Bank of New Zealand & Anor v Spedley Securities Limited (In Liquidation)

[1992] HCATrans 369

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IN THE HIGH COURT OF AUSTRALIA	•
Office of the Registry

Sydney No S69 of 1992

B e t w e e n -

BANK OF NEW ZEALAND AND BNZ

SECURITIES AUSTRALIA LIMITED

Applicants

and

SPEDLEY SECURITIES LIMITED (IN

LIQUIDATION)

First Respondent

BRIAN YUILL

Second Respondent

JOHN MAHER

Third Respondent

NEIL JONES

Fourth Respondent

DAVID GRAY

BRENNAN J
DAWSON J
McHUGH J 1 11//12/92

Fifth Respondent

Application for special leave

to appeal

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 DECEMBER 1992, AT 11.47 AM

Copyright in the High Court of Australia

MR A.C. CHERNOV, QC:  May it please the Court, I appear with

my learned friend, MR G.K. BURTON, for the

applicants. (instructed by Freehill, Hollingdale &

Page)

MR J.D. HEYDON, QC:  I appear for the first respondent, if

the Court pleases.	(instructed by Blake Dawson
Waldron)

MR P.W.J. GRAY: If the Court pleases, I appear for the

third respondent. (instructed by Gilbert & Tobin)

MR L.G. FOSTER: If the Court pleases, I appear for the

fourth respondent and I am instructed,

Your Honours, to inform the Court that the fifth

respondent will not be represented today but adopts

such submissions as we may make.	(instructed by
Sly & Weigall)

MR M.J. WEBECK:  I appear for the second respondent,

Mr Yuill. (of Webeck Farland Pender)

BRENNAN J: Thank you. Yes, Mr Chernov.

MR CHERNOV:  May it please the Court, the issues that are

thrown up or that surface in this appeal which, in

our submission, warrant special leave, are

relatively few in number but they are very

important in the context of the law and its

application, particularly in commercial dealings.

They revolve around the use of section 52, or the ability of being able to use section 52 as a

defence, more particularly as an equitable set off

or as a disqualifying defence based on a principle

equivalent to the maxim of clean hands.

DAWSON J:  You do not contend that there was no constructive

trust, but you say that section 52 constitutes a

defence to the existence of the constructive trust?

2   11/12/92

MR CHERNOV:  No, Your Honour. We are compelled, because of

the pleadings - and Your Honours are familiar with

the pleadings, although I may seek leave to take

Your Honours to a couple of the paragraphs - we are

compelled by reason of the pleadings to accept that

we had constructive knowledge of facts upon which

there is a contention that there is a constructive

trust.

We would submit to the Court, broadly, that

what one is talking about is a consideration of two

sets of competing equities or estoppels. Because

of our knowledge, or accepted knowledge for the

purpose of the pleadings, we may be estopped from

denying that there is a constructive trust, because

of the pleadings. That is on one view of the

matter.

BRENNAN J:  I do not understand that. Estopped from denying

that there is?

MR CHERNOV:  A constructive trust. In other words, we have

constructive knowledge - the plaintiff contends

that a constructive trust has been created by

reason of the existence of certain.facts and that

the monies - - -

BRENNAN J: Those facts including your knowledge?

MR CHERNOV:  Your Honour, in our submission, the facts are

really breach of the fiduciary duty by Yuill to his

company so that by the time the money was handed

over the money was subject to a constructive trust
and we received it with constructive knowledge -

and I emphasize the words "constructive knowledge"

because this appeal is not concerned with actual

knowledge and the appeal below was not concerned

with actual knowledge or deliberate refraining from

investigating the relevant facts. This appeal and

the appeal below was concerned only with the

question of constructive knowledge.

BRENNAN J:  Perhaps I do not understand the term. Would you

explain the term.

MR CHERNOV:  I am sorry, Your Honour: "constructive

knowledge"?

BRENNAN J: Yes.

MR CHERNOV:  Your Honour, the plea is that the defendant had

constructive knowledge of certain facts. Can I

take Your Honour to the particular passage in the

appeal book where that is set out and can I take

Your Honours first to page 129 where paragraph 34

alleges that:

11/12/92

The payment by Spedley to BNZ of -

that sum of money -

was made by Spedley by reason of the breach by

the third defendant of the duties and

fiduciary obligations -

he owed to the company -

in that -

amongst others -

the payment ..... was not in the best interests

of Spedley as a whole -

and caused Spedley harm. I will skip over

paragraph 35. Paragraph 36, on page 131, contends

that:

In the premises at the time the said sum of

$21,989,977.60 was received by BNZ it was

trust property of Spedley.

So the contention is by the plaintiff that at the point of receipt or immediately prior to that the monies were subject or impressed with the trust.

That is how it is put.

BRENNAN J: Well, let me understand this correctly. It is

not suggested that BNZ received it as a volunteer.

BNZ had a demand for $21 million, did it, which was

satisfied by this payment.

MR CHERNOV:  Yes, Your Honour, it had a demand on a

different company; it had a demand on the company

which - it is not terribly relevant what its name

was.

DAWSON J:  GPR.

MR CHERNOV:  GPR, yes. And pursuant to that claim it

received that money from the third defendant.

BRENNAN J: In discharge of that claim.

MR CHERNOV:  Yes. But it is not contended by the plaintiff

for the purposes of this appeal that BNZ took it

with actual knowledge of the breach of duty which

is alleged in paragraph 34.

DAWSON J: But that it ought to have known.

MR CHERNOV:  It ought to have known and that, Your Honour, becomes clear in paragraph 39:

4   11/12/92

BNZ had constructive knowledge of the matters

referred to in paragraphs 34 -

by reason of certain facts.

BRENNAN J:	I see.
MR CHERNOV:	So I may have inadvertently used the word

"notice" when I said "constructive notice"; I

should have and intended to say "constructive

knowledge". But that is how the assertion is made

by the plaintiff. So it is asserted that because

of these facts we were put on notice - and, of
course, it is trite, we would submit, that you can
be subject or have constructive knowledge imposed

on you not by reason of any intent or any malice or

anything to do with fraud, but by mere lack of due

care which would then burden you with the knowledge of the breach of fiduciary duty. That is how it is being put by the plaintiff. And the defendants

have, in fact, denied this but, in paragraph 36,

which is on page 170 of the defence, they contend

that the plaintiff has failed to tell the BNZ of

certain facts and, in paragraph 38, which is on

page 173, they say that:

In further answer ..... the Plaintiff engaged in conduct, in trade or commerce, which was

misleading and deceptive.

Now, it is paragraph 38 and paragraph 39 of the defence which is really at the heart of the

matter before the Court. In other words, it is our

submission that mere constructive knowledge of

certain facts which may be said to constitute the

constructive trust does not deprive the person who

has that knowledge from alleging that the person

claiming the constructive trust was under an
obligation pursuant to section 52 to have disclosed

those facts to that person.

DAWSON J: Surely if it was misleading conduct which led to

you not having the requisite knowledge, no

constructive trust would arise. But you do not say

that? I mean, if you were misled into thinking the

position was otherwise than it was by the very

person who was claiming it was a constructive

trust, surely it would be that no constructive

trust would arise.

MR CHERNOV: That would be so, Your Honour. In another

paragraph of the defence we do make submissions

that there was failure to disclose and the general

denial of the constructive trust but what we are

confined to at the moment is the situation - and

somewhat an artificial situation, in our

submission - where we have to argue, in the

11/12/92

interlocutory stage, that we are entitled to plead

that notwithstanding our constructive knowledge we
are not barred from relying on section 52. That is

to say, setting off in this context our obligation,

so to speak, against their obligation to inform us

of the same facts.

DAWSON J:  I find that very difficult to conceive. Either

you ought to have known that these were not, to put

it compendiously, Yuill's monies to deal with in

the way he did do, or you did not. And it may be

relevant to determine that question whether you
were misled by deceptive conduct, but that is the

question.

MR CHERNOV:  Your Honour, in the end it will depend on the

facts of the case and the examination of the

evidence but at this point in time what we contend
for, what we submit is, that the mere fact that there are certain factual bases on which we had constructive knowledge, that is to say we failed to

exercise due care, just by way of example - had we

done that we would have ascertained the true

facts - does not thereby disentitle us from

asserting that the plaintiff has himself done a

wrong.

DAWSON J: Well, that may be so, but that has no consequence

in the particular contest unless it enables you to

say that you were not in a position where you ought

to have known that this money was impressed with a

trust.

MR CHERNOV: Well, we would submit, Your Honour, it may be

of consequence - because we are at the

interlocutory stage at the moment we would submit

that it may be of consequence, depending on the

facts of the case. I mean, it may be that the

Court will find that the behaviour of the plaintiff

was such that he does fall within, for example, the

clean hands maxim that equity imposes depriving a	plaintiff who has committed a wrong from seeking to	gain from that wrong the assistance of the court of
equity.

DAWSON J: It is Spedley that is making the claim, is it

not?

MR CHERNOV:  It is Spedley that is making the claim but we

would submit that it is seeking the assistance of

equity in pursuing the claim that there was a

constructive trust and an order from the accountant

and so forth that flow from the making of any such

declaration. What we submit, Your Honours, is that

we are entitled to say that because of Spedley's

behaviour, which constituted a breach of

section 52, it may be disentitled from seeking the

6   11/12/92

relief of equity because that would be tantamount

to seeking to obtain the assistance of equity to

further or to cement its own wrongdoing.

I concede at once, Your Honours, that this is

an argument which necessarily must be put in a

theoretical context because one is talking in the

context only of pleadings and what Their Honours
did was say, in effect, that there was a
disentitlement merely because of the acceptance by

the defendant in its pleadings of constructive

knowledge. And the facts going to establish

constructive knowledge, of course, may or may not
correspond to the facts which the plaintiff had to
or was under an obligation under section 52 to

relay or inform the defendant of.

Now, it does not matter, Your Honours, for the

moment, whether one looks at this in the context of saying the defendant wishes to argue that there was

a disentitlement so far as the plaintiff was

concerned from seeking that.

DAWSON J: What it comes to is this. If there was a

constructive trust, any relief for breach of that

trust is discretionary and should be refused

because Spedley was in breach of section 52 of the

Trade Practices Act.

MR CHERNOV:  Yes.

DAWSON J: That is what you are saying.

MR CHERNOV:  Yes, that is one way, Your Honour. The other

way is, of course, linking it with section 82 - -

DAWSON J: Well, that is for a cross claim.

MR CHERNOV:  That is a cross claim or equitable set off.

Now, Your Honours are aware that section 82 has

not, in terms, been pleaded.

DAWSON J:	You are out of time, are you not?
MR CHERNOV:	We believe not, Your Honours, having regard to

what was said in Wardley and we rely on Wardley to

support our contention. I notice Your Honours

smiling but we nevertheless find that Wardley, if I

may say so, with respect, clears up that area of

the law. Whether Your Honours are for us or

against us, at least it is relatively clear now.

We will be submitting, when we get to it, that as

far as the statute is concerned, the statute of

limitations, the earliest point in time when time

begins to run against such a claim as we would seek

to make is when the demand was made, not when the

event took place which was said to have given rise

7   11/12/92

to the constructive trust because until the claim

was made, in our submission, there was no more than

a contingent liability in the defendant.

So the two principal points, in our

submission, that are brought out by the appeal

which should grant or warrant the granting of

special leave relate to the ability to rely on

section 52 as an equitable set-off or as a

disentitling defence and, secondly, the question of

the statute of limitations, whether or not we are

deprived by the statute from pursuing what would

be, in essence, an equitable set off.

Your Honours will recall that this Court has

said on a number of occasions that the ambit of
section 52 has not been determined and we submit

that this is a situation where there is no reason

of principle or authority why the defendant should

not be permitted to plead it.

BRENNAN J: 

Mr Chernov, if conduct which falls within

section 52 negatives the existence of a
constructive trust, you do not need to pray in aid

section 52 in order to raise that defence, do you?

MR CHERNOV: 

Not on that assumption, no, Your Honour.

BRENNAN J: 

Now, if it does not, in equity, negative the existence of a constructive trust, it must be

because the statute imposes some kind of absolute
liability which has no resonance in equity.

MR CHERNOV: 

Your Honour, there may be a situation where

there is a constructive trust, but the plaintiff

would be precluded from seeking the assistance of

the court of equity in pursuing it.

BRENNAN J:	Why?
MR CHERNOV:	Because of his own wrong doing, and that wrong

doing in this context - - -

BRENNAN J: But the wrong doing is simply a breach of the

statute on the hypothesis I put to you, is it not?

MR CHERNOV:  Yes. Well, Your Honour, our submission - and

we cannot take it any higher - is that 52 declares

a norm of conduct, a standard of conduct which must

be complied with.

BRENNAN J: Well, if that is so your argument must be that

the norm of conduct prescribed by section 52 is

such that in equity any person who is guilty of

that conduct cannot recover on the constructive

trust.

11/12/92

MR CHERNOV:  No, Your Honour, with respect, not necessarily.

If I may, with respect, vary what Your Honour said

by including the word "may". It would really

depend on the facts of the case. You see, what we

are faced with now is the decision of the court
saying we are precluded from contesting that point.
It may be that in the circumstances as they turn
out the Court will say, "Notwithstanding the breach
of 52 the plaintiff is entitled to the remedy he
seeks", but what we are contending and submitting

is that the defendant should not be deprived merely

because of that, and that is what we submit the

President of the Court of Appeal,

Mr Justice Mahoney and Mr Justice Hope really

decided.

BRENNAN J: If you look at page 75, at line 13, His Honour

says:

It is agreed that the case which is made out

by these paragraphs of the statement of

defence is in the end that the fact that there

was false and misleading conduct is alone the

defence which is set up.

Now, that is, as I understand, the issue which

Their Honours posed for themselves.

MR CHERNOV:	Yes.
BRENNAN J:	Now, the question is: if that is the issue which

they posed for themselves, is the fact that there

was false and misleading conduct a traverse of the

allegations in the statement of claim or is it some

kind of confession and avoidance?

MR CHERNOV:  It is a confession and avoidance, akin to that,

Your Honour, because what is being said is that

notwithstanding the constructive knowledge of

certain facts section 52, either by itself or in

conjunction with section 82 - - -

BRENNAN J: What you are saying is that even though a person

who has been guilty of the offence under section 52

is entitled prima facie to recover monies paid by

it as on a constructive trust from the recipient of

those monies, if that person has been guilty of a

breach of section 52, he cannot.

MR CHERNOV:	He may not.
BRENNAN J:	He may not. And what is it that gives rise to

the discretion implicit in the word "may"?

MR CHERNOV:  It is the discretion of the court in deciding

whether or not to grant relief in any event, which

the court always has, and section 52 - it is not

9   11/12/92

uncommon for courts to exercise their discretion in
accordance with the principles of equity, for

example in the context of 87 the equitable

principles of a rescission are used as a guide in

the exercise of the discretion by the court in

certain cases in relation to that section. And we

would submit there is no reason the principle - and

there is no authority certainly of this Court on

this, although Mr Justice Rogers has said in one

case that you could plead section 52 as an
equitable set off - but we would submit there is no

principle or authority why the clean hands doctrine

should not be .a part of the court's consideration

when it considers whether or not a person is

claiming a right under a constructive trust in

relation to facts which he was under an obligation

pursuant to section 52 to disclose to the

defendant, should be entitled to pursue and obtain

the assistance of equity in relation to that remedy

merely because constructive knowledge is imposed on

the defendant. And, of course, constructive

knowledge can be imposed on the defendant, as I
have said, absent of any intent, absent of any
malice, and therein lies some similarity between 52

and the notion of the constructive knowledge in the

sense that in neither case is intent relevant.

MCHUGH J:  I have difficulty in understanding why there was

any necessity to plead paragraph (e) of 38 of your
statement of defence by reference to the Trade
Practices Act, if your theory of the case is right.

You seem to be saying, "By reason of facts 1 to 5, a constructive trust is imposed upon us but if we

had known facts 6 and 7, which it was your duty to

tell us, we would not have found ourselves in that

situation". Now, you plead the defence in bar to

the statement of claim, not as a discretionary

defence.

MR CHERNOV: Well, the wording may convey that, Your Honour,

but can I say two things, or perhaps three.	The
first is that, as one revisits pleadings from time

to time one sees how one could have done it

differently. The second and perhaps more important

thing, Your Honour, is that ever since the first hearing, and I cannot speak personally because I

was not there but I am informed and I have read the

transcript, and it was pursued with the appeal

court, there was an intimation to the court that

there would be an application to amend the
pleadings. But what this case turned on, both in

the court below and in the appeal court, was the

principle of whether or not section 52 could be

pleaded in the context in which I have mentioned.

McHUGH J: Sorry to interrupt you, but I would have thought

that if there was a breach of a duty to you or

10   11/12/92

false or misleading conduct on the part of your

opponent, it would not matter at all whether it

constituted a breach of section 52. For example,

if section 52 had never been enacted, your case

would still be the same, would it not?

MR CHERNOV:  Maybe not, Your Honour, for this reason, that

this is misconduct based on failure to inform.

. Mc HUGH J:	Yes.
MR CHERNOV:	It may be that, absent 52, it is arguable that

there was no obligation at common law, if I can use
that term, to inform. But section 52, and the

Rhone-Poulenc case makes that clear in the Full

Federal Court if one needs to make it clear, that

it recognizes section 52 can operate in certain

circumstances whereby silence constitutes

misleading conduct.

McHUGH J: But equity has acted in many situations where

silence has constituted misleading conduct,

irrespective of any statutory enactment.

MR CHERNOV:  No doubt, with the greatest respect,

Your Honour is right, but section 52 is a wider

section - I will not say wider section - - -

McHUGH J: But it simply gives a cause of action to certain

character which exists independently of the

enactment and, on the theory of your case, what was

crucial is the conduct, not whether or not it

constitutes a cause of action under the Trade

Practices Act.

MR CHERNOV:  Your Honour, we are not saying we are trying to

have the cake and eat it too. With great respect

we accept what Your Honour has said, but we go one

step further, that conduct which may not otherwise

fall within the conduct that Your Honour has in

mind may fall within section 52 and thereby -

DAWSON J:  How can that be? I mean, section 52 speaks of

false or misleading conduct.

MR CHERNOV: Well, it is a question of what constitutes that

proscribed act .

DAWSON J: But in raising that defence you are not

constrained by what false and misleading conduct

constitutes for section 52.

MR CHERNOV:  But Your Honour, may I ask rhetorically - and I

am not asking the Court, I cannot ask the Court -

in a sense does it matter that, in that context,

section 52 or the term section 52 is used? What is

really being thrown up or sought to be thrown up is

11   11/12/92

that there is conduct by the plaintiff which falls

within 52 and which disentitles him.

DAWSON J:  Not which falls within section 52 but which

disentitles him, that is the point.

MR CHERNOV:  Yes, which disentitles him - - -

DAWSON J: It does not matter whether it falls within

section 52 or not.

MCHUGH J: Exactly. It is irrelevant.

MR CHERNOV: Well, Your Honours, we would seek to submit

that the fact that it does fall within section 52

is a factor which ought to be taken into

consideration when the court balances things.

BRENNAN J: Well, now, that is a different problem, is it

not? Ask yourself two questions: at the trial of

the issues in this case, will you be disentitled to

adduce any evidence which you would be entitled to

adduce had this paragraph remained in your defence.

MR CHERNOV:  We may be, Your Honour.

BRENNAN J: Second, would you be disentitled from making any

submission which you would have been able to make

had the paragraph remained in your defence.

MR CHERNOV: Certainly the second one is yes.

BRENNAN J:	Why?
MR CHERNOV:	Because, Your Honour, we would be seeking to

contend that the conduct which breaches 52 on the

part of the plaintiff, the fact that he has

breached a statutory prohibition is a factor for

the court to take into account, and Your Honours

may today say that may not be helpful, may not take

the matter any further. Really, in our submission,

we would strongly urge that it is a factor, that

there is a statutory course of conduct which is

proscribed and, standing here as I am, I cannot be

certain that there would not be a gap between what

I call common law conduct or, to put it another

way, the common law conduct which may deprive the

plaintiff of his remedy, maybe at a higher level

than the conduct which would fit in to section 52.

BRENNAN J: That seems to me to indicate that this is

certainly not a suitable vehicle for considering

that question.

MR CHERNOV:  Your Honour, in our submission, it is suitable

for this reason, that it does raise it squarely; it

has never been raised before in the High Court.

12   11/12/92

There are decisions - there is one decision, I

should say, of Mr Justice Rogers, where he says 52

can be pleaded as an equitable set off, albeit in

conjunction with section 82. In that case he said

that it did not help the defendant because the
statute ran against him, and we readily concede

that if the Court were to say ultimately that the

statute runs against any section 82 point that we

may seek to raise by way of defence, then equitable

set off would go out the window, but that would not

deprive, in our submission, the defendant from

arguing that there is a disentitling defence, as

such, akin to "clean hands". So we do strongly

urge on the Court that this is an appropriate

vehicle.

DAWSON J:  Why should we take it up at this stage of the

litigation?

MR CHERNOV: Because, Your Honour, we are prevented from,

first, contesting the matter in court but, more

importantly perhaps, we are prevented from amending

our pleadings or seeking an amendment of them,

which would make that clearer than it is now.

McHUGH J: But is that right? Is not the fact that all you

are precluded from doing at the trial is adding

these words: "and this conduct is also a breach of

section 52 of the Trade Practices Act"?

MR CHERNOV:  Not quite, Your Honour, with respect. What we

are prevented from doing is saying in answer to the

opposition, "This conduct is not such that in the common law context would deprive the plaintiff of the right of assistance of the court of equity,

say, notwithstanding that it does fall within

section 52 and that is a factor which should be

taken into account".

DAWSON J: You may be wrong about that; there may be no

difference. Time will tell.

MR CHERNOV: There may be, exactly, Your Honour, but you do

not know at this stage, and what our complaint is -

and we are the victims of, I suppose, efficient

court administration - that the thing was taken out, so to speak, and separated out without any

ability - - -

DAWSON J: Well, in the end, if that was wrong, you will

have your remedy.

MR CHERNOV: But, Your Honour, in our submission, with great

respect, it will not be a very practical remedy

because if we wait until the end of the trial and

then come back again it will not be a meaningful

exercise to rehear certain matters.

13   11/12/92

McHUGH J: But under the New South Wales authority this was

tried as a preliminary issue, was it not?

MR CHERNOV: It was.

McHUGH J: And under New South Wales authority you can

appeal against these findings on preliminary

questions even at the end of the action.

MR CHERNOV:  We have. Yes, but, Your Honour, with great

respect, it would be less desirable, if I can say

so, to do that then than to do that now.

DAWSON J:  It depends less desirable from whose point of

view.

MR CHERNOV:	Your Honour, from everybody's point of view.
DAWSON J:	Not from the court's point of view.
MR CHERNOV:	Certainly from the court's point of view it

would be undesirable because if we - let us assume
we run the trial, which will be of some time, and
then we do appeal on this point, and let us say we
win on that point at the end of the day, what is

realistically going to happen? The court would be

burdened again with this whole matter. It really

is a matter, in our submission, that ought to be

resolved now and obviously it is desirable, from

our point of view - - -

DAWSON J: But from this Court's point of view, if the

question is unlikely to arise in any practical way

it is much better to see the litigation go to its

natural conclusion.

MR CHERNOV: Your Honour, it is, with great respect, not

possible to say that this is not going to arise in

a practical way.

DAWSON J:  It may be not possible to say completely but it

is certainly possible to say in all probability, or

to form a view.

MR CHERNOV:  It may be no answer to what Your Honour has

just said but the point is a relatively short

point. In the context of an appeal it is a matter

of great importance to the administration and
operation of the Trade Practices Act and that, of
course, I need not burden the Court as to its

significance but, in our submission, the Court

would be, if it were to take that view that

Your Honour's just suggested, would be taking -

risk is the wrong word - would be seeking to

predict something which it is, with great respect,

not capable of predicting at this stage because one
just does not know how the -

14   11/12/92

McHUGH J: But the case could go off on all sorts of points

and there may be a constructive trust established

against you, and in that case the point is

irrelevant.

MR CHERNOV: That is always the case, Your Honour.

McHUGH J:  I know, but why should we take it on at this

stage when you have got your remedy ultimately.

MR CHERNOV:  Because it is so fundamental, we submit, to the

defence. It is part and parcel of the defence as

it is going to be run and, in our submission, it is

wholly undesirable in the administration of justice
to seek to separate that out or run the risk of it

being separated out and be the subject-matter of an

appeal at a later point in time.

BRENNAN J:  Mr Chernov, this Court is always disinclined to

take applications for special leave on pleading

points or interlocutory points.

MR CHERNOV:  I understand that, Your Honour.

BRENNAN J: And in this case it seems to me that your

argument falls a long way short of demonstrating

that if we were to refuse special leave at this

stage that you would be excluded from adducing any

evidence which might be relevant to the elucidation

of the problem. Now, in those circumstances, I

wonder why you press at this stage the application

for special leave.

MR CHERNOV:  Because, Your Honour, I regret to say that in

my submission it is in the interest of my client to

have this determined now, that is to say so it can

conduct its defence fully before the court; that is

point 1. Point 2, Your Honour, if we may say, with

great respect, we would want to adopt what fell in

Wardley's case, and that is that matters of this

complexity ought not to be taken out and decided by

way of interlocutory hearings.

BRENNAN J: Well, one can understand that very readily. The

rash of interlocutory applications and complex

litigation seems to me to be the subject of great

regret.

MR CHERNOV: It is, Your Honour - concern.

BRENNAN J: What will be the situation of your client if

your present application is now refused; not

adjourned, but refused?

MR CHERNOV:  If it is refused, Your Honour, we will be faced

with the situation where we are unable to lead

evidence or make submissions based on breach of

15   11/12/92

section 52 and, Your Honour, what fell from

Mr Justice McHugh, with great respect, is correct

in the sense that it is often very difficult to

look at a set of evidence which is being led and

pidgeon hole it and say, "Well, this will go to the

norm or equitable defence whereby the court's

discretion is affected and it goes into the

balance, and this goes to 52 which will also go

to run the case on a basis whereby any	into that category". It would just be impractical
consideration is going to be given to section 52 at the end of the day.

McHUGH J:  I think you are doing less than justice to equity

if you think that equity would not take cognizance

of conduct which would fall within section 52,

however widely framed section 52 might be.

MR CHERNOV:	Your Honour, I do have great faith in equity but I would have more faith in it if I had - - -
BRENNAN J:	If you had paragraph 38 to help you.

MR CHERNOV: If I could put 52 there as well.

BRENNAN J: 

Mr Chernov, if you were to fail on your present

application and after the hearing of the evidence
the problem of section 52 appeared still to be

alive, and you wished then to agitate section 52,

would you be precluded from doing so?

MR CHERNOV:  We believe we would be, Your Honour. I have

just been reminded of what is on page 53, where

Mr Justice Kirby talks about the final

determination. We have had a determination against

us in the court below, and of course in the Court of Appeal, on this very point. If the Court were

now to refuse leave, it would be very difficult,

unless we came back to precisely the same court

which remembered this same application, to persuade

a court that we should now be entitled to special

leave at the end of the evidence.

BRENNAN J: What I had in mind before in asking the question

was whether your interests were not best served by seeking an adjournment of the present application.

MR CHERNOV:	An adjournment as such -
BRENNAN J:	The opposite viewpoint is that you are not

precluded in any event from pursuing it once more

through the courts after the verdict.

McHUGH J: Is not Lloyd v David Syme, unless it has been

overruled since I left the Court of Appeal, a
precise authority that a determination on these

16   11/12/92

separate issues can be raised in the final notice

of appeal?

MR CHERNOV:  It can be, but that very issue would then have been one that was ventilated twice.

McHUGH J: All you would get from the Court of Appeal is

that they would say, "We've dealt with this, so out

you go; go up to the High Court." But you could

then come up here after a trial and raise this very

issue now before us.

MR CHERNOV:  And the High Court will tell me that, "We've

dealt with this. What else do you have to say?"

DAWSON J: Not just dealt with it on the basis simply that

it is too soon.

McHUGH J: It is premature.

MR CHERNOV:	Your Honours, we would urge on the Court, with great respect, that the administration of justice
would not - there are really two points. One, we
may be shut out; and two, the administration of justice would not be best served by dividing this matter up in this way, that you would have
virtually a piecemeal application. If we were to succeed at the end - that is to say, when we come
back - we would then have to go back. It is almost
artificial to talk about evidence then, because
cross-examination, in-chief, documents and the like are all going to be affected by this decision.

That is one of the difficulties in this case.

There were arguments put to the court - and the

Court of Appeal seems to have accepted - that we

were not precluded from giving evidence. It is a

little bit artificial to say that, with great

respect, because one would be doing that absent

what is an essential aspect of interlocutory steps,

and that is discovery.	How would you lead one's
evidence in the context of extracting that issue

out and trying to get rid of it? It is a

difficulty that is raised by the very act of

separating these issues out and having them heard
separately.

I am slightly getting away from the point that Your Honour has just raised, but we submit the risk

is too great for us being shut out, and secondly,

to go back to the court again after we have been to
the High Court and seek to present the case would

not help the court and not help us.	It may help
the other side, but that is it.	So we do urge on

the Court - because the test that this Court has

said from time to time exists in relation to
special leave is whether it does raise issues of

17   11/12/92

law of some substance and significance, and this

does. The only point is that it may be premature

on one view.

BRENNAN J: That is not quite the whole problem, is it? The

pleadings are supposed to be pleadings of fact.	It
seems to me that if in paragraph 38 you are intending to plead some facts, nothing which rests
in the words "section 52 of the Trade Practices
Act" is going to make the slightest difference to

the facts that you are going to have to adduce or

the facts in respect of which you might be entitled

to discovery. So it seems to me that the problem

simply is that in paragraph 38 of your defence, you

have put a particular legal complexion on the

material facts.

MR CHERNOV:	Yes, we do, Your Honour.
BRENNAN J:	The proposition that those facts bear a

particular legal complexion is nothing to the point

to the issues that are going to be ventilated.

MR CHERNOV:  May I submit this, Your Honour: from the point

of view of one at the coalface, one would then have

to run the case, so to speak, on the basis that

section 52 is tucked back at the back of your mind,

whereas the pleadings have already been struck out,

they do not exist, in the hope that one is able to

persuade the High Court at a later time to grant

leave on this point.	So Your Honour, with respect,
is quite right.	One could do that, but it would be

a situation where one would be doing it with one

eye to section 52 but not actually telling the

court that section 52 is anything to do with this.

BRENNAN J: Forget section 52 for the moment. Why is it

that you simply cannot plead, if you wish, by

confession and avoidance, a paragraph which says,

"and Spedley was guilty of the following conduct

and did the following things"?

MR CHERNOV: Because, Your Honour, one of the expansionary

concepts that 52 gives to the person in our

position is to be able to say that notwithstanding

the absence of the usual relationship between the

parties such as principal/agent and

solicitor/client and so forth, which relationship

itself gives rise to a duty to disclose, silence

may in itself constitute a breach of section 52

without first coming to the conclusion that there
was such a duty. It is a big difference between

putting up a case where you are confined to

establishing the duty first and saying, "Well, you

establish that duty which will itself bring in 52,

but in addition to that you can have the
proscription of 52 operating on the plaintiff or

18   11/12/92

the norm of conduct operating on the plaintiff

absent the proof of that usual relationship." I do

not want to, to use a perhaps inappropriate term,

outwear my welcome of the Court.

If the Court is of the mind, which we would

urge it not to be, but if it is of the mind that

this may be premature, can I say without meaning

disrespect to the Court that our fall-back position

would be for the matter to be adjourned rather than

refused, because that would then perhaps leave open

the ability to go back to the court below and amend

the statement of claim as it ought to be amended.

But if one looks through the judgments of the

Court of Appeal, Mr Justice Mahoney and

Mr Justice Hope, with great respect, barely

considered the question of the ability to use

section 52 in the way we have said it. If one

looks at the President's judgment, we would submit

with great respect that His Honour came to a

conclusion against us, but it is not as definitive

a conclusion as one usually finds.

His Honour did feel constrained, for example,

by a certain authority in the Federal Court which,

in our submission, is irrelevant to this case. It

is irrelevant because what we are submitting is not

against what Wardley said in the Full Court, it is

not against what Tobacco said, because all those

cases say, as Wardley in the High Court has said,

the gist of the action ultimately is going to be

82, and so it is. We do not seek to contradict

that because, if we are going to raise a set-off,

we have got to do it under 82. We have not pleaded

82, but the reason the court has brushed that

aside, we say with respect, is because it took the

view that you cannot do it anyway.

Once that principle is determined, in our view

favourably to us, then a court would of course

entertain an appropriate amendment to enable us to

breach 82. We are not saying necessarily we will

have to succeed at the end of the trial, but what

is denied to us is the ability to raise it, to

argue it. There is a separate point to that, and

that is the "clean hands" doctrine, if I can use
that term, or a principle akin to that.

Your Honours, there was only one thing, if I may say, in relation to the statute of limitations

point, and that is wardley. This Court has said in

Wardley that the time runs when actual damage is suffered. In our submission, actual damage cannot

be suffered by anybody in the position of the bank

until such time as a call is made on the bank for

19   11/12/92

the funds. The transaction itself gives rise to no

more than a contingent liability.

We therefore rely on Wardley for the

proposition that if we can plead 82, we are not

statute barred. This situation is closer to an

indemnity in the context of Wardley than the entry

into a contract pursuant to misleading and

deceptive conduct which, of course, I think on the

court's view - and with great respect, it is so -

that it does at that point in time give rise and

does actuate damage.

McHUGH J: But you have never pleaded 82, have you?

MR CHERNOV:  No, Your Honour, but as I say, we have sought

to amend, and we have been refused because as a

matter of principle the court has said 52 cannot be

used that way. What we submit is that if 52 can be

used in the way we say by way of a defence, then

the court would entertain in that context the
application to amend. If one confines oneself
solely to the words of the pleadings, then the only

thing we can really run at the moment, if we are

right, is the disentitling defence.

There has got to be a section 82 link in order for a set off to be claimed, and it would be

extraordinary if a court were not to permit an

amendment, given that section 52 can be so used in

conjunction with section 82. The reason, of
course, the court said it cannot be used is, one,

that you cannot do it anyway, and in any event the

statute runs against you, but that is before they

had the benefit of Wardley's decision. If the

Court pleases.

BRENNAN J:  Mr Heyden, what do you say about the fall-back

position which was put forward, namely, that the

matter should be adjourned and, if necessary,

reactivated after the trial?

MR HEYDON:	We would submit that, with respect, that would be in substance futile because, even if this
application is rejected, it would be open to Mr Chernov to repeat his application to the Court
of Appeal as of right pursuant to Lloyd's case and then apply for special leave again to the High
Court.

McHUGH J: Lloyd is still the law in New South Wales, is it?

MR HEYDON:	As far as I know, Your Honour, yes.
BRENNAN J:	So this matter can be decided on the agreed

footing that the decision thus far does not amount

to an estoppal of any kind?

20   11/12/92

MR HEYDON:  Yes, a Part 31 rule 2 decision is an

interlocutory order. Leave is needed to appeal

from it, both to the Court of Appeal and obviously

higher. It is not uncommon for people to fail in

an application.

BRENNAN J: Perhaps I could inquire whether the other

parties are of the same mind.

MR GRAY:  Your Honours, we are in a slightly different

position in that there is of course a cross claim

against my client. If the present application were

left in a state where it was adjourned, there would

be a state of affairs which would not be - - -

DAWSON J: But the point is: you do not dispute that the

matter can be raised again, notwithstanding the
decision of the Court of Appeal at the conclusion

of the litigation on the basis of the authority

which has been decided.

MR GRAY:  We do not suggest that that authority is not

correct.

DAWSON J: As it is said to be.

MR GRAY:  As it is said to be, no, but, Your Honour, there

are a couple of things. The cross claim which is

founded on the allegation of breach of section 42

of the Fair Trading Act then has its own problems,

we would submit, as to why we would submit it must

fail. Some of those - - -

McHUGH J:  We are only asking you about whether this point

could be raised on an appeal.

MR GRAY:  I may have misunderstood what Your Honours were

actually asking me, and I do not need to say

anything further.

MR FOSTER:  Your Honours, we would be in the same position,

except that it may be, because of the events which

are happening outside of the litigation, that we

are not at the trial, in which case there will be a

state of affairs where the cross claim as pleaded

will have been struck out by His Honour

Mr Justice Cole, that decision being upheld by the

Court of Appeal, that decision being under

challenge here, not determined, the trial taking

place with my client not present and a suggestion

being made that the issues raised in the cross

claim can be reagitated here.

DAWSON J: What are you suggesting; we should grant special

leave?

MR FOSTER:  No, Your Honour.

21   11/12/92

McHUGH J: Then you should be sitting down.

MR FOSTER: That may be, but as far as an adjournment is

concerned, we do not take - we accept that the law

is Lloyd v David Syme, but I just was not clear

what my learned friend Mr Chernov was saying about the cross claim, and we felt it really ought to be

drawn to the Court's attention.

BRENNAN J:	Have you been struck out from the proceedings?
MR FOSTER:	No.  The cross claim has been struck out. We

are still defendants as between the plaintiff and

us, but we may not be when trial comes. That is a

matter which - - -

McHUGH J: But if you go to trial and you succeed or

Mr Chernov's client fails, he can come up on appeal

and raise all these points.

MR FOSTER:  On the material that then exists, yes,

Your Honour. I would accept that - on the material

that then exists.

McHUGH J:  Including this very point that was the subject of

Mr Justice Cole's decision under Part 31 rule 2.

MR FOSTER:	Yes.
MR WEBECK:	We accept the position as in Lloyd's case and

therefore adopt Mr Heydon's submissions.

BRENNAN J: Yes. This Court will rarely grant special leave

to consider questions which arise in interlocutory

proceedings, especially questions arising on

pleadings. In this case, although the question

which the applicant seeks to raise was determined

on a preliminary trial of a separate issue, the
case is not now a suitable vehicle for considering
the relationship between section 52 of the Trade

Practices Act 1974 and the existence of a

constructive trust affecting moneys received in the

circumstances postulated in paragraph 38 of the
defence.

From counsel's argument, it appears that the applicant relies on section 52 as a source of a

duty imposed on the plaintiffs in the action.	If
in the course of the litigation the existence of
such a duty arises for determination, it is

preferable that the question be determined on the

facts. It is agreed that the applicant will not be

precluded from appealing on this point from a final

judgment, by which we mean the point which was

raised in the Part 31 rule 2 proceedings on the

pleadings.

22   11/12/92

MR CHERNOV:  Your Honour, if I can add: there is another

rule under which - Part 13 rule 5. That was the

struck out one in relation to the cross claim.

BRENNAN J: Yes, and Part 13 rule 5. Accordingly, special

leave will be refused.

MR HEYDON: I would ask for costs, if Your Honours please.

BRENNAN J: Costs will follow the order that has been made

for the refusal of special leave.

AT 12.51 PM THE MATTER WAS ADJOURNED SINE DIE

23 11/12/92