Supreme Court New South Wales Medium Neutral Citation: Capital Securities XV Pty Ltd v Calleja (No 2) [2018] NSWSC 1498 Hearing dates: 31 July 2018 Date of orders: 11 October 2018 Decision date: 11 October 2018 Jurisdiction: Common Law Before: Fagan J Decision: (1) Pursuant to r 13.4 of the Uniform Civil Procedure Rules the Amended Statement of Claim is dismissed as against the second defendant. (2) The plaintiff is to pay the second defendant's costs of the proceedings. Catchwords: CIVIL PROCEDURE – summary disposal – dismissal of proceedings – frivolous or vexatious proceedings – application for statement of claim to be struck out as against second defendant – Uniform Civil Procedure Rules 2005 (NSW), r 13.4 – second defendant a bank to which first defendant was indebted – statement of claim dismissed as against second defendant RESTITUTION – nature of restitutionary liability – unjust enrichment – enrichment – payment by plaintiff to credit of first defendant's loan account with bank – alleged mistake of plaintiff as to whether payment authorised as part of a loan advance – whether funds recoverable from bank by way of restitution – whether bank enriched by reduction of loan account of its customer (first defendant) Legislation Cited: Contracts Review Act 1980 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48 Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81 Category: Procedural and other rulings Parties: Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) (plaintiff/respondent) Elizabeth Ann Calleja (first defendant) Commonwealth Bank of Australia (second defendant/applicant) Representation: Counsel: Mr M W Young SC (plaintiff/respondent) Ms N Obrart (first defendant/applicant) Mr D Krochmalik (second defendant/applicant) Solicitors: Summer Lawyers (plaintiff/respondent) Atticus Lawyers & Advisors (first defendant/applicant) HWL Ebsworth Lawyers (second defendant/applicant) File Number(s): 2016/155378 Judgment 1. The second defendant in these proceedings is the Commonwealth Bank of Australia which, in relation to the transaction relevant to the case, traded as Bankwest. I will refer to it by that trading name. Bankwest has applied by notice of motion filed 28 June 2018 for an order that the Amended Statement of Claim filed on 9 May 2018 be dismissed as against it. This order is sought pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). In the alternative Bankwest applies to have the paragraphs of the Amended Statement of Claim pleaded against it struck out pursuant to r 14.28. 2. The plaintiff was named Prime Capital Securities Pty Ltd until it changed its name to Capital Securities XV Pty Ltd with effect from 29 November 2017. Under the former name the plaintiff carried on business during 2015 as a financier. In 2014 and 2015 the first defendant, Ms Elizabeth Calleja, was the sole director and company secretary of Calleja PJC Furniture Freighters Pty Ltd ("Calleja PJC") which conducted a carrying business using rented trucks. Ms Calleja's husband worked with her in the business. 3. At all relevant times Ms Calleja has been the registered proprietor of house properties at 2213 Pacific Highway, Heatherbrae ("the Heatherbrae property"), and at 227 Minimbah Road, Minimbah ("the Minimbah property"). At some time before 2015 she borrowed money from Bankwest in her own name on three accounts which were secured by registered mortgage over both properties. The balances of the loans at 1 April 2015 were as follows: Account No ending: 5485 538,196 5493 64,954 1243 42,043 Total $645,193 1. By its Amended Statement of Claim the plaintiff alleges that between February 2015 and 5 May 2015 it entered into an agreement with Ms Calleja to advance to Calleja PJC the sum of $290,000 for a period of 12 months on terms that she would guarantee repayment by the company and would secure performance of the company's obligations by a second registered mortgage of the Heatherbrae property. 2. Evidence tendered on the hearing of the notice of motion shows that by 1 April 2015 Bankwest had obtained valuations of $700,000 for the Heatherbrae property and $530,000 for the Minimbah property. On that date the Bank informed the plaintiff it was willing to separate the securities and to treat the balance of Account No 5485 as secured only over the Minimbah property, provided that the balance was reduced from $538,196 to $395,500 (being 75% of the valuation of that security). The effect of carrying out this arrangement would be to leave the Heatherbrae property as security only for Bankwest's two smaller account balances, totalling approximately $107,000. The plaintiff was willing to lend to Calleja PJC on security of a second mortgage of the Heatherbrae property, ranking behind the priority debt to Bankwest of about $107,000. 3. Implementation of these arrangements required that the debit balance of Ms Calleja's Account No 5485 with Bankwest be reduced by $140,696. By the time the plaintiff advanced funds to Calleja PJC the balance of that account had increased and the payment required to reduce it to 75% of the valuation of the Minimbah property was $152,496.44. 4. The plaintiff claims that it advanced $292,000 to Calleja PJC between 17 April 2015 and 5 May 2015. There is no issue that on the latter date the plaintiff registered a second mortgage from Ms Calleja to itself over the Heatherbrae property. The plaintiff alleges that there has been default in payment of interest and in repayment of principal by Calleja PJC. The plaintiff claims possession of the secured property under the terms of its second mortgage. No claim is made in the proceedings for judgment for the outstanding mortgage debt, either against Ms Calleja under her guarantee or against Calleja PJC under the loan agreement and mortgage. 5. A significant part of the dispute between the plaintiff and Ms Calleja concerns the manner in which the plaintiff alleges it advanced $292,000 to her company. The plaintiff relies upon a statement of its account with Westpac Bank, coupled with its own loan advance settlement statement, to establish that it paid out the following amounts on 17 April 2015 on behalf of Calleja PJC: Capital Finance Australia Ltd 6,805.97 Kemp Strang solicitors 2,571.57 Baycorp Collections PDL (Aust) Pty Ltd 62,877.61 $72,255.15 1. The plaintiff next relies upon a trust account statement of its solicitors, Gadens/Dentons for the following alleged payments on 5 May 2015 (with the exception of the payment of fees to the solicitors themselves, which is said to have been made on 8 May 2015): Bankwest 152,496.44 Fast Commercial Loans 6,380.00 Calleja PJC 34,676.50 Gadens/Dentons 8,808.58 $202,361.52 1. According to the statement of Gadens/Dentons and the plaintiff's loan advance settlement sheet, the plaintiff also treated the following applications of funds, all on 5 May 2015, as part of Calleja PJC's drawdown: Prime Capital Securities Administration Pty Ltd 7,910.00 The plaintiff 3,093.33 The plaintiff 6,380.00 $17,383.33 1. The total of the amounts in [8]-[10] is $292,000. Ms Calleja contends that Calleja PJC's drawdown from the plaintiff under the facility was only the sum of $37,676.50 which was paid by the plaintiff into the company's bank account on 5 May 2015 (see [9] above). She disputes that any of the other payments were authorised, including the payment to Baycorp Collections PDL (Aust) Pty Ltd, a creditor of Calleja PJC. Most relevantly for the purposes of Bankwest's notice of motion she denies that the payment of $152,496.44 to the credit of her main loan account with Bankwest was made pursuant to any request or authority from herself or Calleja PJC. She asserts that this payment to her benefit cannot be treated as drawdown by Calleja PJC and that it therefore does not represent any part of the company's liability to the plaintiff for which the Heatherbrae property stands as security. 2. Bankwest was joined in the proceedings as second defendant by the Amended Statement of Claim filed on 9 May 2018 for the purpose of the plaintiff pleading an alternative claim that, if the payment of $152,496.44 to the credit of Ms Calleja's account with Bankwest does not form part of Calleja PJC's indebtedness to the plaintiff secured by the second mortgage for want of request or authority, then Bankwest has been unjustly enriched to the detriment of the plaintiff and the latter is entitled to restitution. 3. This alternative claim is pleaded in these terms: 19 The Bankwest Payment [being the $152,496.44 paid by the plaintiff to Bankwest on 5 May 2015 in reduction of Ms Calleja's account] was made by the plaintiff in the belief that [Calleja PJC] and the first defendant had authorised the Bankwest Payment. 20 If it is found that the Bankwest Payment was not authorised by [Calleja PJC] or the first defendant, then the Bankwest Payment was made by the plaintiff under a mistake of fact. 21 If it is found that neither [Calleja PJC] nor the first defendant is liable to the plaintiff to repay to the plaintiff the amount of the Bankwest Payment by reason of it being unauthorised, then the plaintiff has suffered a loss by reason of the Bankwest Payment. 22 If it is found that the Bankwest Payment was not authorised by [Calleja PJC] or the first defendant, then the Bankwest Payment has not resulted in the discharge of any part of the debt owed by the first defendant to [Bankwest] and thus the making of the Bankwest Payment has enriched [Bankwest]. 23 In consequence, if it is found that the Bankwest Payment was not authorised by [Calleja PJC] or the first defendant and that neither [Calleja PJC] nor the first defendant is liable to the plaintiff to repay to the plaintiff the amount of the Bankwest Payment then [Bankwest] is liable to provide restitution to the plaintiff of the Bankwest Payment by reason of the unjust enrichment of [Bankwest] at the plaintiff's expense. 24 in the alternative, if it is found that the Bankwest Payment was not authorised by [Calleja PJC] or the first defendant and that neither [Calleja PJC] nor the first defendant is liable to the plaintiff to repay to the plaintiff the amount of the Bankwest Payment then the Bankwest Payment constitutes monies had and received by [Bankwest] to the plaintiff's use. 1. The plaintiff's case for Bankwest to make restitution of the $152,496.44 is premised on the allegation in pars 19 and 20 that the plaintiff believed the payment was authorised by Calleja PJC and that it would accrue to that company's indebtedness to the plaintiff under the loan facility. The premise is that if it should be found there was no authorisation then the plaintiff has acted on a mistake of fact. On that premise, the partial discharge of Ms Calleja's loan account with Bankwest was not intended by the plaintiff to be a gift to her or to have any other character which would entitle Ms Calleja to retain the benefit. The reduction of her loan account with Bankwest would of course be a benefit to her notwithstanding that, contrary to the plaintiff's belief, the payment was not authorised by Calleja PJC and therefore did not become part of that company's loan balance or part of Ms Calleja's obligation under her guarantee mortgage. 2. Thus, if it should be found the payment was not authorised by Calleja PJC so that the amount paid to the credit of Ms Calleja's loan account with Bankwest is not recoverable from Calleja PJC under that company's loan agreement then, on the plaintiff's premise that it was mistaken about this, Ms Calleja is prima facie obliged to make restitution. It is not apparent on the evidence before the Court on this application that Ms Calleja could "raise by way of answer any matter or circumstance which [would show] that … her receipt (or retention) of the payment is not unjust": see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; [1992] HCA 48. 3. It follows that the contingency pleaded at the commencement of par 21, namely, "it is found that neither [Calleja PJC] nor the first defendant is liable to the plaintiff to repay", will not arise. Either the payment to Bankwest was authorised by Calleja PJC and is part of the debt guaranteed by Ms Calleja's mortgage or, if it was not authorised, the plaintiff acted under a mistake of fact and Ms Calleja must make restitution. Therefore, the loss to the plaintiff which is pleaded in par 21 as contingent upon a finding "that neither [Calleja PJC] nor the first defendant is liable to the plaintiff to repay" also will not arise. 4. In her defence to the Amended Statement of Claim Ms Calleja has admitted that the plaintiff made the payment of $152,496.44 in reduction of her loan account with Bankwest. But she pleads that the Bankwest loan was "a long term facility agreement" and that neither the amount paid by the plaintiff "or any similar amount was due and owing to [Bankwest] at the time of that payment". This pleading would be entirely beside the point to a claim by the plaintiff against Ms Calleja for restitution on the ground that the payment was made under a mistake. Whether the sum $152,496.44 was "due and owing" from Ms Calleja to Bankwest or not, the payment was in substance a payment to Ms Calleja, effected by way of credit to her account with Bankwest, and she would have to make restitution if that remedy should be claimed against her by the plaintiff. 5. For its own reasons, presumably involving some perception of tactical advantage which is not apparent to the Court, the plaintiff has not pleaded against Ms Calleja an alternative claim for restitution on the ground of its mistake. The premise of par 21, namely that the plaintiff could not succeed in such a claim, even if it should be found that Calleja PJC gave no authority for the payment of $152,496.44 and that the plaintiff acted under a mistake about this, is erroneous. 6. By par 16 of her defence Ms Calleja pleads in relation to the $152,496.44 deposited by the plaintiff to her Bankwest account that she "relies on the matters pleaded in [her] cross-claim with respect to that payment". In the cross-claim she has alleged that none of the payments identified in [8]-[10] above constituted advances to or drawdowns by Calleja PJC, that all of them were unauthorised, that the loan facility between the plaintiff and Calleja PJC and her guarantee and mortgage were vitiated by misrepresentations and unconscionable conduct that the transactions are liable to be avoided under s 7 of the Contracts Review Act 1980 (NSW). 7. In pars 11C-11G of the cross-claim it is alleged that as a result of the payment of $152,496.44 her debt to Bankwest "was paid out" to that extent. It is alleged that this caused loss and damage to Ms Calleja because the interest rate payable by Calleja PJC to the plaintiff on this amount was higher than the rate payable on the Bankwest facility. Neither these paragraphs nor any other part of the cross-claim indicates any basis upon which Ms Calleja could resist an order for restitution to the plaintiff if the latter should establish that the payment to Bankwest was made in the belief that Calleja PJC authorised this as a drawdown on its facility and if this belief should be shown to have been mistaken. 8. Paragraph 22 is invalidated by fallacies of fact, logic and law. It contains three elements, as follows: (1) if neither Calleja PJC nor Ms Calleja authorised the payment of $152,496.44 to the credit of Ms Calleja's account with Bankwest then (2) her indebtedness on that account has not been reduced and therefore (3) Bankwest has been enriched. The step from (1) to (2) does not follow. Authorised or not, the plaintiff's payment was credited to Ms Calleja's Bankwest loan account and it reduced the debit balance. As a result (2) does not arise. Conclusion (3), which is said to flow from (2), does not flow at all. 9. In fact there is no sense in which it could be found that Bankwest has been enriched. Up to 5 May 2015 it was owed by Ms Calleja a mortgage-secured debt which included the $152,496.44. After 5 May 2015 that much of the debt was discharged and was replaced with cash. Bankwest exchanged an asset of one kind for an asset of a different kind but of equivalent value. This is not enrichment. The pleader of the Amended Statement of Claim appears to have recognised this and has sought to avoid it by alleging that, notwithstanding Bankwest's receipt of the payment to Ms Calleja's credit, the value of the debt owed by her to the bank was not reduced. That is not correct. The plaintiff asserts that Bankwest has retained the full debt balance owed by Ms Calleja and also the money. The plaintiff's counsel submitted orally: It is only when a debtor or someone with the authority of a debtor pays money to a bank that the debt [on an account with the bank] is in fact reduced. No authority was cited to support this proposition. I reject it. 1. Paragraph 23 is flawed in the same way as par 22. The only difference between the two paragraphs is that step (3) in par 23 is an expanded assertion that Bankwest "is liable to provide restitution to the plaintiff ... by reason of [its] unjust enrichment". For the reasons given at [21] and [22], on the face of the pleading there has been no unjust enrichment of Bankwest and the alleged liability to make restitution has no foundation. 2. As with par 21, par 24 proceeds upon a contingency that will not arise, namely, that it be found the payment of $152,496.44 to Bankwest was not authorised by Calleja PJC and that neither it nor Ms Calleja is liable to repay that amount to the plaintiff. As already noted, the foundation for the entirety of this pleading is that if it should be found the payment was unauthorised then the plaintiff acted under a mistake of fact. Upon that foundation it could not follow that neither Calleja PJC nor the first defendant would be liable to repay. It would follow from the plaintiff's mistake that the first defendant was unjustly enriched by the reduction of her Bankwest loan account and she would be ordered to make restitution. 3. The conclusion that Bankwest cannot be liable to the plaintiff to re-pay the amount which the latter deposited to the credit of Ms Calleja's loan account is further supported, independently of the above analysis of flaws in the plaintiff's pleading, by the decision of the Court of Appeal in Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732; [2016] NSWCA 81. In that case Ms Fistar was fraudulently induced by R to hand over a sum of approximately $599,000 for investment. Ms Fistar demanded repayment two months later. R provided a bank cheque which she had purchased using $118,000 of the funds originally obtained from Ms Fistar and, as to the balance, $481,000 which, to the knowledge of R, had been stolen from the respondent club. Ms Fistar had no knowledge that the bank cheque had been purchased with funds from any source other than the money she had earlier advanced to R. The bank cheque was handed over by Ms Fistar to the representatives of a deceased estate in settlement of a purchase by Ms Fistar of real property. The cheque was deposited by the representatives to their St George Bank account. 4. The respondent club had claimed at first instance that Ms Fistar was liable to make restitution of the $481,000 which had been stolen from it and applied by R to the purchase of the bank cheque. The club alleged this was misappropriated money had and received by a volunteer. The appeal was allowed and it was held that the respondent club could not recover against Ms Fistar. At [79] the following was stated by Leeming JA (Bathurst CJ and Sackville a JA agreeing): [I]t surely cannot be right that if a debtor [R] pays a creditor [Ms Fistar] using funds belonging in equity to a third party, of which fact the creditor is entirely unaware, then the creditor can be regarded as a volunteer and therefore, subject to other defences, is liable to disgorge the funds through a claim of money had and received. That would amount, as was said by Sackville AJA during the hearing, to a "substantial change to the conduct of commercial transactions". In my view, that understates the position. Lord Herschell LC said in Thomson v Clydesdale Bank Ltd [1893] AC 282 at 287: "It cannot, I think, be questioned that under ordinary circumstances a person, be he banker or other, who takes money from his debtor in discharge of a debt is not bound to inquire into the manner in which the person so paying the debt acquired the money with which he pays it." As the opening words of that sentence indicate, there are exceptions to its generality, but none can apply here where the creditor is wholly innocent of any knowledge of breach of trust. 1. This statement of principle is applicable in the present case where the debtor is Ms Calleja and the creditor is Bankwest. There is no suggestion that Bankwest was aware that Calleja PJC did not authorise the payment to the credit of Ms Calleja's account as part of the company's drawdown of its loan from the plaintiff. Bankwest was not required to enquire into the source of money it received in reduction of Ms Calleja's debt. It is not to be regarded as a volunteer, liable to disgorge to the plaintiff the $152,496.44, upon the basis that the plaintiff paid to the benefit of Ms Calleja under a mistake. 2. Upon these considerations the Amended Statement of Claim should be dismissed as against Bankwest pursuant to r 13.4 of the UCPR. There would be no purpose in merely striking out the paragraphs under r 14.28 and granting leave to the plaintiff to re-plead. For the reasons given above, the finding against which the plaintiff seeks to protect itself (that the payment to Bankwest was not authorised by Calleja PJC) would, in conjunction with the plaintiff's allegation that it acted under a mistake as to this, result in a sound claim against the first defendant for restitution but no such claim against Bankwest. 3. The orders of the Court will be: 1. Pursuant to r 13.4 of the Uniform Civil Procedure Rules the Amended Statement of Claim is dismissed as against the second defendant. 2. The plaintiff is to pay the second defendant's costs of the proceedings. ********** 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: 11 October 2018