Bank of South Australia Limited v Ferguson

[1996] HCATrans 237

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A19 of 1996

B e t w e e n -

BANK OF SOUTH AUSTRALIA LIMITED

Applicant

and

KENNETH EDWARD FERGUSON

Respondent

Application for special leave to appeal

DAWSON J

GAUDRON J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON WEDNESDAY, 14 AUGUST 1996, AT 4.10 PM

Copyright in the High Court of Australia

MR W.J.N. WELLS, QC:   If the Court pleases, I appear with my learned friend, MR J.M. CUDMORE, for the applicant.  (instructed by Ward & Partners)

MR S. WALSH, QC:   If the Court pleases, I appear with my learned friend, MR R. SALLIS, for the respondent.  (instructed by Janson & Co)

DAWSON J:   Mr Walsh, we thought we might hear from you first.

MR WALSH:   If the Court pleases, if the special leave to appeal is granted, in effect, the Court will have to consider, in essence, factual issues.  In this particular case, the ultimate solution to the issues that arose, identified by the majority of the Full Court, was that rescission ought to be granted and that practical justice required, in the circumstances of the case, that there should be no additional moulding of the remedy, as it were, in equity, because, as a matter of fact, practical justice was achieved by leaving the remedy as it was, with no further moulding.

DAWSON J:   Practical justice it may be, but justice according to law.

MR WALSH:   Indeed, your Honour.  It must be justice in accordance with law, and it is much like the comment of this Court in the case of Vadasz v Pioneer Concrete, where the Court commented on the difference between, in that case, somebody who would have entered into a contract irrespective of the fraud, or the misrepresentation, and, on the other hand, a person who would never have entered into the contract at all.  And, in this case, the evidence disclosed that had it not been for the fraudulent conduct of the bank officers, there would have been no contract at all.

GAUDRON J:   On the Bank’s part?

MR WALSH:   On the Bank’s ‑ ‑ ‑

GAUDRON J:   The Bank would not have offered the loan.

KIRBY J:   But you were keen for contract, and you got the benefit of it, and you walked away with the benefit, and you do not want to account in any way for it.

MR WALSH:   But, if your Honour pleases ‑ ‑ ‑

KIRBY J:   It does not seem justice according to law.

MR WALSH:   That is the issue of restitution that arises and restitution will arise if there is unjust enrichment and, in this case, we say on the facts, as a matter of fact, there was no enrichment.

GAUDRON J:   Well, you paid out the Commonwealth Bank, to start with, did you not?

MR WALSH:   Indeed, your Honour.

GAUDRON J:   Well, that is something.  And you bought equipment that had a value.

MR WALSH:   Indeed.  Let us assume for one moment that all of the money that was advanced was advanced solely for the purposes of debenture, if I can call it that.  Fraudulent representations and fraudulent conduct resulted in Mr Ferguson entering into the contract, and there is no doubt that the majority and the judge at first instance found that much.

GAUDRON J:   It is a very peculiar finding, when he knew nothing about the fraud.

MR WALSH:   But he did, with respect, in the broader sense.  Because what my learned friend has put in his outline, it is our respectful submission, not the complete picture, because, as identified by his Honour Justice Millhouse in the majority, there was much more.  The fraud was not just the forgery of the instrument, it was not just the compilation of cash flow statements which happened to be - if they were looked at by Mr Ferguson, would have led him to believe that he should never enter into the transaction.  It included, for example, the representations by Mr Towner, who was not accepted by his Honour as to crucial conversations, that he should enter into it, but if the cash flows were other than entirely correct and did not justify the contract or him entering into it, then he would tell him so.

In addition to that, the representation by Mr Towner that, in fact, he knew country of this kind, he was familiar with the issue of potato growing and the farming of potatoes, and that he was able to say, because of his experience with other customers, who, in fact, had that kind of farming business, that this was a good proposal for him to enter into.  Now, as we demonstrate by way of some annexures, the evidence was that he, in truth, had no contact with potato farmers.  He had no expertise in the business of farming of potatoes, and yet, he led Mr Ferguson to believe that he did.  And that is the inevitable conclusion of the finding by the learned trial judge in favour of Mr Ferguson that, in fact, he had been misled by all of that.           So, it was not just the issue of the forgery, the cash flow statements ‑ ‑ ‑

DAWSON J:   But that is not fraud, is it?

MR WALSH:   Well, with respect, it is in this case, your Honour, and the reason we say it is this - and it is a two‑pronged approach - firstly, he told Mr Ferguson that he was familiar with farming of that kind and that he actually had clients.  That was not true.  It was said obviously with the intention to encourage Mr Ferguson to enter into the contract.  Secondly, he falsified, in a sense, he made up a valuation, which is also annexed to our outline of argument, where he asserts, in effect, that he had seen the property and that it is valued at the higher figures, which were the justification by head office, or regional head office, for the granting of the loan when, in fact, he had never seen it.

DAWSON J:   But that had no effect on the behaviour of your client.

MR WALSH:   But, your Honour, the effect that it had on our client is this; that had he said at the beginning, “I know nothing about potato country, I know nothing about the value of land,” Mr Ferguson’s evidence was, in effect, he would have gone and got his own advice.  He relied on those statements, and very much to his detriment too.  Now, just going back a little to the issue of that valuation, in effect, he signed a document - the valuation - saying it was the higher value, which was a figure he, on the evidence of acceptance of the learned trial judge of Mr Ferguson, he plucked out of the air.

Why did he do that?  To satisfy the regional office that it should be granted.  This would never have occurred, namely, this contract would never have proceeded, had it not been for that fact alone.  Mr Ferguson  would never have entered into the contract if he knew that the justification for the loan, as far as the Bank was concerned, was the high valuation of land, when he knew that it ought not to be valued at that at all.  Now, that is dishonest conduct, to say that ‑ ‑ ‑

DAWSON J:   But it is dishonest, as has been pointed out to you, towards the Bank, not towards the Bank’s customer.

MR WALSH:   But dishonesty to Mr Ferguson ‑ ‑ ‑

DAWSON J:   He was willing to - or he was asking for a certain amount of money, and that is what he got.

MR WALSH:   But if he was encouraged, enticed, to seek - to make the loan because ‑ ‑ ‑

GAUDRON J:   That may be a matter that sounds in damages, which is what was left open on the order that would have been made by Justice Matheson on appeal.

MR WALSH:   That is so, your Honour.  And the reason why we say the majority ‑ ‑ ‑

GAUDRON J:   But you have to go one step further.  You have to say it is not simply a matter that sounds in damages; it is a matter that entitles him to rescind, or something of that nature, although you do not seem to have purported to rescind it, and, at the same time, keep the money without proving damage.

MR WALSH:   If I may put this comment in response, at the end of the day what, in effect, was sought was rescission, and what the majority did was to say, “Well, we know that because of the fraud and the conduct, of Mr Towner included, which obviously must be classified as dishonest because of the findings, that thereby rescission - that Mr Ferguson was entitled to rescission, the only question that remained then was whether, in fact, equity should step in to mould the remedy.

On the one hand you had Mr Ferguson enticed into the contract by the representations, false as they were, and by the forgery, and by the fraud.  I am not saying that he would never have entered into that contract had he known of it ‑ ‑ ‑

DAWSON J:   You use this word “enticed”; he did not even know about it.

MR WALSH:   No, but what he did know about was the representations.  What he did know about was the fact that had he - he understood from the representations that if there was anything untoward in relation to the cash flow position, he would be told.  But if one looks at the cash flow, as his own evidence was, it is flawed from the very beginning.  All he had to do was look at the Bank’s cash flow statement and it was flawed.  Within one year of this project starting, this venture starting, the Bank was already saying to him, “Look, we think you’re going to have to sell property.”

KIRBY J:   Well, I think that the strongest points you have are the ones that you began with; this is a case about facts.  The orders that have been made certainly sanction very severely what the Bank has done.  What the Bank’s servant did was very unusual.  It is not likely to recur in exactly this sort of construct of facts in the future, and evaluating what is the proper solution to it is very much a matter of evaluating the facts.  I think these are the strong points against the grant of special leave.

MR WALSH:   Indeed, yes.  We say that it is going to be a factual exercise, and that there is not any doubt that the law in the various areas that my learned friend challenges; that, at the end of the day, this will be a case on the facts to the law, as established in the relevant areas that have been identified, whether it be the Real Property Act, or the law relating to restitution, or the law relating to rescission.

KIRBY J:   There seem to be an awful lot of facts too.

MR WALSH:   There are a lot of facts, and it will involve a very close analysis of those facts.  That is what the Full Court was required to do.  As his Honour Justice Millhouse observed, most of the - or the thrust of the case before the Full Court was a challenge with respect to findings of credibility, the factual effect of the fraud and so forth.  And, at the end of the day, if the Court pleases, what we are left with, and this is what the court was left with - and your Honours know that his Honour Justice Millhouse said, well, having found that there was a justification for rescission - what next?  He has had the money.

But when one sees the detriment that he has suffered because he entered into this, practical justice justified the result.  The reason I say that is that what he is left with is not the assets that he had and the farming business that he had when he first looked into this project and when he signed that mortgage in September of 1990, what he is left with now, and was obviously going to be left with because the whole venture was flawed financially and he was never told about it, is simply with the farm.  No business, no income.  He has not had income from the business ‑ ‑ ‑

DAWSON J:   Yes, but the Bank was not underwriting the venture and, after all ‑ ‑ ‑

MR WALSH:   No.

DAWSON J:    ‑ ‑ ‑it was the vagaries of any agricultural - of this particular agricultural pursuit which really caused the damage.  I mean, it was a change in policy on the part of the company which had previously said they wanted these potatoes for its purposes.

MR WALSH:   But if your Honour pleases, if one looks at what he was told, one can see where the operative fraud is.  He was told, “It is a venture which you should get into.”  It is a venture by silence after the representation was made that they would tell him if the figures did not match up.  It was operative in the sense that the flaw ‑ ‑ ‑

DAWSON J:   Well, for the first year, the figures bore out what he had been told; but then circumstances changed.

MR WALSH:   But, your Honour, this project was flawed from the beginning.  If he had been told what he should have been told by Mr Towner, the venture would never have proceeded at all.  He would still be a farmer, he would still have a farming business, he would probably - because he had been on the land for some time - he would probably be in a position of financial stability.  He has lost all of that.  And if, in fact, the Bank were correct, for example, in this case, not only has he lost all of that, but he loses his land as well.  He has got nothing and that ‑ ‑ ‑

GAUDRON J:   But you leave out of account what at least seems to be the conventional way of dealing with these issues, namely, the assessment of damage, which Justice Matheson would leave open to your client.

MR WALSH:   But, your Honour, can I put this to you?

GAUDRON J:   Whereas, the present situation, which does seem remarkable, is that it is said that he suffered no loss or damage, but he can keep the money.

MR WALSH:   Yes, but what happened was that the question of damages was - it was a rather confused trial, I should say, and the question of damages was not pursued on the basis that at one time there was going to be an application for a judgment and an adjournment of the assessment of damages, and it became confused thereafter as well.  His Honour Justice Legoe refers to that fact.  But the point that really is important in this case is that, at the end of the day, the majority, in looking to see whether equity should mould the remedy for rescission to which Mr Ferguson, we say, is clearly entitled, said, at the end, that in fact there was no enrichment in his case.

There is no evidence of enrichment.  In fact, when one looks at the objective facts before the Court, as one can see in the analysis in attachment A, that, in fact, he has suffered a very massive detriment.  And, as I say, if the Bank is going to recover yet its debt ‑ ‑ ‑

KIRBY J:   Yes, but is that because of the action on the Bank, or is that because of just the vagaries of the market and his foolhardy venture?

MR WALSH:   Your Honour, it is really because this venture was doomed from the beginning.  The cash flow statements ultimately demonstrated that.  He says it in his evidence, and that was accepted by the learned trial judge.  He would never have entered into it had he known in truth what the Bank’s cash flow statements were.

KIRBY J:   Yes, that was accepted by the primary judge.

MR WALSH:   So, if your Honours please, he has no grazing business at the moment, all he has is that bare land.  He will have nothing, of course, as I say, if the Bank were able to have the remedy moulded.  And what he - practical justice determined that this man, who has lost his farm, who has lost his family and has lost his business, should at least be allowed to pick up the pieces of what is left of his life, in practical justice.

DAWSON J:   Well, you keep saying “practical justice,” but we really do do justice according to law.

MR WALSH:   Indeed, your Honour.  And as this Court said in Vadasz v Pioneer Concrete:

If it appears that the other party would not have entered into the contract at all if the true position were known, the contract may be set aside in its entirety as in Amadio.

Now, in the present case, he would not have entered into that contract.  True it is that equity will look to see if there is unjust enrichment, but there is no evidence of any in this case; that, at the end of the day, we say will be the issue that the Court will have to deal with, if special leave is granted - it will be a factual issue.  It will be a reconsideration, a re‑agitation of all the issues that were factual issues that were raised in the Full Court and are demonstrated by the notice of appeal.

GAUDRON J:   Well, I am not too sure about that.  I mean, that is a nice in terrorem argument, as it were, on a special leave application.  But if one comes to the conclusion that, at its highest, the evidence will not support the way things were done, then it does go back, surely, for reconsideration according to law and the proper procedures.

MR WALSH:   Quite so.  But in the present case, where is - we say rhetorically, of course - where is the special leave point in this case, given that on the assessment of the facts that has been undertaken by the Full Court which ‑ ‑ ‑

GAUDRON J:   The special leave point is, surely, whether, without proof of damage, you can have rescission without restitution, without proof of damage.

MR WALSH:   We say, as a matter of fact, that in a case where ‑ ‑ ‑

GAUDRON J:   But it is without proof.  Proof.  And that does not emerge in the judgments, the proof of damage.

MR WALSH:   Can I put this in response, your Honour; that the special leave point, if anything, is, ought the remedy be moulded in this case?  Is there any unjust enrichment?  That is a factual issue, and it will be answered, in our respectful submission, on the facts as the Full Court has answered it.  That is the effect of their decision, and that is why we say that, at the end of the day, practical justice, as this Court has directed courts to attempt to achieve when looking at cases involving rescission and moulding the remedy, that has been achieved in fact.

It is very easy, I suppose, to say at face value, well, here is some money that was used to pay the Commonwealth Bank; but let us look at the detriment on the other end of the scale.  Let us look at what the person has done as a result of these fraudulent representations, and what he has lost.  If the Court pleases, we, in our outline of argument, deal with the factual issues that I have raised, particularly, for instance, at page 3.

KIRBY J:   I think we have seen what the outline of argument says.

MR WALSH:   If your Honours please.  And we also, I suppose - I will not answer the various other legal issues that have been raised, we have responded to those in our outline of argument.  I think the matter that is raised by your Honour Justice Gaudron is obviously the matter that the Court is thinking about, and our response is no more and no less than it has been, I suppose.  If the Court pleases.

DAWSON J:   We need not trouble you, Mr Wells.  There will be a grant of special leave in this case.

AT 4.31 PM THE MATTER WAS CONCLUDED