Bond v Hongkong Bank of Australia Limited

[1992] HCATrans 52

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl62 of 1991

B e t w e e n -

ALAN BOND

Applicant

and

HONGKONG BANK OF AUSTRALIA

LIMITED

First Respondent

HONGKONG AND SHANGHAI BANKING

CORPORATION LIMITED

Second Respondent

TRICONTINENTAL AUSTRALIA

LIMITED

Third Respondent

BANK OF NEW ZEALAND

Fourth Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 FEBRUARY 1992, AT 11.30 AM

Copyright in the High Court of Australia

Bond 1 14/2/92

MR M.H. TOBIAS, QC:  Your Honours, I appear with my learned

friend, MR D.P. ROBINSON, for the applicant.

(instructed by Neil Lawson & Co)

MR F.M. DOUGLAS, QC:  May it please the Court, I with my

learned friend, MR S.M.P. REEVES, for the

respondent. (instructed by Mallesons Stephen

Jaques)

MR TOBIAS:  May I hand up, Your Honour, four copies of an

outline, together with two decisions, again, four

copies of each?

BRENNAN J: Yes, Mr Tobias?

MR TOBIAS:  The short point, Your Honour, that arises in

this case and which, in our submission, is the only

point in respect of which special leave is sought

is that referred to in paragraph 14(a) of the

affidavit of Mr Lawson at page 150 of the

application papers. We do not seek to assert as a

relevant question of law for special leave purposes

that referred to in subparagraph (b).

TOOHEY J: That is, what, the variation point, is it,

Mr Tobias?

MR TOBIAS:  I am not concerned with the variation point,

Your Honour. Your Honours, the issue that arises

relates to what we perceive to be a clear conflict

between the decision of the Court of Appeal, in the
present case and, in particular, the Chief Justice

and the President in which, for relevant purposes,

they followed what Mr Justice Walton said in Bank
of Baroda and the decision of this Court in Bunbury

Foods in 1984.

The nature of the issue, as Your Honours will

have appreciated from reading the judgments,

concerns the relevant principles to be applied to a

situation where a guarantor is required to repay
the principal debt on demand.	The relevant

paragraph of the guarantee is to be found at

page 59 in the judgment of the Chief Justice. It

is an unexceptional provision and simply required

the obligation of the guarantor, the guaranteed

moneys to be paid to the agent on demand from the

agent.

In the present case, three demands were

issued. The first demand was issued in March 1991

and it permitted a period of two days within which

a sum of some $US194 million was required to be

paid in New York. That money was not paid, as a

consequence of which the first proceedings were

instituted and at the commencement of those

Bond 2 14/2/92

proceedings the applicant raised a defence based

upon the service of the original notice of demand.

As a consequence of that, the respondents, on

I think the first day of the hearing, gave a

further notice of demand which required payment of
the relevant sum 13 hours after the time the demand

was served, that is, on the same day but in New

York. That demand was not met and on the following

day, being the second day of the proceedings in

relation to what is referred to as the first

proceedings, the second proceedings were

instituted.

During the course of those proceedings an

issue had been raised in relation to the first

proceedings. It was made clear that one of the

demand was issued during the course of the proceedings allowing, in effect, a period of five

defences the applicant had related to the of

reasonableness at the time permitted by the demand.

days for the money to be paid. Again, that demand,

for five-day payment, was not met and the third

proceedings were instituted.

The learned trial judge rejected a number of

defences but, for present purposes, rejected two,

namely, rejected the defence that the first notice

of demand was improperly served otherwise than in

accordance with the terms of the guarantee and,

secondly, rejected the argument that a reasonable

time had not been provided.

BRENNAN J:  When was the first step taken to enforce the security?

MR TOBIAS:  In March. The first notice of demand - you mean

the guarantee?

BRENNAN J: Yes.

MR TOBIAS:  By the issue of a notice of demand on 22 March

1991.

BRENNAN J:  And what followed from that, from non-compliance

in the - - -

MR TOBIAS: That was, in effect, a two-day notice of demand.

That was not complied with. Proceedings were then

instituted in the commercial division.

BRENNAN J: Suing on a personal covenant?

MR TOBIAS: Suing on the personal covenant, the guarantee.

They came on for hearing on Monday, 22 July 1991.

Bond 14/2/92

BRENNAN J: Well, the question is whether there was any debt

owing at the time when the action was instituted.

MR TOBIAS: Correct.

BRENNAN J:  It is not really a question of whether the time

limited by the demand was reasonable, is it?

MR TOBIAS~ Yes, because whether the time - well, one can

have two types of demand. One can have simply a

demand or one can have, as in this case, a demand

that sets a specified time. The cause of action is

based upon the debt become due and owing under the

guarantee which occurs upon the demand being served

and failure to pay the amount so owing constituted

by the failure to comply with the terms of the

demand.

BRENNAN J:  Why not a failure to pay within a reasonable

time of the time of the service of the notice of

demand?

MR TOBIAS: That would be so, Your Honours, if the demands

were demands that did not specifically provide for

a period within which the moneys were to be paid.

Mr Justice Mahoney makes that point in his judgment

at pages 139 and 140. At the bottom of page 139,

he says:

A demand for this purpose need not require

payment by a particular time:  a simple demand

for payment is in principle sufficient. As

the Chief Justice has indicated, if, in the

making of the demand, a time for payment is

specified, difficulties may arise. A demand

which specifies a particular time may, in the

instant circumstances, not be a requirement

that there be payment "on demand" within the

terms of the particular document. If it

specifies a time for payment which does not

afford the obligee that time which an

namely, a reasonable time - obligation to pay "on demand" allows - then the demand itself may be ineffective.

And if I can interpolate, if the demand is

ineffective then, in our respectful submission, one

of the necessary steps in the cause of action does

not exist, namely, a failure to pay.

BRENNAN J:  The question ultimately becomes then what is a

reasonable time, in the circumstances of this case.

MR TOBIAS: Exactly.

Bond 14/2/92

BRENNAN J: That is a question of fact.

MR TOBIAS:  No, Your Honour, not the way the Court of Appeal

approached it, with respect. The basis upon which

the matter was argued before the Court of Appeal is

conveniently set out in the President's judgment

commencing at page 114, line 29, in that paragraph:

The appellant's argument was that, although a

debt may have been payable "on demand", as the

obligation under the Deed ..... was here

expressed, a cause of action ..... did not

accrue until after the debtor has failed to

comply with the demand. This, in turn, did

not occur until after a reasonable time had

elapsed after the service of the demand,
within which the guarantor was afforded the
opportunity to raise the moneys and discharge

the obligation assumed in the guarantee

agreement.

Again, at page 116, commencing at the bottom of the

page, three lines from the bottom, after having

referred to what Their Honours said in Bunbury, the

President said:

Latching onto these words, the appellant

suggested that, in the context of this

guarantee, having regard to its amount, taking

into account the circumstances in which it was

executed and the negotiations which led to it,

the respondents had not allowed him a

reasonable time with which to comply -

Now, Your Honours, contrary to what the President

said and what Mr Justice Mahoney said, there had

been no concession that the time was reasonable.

Both of Their Honours, in effect, said that so far

as the second notice was concerned, that is the 13-hour notice, that the applicant had conceded

that the time limited by that notice was

reasonable. That, in fact, was not the case. What

had been conceded was that in relation to the third

notice of demand which was a notice of demand for

five days, that that was a reasonable period if the

correct test to apply in determining reasonableness

of time was the mechanics of payment or mechanics
of transfer test that had been adumbrated by

Mr Justice Walton in Bank of Baroda and which was

asserted by the present respondents as being the

appropriate test.

That was accepted by the Chief Justice and the

President in the present case and both of them held, in effect, that notwithstanding what this

Court had said in Bunbury Foods in terms of it having been established so far as Australian law is

Bond 14/2/92

concerned that an obligee, a guarantor, who was

under an obligation to pay on demand is entitled to

a reasonable time to obtain the money, the subject

of that demand, notwithstanding that, they would

follow the English case and hold that all that

meant was that the guarantor was to be allowed

sufficient time to put in place the necessary mechanics to transfer funds that were already available to the creditor.

BRENNAN J:  Two questions arise out of that, it seems to me, Mr Tobias. The first is where is the passage in

Bunbury Foods which demonstrates its inconsistency

with that test, that is the transmission of funds

test? The second is, in the circumstances of this

case, what would have ~,een a reasonable time?

MR TOBIAS:  I will deal with the first one. Your Honours,

this Court in Bunbury Foods did not purport to lay
down any mechanics of transfer test. It left the

matter open in the sense that they said, at

pages 502 and 503, that what was required was a

reasonable period, a reasonable time, to enable the
guarantor to meet the demand. That appears at the
bottom - starting at the bottom of page 502, the

third last line. Their Honours continued on

page 503, after a reference to Toms v Wilson, in

these terms:

It means no more than that the debtor must be

allowed a reasonable opportunity to pay before

it can be said that he has failed to comply

with ~he demand. A notice requiring payment

fort.-"iith will be regarded as allowing the

debtor a reasonable time within which to
comply. Until a reasonable time in the sense
discussed has elapsed the creditor cannot

enforce his security -

or, we would submit, sue to judgment.

After the reference to the Canadian case of

Dunlop Canada and to what Baron Pigott said in

Massey, Their Honours continued:

When this principle is given full weight

the situation in which Cleasby B. thought it

appropriate to require the creditor to specify

tre amount of the debt the subject of the

d1; :1and is significantly altered. Upon the

making of a demand the debtor has a reasonable

time to obtain the money.

Now, what we submit is that the Court left it

quite open as to what was a reasonable time to

obtain the money.

Bond 6 14/2/92

DAWSON J: Well, that must vary according to the

circumstances.

MR TOBIAS:  Must vary according to circumstances, but what

the Court of Appeal has done, at the very least, is to place a gloss upon those words by saying it does not really matter what the circumstances are, the

only test of reasonableness or - reasonableness is

only relevant, in terms of time, for the time it

will take to put into effect the mechanics of

transfer or mechanics of payment.

DAWSON J:  What is a reasonable time when it is fairly

obvious that whatever time is given the debtor will

not be able to get together the money?

MR TOBIAS: 

Your Honour, that was not an issue. That issue

did not arise in this sense because one of the
matters was that Bond did say that he did not have
the money and that he would have to sell the

Greenvale project in order to provide the money.

That was never pursued further in the Court of
Appeal, or by the Court of Appeal judges because of

the approach that they adopted that really that was

irrelevant because the mechanics of transfer test

was the proper test to be applied and that was a

test which, in our submission - - -

DAWSON J: In this case.

MR TOBIAS: Well, in any case.

DAWSON J: Perhaps you would take us to the words which

indicate that.

MR TOBIAS:  In the judgment of the Chief Justice at page 71,

having cited on page 70 the passage from Bunbury

that I have referred to Your Honours, at the top of

page 71, the Chief Justice referred to the Bank of

Baroda and said, at line 5:

His Lordship pointed out that the English

authorities treat the concept of a reasonable

time to comply with a demand as being a rather

narrow one related to giving the debtor an

opportunity of implementing whatever

reasonable mechanics of payment he may need to

employ to discharge the debt.

Not depending on the circumstances of any

particular case, but only related to the narrow

test there referred to.

Where, for example, as in the present case, a

very large amount of money is involved it is

evidently necessary for a debtor to pay by

some form of banking transaction. The

Bond 7 14/2/92

appellant, being obliged by contract to pay on

demand, was entitled to such time as was

reasonably necessary for implementing the

mechanics of arranging the necessary bank

transfers of funds. He was not, however,

entitled to time to go out and try to borrow

the money necessary to enable him to discharge

his obligations.

DAWSON J: But you see, he goes on:

When regard is had to what is involved in

the concept of reasonableness in this
context -

that is the context o · this case.

MR TOBIAS: Yes, but the prin~.-ple that His Honour is laying

down, in our submission, is that where, under a

guarantee, moneys are payable - or any contract -

on demand, then the debtor or the guarantor must

have the funds immediately available so that

subject to time sufficient to enable him to proceed

through the appropriate mechanics of transferring

that money from himself to the creditor, that is

the only period that he is permitted.

TOOHEY J: Well, I do not see anything in that inconsistent

with Bunbury Foods, Mr Tobias. If you look at the context in which Bunbury Foods was decided, one of

the matters that was canvassed there was it may be

necessary in a complex situation t,.., give the r.:•ebtor

an opportunity to look at the mate~ial upon which

the demand is based, for instance, to have figures

checked and so on, in order to decide whether, in

fact, the money is truly payable. But that is not

the question that arises here.

MR TOBIAS:	No, no, I am not suggesting for one moment, Your Honour, that the facts of that case are
similar to the present.  The issue in that case was
whether the debtor, as Your Honour points out, was
entitled, in effect - the problem was the amount
was not properly specified in the demand. The
question was was he entitled to that time. But the
general principle that we submit Bunbury laid down
in the passage to which I have referred is not a principle that was confined to the facts of that particular case.

DAWSON J: But you are not suggesting it was said in Bunbury

that the debtor should have time to go out and

raise the money, are you?

MR TOBIAS: Well, they did not need to deal with it. The

Court did not need to deal with it.

Bond	14/2/92
DAWSON J:	No, but are you suggesting they would have embraced that - well, I suppose that is an unfair
question.

MR TOBIAS: That is the point.

BRENNAN J: May I take you to my second question then: in

addition to the time needed to transmit funds,

assuming funds were available to meet the demand,

what other factor was relevant to the determination

of reasonable time in this case?

MR TOBIAS:  On the facts of this case, the only evidence

that there was, on the issue, as to whether there

was reasonable time was the evidence that is set

out in the President's judgment at page 122.

BRENNAN J:  And what is that?

MR TOBIAS: Well, Mr Bond was asked questions as to whether

he could pay the money. He said, "No. "

"Q: Well, the reality of it is that you are

not in a position to honour the guarantee?	A:
No , I 'm not .
Q:	And you haven't been in a position since

at least 22 March 1990? A: No. Without

using the assets of Queensland Nickel I was

never -

et cetera.

BRENNAN J: Well, the suggestion is that reasonable time in

this case was the time that it would take to sell

Queensland Nickel and transmit the proceeds, so far

as would be required, to meet the debt.

MR TOBIAS:  Your Honour, what we are putting is that that

may well be so if the matter had been looked at by

the Court of Appeal in the light of the - - -

BRENNAN J: Well, nothing else was before the Court of

Appeal or before the primary judge.

MR TOBIAS:  Not from Mr Bond, no, or from the applicant's

side.

BRENNAN J: Nothing else appeared in the case.

MR TOBIAS:  No.

BRENNAN J: Well then, if one goes to Bunbury Foods, one

sees that there is a citation of what Baron Pigott

said in Massey v Sladen:

Bond 9 14/2/92

difficult, perhaps impossible, to lay down any

rule of law on the subject, except that the

interval must be a reasonable one.

It depends on:

the circumstances and relation of the parties.

Now, that being so, your argument must be that

having regard to the evidence there should have

been sufficient time allowed in the demand to

permit the sale of the Queensland assets.

MR TOBIAS: What we submit is two things: firstly, that

their approach was wrong and unless this Court sets

it aside it will stand as being the appropriate

test and providing a gloss upon what this Court

said in Bunbury which, in our submission, is wrong;

secondly, in direct answer to what Your Honour

says, we respectfully submit that if it is correct
that one is entitled to look at the steps necessary

to raise moneys in the circumstances when

$US194 million was required to be paid, not being

the sort of money one sort of just leaves in the

bank then, in our respectful submission, what Bond

said was entitled to consideration by the trial

judge and to determine whether or not, in all the

circumstances, as they then appeared, that was

reasonable in order to enable him to meet his

obligation. But I cannot put it any higher than

that, I must concede.

BRENNAN J:  No, I understand the basis upon which are

putting it.

MR TOBIAS: But, Your Honour, if one goes to what - the

President, even more directly, at pages 117 onwards, set out a number of reasons why he

considered that the mechanics of payment test was

now to be the test that should be adopted and that

notwithstanding what we respectfully submit was a

quite flexible test adopted by this Court in

Bunbury, in terms of the reasonable time test,

depending, as Mr Justice Dawson said, on the

particular circumstances of the case, the Court of

Appeal has now placed a gloss upon that and

restricted it in the manner that is set out there.

DAWSON J: Which particular words on page 117 do you rely

on?

MR TOBIAS:	Page 119, Your Honour. What he said was, he, having referred to a number of cases to which he
refers at the bottom of page 118, including Bunbury
Foods, a New Zealand case and two Canadian cases,
recognized that His Lordship, Mr Justice Walton in
Bank of Baroda:

Bond 10 14/2/92

recognised that in some jurisdictions a test

other than the "mechanics of payment" had been

adopted ..... In the end, he adhered to that

test.

And so did His Honour, the President, and then set out a number of what we respectfully submit are not

convincing reasons to support it. But once this

judgment stands, in our respectful submission, it

takes the place of Bunbury Foods and the flexible

test that it laid down and lays down for the

commercial industry in this case a test which, in

our submission, is not one that has been adopted by

this Court and provides, in our submission, a test

which is at least to some degree inconsistent with

what this Court said in Bunbury and inconsistent

with what has - - -

DAWSON J: But you have to take the test in the context too.

I mean, there was no question about the nature of the demand, the amount, with calculating whether it was right or wrong in this case, so you are really,

in this particular case, left only with the test

which His Honour propounds.

MR TOBIAS:  No, one is not left with that, Your Honour,

subject to the factual issue that Mr Justice Brennan

pointed out to me. It would not matter in any case,

in our submission, that if this is the correct test

and the only issue for consideration under Bunbury

or otherwise is whether or not - how long is it

necessary, upon the assumption that that money is

there, to get that money from point A to point B,

and that is the end of it. In our respectful

submission, that is contrary to the cases in the

Commonwealth to which reference is made and is a

matter which, in our respectful submission, being a

degree of conflict between the English authorities
and certainly other Commonwealth authorities, is one

that should be resolved by this Court. If the Court

pleases.

BRENNAN J: Thank you, Mr Tobias. We need not trouble you,

Mr Douglas.

In the circumstances revealed by the evidence,

the decision of the Court of Appeal in this case

was clearly right. Accordingly, it is not

appropriate to grant special leave to appeal.

Special leave to appeal is refused.

Is there any other application to be made?

MR DOUGLAS: Costs, Your Honour? I thought I might salvage

something. It is probably a very hypothetical

application to make.

Bond 11 14/2/92

BRENNAN J: It will be refused with costs.

MR TOBIAS:  I cannot resist.

AT 11.57 AM THE MATTER WAS ADJOURNED SINE

Bond 12 14/2/92