JUDITH EZZY v COMMONWEALTH BANK OF AUSTRALIA No. 214 of 1994 Number of pages - 5 Practice and procedure - discovery

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JUDITH EZZY v COMMONWEALTH BANK OF AUSTRALIA      
No. 214 of 1994
Number of pages - 5
Practice and procedure - discovery
COURT
IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA
MARTIN CJ

CWDS
  Practice and procedure - discovery

HRNG
ALICE SPRINGS, 27 February 1995
#DATE 27:2:1995
  Appearances not available

ORDER
  Application dismissed

JUDGE1
MARTIN CJ  This is an application pursuant to r32.05 of the Supreme Court
Rules.

2.  On 19 September last the plaintiff caused a writ to be issued out of this
Court in which the respondent bank is the defendant. By its Statement of
Claim, endorsed upon the writ, the plaintiff claims that as a result of the
defendant's breach of fiduciary duty, unconscionable conduct and undue
influence, misrepresentation, breach of the provisions of the Trade Practices
Act of the Commonwealth, and breach of the provisions of the Consumer Affairs
and Fair Trading Act of the Territory occurring between December 1990 and
January 1992 in relation to a certain mortgage, the plaintiff seeks damages, a
declaration that the mortgage be set aside and an extension of time pursuant
to s44 of the Limitation Act.  There is no evidence that the writ has been
served.

3.  On 27 September there was filed an originating motion and a summons
thereon by which the plaintiff sought, inter alia, an order that the defendant
provide discovery of all records, letters or other documents in relation to
John Patrick Henderson, John Henderson Travel, Rainbow Travel and Judith Ezzy
within 21 days.  Upon the hearing of this application counsel for the
applicant made it clear that it was related to the proceedings commenced by
the writ.

4.  Rule 32.05 is as follows:
    "Where -
    (a) there is reasonable cause to believe that the applicant
    has or may have the right to obtain relief in the Court from
    a person whose description he has ascertained;
    (b) after making all reasonable inquiries, the applicant has
    not sufficient information to enable him to decide whether
    to commence a proceeding in the Court to obtain that relief;
    and
    (c) there is reasonable cause to believe that that person
    has or is likely to have or has had or is likely to have had
    in his possession any document relating to the question
    whether the applicant has the right to obtain the relief and
    that inspection of the document by the applicant would
    assist him to make the decision -
    the Court may order that that person shall make discovery to
    the applicant of any document of the kind described in
    paragraph (c)."

5.  There are three conditions to be satisfied before the Court may exercise
its discretion under the rule.  The second of these, in subparagraph (b),
requires the Court to be satisfied that after making all reasonable enquiries,
the applicant has not sufficient information to enable him to decide whether
to commence the proceeding in the Court to obtain that relief.  The ready
answer to the present application is that an application under r32.05 is not
appropriate because the plaintiff has already decided whether to commence
proceedings in the Court to obtain relief, and has done so as is evidenced by
the writ.  It has been held in Compass Airlines Pty Ltd v ANOP Research
Services Pty Ltd (Supreme Court of Victoria, Beach J., 1 May 1991, unreported)
that if the applicant has concluded that he or she has the right to obtain
relief against a known defendant and wants discovery simply for the purposes
of determining whether or not the right should be enforced by proceeding in
the Court rather than following some other course, an application such as this
is inappropriate.  Similarly, if the applicant already believes there is a
cause of action, then discovery under this rule is not available to enable
verification of that belief or to ascertain the strength of the case for the
right to the relief (Gibson v Australian and New Zealand Banking Group Ltd
(Supreme Court of Victoria, Gobbo J., 30 August 1991, unreported) and see also
Petrolite Pty Ltd v Hong Kong Bank Ltd (Supreme Court of Victoria, Cummins J.,
10 February 1992, unreported).  The rule is designed to permit a search for
information before a proceeding is commenced.  The rule speaks for itself and
is designed to assist when an applicant meets the prescribed criteria to
obtain an order which will enable him to decide whether to commence a
proceeding.  Where the proceeding has already been commenced, the rule is, by
its terms, not available.  That does not mean that discovery in the ordinary
course after commencement of proceedings is not open to a plaintiff.  One of
the objects of r32.05 is to enable delay and cost to be reduced in an
appropriate case, but only in the circumstances provided for.  That is enough
to dispose of this application, but it is appropriate to go into the merits of
it.

6.  By her affidavit evidence, the plaintiff says that she met one John
Henderson through mutual friends in early 1987, and between that date and late
1990, she came to know him fairly well and travelled overseas in a group led
by him.  Nothing more is said as to the relationship between the plaintiff and
Mr Henderson. Nor is there anything in the evidence to demonstrate by direct
fact or inference that Mr Henderson had any relevant connection with the
entities referred to as "John Henderson Travel" and "Rainbow Travel".  Ms Ezzy
goes on to depose that in about December 1990, Mr Henderson asked her to
become guarantor for a loan to him by the bank, saying that the bank would
hold the title and deeds of a property owned by her in the form of security
for a couple of months, whilst he was awaiting final documentation to come
through in relation to some overseas finance.  She was shown some business
documents, but she did not know the exact nature or contents of them.  On
about 13 December 1990, she went to the bank's office and was handed a
document which she signed, being a mortgage over her property in Darwin, and
she also opened an account with the defendant.  She did not seek to obtain any
independent advice, nor was she advised to do so.  Over the following months
she agreed to extend the maximum amount for which she might be liable pursuant
to the guarantee, which, according to her, reached an obligation of up to
$100,000.  Ms Ezzy is unsure regarding an amount of some $76,000 which the
bank informed her was a miscellaneous advance in relation to the mortgage
account, and she speaks of her monthly loan repayments increasing to $1,670.

7.  In the meantime there had been some negotiations between the plaintiff and
Mr Henderson evidenced in two documents signed by him, the first dated 25
April 1991 and the other 8 March 1993. The first provides some confirmation of
the fact that the plaintiff guaranteed Mr Henderson's overdraft account at the
bank and acknowledges that she receives no financial gain or any other benefit
from the transaction.  Although it is unclear, it would seem that Mr Henderson
undertook to discharge his obligation to the plaintiff during 1994, and he
directed that in the event of his death his indebtedness to her was to take
precedence over all other indebtedness.  The subsequent document, apparently
executed in Jakarta, purports to give power and authority to the plaintiff to
act on his behalf in the sale of his house at 18 Bagot Road, Darwin, with the
net proceeds of sale, after discharge of a mortgage and attendant costs and
fees, being payable to her.  According to Ms Ezzy, she has been informed that
the Bagot Road property has been sold but she has not received the balance of
the proceeds of sale in accordance with the direction of 8 March 1993.  It
seems there may be some dispute between other creditors of Mr Henderson.  The
plaintiff has made enquiries of the bank concerning the disclosure of the
documents in its possession, but it has declined to release them in the
absence of an order from the Court.  There is no evidence as to what, if
anything, Ms Ezzy told the bank as to her relationship with Mr Henderson or
what she believes it knew about that relationship.

8.  But given what Ms Ezzy has disclosed, it would not matter whether the bank
knew all that she has told the Court.  She says nothing more then that she and
Mr Henderson were friends, and that they travelled overseas together in a
group, he being the leader of it.

9.  During the course of argument, counsel for the applicant suggested that
there were two other factors which could have a bearing upon the outcome of
the application.  The first was that there was no disclosure by the bank to Ms
Ezzy of the state of the account or accounts of Mr Henderson, which  she was
guaranteeing, at the time she entered into the guarantee and agreed to extend
her liability thereunder.  The second, was that the bank should have been on
notice that when Mr Henderson introduced the plaintiff to the bank as the
prospective guarantor, that there was something about the relationship between
them which should have caused the bank to enquire further before accepting her
surety.  Apart from the fact that there is no evidence indicating that the
bank failed to disclose the state of Mr Henderson's account, or that there was
something about the relationship between the two of them which should have put
the bank on notice, beyond that which is known to the Court, there is no
substance in either argument.

10.  There is nothing in the facts, nor in the inferences which are sought to
be drawn, from such limited information as is available, that there is
reasonable cause to believe that the applicant has or may have a right to
obtain relief in the Court from the bank.  It is not necessary that the
applicant demonstrate that she has, or may have, the right to obtain relief
from the bank, but she does bear an obligation of satisfying the Court that
there is reasonable cause to believe that that is the case.  It is not
necessary to go into a great deal of detail as to the law in relation to these
two speculative bases for granting the order.  As to the bank's duty to a
surety, see Commercial Bank of Australia v Amadio (1983) 151 CLR 447.  At p463
Mason J reviews the authorities.  The bank would be under a duty to disclose
to an intending surety anything which has taken place between the bank and the
principal debtor "which was not naturally to be expected"; the duty to
disclose does not require a bank to give information as to matters affecting
the credit of the debtor or of any circumstances connected with the
transaction in which he is about to engage which will render his position more
hazardous, and no surety is entitled to assume that the debtor has not been
overdrawing, the proper presumption being, in most cases, that he has been
doing so and he wished to do so again; and see Dawson J. at p484.

11.  As to the second proposition, Mason J. at p467 summarises the position
thus:
    ".... if A having actual knowledge that B occupies a
    situation of special disadvantage in relation to an intended
    transaction, so that B cannot make a judgment as to what is
    in his own interests, takes unfair advantage of his (A's)
    superior bargaining power or position by entering into that
    transaction, his conduct in so doing is unconscionable.  And
    if, instead of having actual knowledge of that situation, A
    is aware of the possibility that that situation may exist or
    is aware of facts that would raise that possibility in the
    mind of any reasonable person, the result will be the same".

Or as Dawson J. puts it at p485:
    ".... if a guarantor has, short of non est factum, been
    induced to give a guarantee to a bank as a result of some
    misrepresentation or other impropriety by its customer or a
    third party, then the validity of the guarantee is not
    affected so far as the bank is concerned unless the bank had
    notice of the impropriety or ought to have been put upon
    inquiry that impropriety might occur".

12.  There is no allegation by the applicant of any impropriety on the part of
Mr Henderson in his dealings with her or arising from their relationship, and
thus nothing of which the bank had notice, actual or constructive.  It was
urged, however, that the Court should draw an inference from the known facts
that there was something in the relationship between Ms Ezzy and Mr Henderson
which should give rise to a presumption of undue influence or unconscionable
conduct on his part and that the bank should be found to have had actual or
constructive notice of it.  There is no reasonable inference which can be
drawn from the known facts such as to give rise to reasonable cause to believe
that the applicant has, or may have, the right to obtain relief from the bank
upon any such ground.  The Court was referred to the decisions in Barclays
Bank plc v O'Brien and another (1993) 4 All ER 417 and CIBC Mortgages plc v
Pitt and another (1993) 4 All ER 433, which are interesting cases having to do
with dealings between husband and wife and the position of a lender bank
arising therefrom, but this is not such a case; nor is it a case which, on the
evidence, gives rise to any inference that the applicant was exposed to the
emotional pressure of cohabitation such as may be encountered in the various
relationships referred to by Lord Browne-Wilkinson at p431 of the earlier
report.

13.  The application is dismissed.