 2008 Mr Ferguson advised the second cross claimant that the overseas beneficiary of the transferred funds refused to release the funds. He suggested that she contact the supplier directly to resolve any issues. 44On 16 June 2008 Mr Ferguson recorded (in a file note) advice from the second cross claimant that a shipment of goods was due to arrive at the end of July and that most of the stock would be forwarded to a distributor in Queensland from which she expected funds would be generated. 45On 18 June 2008 the second and third cross claimants were advised by the Bank of continuing default under Business and Home Loans and on 25 June advised that interest and fees had taken the overdraft balance above the $200,000 limit and that funds were required to bring the account into order. Follow-up letters were sent in July and August 2008. 46In August 2008 and September 2008 the second cross claimant maintained her advice that the stock from China had arrived and that funds would soon be available to meet the company's commitments to the Bank. The accounts remained in default. In addition, despite assurances that the company would have sufficient funds from the sale of the imported goods to meet the necessary reduction in the overdraft by 31 December 2008 (as agreed) this did not occur, which ultimately led to the initiation of proceedings by the Bank. 47In Mr Ferguson's affidavit he said that after reading the emails forwarded to the Bank by the second cross claimant of 12 May (set out at [32]-[34]) he believed and interpreted them to be instructing the Bank to pay both the Letwin invoice and the Top Print invoices in full and that he instructed the Bank officer to arrange for and make the relevant telegraphic transfers accordingly. Mr Ferguson also gave evidence that his review of the Bank records satisfied him that the second cross claimant did not inform the Bank at any relevant time that the full amount of the invoices should not be paid nor was he given any reason to understand why that might be necessary. He said it was not until her email of 19 May (set out at [39]), after the funds were telegraphically transferred, that the Bank was told about the 30 per cent deposit on the goods from Letwin which was, in any event, in conflict with her email three days earlier when she directed that the entire transfer to Letwin be reversed. 48I accept his evidence. On any fair reading of the correspondence between the Bank and the second cross claimant prior to the disputed funds being transferred, Mr Ferguson's interpretation of his instructions is not only open but, as I see it, the only construction which is reasonably open. His evidence is supported by his detailed and contemporaneous file notes which are entitled to very considerable weight. While I accept that it may not have been what the second cross claimant intended to convey by her emails of 12 May attaching the relevant invoices, and perhaps not the basis upon which she had traded with the Bank's International Trade Department when the company had access to the trade facility, that is not to the point. The question is whether I am persuaded, by applying the civil standard of proof, that the payments of both the Letwin and Top Print invoices/orders drawn against the company's overdraft account and forwarded by telegraphic transfer (or either of them) were unauthorised. I am not satisfied that the evidence permits of that finding. Applying the principle in Ireland v Livingstone such ambiguity as might arise from the emails is, in any event, resolved in the Bank 's favour. I am satisfied that considerations of reasonableness and commercial efficacy dictate that result (see Westpac Banking Corporation v Sansom (1994) 6 BPR 13,790 per Rolfe J at [12]). For these reasons the cross claim fails. 49Although I do not need to consider the question of damages, I should also add that there was a paucity of evidence to establish that damage was occasioned by the impugned payments even were I persuaded, which I am not, that the payments were unauthorised. 50The overdraft agreement expressly provides that the company pay the costs of enforcing the Bank's right under the transactional documents. Costs are defined to include legal costs (calculated on a full indemnity basis) and transactional documents defined to include the Conditions of Use of the Overdraft. Accordingly, the costs incurred by the Bank in defending the cross claim (referable as it is to the overdraft facility) are governed by the company's contractual relationship with the Bank and should be paid on an indemnity basis (see Kyabram Property Investments Pty Ltd v Murray [2005] NSWSC 1202; 13 BPR 24,293 per Palmer J at [25]). 51The orders I make are as follows: 1. The cross claim is dismissed. 2. The first cross claimant pay the costs of the cross defendant on an indemnity basis. ********** 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. Decision last updated: 20 September 2011