Re Ian Carling Grey and Greys Timbers Pty Limited v Australia and New Zealand Banking Group Limited and Esanda Finance Corporation Limited [1993] FCA 54 (24 February 1993)

FEDERAL COURT OF AUSTRALIA

Re: IAN CARLING GREY and GREYS TIMBERS PTY LIMITED
And: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and ESANDA FINANCE
CORPORATION LIMITED
No. N G415 of 1992
FED No. 64
Number of pages - 14
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Neaves J.(1)

CATCHWORDS

Practice and Procedure - Pleading - Amended statement of claim - Claim against bank and finance company - Allegation that loan created by book- entry credit and, therefore, unenforceable - Whether reasonable cause of action disclosed.

Federal Court of Australia Act 1977 (Cth)

Federal Court Rules, Order 20, r.2

HEARING

SYDNEY, 28 September 1992
24:2:1993

Ian Carling Grey appeared in person and for Greys Timbers Pty Limited.

Counsel for the respondents: Mr G. Nell

Solicitors for the respondents: Norton Smith and Co

ORDER

THE COURT ORDERS THAT:
1. The proceeding commenced by application filed on 26 June

1992 be dismissed.
2. The applicants pay the respondents' costs of the proceeding
including the costs of the motion on behalf of the
respondents.

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

DECISION

NEAVES J. By the motion presently before the Court, Australia and New Zealand Banking Group Limited ("the first respondent") and Esanda Finance Corporation Limited ("the second respondent") seek to have the proceeding number N G 415 of 1992 brought against them by Ian Carling Grey ("the first applicant") and Greys Timbers Pty Limited ("the second applicant") dismissed pursuant to Order 20, r.2 of the Federal Court Rules or, alternatively, to have the amended statement of claim filed in that proceeding by the applicants struck out pursuant to Order 11, r.16 of those Rules.

2. Order 20, r.2 of the Federal Court Rules relevantly provides:

"(1) Where in any proceeding it appears to the Court that in
relation to the proceeding generally or in relation to any claim
for relief in the proceeding:
(a) no reasonable cause of action is disclosed;
(b) the proceeding is frivolous or vexatious; or
(c) the proceeding is an abuse of the process of the
Court;
the Court may order that the proceeding be stayed or dismissed
generally or in relation to any claim for relief in the
proceeding."

3. Order 11, r.16 of those Rules provides:

"Where a pleading:
(a) discloses no reasonable cause of action or defence or
other case appropriate to the nature of the pleading;
(b) has a tendency to cause prejudice, embarrassment or
delay in the proceeding; or
(c) is otherwise an abuse of the process of the Court;
the Court may at any stage of the proceeding order that the whole
or any part of the pleading be struck out."

4. It was submitted that the proceeding should be dismissed on the grounds that the amended statement of claim disclosed no reasonable cause of action and that the proceeding was frivolous or vexatious and an abuse of the process of the Court.

5. The amended statement of claim, which was filed by the applicants in substitution for the statement of claim originally filed, alleges that at all material times the first applicant was the registered proprietor of certain land, that he was the beneficial and effective owner of, and majority shareholder in, Nalania Pty Limited, Maybreyne Properties Pty Limited and the second applicant and that each of those companies was the registered proprietor of certain land (pars 1 - 6). The second applicant is alleged to have signed an alleged lease with the second respondent on 14 April 1989 (par.7). Paragraphs 8 and 9 identify the business respectively carried on by the first and second respondents.

6. The applicants allege (par.10) that on 21 July 1987 the first respondent approved "a book-entry credit facility" to the first applicant secured by mortgages from the first applicant and each of the companies referred to above. Paragraph 11 alleges that on 14 April 1989 the second respondent approved "a book-entry credit lease agreement" to the second applicant secured by certain mortgages. Paragraph 12 reads:

"The alleged debt was created by the respondents as a book-entry
credit at no cost whatsoever to the respondents and the
respondents have no right whatsoever to claim payments in legal
tender cash currency of the Commonwealth of Australia or the
real-wealth assets of the applicant in return for cost-free
book-entry credit created out of nothing."

Particulars of that allegation are set out in pars (a) - (d) inclusive. Paragraph (a) states that the respondents, without the knowledge of the applicant (presumably meaning the first applicant), created book-entry credit entirely at the respondents' discretion and at no cost to them. Paragraph (b) refers to a decision of a judge in the United States of America in 1968 said to be a precedent for the proposition that book-entry credit is illegal. Paragraph (c) refers to passages in the judgment of Latham C.J. in Bank of New South Wales v. The Commonwealth, [1948] HCA 7; 76 CLR 1 at pp 193, 194. Paragraph (d) refers to a graph said to display "the essential truth that the respondents are knowingly engaged in a deceitful practice wherein the respondents know or should know that it is manifestly impossible for customers such as the applicant to pay their alleged debts to the respondents without the applicant being asset stripped."

7. Paragraph 13 of the amended statement of claim alleges that the mortgages fail to state that the respondents were engaging in a barter contract which comprised book-entry credit created at no cost to the respondents in exchange for legal tender cash currency of the Commonwealth of Australia or real-wealth assets from the applicant. It is asserted (par.14) that the respondents' alleged contractual documents are, therefore, false and misleading and should be struck out under s.4 of the Contracts Review Act 1980 (NSW) and ss.52, 52A and 53 of the Trade Practices Act 1974 (Cth). The only particulars given of that allegation consist of a quotation from a book entitled "The Legal Aspects of Money" by F.A. Mann that:

"Money is not the same as credit. Nor is the law of money
identical with the law of credit. Nor does the fact that 'bank
money' largely functions as money prove that in law it necessarily
and invariably is money."

8. Paragraph 15 alleges that, if the Court finds that the first respondent is entitled to create cost-free book-entry credit and that book-entry credit so created is valid in law and in fact, the applicant claims the same right. It is alleged in the particulars given of that allegation that no legislation in Australia authorises or permits the creation of cost-free book-entry credit by the respondents and that, in the absence of such legislation, the applicant is not debarred from itself (sic) creating cost-free book-entry credit exactly the same as do the respondents. The particulars refer to "the applicant's own book-entry certificate". It is asserted that, "if the Court finds that cost-free book-entry credit creation is legal and acceptable", the certificate when completed will fully satisfy the first respondent's demands. Contrary to the assertion in the particulars, the form of certificate is not annexed to the amended statement of claim. It was, however, annexed to the statement of claim as originally filed.

9. Paragraph 16 alleges that the respondents are guilty of negligence and failed to exercise proper care as bankers and financiers to the applicant. Particulars are given of that allegation in the following terms:

"The respondents failed through their silence to adequately and
properly advise the applicant of the truth of the matter of the
business relationship between the parties."

10. Paragraph 17 alleges that the respondents have set out to asset strip the applicant. The particulars given of that allegation state that the total alleged borrowings are $367,000 and that the total amount paid to and claimed by the respondents is $719,000. It is further stated that, on those figures, the respondents will have made a gross profit of no less than 196% which is said to be extortionate by any standard. The particulars also state that the maximum amount of real-wealth cash currency of the Commonwealth of Australia provided by the respondents was no more than 4% ($14,680) of the alleged borrowings so that the real gross profit of the respondents is no less than 6,898% "which is truly obscene".

11. Paragraph 18 alleges that the mortgages were not properly executed and should be struck out. The particulars given of that allegation are as follows:

"(a) ANTHONY IAN GREY as a co-signer of the mortgages was not at
any time present at execution of any one of the alleged mortgages.
(b) There was no proper witness to the separate signings of the
mortgages by IAN CARLING GREY and ANTHONY IAN GREY.
(c) The bank officer claiming to be the witness is disqualified
by virtue of (i) having himself prepared the bank mortgage
documents thereby becoming a party to the dealing (ii) being a
paid employee and agent of the first respondent."

12. It is also alleged (par.19) that the mortgage documents were materially altered while in the care and custody of the respondents and should be struck out. It is alleged that Anthony Ian Grey was never at any time present when the first applicant signed the mortgages and that the documents were completed by the respondents after execution by the first applicant and in his absence.

13. Paragraph 20 alleges that the respondents failed to explain the alleged mortgages to the applicant and Anthony Ian Grey, ensure that they had independent legal advice or allow sufficient time for the applicant and Anthony Ian Grey to read the alleged mortgages and to understand them.

14. By par.21 the applicant claims the protection of Magna Carta and the Bill of Rights 1688 "in relation to (a) jury trial (b) protection of livelihood and (c) freehold" and that the Court has no jurisdiction to deny the applicant the protection thereby claimed.

15. Paragraph 22 alleges that the Federal Court of Australia and the respondents use the King James version of the Bible in swearing oaths as to the veracity of evidence and that, in doing so, both the Court and the respondents automatically and irrevocably covenant and agree to the contents of that publication and all that it contains. The paragraph further alleges that the respondents are "in clear breach of the Divine Law, God's Law, which the Court is duty bound in law and in all conscience to uphold in accordance with the interlocking oaths of Queen Elizabeth II and the judges of the Federal Court of Australia". The particulars set out the form of the coronation oath of the Queen and the form of judicial oath. Paragraph (c) of the particulars states that "God's Law as stated in Deuteronomy 15:1-2 requires that the applicant's mortgage be self cancelling after seven (7) years". There is a reference in par.(d) to the Lord's Prayer (Matthew 6:12) and in par.(e) to Leviticus 25:37 forbidding usury. Paragraph (f) is in the following terms:

"God's Law as laid down in Deuteronomy lists 44 curses which shall
in due course fall upon those who spurn God's Law which the court
is duty bound by oath of office to uphold."

16. The relief claimed by the applicants is set out in the amended statement of claim as follows:

"1. A declaration that no monies were due and payable by the
applicant to the first respondent on the 21.7.87 or at any date
thereafter.
2. An injunction both interim and permanent restraining the
first respondent from exercising the powers conferred upon it by
the said alleged mortgages.
3. An injunction both interim and permanent restraining the
second respondent from exercising the powers conferred upon it by
the said alleged lease agreement.
4. Damages.
5. Interest including compound interest.
6. Costs. The applicant expects to be represented by counsel.
7. Such further or other orders as to the court may seem
appropriate."

17. It may be noted that, although the amended statement of claim refers to mortgages given to the first respondent by Nalania Pty Limited and Maybreyne Properties Pty Limited, those companies are not named as parties to the proceeding. It is not clear from the pleading whether those mortgages were given to secure advances made to the respective companies by the first respondent or advances made by the first respondent to the applicants or either of them.

18. The amended statement of claim asserts that a "credit facility" was approved by the first respondent in favour of the first applicant. It is not expressly stated whether the applicants or either of them received advances pursuant to that facility but the pleading proceeds on the assumption that advances were made. The essence of the allegation is that the first respondent cannot make an enforceable loan unless at the time it has assets in the form of currency or "real wealth" to back it up. That is a proposition which is untenable as a matter of law. I respectfully adopt what was said by French J. in Fisher v. Westpac Banking Corporation (18 August 1992 - unreported):

"There is nothing to prevent a bank evidencing a loan by a credit
entry. Its obligation under the loan agreement is nevertheless a
real one. If the money is advanced by way of electronic transfer
or appropriate book-entries there can none the less be real rights
and real obligations created which are enforceable at law.
Contract documents and securities recording a loan in such cases
do not mislead or deceive for want of hard currency backing for
it."

I am satisfied that the allegations set out in par.12 of the amended statement of claim disclose no reasonable cause of action.

19. Paragraphs 13 and 14 of the amended statement of claim depend upon an assertion that the mortgages failed to state that the respondents were engaging in a barter contract comprising book-entry credit. The applicants appear to be asserting that the failure to include such a statement in the mortgages constitutes misleading deceptive or unconscionable conduct on the part of the respondents within the meaning of the Trade Practices Act. The applicants also appear to be asserting that, by reason of the failure to include in the mortgages a statement of the kind pleaded, the mortgages are unjust, unconscionable, harsh or oppressive within the meaning of the Contracts Review Act.

20. In my opinion, a failure on the part of the respondents to include in the mortgages a statement that the source of the loan funds was the creation of book-entry credit (even assuming such a statement to be correct) could not constitute conduct in breach of the Trade Practices Act. In any event, there is no allegation that the applicants relied on the absence of such a statement and suffered damage in consequence of such reliance.

21. So far as the Contracts Review Act is concerned, no facts are alleged sufficient to bring the matter within the purview of that Act. Further, that Act could provide no assistance to the second respondent as it is expressly provided by s.6(1) that a corporation may not be granted relief under the Act.

22. I am satisfied that pars 13 and 14 of the amended statement of claim disclose no reasonable cause of action.

23. As to par.15, there is no basis for the assertion that any obligation which the applicants owe to the respondents or either of them could be discharged by the mere completion by them of a certificate in the form referred to in that paragraph.

24. Paragraph 16 makes an allegation of negligence against the respondents but the facts on which the applicants rely to establish a duty of care and breach thereof are not pleaded. The particulars given suggest that the allegation is, again, based on the failure of the respondents to disclose that they were creating book-entry credit at no cost to themselves. If that be the basis of the allegation, the paragraph must meet the same fate as the other paragraphs concerning the creation of book-entry credit and the source of the loan funds.

25. Paragraph 17 asserts that the respondents set out to "asset strip the applicant". This paragraph is, again, closely related to the paragraphs concerning the source of the loan funds and discloses no reasonable cause of action. The applicants appear to regard an obligation to pay interest on moneys loaned as involving asset stripping. Such an assertion is clearly untenable.

26. Paragraphs 18, 19 and 20 relate to the mortgage documents and their execution. The paragraphs as pleaded provide no sufficient factual material to found a cause of action. The amended statement of claim does not explain what, if any, part Anthony Ian Grey played in the transactions. Other material before the Court suggests that his only involvement was that, as a director of Nalania Pty Limited, Maybreyne Pty Limited and the second applicant, he signed the mortgages given by those companies to evidence the affixing of their respective seals. Further, the fact that a bank officer signed the documents as a witness provides no foundation for a contention that the mortgages are unenforceable. It is clear that the bank officer who signed the mortgages as a witness was not a party to those mortgages. Again, no proper foundation is laid in the amended statement of claim to support the allegation that the mortgage documents were materially altered while in the custody of the respondents. In any event, even if the allegation of material alternation were made out, it would not support the relief claimed, namely that the mortgages as executed by the applicants are void or unenforceable. Paragraph 20 in so far as it alleges that the respondents failed to explain the mortgages to the applicant, failed to ensure that the applicant had independent legal advice and failed to allow sufficient time for the applicant to read and understand the documents, may be thought to reflect a possible cause of action against the respondents. However, no sufficient factual material is alleged to found a cause of action and, in any event, the cause of action would not fall within the primary jurisdiction of this Court. Further, in the absence of a cause of action falling within this Court's primary jurisdiction, it could not properly be said that it would fall within what has been referred to as the accrued jurisdiction. Nor would it be appropriate for this Court to entertain the cause of action by reason only of the provisions of the cross-vesting legislation.

27. As to pars 21 and 22, it is sufficient to say that they disclose no legally tenable cause of action.

28. For the reasons set out above, the amended statement of claim discloses no reasonable cause of action. There is nothing in the material before the Court to suggest that the amended statement of claim could be further amended so as to disclose a cause of action within the primary jurisdiction of this Court. I am, therefore, of opinion that the proceeding should be dismissed. The applicants must pay the respondents' costs of the proceeding including the costs of the motion on behalf of the respondents.