Chand v Commonwealth Bank of Australia

[2015] HCATrans 329

[2015] HCATrans 329

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S145 of 2015

B e t w e e n -

SIMON ANISH CHAND

Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 DECEMBER 2015, AT 10.47 AM

Copyright in the High Court of Australia

MR M.J. NEIL, QC:   May it please the Court, I appear with my learned friend, MR W.J. WILCHER, for the applicant.  (instructed by Prime Lawyers)

MR M.L.D. EINFELD, QC:   May it please the Court, I appear with my learned friend, MR D.J. ROCHE, for the respondent.  (instructed by HWL Ebsworth Lawyers)

KIEFEL J:   Yes, Mr Neil.

MR NEIL:   Your Honours, this matter has three aspects which are related:  firstly, that the result below has worked a significant injustice upon the applicant; secondly, that the Court of Appeal characterised the first component of the applicant’s damages – that was for about $1,030,000 – as, in effect, compensatory or what the court called prospective loss instead of loss of bargain or loss of performance or what is sometimes called in substitution for performance substitutory damages.

The other aspect of the damages is not of controversy here.  It was for margin calls and associated expenses of about $500,000 which on our case if we were successful and an appeal was allowed, we have the benefit of some factual findings that the applicant was not unreasonable in his actions in relation to those matters and if on our case the bridge could be gapped or crossed and we were successful on the first arm, we would submit, if we were allowed an appeal, that the applicant would be entitled to the full amount of the amount claimed.

The third aspect that is related is that the Court of Appeal, in our submission, misunderstood and totally misinterpreted the decision of this Court in Clark v Macourt, and perhaps the importance of that decision can be illustrated far better than I can do it in application book page 320 where Winterton observes at line 30:

The dispute in Clark v Macourt raises a fundamental question of legal principle.  It is also clear that, depending on the interpretation of the Robinson v Harman principle one adopts, either of the conclusions reached in the High Court is deducible.  This Part commences by examining the logic underpinning Gageler J’s reasoning.  It is argued that his Honour’s analysis is very persuasive according to one particular, and perhaps ‑ ‑ ‑

GAGELER J:   My analysis would not help you.

MR NEIL:   Well, I know, but Winterton described it as perhaps the most popular that has been adopted.

GAGELER J:   Well, that is very nice but it will not help in this case.

MR NEIL:   I know, I do not want to use it.  I want to use the other interpretation.  Winterton points out that the other interpretation – Winterton says the majority’s approach is to be preferred to your Honour’s:

on the basis that only it gives effect to the principle’s more preferable interpretation, which involves recognising an important (but often overlooked) distinction between money awards that substitute for performance and money awards that compensate for proven factual loss.

Further, at 346 and 347 in the application book, Winterton in his conclusion at page 346, line 10:

Alternatively, the objective of such awards may be to provide the innocent party with a monetary substitute for the promised performance, in addition to making good any further losses caused by the breach that fall within the limits defined by the relevant rules of remoteness and mitigation.  Although the former interpretation often is assumed to be correct, this case note has argued that the latter interpretation is preferable.  The major significance of the High Court’s decision in Clark v Macourt lies in its strong endorsement of this view.

At page 347 at line 15 he says:

Recognising this distinction has important implications.

Now, as we have added to our materials, Professor Carter says that the decision is completely wrong, other than Justice Gageler’s decision.  We would submit that what happened in this case is that the Court of Appeal has, in effect, adopted a more popular view rather than the correct view.

Your Honours, could I just briefly in supplementation of our written submissions take your Honours to application book pages 208 and 209 where at line 50 on 208, paragraph 22 of our submissions, we make the fundamental point as referred to in the authorities there referred to that in substitutory damages or damages for loss of the bargain or loss of performance, it is not the task of the court to put the person back in “as good a financial position”.  That is underlined at line 54.  It is to put them back in the correct position in life they would have been in.

We put in our dot points at page 209, paragraph 25, line 40 what would have happened to this applicant if the bargain had been kept.  He would have had the money in his bank account.  He would have nil debt.  His margin loan account would have been discharged.  No further interest payments.  No risk of incurring margin calls.  No risk of market corrections.  No risk of loss of capital, nil ongoing investor advice fees.

GAGELER J:   But as at the date of non‑performance of the contract, which I think was – was it 24 September 2007?

MR NEIL:   It can be taken as that.  The money should have been paid about two weeks later, but we have been working on that date, your Honour.

GAGELER J:   So he would have been in exactly the same financial position, would he not, if there had been performance ‑ ‑ ‑

MR NEIL:   No, your Honour.

GAGELER J:   ‑ ‑ ‑ as if there had been non‑performance as at that date?

MR NEIL:   No, your Honour.  My learned friends make a strong point in their submissions to the effect – and it is at application book 352, line 40 – they say that in the events that actually happened, if my client had sued at the time:

he would have received $1,034,636.81 (the compensation claimed as at the date of breach), yet at the same time retained for his absolute disposition an investment portfolio of the same value.  The Applicant’s submissions do not recognise this difficulty.

We have sought to meet those difficulties which we say are illusory, at application book 355, paragraphs 5 and 6 of our submissions, and we say they are a complete answer.  They would have been something for the defendant to raise as a defence.  It is not for us to tell them how to run a defence.  But could I just add, your Honours, which in our submission puts this matter completely at rest, could I take your Honours to, in the application book page 216, which is the actual redemption application?  What this does, at page 217, is to say, “I would like to close my account”.  You tick one or other box, and that is what he did.  “I would like the withdrawal to be made from my account to the account shown below”, and the particulars are shown.

If you want the whole amount withdrawn you write “balance”, which he did, and he signed it on page 219.  That is an authority to divest him.  These are not shares that you can sell on the market.  There is no market for them.  They are some sort of inchoate set of rights, choses of action in a unit trust held in common by various people and administered by the Bank or its associated finance company.

GAGELER J:   I wanted to ask about the underlying contractual rights.  Is there some element of property?

MR NEIL:   Well, we say, your Honour, that there is a set of choses of action.  It is called unit trusts - there are five of them - and each day they are valued and your valuation is worked out.  If you put in a redemption form, no one knows what you are going to get when you put it in.  About one to two days later, or four if there is a weekend, they compute how much those units are worth, send you the money. 

In this case the only way you can receive your money is to put in one of these redemption requests, they calculate what it is worth, they take their money out, the margin loan fund, send you the balance.  You cannot sell them on the market.  You can only redeem with them.  You have no dispositive rights and, indeed, we say this is not authority for the bank to divest him.

GAGELER J:   Yes.

MR NEIL:   They did not do it.  So for them to say he was in the same position is totally wrong.  There is no doubling up.

GAGELER J:   There was a certain value in the fund.  He asked for that, in effect, to be taken out of the fund ‑ ‑ ‑

MR NEIL:   Yes.

GAGELER J:   ‑ ‑ ‑ and transferred to him in a monetary form.  If that had occurred on the day, instead of holding units in the fund, he would have held cash to the same amount.  Is that not the point that is made against you?

MR NEIL:   Well, he would have held – he would have been given cash, but he was not given cash.  The point that seems to be made is if somehow theoretically you sued on the day and he got a judgment, he has still got all his rights in the fund.  We say he has given them away.  He has totally divested himself of them.  He has authorised them to do what they should have done.  But they meet this with an argument of some kind of double compensation.  In fact ‑ ‑ ‑

KIEFEL J:   All of this proceeds upon the basis that the Bank was required to perform then and there on receipt of the request.  But there is material, is there not, that suggests that the reason the Bank did not proceed to act upon the request was that he would have had to repay the loan?  Was that ever dealt with?

MR NEIL:   That was material in letters which was proven to be quite wrong and they withdrew this at trial.  They admitted breach of contract.

KIEFEL J:   I see.

MR NEIL:   They admitted.  But you do not find it in the pleadings.  They never amended the pleading.

KIEFEL J:   I cannot recall where I have seen it now.  I just wondered whether it was a threshold question that had not been addressed.

MR NEIL:   It was an argument raised and abandoned.

KIEFEL J:   I see.  Thank you.

MR NEIL:   The facts of this case are that they admitted breach of contract a few months in an interlocutory hearing, at which Mr Wilcher was there, before the trial, years after the event, having run this kind of argument in correspondence and in I think the pleadings before - withdrew it all, came along and said, “Look, we’ve admitted breach of contract.  We should have paid out.  We did the wrong thing, but it’s all his fault” for the reasons, the factual findings that I cannot challenge that were made against us in the courts below.

But I submit those factual findings are totally irrelevant in a case of substitutory damages.  There is no doubling up and, your Honours, the important way in which one looks at the other argument alleged against us, namely, that we are seeking to bypass or expunge the law of mitigation and causation, that is the other main point made against us, we make our submissions on that and draw attention to the article by Edelman which is very instructive at application book 256 to 257. 

Edelman is right onto the point, in our submission.  In the chapter “Breach of contract” starting at line 50 going through to line 40 on page 257, he points out that Joyner v Weeks, which is on our list, and two earlier cases which we have and if required we can hand up to your Honours, they make it clear, and we say not only in these cases, but in contract generally, that the full measure of substitution must be granted. 

Now in England and New South Wales in lease cases that was amended by legislation, but it has not changed the common law which has been adopted, as is shown by Edelman at line 20 on page 257 in Graham v The Markets Hotel Pty Ltd which said Joyner v Weeks is part of the mainstream of the law.  It is “not an isolated example”.  At line 35 Edelman says:

It may be that the ultimate rationale for why causation is not required in these cases is the same as the rationale in cases of breach of duty by a director or a trustee.  Quite separately from a claim for loss, the party in breach of contract is required to pay the money equivalent of performance.  If the claim were for payment of a debt then causation of loss would be irrelevant.  So too, it may be that causation of loss is also irrelevant if it is an obligation in the nature of a substitute for performance.  As Hayne J said in Clark v Macourt, the compensation “reflects a normative order in which contracts must be performed” -

Back at line 27 his Honour says:

Joyner v Weeks is not an isolated example where compensation for loss has been awarded for a breach of contract in circumstances in which the breach caused no actual loss.  On one view, this was also the effect of the recent decision of the High Court of Australia in Clark v Macourt -

That is our point.  The Court of Appeal said no.  We say they are wrong.  We say that the cases support us and, indeed, if I may, although it is late, and I apologise, can I just hand up and ask your Honours to look at two paragraphs of an article by Justice Beazley writing extrajudicially?  My learned friends have this.

GAGELER J:    I wanted to ask you about the paragraph in Justice Edelman’s article as well.

MR NEIL:   Yes, your Honour.

GAGELER J:   While we are looking at that, you can look at this, page 241, line 30, and you might ‑ ‑ ‑

MR NEIL:   Page 241?

GAGELER J:   Line 30.

MR NEIL:   Thank you.

GAGELER J:   The suggestion that there should be an exception to this approach in circumstances where the claimant has, in Justice Edelman’s words, “waived his or her right to insist on strict performance”.  Now, leaving aside the technical meaning of “waiver”, one could view the findings that have been made in the present case as suggesting that if this approach that you are putting forward were to be adopted, it may well be within the exception to which Justice Edelman is referring.

MR NEIL:   Well, Justice Edelman, as I read this part, is saying it may be this issue was never pleaded, this issue was never dealt with.  Indeed, it would be another reason for special leave if my learned friends want to put on some sort of notice of contention.

KIEFEL J:   But speaking of waiver of performance is a different way of saying that there are lot of things which have happened in the interim between the breach of contract and nothing was done by your client in the face of all of these other things which affected his exposure to risk of loss.

MR NEIL:   Well, your Honour, that might be an argument my learned friends want to raise, but Joyner v Weeks says this is either an absolute rule or the general rule only to be displaced in very special circumstances, and the earlier cases say it is the rule and, as Edelman points out at pages 256 and 257, it is the rule.  If there is some exception somewhere that has not been the subject of this case to which Edelman is obliquely referring at page 242, it should not be the basis for dealing with the matter today. 

The article I have just handed up, your Honours, I simply ask your Honours to look at paragraphs 12 and 13.  Not only do we say the Court of Appeal has totally misinterpreted Clark v Macourt, but this article says the reasoning is not good enough.  Now, one would have thought it was exemplary, but her Honour is saying here that ‑ ‑ ‑

KIEFEL J:   Her Honour is talking about the number of paragraphs, is she not?

MR NEIL:   Yes, she says – she starts the article by commending the court for giving shorter judgments, but then says this one is too short because it did not deal with all the points that Justice Tobias made.

KIEFEL J:   What is her Honour saying that is relevant to this case?

MR NEIL:   That:

The case was by no means simple and its outcome in the High Court has excited some academic controversy.

We say it is more than controversy.  It is a raging controversy between Carter and Winterton and others and it highlights why the Court of Appeal was wrong, we would submit.  If Carter is right, all right, they are right.  But if Winterton is right and if Edelman is right and if we are right, they

should have found the other way.  In our submission, the decision of Clark v Macourt is not clarified.  It is not understood ‑ ‑ ‑

KIEFEL J:   But you do not say Clark v Macourt is wrong?

MR NEIL:   No, your Honour, we say ‑ ‑ ‑

KIEFEL J:   It is just a question of how it was applied in this case.

MR NEIL:   We say it was right, but circumstances have arisen such that in the Court of Appeal it is not understood properly.  It has been misunderstood, it has been interpreted completely incorrectly, and it has been the subject of substantial controversy in academic circles and this Court should take an opportunity to ‑ ‑ ‑

KIEFEL J:   To settle the academic controversy?

MR NEIL:   Well, it is more than academic, your Honour.  Justice Beazley says controversy ‑ ‑ ‑

KIEFEL J:   It is usually more helpful if there is actually controversy in the courts.

MR NEIL:   Yes.  Well, your Honour, the Court of Appeal has decided, we say completely incorrectly and in circumstances in which this applicant’s life savings effectively have been lost, it is not a doubling up case, it is not a windfall case like some people might have said of Clark v Macourt, and he would have been entitled to the 550,000 margin calls he lost and the attendant money.  On our submission, it is a relatively straightforward argument.  If we are right, then he would be entitled to the $1,030,000.  It cannot be said that he could not be entitled to the later compensatory loss.

What the court seems to have said is it is all compensatory loss, therefore it is all his fault.  Now, causation and whether it was his fault or not are irrelevant if we are right on the point.  I see the light has come on, your Honours.  But, in our submission, there is a serious injustice.  The only way it can be remedied is if the Court grants special leave and takes the opportunity to expand on Clark v Macourt.  If it please the Court.

KIEFEL J:   Yes, Mr Einfeld.

MR EINFELD:   May it please your Honours.  The decisions below involve the orthodox application of well‑established principles of causation and mitigation to ‑ ‑ ‑

GAGELER J:   But the real question is whether Clark v Macourt can be said to apply.  Whether it is orthodox or not, it is being put forward that this case should be governed by Clark v Macourt.  What do you say about that?

MR EINFELD:   This case bears little or no resemblance to Clark v Macourt and the principles in Clark v Macourt have no application to this case.  Whether the situation in Clark be viewed as involving the purchase of assets or business is not in point here.  The plaintiff there suffered an immediate and measurable detriment at the time of the breach because she acquired something of lesser value than she should have obtained.  That is not the case here at all.

Here, there was no measurable loss which arose upon breach.  The applicant, as your Honour Justice Gageler has observed, still held precisely the same investment portfolio that could have been redeemed the next day or the next week or the next month for the same value or, indeed, as both the primary judge and the Court of Appeal found, over a considerable period of time, an even higher value because, as the table at page 128 of the application book reveals, the value of the portfolio on the - the relevant date was actually 25 September, your Honour - about point 5, line 35 or so, on 25 September had a net value shown in the right‑hand column on the page, a redemption value, as it is called, following reimbursement to the margin loan account of the amount outstanding there of just over a million dollars, $1,034,000.  The value, as you will see from the table, went up in successive weeks and over onto the following page was always above the redemption value as at the date of the proposed redemption which the Bank failed to implement. 

So that at no point in time was there present in the facts of this case a circumstance analogous to that which was found in Clark v Macourt that there was instantly upon breach an identifiable and measurable loss.  The question at issue in Clark v Macourt was what was the nature of that measurable loss?

GAGELER J:   On one view, Clark v Macourt was just saying the measure of the loss was the market value of the thing not delivered.

MR EINFELD:   Yes.  In this case there is no question but that the market value was always, at least for many weeks and, as both the primary judge and the Court of Appeal found, even after a period of several months, from time to time thereafter on many days, exceeded the redemption value, so that the courts below were right to say that on the facts of this case there was a clear break in the chain of causation, an issue which just did not arise for consideration in Clark v Macourt at all, did not address the question.

Whilst questions of mitigation were discussed in, as it were, with respect, passing fashion in Clark v Macourt, the question of mitigation there in issue was whether or not there had been an actual mitigation by buying the product elsewhere rather than whether, as the facts in this case, the applicant ought to have taken perfectly reasonable, ordinary and available steps of issuing another redemption request as he could have so easily done, rather than choosing – making a positive election, what he called a calculated choice of his own not to redeem but rather instead to stay in the market, play the market, as it were, in the hope of at least coming out no worse but hopefully better than what he had, had his original request been implemented.

The reason I was proposing just briefly to advert to the facts, the stark facts to which the conventional doctrines were applied, was to respond to the suggestion that this was an injustice case, that injustice was demonstrated.  Far from there being injustice, our submission is that the conclusions reached below were inevitable.  They were inevitable in circumstances where Mr Chand learned within a matter of days that his redemption request had not been implemented.  He then took the deliberate decision not to renew but to remain active in the market.

KIEFEL J:   Well, you rely upon the finding in the Court of Appeal that he was the author of his own misfortune?

MR EINFELD:   Yes, that is right, I certainly do, your Honour.  As he described it in his own evidence recorded in the application book at page 71 at line 50, “it was a calculated move”, was Mr Chand’s own evidence in oral evidence.  It is also very significant, your Honours, that the decision to remain in the market rather than to redeem was taken firstly in the knowledge that the market was remaining buoyant, albeit subject to sudden fluctuation up or down, and secondly, in the expectation that if he waited a short time longer, he would receive a substantial dividend, and that matter is recorded also at page 71 of the application book in the first paragraph.

The further and last significant factual matter is that over that extended period the market did in fact remain at a level which would have entitled him, had he been so minded, to redeem in order to achieve the same or better result.  The critical fact that is overlooked, your Honours, in our friend’s submissions is that, unlike the position in Clark, in this case the applicant did not ever assert below in the trial, and the trial was not conducted upon the basis of a claim at all for substitutionary damages, for damages by way of substitution for performance.

Per contra, the application was expressly brought for compensatory damages.  The claim is described by the primary judge at page 13, to which we would invite your Honours’ attention, of the book and the last two paragraphs on page 13, the particulars of damages, says Justice Robb at paragraph 36 that were claimed were set out in a document that was handed up as an aid to submissions. 

In 37, the claim is in two parts.  It assesses damages as at 31 July.  Now, that date – that is the first date.  The earliest date is a year and three months – no more.  Sorry, September, it is more than that.  It is about nine months, sorry, after the date of breach, so there is no question of assessing as at the date of breach even though that was what was said, which was the date when the Bank acknowledged that it received the redemption request.

The second assesses damage at the date of trial and for present purposes the important point is the applicant relied upon the second and the structure contained four parts, namely, loss of equity – a million dollars; interest; then the margin calls much later; and ultimately of course the difference between the value of the portfolio had it been redeemed in September - namely, a million dollars - and the ultimate value namely, $33,000.

So the whole case that the applicant brought was for compensatory loss and the Court of Appeal was entirely correct to say that it therefore was a claim for the prospective loss looking forward from the date of breach to the ultimate loss more than a year later after the global financial crisis had hit, reducing the value of the portfolio to a very small amount. 

That was not anything like the claim in Clark v Macourt, nothing like it at all.  The principles discussed in Clark v Macourt, not only was there no statement to the effect that principles of a causation and mitigation would not apply in a case such as the present, but in fact the whole substrata of the two cases is utterly different.

So there is no place for argument here on any appeal for special leave to be granted that the doctrines of substitutionary compensation or monetary award for substitution of performance such as happened in the lease cases to which our friends have adverted, are just beyond the scope of this litigation.

Your Honours, the only other matter that we wish to add is that on the findings below as to causation and the novus actus of the applicant himself and on the unreasonableness of the applicant’s conduct, which of course are not the subject of challenge here, stand and in the absence of any application of Macourt principles, there is no prospect of success of the appeal and the application accordingly ought be dismissed.  May it please the Court.

KIEFEL J:   Anything in reply?

MR NEIL:   Yes, your Honours.  The decision in Clark v Macourt was delivered after the finish of the hearing in this case.  By the time we were at the Court of Appeal we made the point, and it was fully canvassed by the Court of Appeal.  There is no obligation to plead that you are asking for substitutory damages or compensatory damages.  The pleading of breach of damage covers it.  In the Court of Appeal the matter was fully argued.  We say the decision was made wrongly against us.

GAGELER J:   What do you say about what is recorded at paragraph 166, page 194, in the Court of Appeal:

Mr Chand suffered, as he acknowledges on this appeal, no actual loss at the date of breach.

MR NEIL:   Your Honours, Mr Chand was wrong in law.  That is what much of the point is here.  In Clark v Macourt it was pointed out that the completion of the contract was the date on which the cause of action arose.  In our submission, the cause of action arose here on 25 September 2007 or a day or two later when the money was not paid.  The doctrine that we argue for, equity loss was described.  That is loss of bargain – equity loss.  The doctrine does not include causation or mitigation.  It is exempted.  It is not involved.  That is the whole point.  At 110 in Clark v Macourt 304 ALR 220 or 253 CLR 1 Justice Keane is right onto the point:

The application of the ruling principle to measure value lost at the date of contract serves the important end of bringing finality and certainty to commercial dealings.  It ensures that whatever might befall the purchaser after the date of breach, for good or ill, and whether by reason of the purchaser’s acumen, or lack of it, in dealing with other persons who not party to the contract, and whatever movements may occur in the market, these developments have no bearing on the entitlement of the purchaser and the liability of the seller.

We submit the applicant should never have been in the position he was in.  If as it has been found he acted unreasonably, he should never have been pitched into a position where that could happen, and our doctrine would have avoided it and we would not have had to have this complicated case.  If it please the Court.

KIEFEL J:   We consider this case has insufficient prospects of success and is not a suitable vehicle to resolve the question sought to be agitated.  Special leave is refused with costs.

AT 11.19 AM THE MATTER WAS CONCLUDED