Beck & Anor v State Bank of New South Wales Limited

[1994] HCATrans 338

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• .l!i!lli:a:'!' r

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S22 of 1994

B e t w e e n -

WALTER TIBEAUDO BECK and

CHRISTOPHER KIM BECK

Applicants

and

STATE BANK OF NEW SOUTH

WALES LIMITED

Respondent

Application for special leave

to appeal

MASON CJ
DEANE J

MCHUGH J

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TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 MAY 1994. AT 11.38 AM

Copyright in the High Court of Australia

MR V. BRUCE, QC:  May it please, Your Honours, I appear for

the applicant with my learned friend, MR N. PERRAM.

(instructed by L.S.P. Law)

MR G.A. PALMER, QC: If the Court pleases, I appear for the

respondent with my learned friend, MRS.A. GREGORY.

(instructed by P.W. Kearns)

MASON CJ:	Mr Bruce.
MR BRUCE:	Thank you, Your Honour. Your Honours, this case

arises in this way: there was an agreement for a

property to be sold by public auction by a

mortgagor after certain conditions were

met.	The trial judge found that it was not shown
that those conditions had not been met.	The

agreement was that the proceeds of sale should be
divided between the applicants and the respondent

in certain ways.	An auction sale pursuant to that
agreement was conducted.	The conduct of that

auction sale is not impugned in any way and the

property was knocked down to a purchaser, that

purchaser being associated with the mortgagors. As

a result of that, the respondent subsequently

refused to permit the sale to proceed, the

allegation being made by the respondent that a

fiduciary relationship exists.

Your Honours, we submit that the Court of

Appeal fell into error essentially by ignoring
Vice-Chancellor Megarry's pronouncement in Tito v

Waddell which Your Honours are all totally familiar

with, with respect. That was adopted by His Honour

the Chief Justice Gibbs when the matter came before

the Court in the case of Hospital Products. What

we say, Your Honours, is that this is an area of

law where there are divergent views expressed by

members of this Court in Hospital Products. The

varying views were put by the then Chief Justice at

pages 68 and 72 of the report, and if I could take

Your Honours briefly to that judgment.

Your Honours see at page 68, the left-hand side,

the Chief Justice set out what Mr Justice McLelland

had said at first instance, and said about five

lines from the bottom:

first of these statements needed a

qualification which McLelland J had intended

to suggest, namely that the undertaking to act

in the interests of another meant that the

fiduciary undertook not to act in his own

interests; they said that the principle is

that "a fiduciary relationship exists where

the facts of the case in hand establish that

in a particular matter a person has undertaken

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to act in the interests of another and not in

his own".

That was dealt with by His Honour at page 72, about

two inches from the top of that page, where the

Chief Justice said:

The test suggested by the Court of Appeal

in the present case seems to me not

inappropriate in the circumstances, although

it must be remembered that any test can only

be stated in the most general terms and that

all the facts and circumstances must be

carefully examined to see whether a fiduciary

relationship exists.

And the Chief Justice referred to Phipps v

Boardman. That, with respect, is the position taken by the then Chief Justice.

Mr Justice Mason, as Your Honour then was,

dealt with at pages 96 and 97. At the foot of

page 96, two lines up:

The critical feature of these relationships is

that the fiduciary undertakes or agrees to act
for or on behalf of or in the interests of

another person in the exercise of a power or

discretion which will affect the interests of

that other person in a legal or practical

sense. The relationship between the parties

is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other

person who is accordingly vulnerable to abuse

by the fiduciary of his position.

If I could then take Your Honours to page 124 where His Honour Mr Justice Deane dealt with the matter, and His Honour said, in the first paragraph, about two and a half inches/three inches from the top of

the page: In these circumstances, I agree with the	conclusion reached by McLelland J at first
instance and Mason Jin this Court that ussc
was entitled to an order that HPI account, as
constructive trustee, for any profits it derived from the business of distributing
within Australia its own repackaged or
manufactured products up until November 1980
when it ceased to distribute in this country.
The reasoning which leads me to that
conclusion diverges however from that accepted
by McLelland J at first instance and by Mason Jin this.court in that I am not
persuaded that a "fiduciary relationship"

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existed between USSC and HPI in respect of the

local products goodwill.

Mr Justice Dawson dealt with the matter at

page 141 to page 142, I think it was, Your Honours.
At page 141, Your Honours, about half-way down,

His Honour said:

There is nothing else in the contract itself

which would assist in that regard. It is

possible that a fiduciary relationship might

arise from the circumstances surround the

agreement but before embarking upon an

examination of those circumstances it is

desirable to make some attempt to identify the

characteristics of such a relationship, even

if that attempt is unlikely to meet with

complete success. It has been said more than
once that it is not possible to define

completely and with precision those matters

which give rise to fiduciary obligations

notwithstanding that it is possible to discern

a fiduciary relationship when it exists.

And that really would seem to be the pornography test, Your Honours, that you know it when you see

it but you cannot define it.

MASON CJ: That is how I have always regarded that test.

MR BRUCE:  I do not know whether Mr Justice Frankfurter is

here to deal with that, Your Honour.

None the less, Your Honours, when one comes to

look at what has been put forward and take into

account that His Honour Justice Dawson's view has

been accepted in the courts of Canada, there are,

we would respectfully submit -

MASON CJ: Whose test has been accepted in the - - -

MR BRUCE: Justice Dawson's, I think it was, Your Honour,

in - - -

MASON CJ: I doubt that they are able to reconcile the

results they achieved with that test.

MR BRUCE:  That is not normally a problem which those courts

confront, Your Honour. In a judgment of LAC	Minerals, Mr Justice Sopinka, at page 63, referred
to a passage from Justice Dawson which appears
half-way down the page:

There is, however, the notion underlying all

the cases of fiduciary obligation that

inherent in the-nature of the relationship

itself is a position of disadvantage or

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vulnerability on the part of one of the

parties which causes him to place reliance

upon the other and requires the protection of

equity acting upon the conscience of that

other.

MASON CJ: But what do all these various attempts to define

the indefinable amount to in terms of this case?

MR BRUCE:  In terms of this case, Your Honour, we say that

when the Court of Appeal came to deal with it they

misapprehended, at page 32 of the application book,

the appropriate method of approach and really

worked backwards from saying there was

self-dealing, therefore there is a fiduciary

relationship.

If Your Honours go to line 10,

Mr Justice Mahoney says:

In addition, the debt agreement did not leave
the Becks free to conduct the auction simply
as they saw fit: as the judge said, the fact
that the first $250,000 was provided for by
the bids made did not mean that they could
thereafter, eg, take any bid. The Becks were
obliged - I do not pursue the exact boundaries
of this obligation - to do what they

reasonably could to obtain the best price.

And if one can just skip down, Your Honours, to

line 21:

And, I think, this obligation was

fiduciary in the sense at least that the Becks

could not, in respect of what they were to do

in this regard, put themselves in a position

where their interest conflicted with their

obligation to the Bank.

Now, what His Honour is, with respect to

His Honour, doing is assuming that because there

was self-dealing there was a fiduciary

relationship.

McHUGH J:  But the one thing the Becks could not do was get

involved in bidding for this property, could they?

MR BRUCE: With respect, Your Honour, it was one thing they

could do. There was absolutely, we would

respectfully submit, no reason why, when there is a

contractual relation between the parties to sell a

property at a public auction which is conducted

pursuant to that agreement and which is not

impugned in any way, that - - -

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McHUGH J:	If they were bidders, their interest was to buy

it for the lowest price possible. Their duty,

under their arrangement with the Bank, was to

obtain the highest price for it.

MR BRUCE:  No, with respect, Your Honour. Their duty was to

conduct a public auction, which they did properly,

on the findings of the court, and they got a

result. It is possible that by some other method

of sale another price may have been achieved. But

what one has to do is look at this situation where

you have a bank saying, "You sell it and do these

things before the sale" - - -

McHUGH J: They were going to use the Bank's money for part

of the bidding.

MR BRUCE:  No.

McHUGH J: Well, the first $250,000 from the sale was to go

to them.

MR BRUCE:  It is certainly not the Bank's money, with

respect, Your Honour. It is their money which is

payable to them as a result of an agreement.

McHUGH J: Well, it is still the Bank that is - - -

MR BRUCE: 

That is, with respect, the heresy which drifted

in to the judgments below, that there was somehow
some particular magic attracting to the Bank's

money. What there was was an arm's length

commercial agreement reached between two people, a

bank and a borrower, in respect of a very

substantial sum of money.  The Bank put this

property to auction through the borrower and placed

no reserve on it.

McHUGH J:  Yes. I cannot help resist asking you this

question: why were they not a bit franker about it and bid at the auction, instead of going behind, in

the way they did, getting a shelf company?

MR BRUCE: Well, I could only speculate because all I have,

with respect, is the material which is before this

Court.

McHUGH J:	I appreciate that.
MR BRUCE:	And the speculation which comes to mind would

be - it appears from the material before this

Court - that the shareholders are different to the

borrowers1 that there are substantial funds being

provided by those people to enable this purchase to

take place. The existence of a shelf company, we

would say, in those circumstances, is entirely

neutral. What the courts below have done have

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said, "Oh well, there was a self-dealing, and

that's prohibited in a fiduciary relationship;

and that is, with respect, just plainly wrong. therefore_ther7 must be a fiduciary relationship",

MASON CJ: But, in essence, does it not really come to this,

that the arrangement was one whereby the borrower

was to conduct the auction in the interests of both

parties, rather than the Bank exercise its own
power of sale, and does that not give rise to a

fiduciary obligation?

MR BRUCE:  We would say not, Your Honour, when the conduct

of that auction is in a manner which has been

agreed between the parties.

McHUGH J: But they were agents. Surely, Justice Handley

was right when he suggested that the Becks were

agents for the Bank, and it is the Bank who gave up

their power of sale, and put themselves in the

hands of the Becks to sell the place.

MR BRUCE:  But that does not make them agents, Your Honour. The vendor is the registered proprietor. You are

not the agent of a mortgagee when you sell pursuant

to the rights which you have. What there was was

an agreement that when the borrowers' rights were

carried out, the proceeds of the sale would be

divided in a certain way. There was a contractual

obligation to deal with the property in accordance
with the contractual terms. So that if that was

done, what is said on the other side is that there

is a fiduciary relationship arising, even though

you have done all you contracted to do and it is an

arm's length transaction. That is the difference,

Your Honour.

It is somewhat different to Hospital Products

where there were some various arguments put at

various times through the course of that case which

are recorded in various places, and - - -

McHUGH J:	I appeared for Mr Blackman in those - - -
MR BRUCE:	Yes, and they were very cogent arguments,

Your Honour.

McHUGH J:  They were ultimately upheld by a majority in this

Court. A broad submission.

MR BRUCE:  Perhaps - it is a little difficult to deal with

that, Your Honour. With respect, Your Honour, we

would say that to say that there is a fiduciary

duty which is cast by these circumstances is

certainly at odds with some of the views expressed

by members of this Court and whether, indeed, when

one looks at Justice Deane's declining to deal with

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that matter in his judgment and move to another

head of equitable relief which the learned

Chief Justice has said removes the pressure on this

field of endeavour, the law is changing. It is a

significant area of the law in this country in an

evolving legal system and we, with respect, would

submit that it is proper that this Court should

deal with the dichotomies that appear in Hospital

Products in a way which enables the law to be

clarified. That is all I wish to put to

Your Honours, if the Court pleases.

MASON CJ: Thank you, Mr Bruce. The Court need not trouble

you, Mr Palmer.

Notwithstanding the criticisms made by

Mr Bruce, QC, for the applicant, of certain aspects
of the reasoning of the Court of Appeal, the Court
is not persuaded that the proposed appeal would
enjoy sufficient prospects of success to warrant

the grant of special leave to appeal. The

application is therefore refused.

MR PALMER:  I seek an order for costs, if Your Honours

please.

MASON CJ: You do not oppose costs?

MR BRUCE:  No.

MASON CJ: The application is refused with costs.

AT 11.56 AM THE MATTER WAS ADJOURNED SINE DIE

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