Androvitsaneas v Members First Broker Network Pty Ltd
[2013] VSCA 212
•16 August 2013
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2012 0100 | |
| JOHN ANDROVITSANEAS | Appellant |
| v | |
| MEMBERS FIRST BROKER NETWORK PTY LTD | Respondent |
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| JUDGES | REDLICH and PRIEST JJA and MACAULAY AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 23 April 2013 |
| DATE OF JUDGMENT | 16 August 2013 |
| MEDIUM NEUTRAL CITATION | [2013] VSCA 212 |
| JUDGMENT APPEALED FROM | Androvitsaneas v Members First Broker Network [2012] VCC 406 (Judge Lewitan) |
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CONTRACT – Credit Representative Deed – Termination for material breach – Misrepresentation as to client’s income – Whether particulars of breach required in notice of termination – Whether conduct misleading – Whether trial judge erred in allowing allegation of dishonesty – National Consumer Credit Protection Act 2009 (Cth) – ASIC Regulatory Guide 209 – U108 Pty Ltd v Sing Fan & Ors [2010] VSC 12 applied – Appeal dismissed.
CONTRACT – Whether breaches material – Whether breaches capable of remedy – Respondent reasonably considered the breaches to be material – Breaches potentially exposed the respondent to criminal liability – Breaches could not be remedied by supervision of the appellant – Whether the respondent’s termination power was attended by a duty of good faith – Baston v De Carvalho (1948) 48 SR (NSW) 417; Forklift Engineering Australia Pty Ltd v Power Lift (Nissan) Pty Ltd [2000] VSC 443 considered – Elders Ltd v EJ Knight & Co Pty Ltd [2009] NSWSC 1462 approved.
EVIDENCE – Rule in Jones v Dunkel – Appellant failed to call clients or their accountant to give evidence.
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| Appearances: | Counsel | Solicitors |
| For the Appellant | Mr W Gillies | Tartaglia & Associates |
| For the Respondent | Mr R Peters | Phillips & Wilkins |
REDLICH JA
PRIEST JA
MACAULAY AJA:
The appellant brought proceedings against the respondent in the County Court for breach of contract. The appellant sought a declaration that the respondent’s termination of a Credit Representative Deed (CR Deed) was invalid, an injunction restraining the Respondent from terminating the Deed and damages. The proceeding was dismissed on 24 April 2012 following a seven day trial.
The appeal challenges the trial judge’s finding that the respondent (‘Members First’) validly terminated the appointment of the appellant (‘Andrews’)[1] as a credit representative under their agreement.
[1]As Mr Androvitsaneas is known – see Androvitsaneas v Members First Broker Network [2012] VCC 406 (‘Reasons for Judgment’), [3].
Members First operates a mortgage banking business and is the holder of an Australian Credit Licence granted under the National Consumer Credit Protection Act 2009 (Cth) (‘the Act’). Under s 29 of the Act, it is an offence for a person to engage in a ‘credit activity’[2] unless the person holds an Australian credit licence to engage in that credit activity,[3] or engages in the credit activity on behalf of a licensed principal as a ‘credit representative’ of the principal.[4]
[2]Defined in ss 6-8.
[3]Section 29(2).
[4]Section 29(3).
On 4 March 2011, Members First entered into a Credit Representative Deed (‘the CR Deed’) with Andrews whereby he was authorised to engage in specified credit activities on behalf of Members First, as a ‘credit representative’ pursuant to s 64 of the Act. By letter of authority Andrews was authorised to provide ‘credit services’ to lenders. The authorisation may be revoked under s 68(1) at any time by the licensee giving written notice. Under s 75, the licensee is responsible to the client for the conduct of the representative, including responsibility under ss 77 and 78(1) for loss and damage.
A licensee providing ‘credit assistance’[5] has general obligations to comply with the Act including the obligations imposed by Chapter 3 of the Act. In Chapter 3, s 115 prohibits a licensee assisting a consumer to apply for a particular credit contract with a credit provider unless the licensee has within the 90 prior days made a preliminary assessment in accordance with s l16(1). Section 117(1) requires the licensee, before making the preliminary assessment, to (amongst other things) make reasonable enquiries about, and take reasonable steps to verify, the consumer's financial situation.
[5]Section 8.
The Australian Securities and Investment Commission (‘ASIC’) published Regulatory Guide 209 (RG209) which describes ASIC’s expectations of a licensee for meeting the responsible lending obligation in Chapter 3 of the Act. In RG209, paragraph:
· 209.27 provides a list of enquiries about a consumer’s financial position;
· 209.38 states that in general the reasonable steps required to be taken to verify the information provided by the consumer are those in Table 4;
· 209.42(a) states that additional enquiries about the consumer should be made where the information that a consumer provides is inconsistent with other information the licensee holds about the consumer.
As a credit representative, Andrews had access to lenders through the Professional Lenders Association Network of Australia Pty Ltd (‘PLAN’), which was an aggregator with a panel of lenders. Members First had an agreement with PLAN whereby Members First and its credit representatives had access to PLAN’s panel of lenders and its technology systems and software.
On 17 March 2011, Members First and Andrews entered into a membership agreement. Members First agreed to appoint Andrews as a loan consultant to introduce mortgage loan applications for Members First using the ‘PLAN Australia IT platform’. The membership agreement provides:
3.3 Compliance with law
The Loan Consultant and its Contractors (whether Licensees or Credit Representatives) must comply with all laws and rules of professional conduct applicable to the Loan Consultant, including, without limitation, the National Consumer Credit Protection Act 2009 (NCCP Act), the National Credit Code (NCC), the MFAA Code of Practice, the Financial Transaction Report Act 1998, the Privacy Act 1998, and the Trade Practices Act 1974. The Loan Consultant indemnifies, and must keep indemnified, MEMBERS FIRST against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment which MEMBERS FIRST pays, suffers, incurs or is liable for, in respect of any breach by the Loan Consultant or its Contractors of this clause.
3.5 Accurate Information
In the course of undertaking its duties the Loan Consultant will (and must procure that each Contractor will) assist potential Borrowers in the completion of the Application Documents and thoroughly and accurately record in such Application Documents the information supplied by the Borrowers and will not include in such application forms information which the Loan Consultant or the relevant Contractor knows or suspects is inaccurate, false or misleading, including by way of incompleteness.
Dennis Androvitsaneas (Andrews’ second cousin) and his wife, Michelle, (‘the partners’) ran a cleaning business in partnership. They sought a loan in order to enable them to purchase a residential property and, to that end, they were interviewed by Andrews and Neil Migliorisi, who was an associate broker and the sole director and owner of Mortgage Services Australia Pty Ltd, trading as Allied Lending. Andrews said that he and Migliorisi interviewed his cousins when they attended Allied Lending. Andrews and Migliorisi were provided with several documents, including BAS statements for the partnership showing total sales in the 2010 calendar year of $67,304, a partnership tax return for the year ended 30 June 2010 showing total partnership sales of $62,627 and net income of $41,845, a PAYG summary from RMIT for Denis showing gross income of $11,237 for the year ended 30 June 2010, and a Centrelink statement indicating that the partners were receiving a family assistance allowance of $10,220 per annum.
On 16 March 2011, Andrews completed a ‘low doc’ loan application (an application without documented proof of income) for $354,000 on behalf of the partners to ANZ, which was lodged by Migliorisi. The supporting notes to this application stated that the ‘applicants can provide BAS showing a turnover of $68,889 for the past 12 months’. ANZ declined the application.
On 28 March 2011, Migliorisi lodged a low doc application for loan of $360,000 with St George on behalf of the partners, which had at least in part been completed by Andrews. The application was lodged by Migliorisi because Andrews did not have the requisite authority to deal with St George. In this application, the partners’ taxable income was listed as $104,535. According to Andrews St George requested further documentation because the income declared to Centrelink was lower than the income declared on the current BAS. As a full document application was not possible, the application was withdrawn.
On 19 April 2011, the partners submitted a low doc application form to Bankwest. The figures in the application form had been filled out by Andrews and it was signed by Mr Iacona, the partners’ accountant. Andrews lodged the application with Bankwest. It included the statement that the total net profit before tax of the partnership was $99,000 in 2009 and $101,000 in 2010. Bankwest approved the loan and proceeded to settlement. At that time the material available to Andrews included:
· BAS returns for the partnership showing sales in the 2010 calendar year of $67,304;
· A partnership tax return for the year ended 30 June 2010 showing total partnership sales of $62,627 and net income of $41,845;
· A government statement dated 16 December 2010 (Centrelink Statement) showing that based upon a combined income of $57,988, with the cousins receiving $393.26 per fortnight, or $10,220 annually;
· March 2011 supporting notes for the ANZ Application showing partnership cleaning business ‘turnover for the past 12 months’ of $68,889;
· March 2011 supporting notes for the St George Application showing cleaning business ‘turnover for the past 12 months’ of $68,892;
· April 2011 supporting notes for the Bankwest Application showing the cleaning business ‘profits which was [sic] $101,000 last financial year’;
· The information in the Easy Doc Form dated 20 April 2011 that the cousins’ ‘gross monthly income’ was $8,416 (annualised at $101,000).
On 17 May 2011, Kevin Davies, the operations and compliance manager at Members First, conducted a review of Andrews’ business. Davies identified discrepancies between the income information that was available to Andrews and the Bankwest application. After further investigations, Members First resolved to terminate Andrews’ credit representative authority. Andrews’ authority was terminated by letter dated 14 June 2011, pursuant to cl 13 of the CR Deed.
Andrews’ obligations under the CR Deed were specified in cl 5.1, which relevantly provides:
5. Your obligations
5.1 Obligations
From the date the Letter of Authority takes effect, You must, and must take all reasonable steps to ensure that each individual Credit Representative will:
(a) act as a credit representative in accordance with the terms of this Deed;
(b) comply with the Statutory Requirements;
…
(k)not engage in misleading, deceptive or unconscionable conduct in connection with the Credit Activities, or do or fail to do anything which could damage Our good name and reputation or that of any other Group Entity;
Clause 13 relevantly provided:
13.1 Termination on notice
This Deed can be terminated:
(a) by Us immediately on notice to You if We suspend Your authorisation under the Letter of Authority under clause 12.1; or
(b) by either party giving the other party at least two months’ notice of the termination or such other time as the parties agree.
13.2 Termination for breach
If You breach this Deed, We may terminate this Deed (and revoke Your Letter of Authority) by notice to You effective from the date of the notice if:
(a) the breach is capable of remedy, and You do not remedy the breach to Our reasonable satisfaction within 14 days of Our giving You notice to do so (or such other time as specified in the notice); or
(b) the breach is not capable of remedy or We reasonably consider the breach is a material breach.
13.3 Termination following a Termination Event
Notwithstanding Clause 12.2 we may terminate this Deed (and revoke Your Letter of Authority) immediately, by notice to You on a Termination Event occurring or at any time after a Termination Event occurs.
Andrews contends that the termination was invalid as he had not breached the CR Deed, that Members First did not specify in its letter of termination the material breach that entitled it to terminate the agreement or whether the breach was capable of remedy or if a breach had occurred that it did not amount to a material breach justifying termination of the contract.
The trial judge found that Andrews’ misrepresentation of income in the Bankwest application was a material breach of the CR Deed and that the breach was incapable of remedy, because Bankwest’s loan could not be undone and Andrews’ conduct was potentially unlawful.[6] Her Honour held that the notice of termination did not require particulars of the breach[7] and the respondent had validly terminated Andrews’ appointment as a credit representative.[8]
[6]Reasons for Judgment, [142].
[7]Ibid [87].
[8]Ibid [199].
Andrews appeals the decision of the trial judge on the following grounds:
Her Honour erred in:
(1)Finding that the failure to call Denis and Michelle Androvitseanas and the accountant, Mr Iacona, would not have assisted Andrews’ case;
(2)Finding that the CR Deed did not require the respondent to give particulars of the breach of agreement and that the Notice of Termination was valid;
(3)Finding that cll 5.1(a) (b) and (k) of the CR Deed were breached by Andrews;
(4) Finding that the conduct of Andrews was misleading;
(5)Allowing the respondent to assert dishonesty against Andrews when the issue was not squarely raised in Andrews’ defence filed in the proceeding;
(6)Finding that the breach of the CR Deed was not capable of remedy;
(7)Finding that the breach of the CR Deed was a material breach of the CR Deed that went to the very root of the contract;
(8)Finding that the respondent reasonably considered the breach of the CR Deed to be a material breach;
(9)Finding that the duty to act fairly and in good faith had been satisfied.
Ground 1 – Whether an inference could be drawn from the failure to call certain witnesses
Neither Dennis or Michelle Androvitsaneas, or the accountant, Iacona, were called as witnesses. Andrews did not provide an explanation as to why they were not called as witnesses. Relying upon O’Donnell v Reichard,[9] the trial judge drew the inference that the evidence of the partners and the accountant in relation to the income declared in the application form and the date on which the 2010 partnership tax return was forwarded would not have been able to assist Andrews’ case.[10]
[9][1975] VR 916, 920.
[10]Reasons for Judgment, [58], [79]-[80].
The appellant contends that her Honour drew an impermissible inference in finding that the failure to call these witnesses would not have assisted Andrews’ case. Andrews contended that his case at trial was that the income declared in the Bankwest loan application was as stated and that the accountant and the partners would have been able to do no more than confirm Andrews’ calculations, in circumstances where the issue in dispute was the method by which the loan application was filled out, rather than whether its content was true or not. We do not accept that the issues were so confined.
The misleading nature of the loan application and Andrews’ knowledge of the misleading nature of the application were live issues at trial. Andrews gave a series of explanations, many of them inconsistent, of how the material differences between the Bankwest application and the income declared in the partnership tax return and the BAS statements came about. The following are the explanations set out and carefully considered in her Honour’s reasons. Her Honour’s findings as to these explanations was not put in issue on the appeal.
First, Andrews told Davies that the income figure before tax was an amalgamation of all sources of income, including rental, which the partnership declared to be $18,024. Davies told Andrews he could not have done this because there was a separate section in the Bankwest application form for rental income.
Second, Andrews said that the Bankwest income declaration was altered by Michelle returning to work from March 2011, having taken time off to care for her three children, ‘and as a result business has almost doubled’. However, as Davies noted, the information declared in the Bankwest application was for 2009 and 2010, not 2011.
Third, the applicant initially testified that he had only received the partnership tax return in May 2011, after the application form had been submitted. During their meeting on 17 May 2011, Davies told Andrews that there was a partnership tax return on the file and that it was inappropriate to submit a low documentation application when a tax return had been provided, to which Andrews offered no response. In cross-examination, Andrews conceded that he had been provided with the partnership tax return before the loan application was made. The trial judge drew an inference that the witnesses who had not been called would not have assisted Andrews’ case as to when the return was forwarded to Andrews.
Fourth, Andrews told Davies that the partners and the accountant had calculated the income totals on the application form, not him.
Fifth, during cross-examination, Andrews suggested there had been a typographical error in describing the amount of $101,000 as business profits rather than total income.
Sixth, Andrews gave evidence that each member of the partnership was taxed according to their 50% share of the net income, enabling them to be taxed at a lower rate. While the combined income after tax was therefore $74,000 ($37,000 each), this figure, if taxed at a single person’s rate, would represent a net income of $101,000. In both cross examination and re examination he gave detailed evidence to explain the calculation. The trial judge did not accept that explanation. Her Honour observed that it was contrary to his explanation that the partners and their accountant had done the calculations. It rested on treating the total sales in the BAS statement as ‘net income’ without making any allowance for business expenses or deductions. Andrews conceded in cross examination that the figure of $101,000 was not an actual amount of money earned by the partnership. Further, her Honour noted that Andrews was familiar with the form of the application which required a declaration of the net profit before tax of the partnership. Her Honour also referred to Andrews’ evidence in re-examination that he inserted the figure of $99,000 for the year 2009. He said that in speaking to the partners about their income the partners had advised him that they had earned a few thousand dollars less than the previous year.
Seventh, Andrews said that the Bankwest serviceability calculator in the application form was ambiguous, because it was not clear whether the references to the years 2010 and 2011 were references to calendar years or financial years. Davies stated that in his 25 years in the mortgage industry, it had always been practice to refer to financial years.[11]
[11]Ibid [71]-[72].
The trial judge rejected Andrews’ evidence, finding that Andrews was an unreliable and evasive witness who ‘would say what he thought would assist his case as opposed to a witness who was endeavouring to give a truthful and accurate account of the facts.’[12] There were discrepancies between his two affidavits and between those affidavits and his viva voce evidence. Her Honour found each of Andrews’ explanations to be unsatisfactory and inconsistent.
[12]Ibid [73].
A Jones v Dunkel inference may be drawn where, as a consequence of the issues raised during the course of the evidence, an unexplained failure to call witnesses may lead to an inference that the uncalled evidence would not have assisted the party’s case.[13] The rule permits the trier of fact to take that into account in deciding whether to accept a particular piece of evidence which has been put in issue.
[13]Jones v Dunkel (1959) 101 CLR 298, 321 (Windeyer J).
The trial judge identified as an issue in dispute whether the information in the loan application was accurate. The respondent contended that Andrews had engaged in misleading conduct, had failed to take reasonable steps to verify the information and had made no additional enquiries where the information he was given was inconsistent with other information he had. Further, as the appellant in his written submission acknowledges, the way in which the form was filled out and the method of calculation of the income of the partners was also in issue.
There were numerous issues of fact upon which the three witnesses may have given evidence in support of one or more of Andrews’ explanations for the discrepancies in the Bank West application. The accountant could have buttressed Andrews’ assertions as to Andrew’ method of calculations of income. The partners were in a position to give evidence as to when they had provided Andrews with the partnership tax return. All three prospective witnesses could have given evidence with regard to Andrews’ claim that the partners and Iacona had calculated the income totals on the application form. Michelle could have given evidence of the increase in revenue since she returned to work. More broadly, all three were in a position to assist Andrews’ claim that he had not deliberately or carelessly misstated the partners’ income in the Bankwest application.
In our view, given the assertions made by Andrews that were disputed by Davies, or were in issue and were unsupported by other evidence, her Honour was entitled to draw the inference that any evidence given by the partners or the accountant would not have been of any assistance.
This ground of appeal is not made out.
Ground 2 – Inadequate particulars in the notice of termination
Andrews submits that her Honour erred in finding that the notice of termination was valid and that the CR Deed did not require Members First to give particulars of the breach of agreement.
Andrews was given a notice of termination on 14 June 2011 in a letter signed by Mr Tan, a director of Members First, which read as follows:
We hereby cancel your appointment as a Credit Representative of [Members First]. You are no longer authorised to engage in credit activities on our behalf.
The trial judge found that the notice given by Members First on 14 June 2011 was not defective. Her Honour said:
The credit representative deed did not require Members First to give particulars of the breach. The notice clearly stated that the plaintiff’s appointment as a credit representative of Members First was cancelled and he was no longer authorised to engage in credit activities on behalf of Members First. Further, the credit representative deed imposes no requirements for the content or form of the notice and does not specify that the notice need be in writing.[14]
[14]Reasons for Judgment, [87].
Andrews relies on the following passage from the judgment of Newnes JA in Diploma Construction Pty Ltd v Marula Pty Ltd, in which his Honour said:
In my view, in order to be a valid notice under [the subcontract], a notice had to clearly direct the respondent’s attention to the alleged default with sufficient specificity that the default was capable of being readily identified by the respondent. I accept the appellant’s submission that whether a notice is sufficient for that purpose is to be considered not solely by reference to the terms of the notice but also having regard to the understanding which will be brought to it by the respondent, including its knowledge of the circumstances in which the notice was given: see FPM Constructions, [150]–[151]. But it cannot to be left to the respondent to winkle out an alleged default from an equivocal, vague or imprecise notice.[15]
[15](2009) WASCA 229, [79].
As Newnes JA also recognised, each case ultimately depends upon the particular contractual provisions in question.[16] The relevant clause in the subcontract in Marula required that the purported default be specified in the notice. Andrews accepted that unlike the contract in issue in Marula, there is no express notice requirement in the CR Deed. The authorities relied upon by Andrews deal with contracts requiring a default to be specified and are of no assistance.
[16]Ibid [71].
However he further contends that the notice of termination still required proper particulars and that it would be extraordinary if a notice could be given without proper particularity. We reject that submission. In U108 Pty Ltd v Sing Fan & Ors,[17] Hargrave J summarised the relevant legal principles to be applied in determining whether or not a rescission notice is valid:
The relevant legal principles to be applied in determining whether or not a rescission notice is valid are not in doubt. The relevant authorities were reviewed by Campbell J in Robinson v Becata Pty Ltd. I respectfully adopt his Honour’s analysis. In summary, a rescission notice served under general conditions 5 and 6(2) of Table A must, in relation to its essential features as required by those conditions, be clear and unambiguous. In determining whether or not a rescission notice is relevantly clear and unambiguous, the Court applies an objective approach. In Catley v Watson Brooking J (as he then was) expressed the applicable standard of objective reasonableness in the following terms:
A notice is not unequivocal, in the sense in which such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice.
This statement by Brooking J has been applied in a number of Victorian cases, and further consideration has been given to the attributes of the ‘reasonable person’ for these purposes. In Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd, Ormiston JA said that the relevant reasonable person was ‘a reasonable reader in the position of the purchaser’. This approach was endorsed by Winneke P (with whom Charles and Eames JJA agreed) inGreydae Pty Ltd v Malilane Pty Ltd. A reasonable reader in the position of the purchaser must be taken as one who knows the terms of the contract of sale, including general conditions 5 and 6 of Table A, and who is aware of the surrounding circumstances relating to the default.[18]
[17][2010] VSC 12.
[18]Ibid [43]-[44] (citations omitted).
A reasonable person is not to be treated as a stranger to the agreement or to the circumstances which have given rise to the notice.[19] Andrews knew both the terms of the CR Deed and the surrounding circumstances relating to the alleged default. He knew the reasons for termination, given the numerous communications between the parties about his conduct.
[19]Central Pacific (Campus) Pty Ltd & Anor v Staged Developments Australia Pty Ltd [1998] V Conv R 54-575, 66-901; Greydae Pty Ltd & Anor v Malilane Pty Ltd & Anor [2003] VSCA 27, [31] (Winneke P).
Davies began his review of the loan applications filed by Andrews on behalf of his cousins on 17 May 2011. When he discovered a ‘glaring discrepancy between the loan applications in income declared’ in the different applications, he sought an explanation from Andrews. Dissatisfied with Andrews’ explanation, Davies met with two directors of Members First and told them that Andrews’ conduct constituted a ‘compliance breach’. In a different conversation, Davies told Andrews that it was inappropriate to submit a ‘low doc’ application when a partnership tax return had been provided. The matter was referred to the Credit Risk department of PLAN. Andrews was advised by Tan that Davies had discovered a compliance breach and that the matter had been referred to PLAN. Andrews sent three emails to Tan in late May asking when the review would be completed and was told to expect an answer within two to three weeks.
On 8 June 2011 Brett Mansfield of PLAN advised Members First that there had been a serious misrepresentation of income in the Bankwest application. Mansfield told Tan that the breach was so serious that the only course of action was to terminate Andrews’ credit representative authority. Tan met with other Members First officers, who agreed to termination. Tan called Andrews on 10 June 2011 and advised him that his credit representative authority was terminated because of a misrepresentation in the Bankwest application, inconsistencies in the three applications made on behalf of Denis and Michelle and his failure to meet his obligations under ASIC Regulatory Guide 209.
On 14 June 2011, Tan sent the letter of termination to Andrews. Tan sent another letter to Andrews on 16 June 2011 which stated:
Re: Termination of Membership and Credit Representative Status
As a matter of record this letter is being provided to confirm the details of our telephone conversation on Friday 10th June. In that conversation, you were verbally advised that your membership and status as a Credit Representative of Members First Broker Network Pty Ltd, ACL number 383435 were to be terminated.
The reason for the termination was due to what we believe to be a misrepresentation of income declared in a Bankwest mortgage application for Denis and Michelle Androvitsaneas which we consider to be a material breach of our standards. We refer you to Section 13.2 of our Credit Representative Deed, of which you have previously been issued with a copy. This was re-iterated at our meeting at your office on Tuesday 14th June at which time you were also handed a Termination Letter. Should you have any questions, please do not hesitate to contact me.
In light of the contextual background to the notice of termination on 14 June 2011, Andrews could have had no doubt as to why the CR Deed was being terminated. Members First had given Andrews a clear explanation as to why the matter had been referred to PLAN for further investigation. There was no requirement for the notice of termination to contain better particulars. Her Honour was correct in finding that the communications between Andrews and Members First, both orally and in writing, made it clear that the basis for the termination of Andrews’ CR Deed was the misrepresentation of income in the Bankwest application. This ground is not made out.
Grounds 3 and 4 – Breach of the CR Deed and Misleading Conduct
Under grounds 3 and 4 respectively, Andrews submits that her Honour erred in finding that Andrews had breached cl 5(1) of the CR Deed, and that Andrews’ conduct was misleading.
Clause 5.1(b) of the CR Deed required the credit representative to comply with the relevant ‘statutory requirements’. The statutory requirements included Andrews’ requirements under the Act and under the ASIC publication RG209, referred to above. As we have noted, these reasonable steps include making additional inquiries where information provided by a consumer is inconsistent with other information the licensee holds about the consumer. Andrews accepts that if this Court determines that his conduct constitutes a breach of the CR Deed pursuant to cl 5(1)(k), then his conduct also constitutes a breach of cl 5(1)(a) and (b).
During oral argument counsel for Andrews stated that the finding that Andrews should have verified the information he had been given was not challenged. Neither was the finding that the content of the application was misleading. The written submission of the appellant was to the effect that there was no evidence to show that the Bank was in fact misled by anything in the application. However, cl 5.1(k) focuses upon conduct and not its consequences. The question is not whether the recipient was deceived but whether the conduct was misleading or deceptive.[20] In further argument, counsel conceded that it was not necessary for Members First to show that the Bank was misled or acted upon the deception. In any event, given that the Bank made the loan on the basis of the application, it may be inferred that the Bank was misled.
[20]Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91, 102 (Franki J).
In further oral argument, Andrews advanced the argument that the misrepresentation was not objectively misleading, or alternatively that it was not of a sufficiently ‘grave’ or ‘serious’ order as to be misleading.
Whether Andrews’ conduct in completing the application was misleading is a question of fact to be determined by examining the relevant course of conduct as a whole.[21] The test is an objective one for the court itself to decide in light of the relevant surrounding facts and circumstances.[22]
[21]Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 625 (McHugh J).
[22]Parkdale Custom Build Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 197; Taco Co Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177, 201-2.
In the Bankwest application, Andrews listed the 2010 partnership net profit before tax as $101,000. The figure was false as that was not the partnership’s net profit before tax but comprised the partnership income, rental income, Dennis’ PAYG income and a family allowance. He admitted during cross-examination that the figure was misleading.[23] The partnership’s stated net profit before tax of $99,000 in 2009 was also false.
[23]Reasons for Judgment, [123].
The discrepancies in the application were obvious, given the other financial documents from the partners that Andrews had on file. The BAS statement for the partnership showed sales of $67,304 in the 2010 calendar year. A partnership tax return for the year ended 30 June 2010 showed total partnership sales of $62,627 and net income of $41,485. A statement from Centrelink showed that based on a combined income of $57,988, the partners received $10,220 from the government. The supporting notes for the ANZ application and the St George application showed that the partnership’s turnover for the past 12 months had been $68,890. All of this information was known to Andrews. He made no further inquiries and did not inform Bankwest about these matters.
Having regard to Andrews’ detailed knowledge of the partners’ finances and the inadequate explanations he provided in an attempt to explain the errors in the Bankwest application, her Honour was entitled to infer that he had misrepresented the partnership’s income to ensure that the loan application would be granted. The contention that there was any error in the finding that Andrews’ conduct was misleading and in breach of cl 5.1(k) of the CR Deed was without any merit. Moreover, independent of his breach of cl 5.1(k), by failing to verify the financial information of the partners, Andrews was in breach of his statutory requirements under the Act and RG209, and was thus in breach of cl 5.1(b).
This ground fails.
Ground 5 – Error in allowing the assertion that Andrews acted dishonestly
Andrews submits that her Honour erred in allowing Members First to assert that he acted dishonestly, when the issue of dishonesty was not squarely raised in Members First’s defence filed in the proceeding. Andrews submits that no finding of dishonesty could be made where there was no active misleading conduct.
Counsel for Andrews relied on his written submissions in relation to this ground. We find this argument also to be entirely without merit. Members First never alleged dishonesty, only misleading conduct. Her Honour made no finding as to whether he acted dishonestly. Instead, as stated above, her Honour found that the misrepresentation on income in the Bankwest application was misleading conduct, but her Honour noted that the meaning of ‘misleading’ is not confined to conduct that is intended to mislead.[24]
[24]Ibid [124]-[125].
This ground must be rejected.
Ground 6 – Were the breaches capable of remedy?
By ground 6, the appellant contends that her Honour erred by finding, as she did, that the appellant’s breaches of the CR deed were not capable of remedy.
It is to be recalled that the two breaches of the CR deed that her Honour found proven were breaches of the obligations set out in cll 5.1(b) (to comply with the Statutory Requirements) and 5.1(k) (not to engage in misleading…conduct in connection with Credit Activities). Earlier, we upheld those findings.
Compliance with the ‘Statutory Requirements’ referred to in cl 5.1(b) required Andrews, amongst other things, to take reasonable steps to verify the financial situation of the partners in the course of carrying out a credit activity, namely applying for credit on their behalf. The breach of that obligation, in this case, was (as described above) his failure to properly verify the financial situation of each of them (the credit applicants) – more particularly, their income – in the face of contradictory and inconsistent information supplied by them, when preparing the application for a mortgage loan from Bankwest. The misleading conduct, in breach of cl 5.1(k), was to provide erroneous information to Bankwest concerning the income of the credit applicants.
It is clear that the two species of breach were related: that is, the appellant’s misleading conduct was due, at the very least, to his failure to properly verify his cousins’ financial situation if not because he provided information that was irreconcilable with other information which appeared to disclose their true financial position.
Counsel for the appellant conceded, correctly in our view, that cl 13.2(b) of the CR deed provides two independent grounds for termination by notice. Clause 13.2(b) permitted Members First to terminate the deed ‘by notice to [Andrews] effective from the date of the notice’ if either one (or both) of two conditions were met: namely, (1) that the breach was not capable of remedy, or (2) that Members First reasonably considered the breach was a material breach. Ground 6 of the notice of appeal concerns her Honour’s finding on the first of those grounds of termination. (We will come shortly, under grounds 7 and 8, to the appellant’s complaints about her Honour’s treatment of the second limb of cl 13.2(b).)
Her Honour found that:
…the breach of the credit representative deed by Andrews when he misrepresented the income of Denis and Michelle Androvitsaneas in the Bankwest mortgage application was not capable of remedy because:
(a)Bankwest settled the loan on the basis of the information provided. The loan was settled and the funds were dispersed. The loan by Bankwest could not be retracted or undone. That situation could not be reversed or remedied.
(b)The misrepresentation of the income could not be remedied retrospectively.
(c)Andrews’ conduct was potentially unlawful. Members First was responsible at law for the conduct engaged in by Andrews as its credit representative. Members First was potentially criminally liable for Andrews’ conduct.
(d)The liability of Members First at law would not be discharged by giving Andrews a warning and counselling for the next six loans.[25]
[25]Ibid [142].
It is apparent that her Honour focused on two effects consequent upon the misrepresentation to Bankwest of the income of the credit applicants. The first was that the mortgage loan was actually made by Bankwest; the second was that Members First had been exposed to a potential criminal liability because of the misrepresentation. Her Honour found that the loan could not be reversed, nor could any potential liability be discharged by remedial action.
Although the appellant challenged her Honour’s findings of breach – a challenge that we have already dismissed – he did not otherwise challenge her Honour’s findings that the two identified effects did result from the conduct. Nor do we think there is any basis for doubting her Honour’s conclusions regarding those two effects. What was in issue on appeal was whether the breaches, as found, were ‘capable of remedy’. The remedial action suggested in the last sub-paragraph of the extract above was again pressed on appeal. We will address it below. Before doing so we turn to examine the meaning of the phrase ‘capable of remedy’ as it applies in this context.
In Batson v De Carvalho[26] Sugerman J (of the New South Wales Supreme Court) was faced with a tenant’s breach of covenant not to assign the lease. In a proceeding brought by the tenant to restrain the lessor from re-entering the premises, one question was whether the tenant’s breach was ‘capable of remedy’ so as to require the lessor, under the terms of the lease, to provide a notice giving the tenant the opportunity to remedy the breach. In a passage that has since been approved by the New South Wales Court of Appeal,[27] Sugerman J said:
To ‘remedy’ a breach is not to perform the impossible task of wiping it out — of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor (for which he is entitled to claim compensation under s 129(1)(c)) provided: Rugby School (Governors) v Tannahill [1935] 1 KB 87, that the breach has not resulted in a detriment to the premises which cannot be removed within a reasonable time. The physical analogy in the use of the words ‘remedy’ (and similar words, such as ‘cure’, in other branches of the law) may be referred to, not as an argument but to illustrate what is meant. A breach may be remedied, I think, even though the time for doing the thing under the covenant may have passed, or the order of events stipulated for in the covenant can no longer be observed; to hold otherwise would be to deprive s 129(1)(c) [of the Conveyancing Act 1919] of a great deal, if not all, of its operation.[28]
[26](1948) 48 SR (NSW) 417.
[27]Tricontinental Corporation v HDFI Ltd (1990) 21 NSWLR 689, 723; Burger KingCorporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187, [113]-[124] (a passage not reported in the authorised report (2001) 69 NSWLR 558).
[28]Batson v De Carvalho (1948) 48 SR (NSW) 417, 427.
In 1973, Lord Reid in L Schuler AG v Wickman Machine Tool Sales Ltd[29] likewise preferred to attribute to the word ‘remedy’, in the same phrase but in the context of an exclusive distribution agreement, the sense of setting things right for the future rather than nullifying or wiping out the breach:
It appears to me that clause 11(a)(i) is intended to apply to all material breaches of the agreement which are capable of being remedied. The question then is what is meant in this context by the word ‘remedy’. It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of clause 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again.[30]
[29][1973] 2 All ER 39.
[30]L Schuler AG v Wickman Machine Tool Sales Ltd [1973] 2 All ER 39, 43-44.
In Tricontinental Corporation v HDFI Ltd[31] Waddell A-JA approved the passage from Sugerman J extracted above.[32] Samuels JA agreed with Waddell A-JA that an analogous approach should be taken to the construction of the clause in issue in that particular case (involving a guarantee), and continued:
If that is the case, then one fixes upon the effect of the default in the given circumstances rather than upon the historical fact of its occurrence.[33]
[31](1990) 21 NSWLR 689.
[32]Ibid 723.
[33]Ibid 702.
With respect, we agree that if the ability to remedy a breach of contract is not to be confined to erasing the historical fact of the breach itself (an ‘impossible task’), then to give the concept some practical content requires a focus on the potential for amelioration of the effects of that breach. Much will depend on the nature of the particular obligation breached, and the consequences of that breach in any given case. Variations of language in particular clauses might also require a different interpretation.
Finally, a question may exist in some cases as to the degree of probability that the effects of the particular breach can be remedied or ‘put right’ for the future, and the date at which that question should be judged. Addressing that issue in Baston v De Carvalho, Sugerman J said:
A breach may, I think, be ‘capable of remedy’, looking at the matter as at the date of giving notice, even though there is then no certainty that, notwithstanding the efforts of the lessee to remedy it, it will be remedied. What the lessee is entitled to is an ‘opportunity of complying with the requirements of notice’: Fox v Jolly. He may in the result be unable to do so, eg because he cannot, in the case of a breach of a covenant to repair, obtain the requisite materials. Or the actual remedying of the breach may depend on securing the concurrence of some person other than the lessee, and in the result it may not be secured. But I think it may nonetheless be said, looking at the matter as at the date of notice, that the breach is ‘capable of remedy’ within the meaning of the section.[34]
[34]Batson v De Carvalho (1948) 48 SR (NSW) 417, 426-7.
Hargrave J referred to this passage in Australian Style Pty Ltd v .au Domain Administration Ltd,[35] observing, ‘… such statements only apply where the particular breach in question is in fact theoretically capable of being remedied’.[36] We agree, and it is this observation which is perhaps most pertinent in the context of the facts of this case.
[35][2009] VSC 422.
[36]Ibid [119].
Accordingly, the relevant principles may be summarised as follows:
·The capability to remedy a breach does not imply an ability to wipe out or obliterate the fact of the breach, as if it had never occurred. Rather, it requires the ability to put matters right for the future;
·Putting things right for the future requires dealing with the effect of the breach;
·The question of whether a breach is capable of being remedied is examined at the date of the notice; and
·The breach must at least be theoretically possible to remedy, but beyond that it is a question of whether the breach might be remedied, rather than whether it is a certainty that it will be.
Andrews’ argument, in effect, focused on a theoretical ability to remedy the wrong breach. Andrews argued before us, as he had before the trial judge, that his breaches of the CR Deed could be remedied by Members First giving him a warning about his conduct and supervising him in the future to ensure similar failings did not occur in other transactions. Andrews argued that, in this way, although such a remedy would not necessarily nullify the breach, it would nevertheless put matters right for the future.
In our view this argument betrays a misconception of the nature of the breaches.
A warning, and supervision in relation to future transactions, might well be apt to remedy a perceived general propensity to not properly verify financial information supplied by clients when preparing credit applications. But, in our view, that is not a true characterisation of the contractual breaches with which her Honour was concerned.
The breaches of the CR deed were specific failings to comply with statutory requirements, and the obligation not to mislead, grounded in a particular loan application, to a particular lender, on behalf of a particular set of clients. Those breaches were instrumental in Bankwest advancing a mortgage loan of $360,000 to the partners. Further, those identified breaches potentially exposed Members First to criminal liability arising out of that specific transaction. The effects of those breaches are in no way addressed, much less remedied, by supervising Andrews in relation to different, unrelated transactions in the future.
The learned trial judge did not accede to Andrews’ argument below. In our view she was correct not to do so. She properly focused upon the theoretical possibility that the two relevant consequences of the breach – the making of the loan and Members First’s exposure to potential criminal liability – were capable of remedy, and concluded that they were not. In our view her reasoning did not display any error; indeed, it was correct.
Her Honour’s conclusion[37] appeared to be specifically directed to the breach constituted by the misrepresentation of income in the Bankwest mortgage application. Her Honour did not, in terms, expressly consider whether the breach constituted by the failure to properly verify the client’s financial situation, in the course of making the mortgage application, was itself capable of remedy.
[37]Reasons for Judgment, [142].
In this regard Members First has filed a notice of contention to the effect that her Honour should have found, but omitted to find, that the breach of cl 5(b) of the CR Deed was not capable of remedy for the same reason she gave with respect to the breach of cl 5(k). It seems to us that this contention must be correct. As we have already observed the two breaches were linked in sequence and in combination to produce the same effects. As such, the question of whether the effects of the breach of cl 5(b) could be remedied was addressed by answering that same question in relation to the breach of cl 5(k).
For these reasons we reject ground 6 of the notice of appeal.
Grounds 7 and 8 – Did Members First reasonably consider the breaches were material breaches?
The second of the two grounds upon which Members First was entitled to terminate the deed by notice was that it reasonably considered the breach was a material breach. Her Honour found that the misrepresentation by Andrews of the income of the partners was a material breach of the CR Deed,[38] and that Members First did reasonably consider the breach to be a material breach.[39] By grounds 7 and 8 of the notice of appeal Andrews challenges each of these findings.
[38]Ibid [148].
[39]Ibid [152].
In its written submissions on appeal Members First argued that cl 13.2(b) of the CR Deed contained ‘one composite requirement – a breach that the respondent reasonably considered was a material breach’. In oral submissions before us Andrews accepted this contention and ran these two grounds together as one ground of appeal. We think he was right to do so. The second termination ground in cl 13.2(b) expresses a single requirement, namely, that the credit licensee must reasonably consider the breach to be a material breach.
There was no debate between the parties as to the meaning of ‘reasonably consider’. Members First submitted that ‘reasonably consider’ means, in this context, ‘consider on reasonable grounds’. If that is the case, Members First then submitted, the phrase contains two requirements: first, that the relevant belief or opinion is actually held; and second, that facts exist that are sufficient to induce the belief or opinion in a reasonable person.
In support of these submissions, Members First points to the decision of Barrett J in ING Funds Management v ANZ Nominees[40] in which his Honour construed the power contained in s 601GC(1) of the Corporations Act (Cth). That provision empowers the responsible entity of a registered scheme to modify the scheme constitution if the responsible entity ‘reasonably considers the change will not affect members’ rights’. His Honour said:
This form of words has the same meaning as ‘considers on reasonable grounds’ or ‘believes on reasonable grounds’. The requirement is twofold: first, that the relevant belief or opinion be actually held by the responsible entity; and, second, that facts exist that are sufficient to induce the belief or opinion in a reasonable person.
This is the approach indicated by Gummow J, Hayne J, Heydon J and Keifel J in Gypsy Jokers Motor Cycle Club Inc v Commissioner of Police (2008) 234 CLR 532 at [28]. Their Honours referred with approval to George v Rocket (1990) 170 CLR 104 where all seven members of the High Court said (at 112):
When a statute prescribes that there must be “reasonable grounds” for a state of mind – including suspicion and belief – it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.[41]
[40](2009) 228 FLR 444.
[41]Ibid [102].
His Honour’s construction of s 601GC(1) of the Corporations Act has been accepted and followed in a number of decisions by single judges of the Federal Court of Australia and the Supreme Court of Victoria.[42]
[42]ReGreat Southern Managers Australia Limited (receivers and managers appointed) (in liq) [2009] VSC 627, [21] (Davies J); Re Timbercorp Securities [2010] VSC 50; (2010) 77 ACSR 291, [15] (Davies J); Premium Income Funds Group Inc v Wellington Capital [2011] FCA 698; (2011) 84 ACSR 600 (Gordon J); Re Elders Forestry Management Limited [2012] VSC 287; (2012) 90 ACSR 573, [58] (Robson J).
We agree that the construction that has been given to the phrase ‘reasonably considers’ in the context of s 601GC(1) of the Corporations Act is apt to be applied to the same phrase as it appears in cl 13.2(b) of the CR Deed. That being the case, the learned trial judge had to consider whether Members First actually considered or believed Andrews’ breaches were material breaches and, secondly, whether facts existed that were sufficient to induce that belief in a reasonable person.
Before turning to her Honour’s analysis of these questions it is convenient first to consider the meaning of ‘material breach’ as it appears in cl 13.2(b).
Both parties relied upon what Warren J (as her Honour then was) said in Forklift Engineering Australia Pty Ltd v Power Lift (Nissan) Pty Ltd:[43]
A ‘material breach’ of a contract does not appear to be a concept known to the law of contract.[1] It is then a question of determining the parties' intention of the use of the expression ‘material breach’ in the agreement. In so doing I identify the ordinary sense of the word or words used unless such application leads to absurdity or inconsistency: see Watson and Anor v Phipps(1986) 60 ALJR 1, 3; Caledonian Railway Co v North British Railway Co(1881) 6 App. Cas. 114, 131. Furthermore, it is to be recalled that each of the dealership agreements was a commercial transaction. The general approach of the courts has been to strive to give effect to commercial arrangements and expectations: see Vroon BV v Foster's Brewing Group Limited [1994] VicRp 53; (1994) 2 VR 32, 67-68.
The dictionary meaning of ‘material’ is ‘essential’ or ‘important’: see Oxford English Dictionary. At common law the word ‘material’ has been attributed a meaning of ‘significance’ in the context of a material risk: see Rogers v Whitaker(1992) 175 CLR 749, 490. In the context of statutory construction the word ‘material’ has been attributed a meaning of ‘significance’. Also, see: Duke of Westminster v Birrane(1995) 3 All ER 416, 422-3, CA. Applying these meanings to the expression ‘material breach’ in the termination clause I consider the expression can be equated with the expression known to the law of contract of ‘fundamental breach’.
A ‘fundamental breach’ has been held to mean a breach of a contract that goes to the very root of the contract: see Suisse Atlantique Societe d'Arment Maritime SA v NV Rotterdamsche: Kolen Centrale(1967) 1 AC 361, 397, 421-2. Whether a breach of contract constitutes a fundamental breach will depend upon the contract and all the facts and circumstances of the particular case: see Suisse Atlantique at 422. It is relevant, also, to consider the consequences of the act constituting the breach: Harbutt's ‘Plasticine’ Limited v Wayne Tank and Pump Co Limited(1970) 1 QB 447. A ‘fundamental breach’ has been described as any breach which provides the promisee with a right to terminate performance of the contract: Suisse Atlantique, supra, at 397. It can consist of total non-performance of the contract: Suisse Atlantique at 431. It can be a breach that deprives a party of substantially the whole benefit of the contract: see Hong Kong Fir Shipping Co Limited v Kawasaki Kisen Kaisha Limited[1961] EWCA Civ 7; (1962) 2 QB 26, 71; Suisse Atlantique at 397, 410.
[43][2000] VSC 443, [68]-[70].
We agree with her Honour that the word ‘material’ is to be attributed the meaning of ‘important’ and to connote ‘significance’. Whilst it may have been appropriate, in the context of the termination clause of the particular contract in the Forklift case, to equate the expression ‘material breach’ with the concept of fundamental breach, it is not necessary to give it that meaning in the present case. Unlike the present case, in Forklift a party was permitted to terminate the agreement upon written notice to the other party if that other party committed ‘a material breach’ of the agreement which was not capable of being remedied – an entirely objective enquiry. The condition for termination in the present case, as already observed, is that the licensee must ‘reasonably consider the breach to be a material breach’. In our view, at least in those circumstances, it is not appropriate to equate the expression ‘material breach’ with the concept known in contract law as a fundamental breach.
In Elders Ltd v EJ Knight & Co Pty Ltd[44] White J approved a submission:
… that the focus is on the materiality of the breach rather than the materiality of the obligation (Seltec International Limited v Dalkia Utility Services Plc [2004] EWHC 193 (Ch) at [26]). Counsel submitted that for the breach to be material, it must have had a serious effect on the benefit which the Lessor would otherwise have had from the transaction, that is, it must be of a serious or substantial import … I agree with this submission.[45]
[44][2009] NSWSC 1462.
[45]Ibid [48].
We prefer this approach to the construction of the clause in the present case.
To evaluate whether a particular breach has had a serious effect on the benefit which the other party was otherwise intended to enjoy by the breaching parties’ compliance with the contract, it is necessary to consider what the benefits were that were intended to be secured by the contract. In our view, a reading of the CR Deed as a whole demonstrates that the obligations cast upon the credit representative were intended to secure the representative’s compliance with the applicable statutory and other standards that would help preserve the licensee’s licence. Seen in this way, any breach by the representative which could put in jeopardy the licensee’s credit licence, or expose it to criminal liability for breach of the Act, had the potential of being of serious or substantial import to the intended benefits to the licensee of the deed.
In our view, the learned trial judge was correct to regard the established breaches of the deed to be at least of a serious or substantial import. Her Honour went further, regarding the breaches as going to ‘the very root of the contract’.
To argue, as did Andrews on appeal, that it could not be said that he acted ‘other than foolishly’ is no answer to the potentially serious import of the breach. Further, the characterisation of the breach as an ‘error, misapprehension or misunderstanding as to how to fill out the forms’, as submitted on behalf of Andrews, significantly underplays the nature of the breach.
Her Honour’s approach was first to analyse the nature of the breach and its significance in the setting of the deed as a whole. Her Honour observed that compliance with the Act and related regulatory provisions ‘went to the root of the contract’. As already stated, we agree that looked at as a whole the provisions of the deed were intended to secure the representative’s compliance with the Act and related regulatory provisions in order to preserve the licensee’s licence. Her Honour said further:
…the contract established a relationship between the parties which involved a degree of mutual confidence. The supply of incorrect and misleading information by a credit representative to a lender breaches the regulatory provisions prescribed by ASIC, jeopardises the ability of the borrower to service the loan, the ability of the lender to recover any monies lent to the borrower, compromises the relationship between Members First and Plan and places Members First at risk of breaching provisions of [the Act].[46]
With respect, her Honour’s conclusions on these matters are without fault and none of them were challenged as a matter of fact.
[46]Reasons for Judgment, [148].
Her Honour then undertook a careful and thorough analysis of the evidence given by the witnesses for Members First as to the steps that were taken to investigate Andrews’ conduct, whether that conduct constituted a breach of the deed and, if so, to reach its conclusions about the significance of any breach.[47] She reviewed the evidence of Tan, Davies, Curr and Mansfield. She expressly found both Davies and Tan to be truthful and reliable witnesses.[48]
[47]Ibid [153]-[189].
[48]Ibid [12], [190].
We will not outline in any detail the evidence which her Honour surveyed except to observe that it included evidence of Members First’s:
(a)communications with Andrews;[49]
(b)meetings among its officers;[50]
(c)referral of the matter to PLAN;[51]
(d)consideration of the views of PLAN and NAB;[52] and
(e)consideration of the Andrews’ loan file itself.
[49]Ibid [156]-[160].
[50]Ibid [155], [165].
[51]Ibid [161], [164].
[52]Ibid [163], [164].
Her Honour concluded, after surveying that evidence, as follows:[53]
Members First took its time to consider and review the Bankwest loan application file. Members First referred the matter to Mansfield at PLAN who in turn referred the matter to Curr. Mr Tan consulted with Mr Paratore one of the owners of Members First.
I accept Tan’s evidence that there was a review of Andrews’ conduct. Tan consulted Davies and Psyhogis. Members First referred the matter to PLAN to help them with the review. Tan also had discussions with MFAA, PLAN and ASIC. Tan sought legal advice from Stephen Moulton, one of the legal partners at Pricewaterhouse Coopers. Tan formed the view that the breach was serious and a material breach.
I also accept Tan’s evidence that Andrews was afforded opportunities to explain his conduct. After Davies conducted his review on 17 May 2011, Davies approached Andrews for an explanation about the discrepancies found during that review. On or about 18 May 2011 Tan telephoned Andrews and had a discussion with him regarding Davies findings at the review. Andrews had an opportunity during that discussion to voice his version of events. Again on 19 May 2011, Tan telephoned Andrews and had a further discussion with him about ‘a compliance breach’. That discussion was followed up with an email. Andrews responded to that email on 23 May 2011 following which Tan telephoned him to advise that the compliance breach was ‘the misrepresentation of income on the Bankwest loan application.’
[53]Ibid [191]-[193] (emphasis added).
In summary, drawing the conclusions together, her Honour found that Members First, through its CEO, Tan, formed the relevant belief, namely that the breaches were serious and material. In addition, her Honour identified the relevant facts that were sufficient to induce such a belief in a reasonable person, in substance the serious nature of the breaches in the setting of the contract as a whole, and the rational method taken by Members First to form its belief.
It was on the basis of those conclusions that her Honour considered that Members First had reasonably formed the view that Andrews breaches were material breaches of the deed.[54] In our view her Honour was not in error to reach the conclusion that she reached. We reject the seventh and eighth grounds of appeal.
[54]Ibid [198].
Ground 9 – Did Member First breach a duty to act in good faith?
Andrews did not allege in his pleadings that the CR deed imposed upon Members First either an express or implied obligation to act in good faith when terminating Andrews’ engagement, or when considering doing so. He only alleged an obligation on the part of Members First, arising from an express obligation under cl 13.4 that, when exercising a termination power under cl 12.2(a) or 13.3 (neither of which apply in this instance), the agent must be notified and given an opportunity to explain the breach and suggest alternatives to termination. No such express obligation or entitlement arises in connection with cl 13.2(b) termination.
As well as not alleging any obligation to act in good faith, Andrews did not allege any failure to act in good faith.
Her Honour noted, toward the end of her Reasons, that during argument Andrews had submitted the existence of an implied duty to act in good faith, not only in a contracting party’s performance of a contractual obligation, but also in the exercise of a power conferred in a contract. Reliance was placed upon Garry Rogers Motors Aust Pty Ltd v Subaru (Aust) Pty Ltd.[55] Her Honour also noted Members First’s complaint that no such duty had been pleaded.
[55][1999] FCA 903, [34] (Finkelstein J).
Nevertheless, after referring further to some passages from Garry Rogers, her Honour concluded:
For the reasons stated in the above paragraphs 190 to 193, in my view Members First acted reasonably and if Members First had a duty to act fairly in and in good faith, the duty to act fairly and in good faith has been satisfied.[56]
[56]Reasons for Judgment, [198].
We have already set out above the paragraphs to which her Honour referred as her basis for reaching this conclusion. In them she had accepted Tan as being a truthful and reliable witness, concluded that Members First had taken time to consider and review the Bankwest file, that it had consulted numerous other relevant persons, including obtaining legal advice, and had afforded Andrews opportunities to explain his conduct.
On appeal, Andrews repeated his submission that the courts will imply as a matter of law and as a legal incident of a commercial contract, terms of good faith and reasonableness. He submitted that the evidence disclosed that Members First had acted capriciously and had failed to give him ‘due process’. He sought to argue that Tan had acted at the behest of Plan Australia to terminate his agency, rather than giving the issue his own proper consideration.
Putting aside any question of whether Andrews was entitled to raise the issue of ‘good faith’ at all, or whether such a duty should be implied in the CR Deed (there is no express provision), it is immediately apparent that the conclusions of her Honour that we have already affirmed preclude factual findings of the kind that Andrews wishes to rely upon for this final ground. Having found that Members First had formed the necessary belief upon reasonable grounds, after investigating the question systematically and diligently and also affording Andrews the opportunity to explain his conduct, it would be inconsistent to also conclude that it acted ‘capriciously’ or without ‘due process’.
We express no final conclusions upon whether the termination power here exercised was attended by a duty to act reasonably and in good faith. It is not necessary to do so. It suffices to repeat a recent statement made by this court[57] that we do not accept that an obligation of good faith should be implied indiscriminately into all commercial contracts, but to do so ordinarily requires satisfaction of the tests laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council.[58] Whether a power conferred upon a party to a contract is fettered by a duty of good faith depends upon the terms in which the power is expressed.[59]
[57]Specialist Diagnostic Services Pty Ltd v Healthscope Pty Ltd [2012] VSCA 175, [87], citing Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86; (2008) 17 Tas R 320, 326 [16].
[58](1977) 180 CLR 266.
[59]Tote Tasmania Pty Ltd v Garrott (2008) 17 Tas R 320, 326 [16].
Potential obstacles in this case to the ad hoc implication of a duty of good faith are that the relevant termination power is (a) found within a regime that deliberately distinguishes occasions when notification and opportunities to explain are afforded, and those when they are not; and (b) is expressed in the context of a breach that is either irremediable or one that must ‘reasonably’ be considered to be material.
In our view her Honour’s conclusion on this issue, to the extent it was required at all, is sound. We reject ground 9 of the appeal.
Damages
Andrews initially sought an order for a further assessment of damages. That course was abandoned.
The respondent raised an argument in its written submission as to the quantum of damages that should be awarded in the event the appeal was successful. If contrary to our view the appellant should succeed on the question of liability, we should say something as to the respondent’s submission that the damages were wrongly assessed.
Andrews claimed damages for loss of income from the date of termination until the beginning of the trial – a period of approximately 35 weeks. The trial judge held that had her Honour otherwise found that the respondent invalidly terminated the appellant’s credit representative authority, the appellant would have been entitled to damages for 35 weeks of upfront commissions and trail commissions, totalling $70,478.75.
The respondent submits that, contrary to her Honour’s finding, damages should be capped at two months. The respondent relies on cl 13.1(b) of the CR Deed, which states that the respondent is entitled to terminate the CR Deed by two months’ notice. The respondent submits that in light of the evidence that the respondent had decided to summarily terminate the CR Deed and that PLAN and NAB thought the CR Deed should be immediately terminated, it is plain that if the respondent could not lawfully terminate the Deed summarily, it would have terminated on two months notice under cl 13.1(b). The respondent accepts that this point was not advanced below and thus it can only be raised with the Court’s permission.[60]
[60]Medical Practitioners’ Board of Victoria v Lal (2009) 23 VR 702, 713.
This argument can neither be entertained or sustained. First, the respondent has not by any appropriate procedure sought to challenge the assessment. Second, the argument now raised rests entirely on speculation as to what might have occurred if the respondent had correctly determined that the breach was not material. It is not possible to speculate as to what course the parties would have taken if there was no finding of material breach. It is not clear that the contract would have been terminated at all. Evidence may have been called that bore on such a contention had it been raised.
Had the appeal been allowed, Andrews would have been entitled to the full quantum of damages as calculated by the trial judge.
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