Alirezai v ANZ Banking Group Ltd & Anor

[2006] HCATrans 672

[2006] HCATrans 672

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B14 of 2004

B e t w e e n -

MOSHEN ALIREZAI

Applicant

and

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

First Respondent

MALCOLM JACKSON

Second Respondent

Application for special leave to appeal

KIRBY J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 8 DECEMBER 2006, AT 1.37 PM

Copyright in the High Court of Australia

MR H.B. FRASER, QC:   If the Court pleases, I appear for the applicant.  (instructed by Lynch & Company)

MR A.M. DAUBNEY, SC:   May it please the Court, I appear with my learned friend, MR M.T. BRADY, for the respondents.  (instructed by Blake Dawson Waldron)

KIRBY J:   Yes, Mr Fraser.

MR FRASER:   Your Honours, some material was sent down by my solicitor to the Court that should have arrived yesterday morning, which included a page that was missing from the record, which was page 72, and also a document headed “APPLICANT’S SUMMARY OF ARGUMENT IN REPLY”.

KIRBY J:   Yes, we have that material.

MR FRASER:   Thank you.  I should just mention about the argument in reply.  Of course it is out of time.

KIRBY J:   Do not worry about that; move on.

MR FRASER:   Thank you, your Honour.  The particular points which I submit would arise if leave were granted and which would be of importance are essentially two.  Firstly, whether proof of those elements found by the Court in Garcia’s Case to justify equitable relief in the case of wives who give voluntary guarantees of husbands’ debts might justify equitable relief in analogous circumstances outside the marriage relationship and particularly how that relates to the discussion in Amadio’s Case which requires some notice of a special disability.  I should say first that that would involve of course a factual analysis that we rely largely upon unchallenged findings – and I will come back to that.

KIRBY J:   Can I just ask you to pause there.  You will remember that I took a slightly different view from the majority in Garcia, although not dissenting from the result.  Is not the point that emerges from Garcia that my colleagues just said, “Well, it isn’t really necessary for us in this case to go into whether the category goes more widely”, because Mrs Garcia was at the time married to the person and therefore it is enough to take Yerkey v Jones, to take the category in that, and therefore we do not have in this case to go into the wider question.  I think that is a fair way to interpret how the majority approached the matter.  Ultimately you are going to have to answer the question of whether you do not face the same problem, namely that the issue you are propounding is a very interesting question but, given the conclusion that your client had the independent advice of a solicitor who told him not under any circumstances to sign the mortgages and that he went ahead notwithstanding, having regard to that evidence and the findings, there is a real question as to whether one would ever get to the interesting point you tender because on one view it is just not going to be causative, it is not relevant.

CALLINAN J:   Mr Fraser, one of the problems is that if you were right about this, what it would mean, assuming multiplicity of relationships, not merely shared cultural values or shared religion or something of that kind but some other shared values that made people friendly and reliant upon one another, assuming all of that, if that is enough, then it sets at nought the need to get legal advice and it sets at nought the legal advice itself.  It means that a wilful person would always be able to come to this Court and say, “I liked my friend so much” or “I liked X so much” or “I relied upon him to such an extent, it doesn’t matter what anybody else said, it doesn’t matter what a lawyer said.  I wanted to help him”.  The law is very unlikely to go as far as that.  Those are the facts of your case really.

MR FRASER:   In that last respect, your Honour’s question to me tended to be similar to that asked by his Honour Justice Kirby.  I acknowledge that I need to persuade the Court in the short time available to me that there is substance in my submission that the Court of Appeal viewed the facts far too narrowly and that we can rely nearly entirely upon findings to show that we could satisfy the requirements if they were applicable by analogy of Garcia and that we could show that the certificate was given in circumstances that ought not be relied upon.

The second response that I would make which then relates only to the other aspect of his Honour Justice Callinan’s question brings me to the second point which we submit would justify the grant of special leave, which is this.  We acknowledge frankly what his Honour Justice Callinan has said about the consequences of broadening in perhaps somewhat undefined ways the categories in which banks would have to obtain certificates.

The second point is that it was considerations of that kind that led to the remarks, admittedly obiter remarks, by Lord Nicholls in Royal Bank of Scotland v Etridge which are to the effect that because of difficulties of that kind, and perhaps sub silentio because the practice of the banks, as this case tends to demonstrate, is to obtain such certificates anyway, that there ought to be a broader rule that suggests in the case of – I think the expression used by his Lordship was “uncommercial” or “non‑commercial guarantees” – the creditor ought to obtain those certificates.

The second special leave point has the advantage of course that it gets over the factual difficulties, but of course I would have to persuade the Court that there is an arguable case that the Court would depart from the reasoning in Amadio and Garcia.  The first special leave point falls more closely within the reasoning of the Court in Garcia but I need to get over the factual difficulties.

Can I start then by a submission that deals with what is the most obvious perceived factual difficulty.  Your Honours will recall that in Garcia’s Case in the case of a wife guarantee, as it were, at page ‑ ‑ ‑

CALLINAN J:   I thought Mrs Garcia on one view was very, very lucky.  She seemed to be a sophisticated businesslike woman who conducted her own business and, nonetheless, she had the advantage of very strong findings at first instance, as I recollect.

MR FRASER:   Yes, exactly.  She was I think a physiotherapist who had some commercial experience.

CALLINAN J:   And not just in running her own physiotherapy practice.

KIRBY J:   I have a lot of sympathy for what Justice Callinan said.  I do not know whether I said it clearly enough in my reasons, but for me that was a very close‑run thing, that case, I have to say.

MR FRASER:   Yes, I acknowledge that.

KIRBY J:   The problem with introducing these equitable notions, we would destroy the confidence of overseas people who deal with our law of contractual obligations because no one ever obeys them any more.  They all say, “Don’t worry what I’ve signed.  We’ll go out and get a bit of equity”.

CALLINAN J:   Potential operation against not just banks either.  Insurance companies and all sorts of people could be in ‑ ‑ ‑

KIRBY J:   Anyway, I will try to restrain myself, Mr Fraser.

CALLINAN J:   So will I.

KIRBY J:   You do have a fair go now.  We will give you a little bit more time too.

MR FRASER:   Can I respond to the international element, as it were, by saying that we would rely upon the international element by reference to Lord Nicholls’ comments which did seem to command, at least if one reads an earlier speech, the agreement of the Lordships’ House that would actually broaden the rule in a very general way.  I will come back to that.

So far as the error is concerned, the main element which would seem to be put against us that it is said we could not establish, if I can refer very briefly to Garcia v National Australia Bank Ltd 194 CLR 395 at 409, the four elements that were said to make the particular guarantee unconscionable in the case of a wife included:

(a) in fact the surety did not understand the purport and effect of the transaction –

that relates to the solicitor’s advice point; I will come back to it –

(b) the transaction was voluntary –

there is no issue about that here.  Although my client thought that one of the transactions was not voluntary and that he would benefit, he was wrong; in fact, the transactions were voluntary, he got no gain –

(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife –

that involves the most reference to facts I have to come to –

and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.

Just dealing then really with (c) first, which is, we respectfully submit, the critical point, your Honours will have seen the approach of his Honour Justice Jerrard who dissented – and I think it is pithily stated at page 69 of the record in paragraph [83] which we would adopt but amplify.  We really say that all their Honours looked at this rather too narrowly.  His Honour points to the – really using the words from that quote from Garcia that may not have received sufficient explanation:

That is well demonstrated by the ease with which Mr Sarlak –

who we might say was the rogue, as it were –

agreed in early December 1991 to the bank’s requirement that Lot 2 secure all the debts of Sarlak Enterprises, when it was plain Mr Sarlak had not at that moment been able to communicate with Mr Alirezai at all.

And again in [84], a reference to:

Mr Sarlak’s confident and accurate predictions that Mr Alirezai would provide security as a volunteer.  On each occasion when Mr Sarlak showed that confidence, Mr Jackson could have had no basis for believing that Mr Sarlak had had any prior communication with Mr Alirezai about the request for security then being made for the first time by Mr Jackson.

Now, really it goes a bit further than that, in our submission.  The basal reason given by the President of the Court of Appeal against our proposition which is at page 60 of the record in paragraph [54] was that the Bank should not have been concerned because Mr Jackson, the manager:

knew that Mr Sarlak was the appellant’s good friend who had helped him financially in a time of need and that the appellant wanted to reciprocate.

Now, in fact the finding of the trial judge, which is at page 6 of the record, was that all that Mr Jackson was told on the first occasion – and your Honour will recall this was when Mr Sarlak was offering a security worth $130,000 – on the first occasion it was in paragraph [22] of the judgment:

When Mr Sarlak had first approached Mr Jackson about this bank guarantee, Mr Jackson informed Mr Sarlak that the bank needed more security.  It was then that Mr Sarlak told Mr Jackson about a friend who would help him out.  Mr Jackson stated in evidence, and I accept, that Mr Sarlak told him that he had a friend for whom he had done a favour in the past by making a loan of $50,000 who would be able to offer some supporting security for the bank guarantee to be issued to Peerless.

So that was what Mr Jackson was told.  There are a number of circumstances I have to mention, but can I make the point at the outset that one can perhaps understand the idea that friendship might lead to reciprocation by offering even possibly a bank guarantee covering all of Mr Sarlak’s business dealings worth $130,000, or a mortgage worth $130,000, which was the value of Lot 2, but two years after, when that was still being held by the Bank, Mr Sarlak was able to offer, as though he had the authority to do so, immediately a second mortgage worth $260,000 with the first one being retained on foot, so that the total transaction was worth to the Bank – that was being offered was $400,000.

The second transaction possessed the features mentioned by Justice Jerrard but even rather more strongly than Justice Jerrard put it, because if one looks at the findings, at page 13 of the record in paragraph [54] what happened was that:

On 6 July 1993 –

so this is a year and a half or so after the first mortgage –

Mr Sarlak made enquiries of the bank about negotiating a documentary credit issued by an Iranian bank covering shipment of mutton products –

which is, I pause to add, something quite different from what he told Mr Alirezai –

Mr Sarlak was informed that the bank could negotiate under a bill negotiated not under credit facility (“BNNUC”) ... Mr Jackson informed Mr Sarlak that he [Mr Jackson] did not have sufficient security for a BNNUC facility of $350,000 ... and Mr Sarlak offered further security from Mr Alirezai.

So that what he did, similar but even more extremely than the previous occasion, was to offer it as though he could offer it, and what he told Mr Alirezai, the applicant, about it was something rather different.  He acted as though he was Mr Sarlak’s agent to make this offer and as though there was absolutely no difficulty, even though, as on the first occasion, there is not the slightest suggestion that Mr Alirezai indicated to the Bank that he had had any discussions with Mr Alirezai.  Mr Sarlak did not suggest that he needed to talk or that Mr Alirezai might need to consider it or anything.  He offered it as though he could offer it forthwith.

Now, your Honour, can I pause to say that instead of hazarding $400,000 worth of security in these circumstances, one might think that a proportionate response to the early favour of the $50,000 that had in fact been repaid in a year with interest at 6 per cent, a proportionate response might have been to say, “I’ll lend you $100,000 or $200,000”, instead of the friend being able to offer forthwith security over land for any purpose of the business worth $400,000.

CALLINAN J:   But in the background, Mr Fraser, there were negotiations between your client and the borrower with respect to a partnership and business ‑ ‑ ‑

MR FRASER:   Yes.

CALLINAN J:   The Bank does not know what is going on in Iran and the Bank does not know what is being done about that.  It does not know what the discussions are, does not know what expectations of profit the two of them had.  This was more than just a loan in respect of a property.  There were underlying business arrangements or business understandings between the other two that the Bank need not have explored and could not explore fully.

MR FRASER:   Your Honour, there is no suggestion, in the findings at least, that it was suggested to the Bank that there was any business relationship.  The relationship with ‑ ‑ ‑

CALLINAN J:   Well, wait a moment, did not the borrower ask the Bank about credit arrangements or how a transaction for the importation of mutton or tallow from Iran might be facilitated by the Bank?  Is that not right?

MR FRASER:   Yes, but not in the context of any suggested joint venture or business involving Mr Alirezai.  Your Honour, may I say this, that that was the story told by Mr Sarlak to Mr Alirezai, but the story told by Mr Sarlak to the Bank is that which appears at paragraph [54] on page 13 against the background of the earlier finding I took the Court to, and this was what was relied upon below in the courts below, that what justified or was thought to be the reason for this kind offer by Mr Alirezai was the friendship and the prior loan, apparently a long time ago, certainly years ago by the time of the 1993 transaction, the prior loan of $50,000. 

Your Honour is probably perhaps thinking of, say, at application book page 12 in paragraph [51], in discussions between Mr Sarlak and Mr Alirezai, Mr Alirezai had said to Mr Sarlak, “I have no money, but I got two deeds” – at this stage he wrongly thought he had two deeds; one was with the Bank – “I got two deeds, you know, we can borrow against that and go to the business together.”  Then later Mr Sarlak telephoned Mr Alirezai and Mr Alirezai stated that Mr Sarlak said to him “the business of tallow, I talk to you.  I’m going to Iran.  I’ve got my own shipment going to Iran” and so on.  What her Honour actually found about this – and the findings are at application book 15, paragraph [67] – was that:

Although it was only the mortgage over Lot 6 –

that is the 1993 transaction –

that was given on this occasion, I find that Mr Alirezai believed that he was allowing both Lots 2 and 6 to be used as security for the setting up of the BNNUC for the tallow shipments which Mr Alirezai believed from Mr Sarlak was going to be a business undertaken for the benefit of both of them.  This is consistent with the concession to that effect made by Mr Alirezai in cross‑examination and with Mr Alirezai procuring the valuations of both Lots 2 and 6 at this time.

So that is what Mr Alirezai believed, and you will see that her Honour goes on to say:

I also find that, while Mr Alirezai was still influenced by his friendship with and trust of Mr Sarlak, part of Mr Alirezai’s motive –

it is obviously what he believed was going to happen, he was going to make money, but in fact that was not – I might just pause there to say that the concession referred to there is that mentioned in paragraph [61] on page 14, that when Mr Alirezai was talking about his meeting with his solicitor:

Mr Alirezai stated that he informed Mr Kennedy –

and this seems to have been accepted by her Honour –

that he was going into business with Mr Sarlak to export tallow to Iran and that he trusted Mr Sarlak.  Mr Alirezai conceded in cross examination that he had agreed with Mr Sarlak to put up both Lots 2 and 6 as security for the business that Mr Sarlak and he were going into and that Mr Alirezai thought he would make money out of going into the tallow business with Sarlak Enterprises.

Now, that seems to have been the impression that the solicitor was labouring under too, but in fact, as I said, the Bank was not told any of this.  All that the Bank knew was that, as I said from the reference at page 13 of the application book, paragraph [54], was that Mr Sarlak went to the Bank and said, “I want to make inquiries about an Iranian shipment of mutton products”, not the joint venture for the tallow.  “Mr Sarlak was informed that the bank”, et cetera.  “Mr Sarlak offered further security from Mr Alirezai.”

As I said when I took the Court to the finding, I think, the Court of Appeal proceeded on the basis that what justified this great generosity, what justified Mr Sarlak in being able to make this offer on the spot was this friendship and this loan which one would have thought had been repaid a hundredfold by the security for $130,000 which had been with the Bank all this time.  Now, there was a few other circumstances that relate to the Bank’s ‑ ‑ ‑

KIRBY J:   But for friendship both personal and commercial and professional, it makes the wheels of commerce and business arrangements operate smoothly.  I mean it is not unknown; it is a very common thing.

MR FRASER:   Yes.

KIRBY J:   It is a lubricant.

CALLINAN J:   Stockbrokers do business daily, millions and millions of dollars of transactions without a note, on the telephone.  They cannot make inquiries if the money is being provided by somebody else.

MR FRASER:   But, your Honour, we are talking about here a particular kind of transaction which is a voluntary guarantee given by a friend by the principal debtor offering it to a bank to secure that principal debtor’s dealings.  The only consequence of acceptance of the argument we would wish to put would be that in a potentially broader range of transactions that might be perceived to be the case at the moment, the Bank would be required to obtain appropriate assurance that the guarantor had received independent advice, a practice which the Bank seemed generally to engage in, in any case, as they did in this case. 

CALLINAN J:   Why would they not, the way the courts have gone in some direction?

MR FRASER:   Exactly.  It is the point made in the House of Lords that one cannot be sure about the precise nature of the transactions which require it, so the banks adopt the policy of requiring independent advice and certificates to be issued and, as in this case, and I think a Victorian Court of Appeal decision referred to in the judgments, the banks are now coming to the court saying, “Yes, we have sent the certificates, but whether adequate or not we were not obliged to get the certificates”.  So the banks are in fact, it appears, engaging in the very same ‑ ‑ ‑

CALLINAN J:   They are going to be penalised now for their prudence on other occasions, is that what you are saying?  In any event, they were prudent here.  The Bank was prudent here.

MR FRASER:   Your Honour, that is the second point that I need to address, of course, if your Honours ‑ ‑ ‑

CALLINAN J:   You have had a lot of time, Mr Fraser, and you are well over it. 

MR FRASER:   Yes.  Well, I do not wish to ‑ ‑ ‑

KIRBY J:   We have given you a bit more time, first, because you are a very persuasive advocate and, second, because we did interrupt you a little bit, but there is a limit.

MR FRASER:   Yes, I understand that, your Honour.

KIRBY J:   I think you should try to conclude now the point.

MR FRASER:   Can I wind up by saying about the certificate point this, that the certificate which the Bank required, the form of it is set out at page 77 of the record.  One of the requirements appropriately was that the solicitors say:

my Client will execute the documents freely and voluntarily, and with full knowledge and understanding of their content and of the circumstances under which he is undertaking the liabilities contained in them.

In fact, although the Bank required the principal debtor to get that certificate to the solicitor and get it signed, it was admitted below that the Bank provided no information to either the guarantor or the principal debtor.  It was left to the principal debtor to provide the information and what in fact happened was the principal debtor’s misleading of the guarantor in this case, as your Honours have seen, survived the advice and it seems largely because the solicitor relied upon the advice of the debtor as well as the inevitable consequence of leaving it to the debtor.  So, in my submission, the certificate point, the independent advice point, does not hold good in the particular case.  Given that my time is up, those are my submissions.  May it please the Court.

KIRBY J:   Mr Fraser, by the way, I do not think that in Etridge the House of Lords referred to Garcia.  I know they have in earlier cases referred to Garcia but I do not think they did in this case.

MR FRASER:   I think that is right, your Honour. 

CALLINAN J:   Did not the House of Lords take a different view of Yerkey v Jones?  The House of Lords went further.

MR FRASER:   They did.

KIRBY J:   The House of Lords are pushing further and I am a bit sympathetic to that, as I indicated in Garcia.  It is just a question of whether this is the case to give us the chance to have a look at it.

MR FRASER:   Can I just answer that by saying that ‑ ‑ ‑

KIRBY J:   One more sentence only, Mr Fraser.

MR FRASER:   One more sentence.  If we could have the opportunity of persuading the Court to adopt the view which has been taken by Lord Nicholls, then that would resolve the case in our favour regardless of any difficulties with the facts.

KIRBY J:   We realise that.  The question is whether – and I would never use this in the presence of Justice Callinan, except that you have provoked me – this is an appropriate vehicle.  That is an expression I have never used since Justice Callinan attacked it, but that is the issue which we have to think about.  Anyway, thank you very much, Mr Fraser.

MR FRASER:   Thank you, your Honour.

KIRBY J:   Mr Daubney, though it is always a pleasure to hear from you too, we do not need your assistance on this occasion.

MR DAUBNEY:   Your Honours are very kind, thank you.

KIRBY J:   The applicant challenges the orders of the Court of Appeal of Queensland.  That court by a majority, Justice McMurdo, the President, and Justice Wilson with Justice Jerrard dissenting, dismissed the applicant’s appeal from an adverse judgment at trial entered by Justice Mullins.  The case involves the applicant’s resistance to a claim based on security documents with the Bank which he executed, in effect, to guarantee a friend’s debt. 

The applicant seeks to persuade this Court to re‑express the categories involving relationships of special vulnerability recognised as giving rise to equitable remedies as so far expressed by this Court in cases such as Commercial Bank of Australia v Amadio (1983) 151 CLR 447 and Garcia v National Australia Bank (1998) 194 CLR 395. The applicant asks for the opportunity to persuade the Court to extend the categories so far recognised to personal relationships based, for example, on such considerations as cultural and religious values held in common.

Potentially, this is a question that might warrant a grant of special leave to appeal to this Court in a suitable case.  Relevant to that tentative conclusion are the opinions in the speeches of the House of Lords in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, especially at paragraph [46] in the speech of Lord Nicholls. However, the facts of these proceedings do not render this a suitable occasion for consideration of the propounded issue.

The facts suggest that the Bank was unaware of any situation of special disadvantage on the part of the applicant and was not aware of circumstances that should have alerted it to such a possibility.  As well, the applicant was given advice by an independent solicitor, Mr Kennedy, before he executed the security documents.  As found, the solicitor gave the applicant strong advice that he ought not to sign the mortgages.  In these circumstances, a real question of causation would arise as to whether any alleged special vulnerability on the applicant’s part actually gave rise to the applicant’s loss, given that he appeared to be determined to execute the security documents to help a friend who, like him, was of Iranian descent.

Despite the powerful arguments advanced by Mr Fraser, we are not otherwise convinced that any error has been shown in the orders and reasons of the Court of Appeal.  Accordingly, special leave is refused.  It must be refused with costs.

AT 2.07 PM THE MATTER WAS CONCLUDED