Agricultural & Rural Finance Pty Limited v Gardiner

[2008] HCATrans 168

[2008] HCATrans 168

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S510 of 2007

B e t w e e n -

AGRICULTURAL & RURAL FINANCE PTY LIMITED

Applicant

and

BRUCE WALTER GARDINER

First Respondent

OCEANIA AGRICULTURE PTY LIMITED

Second Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 APRIL 2008, AT 11.07 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR C.J. BEVAN, for the applicant.  (instructed by Evangelos Patakas & Associates)

MR R.M. SMITH, SC:   May it please the Court, I appear with my learned friend, MR M.A. JONES, for the first respondent.  (instructed by Clayton Utz)

MR G.P. ELLIS, SC:   May it please the Court, I appear for the second respondent.  (instructed by Colin Biggers & Paisley)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, it is put against us in relation to special leave that this is, after all, just a case arising out of a private contract.  We accept that we should confront that at the outset of the application.  The first answer is an obvious one and clearly bears some, but not decisive weight, namely, that there had been case management orders and directions made which render this somewhat in the nature of a test case.  Of course, it is still only a test case for a quiverful, a large quiverful, of private contracts.  The second answer we make is that it cannot surely matter that a so‑called private contract, bearing in mind the near assimilation ‑ ‑ ‑

GLEESON CJ:   Most contracts are.

MR WALKER:   Yes.  Bear in mind the near assimilation of contracts that public authorities or polities with private contracts in this country, that cannot matter.  The third thing is that it has never been the case, it could not be the case that the High Court of Australia has declared, as it were, contract an area which will be dealt with as to the making of the common law and as to the supervision of the administration of the common law by intermediate appellate courts only.

GLEESON CJ:   Mr Walker, to succeed in an appeal you have to succeed on two points, do you not, what I might call the force majeure point and what might be called the punctuality point?

MR WALKER:   Yes.  They have, we submit, a relation but it is a relation which nonetheless has them as separate points, both of which we must win.  It means that each of them has to have qualities which make them candidates for special leave to appeal.

GLEESON CJ:   But it does not mean you have to get special leave for both of them.

MR WALKER:   We need to be able to run both of them.

HEYDON J:   Why is that?  You need to defeat Mr Gardiner and you can do it by showing that, for example, the Court of Appeal was wrong on the punctuality general ‑ ‑ ‑

MR WALKER:   Yes.  As we have put in paragraph 7 of our written submission, page 280, we need to defeat the claim.

GLEESON CJ:   But you do not need to win on force majeure if you win on punctuality.

MR WALKER:   Quite so, your Honour.  That applies to two of the four claims but your Honour’s point is right, with respect.

GLEESON CJ:   If we were to take the view, for example, that your punctuality argument needed to be looked at – that is the one on which there was a division of opinion in the Court of Appeal, is it not?

MR WALKER:   Indeed.  A division in the majority, yes.

GLEESON CJ:   Yes, but a different view in respect of the force majeure point, that would still give you an opportunity to win on the appeal.

MR WALKER:   Yes, your Honour.  As to those two payments, yes.  For complete victory we ‑ ‑ ‑

GLEESON CJ:   Everybody agrees that on the punctuality point you win on payment number four – you won on payment number four.

MR WALKER:   Yes.  You could not show non‑punctuality on payment three.

GLEESON CJ:   Yes, and there is no problem about the big payments that there was punctuality in respect of payment number three.

MR WALKER:   Three is punctual.  Four is not punctual.  We win.  One and two are those which are determined by the punctuality point.

GLEESON CJ:   Anyway, you go ahead then and put your ‑ ‑ ‑

MR WALKER:   It is in that sense and in that sense only that in order to get complete success, that means all four payments we need both arguments but otherwise what your Honours have put to me is, with great respect, correct.  We submit that on the punctuality point there is this useful matter for the Court to take on, particularly bearing in mind the diametrically opposed approaches of those in the majority in the court below.

The word “punctual” is an ordinary English word much used in imposing legal obligation and very useful for its literal and ordinary meaning.  Of course, like all words in contracts it will yield to a particular context but there is in fact, for the reasons we are about to put, no such particular context of an interpretative kind to be found in these circumstances.  It is like the phrase “time of the essence” which of course is a term of art, namely, it is the first importance for the common law values of certainty of contract that the golden rule of ordinary meaning, including the context of it being a legal instrument intended that it be binding with serious consequences be the first recourse and not moved off unless there is extremely powerful contest.

GLEESON CJ:   Mr Walker, there is an aspect of the facts I am not 100 per cent clear about.  If you look at pages 189 and 190, in those two letters Ms Edwards refers apologetically to the failure to send a reminder notice.

MR WALKER:   Yes.

GLEESON CJ:   Was there any evidence to suggest that there was some procedure established in relation to sending out invoices or reminder notices according to which the farmers – if I can use that expression – were to make payments in response to calls for payments?

MR WALKER:   Your Honour, we do not think there was evidence of what I will call “an invariable practice” but I cannot say that the evidence showed, as it were, an inconsistent course, either.

GLEESON CJ:   It just occurred to me as a possibility that even if you are otherwise right in relation to the concept of punctuality it could be affected in a particular contractual situation by an agreement or a conventional practice of sending out requests or demands for payment.

MR WALKER:   It might be.  There are two answers.  The first is the answer generally given to a number of kinds of argument by which after the making of a contract an obligation of punctuality might be relieved against.  Justice Basten took that route.  Justice Handley, with respect, has convincingly demonstrated it was not available either on the pleadings or on the facts of this case, nor at law, bearing in mind, in particular, the absence of any consideration.  That is the first point.

The second point is, it was certainly not argued in this case that there was a course of practice of sending reminder notices – the very word “reminder” is an interesting one – which relieved in any way, either by a contractual variation or an estoppel, conventional or otherwise, from the obligation to observe the due dates for payment which, after all, was the orthodox and proper approach taken by two of the judges, namely Justices Basten and Handley, as to the requirement of punctuality.

In our submission, if anything, the entitling of such notices as reminding notices, reminder notices, shows how difficult such an argument would have been, factually, though it was not raised in this case so far as I can judge from the pleadings and findings.  To remind a person is to tell them of something which is true, which is the case, and here is to remind of an obligation, furthermore, to remind of an obligation in relation to a due date, depending upon when the so‑called reminder be given, either as it approaches or after the event in order to say, “You’ve been under an obligation, you’ve failed in the obligation, better late than never.”

In our submission, that is what the critical letter of 2 June which your Honours will see in a number places, but conveniently at page 190, the relevant passage paragraph 253 starting at line 30, that was construed by Justice Basten so as to relieve against punctuality as between my client and the borrower.  The question was, how could that possibly relieve in relation to the indemnifier because it was the currency of the indemnifier’s obligation which in turn determined whether or not there would be relief from the obligation owed to my client.

GLEESON CJ:   What, if any, connection was there between Ms Edwards and the indemnifier?

MR WALKER:   We submit none pleaded or proved, though of course there was the close commercial connection between the two corporations that one finds throughout the evidence.  It was pleaded as our letter, not their letter, and for the reasons cogently pointed out by Justice Handley there was an insufficiency both of pleading and proof to attribute the letter to the indemnifier.  Indeed, the whole of the arrangements, it is common ground but for radically divergent reasons, turns upon those entities being separate.

That does not mean they cannot be commonly staffed or they cannot from time to time have a common agent but there was no pleading or proof of that in relation to this letter which is why, in our submission, the factual matter that the respondent raises as yet another obstacle in the way of special leave falls away, they cannot be permitted to raise a factual dispute contrary to the pleadings as they are in the state Justice Handley has identified.

Now, your Honours, if that be correct, then the punctuality point really does remain as one which raises an important point for the Court, notwithstanding of course it is a decision only in one person’s so‑called private contract.  The critical importance of being able to use plain language without resort to tautology or unnecessary emphasis in contractual documents, particularly those which are commercial and are the subject of highly sophisticated legal and accounting attention cannot be overstated.

“Punctual” is a word which does not admit of the degrees the Chief Justice, in particular, has introduced by his reasons.  In the application book page 135, paragraph 118 there is, in our submission, an approach to the interpretation of that very important word in common currency and of critical importance in contractual arrangements which, in our submission, ought to be the subject of both scrutiny and overturning by this Court.

The first sentence refers to the absence of a so‑called “direct financial interest”.  As we have noted in our written submission, the difficulty with that is the unexplained work that the epithet “direct” must be doing because there was a financial interest of a self‑evident kind, “We as financier have in fact been financed by the indemnifier”, a commercial lynch which was critical and obvious but, we submit, that was an inappropriate approach to the interpretation of the word “punctual” in any event.

His Honour then turns in the next lines of paragraph 118 to what he calls “the usual case” against which this was a contrast.  The usual case can only be understood as there being some direct financial interest between the relevant parties otherwise how could what his Honour refer to in the first sentence be a “quite a different context”.  Your Honours, it is unaccountable how the usual case of such tripartite arrangements involves direct financial interest between two of them as opposed to arm’s length contractual arrangements of the kind which on the face of these documents was imported here.

So there is no usual case.  That is a phantom and, in our submission, that is something that goes well outside admissible context which we concede, of course, can be used to interpret even plain words like “punctual”.  Then his Honour concludes, those two false premises having been used, that:

This unusual aspect of the context leads, in my opinion, to the word “punctually” losing its usual connotation of precision in timing.

Quite apart from the falsity of the premises, there is no explanation as to why that should be so, as to why the absence or presence of a connection should affect the importance of punctuality if the parties have stipulated for it in writing.  That was a serious error, in our submission.  The other serious error was taken by Justice Basten who, with great respect, correctly held that nothing in the context or circumstances could divert from the importance of “punctually” being given its usual meaning and then have the letter of 2 June perform the work it did.

The proper answer to that, which raises, in our submission, not only matters which evoke the interests of justice in the particular case, bearing in mind the pleading point, but also transcend this particular contract, can be found in the reasons of Justice Handley starting at page 228 of the application book.  The tables for payment that one finds make graphic the absence of true punctuality.  At the foot of page 229 at 366 one sees the critical words:

“as we failed to send reminder notices we will accept payment as ‘on time’ –

Now, there is no suggestion either in the content of that or in the framing and typing of that that anything is being done to alter the contractual import of lateness.  As between financier and borrower, the matter was being treated as on time.  That then, of course, introduced the question of the effect on the indemnifier as a surety which we have addressed in our written submissions.

GLEESON CJ:   Does that letter cover payments one and two?

MR WALKER:   Yes, your Honour.

GLEESON CJ:   So payment three was on time, payment four was clearly not on time.

MR WALKER:   That is right.

GLEESON CJ:   The issue is about payments one and two and that letter relates to both those?

MR WALKER:   That is right, your Honour.  In relation to the transcendent importance of the effect, if that letter was simply between financier and borrower, can I remind your Honours of the approach taken at page 138, paragraph 128 by the Chief Justice which, in our submission, is an important occasion for this Court to look at the question of whether there is in truth a distinction between a surety in the nature of this indemnifier or a surety in the nature of a true guarantor of a kind which is radical in its effect.  Can the guarantor be discharged but the indemnifier not by something as critical as a departure from the requirement for punctual payment, particularly when, as in this case, it is an express term of the currency of the indemnity that there be punctual payment under the collateral agreement?

Your Honours, bearing in mind the time, may I briefly then turn to what the Chief Justice has called the force majeure question.  This is a matter where, as we have noted, the notice of contention in the Court of Appeal was not dealt with.  That raises the interests of justice in the particular case.  We wish to put the proposition that it is almost a matter of common sense and axiomatic in the circumstances that the litigation mounted by the so‑called farmers was calculated, not as a matter of motivation, no doubt, was calculated of its nature to deter those who might otherwise have been interested to take up the replacement trusteeship.

That, in our submission, tells very strongly against the Chief Justice’s individual or several approach to the notice of what is beyond the control of the farmer for the purposes of what I will call the get out clause, the force majeure clause.  That, in our submission, is enough to render that an appropriate occasion to take on a matter which is, at the end of the day, not factually complicated.  There are no doubts about the public conduct of the farmers in relation to the litigation and there is no doubt about the finding of fact made by Justice Young in relation to where he saw the onus lying.

He placed the onus on the farmer, noted that there was insufficient evidence to show that they could not have affected the outcome, though the majority in the Court of Appeal had read in relation to onus there is no dealing with the matters raised in and as of a contention concerning that.  In our submission, that is an important absence.  It means that a matter has not been the subject of an appeal and that, in our submission, is a usual or orthodox reason to grant special leave, notwithstanding no general principle of law is raised.

It is for those reasons, in our submission, your Honours, that bearing in mind the critical importance noted by all the judges of the tax deductibility driving these arrangements that attention to the meaning of the force majeure clause so as to leave some real risk on the farmers has been, in our submission, given insufficient weight, clearly insufficient weight, to a degree which was decisive, and wrongly so, in the reasons of the Court of Appeal.

The context supplied by what I will call tax implications is a context which ought to be as a matter of consistency of treatment, both as a matter of public law in tax and private law in contract, be regarded as to the forefront in context.

GLEESON CJ:   A lot of rural activities are driven by tax considerations.

MR WALKER:   When your Honour says “driven”, I do not wish to be ‑ ‑ ‑

GLEESON CJ:   It would not happen if it were not for tax considerations.

MR WALKER:   All over the country, your Honour, people will be despairing at those words but there is no doubt that it is a context, in our submission, which ought to have been taken into account and has insufficiently been so in this case.

GLEESON CJ:   Thank you, Mr Walker.  Yes, Mr Smith.

MR SMITH:   Your Honours, the indemnity on which we rely applied of six conditions that were met.  The first was that Mr Gardiner, as borrower, made punctual payments of interest and principal under the loan agreement.  The second was that he had ceased to carry on business.  The third was that the cessation of the business was a result of an event in clause 31(a) of the management licence agreement.  That is a compound concept which gave rise to three more issues.

GLEESON CJ:   Mr Smith, we do not need to hear you on the force majeure argument but we need to hear you on this issue of punctuality.

MR SMITH:   Very well, your Honour.  The question of punctuality and the approach taken by his Honour Mr Justice Spigelman arises not as a general question of what “punctual” means but arises as to what “punctual” means in the indemnity agreement.  That is the first point.  His Honour was correct in construing the concept of punctuality as treating as punctual for the purposes of the indemnity agreement a payment made not on the due date but one which was accepted as paid on the due date.

His Honour’s reasoning for taking that approach can be summarised as follows.  Can I just describe this indemnity because it is not the usual kind of indemnity.  It was an indemnity under which the indemnifier was OAL, the manager.  The indemnifier had gone to the market seeking to promote this investment scheme but offering to prospective investors the existence of a loan provided by Mr Walker’s client and an indemnity provided by OAL against the borrower’s liability to make any payment under that loan in circumstances where the structure of the investment scheme contemplated that investors who borrowed would only make interest payments in the first one and two years of the scheme and a capital payment in the first year of the scheme which would have run then for 17 years with the manager’s remuneration to be paid out of income derived from the sale of tea tree oil.

GLEESON CJ:   An up‑front loading?

MR SMITH:   Yes, an up‑front loading but, in effect, once those payments were made in years one and two, no further payments by any borrower for the balance of the term of the agreement.  The borrower could only be liable under the loan agreement if the borrower ceased to carry on business and the indemnity applied in circumstances where he ceased to carry on business because of a force majeure event and also ceased to carry on business because the term of the agreement expired.

So the effect of the indemnity put up by the manager to entice investment was to guarantee to investors that if they made the payments in question, up‑front, as your Honour says, they would not have to make any further payments and not be liable to a lender for the balance of the 17 years.  The significance of that is this, is that the payments which attracted the obligation of punctuality were to be made in the first two years of the licence agreement.  The indemnity could operate at any point over a 17 year term and, indeed, it was contemplated that it would apply at the effluxion of the term of the agreement.

The question then arose in that setting was whether if in year one, to test the matter, a payment was due on, let us say, day X but was paid on day X plus two days and accepted by the lender, could the indemnifier say in year 17, “Well, we’re off the hook”?

GLEESON CJ:   Was part of the background to this a desire to deflect any suggestion on the part of the Commissioner that this was a non‑recourse loan?

MR SMITH:   That was a point which was sought to be argued by the lender as to the construction of, your Honour says, the force majeure clause, clause 31(a).  They certainly argued that that clause which should be construed so as not to apply in circumstances where, on their view as to what caused the projects to fail, the market price of oil dropped and then the manager sought to terminate in those circumstances.  It was put that if clause 31(a) covered such a case, it would make the loan non‑recourse.

GLEESON CJ:   It is also relevant to the punctuality point, or possibly relevant to the punctuality point, is it not, that the borrowers have to be at some risk?

MR SMITH:   Yes, but the question is we are not concerned with non‑payment, we are only concerned with non‑punctual payment.  The question is, if the borrower does not pay, they will get terminated and that is a risk.  The question is, if the borrower is late for a period of time and the lender in those circumstances accepts the payment and does not terminate, does that mean no indemnity?  That is the critical question.

GLEESON CJ:   When a borrower pays a lender late the lender may be likely to accept the payment, the alternative being to send it back.

MR SMITH:   Yes.

GLEESON CJ:   What was the business connection or corporate connection between the lender and the indemnifier?

MR SMITH:   The corporate connection was quite close.  The lender was a company which the indemnifier caused to be brought into existence for the purpose of making these loans.  The indemnifier lent the money to the financier and the financier lent it back to farmers and the money went, as Mr Justice Young called it, a round robin, a series of round robin payments funded by cash and there was no complaint about that. 

Your Honour asked what was the connection between OAL and ARF.  OAL managed the scheme.  ARF, that is the appellant, in effect, had no role, really, apart from making loans and administering receipts and sending letters, but the critical question was that Ms Edwards, who wrote this letter from ARF, was an employee of OAL.  Each of OAL had their offices in the same premises.  They had the same telephone number.  ARF was, in effect, owned by Mr Cassegrain’s relatives and ARF had no employees other than Ms Edwards who gave evidence that she was an employee at the time the letter of 2 June was written of OAL and she did some loan administration work.  She said, “The small proportion of my work was conducting recording receipts of moneys coming in that were due to ARF in relation to the tea tree farms”.

So when your Honour asked what was the connection with OAL at the time the letter was written, we put to the Court of Appeal, and it is not a pleading point, that that letter was written by ARF on behalf of each of OAL and ARF.  So that if leave were granted, there would be a question as to whether OAL gave consent through the conduct of Ms Edwards in writing the letter, on the evidence, as an employee of OAL, the letter being written on the letterhead of ARF.

GLEESON CJ:   Mr Smith, when Ms Edwards said in the letter after apologising that the money would be accepted as “on time” payment, what was the question whether the payment was on time or not relevant to except the matter that we are now considering?  In other words, who, apart from the indemnifier, had an interest in whether the payment was on time or late?

MR SMITH:   The lender obviously had an interest.  The indemnifier ‑ ‑ ‑

GLEESON CJ:   I do not quite follow the lender’s interest.  The lender is owed some money and it receives some money.

MR SMITH:   Yes.

GLEESON CJ:   And it says, “I will accept it.”  Well, accept it instead of doing what, giving it back to you?

MR SMITH:   No, instead of terminating.

GLEESON CJ:   Yes, but the lateness of the payment potentially gave, did it, the lender the right to do something and the indemnifier the right to do something?

MR SMITH:   No, the lateness of the payment gave the lender a right to terminate.  The indemnifier, and that is the unusual situation ‑ ‑ ‑

GLEESON CJ:   What would termination have involved?

MR SMITH:   Calling in the loan and forfeiting the farmers’ interest in the scheme and there would be a penalty rate attached to the unpaid balance.

GLEESON CJ:   That is what I wanted to understand.

MR SMITH:   So that the rate jumps.  But getting back to Chief Justice Spigelman’s analysis, the proposition is concerned with what does “punctual payment” mean in the indemnity, of course.  On the contention put by my learned friend’s case, if the payments were one day late in the 17 year term of the indemnity, that would mean there would be no indemnity.  That is in circumstances where, as the Chief Justice pointed out in paragraph 118 which my learned friend took your Honours to – what his Honour was there saying was that under this indemnity, unlike, for example, a loan contract or a lease arrangement which would typically contain covenants for punctual payment, the indemnifier did not have a direct interest in the payments being made on time because it was not an indemnifier of the lender, it was an indemnifier of the borrower. 

It is not a usual case where you have a surety and a principal debt or credit relationship where an extension of time given by the creditor to the debtor discharges the surety because in this case the surety was indemnifying the borrower against the liability to make payment for the loan and if the indemnity applied, there was no obligation to make payment of the loan so therefore the indemnifier’s rights to subrogation would not arise.

What his Honour is saying, it is a very uncommercial construction to attribute to the parties that if a payment is a day late or so, that this consequence follows.  We submit that his Honour’s construction was

correct.  The approach taken by Mr Justice Basten – he treated the letter that your Honours have been taken to as a waiver of the date for payment and that that waiver in effect bound ARF and OAL.  We submit that his Honour’s analysis – if your Honours go to paragraph 257 – involves the idea that there are three reasons why satisfaction of the obligations between ARF and the borrowers also satisfy the requirement for punctual payment of the indemnity agreement:

A&R Finance was itself a party to the indemnity agreement and, to the extent that it waived default by a borrower under the loan agreement, it may be taken to have waived any reliance on such default by the borrower for the purposes of the indemnity agreement.  Secondly, that approach is confirmed by the fact that the effect of default under the indemnity agreement is incorporated into the loan agreement –

and then concludes that Oceania could not, in effect, complain because if there was no breach by the borrower, then there would be no obligation by it to indemnify.  For those reasons, on the question of punctual payment, we make these submissions.  His Honour the Chief Justice was correct as a matter of construction.  Second, there is no question of public importance because at the end of the day all the issue involves is the question, what does “punctual payment” mean for the purpose of this agreement and this agreement only? 

Third, whilst there were differing reasons as to the majority, their Honours Justice Spigelman and Basten, the result which was reached was, in effect, correct, that is to say, that we in respect of loans one and two, which your Honours have correctly point out, made late payments but they were accepted as on time by the lender and in those circumstances that is, consistently with Justice Spigelman’s analysis, punctual payment.  That Justice Basten came to a different view as to why it is punctual payment with the same result does not deflect from the force of the Chief Justice’s analysis.

GLEESON CJ:   Was the decision of the Privy Council in the case of Union Eagle the subject of argument in this matter?  That is the case in which there was a sale of a flat in Hong Kong and time was of the essence and the purchaser was 10 minutes late in paying and it was held the vendor was entitled to terminate.

MR SMITH:   They are our submissions on the questions of punctual payment.

GLEESON CJ:   Thank you, Mr Smith.  Yes, Mr Ellis.

MR ELLIS:   The second respondent supports the application and I do not wish to add anything to what Mr Walker has put.  Can I just briefly respond to three questions that were asked earlier?

GLEESON CJ:   Are you the employer of Ms Edwards?  Are you Ms Edwards’ employer?

MR ELLIS:   Not me but my client is, yes, your Honour.

GLEESON CJ:   Yes, I know.  What was Ms Edwards’ connection with the indemnifier?

MR ELLIS:   She was an employee of the indemnifier on the evidence.  The evidence was that the lender and the indemnifier operated out of the same office and, hence, the same personnel were used so that part of her duties in the course of her employment for my client was to do some tasks for Mr Walker’s client.

GLEESON CJ:   She was employed by your client but employed to do work for Mr Walker’s client?

MR ELLIS:   At times she did some work for Mr Walker’s client, yes, predominantly working for my client.  We called her in our case.  To succinctly answer some of the questions that have been asked, the question was asked early in the life of this hearing whether schedules were sent out.  Schedules were sent out initially.  They had three columns.  The first indicated whether it was principal or interest, the second indicated the amount and the third indicated the date.  They are not in the application books but there is reference to updated schedules being sent out and that is to what that refers.

GLEESON CJ:   Am I right in thinking, Mr Ellis, that the reasoning in the Court of Appeal – at first instance, too – did not turn upon the possible existence of some conventional procedure involving the requirement of billing or invoices or reminders, I presume because the evidence did not support the existence of any such conventional procedure?

MR ELLIS:   There was no evidence led at first instance of a procedure.  The only evidence that was led was the inclusion in the tender bundle of the schedules and reference to what happened in the particular circumstances of Mr Gardiner’s loan.

GLEESON CJ:   It is possible to imagine cases in which the procedures that are adopted between the parties make it such that a person entitled to payment cannot complain about the payments not being punctual unless a notice of some kind has been sent out.

MR ELLIS:   Yes.  There was a letter that became part of the evidence sent by Mr Gardiner back to Ms Edwards apologising for the lateness of his payment.  That is not in the application books.  The second matter that was raised was the non‑recourse loans.  There was an extensive letter, a 15‑page letter, that was put into evidence.  It was from my client’s then manager, Mr Lloyd, to the Tax Office dated 15 May 1998.  It was a 15‑page letter setting out to the Tax Office why these schemes were non‑recourse and should thereby have the benefit of tax deductibility.

GLEESON CJ:   Were not non‑recourse, you mean?

MR ELLIS:   I am sorry, were not non‑recourse, yes.  The Union Eagle Case to which your Honour referred was not canvassed either at first instance or on appeal.  Finally, the consequences of failure to pay punctually involved, for the lender, the ability to charge higher interest, secondly, to call up the loan and for the indemnifier, the entitlement to the indemnity was said to depend on punctual payment.  So those were the consequences.

GLEESON CJ:   Thank you, Mr Ellis.  Yes, Mr Walker.

MR WALKER:   Your Honours, in our reply at 523 of the application book we have already drawn to attention the way in which the position of Ms Edwards fell out.  There was a finding at trial that she was relevantly the financial controller of my client.  There was no ground of appeal in the Court of Appeal challenging that.  There was no ground of appeal in the Court of Appeal saying that she was the agent of the indemnifier, notwithstanding the employment question, and there is certainly no challenge in relation to matters crucial to Justice Handley’s clearly correct proposition that there was no demonstration of any authority on her part to waive the indemnifier’s rights.

The question of non‑recourse was, as my learned friend Mr Ellis pointed out, at the very heart, as you might expect, of the dealings between the promoters and the Tax Office and there, no doubt, the promoters and the eventual farmers spoke with one voice.  At page 127 of the application book one sees one of the passages between the promoters and the Tax Office includes in relation to what were called “full recourse loans” leave aside the gilding of the lily there, certainly not non‑recourse loans.  The first proposition advanced in relation to the indemnity which the Tax Office had earlier expressed was one of the grounds for some concern was that the investor was not in default of the loan agreement.

The relevant executory obligations under the loan agreement are, notwithstanding all the words in all these documents, the simple one of paying interest and principal, respectively, on time.  There was a very definite interest of the lender, the financier, in relation to that performance.  Some point is sought to be made in the reasons of the Chief Justice and to an extent, also, those of Justice Basten, of the fact that punctuality only appears once in the loan agreement.

Well, it does, but it appears at a highly critical point.  It appears at the point where default, with all the consequences of default, is provided for.  It appeared in clause 5.1, the relevant terms of which happen to be quoted by the Chief Justice on page 136 in paragraph 120, “The whole of the Principal Sum” is accelerated as to an obligation to replay it all, that is, it, “shall become immediately repayable at the option of the Lender”, not automatically.  There was, as my learned friend, Mr Smith, has correctly pointed out, what I will call a penalty interest rate, that is a higher interest rate for failure to pay punctually and thereby obtain that relief in relation to the interest rate. 

In our submission, those circumstances alone, show that there is real meaning in a dealing between lender and borrower saying that the lender was going to accept this as being “on time”.  It meant, certainly, there was not going to be the election exercise which was the lender’s not the indemnifier’s, as to immediate repayment of the whole of the outstanding balance.

Your Honours, the position really put by the first respondent against us is this, they point to the bargain they obtained, early and relatively modest payments upfront for a 17 year cover by way of an indemnity.  That is what they point to.  Then they say, in effect, woe betide us were we to lose that by failing to comply with the terms of the obligations imposed with respect to those payments.  In our submission, that is not common law reasoning in relation to the interpretation of a contract. 

The notion of some harshness in relation to the particular kinds of farmers here and the terms that they were signing up to in order to obtain that 17 years of cover is too absurd to spend any time on and, in our submission, there is a transcendent point going well beyond the mere interests of the parties in this action in order to eliminate the notion that there is some quasi, perhaps pseudo, equitable approach in the absence of any relief against forfeiture, doctrines of penalty, equitable view concerning time stipulations.  In the absence of any such ‑ ‑ ‑

GLEESON CJ:   Unconscionability in the exercise of legal rights.

MR WALKER:   Or unconscionability, or any of that, that the common law of contractual interpretation can bring about this result, as the Chief Justice has declared, with respect to the meaning of the word

“punctually”.  It is for those reasons, in our submission, that the case is an apt one for special leave.

GLEESON CJ:   Mr Walker, it is grounds 1 to 7 in your draft notice of appeal on page 271 that cover the punctuality point, is it not?

MR WALKER:   Yes, they are.

GLEESON CJ:   In this matter there will be a grant of special leave to appeal limited to grounds 1 to 7, inclusive, in the draft notice of appeal appearing on page 271 of the application book.

In respect of the remaining grounds we think that there are insufficient prospects of success to warrant a grant of special leave.

MR WALKER:   May it please the Court.

GLEESON CJ:   We will adjourn to reconstitute.

AT 11.56 AM THE MATTER WAS ADJOURNED