Bjerring v Kline[2013] QDC 233

DISTRICT COURT OF QUEENSLAND

1. [1]
   The applicant National Australia Bank Limited seeks to be quit of third party proceedings begun against it by the defendants. The plaintiffs’ claim against them is one for contribution as between co-guarantors of monies which they paid to the bank in satisfaction of guarantees by the plaintiffs and the defendants as co-guarantors of liability of a company called Emerald Island Point Pty Ltd to the bank. The defendants’ half share is $228,396.85.

2. [2]
   The defendants admit signing the guarantees on or about 27 June 2008 in the amount of $900,000 for the liability of the company to the third party pursuant to a “loan agreement” and that pursuant to the guarantees the plaintiffs and the defendants agreed jointly and severally to guarantee all sums that might become due under the loan agreement to the third party. However, they say that on grounds set out each of the guarantees, and the loan agreement too, “is void ab initio” – by reason of which they came under no liability to the third party bank or to the plaintiffs. There is no clear denial of the allegation that prior to December 2012 the bank demanded payment from each of the plaintiffs and the defendants pursuant to the guarantees. There is no suggestion in pleadings (or otherwise) that the defendants took any steps to prevent the plaintiffs satisfying the bank’s demands or gave any indication that they considered the demands were unjustified. In short nothing appears that might have put the plaintiffs on notice that if they paid they bank they might have no recourse against the defendants.

3. [3]
   The written submissions prepared by Mr Jones, counsel for the defendants begin as follows:

“1. The Plaintiffs and the Defendants were guarantors of a loan facility in favour of the Third Party (‘NAB’).

2. The Defendants’ case is that NAB misled the Plaintiffs and Defendants into believing that the loan facility had been approved, when in fact it had not been. Relying on the facility having been approved, the Plaintiffs and Defendants entered into a contract to purchase land to carry out a development and caused a bank guarantee to be provided to the vendors by way of deposit. The Defendants say they would not have caused that to happen, nor would they have provided the guarantee, had they not been informed the loan had been approved.

3. NAB subsequently advised the Plaintiffs and the Defendants that the loan had not been approved. They were unable to obtain finance and were unable to complete the purchase contract. The bank guarantee was called upon.

4. NAB made demand on the Plaintiffs and the Defendants. The Plaintiffs paid the full amount claimed, and by their proceedings seek to recover half of that payment by way of contribution. The Defendants deny liability to the plaintiffs on the basis that the guarantees are unenforceable.”

4. [4]
   To vindicate their defence, as Mr Jones put it, the defendants commenced third party proceedings challenging the guarantees “on the basis of misleading or deceptive conduct and unconscionable conduct” by the third party. Contentions in identical terms (except that the paragraph numbering of them differs) were made against the bank in the third party statement of claim and in the defence, in the latter for the purpose of setting up that the plaintiffs were not obliged to make the payments they did.

5. [5]
   The third party statement of claim, after setting out various matters in relation to the third party (called NAB), concluded:

“37. In consequence of the matters pleaded in paragraphs 28 to 36, Mr Kline and Mrs Kline have suffered loss and damage.

Particulars

1. (a)
   Full particulars of Mr Kline’s and Mrs Kline’s loss and damage will be provided upon completion of disclosure.

38. In the premises of NAB’s contravention of section 12CA of the ASIC Act:

1. (a)
   NAB is estopped from claiming against Mr Kline and Mrs Kline the interest, penalty charges and costs that accrued on the Market Rate Facility and the Bank Guarantee Facility between in or about September 2010 and 12 December 2012;

2. (b)
   Mr Kline and Mrs Kline are entitled to a declaration pursuant to section 12GM of the ASIC Act that they are not liable for the interest, penalty charges and costs that accrued on the Market Rate Facility and the Bank Guarantee Facility between in or about September 2010 and 12 December 2012; and

3. (c)
   Mr Kline and Mrs Kline are entitled to damages for loss and damage suffered pursuant to section 12 GF of the ASIC Act.

The First Defendant and Second Defendant claim the following relief against the Third Party –

1. A declaration that the Loan Agreement between National Australia Bank Limited and Emerald Island Point Pty Ltd as trustee for the Emerald Island Point Trust dated on or about 27 June 2008 be void ab initio pursuant to section 87 of the Trade Practices Act 1974 or alternatively, section 12 GM of the Australian Securities and Investments Commission Act 2001;

2. A declaration that the Guarantee and Indemnity signed by Graydon Kline on 27 June 2008 be void ab initio pursuant to section 87 of the Trade Practices Act 1974 or alternatively, section 12GM of the Australian Securities and Investments Commission Act 2001;

3. Alternatively to paragraph 2, rescission of the Guarantee and Indemnity signed by Graydon Kline on 27 June 2008;

4. Alternatively to paragraph 2 and 3, a declaration that the Guarantee and Indemnity signed by Graydon Kline on 27 June 2008 is unenforceable;

5. A declaration that the Guarantee and Indemnity signed by Josephine Kline on 27 June 2008 be void ab initio pursuant to section 87 of the Trade Practices Act 1974 or alternatively, section 12GM of the Australian Securities and Investments Commission Act 2001;

6. Alternatively to paragraph 5, rescission of the Guarantee and Indemnity signed by Josephine Kline on 27 June 2008;

7. Alternatively to paragraph 5 and 6, a declaration that the Guarantee and Indemnity signed by Graydon Kline on 27 June 2008 is unenforceable;

8. Alternatively to paragraphs 1 to 7, an order that NAB is estopped from claiming against Mr Kline and Mrs Kline any interest, penalty charges and costs that accrued on the Market Rate Facility and the Bank Guarantee Facility between in or about September 2010 and 12 December 2012 pursuant to section 12GM of the Australian Securities and Investments Commission Act 2001;

9. Alternatively to paragraphs 1 to 7, a declaration that Mr Kline is not liable to NAB for any interest, penalty charges and costs that accrued on the Market Rate Facility and the Bank Guarantee Facility between in or about September 2010 and 12 December 2012 pursuant to section 12GM of the Australian Securities and Investments Commission Act 2001;

10. Alternatively to paragraphs 1 to 7, a declaration that Mrs Kline is not liable to NAB for any interest, penalty charges and costs that accrued on the Market Rate Facility and the Bank Guarantee Facility between in or about September 2010 and 12 December 2012 pursuant to section 12 GM of the Australian Securities and Investments Commission Act 2001;

11. Damages pursuant to section 82 of the Trade Practices Act 1974, or alternatively, section 12GF of the Australian Securities and Investments Commission Act 2001;

12. Interest pursuant to section 58 of the Civil Proceedings Act 2011.

13. Costs.”

6. [6]
   Service of the above upon the third party attracted the following conditional notice of intention to defend pursuant to r 144:

“TAKE NOTICE that the National Australia Bank Limited ABN 12 004 044 937 (the NAB) disputes the jurisdiction of this court to entertain the first and second defendants’ third party notice (the third party notice) against the NAB and further asserts the claim is irregular because the defendants’ claim and statement of claim served on the NAB:

1. does not seek contribution or indemnity in respect of the plaintiffs’ claim against the defendants;

2. is not:

1. (a)
   related to or connected with the original subject matter of the proceeding; and

2. (b)
   substantially the same as some relief claimed by the plaintiff.

3. does not require a question or issue relating to or connected with the original subject matter of the proceeding to be decided not only as between the plaintiffs and the defendants but also as between either of them and the NAB.

4. does not enliven the jurisdiction of the District Court.

5. does not reveal a reasonable cause of action against the NAB.

6. seeks relief which is unnecessary.”

7. [7]
   Rule 196 confirms that it was in order for the third party to proceed in that way. Within the time allowed by r 144 it brought the appropriate application under r 16 seeking a declaration pursuant to (a) that the proceeding commenced against it by the third party notice “has not, for want of jurisdiction, been properly started” and an order under (e) that the third party notice be set aside.

8. [8]
   The conditional notice of intention to defend in paragraphs 1, 2 and 3 picks up paragraphs (a), (b) and (c) of r 192 respectively. Rule 192 provides:

“192  Reason for third party procedure

A defendant may file a third party notice if the defendant wants to—

1. (a)
   claim against a person who is not already a party to the proceeding a contribution or indemnity; or

2. (b)
   claim against a person who is not already a party to the proceeding relief—

1. (i)
   relating to or connected with the original subject matter of the proceeding; and

2. (ii)
   substantially the same as some relief claimed by the plaintiff; or

3. (c)
   require a question or issue relating to or connected with the original subject matter of the proceeding to be decided not only as between the plaintiff and the defendant but also as between either of them and a person not already a party to the proceeding.”

9. [9]
   In my opinion it must be the case that r 192 lets in only matters within the court’s jurisdiction, which is a confined one, relevantly conferred by s 68 of the District Court of Queensland Act 1967. Startune Pty Ltd v Ultra-Tune Systems (AUST.) Pty Ltd [1991] 1 Queensland Reports 192 establishes that the court’s powers to grant relief by way of declarations, injunctions and the like is available only in aid of a proceeding within s 68. Where s 69-type relief is sought in aid of a money claim, that must be one within the court’s jurisdiction, and, in a context like the present, where the court’s jurisdiction is put in issue, demonstrably so. There is no indication anywhere that the damages claim made against the third party falls within the $750,000 jurisdictional limit. Therefore s 68(1)(a) does not support the third party notice. Nor does anything in the following paragraph (b) support any of the claims for declarations made by the third party notice, the declarations referred to in and authorised by the section being limited to partnership and trust matters and certain questions of construction^[1]. What was relied on by Mr Jones was subparagraph (iv) regarding actions or matters: “for rectifying, delivering up or cancelling any agreement, where the amount in dispute or the value of the property affected does not exceed the monetary limit.”  While a claim might have been formulated in terms of (iv), I do not consider that any of the various claims for declarations or rescission or estopped encountered here can or should be recognised as within (iv). The claims made by the defendants for interest and costs are plainly dependant on the others and fall with them. The third party has established its contention that the third party notice does not enliven the jurisdiction of the District Court, because the claims made against it do not fall or do not appear to fall within the court’s jurisdiction. It is a case of the defendants needing, but failing to show that they come within s 68. Cf Ex Parte Currie; Re Dempsey (1969) 91 WN (NSW) 34, 38.

10. [10]
    Section 86 of the Trade Practices Act provides:

“ (2) The several courts of the States are invested with federal jurisdiction within the limits of their several jurisdictions, whether those limits are as to locality, subject-matter or otherwise, and, subject to the Constitution, jurisdiction is conferred on the several courts of the Territories, with respect to any matter arising under Part IVA or IVB or Division 1, 1A or 1AA of Part V in respect of which a civil proceeding is instituted by a person other than the Minister or the Commission.

3. (3)
   Nothing in subsection (2) shall be taken to enable an inferior court of a State or Territory to grant a remedy other than a remedy of a kind that the court is able to grant under the law of that State or Territory.”

3. (4)
   …”

And s 12GJ of the ASIC Act:

“(2) With respect to any matter:

1. (a)
   arising under this Division; or

2. (b)
   arising under Part 3 in its application in relation to an investigation of a contravention of this Division; in respect of which a civil proceeding is instituted under this Subdivision or under Part 3 as so applying:

3. (c)
   the several courts of the Sates are invested with federal jurisdiction within the limits of their several jurisdictions, whether those limits are as to locally, subject-matter or otherwise; and

4. (d)
   subject to the Constitution, jurisdiction is conferred on the several courts of the Territories.

3. (3)
   nothing in subsection (2) is taken to enable an inferior court of a State or Territory to grant a remedy other than a remedy of a kind that the court is able to grant under the law of that State or Territory…”

11. [11]
    In my opinion s 86(2) does not, no more does s 12GJ(2) suffice to satisfy s 68. Mr Jones cited Allied Mills Pty Ltd v Sikali [2004] QDC 405 and Reeves v Elsgrove Pty Ltd [1999] QDC 265 as examples of this court acting in the way the defendants desire. Allied Mills is unremarkable. This court had jurisdiction to deal with the plaintiff’s money claim based on a guarantee. The defendant persuaded the court by reference to sections 52 and 87 of the Trade Practices Act to declare the contract of guarantee void and unenforceable. In Reeves a land contract was declared void and compensation ordered under s 87, as sought by the plaintiffs; however, they had sought also a declaration like that in Rigby (see footnote 1 above), and, although the reasons do not state this, apparently brought themselves within section 68(1)(b)(viii).

12. [12]
    There was discussion at the hearing regarding whether the defendants ought not to have proceeded by way of counterclaim. Accepting that both the plaintiffs and the third party should be joined in any proceeding seeking relief of the kind the defendants want against the third party (Wilson v Mitchell [1939] 2 KB 869), the defendants could appropriately have proceeded by counterclaim against the plaintiffs and the third party pursuant to r 178. The bringing of counterclaims beyond the court’s jurisdiction is contemplated by s 29 of the Civil Proceedings Act 2011 (previously, relevantly, s 86 of the District Court of Queensland Act 1967). Section 29 enacts that claims beyond jurisdiction may, if certain steps are taken in time, be removed to a court that has jurisdiction, failing which this court may deal with them. There is no equivalent mechanism for third party claims or proceedings beyond jurisdiction, which I take as an indication that they may not be entertained in this court, rather than that they may be entertained.

13. [13]
    Ordinarily, as in Startune itself, claims that are not demonstrably within this court’s limited jurisdiction may be amended to overcome the deficiency. In Startune, the Full Court declined to permit amendment after the appeal to it had been commenced. The power of the primary judge to deal with an equivalent request for amendment, had one been made, was expressly acknowledged. Mr Jones, who conceded deficiencies in respect of some of the claims made in the third party notice, sought in a general way to make amendments, without being specific as to what they might be.

14. [14]
    I am disinclined to allow amendment in the present circumstances, given the lack of specificity. While otherwise unimpressed by the third party’s assertion that bringing in of the claim against the bank “will otherwise prejudice a fair hearing of the proceeding”, considered as a proceeding against the bank, it is undeniable that in the context of the claim by the plaintiffs, the bringing in of complex issues based on complaints against the bank and seeking discretionary relief against it will expand the scope of the proceeding enormously. If that is to occur, it ought to be done in the right way from the start.

15. [15]
    Mr Brennan, counsel for the third party, did not contend that no claim against the bank is maintainable. There are hurdles that may have to be overcome, including that the principal debtor company has been deregistered. It may well be possible for it to be brought back to life to vindicate what the defendants suggest are its rights attributable to allege misconduct by the bank. Whether it is necessary for the company to be involved as a litigant, or whether guarantors may effectively vindicate its rights was discussed in Ansell Ltd v Coco [2004] QCA 213 and in the authorities referred to there in paragraphs [23] – [26].

16. [16]
    It seems unnecessary (in light of the third party’s success on the issue of this court’s jurisdiction) to consider whether r 192 (which I consider only applies to claims demonstrably within jurisdiction) assists the defendants by authorising what they have done.

17. [17]
    It is clear that neither (a) nor (b) of r 192 applies here as the defendants’ claim is neither for an indemnity nor seeking something “substantially the same as some relief claimed by the plaintiff”. As to (c), the annotations in Civil Procedure Queensland (Lexisnexis, Butterworth) cite Standard Securities Ltd v Hubbard [1967] 1 Ch 1056. This was an unsuccessful application by a third party to have set aside a third party notice claiming specific performance of an agreement by him to sell a particular property to the defendant in an action in which an on-purchaser from the defendant sought specific performance. It was held that the UK equivalent of rule 192(b) applied. Pennycuick J said at 1060:

“Is that relief or remedy connected with the agreement of May 29, 1963? It seems to me that upon any ordinary use of language it is so related and connected. In the first place, the defendants will only be able to perform the agreement of May 29, 1963, if they are first able to obtain the relief or remedy which they seek against the third party, namely, performance of the agreement dated January 24, 1957. In the second place, in the ordinary course of conveyancing the two agreements for sale will be completed by a single instrument, which the three parties concerned will join, and the execution of that instrument will be one of the matters which will be secured by the order for specific performance in the present action. It is, of course, possible to complete the two agreements by separate conveyances, but that would be contrary to conveyancing practice; it would also involve payment of double stamp duty.

In those circumstances, I find it impossible to say that the relief or remedy sought against the third party does not relate to or is not connected with the subject-matter of the present action. It has not been suggested that the relief or remedy sought in the third party proceedings is not substantially the same in any relevant sense as the relief or remedy claimed by the plaintiff against the defendant.”

18. [18]
    However, Pennycuick J held that the UK equivalent of r 192(c) appeared not to be applicable because no relevant “question or issue” of the kind referred to in the rule could be identified^[2]. Here, the considerations seem to me very difficult. My impression is that the defendants essentially allege entitlement to apply with reasonable prospects of success to have commercial arrangements whose existence is undoubted set aside or rendered unenforceable in some way, after the horse has bolted, so to speak, in the sense that while the arrangements stood, the plaintiffs have satisfied the third party’s demands, and brought the parties’ dealings to a conclusion - for all that appears oblivious of contentions that might have been made that they need not have done so.

19. [19]
    For the reasons set out above, a declaration along the lines of that contemplated for “an originating process” in r 16(a) based on the want of jurisdiction as sought in the bank’s application ought to be made. Reference to r 8(2) indicates that a third party notice is not an originating process; r 16(i) does not assist the third party unless it can point to an originating process. I think that r 196 suffices to entitle the third party here to avail itself of r 16. It provides:

“On being served with a third party notice, the third party becomes a party to the proceeding if the same rights in relation to the third party’s defence to a claim made against the third party in the notice as the third party would have if sued in the ordinary way by the defendant.”

20. [20]
    In my opinion, “defence” in that context refers not to the eponymous pleading but to the whole process of the third party’s defending itself.

21. [21]
    There should be orders in terms of paragraphs 1, 2 and 4 of the third party’s application.

22. [22]
    The plaintiffs were represented at the hearing by Ms De Luchi who had ready an application to be pursued should the third party be successful, as occurs. Essentially, this was to have removed from the defence the allegations of misconduct, etc by the third party. For the moment, my impression is that such allegations do inappropriately embarrass the plaintiffs and inappropriately complicate the proceeding, at least while the bank is not a party. It would follow that the plaintiff’s application should succeed, but I will refrain from making any order in that regard until seven days after publication to the parties of these reasons, to allow the defendants to consider the situation and make submissions or at the least indicate that they wish to make submissions against the foreshadowed order.

23. [23]
    The defendants fail here because the claims they make do not fall within the court’s limited jurisdiction under its statute, formulated as they have been. Things might have been different had they adopted a different procedure. I do not decide that their argument that they did not share co-ordinate liability as guarantors with the plaintiff fails, or that it is now necessarily too late for the defendants to achieve their apparent purpose. There are some suggestions the court has seen that there could be distinctions between the situations of the Bjerrings (plaintiffs) and the Klines (defendants) because to some extent the former undertook management of the joint venture’s financial affairs while the latter bore responsibility on the development side; from this it might follow that their respective situations vis-à-vis the third party bank were different. Future events may establish that only some or none of them can be (or could have been) liable to the bank. These interesting questions are not of present relevance in my view.