Australia: Supreme Court summarily dismisses promissory note defences and claims

Summary

Mr and Mrs Evans alleged that they had repaid a debt owed by them to ANZ by way of a Promissory Note. Mr and Mrs Evans further alleged that as ANZ failed to accept the Promissory Note, ANZ owed them more than $7,000,000.

In determining this case (Australia and New Zealand Banking Group Ltd v Evans; Evans v Esanda Finance Corporation Ltd [2016] NSWSC 1742), the Supreme Court of New South Wales has provided further guidance on the issue of when it is appropriate to strike out or summarily dismiss a pleading and confirmed that a party cannot unilaterally impose a contract upon another party.

Kemp Strang acted on behalf of ANZ in this matter, which was heard by his Honour, Justice Garling on 21 September 2016 with judgment being delivered on 9 December 2016.

Key facts

ANZ provided various facilities to Glenevan Pty Ltd, a company of which Mr and Mrs Evans were the sole directors. The facilities were secured by guarantees given Mr and Mrs Evans and mortgages over three properties and two vehicles.

In February 2015, the company was placed into liquidation, resulting in an event of default occurring. ANZ subsequently issued demands to Mr and Mrs Evans and commenced proceedings for debt and possession of the properties and vehicles.

In response, Mr Evans delivered to ANZ a document that purported to be a Promissory Note. The purported Promissory Note detailed an amount approximately equal to the sum of the debt then owed by Mr Evans to ANZ and contained the following text:

"Redeemable on demand at 56 Winton Street, Tumbarumba New South Wales at 10.55 hours without; let, delay, hindrance or ado on the second day of October AD 2015".

The purported Promissory Note also included a statement to the effect that ANZ would be bound by the terms and conditions attached to the Promissory Note if it failed to return the Promissory Note within 3 days.

The terms and conditions attached to the purported Promissory Note included terms to the effect that ANZ would be in breach of the Promissory Note if it failed to return the Promissory Note and thereafter continued with its attempts to recover the debt owed to it by Mr and Mrs Evans. In relying upon these terms and conditions, Mr Evans sought orders against ANZ, including the following:

"Pursuant to the terms and conditions in the default and liability clause and notice of the six not negotiable contracts, [ANZ] is liable to [Mr and Mrs Evans] of an award for breach of contract for the total sum of $7,339,600 Australian as at 5 February 2016 for breach of the NOT NEGOTIABLE [Promissory Note]." (sic)

In February 2016, a defence was filed by Mr and Mrs Evans which admitted the existence of the agreements, the entry into mortgages, guarantees and demands and events of default. Mr and Mrs Evans asserted however that any liabilities owed to ANZ had been discharged as a result of the Promissory Note. Mr and Mrs Evans also cross claimed against ANZ, a number of its employees and Kemp Strang and commenced new proceedings against Esanda Finance Corporation Ltd.

ANZ sought to summarily dismiss or strike out the defence, cross claim and the proceedings commenced by Mr and Mrs Evans against Esanda Finance Corporation Ltd.

The Judgment

Garling J determined that the claims made against ANZ in relation to the Promissory Notes were "a nonsense". Garling J further described Mr Evans' efforts to bind ANZ to a unilateral contract as based upon an "irrational premise" being "that a person or party can unilaterally impose a contract upon one or more other parties by producing a five page written document, full of gibberish and legal nonsense, sending it to the other party or parties and then asserting that when the recipients ignore the document, they fall to be bound by its terms."

Notwithstanding the above, Garling J confirmed that summary dismissal should only occur in the "clearest of cases" as the effect of an order for summary dismissal denies a litigant a full hearing.

However, in light of the novel argument presented by Mr Evans, Garling J determined that Mr Evans' pleadings (in so far as they related to the Promissory Note) fell into a category of cases that can be determined on a summary basis as the arguments raised were "misconceived, nonsensical and a waste of the limited public resources invested in the judicial system". The balance of the pleadings were "wholly inadequate" in that they failed to properly plead a defence or cause of action.

As a result, the cross claim (in so far as it related to the Promissory Note) and the proceedings commenced by Mr Evans against Esanda Finance Corporation Limited were summarily dismissed. The defence was struck out with Mr and Mrs Evans being granted leave to file a notice of motion seeking leave to file an amended defence if they have a defence legally available to them. Mr and Mrs Evans are not permitted to replead the defences that were struck out.

Takeaway

The decision affirms that:

  1. A contract cannot be unilaterally imposed on a party without consideration and active consent (silence or passive consent is not sufficient).
  2. When commencing proceedings, there is to be a genuine dispute and a reasonable cause of action.
  3. All pleadings must adequately set out the cause of action or defence.
  4. The Court has ample power to summarily dismiss proceedings where those proceedings are vexatious or otherwise an abuse of process.

The takeaway is that in appropriate cases, it may be possible for a plaintiff to bring about a quick end to proceedings where defences and/or cross claims fail to raise any legally arguable defence/cause of action. However, each case must be considered on its merits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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