Alward, K.J. & Star Holdings (Qld) Pty Ltd v Westpac Banking Corporation

[1988] FCA 430

Re: KENNETH JAMES AYLWARD and STAR HOLDINGS (QLD) PTY LTD
And: WESTPAC BANKING CORPORATION
No. G210 of 1988
Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Woodward(1), Lockhart(1) and Hartigan(1) JJ.

CATCHWORDS

Contract - illegal and void contracts - gaming and wagering - contract between bank and client under which bank as agent for client may contract with itself as principal in foreign currency dealings - whether claim by client that moneys owing under such transactions are irrecoverable as wagers should be struck out as disclosing no cause of action - effect of particular agreement between the parties.

Gaming and Betting Act 1912 (NSW) s.16

HEARING

BRISBANE

#DATE 8:8:1988

Counsel for the Appellants: Mr F.L. Harrison QC and Mr P. Stephens

Solicitors for the Appellants: Paul Doumany & Co

Counsel for the Respondent: Mr P. Keane

Solicitors for the Respondent: Feez Ruthning

ORDER

The appeal be allowed.

The orders of the learned primary Judge striking out paragraphs 16 and 17 of the amended statement of claim and awarding Westpac Banking Corporation the costs of that motion be set aside.

The respondent pay the appellants' costs of this appeal and of the notice of motion filed on 12 April 1988.

Note: Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

JUDGE1

This is an appeal, by leave, from a decision of a single Judge of the Court on a pleading motion, in which his Honour ordered the two paragraphs of an amended statement of claim be struck out.

1. In his action Mr Aylward seeks, among other things, to avoid the consequences of an agreement he entered into with the respondent ('Westpac') and which was known as a Foreign Exchange Management Agreement ('the Agreement'). In particular he seeks to establish that he is not obliged to pay Westpac certain amounts said to be owing by him under the Agreement.

2. The Agreement provided that Westpac would act as Mr Aylward's agent in buying and selling foreign currencies, and empowered Westpac to enter into such contracts, on Mr Aylward's behalf, either with third parties or with itself as the principal in the particular contract.

3. The amended statement of claim alleges in paragraphs 16 and 17 that, in those cases where Mr Aylward's contracts were with the Bank as principal, they were wagering contracts within the meaning of s.16 of the Gaming and Betting Act 1912 (NSW) and no moneys could be recovered under them. That section provides:
   
   

"All contracts or agreements, whether by parole or in writing, by way of gaming or wagering shall be null and void, and no suit shall be brought or maintained in any court of law or equity for recovering any sum of money or valuable thing alleged to be won upon any wager or which has been deposited in the hands of any person to abide the event on which any wager has been made: ..."

1. Westpac argued at first instance that the effect of the Foreign Exchange Management Agreement was that, if Westpac contracted with Mr Aylward on its own behalf, it was "risk-free" and any loss fell on Mr Aylward.

2. His Honour's conclusion was expressed in the following paragraphs:
   
   

"The applicant relies on s.16 of the Gaming and Betting Act 1912 (NSW), which makes contracts and agreements by way of gaming or wagering null and void. As is the position under the general law, transactions are not caught by the statute unless 'each party may under it either win or lose' - Carlill v The Carbolic Smoke Ball Company

(1892) 2 QB 484 at p 491 applied by Rogers J. in a case under this Act, Jackson Securities Ltd v. Cheesman (1986) 4 NSWLR 484 at p 489.

In my view, the point taken by (counsel for Westpac) is good and should be given effect to. The result is that paras. 16 and 17 of the amended statement of claim will be struck out."

1. Since his Honour did not explain which aspects of the Agreement led him to conclude that it was 'risk-free' from Westpac's view point, it is necessary to set out relevant parts of it in some detail. They are as follows:
   
   

"FOREIGN EXCHANGE MANAGEMENT AGREEMENT

This DEED is made this Twenty Seventh day of August 1986

BETWEEN Kenneth James AYLWARD of 38 Macquarie Street GLEN INNES N.S.W. In the State of New South Wales (hereinafter called 'the Debtor') of the first part

AND WESTPAC BANKING CORPORATION

Of 60 Martin Place, Sydney

including its successors and assigns (hereinafter called 'The Bank') of the other part.

WHEREAS:

(A) The Debtor conducts a certain amount of its business in foreign currencies, and has other obligations in foreign currencies.

(B) The Debtor has requested the Bank to act as its agent to purchase and sell currencies in the Company's name, and for certain other purposes

(C) The Debtor has agreed to appoint the Bank as its agent aforesaid and the Bank has agreed to do so subject to the terms and conditions of this deed

(D) The Debtor acknowledges that dealing in foreign exchange involves substantial risks, which risks under all circumstances are to be borne by the Debtor.

NOW THIS DEED WITNESSETH that in consideration of these presents it is hereby agreed as follows:-

1. The Debtor appoints the Bank as its agent for the purpose of -

(a) selecting the currency or currencies and/or the terms of any foreign exchange contract, foreign currency borrowing or other foreign currency transaction (each, a selection); and

(b) purchasing and selling (whether spot forward or otherwise) currencies under foreign exchange contracts with the Bank as principal or with any other party,

at the Bank's discretion as it sees fit whether pursuant to any drawing of borrowed moneys under any financial accommodation provided by the Bank through any of its branches or by any of the Bank's subsidiaries to the Debtor or otherwise and whether with or without any instructions from the Debtor so to do.

2. The Debtor warrants and represents to the Bank that it has all necessary power to enter into and perform this deed according to its terms and subject only to such limitations as shall have been or shall be advised to the Bank in writing and the Debtor agrees to indemnify the Bank and keep the Bank indemnified in respect of any liability (including all consequential and related costs) which may be incurred by the Bank as a consequence of acting as the Debtor's agent under this deed.

3. ....

4. ....

5. The Debtor hereby irrevocably during the term of this deed appoints the Bank and every officer of the Bank whose title includes the word 'Manager' severally its attorney to do, make, execute, sign, seal and deliver on behalf of and in the name of the Debtor any and all acts, deeds, matters, things, authorities, acknowledgements or forms of agreements or contracts (including but without derogating from the generality of the foregoing, any form of agreement or contract, with the Bank as principal or any other party, for the sale or purchase or forward sale or forward purchase of any currency or foreign currency or currencies or the closing out or cancellation thereof) as considered necessary by the Bank in connection with giving effect to this deed.

6. The Debtor acknowledges and agrees with the Bank that:

(a) The Bank has not made, does not make, nor shall there be implied any representation, warranty or undertaking in relation to this Deed or any act, matter or thing done or to be done under or in relation to this deed except as expressly provided in paragraph (c);

(b) Without limiting the generality of paragraph (a), the Bank does not represent, warrant or undertake that it is able:

(i) to make a selection or enter into foreign exchange contracts which will result in gains or cost reductions for the Debtor or which will not result in losses or increased costs for the Debtor; or

(ii) to make a better selection or enter into more advantageous foreign exchange contracts than any other person or corporation;

(c) the Bank will seek in good faith on behalf of the Debtor to make favourable selections and enter into advantageous foreign exchange contracts but so that neither the Bank nor any of its employees shall be liable or responsible for or in respect of:

(i) the effectiveness, timeliness or suitability of any act, matter or thing done or omitted to be done by the Bank on behalf of the Debtor under this deed;

(ii) any negligence, delay, default, breach of contract or duty, misrepresentation, misleading or deceptive conduct, conflict of interest or otherwise in relation to any act, matter or thing done or omitted to be done by the Bank on behalf of the Debtor under this deed; or

(iii) any costs, charges, expenses, losses or damages (including consequential loss) suffered or incurred by the Debtor as a result of any of the above;

(d) the Debtor does and shall release and discharge the Bank and its employees from and in respect of any liability or responsibility for or in respect of any act, matter or thing referred to above and from all actions, proceedings, suits, claims and demands which the Debtor may now have or may in the future have against the Bank or any of its employees under or in relation to this deed or any act, matter or thing done or omitted to be done by the Bank on behalf of the Debtor pursuant to this deed;

(e) the Debtor shall indemnify and keep indemnified the Bank and its employees from and against all actions, proceedings, suits, claims and demands by any person or corporation in respect of or arriving directly or indirectly out of this deed; and

(f) the Bank may on behalf of the Debtor deal with itself as principal and may retain (without being liable to account for) any profits, commissions or fees arising from any such transaction as if it were not the agent of the Debtor.

7. ....

8. The Debtor agrees to deliver on demand to the Bank in clear funds sufficient moneys to complete any and all authorities, acknowledgements or forms of agreements or contracts entered into by the Bank on behalf of and in the name of the Debtor pursuant to this deed and the Bank is irrevocably authorised at its option to debit to the Debtor's accounts or an account in the Debtor's name with the Bank with all amounts payable by the Debtor in respect of any authorities, acknowledgements or forms of agreements or contracts aforesaid, and the Debtor HEREBY COVENANTS with the Bank that the Debtor will at all times indemnify and keep indemnified the Bank for any loss costs charges or expenses incurred by the Bank as a result of the Debtor not providing the Bank with clear funds sufficient to complete any authority acknowledgement or form of agreement or contract aforesaid.

9. ....

10. ....

11. ...."

1. Before this Court, counsel for Westpac argued that, under the Agreement, Westpac acted at all times as agent for Mr Aylward when making contracts for the purchase and sale of foreign currency. He referred to recitals B and C and clause 1 of the Agreement (above). He submitted that "the risk of loss on those transactions was expressly allocated to" Mr Aylward and, in support of this submission, relied on recital D and clauses 2 and 8 of the Agreement.

2. In considering these provisions it is useful to bear in mind what the High Court said about the construction of exclusion clauses in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 61 ALJR 76 at 80:
   
   

".... the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity." ....

1. Recital D is an acknowledgement of the risks of losing money when dealing in foreign currencies. It provides in effect, as one might expect, that if Mr Aylward were to lose money in a particular transaction entered into on his behalf by Westpac, the loss is his and cannot be left with or attributed to the bank by reason of allegedly bad advice or for any other reason.

2. It does not necessarily follow that, if Westpac chooses, as principal, to deal with Mr Aylward, and Mr Aylward shows a profit, he is not entitled to that profit. If that were so, there would be no 'risks' in such a case at all : Mr Aylward could never make a profit. It is reasonably arguable that the 'risks' referred to are Mr Aylward's risks of losing, not the risk of the bank (as principal) that Mr Aylward might deal profitably.

3. In clause 2 Mr Aylward indemnifies Westpac "in respect of any liability .... which may be incurred by the Bank as a consequence of acting as the Debtor's agent under this deed." But if Westpac chooses to deal as principal with Mr Aylward, and Mr Aylward makes a profit, can it be said that the bank's loss has been incurred as a consequence of its acting as agent? It is at least arguable that the indemnity does not extend so far.

4. Clause 8 makes normal provision for Mr Aylward to keep the bank in funds, when required, for any dealings on his behalf. The further covenant that he will indemnify the bank for "any loss costs charges or expenses" incurred by Westpac as a result of failure to keep it in funds does not appear to touch on the present issue.

5. Counsel for Westpac also referred to sub-clause 6(f) of the Agreement. He argued that it is concerned to entitle Westpac to act in its own interest, free of the fiduciary constraints which its position as agent might otherwise import, and does not affect the allocation of risk.

6. We agree with that submission. The sub-clause speaks of Westpac retaining "any profits, commissions or fees". It does not speak of Westpac retaining any amounts which it owes Mr Aylward as the result of a transaction in which it has, for example, bought back from him at a higher price foreign currency which it had previously sold him.

7. Another argument put to this Court in support of the striking out of the wagering allegation was that we have here a genuine commercial transaction, not a mere gambling for differences. The distinction is conveniently stated in Halsbury's Laws of England 4th Ed Vol 4 under the heading 'Betting, Gaming and Lotteries'. Paragraph 13 reads:
   
   

"13.Contracts for 'differences'. A genuine agreement to buy or sell securities, followed by a right to delivery (whether exercised or not) is a legitimate transaction, although the parties when they enter into it do so with the intention of reselling or repurchasing the securities and so realising a profit from a fluctuation in price. Agreements, however, between those who are only ostensibly buyers and sellers of stocks and shares to pay or receive the differences between their prices on one day and their prices on another day are contracts by way of wagering, and the differences cannot be recovered, .... The same principle applies to options; if there is a tacit agreement that the option shall never be taken up, but that only the differences shall be payable, the contract is void."

(See also Jackson Securities Ltd v Cheesman (1986) 4 NSWLR 484.)

1. It will be seen from this statement that, in order to determine this question, the Court may need to go behind the expressed form of the contract to examine the course of conduct of the parties. This may well be why the learned primary Judge made no finding on this particular issue - if indeed it was raised before him.

2. At all events, we believe that the determination of the true nature of the arrangement between the parties, which will help to decide whether or not these were wagering transactions, is a matter for further pleading and for evidence. We are mindful of what the High Court has said more than once about the undesirability, except in the clearest cases, of determining important questions of law on a motion to strike out a pleading as disclosing no cause of action, or any similar motion. See, for example Dey v Victorian Railways Commissioners (1949) 78 CLR 62, per Dixon J at 90-92. His Honour there spoke of,
   

"... the integrity of the principle that under cover of the inherent jurisdiction to s abuse of process litigants are not to be deprived of the right to submit real and genuine controversies to the determination of the courts by the due procedure appropriate for the purpose ..."

1. For the reasons given, the appeal will be allowed and the orders of the primary Judge striking out paragraphs 16 and 17 of the amended statement of claim and awarding Westpac the costs of that motion will be set aside.

2. The respondent Westpac will pay the appellants' costs of this appeal and of the notice of motion filed on 12 April 1988.