Re Allan Victor Brownbill; Frederica Kathleen Brownbill and Palmat Pty Limited v Esanda Finance Corporation [1991] FCA 399; 102 ALR 332 (27 August 1991)

FEDERAL COURT OF AUSTRALIA

Re: ALLAN VICTOR BROWNBILL; FREDERICA KATHLEEN BROWNBILL and PALMAT PTY
LIMITED
And: ESANDA FINANCE CORPORATION
No. Q G56 of 1991
FED No. 514
Practice and Procedure
[1991] FCA 399; 102 ALR 332

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Morling(1), Neaves(1) and Pincus(1) JJ.

CATCHWORDS

Practice and Procedure - pleading - paragraphs of application and statement of claim struck out as disclosing no reasonable cause of action - agreement for the borrowing of money by company - part of moneys to be applied in reduction of debt owed by directors of company - directors entering into contract of guarantee and indemnity and giving other security for repayment of moneys borrowed - whether agreement properly characterised as a "loan contract" within the meaning of Part III of the Credit Act 1987 (Q) - leave to appeal granted - appeal dismissed

Federal Court Rules, Order 20, r.2(1) and Order 11, r.16(a)

Credit Act 1987 (Q), s.7(1) (various definitions)

HEARING

BRISBANE
27:8:1991

Counsel for the applicants: Ms C. Holmes

Solicitors for the applicants: Boe and Company

Counsel for the respondent: Mr D.J.S. Jackson QC and

Mr P.M. McQuade

Solicitors for the respondent: Corrs Chambers Westgarth

ORDER

Leave be granted to the applicants to appeal from the judgment given on 13 May 1991 whereby it was ordered that paragraphs 14 to 17 inclusive and paragraphs 18(d), (e) and (f) of the statement of claim and paragraphs 4, 5 and 6 of the application both dated 15 April 1991 and filed on behalf of the applicants be struck out.

The appeal from the said judgment be dismissed.

The applicants pay the respondent's costs of the application for leave to appeal and of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The applicants, Allan Victor Brownbill, Frederica Kathleen Brownbill and Palmat Pty Limited, have applied, by motion on notice, for leave to appeal from a judgment pronounced by a single judge of the Court on 13 May 1991. By that judgment, certain paragraphs of an application filed in this Court on behalf of the applicants on 15 April 1991 and certain paragraphs of the statement of claim filed in support of that application were struck out pursuant to Order 20, r.2(1) and Order 11, r.16(a) of the Federal Court Rules on the basis that those paragraphs disclosed no reasonable cause of action. The respondent to the proceeding in which that judgment was pronounced and to the application for leave to appeal is Esanda Finance Corporation.

2. As the statement of claim disclosed other causes of action upon which the applicants sought relief in the application, the judgment given on 13 May 1991 is interlocutory: Computer Edge Pty Ltd v Apple Computer Inc. [1984] HCA 47; (1984) 54 ALR 767; Miki Shoko Co. Ltd v Merv Brown Pty Ltd (1988) 88 ATPR 40-858. Hence, leave to appeal is necessary (Federal Court of Australia Act 1976 (Cth), s.24(1A)).

3. The principal relief sought in the application dated 15 April 1991 was a declaration (par 1) that certain conduct of the respondent was misleading or deceptive or likely to mislead or deceive in contravention of s.52 of the Trade Practices Act 1974 (Cth). Paragraph 2 sought a declaration that the respondent's conduct was unconscionable. Paragraph 3 claimed that a loan contract, an equitable mortgage and bill of sale, a property mortgage and a contract of guarantee and indemnity be set aside as void ab initio. Then followed the paragraphs, pars 4, 5 and 6, which were ordered to be struck out. By par.4, the applicants claimed a declaration that the conduct of the respondent was unjust within the meaning of s.148 of the Credit Act 1987 (Q). Paragraph 5 claimed a declaration that the applicant Palmat Pty Limited is not liable, by virtue of s.44 of that Act, to pay the respondent a credit charge under the loan contract. Further, or in the alternative, the applicants claimed (par.6) that the transaction giving rise to the loan contract and property mortgage be re-opened pursuant to s.148 of that Act and that the loan contract and the property mortgage be set aside.

4. The statement of claim, in para 4, alleged that at all material times Allan Victor Brownbill and Frederica Kathleen Brownbill were directors of Palmat Pty Limited. Paragraph 5 alleged that, on or about 15 August 1989, Palmat Pty Limited, by Allan Victor Brownbill and Frederica Kathleen Brownbill, entered into a contract in writing (thereafter referred to as "the loan contract") with the respondent to borrow the amount of $192,829.47 together with interest at the rate of 21.5% per annum to be repaid by 60 calendar monthly instalments in the sum of $4,813.00 each together with a final instalment of $54,800.13. It was further alleged that the sum of $192.829.47 was to be applied, inter alia -

(i) as to the sum of $179,154.27 to the financing of the purchase of
a Ford Louisville Prime Mover registered number QXO-IBI;
(ii) as to the sum of $2,169.24 to the reduction of a debt owed by
Allan Victor Brownbill and Frederica Kathleen Brownbill to the
respondent.

Paragraph 5 further alleged that, as security for the loan contract, Palmat Pty Limited granted to the respondent a registered bill of sale and equitable mortgage over the vehicle referred to and Allan Victor Brownbill and Frederica Kathleen Brownbill entered into a contract of guarantee and indemnity of and for payment of the moneys advanced by the respondent pursuant to the loan contract and granted to the respondent a second mortgage over certain property owned by them (thereafter referred to as "the property mortgage").

5. The paragraphs of the statement of claim struck out were pars 14, 15, 16, 17 and 18(d), (e) and (f). Paragraphs 14, 15, 16 and 17 were in the following terms:

"14. At all material times:-
(a) the Respondent was a 'credit provider' within the meaning of
the Credit Act 1987;
(b) the loan contract was a regulated loan contract within the
meaning of the Credit Act 1987;
(c) the guarantee was a contract of guarantee within the meaning of
the Credit Act 1987;
(d) the property mortgage was a regulated mortgage within the
meaning of the Credit Act 1987.
15. In connection with the entering by the Applicants of the loan
contract, the equitable mortgage, the property mortgage and the
guarantee, the Respondent contravened the Credit Act 1987 in the
following respects:-
(a) contrary to section 34(1) of the said Act, by giving to the
Applicants for signature a loan contract which did not include
a notice in the form prescribed;
(b) contrary to section 34(3) of the said Act, by giving to the
Applicants for signature a loan contract without also giving to
them a true copy of the document for their own use certified as
required by the said section before the Applicants signed the
said document;
(c) contrary to section 38(1) of the said Act, by failing to
include in the loan contract each and every one of the matters
referred to in the said section;
(d) contrary to section 36 of the said Act, by failing to provide
within twenty-one days after the contract was made a statement
as prescribed by the said section;
(e) contrary to section 93 of the said Act, by failing to provide
to the debtor a copy of the property mortgage within twenty-one
days after it was entered into;
(f) contrary to section 138 of the said Act, by failing to provide
to the Applicants, ALLAN VICTOR BROWNBILL and FREDERICA
KATHLEEN BROWNBILL, within twenty-one days after the signature
by them of the guarantee, a statement as prescribed by the said
section.
16. By reason of the matters referred to in paragraphs 11 and 15
above, the loan contract and property mortgage were unjust within the
meaning of section 148 of the Credit Act 1987.
17. Insofar as the Applicants seek relief pursuant to the
provisions of the Credit Act 1987, they rely on section 4 of the
Jurisdiction of Courts (Cross-vesting) Act 1987 as amended on the
grounds that the said relief is closely allied to the other grounds
of relief sought herein and is in respect of identical transactions
so as to make the exercise by this Honourable Court of its
jurisdiction in respect of all matters herein appropriate."

Sub-paragraphs (d), (e) and (f) of par.18 restated in identical terms the relief sought in pars 4, 5 and 6 of the application.

6. It is conceded by counsel for the applicants that, in the particular circumstances of this case, no cause of action arose under the Credit Act unless the agreement pleaded in par 5 of the statement of claim answers the description of a "loan contract within the meaning of Part III" of that Act (see s.149 and definitions of "regulated contract" and "regulated loan contract" in s.7(1)). To fall within that description the agreement pleaded must be characterised (see the definition of "loan contract" in s.7(1)) as "a contract under which a person in the course of a business carried on by him provides or agrees to provide, whether on one or more occasions, credit to another person, not being a body corporate, in one or more of the following ways:-

(a) by paying an amount to or in accordance with the instructions
of that other person;
(b) by applying an amount in satisfaction or reduction of an amount
owed to him by that other person;
(c) by varying the terms of a contract under which moneys owed to
him by that other person are payable;
(d) by deferring the obligation of that other person to pay an
amount to him;
(e) by taking from that other person a bill of exchange or other
negotiable instrument on which that other person (whether alone
or with another person or other persons) is liable as drawer,
acceptor or endorser".

"Credit" is defined to include any form of financial accommodation other than specified types of credit but, notwithstanding those exceptions, to include any form of financial accommodation provided to a debtor in respect of a contract relating to a commercial vehicle or farm machinery. "Debtor" means, in relation to a credit contract, an expression which includes a loan contract, the person to whom credit is provided under the contract.

7. The applicants had, in a draft notice of appeal, set out the grounds upon which they would propose to rely on the hearing of the appeal in the event that leave to appeal were granted. Although the grounds of appeal included grounds that the primary judge had erred in concluding that the agreement pleaded in para 5 of the statement of claim was not a "loan contract within the meaning of Part III" of the Act, the primary position taken by the applicants was that, the practical effect of the judgment being to "preclude (the appellants) from arguing a major part of their application and from obtaining a substantial part of the relief sought", the primary judge erred in "failing to acknowledge or to apply the essential principle that a party should not be deprived of his opportunity to submit his case for determination where there is a real question of law upon which his rights depend to be determined". The basis for this submission was an assertion that the construction of the expression "loan contract" in s.7(1) of the Credit Act for which the applicants contended was "at least reasonably arguable".

8. The Court decided that, before determining whether leave to appeal should be granted, it should hear full argument upon the substantive questions that would be raised by the appeal in the event that leave were granted.

9. The argument presented on behalf of the applicants in support of the contention that the agreement pleaded in para 5 of the statement of claim is properly characterised as a "loan contract within the meaning of Part III" of the Act has the attraction of simplicity. It is said that the definition of "loan contract" does not, in terms, require that the person to whom credit is provided be identical with the person with whom the contract is made. It is also said that the definition of the expression "credit" in s.7(1) does not require that the "financial accommodation" be provided exclusively to the contracting party under the loan contract. It follows, so the argument ran, that as the contract in this case required that a portion of the moneys advanced by the respondent be applied to the reduction of the debt owed to the respondent by Allan Victor Brownbill and Frederica Kathleen Brownbill, the contract is one under which the respondent provided credit to those persons.

10. The question whether the relevant paragraphs of the application and statement of claim should have been struck out is clearly a matter of considerable importance to the applicants. Further, the true meaning and effect of the relevant provisions of the Credit Act, the matter which lies at the heart of the judgment from which leave to appeal is sought, raises an important question and one in relation to which the industry of counsel has failed to discover any relevant judicial pronouncement other than that of the primary judge. In the light of these considerations, we are of the opinion that the applicants should be granted the leave to appeal which they seek.

11. We are also of opinion that, as the substantive question in issue is one of law the resolution of which will finally determine whether the applicants may pursue a substantial part of the relief claimed in the proceeding, we should proceed to express our opinion on that question.

12. The argument presented on behalf of the applicants, notwithstanding its superficial attractiveness, must, we think, be rejected. The primary judge held that the agreement on which the applicants rely is not a loan contract within the meaning of Part III of the Act and, in our opinion, his decision is plainly correct. The agreement pleaded is a contract between the company and the respondent. It is true that the allegation is made that the company "by" the Brownbills entered into the contract. The only meaning that can be sensibly attributed to this expression is that the Brownbills, as directors of the company, caused it to enter into the contract with the respondent.

13. It is demonstrably clear that the agreement relied upon by the applicants is so framed as to provide that the money advanced pursuant to it is advanced to Palmat Pty Limited, not to the Brownbills. It provided "credit" as defined in the Credit Act only to the company. It did not provide for credit to be given to the Brownbills. In other words, the agreement is not one by which, in terms of the definition of "loan contract" in s.7(1), the respondent provided or agreed to provide credit to a person other than a body corporate. The circumstance that the Brownbills guaranteed to the respondent the repayment by Palmat Pty Limited of the amount borrowed by that company together with interest thereon cannot operate to change the character of the agreement to one under which the respondent provided or agreed to provide credit to those natural persons. Nor can that transmogrification be achieved by relying on the circumstance that they granted a mortgage over certain of their property as additional security for the loan to the company or on the further circumstance that portion of the moneys advanced to the company were to be used to reduce the debt owed by them to the respondent.

14. The true nature of the legal obligations to which the agreement gave rise may be appreciated from a consideration of the remedies which would have been open to the respondent in the event that the moneys advanced under the agreement were not repaid. In that event, the respondent's primary right to recover the money owed to it would have been to make a demand upon the company. The Brownbills could not, under a contract of guarantee and indemnity as pleaded, have been called upon to repay the whole, or any part of, the loan made to the company until such time as a demand had been made upon the company and the company had failed to satisfy it. In other words, the true relationship of the Brownbills to the respondent was that of guarantors, not debtors.

15. There was some discussion during the course of argument as to the meaning of the words "any form of financial accommodation" in the definition of "credit" in s. 7(1) of the Act. It is not necessary for the purposes of this case, and it would be undesirable to attempt to do so, to express a definitive or exhaustive view as to the kinds of transaction which those very general words might encompass. It is appropriate to say, however, that we incline to the view that financial accommodation is not relevantly provided to a person unless that person is, under the terms of the relevant credit contract, under a primary obligation to the person providing the credit.

16. Although it is well established that the power summarily to terminate proceedings in so far as they are based upon what is pleaded as a separate cause of action is to be sparingly exercised and is not to be used except in a clear case (see General Steel Industries Inc. v Commissioner for Railways (N.S.W.) [1964] HCA 69; (1964) 112 CLR 125), we are satisfied that this is a case in which the primary judge was correct in doing so. The case pleaded by the applicants in the paragraphs of the statement of claim which have been ordered to be struck out is so clearly untenable that it cannot possibly succeed.

17. For the reasons set out above, leave is granted to the applicants to appeal from the judgment given on 13 May 1991. The appeal is, however, dismissed. The applicants must pay the respondent's costs of the application for leave to appeal and of the appeal.