Agricultural & Rural Finance Pty Limited v Gardiner & Anor

[2008] HCATrans 264

[2008] HCATrans 264

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S180 of 2008

B e t w e e n -

AGRICULTURAL & RURAL FINANCE PTY LIMITED

Appellant

and

BRUCE WALTER GARDINER

First Respondent

OCEANIA AGRICULTURE PTY LIMITED

Second Respondent

GUMMOW J
KIRBY J
HAYNE J
HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 31 JULY 2008, AT 10.08 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 appellant.  (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 with my learned friend, MR F.F. SALAMA, for the second respondent.  (instructed by Colin Biggers & Paisley)

GUMMOW J:   Yes, Mr Ellis.  Now, you are predominantly in whose interests?

MR ELLIS:   In the appellant’s interest.

GUMMOW J:   Right.  So you would be heard after Mr Walker, is that right? 

MR ELLIS:   Yes, your Honour.

GUMMOW J:   Yes, Mr Walker.  Has there been any division of time between you and your colleagues?

MR WALKER:   No, but I am confident that I will leave, I trust, at least enough, more than enough, for my learned friend, Mr Smith.  Mr Ellis and I have discussed a division of the time.

GUMMOW J:   Yes.  We will sit again at 2 o’clock, but we would want to adjourn comfortably before 4.00.

MR WALKER:   Before 4.00.  Thank you, your Honour.

GUMMOW J:   Yes.

MR WALKER:   As your Honours know from the exchange of written submissions and the judgments below there has been distilled by the grant of special leave and by the abandonment of an argument by us in our written reply in this Court ‑ ‑ ‑

GUMMOW J:   Looking at your submissions in‑chief, that is paragraphs 44 to 51, is it?

MR WALKER:   That is correct.

GUMMOW J:   We can say not pressed.  That is issue two.

MR WALKER:   Not pressed, abandoned.

GUMMOW J:   Yes.

MR WALKER:   That leaves as the distilled issues between the parties what may be described as the punctuality point, which is the point with which I shall start, and then what can be called, though no doubt inexactly, the waiver point.  On the waiver point, as your Honours are aware, there is a large bulk of material which is conveyed by the notice of contention by my learned friend, Mr Smith’s client, and so on the waiver point in‑chief I will be mostly addressing the matter of 2 June 1999 letter from ARF upon which the ‑ ‑ ‑

GUMMOW J:   Where do we see that?

MR WALKER:   The letter of 2 June is in volume 2, page 879 and, though I will not delay on it now, your Honours appreciate that as always with a party in my position I draw to attention the letterhead, I draw to attention the subscript under the signatory’s name and I will be drawing to attention some certain forensic stances of the first respondent concerning that letter at earlier and important stages of the proceedings later.  That will be the focus of the waiver argument in‑chief by us this morning.

Can I, however, start as one must, with the transactional documents.  Your Honours appreciate, and we accept, as an argument that has been put, as it were, against us that these are interlocking instruments.  They say so in terms.  There is no real concession involved.  Could I start, however, not with the so‑called project’s deed, but rather with the loan agreement which is the transaction document upon which we sue.  It is only a starting place. 

Volume 4 of the appeal book page 1573 your Honours will see the nomenclature of the various parties in their various guises, some of them multiple, set out in the recitals.  OAL is called “the Manager”.  A trustee we can call the ARG, but it does not matter, and a landowner are united in a “Project Deed”.  That is recital A.  Recital B you see reference to a prospectus and that was both the source of and the focus of a very large part of the forensic battle in the courts below and has no role to play in this case, except insofar as it casts light on what we say is the case shifting in relation to waiver, that is, there was a deal of complaints by Mr Gardiner concerning misrepresentations and the like, all of which have failed and none of which is before this Court.

GUMMOW J:   The point Mr Smith makes is that all of these documents were brought into existence as part of a marketing tool basically.

MR WALKER:   Unquestionably.  Not only a marketing tool, they were, as it were, the subject matter of the marketing exercise.  This is a suite of transactions, it was said, which would yield you the following advantages, which might be described, tongue in cheek, as farming opportunities but which more obviously are what are called tax effective investments.  There are attributes of the so‑called tax effectiveness which in our submission correctly informed as a general matter some of the approaches to interpretation that your Honours have read in the judgments below, in particular, this notion of non‑recourse, including degrees of recourse, being at the heart of the commercial risk which needed to exist in order for there to be approval of the scheme for tax purposes.

Can I go back to recital C on page 1573 where you see a reference to a “Licence and Management Agreement” with the manager as licensing of the allotments upon which the farmers are farming their tea trees, the manager doing, in effect, all the work.  “The Business” is a significant expression, and that describes the business of cultivating, harvesting and processing tea trees to produce tea tree oil on the land in question in each particular allotment.

Your Honours will have seen in recital C and then subsequently in recital D the reference to “the Borrower”.  That in the test case selected by consent orders by way of case management in the Supreme Court is Mr Gardiner in this case.  The lender is my client, ARF.  The principal sum refers to the so‑called loan amount in the Schedule and I am going to take you in due course to the way in which they are indicated.

On the foot of page 1573, under the heading “Loan”, one sees that there is an agreement to advance to Mr Gardiner by my client a so‑called “First Tranche” and that is $22,750 as you will see from page 1580 of the appeal book in the Schedule, and then later “the Second Tranche” $1,854, as you will find from the same reference in the Schedule.  I will come back later to the fate of those tranches which can be seen, as it were, to be going round.
           On page 1574, one sees under the heading “TERM” in clause 2, one of the first of quite a number of express subjecting of various obligations concerning repayment to clauses, particularly clause 7 to which I will come.  In 2.1 that phrase is:

Subject to the specific requirements of this agreement in respect of payments and repayments from time to time, and subject ‑ further to clause 7 –

which is a highly specific reference to clause 7 which was included within that genus in any event –

the Principal Sum outstanding and all interest outstanding –

and I should draw to your Honours’ attention that I shall come later to the fact that there is a capitalisation provision of interest to include it within principal sum –

must be paid to the Lender –

in 17 years.  Interest in clause 3 contains two vital provisions, 3.2 and 3.3(a), which define the obligations in relation to time and rate of payment for the first and second year’s interest.  Over the page, 1575, 3.4 is the interest capitalisation provision, which continues throughout the term.  Clause 4.1 is also critical to this case.  It now turns attention to principal and says:

The Borrower will repay to the Lender the sum of $8,750 per Allotment in respect of the Principal Sum which amount shall be paid by the Borrower in accordance with the election made by the Borrower in the Application -

(a), (b) or (c).  So in whole three months afterwards or quarterly instalments starting in a quarter or monthly instalments starting in a month so that the sum of $8,750 is designed to be, stipulated to be, paid one way or the other at the latest within about 12 months.  Then 1576 moves to 4.2 and the distinction between 4.1 and 4.2 becomes important.  Under 4.2, the balance of the principal sum – and your Honours appreciate that is the bulk of it – after payment as set out in 4.1 is paid by what is called:

direct deduction from the income of the Borrower from the Business –

proceeds, one would imagine, of the sale of tea tree oil in the main.  Under 5 on page 1576 under the heading “DEFAULT”, which heading may or may not be entirely significant, one finds the following very important references:

5.1      The parties agree that subject to Clause 7 –

which is being heralded again as a paramount provision –

the whole of the Principal Sum remaining outstanding shall become immediately repayable at the option of the Lender –

That is a very important mechanism –

on the happening of any one or more of the following events –

and then follows a phrase –

without the necessity of any notice of demand -

The reconciling of those two phrases is no doubt why the parties have adopted this notion of declaring the principal wholly payable.  So there is the option of the lender upon the happening of any one or more of the events.  One sees, one notes, the language of 5.1(a).  One sees that there is a notion of default by the express language of the parties in what is called:

the due and punctual payment of interest or the Principal Sum or any repayment instalment –

et cetera.  Then there is (b), which is more general, and then critically for this case there is (c):

if the Borrower ceases to carry on the Business.

GUMMOW J:   Now, that happened.

MR WALKER:   That happened.  May I give you the following references without taking you at the moment to these pages.  This is common ground.  It might be complicated.  I hope this is the simplest way of describing it.

Under the project D, which you find in volume 3 of the appeal book 1116, clause 46.4, the project terminates if the office of the trustee becomes vacant and a new trustee is not appointed within 60 days of the vacancy occurring.  The office of the trustee did become vacant and one was not appointed in its stead within 60 days.  So 46.4 came into operation.

Under the licence and management agreement, which you will find relevantly in volume 4 of the appeal book at pages 1564 to 1565, clause 31(a), the obligations under that agreement come to an end upon what is described as a force majeure event which, relevantly, without going to its detail, involves termination of the project by reason of an event beyond the control of the parties.  There is no longer any issue – that is in this Court – about the application of that provision.

Finally, looking forward to a very important provision, namely clause 2 of the indemnity agreement, one will find – and I will be coming to this soon – volume 4 of the appeal book, page 1584, the provisions of sub‑clause 2(d)(i) of that provision, which triggers the effectiveness and enforceability of the indemnity upon the borrower ceasing to carry on the business as the result of a force majeure event.

So those four interlocking provisions of four different transaction documents produce the possibility referred to in 5.1(c) of the loan agreement.  That is what occurred in this case.  In due course, very soon after the events had matured, ARF made demand for payment, having exercised the option as lender in 5.1 on the basis of 5.1(c).  That was the claim at law to be repaid which Mr Gardiner resisted in the various ways you see recorded.  One sees in 5.2 – it will not be of great significance – an extra rate of interest in that event.

Over the page, 1577, comes the all‑important clause 7 of the loan agreement.  It is accurately described by its title, “LIMITATION OF BORROWER’S LIABILITY”:

The Lender acknowledges and agrees that the Borrower shall have no liability to repay any part of the Principal Sum outstanding or any interest thereon if the indemnity granted under the Indemnity Agreement as defined in the Project Deed ‑

That reference is volume 2 of the appeal book, page 1046.  I do not need to go to it.  If that indemnity agreement –

is effective and enforceable –

one notes that phrase –

in accordance with clause 2 of the Indemnity Agreement.

GUMMOW J:   What is the correct legal characterisation of clause 7?  Is it a covenant for release contingent upon an event?

MR WALKER:   Yes.  I hesitate a little at the word “release”, which has a number of technical meanings depending upon context.

GUMMOW J:   Yes, but that is not what the draftsman of this has faced up to.

MR WALKER:   No.  I accept that entirely.  I have already, as I have gone through this agreement, shown that this is a loan of principal money which, if I can put it this way, ostensibly, primarily or at first sight is all to be repaid.  But this is of course highly artificial.  All these clauses are in the same document; they all come into effect at the same time and clause 7 limits the liability to pay or repay.

I have to accept that.  Now, looking forward in the arguments that your Honours have seen in the exchange of written submissions in relation to the onus of proof point, if that is of any importance in the case, the role of clause 7 in either providing an answer available to a borrower, where we say the onus would be on the borrower, or in defining the extent of our rights, which might place the onus on us, may be of significance.

GUMMOW J:   How would clause 7 work to an action to recover the money?  You could not plead never indebted, could you?

MR WALKER:   In our submission and anticipating and I hope completing what I want to add by way of supplementing address to my written submissions on onus, the lender would plead the outstanding balance as it alleged it, having pleaded the advance on payments, and the borrower would plead back and that the indemnity is effective and enforceable, no doubt pleading whatever facts under the judicature system where necessary in order to make that good and would therefore answer by saying that the plaintiff has no cause of action.  That is how, in our submission, it would work in a pleading sense.

Now, there is an alternative proposition which is advanced by our learned friends.  You will not actually see it reflected in the way in which the case was conducted below which would say that the plaintiff has a defective pleading if the plaintiff does not plead all the facts in relation to the indemnity being effective and enforceable up front, as it were.  We certainly are not in a position to say that is an untenable proposition.  Much depends upon how one looks at clause 7.  Its heading is delightfully ambiguous as to whether it is a definition of the extent of our right where one can see, I stress, the cogency of an onus placed on us or whether it is an answer to what the other provisions of the agreement would provide as our right to be repaid.

Now, we urge on your Honours that the latter is the preferable course because it reflects the way in which the parties have themselves expressed their bargain.  They start by saying there is an obligation to borrow and an obligation to repay the whole, which obligation in a certain event or given a certain circumstance is diminished or eliminated.  I say diminished rather than eliminated because when one comes to clause 2 of the indemnity agreement, one sees that clause 7 is by no means the institution of full non‑recourse.  Had it been full non‑recourse, it would have been, one imagines, laughed away in the ATO.

Before leaving the loan agreement, on the next page 1578 I should draw to attention, as part of the almost circular route of this money, provisions 8.5 and 8.6 in relation to the fate of the first and second tranche, which do not get to be banked and enjoyed by the borrower. 

Your Honours, before we leave the loan agreement as a whole, may I simply note, as your Honours have seen in our written submissions in reply, that it is, of course, clause 7 which eliminates liability in the borrower to the lender in the event that the surety, that is, OAL, is liable on the indemnity.  It is that particular aspect of the transaction which causes us to abandon the argument we have abandoned.  That is the antithesis of the subrogated right of the surety upon early payment to the creditor to sue the debtor which is the underlying rationale of the principle upon which we have been relying.

Can I then come to the indemnity agreement, the recitals of which your Honours will find in volume 4 of the appeal book page 1583.  It, in its own way, notes the interlocking.  Could I draw to attention that there are three parties:  there is OAL, the indemnifier; there is ARF, my client, the lender; and there is Mr Gardiner, the borrower.  That is a character of this transaction which comes to be relied upon by Justice Basten in his reasoning about waiver to which we will be coming in due course.  Under the recitals, in particular, could I note recital C which describes the indemnification, as we put it, contingent that is:

subject to certain conditions and upon the occurrence of certain events –

Then under recital E:

The Lender agrees to limit its recourse for repayment . . . to the Indemnifier as set out herein.

Recital C, I should emphasise, shows that this is regarded by the parties as an indemnification of the borrower:

The Indemnifier wishes to indemnify the Borrower –

save harmless the borrower.  Clause 1 is important.  It starts unnecessarily but plainly by subjecting itself to the terms of the agreement:

in consideration of the payment on the date hereof of the Indemnity Fee –

which is $250 –

agrees to indemnify and save harmless the Borrower against any demand –

I should emphasise the word “demand” –

by the Lender for repayment of any Principal Sum outstanding and any interest thereon under the Loan Agreement –

then unnecessarily but emphatically it adds in closing –

subject to the terms of this Agreement –

Now, the significance of “demand” is thrown up by the way in which our learned friends argue this in their written submissions to which I will be coming.  There is also significance in the word “any” twice repeated there “any demand” and “any Principal Sum”.  As your Honours will recall from the loan agreement, principal sum is repaid inter alia from income received for 17 years.  Interest is payable.  So that clause 1 recognises that the event against which the indemnity is available, a demand by the lender – and your Honours will recall clause 5 of the loan agreement calling up the whole of the principal – that is available for the whole of the term, 17 years.  Clause 2 is the critical provision upon which, if any one clause can be singled out, the whole case turns:

The Indemnity referred to in Clause 1 shall be effective and enforceable if:

We submit that that means the party claiming the benefit of the indemnity, a benefit which in this case includes its role in clause 7 of the loan agreement in answer to the claim for repayment engendered by clause 5 of the loan agreement, has the onus to show that the conditions and circumstances contemplated between the parties for the indemnity to apply are in existence.  Clause 2 starts with language which, in our submission, has no ambiguity of any kind within the meaning of that expression for the purposes of the principles of contractual interpretation.  It says as to the first of the four conditions that:

the Borrower has punctually paid the interest payable pursuant to Clauses 3.2 and 3.3(a) of the Loan Agreement –

Now, those are the first two, that is, the first 12 months and the second 12 months of interest to which I draw attention. 

Your Honours will recall that the time is stipulated for those payments.  It is common ground that there was lateness for what has been called the first and second loans, which are the only ones to Mr Gardiner which are question in this Court.  There was lateness as set out in summary in our written submissions, paragraphs 14 and 15.  We submit that is an end of the necessary inquiry.  If they were late they were not punctually paid.  That is the end or impossibility at that point of the conditions (a), (b), (c) and (d) all being satisfied.  Your Honours will see the “ands” which join the conditions.  They all must be fulfilled.  There are alternative possibilities within the fourth.  You see the “ors” but (a), (b), (c) and (d) all must be fulfilled.

Now, it is put against us, both by our learned friends and the reason informed one of the main reasons in forming the Chief Justice’s adverse conclusion against us on the meaning of the word “punctually”, that there is something unreasonable or not to be expected in the transaction between these parties that an early failure to pay on time, as there was in this case, would destroy for the term the possible availability of the indemnity and thus destroy, for the balance of the term, irrevocably, the clause 7 benefit to the borrower and our answer is simple.  On the face of this bargain, these parties knew that there were potential obligations to enforce which demand could be made within the terms of clause 1 of the indemnity under the loan agreement for 17 years.

The first of the conditions, in language clear and not obscure, required the punctual payment of the two advance first two years’ interest referred to in clauses 3.2 and 3.3(a).  No one could have been misled as to the need for that to be fulfilled.

GUMMOW J:   How did the Chief Justice in New South Wales construe the phrase “as punctually paid” in order to achieve a result of adversity or interest?

MR WALKER:   My summary is, by omitting the word “punctually” and by looking to the fact of eventual payment.  I will come to the critical passages in his Honour’s reasons.  There is a preliminary stage in his Honour’s reasons which, in effect, prefer contra proferentem reasoning to Andar reasoning and we say that neither matters.  There is no ambiguity of a kind that ones needs Andar for.  Of course we say, if there is, then Andar favours us because it favours the surety.

KIRBY J:   The word “punctually” of itself does not indicate necessarily absolute exactness.

MR WALKER:   It does, is our submission.  I accept, with respect, that there is a contrary view observable in ordinary life but, in our submission, if you are 5 minutes late you are not punctual.  It may be venial ‑ ‑ ‑

KIRBY J:   Look, if you say the bus comes punctually at 8 o’clock, well now it is 1 minute to 8, 1 minute past 8.

MR WALKER:   I thought your Honour lived in Sydney.  With respect it does not and public transport is as good an example as any.  They have to define punctuality by saying that a late train is on time for the purpose of certain performance standards.  Well, you can do that but you have not actually altered the fact it is late.  In our submission, “punctually” has as its only meaning “on time” and where time is expressed by reference to a day, a calendar day, any other day after that day is late.  It may be venial, to use the language of, I think, Lord Hoffmann, in Union Eagle, but it is nonetheless not punctual.  No one has suggested that there is any difficulty in seeking out the creditor, anything which either textually or contextually or by way of background would suggest that “punctually” does not bear its only meaning which is on time.

KIRBY J:   The problem is that human existence demonstrates in many cases in the courts, including in this Court in recent times, indicates that in the real world of business, punctually is sometimes just a little bit variable.

MR WALKER:   May I remind your Honours, in the real world of business, as the Privy Counsel in that Hong Kong case made very clear, it is both practical and ‑ ‑ ‑

GUMMOW J:   Union Eagle.

KIRBY J:   That was that Hong Kong case that we referred to.

GUMMOW J:   Tanwar.

MR WALKER:   Ten minutes late.

GUMMOW J:   Yes, we looked at it in Tanwar, I think.

KIRBY J:   You are smiling at that prospect – 10 minutes late.  It is just after midnight.  It is 10 minutes, the courier gets lost, you have a very obscure place, they come along late ‑ ‑ ‑

MR WALKER:   But your Honour will recall that is where they actually - there is nothing obscure about Hong Kong Island, your Honour.  It said 5.00 pm, it did not say ten past five.

GUMMOW J:   [1997] AC 514.

MR WALKER:   Now, in our submission, options which require notice of exercise, being a very important species of business dealing and great practicality, are a very good example because there ‑ ‑ ‑

KIRBY J:   I suppose you could say, if we adopt your reasoning, then for the whole of Australia, at least as far as the common law is concerned, that is it.  Everyone knows the rules.  If you are late, you are late.  You are not punctual.

MR WALKER:   You are late.  That is precisely it, and there is huge virtue ‑ ‑ ‑

HAYNE J:   Is not the underlying premise for your argument that if the word “punctually” does not mean “exact”, what is the word doing?  What is it saying?  What is it adding?

MR WALKER:   That is exactly our point.  In our submission, although he does not do so in terms, the only way to understand the Chief Justice’s conclusion on this point, he being the only judge against us on this point ‑ ‑ ‑

GUMMOW J:   You have to read it as near enough, but then you ask yourself how near.

MR WALKER:   Near enough.  Now, does that mean with a large sum of money near enough is a short margin and a small amount of money you can keep it dribbling for years?  There are no principles of laws here and none yielded by an understanding of the ordinary English of the word that would permit one to draw the lines that are necessary.  Why are lines necessary?  Well, with an option case it is so that the grantor of the option knows whether he, she or it can deal with their property in favour of someone else.  That also underlay the Hong Kong Case.

GUMMOW J:   What you have in your favour, I suppose, is the common law took your view to be qualified to a limited extent by equitable relief.

MR WALKER:   Quite, and this is not a case of any equitable relief, neither sought nor available.  In answer to what Justice Kirby has raised, there are of course instances where strict observance of legal obligation may be relieved against or may not stand in the way of equitable relief, which often amounts to the same thing.  That is not this case. 

KIRBY J:   It is just your contention that the word “punctually” has strictness in its meaning, whereas I am not so sure that that is so.  If you say, “Do not get late, because the High Court sits punctually at 10.15”, well, I can tell you the court reporters, as you know, report exactly when we come in and it is 10.17, 10.19, sometimes even later if we are ‑ ‑ ‑

GUMMOW J:   Sometimes it is 10.10.

MR WALKER:   It does not detract from the importance of the advice and following the advice of being on time, though, if you are counsel.  Now, your Honours, my point is, contrary to what Justice Kirby has just raised with me, that the word “punctually”, etymologically cognate as it is with words like “punctilious” and “punctuation”, has at its heart, indeed has as its only meaning, the notion of a point.

HAYNE J:   The exactness of which we speak is measured by days, not minutes, is it not?

MR WALKER:   In this case it is days because that is what the parties’ bargain is.  In other cases it might be o’clock.  That is not this case.  Now, when it is days, in our submission, and payment is called for by a particular day, it is just not possible as a matter of English – if I need to add it as a matter of business English – to say that a day late is on time, a day late is punctually paid.  It is another question altogether, which in another case altogether might excite the concern of equity about the conscience of the claimant in my client’s position, as to whether it matters commercially.  That is another thing altogether.

Although it stems ultimately from matters called “default” in clause 5 of the loan agreement, here this is not a matter of default.  This is simply a condition or circumstance, as noted in the recitals of the indemnity.  It does not call for any weighing of rights or wrongs, it simply calls for the observance of what has happened and what has happened, it is common ground, is that the borrower did not punctually pay except as that phrase has been understood by the Chief Justice which, I repeat, seems to come down to has paid eventually.

Clause 2(b) repeats the same critical language in relation to the reductions of the principal sums set forth in clause 4.1.  The significance of that in this case is that like (a) it signifies the agreement of the parties that two of the essential preconditions for the effectiveness and enforceability of the indemnity will be known as to their fulfilment or not very early in the piece, very early in the piece.  The first reduction of the principal sum might be three months after the agreement or the first quarter day or the first month day afterwards.  So that contrary to what is set out in the Chief Justice’s reasons, there is nothing unexpected or alarming about these conditions failing to be fulfilled so that the indemnity is never available for the rest of the term early in the piece.  It is manifest on the face of the parties’ bargain. 

Clause 2(c) is not so confined to the early days, although it will include the early days.  The words in parentheses in 2(c) are absolutely vital in order to understand it so as to avoid absurdity.  This, after all, is an indemnity which is called up by ultimately the borrower as an answer to ARF. 

Then 2(d) is significant.  2(d)(i) happens to be a force majeure event, which I have already analysed for the purposes of the provisions of clause 5 of the loan agreement under which the option was chosen by my client to call up the whole of the principal.  It has no further significance in this case, except that one knows that clause 31(a) in the force majeure sense can again describe something which happens very early in the piece.

Clause 3 refers to a demand, namely:

Subject to Clause 2 hereof the Indemnifier agrees to pay to the Lender upon demand of the Lender or the Borrower ‑

it is for the benefit of the borrower –

any Principal Sum outstanding under the Loan Agreement and any interest thereon and the Borrower irrevocably directs the Indemnifier to make such payment . . . The Indemnifier acknowledges the terms of the Loan Agreement, in particular clause 7 ‑ ‑ ‑

and that is the very clause, of course, which destroys a right of subrogation.  Clause 4 is:

The Lender agrees and acknowledges that the Borrower may rely upon the Indemnity set forth herein and that notwithstanding any failure on the part of the Indemnifier to punctually perform any covenant or obligation contained herein the Lender shall not have recourse to the Borrower if the Indemnity herein contained is effective and enforceable in accordance with the terms of Clause 2.

It may be belts and braces, but it makes very clear the intended commercial effect of this provision.  It is, of course, an important provision and its loss is a drastic alteration to the nature of the tax effective bargain sold by way of these transaction documents to Mr Gardiner.

HAYNE J:   It puts beyond issue what is meant by the expression “effective and enforceable”.

MR WALKER:   It does.

HAYNE J:   On one view those words might have been thought to be engaged only once payment was made.

MR WALKER:   It means good in law even if the judgment is nothing more than wallpaper, yes.  Now, we rely upon what I have twice pointed out, namely, the destruction of the right of subrogation as, if anything, adding weight to the arguments we have put in writing about the need simply to read “punctually” in its ordinary commercial sense, meaning on time.  In our submission, given that there is no recourse possible in the familiar way of a surety to a principal debtor under these arrangements, there is an obvious interest in the indemnifier knowing and knowing early what the extent of its risk will be.  If one is dealing with a borrower who has not punctually paid, then the bargain of the parties is that the indemnifier will not be on the hook at all for the rest of the term.

Now, of course, if the unpunctual payment causes the lender, my client, to have exercised its rights under clause 5, then the whole thing will be brought, in the case of that borrower, to an early and sticky end but not in a way which will involve the indemnifier at risk.  In our submission, for the reasons that no doubt actuated the various investors called farmers for the tax effective reasons, that is the bargain that they agreed on in terms that made it clear that failure to secure or have the benefit of the indemnity may become apparent at their first failed payment.

In our submission, that is not only the proper reading but it is the only reading which the relevant contractual interpretation principles that will yield in this case.  Could I take you now, please, to the Chief Justice’s reasons in volume 4 of the appeal book starting at the preliminary discussion of “principle” at page 1836.

At line 20 on 1836, paragraph 14, the Chief Justice extracts from Andar statements which, of course, we rely upon as your Honours have seen in our written submissions.  To put this in context, the trigger point to the application of these is ultimately what might be regarded as ambiguity, without going into the subtleties of what that expression means.  Your Honours appreciate this is a fallback argument for us because on the submission that I have just completed there is no ambiguity of any kind.  It is both textually and contextually plain what was meant by “punctually”.

Now, the notion of construing in favour of the indemnifier translates in this case, we submit, in favour of its commercial interest, its direct financial interest, as we would choose to call it, in whether or not it is at risk, that is, it has a contingent liability or whether it has an actual liability.  To construe in favour of the indemnifier OAL is to construe “punctually” as meaning on time, without any blurring of the calendar, so that if there is a failure to pay by the due date then the word is to be construed so as to prevent the indemnity becoming effective or enforceable.  That is in favour of the indemnifier because it saves its pocket.

Over the page, 1838, after his Honour has referred to the extra curial discussions of Andar, none of which of course affects its currency and authority, at paragraphs 19 and 20 his Honour, with respect, unexceptionably refers to the fact that there may be:

more than one principle . . . of contractual interpretation –

operating.  However, in our submission, there is a jump from 19 and 20 to 21.  In the last of those the Chief Justice refers to the foundation of a contra proferentem argument, namely:

OAL drafted the indemnity –

and then disentitles it -

to the benefit of the approach adopted in Andar.

In our submission, there is nothing in Andar that says that and we have set out in our written submissions an answer on authority that I do not want to elaborate in address to the notion that there is salt and freshwater opposition between contra proferentem and the strict construction of a guarantee or indemnity of the kind that his Honour seems to be employing here.

His Honour seems to say it is either contra proferentem ‑ which he finds it is – or it is Andar which he says has been driven from the field.  In our submission, though both may operate, at the end of the day the specific or special case of sureties which is the subject matter of Andar would suggest that all other things being equal that is the way in which one would resolve any problem of so‑called ambiguity.

I confess that the difficulty of this argument for us in this case is the difficulty of identifying what it is that is ambiguous about the word “punctually” so as to ascertain what it is that ought to be the preferred interpretation.  One cannot, in our submission, find any reasoning in the Chief Justice’s reasons, to which I am about to come, which indicates that the word “punctually” has an ambiguity which includes the possible meaning of “not on time”.

Now, that is not to say that in the particular context of the particular instrument, the word is not given its own meaning by the choice the parties have made of other provisions such as, for example, defining “on time” as being within three days of a target date, for example.  That would be an ideal example of the word yielding to its particular context.  Nothing has been suggested, and on our researches nothing is available in any of the copious transaction documents in this case to that effect.

Could I then take your Honours to where these threads are drawn together against us by the Chief Justice starting at page 1864 in volume 4, paragraph 110.  In the second sentence of that paragraph the Chief Justice, with respect, correctly identifies what the word, as he puts it, “usually requires”, namely:

payment to have been made on the day provided in the contract and on no later day.

With great respect, we would criticise that observation by Chief Justice Spigelman only in one way, namely, that if it were intended to suggest that by the word “usually” that it is common in some way for there to be a departure from that as the standard, that is not supported by experience.  I repeat our concession.  Of course particular contexts might drive a different outcome.  There is none in this case.

GUMMOW J:   What is Leeds and Hanley Theatre of Varieties about?  They are litigants in several cases.

HEYDON J:   Yes, there are other cases of the same name that deal with other subjects.

MR WALKER:   Your Honours, I am afraid I have not looked at that since I first read this judgment and I will have to get an answer.  I do not remember.  From recollection, it is nothing more in an unremarkable context than an example of the axe falling when something happened later than the day provided.  Over the page, 1866 ‑ ‑ ‑

HAYNE J:   Before you depart 1865, paragraph 111, how are we to understand the expression in line 4 of paragraph 111:

payment which has been accepted as punctual –

What is meant by “acceptance as punctual”?

MR WALKER:   There is no explanation of that anywhere.  Particularly the “as punctual” is a mystery.  There is no question that late payments were accepted in the sense that they were received and banked.  Of course, why would they not be?  “Accepted as punctual”, that is adopting a convention that they were on time, as an elaboration of that phrase is nowhere explained by the Chief Justice, in our submission.  It may be a reference to a version of the argument which we have called the waiver argument which found favour with Justice Basten.  But we know that the Chief Justice describes his approach as being a different approach from that of Justice Basten.

We submit there was nothing found by Justice Young.  There was nothing overturning Justice Young found in the Court of Appeal which factually shows that the receipt of payments late was accepted as punctual in the sense that there was a convention binding between lender and borrower that they had been made on time though they had not in fact been.

That concludes what I can say about the meaning of the expression “as accepted as punctual”.  They were accepted, unquestionably.  There was complaint about them being late and there was apology for them being late by Mr Gardiner.

GUMMOW J:   The answer to the Leeds case is at 1744.  The chief judge in equity was on point.

MR WALKER:   Yes.  Can I move then to 1866.  In paragraph 117 there is reference to the lender being a party, repeats its undertaking of limited recourse and the Chief Justice says that that version:

in the Indemnity Agreement extends the promise to circumstances in which the Indemnifier fails “to punctually perform” its obligations under the Indemnity Agreement.  The relevant obligation is the obligation under cl 3 of that Agreement for the Indemnifier to pay to the Lender amounts outstanding under the Loan Agreement.

Thus far there is nothing to quarrel about in that reasoning.  Then in paragraph 118 his Honour finds particular significance in a circumstance he describes as:

the Indemnifier under the Indemnity Agreement does not have a direct financial interest in the punctuality of the prior payments by the Borrower to the Lender.

Now, it is true that what I am about to put might be attacked as being circular, that is, assuming at my own conclusion, but nonetheless, on the basis of the plain meaning of the first of the conditions for the effectiveness and enforceability of the indemnity, there is one answer, I hope not glib, to that proposition by the Chief Justice.  There is the most self‑evident, direct financial interest in an indemnifier knowing whether it is on the hook for the amounts owed by the borrower, that is, interest in the punctual performance by the borrower, because depending whether there has been punctual performance, they are or are not on the hook. 

The financial interest is “have I got a contingent or actual liability for this borrower’s outstanding amount?”  That is financial, it is an interest and it is direct.  Or, if it is not direct, it is the closest indirect, those at one remove, that one could imagine.  The difference of substance between something called a “direct” and a “very close indirect” financial interest for the purpose of this interpretation exercise is vanishingly small.  It is the trigger, that is, punctual payment by the borrower of those early payments, of the indemnifier’s obligation to pay.

HAYNE J:   Is 118 to be read as an elliptical reference to, it is not evident why the indemnifier for a fee of $250 would take on this obligation, but it has, and having taken on the obligation, why should it not persist whether or not payment is made punctually?

MR WALKER:   The difficulty with that, of course, is that it involves simply a contrary assertion without demonstration that the words chosen by the parties to describe the first prerequisite of liability do not appear.  They do not have their only meaning.  The answer to the question, “Well, if you take this on for a mere $250, why would you care about punctually paid?” is because it is the first prerequisite of that which I offered in return for a mere $250.  That is why I care about it.

Indeed, the merer the $250 is, the more obvious the interest is in not giving more than the bargain stipulated and the bargain stipulated that thought you will get this for a mere $250, but you had better make sure that these carefully specified early payments are made on time, because if not you do not get the benefit of what you only paid $250 for.

Now, there is another sense in which one might experiment to justify that reference by the Chief Justice and that is the sense that a payment is not being made – that is the so‑called prior payments are not being made to the indemnifier.  That is true, but it is trivially true.  That will be the case for every surety.  The interest they may have or not in the payment to the creditor is never the interest of being the recipient of the payment, by definition.  They could not be a surety if they are in fact in the position of the principal creditor.

His Honour then says that is quite a different context to what is called the usual case.  With respect, that much is not shown.  He then says that it is an “unusual aspect” leading “to the word ‘punctually’ losing its usual connotation of precision in timing”.  Now, at that point it has to be said, his Honour does not say, as if choosing between one possible meaning in an ambiguity over another, he does not say what is the preferred meaning?  If it does not have its usual connotation “precision in timing”, what does it mean, except for what I offered in answer to Justice Gummow at the beginning of this argument, that it disappears altogether, it plays no role.  That, in our submission, is not the choosing of a preferred interpretation where there is an ambiguity.  It is the unauthorised removal of a word – a very familiar word – from a legal agreement.

GUMMOW J:   The argument that was not accepted in the Leeds and Hanley Case [1898] 1 Ch 343 at 345 was that the word “punctually” should be construed as referring not to any particular day, “but as meaning within a reasonable time”. That seems to be what has to be implicit.

KIEFEL J:   Are you reading the requirement of punctuality as providing a positive benefit to the indemnifier and a risk to the borrower ‑ ‑ ‑

MR WALKER:   Yes.

KIEFEL J:    ‑ ‑ ‑ if it is not performed, and that is the bargain?

MR WALKER:   Yes, and I stress - though these words ought not to be germane between these kinds of parties - I stress there is no trap or secret in the way that is expressed.  It is very, very clear.  Could I move then ‑ ‑ ‑

KIRBY J:   Justice Spigelman seems to have been affected by the long‑term character of the agreement and ‑ ‑ ‑

MR WALKER:   Yes, he does and I have tried to answer that in advance, namely so much is absolutely clear on the face of the document.  You will get this possibility for 17 years, but only if you meet these early payments because they are, by definition, explicitly the early payments.             Could I move to 1867 paragraph 121?

KIRBY J:   I suppose the suggestion is that there is a discordancy then between lapses that happen early and events that then come to fruit very late and that that cannot therefore be the commercial meaning of the word “punctually”.

MR WALKER:   The short answer to that is, “Why not?”  $250 has changed hands to get a commercial possibility that the parties agree will be known not to exist very early, depending upon punctual payment by somebody who, after all, owes money and has undertaken to pay punctually.  That brings me to the first sentence of paragraph 121.  Literally his Honour the Chief Justice, with respect, is correct in saying that the payment provisions in clauses 3 and 4 do not have the word “punctual” in them, but they do not have to have the word “punctual” in them.       If payment is called for by a particular date, as a concept punctuality is payment by that date, not at some time more or less tolerable thereafter.

But for the purposes of construing the provisions in question, it would be wrong to ignore that the very close context of clauses 3 and 4 includes clause 5 of the loan agreement, to which I drew attention, headed “DEFAULT” and itself referring to “due and punctual payment” as being one of the circumstances which can lead to the election to call up the whole.  These parties bargained that the whole amount in this tax affected investment, this whole amount could be called up if there was default in due and punctual payment and we know that that is an event in which the indemnity would not be available. 

One needs, after all, to have some risk in a tax effective transaction in order for it to pass muster.  That is one of the risks.  There was not much commercial risk because as long as you paid punctually, it did not matter whether tea tree oil was very popular or not at all.  The proceeds of the business would be the only stream of money from which you, the so‑called “borrower”, could be obliged to repay the amount borrowed.

Now, under 121, third sentence, his Honour, in our submission, errs by saying that there is no “automatic consequence in the relationship” of lender and borrower.  I need to make clear, of course, that in context his Honour is almost certainly referring only to the loan agreement.  We need to make clear that none of these can be interpreted in a silo away from the other.  There are the express cross-references and linking to which I have already referred.

Clause 7 of the loan agreement limits the liability by reference to effectiveness and enforceability within the meaning of clause 2 of the indemnity agreement.  It, clause 7, is of drastic, radical, substantial consequence to the relationship of lender and borrower.  It brings in at a certain time in their relationship no further recourse by lender to borrower. 

There is an automatic consequence for that under clause 2 of the indemnity agreement.  No election or option is necessary under clause 2 of the indemnity agreement.  It is just an historical circumstance judged by reference to the legal obligations of payment under the loan agreement.  Has it been punctual or not?  If not, automatically without an election by anyone, least of all the lender, there will be no indemnity.  Being no indemnity, there is no limitation under clause 7.  Being no limitation under clause 7, there is full liability to the clause 5 demand.  Full liability to the clause 5 demand should thus have produced judgment in our favour on the first and second loans.

At the top of page 1868 at the end of paragraph 121, the Chief Justice refers to the indemnifier having “no commercial interest in the punctuality of payment”.  I have already referred to the fact, as your Honours know, that the money received goes in circles, or in an arc at least, and the manager and the indemnifier has a very evident commercial interest in the punctuality of payment bearing in mind the manager’s obligations to pay outgoings.  The funding of the management’s obligations in that regard by payments received inter alia from borrowers and farmers.

Page 1869, paragraph 126, the conclusion, after his Honour has dealt with the long‑term nature of the contract about which I have already finished my submissions, is against what his Honour calls “a strict interpretation”.  In our submission, if there be any note of disapproval in that epithet strict, it is inappropriate.  It is simply a literal or ordinary interpretation giving to the word its only real meaning.  His Honour says of the condition being satisfied, that is, paid punctually:

where the person who is entitled to the benefit of the original obligation –

that is the lender –

accepts the actual payment –

and “actual” surely there means the unpunctual payment, the one that is late –

as constituting punctual payment.

That comes back to the question about which Justice Hayne asked me earlier, what does it mean to accept as constituting punctual payment?  Presumably it must be more than simply accepting a late payment.  It would be perverse not to accept something better late than never.  The pleadings, in our submission, do not reveal in any way that was ultimately the subject matter of findings favourable to Mr Gardiner by Justice Young or in the Court of Appeal showing how that receipt of payment where there had been reminders or complaint and apology for lateness, does not show how any of those facts show that the lender accepted that that which was late had not been late.  Your Honours, that concludes I wanted to say about the reasoning in the Court of Appeal.

HEYDON J:   Any passage in Justice Handley you rely on in this context?

MR WALKER:   I do rely upon all of his Honour’s reasoning on all issues.  In our submission ‑ ‑ ‑

HEYDON J:   Is it at about 359?

MR WALKER:   At page 1959 in volume 4 starting at paragraph 359 there is, in particular, in the third sentence of that paragraph, just about lines 11 or 12 starting “Moreover” a proposition which is the same as that which I have just put and, of course, we rely on it.  If I have not made it sufficiently clear in writing, let me make it clear now.  We, with great respect, urge the correctness of all Justice Handley’s reasoning.  I hope that is an answer to the question you were asking, Justice Heydon.

That concludes what I wanted to say about the Court of Appeal reasoning because, as you have just seen, Justice Handley held in accordance with the way we put the case and but for what I will call loosely waiver, Justice Basten would have too.  So that on the interpretation of “punctually”, Justice Young, Justice Handley and Justice Basten were in accordance with the argument we have just put.  That is why I have concentrated on the Chief Justice’s reasoning.

Could I, however, with respect, go to the way in which it is put against us in writing in this Court.  It starts at paragraph 19 in the first respondent’s written submissions.  There is a stricture uttered by my friends against Justice Handley.  The appeal book reference I think should be 1962, not 1859, in paragraph 373 where his Honour had said:

The requirement for punctual payment is a condition of the Indemnity Agreement, not the Loan Agreement.

GUMMOW J:   That is important for the waiver argument, is it not?

MR WALKER:   Yes.  Parties are critical to the so‑called waiver argument.  With respect, we are not sure what the correction sought to be administered by our friends to his Honour’s reasoning or observation is.  Clearly, punctual payment is explicitly a condition of the indemnity being effective and enforceable.  It is not a condition in anything like the same sense of the parties to the loan agreement remaining as lender and borrower without the principal being called up.  It is a circumstance which at the election of the lender may lead to the principal sum being called up but it need not.  In our submission, there is nothing in that point.

In paragraph 24 one finds what may be the respondent’s explanation of this notion in the Chief Justice’s reasons of accepting the payments as punctual, but it appears that it is the acceptance of what are frankly called late payments – see the third line of their paragraph 24 – and not requiring repayment of the outstanding principal sum.  But it is very clear, for the very reasons they point out themselves in other circumstances, that failure of punctuality under the loan agreement does not lead, either as a matter of obligation or automatically, to the calling up of the principal.

In our submission, one does not ever construe the failure by a lender to exercise an option to make all principal repayable at once as being an acceptance of the payment which entitled him to exercise that option as punctual.  It is simply an exercise of the option, given lack of punctuality, not, however, to call up the repayment.  There is nothing in either the legal relation or in the facts in this case which converts that into the acceptance of those payments as having been punctual.

In paragraph 28, using the language of the principles of contractual interpretation, our friends refer to clause 5 of the loan agreement as embodying “a contractual object, or purpose”.  With great respect, no.  The contractual object or purpose is not to be found in the machinery provisions for the enforcement of obligations or the provision of an option to call up the whole principal in the event of failure.  That is default.  That is not the contractual object or purpose.  The contractual object or purpose is to provide moneys to fund a tax effective investment on the terms provided in relation inter alia to non‑recourse.

GUMMOW J:   What do you say about the last sentence at paragraph 30, though?

MR WALKER:   They are, in our submission, topsy‑turvy.  We do “distinguish between a failure to pay punctually, and a failure to pay at all”, in our submission.  The Chief Justice, on the other hand, does not explain what meaning is being given to the word “punctually”.

GUMMOW J:   No, but with reference to the notion of “direct financial interest”, paragraph 30 of Mr Smith’s submissions.

MR WALKER:   The first sentence is ‑ ‑ ‑

GUMMOW J:   He says, okay, it is one thing that they are never going to repay.  It is another if they are just slipping.

MR WALKER:    No.  As I said earlier, 8.4 or 8.5 of the loan agreement, there is obvious interest.  The manager has to make all the payments to keep things going as things run.  Anybody who has to reach into his own pocket to pay for things which are to be reimbursed by, in this case, the farmers, because the borrowers are all farmers, obviously has an interest in receiving the money, early not late.  That is our answer.  Of course, there is an obvious financial interest in the borrowers repaying ARF.  That is conceded.  Our friends have simply left out of that “on time” as if one is unconcerned or indifferent if you are OAL to whether ARF is repaid on time or 17 years late or two years late or months late.

There is nothing in common sense and nothing in the circumstances proved in this case to show that there would be any such indifference in parties who – if I may put it as charitably as I may – seem to have been driven by the careful calculation of sums of money outlaid, and in large measure, coming back.  The round robin is, after all, an expression that our learned friends have applied to aspects of this arrangement.  So that is our answer to paragraph 30.

We have already answered paragraph 29 by reference to clause 7 of the loan agreement being automatically – to use the language – operating by reference to clause 2 of the indemnity agreement.  Paragraph 31, in our submission, contains fallacies.  In particular, the notion of:

no Principal Sum was payable and no demand could be made –

elides the differences between 5.1(a), (b) and (c) to which I have drawn attention already.  Subclause (c) is the ground upon which demand was made in this case, namely, cease to carry on business because the project was terminated.  Clause 5.1(a) is about punctuality.  The notion that no principal sum could be payable and thus no demand could be made if ARF was not paid on time and did not declare the principal sum due is misleading if it suggests that the only way in which it could declare the principal sum due was upon ARF not being paid on time.  That is not correct.

As happened in this case, the actual ground for declaring the principal sum due was not the unpunctual payment, it was the ceasing to carry on business.  Then the other way our friends put it there:

If ARF was not paid on time, and did not declare the Principal Sum due, the Indemnity could not arise, because . . . payments were not punctual.

Quite so.  Either outcome could not disadvantage OAL, quite so.  It demonstrates what, we would submit, is a direct financial interest if that be necessary, and in our submission, for the reasons we have put in writing, there is no legal principle and this Court should not pronounce one by which there needs to be whatever a direct financial interest entails in order for the ordinary principles already laid down by this Court in Andar to apply in the event of any ambiguity.  I stress, these are fallback arguments not necessary if the proper, straightforward approach to the meaning of “punctually” is applied.

In paragraph 34, though the language is not explicit, we understand the argument being put as a contra proferentem argument slightly differently from the way in which the Chief Justice puts it but no doubt calling his approach in aid as shown by the citation.  The notion that we are relying on ambiguity in its drafting, in our submission, is outlandish.  We do not rely upon any ambiguity.  Your Honours, may I then turn to the question of waiver.  The critical matter in relation to waiver ‑ ‑ ‑

GUMMOW J:   That is a weasel word if ever there was one.

MR WALKER:   Quite.  The first sentence of our learned friend’s submissions in paragraph 35 is one which we enthusiastically join.  I have, as I said when first introducing that term, deliberately used it loosely as a convenient, terse way of giving a title to a part of the case.  In our submission, if I can put it in a nutshell as follows in elaborating our written submissions, if anything, the way in which Justice Basten approached this part of the case ought to be seen for the reasons shown by Justice Handley and in accordance with the comment made by Justice Spigelman, both of which are cited in our written submissions, to be a contractual variation varying the obligations between OAL, ARF and a lender under the indemnity agreement concerning the prerequisite of punctual payment.

HEYDON J:   That is really what Justice Basten says on page 1922 at line 8.

MR WALKER:   I think, with respect, yes, your Honour.

HEYDON J:   The letter “was an express variation of the borrowers’ obligations”.

GUMMOW J:   Page 1932?

HEYDON J:   Page 1922 in paragraph 255.  It is about the fourth line of type on the page.

MR WALKER:   I am going to come to 257 as being what seems to be an important matter.  We entirely accept, with respect, the possible characterisation that Justice Heydon has raised.

GUMMOW J:   More than one circle, though.

MR WALKER:   Yes, sloughing off profits as it goes.  That is the intention.  It did not happen.

GUMMOW J:   What is the significance in that of the management fee?

MR WALKER:   Now, a management fee is money which remunerates the manager for performing its tasks, which include three rather important matters under the licence and management agreement.  Licence is licensing to the farmers their aliquot bits of the many hectares actually leased for rent to be paid by the manager.  The licence fees obviously go to reimburse with or without margin for that expense.  The management fees are to remunerate and obviously to permit the expenditure involved in the tasks imposed on the manager, that is OAL, the indemnifier, under clauses 15, 17 and 18, which you will find in volume 3 of the appeal book at pages 1303 to 1205.  They are, to put it bluntly, the farming activities.  I know other people are called farmers, but the farming is actually an obligation of the manager.

Now, that is why, apropos another point in reply, it is not correct to say that from OAL’s point of view it is a matter of indifference as to when payments are made, whether they are made in timely fashion.  Tea trees and the weather, presumably, do not wait until people have paid money.  Things need to be done.  When things need to be done, wage earners need to be paid, petrol needs to be bought, et cetera, et cetera, so that timeliness of receipt matches, and interest in that matches the fact that there has to be timely performance of the services by the manager.

My learned friend repeated in his address something said in written submissions, namely, that there could not be a demand unless there had been a clause 5 call up for late payment.  This very case is a demand without any such call up.  This very case is a call up for ceasing to carry on business.  It is not correct that there has to be a call up for late payment and it is therefore significant that the clause 2 prerequisites to the indemnity being effective and enforceable apply regardless of what ground upon which a call up is eventually made.  Clause 2 applies regardless of the ground for the lender’s demand.  It need not be lack of punctuality in making stipulated payments.

I apologise, I think in‑chief I said, in particular, in answer to Justice Heydon when going to a certain part of Justice Basten’s reasons that I would come to paragraph 257.  I did not.  I am not going to now, because that would not be reply, but could I simply note that what I was going to add by way of elaboration is adequately conveyed in our written submissions, paragraphs 62 to 74, especially paragraphs 68 and 69.

GUMMOW J:   Just before we go any further, Mr Walker, I should indicate that Panoutsos was discussed later in the English Court of Appeal in Bird v Hildage in [1948] 1 KB 91, particularly at 95 and 96 and perhaps more significantly by the English Court of Appeal in Charles Rickards v Oppenheim [1951] 1 KB 616 at 623 which we all remember from law school is one of Lord Denning’s early judgments after High Trees Property and it is in that context that he places Panoutsos.

MR WALKER:   Yes.  That is the way I have made a reference to it being a pre‑High Trees.  Thank you, your Honour.  A very small point; several times my learned friend referred to the lack of necessity, as he put it, of OAL knowing from day one whether it was on the hook, to use my expression.  I think he eventually he talked about day one of default.  The expression “day one” may give the impression that my friend was referring to or is relevant to contemplate what happened at the very outset of the loan agreement.  I gather that is the not point my friend was making.

In our submission, there is always an interest in anybody with a contingent liability or a possible contingent liability to know whether it is going to become actual.  In particular, there is a converse interest in knowing that it can never become actual.  In our submission, that will arise and will be of obvious financial interest to a person as soon as one of the prerequisites for that liability has become impossible of fulfilment.  That is the sense in which I meant that point.

HAYNE J:   Were these entities liable to audit and report to investors?

MR WALKER:   There is a trustee, of course.  The word “audit” has thrown me, your Honour.  I am not quite sure whether that is correct.  I do not have in my head the provisions.

HAYNE J:   You astonish me that you do not carry the managed investment scheme provisions in your head, Mr Walker.

MR WALKER:   There are – I will not call them open book provisions – what I will call accounting and reporting provisions; yes, particularly on the manager.  May it please the Court.

GUMMOW J:   Any further written submissions from the first respondent on the question of the law as to waiver doctrine be provided – how long, Mr Smith, a week?

MR SMITH:   Yes.

GUMMOW J:   We will say 8 August.  Any responses from either the second respondent or the appellant within seven days after that.

MR WALKER:   May it please the Court.

GUMMOW J:   We will consider our decision in this matter.  We will now adjourn until 9.30 am tomorrow in Melbourne and 9.30 am in Sydney.

AT 3.39 PM THE MATTER WAS ADJOURNED