FEDERAL COURT OF AUSTRALIA

Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd (No 2) [2015] FCA 1208

THE COURT ORDERS THAT:

1.    Pursuant to the slip rule under r 39.05 of the Federal Court Rules 2011 (Cth), order 1 of the orders made on 4 February 2015 be amended to read:

“1. Until further order of the Court, each of the respondents by themselves, their servants and agents, be restrained from implementing or attempting to implement an annual facility fee or similar fee in respect of any borrowers whose credit contract with the second respondent includes either clause 1 or 4 of Schedule 2, attached hereto”.

2.    The interlocutory injunction granted on 4 February 2015 be dissolved.

3.    The respondents be released from their undertaking to the Court noted on 12 May 2015.

4.    The applicant pay the respondents’ costs of and in connection with the application to continue the interlocutory injunction and respondents’ undertaking, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The respondents be released from their undertaking to the Court noted on 12 May 2015.

2.    The applicant pay the respondents’ costs of and in connection with the application to continue the interlocutory injunction and respondents’ undertaking, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 1 October 2015, I delivered principal reasons for judgment in relation to these matters (Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2015] FCA 1067). Those principal reasons need to be read with these reasons in order to understand the conclusions I have reached.

2    The issue before me today relates to the fact that, as part of the process leading up to the hearing of these matters in July 2015, I made an interlocutory order in proceedings NSD 1328 of 2014 on 4 February 2015 as follows:

Until further order of the Court, each of the respondents by themselves, their servants and agents, be restrained from implementing or attempting to implement an annual facility fee or similar fee in respect of any borrowers whose credit contract with the second respondent includes either clause 1 or 4 of Schedule 2, attached hereto.

3    Also on 12 May 2015, in both proceedings NSD 1328 of 2014 and NSD 526 of 2015 the respondent, Columbus Capital Pty Ltd (Columbus), gave an undertaking to the Court in these terms:

On the basis of the applicant giving the usual undertaking as to damages, and pending the final determination of these proceedings the respondent undertakes to the Court not by itself, its servants or agents to engage in any of the conduct set out in paragraphs 1 and 2 of the claim for interlocutory relief in the originating application filed in proceedings NSD526/2015.

4    Paragraphs 1 and 2 of the claim for interlocutory relief in the originating application filed in proceedings NSD 526 of 2015, as referred to in the undertaking of Columbus above, concern actions by Columbus to terminate the contractual arrangements between it and Pioneer Mortgage Services Pty Ltd (Pioneer), the details of which are explained in my principal reasons.

5    The question before me today is whether, having regard to my principal reasons, I should dissolve the interlocutory injunction made on 4 February 2015 and release Columbus from its undertaking of 12 May 2015.

6    In short, in my principal reasons I explained why I accepted Columbus’ case in virtually all respects and rejected the case of Pioneer. Amongst other things, I found that Columbus had a right to terminate the contractual arrangements between it and Pioneer. In addition, I found that one basis for Columbus’ right to terminate was that Pioneer had breached obligations under the contractual arrangements to manage the loans “in an efficient and businesslike manner and in accordance with sound business practices”. This was because the systems which Pioneer had in place, as I explained in the principal reasons, permitted a fraud to be committed by one of Pioneer’s employees over many years without detection. I also found in the principal reasons that, as a result of the same facts, Pioneer was itself liable for the fraud of its employee. I further found that a letter sent by Columbus to borrowers in the relevant loan portfolio did not constitute misleading and deceptive conduct.

7    These are the circumstances in which I now must determine whether the interlocutory injunction should continue and whether Columbus should continue to be bound by its undertaking. In respect of the latter question, I note that the undertaking was “pending the final determination of these proceedings”. I have not yet made final orders in the proceedings but, in an earlier directions hearing, the form of the orders which should be made has been agreed. I propose to make final orders tomorrow unless the parties notify me of any change which ought to be made to the draft form of the orders which has been provided to them today. In other words, in my view, the undertaking which Columbus gave in the ordinary course would not extend beyond tomorrow in any event. Notwithstanding this, it is the position of Pioneer that it is appropriate that there be no release of Columbus from that undertaking because it proposes to appeal my decision and will do so, as I understand it, within the 21 day period for an appeal which will accrue on and from the making of the final orders. On the same basis, Pioneer says that there should be a continuation of the interlocutory injunction, in the first instance, for a period of 21 days in order to allow it to institute its appeal but, in truth, until the appeal itself is determined.

8    The relevant principles are not in dispute. I summarised the principles that would apply to a question such as this, being analogous to a stay of proceedings, in Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (No 2) [2010] FCA 1212 at [15] as follows:

…

(1)    “A successful party is presumed to be entitled to the benefits of the judgment obtained” (Advanced Building Systems v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121 at 122).

(2)    An “applicant for a stay has the burden of persuading the court that it should be granted” (Advanced Building Systems at 122) but it is not necessary to show special or exceptional circumstances (Henderson v Amadio Pty Ltd (1996) 136 ALR 593 at 595 applying Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685).

(3)    “The court, in the exercise of its discretion, will not hesitate to stay proceedings when it is necessary to preserve the subject matter or integrity of the litigation. Nor will the court hesitate to grant a stay where the refusal of a stay could create practical difficulties in terms of the relief which [the] court could grant” (Advanced Building Systems at 122).

(4)    It is relevant to consider whether “there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed” (Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) (1986) 160 CLR 220 at 223).

(5)    Another relevant consideration is whether the proposed appeal is genuine and based on reasonable grounds (Henderson v Amadio Pty Ltd at 595).

(6)    Relevant also is the willingness or not of a party to give an undertaking as to damages. Hence, in Red Bull Australia Pty Limited v Sydneywide Distributors Pty Limited [2001] FCA 1750 at [10] Red Bull’s refusal to give such an undertaking, thereby exposing Sydneywide to irrecoverable loss if Sydneywide succeeded in its appeal, was described as “a factor which is clearly relevant to the exercise of the discretion to grant a stay”, however it proved insufficient to displace the presumption that Red Bull was entitled to the benefit of its judgment (at [20]).

9    Further, in Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66 the Full Court made these observations:

The principles applicable depend on the terms of O 52, r 17 of the Federal Court Rules 1979 (Cth). Rule 17(1) provides:

“An appeal to the Court shall not:

(a)    operate as a stay of execution or of proceedings under the judgment appealed from; or -

…

except so far as the Court or a Judge or the court below may direct”.

The language of that rule suggests no limitation upon a broad discretion inhering in the Court. Several judges of the Court, most recently Heerey J in Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 have followed the decision of the Court of Appeal of New South Wales in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685, where, at 694, that Court said it was “sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour”. The Court of Appeal also referred with approval to a statement of Mahoney JA in Re Middle Harbour Investments Ltd (In liq) (unreported, Court of Appeal, NSW, 15 December 1976) where, with the concurrence of the other members of the Court, Mahoney JA said:

“Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.”

Notwithstanding that in the Supreme Court of Victoria a more stringent test has generally been applied (see Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150), we think we should follow the decision in Alexander v Cambridge Credit. “Special” circumstances do not have to be shown. In any case, in this Court the word “special”, in a comparable context, has not been thought to raise a significant barrier to the exercise of a broad general discretion: Jess v Scott (1986) 12 FCR 187. There, the rule itself dealing with leave to appeal out of time used the expression “special reasons”.

10    Pioneer’s case is that the continuation of the interlocutory injunction and the undertaking which Columbus has given will preserve the status quo pending the resolution of the appeal. Further, Pioneer has said that if it is successful in the appeal but Columbus has purported to terminate the contractual arrangements then it will be impossible for Pioneer to be placed in the same position as it currently enjoys. One reason for this is explained in an affidavit from Gerald Brown, the chief executive officer of Pioneer, to the effect that because of its long-term relationship with the borrowers and its role as the point of contact with the borrowers, Pioneer has established goodwill with those borrowers which enables it to expand its services to them by offering other services such as life insurance, health insurance and other financial services, not being limited to mortgages. It is said that it will not be possible to calculate the loss to Pioneer if the relationship is ended. Further, according to Mr Brown, if Columbus is released from the interlocutory injunction, then it would be free to contact borrowers and advise them of the introduction of an annual facility fee. If, however, Pioneer succeeds in any appeal, the effect of the annual facility fee will be irreversible because, as I understand it, it will not be possible to determine which borrowers refinanced or otherwise paid down their loans because of the introduction of a new fee. Moreover, Pioneer would no longer be the sole contact with the borrower, thereby again adversely impacting upon the goodwill which it says it has established with borrowers.

11    Pioneer has proffered an undertaking as to damages for the continuation of the interlocutory injunction and the continuation of Columbus’ undertaking and has also indicated that, if necessary, it would be willing to provide security such as by way of the payment of money into Court in order to preserve the status quo.

12    For its part, Columbus says that if it turns out that in reliance on my principal reasons Columbus terminates the contractual arrangements then the damages to Pioneer are certain because of cl 9.4 of the 1994 Mortgage Origination and Management Deed (the 1994 deed). I referred to cl 9.4 at [18] of my principal reasons and at [20] I said:

It will be apparent that although cl 9.4 of the 1994 deed allows Columbus to terminate the arrangement between it and Pioneer on notice and without Pioneer being in default, cl 9.4 also provides for Columbus to pay compensation to Pioneer if it invokes its rights under that clause. In contrast, cll 9.1 – 9.3 do not involve the payment of compensation by Columbus to Pioneer but depend on some form of fault by Pioneer.

13    I agree with Columbus that cl 9.4 is of critical importance to the question whether the damages that Pioneer might suffer are incalculable or not. The reason for this is that Columbus, on 40 days’ notice, is entitled to terminate without proving any fault by Pioneer. The obligation after termination is to pay compensation, which is defined. As Columbus said, the best that Pioneer can ever do is to obtain compensation in accordance with cl 9.4, should there be a termination by Columbus in reliance on that clause.

14    In fact, Columbus has not elected to terminate in reliance on cl 9.4, but there is no doubt that it has made clear for many months now that it no longer wishes to continue in a contractual relationship with Pioneer. Columbus’ primary position is that because a court would infer that if not entitled to terminate under cll 9.1 – 9.3 Columbus would have terminated at the same time under cl 9.4, any damage that Pioneer might suffer by reason of a termination must be calculated in accordance with cl 9.4 confined to the period of 40 days from the date of termination under cll 9.1 – 9.3. Alternatively, damages would be calculated under cl 9.4 from the later date of actual termination under that clause should it be found on appeal that cll 9.1 – 9.3 are not engaged as found in the principal reasons. Either way, Pioneer’s attempt to rely on what it describes as the goodwill of the borrowers for the purpose of offering other services is always at the pleasure of Columbus not deciding to terminate in reliance upon cl 9.4, a right it may exercise at any time, and which involves a payment readily able to be calculated in all circumstances.

15    As I have said, I agree with Columbus’ approach to the contractual arrangements between Pioneer and Columbus. I am satisfied that any loss or damage to Pioneer, should Columbus now terminate the contractual arrangements, will be calculable. In contrast, I consider that Columbus is also correct to say that the loss or damage to it will not be able to be calculated readily. As Andrew Chepul, the chief executive officer of Columbus has pointed out, the principal reasons identify my conclusion that Pioneer breached its contractual obligations and that, as a result, a fraud by one of its employees continued over many years. That having been found, I accept Mr Chepul’s evidence that there are reputational issues for Columbus in continuing to deal with a mortgage manager who has been found to be responsible for the fraud of its staff and, I would say further, has been found to not have in place appropriate measures to prevent such fraud. Mr Chepul says that financiers would see financing Columbus as a higher risk involving potential increased costs of funds to Columbus. Leaving aside that risk, as has been put to me, there is the fact of reputational damage which might be incurred in continuing a relationship which there can be no doubt Columbus has not wanted to continue for many months.

16    Otherwise, as Mr Chepul has said, the facts are these:

8. Pioneer has not originated any new loans under the 1994 Deed since early 2009. Thus, in relation to the applicant’s relationship with the respondents it does not carry out:

a. Marketing in respect of loan products

b. Sale of loan products direct to the public

c. Credit processing of loans

9. In addition, the first respondent manages its own collections, arrears and all material functions in loan management (including managing data and sending out loan statements which we send directly from our office) and has done so since October 2013.

10. Since around May 2015, when Pioneer originally sought the injunction to prevent Columbus from terminating the 1994 Deed and 1995 Deed, Pioneer has not had access to the computer systems and database of Columbus.

11. It has been necessary for Pioneer to call Columbus if any of the borrowers make an enquiry.

12. Therefore, the “management” of the Participating Loans under the 1994 Deed that is currently carried out is limited to occasionally communicating with the borrowers.

13. Columbus otherwise handles the management of the loan book and carries out all other tasks.

17    It seems to me that these matters are critical to weighing up whether, in the exercise of discretion, the interlocutory injunction should continue and Columbus should not be released from its undertaking.

18    I accept the submissions put on behalf of Columbus that I should be slow to bind the parties to the continuation of a commercial relationship for many months or even a further year when that relationship has been dysfunctional over the past six months and has caused considerable expense, no doubt, to both parties but certainly, based on Mr Chepul’s evidence, to Columbus.

19    I do not place significant weight on the fact that Pioneer has not articulated any grounds of appeal. I accept that the observations in Beck v Colonial Staff Super Pty Ltd (No 2) [2015] NSWSC 1360 at [35] as follows apply:

The principles governing a stay of a judgment pending appeal are well established. The applicant must demonstrate that there is a reason for the grant of a stay or that a matter is an appropriate case in the exercise of the Court’s discretion: Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 (“Cambridge Credit”) at 694. It is not necessary for the applicant for the stay to establish special or exceptional circumstances: Cambridge Credit at 694. The stay is likely to be granted if the appeal would otherwise be rendered nugatory. The Court considering the grant of a stay is not required to determine the merits of the appeal but usually considers whether the applicant has at least an arguable case; and the Court may impose conditions on the grant of a stay including that the applicant pay a sum of money into Court or otherwise secure the payment of the disputed sum: Cambridge Credit at 694–5. The central determinant as to whether a stay would be granted, and if so upon what terms, if any, is the Court’s assessment as to what is a fair balance of the rights of the parties, given that an appeal does not of itself operate as a stay and the party who has succeeded at trial is entitled to the fruits of its victory: Cambridge Credit and see also Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2015] NSWCA 227 (“Woodlawn”) at [7]–[9].

20    I also do not place significant weight on the evidence before me, such as it is, that Pioneer might have taken the opportunity to redirect at least one customer away from the Pioneer loan portfolio to another product. This is because I accept that I could impose on Pioneer conditions or requirements for a further undertaking which would ensure that the poaching of potential customers did not occur.

21    However, I do accept that if I were to require the undertaking given by Columbus to continue, whether by way of the making of an order to that effect or otherwise, and were to require the interlocutory injunction to continue, the practical effect would be to require Columbus to continue in a commercial relationship with Pioneer which is reasonably described by Columbus as dysfunctional and which Columbus does not want to continue in circumstances where Columbus would have the right under cl 9.4 to end the contractual relationship without cause, the only consequence of which would be an obligation on the part of Columbus to pay money which is readily able to be calculated.

22    As a result, the real issue between the parties comes down to the payment of money – that is, whether in order to get out of the contractual relationship Columbus has to pay money under cl 9.4 or, as I have found, Columbus is entitled to terminate under cll 9.1 – 9.3 by reason of Pioneer’s fault with the consequence that, in fact, Pioneer is liable to Columbus for damages. It follows that, provided I consider that any damages that Pioneer might sustain are calculable, then it would not be an appropriate exercise of discretion to continue the interlocutory injunction or to require the undertaking to continue.

23    I have explained why I consider that any damages Pioneer might suffer are calculable and, in addition, I have explained why I consider that the loss and damage which Columbus might suffer will be incalculable, both in terms of monetary quantum but also in terms of reputational damage. Accordingly, I do not find this a finely balanced case in terms of the exercise of discretion. Rather, in my view, it is a clear case in which there is no real risk that Pioneer will not be able to be restored to its former position and I also have no doubt that the subject matter or integrity of the litigation will be preserved, irrespective of the release of the interlocutory injunction and of the undertaking.

24    In short, Columbus is entitled to the benefits of the judgment it has obtained and Pioneer has not put forward any cogent reason why the interlocutory injunction and undertaking should continue.

25    I make orders accordingly.

Associate:

Dated:    10 November 2015