Chand v Commonwealth Bank of Australia
[2014] NSWSC 708
•02 June 2014
Supreme Court
New South Wales
Case Title: Simon Anish Chand v Commonwealth Bank of Australia Medium Neutral Citation: [2014] NSWSC 708 Hearing Date(s): 2-5 December and 10 December 2013 Decision Date: 02 June 2014 Jurisdiction: Equity Division Before: Robb J Decision: (1)Order that the plaintiff's claim be dismissed.
(2)Order the plaintiff to pay the defendant's costs
(3)Order for the return of exhibits and subpoenaed material as set out in par 396 of the reasons for judgment
Catchwords: CONTRACT - breach by defendant admitted - causation - breach caused plaintiff's loss in fact - whether defendant legally responsible for plaintiff's loss - scope of defendant's responsibility - test for defendant's responsibility - novus actus interveniens - free, deliberate and informed act of plaintiff - reasonable conduct by plaintiff as between plaintiff and defendant - plaintiff could have avoided entire loss by submitting a further redemption request to the defendant - plaintiff intentionally remained in the market in the hope of receiving a higher return - plaintiff failed to take reasonable steps to avoid loss - failure to mitigate - defendant not responsible for plaintiff's loss Legislation Cited: Civil Liability Act 2002(NSW) ss 5A, 5D, 5R, 5S
Law Reform Miscellaneous Provisions Act 1965 (NSW) ss 8, 9Cases Cited: Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310
Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224
Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6
Blaxter v The Commonwealth [2008] NSWCA 89
Building Insurers' Guarantee Corporation v The owners - Strata Plan No 57504 [2010] NSWCA 23
Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648; [2006] NSWCA 133
Clark v Macourt (2013) 304 ALR 220; [2013] HCA 56
Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22
Gratrax Pty Ltd v T D & C Pty Ltd [2013] QCA 385
Hay Properties Consultants Pty Ltd v Victorian Securities Corporation Ltd [2010] VSCA 247; 241 FLR 335
Hirst v Nominal Defendant [2005] QCA 65; [2005] 2 Qd R
Janos v Chama Motors Pty Ltd [2011] NSWCA 238
Knott Investments Pty Ltd v Fulcher [2013] QCA 67; [2014] 1 Qd R 21
MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24
Medlin v The State Government Insurance Commission (1995) 182 CLR 1; [1995] HCA 5
New South Wales v Nominal Defendant [2009] NSWCA 225
Paul v Cooke [2013] NSWCA 314
Robinson v Harman (1848) 1 Exch 850
Ruddock v Taylor [2003] NSWCA 262
Sherson & Associates v Bailey [2000] NSWCA 275
Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59
St Vincent's Hospital (Melbourne) Inc v University of Adelaide [2002] VSC 297
Tabcourt Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8
Travel Compensation Fund v Robert Tambree t/as R Tambree and Associates (2005) 224 CLR 627; [2005] HCA 69
Wallace v Kam (2013) 297 ALR 383; [2013] HCA 19
Willis v Commonwealth (1946) 73 CLR 105 ; [1946] HCA 22Category: Principal judgment Parties: Simon Anish Chand (plaintiff) Representation - Counsel: Counsel: MJ Neil QC/WJ Wilcher (plaintiff) - Solicitors: Solicitors: Prime Lawyers (plaintiff)
HWL Ebsworth Lawyers (defendant)File Number(s): 2011/294335
JUDGMENT
The plaintiff, Mr Simon Anish Chand, sues the Commonwealth Bank of Australia for damages. Mr Chand claims that he suffered loss as a result of the Bank failing to implement a request that Mr Chand made on 25 September 2007 to redeem investments that he had made with the Bank, that were redeemable on request. The Bank accepts that it received Mr Chand's redemption request. It also now accepts that the request contained all of the information necessary to make it effective. The Bank agrees that it failed to implement the request in accordance with the contract between itself and Mr Chand.
Mr Chand did not immediately complain to the Bank about its apparent failure to implement the redemption request. He did not deliver to the Bank a new redemption request, either after he discovered that the equity from his investments had not been paid into his bank account in the time expected, or after he was advised by the Bank's call centre that his redemption application had not been entered into the Bank's computer system.
Mr Chand's case is that, after his call to the call centre, he concluded that his attempt to send the redemption application to the Bank had failed, and it had not been received, or not received in any intelligible form. He then started the process of selecting a new and appropriate time to exit from his investments. He claims that this required him to monitor the market and the unit prices of his investments over a period, so that he could determine when he could exit in a way that would yield the same return as if the Bank had implemented his initial redemption request. He also wanted to avoid any unexpected loss from the redemption process that might be caused by a time delay between redemption values published before he decided to redeem, and the later prices obtainable upon actual redemption.
Unfortunately for Mr Chand, he had not delivered a second redemption request to the Bank, before mid-December 2007, when a sudden and substantial reduction in the value of Mr Chand's investments occurred. Mr Chand reacted by adopting a wait and see approach in the hope that the value of his investments would recover. Unfortunately, the value of Mr Chand's investments progressively collapsed. That in turn led to the Bank making a number of margin calls on Mr Chand. That required him to contribute further funds of his own, and to realise his investments, to comply with the terms of his margin loan agreement with the Bank.
Mr Chand did not make any enquiry of the Bank's officers concerning the fate of his 25 September 2007 redemption request until the end of July 2008. After investigation the Bank informed Mr Chand that it had in fact received the request at the time it was made. The reason why the Bank failed to implement the request is not known.
The Bank, having admitted that it breached its contract with Mr Chand when it failed to act upon his request, claims that Mr Chand's loss was not caused by its breach of contract. It says the loss was caused by the conduct of Mr Chand. Mr Chand had ample time to renew his redemption request. He could have done so on many days before the market fell, and realised the same amount as he would have realised if the Bank had implemented his original request. The Bank claims that Mr Chand changed his mind, and decided to stay in the market in the hope of enjoying a better return than if the Bank had implemented his 25 September 2007 request. He freely, deliberately and knowingly elected to continue his investment rather than to renew his redemption request. In taking that course, he acted unreasonably, and brought his whole loss onto himself. The Bank submits that Mr Chand's conduct constituted a novus actus interveniens. That is the principal issue in these proceedings.
Parties
Mr Chand describes himself as a technical architect (IT specialist). He holds a Bachelor of Applied Science - Computing from the Queensland University of Technology. Mr Chand specialises in designing data management computer systems. He agreed in cross-examination that by 2006 he had become quite an astute and active funds investor, with experience with certain of the portfolio products offered by the Bank. He was proficient in the use of computers, and was familiar with the use of websites.
Mr Chand started to bank with the Bank in June 1995. He invested mainly in term deposit accounts, until about mid-April 2005. He was then advised by a teller at the Bank's Macquarie Centre branch to see an in-house financial planner of the Bank in order to better invest his funds.
The Bank admitted in its defence that it carried on business under the name "Colonial Geared Investments", among other names; that it was the ultimate holding company of Colonial First State Investments Ltd ("Colonial First State"), and also that it was the ultimate holding company of Commonwealth Financial Planning Ltd ("Commonwealth Financial Planning"). Mr Chand pleaded that Mr Daniel Molesworth was an employee of Commonwealth Financial Planning. The Bank responded in its defence by admitting that Mr Molesworth was an employee of the Bank.
Mr Chand pleaded that at all material times Mr Molesworth provided investment advice to Mr Chand, and that Commonwealth Financial Planning received a regular adviser service fee from Mr Chand in respect of that advice. The Bank made limited admissions concerning these allegations.
It is not necessary to resolve this issue, as the Bank accepted that it was responsible for any actions of Colonial Geared Investments, Commonwealth Financial Planning, and Mr Molesworth, and the case was conducted on that basis with the apparent acceptance of Mr Chand.
It should be noted, however, that strictly Mr Chand's application to make his investments was made to Colonial First State under a Product Disclosure Statement issued by that company. Mr Chand's margin loan agreement was entered into with the Bank itself, trading as Colonial Geared Investments.
Mr Chand's allegations concerning the financial planning advice that he was given do not require further consideration, save insofar as they are relevant to his claim against the Bank for failing to implement his redemption request. Mr Chand does not claim that any advice that he was given was inadequate, or caused him to suffer any loss.
Mr M J Neil QC appeared with Mr W J Wilcher for Mr Chand. Mr M Einfeld QC appeared with Mr D J Roche for the Bank.
Pleaded issues
In his amended statement of claim filed on 9 March 2012, after making allegations as to the material facts in pars 1 to 47, Mr Chand pleaded a breach of contract claim against the Bank (pars 50 to 57); a claim in negligence (par 58); a claim based upon alleged unconscionable conduct by the Bank "within the meaning of the unwritten law of the States and Territories" (par 59); a claim alleging unconscionable conduct within the meaning of s 12CA of the Australian Securities and Investments Commission Act, 2001 (Cth); and finally a claim alleging misleading and deceptive conduct within the meaning of s 12DA of the same Act.
In final submissions Mr Chand abandoned his two unconscionable conduct claims, as well as his misleading and deceptive conduct claim. Those claims need not be considered further.
Contract claim
Mr Einfeld described Mr Chand's contract claim in his final submissions as being based upon the "premise that the Bank had an obligation, albeit unpleaded, and by way of implication into its contractual arrangements with the plaintiff, to act in a timely fashion upon request duly received to withdraw or redeem his investments" (T 220.45). By this submission the Bank appears to claim that Mr Chand did not expressly plead the substance of his contract claim, and that he should be taken to rely upon a term that must be implied into his contract with the Bank. The Bank made it clear that, even if Mr Chand's pleading contained this defect, the Bank was content to deal with Mr Chand's case on that basis.
Mr Chand identified the documents he received from the Bank that contained the terms that governed the investments in par 23. Mr Chand relied upon the Colonial First State FirstChoice Wholesale Investments Product Disclosure Statement ("PDS"), Parts 1 and 2, Issue No 4, dated 6 March 2006, which was issued by Colonial First State. Mr Chand alleged that it was a condition of the investment contract that, when Colonial First State received Mr Chand's withdrawal request, the proceeds were to be calculated at the next determined exit unit price (par 25). It was a condition of the investment contract that the Bank could suspend withdrawals in extraordinary circumstances and reject applications at the discretion of the Bank (par 26)). He alleged that it was an implied term of the investment contract that the exercise of the discretion to reject applications for withdrawals would be exercised fairly (par 27). Mr Chand further alleged in par 44 that it was the practice of the Bank that a request to redeem investments would be effected by the customer completing a withdrawal request form and sending the completed form to the Bank. The Bank then implemented the request, and if it was approved, passed the instructions on to Colonial First State. Mr Chand alleged in par 47 that he completed a request for redemption by using a document created by Colonial First State for that purpose, and transmitted it to the Bank, directing Colonial First State to close his account and make a full withdrawal of the investments made under the investment contract, with the balance being paid into Mr Chand's nominated bank account. The request was made on 25 September 2007. Mr Chand alleged in par 48 that the Bank received the redemption request, and in par 49 that Mr Chand authorised the Bank to apply the proceeds of the redemption of the investments to clear the balance of the margin loan owed by Mr Chand. Mr Chand then alleged in par 50, that the Bank failed to act upon Mr Chand's redemption request, and in pars 51 to 54 that Mr Chand received no notice of the existence of any extraordinary circumstances, and no notice of a rejection of the redemption request from relevant parts of the Bank. Finally, Mr Chand alleged in par 57 that it was a breach of contract for the Bank to fail to act upon Mr Chand's redemption request.
It may be correct, as the Bank submitted, that Mr Chand did not specifically plead the term of his contract with the Bank that governed the time that was available to the Bank before it was required to implement a redemption request made by its customer, Mr Chand. However in par 25 of the amended statement of claim Mr Chand pleaded that the contract contained a "condition .... that when Colonial First State received [Mr Chand's] withdrawal request, the proceeds were to be calculated at the next determined exit unit price". The particulars given were the PDS in its entirety, without reference to the relevant part of that document. The terms of the investment contract between Mr Chand and the Bank will be considered below. It will become apparent that Mr Chand's claim was based upon breach of an express term of his contract.
In any event, the claim was for breach of a promise by the Bank to implement a request by Mr Chand to redeem his investments in accordance with the request. The claim was for breach of an absolute promise in the contract. It was not a claim for breach of any term to be implied into the contract that the Bank would act with reasonable care and diligence in responding to any redemption request received from Mr Chand.
The Bank pleaded that when Mr Chand became aware that the Bank had not acted on Mr Chand's 25 September 2007 redemption request, Mr Chand "decided not to issue a fresh withdrawal request" (par 64(d)), and if Mr Chand had given instructions to the Bank to redeem his investments between the time that he discovered that the Bank had not implemented his request to mid-December 2007 "he would have suffered no or negligible loss" (par 64(f)). The Bank pleaded that the whole of Mr Chand's loss was caused by his own "intervening conduct" in failing to issue a fresh withdrawal instruction and in determining to maintain and not to redeem his investments (par 64(g)).
Additionally, the Bank pleaded that, if it was found to be negligent, for the purposes of s 5D of the Civil Liability Act 2002 (NSW), it was not appropriate for the scope of the Bank's liability to extend to the loss, if any, suffered by Mr Chand. Alternatively, the Bank alleged that Mr Chand's loss was caused or contributed to by his own negligence for the purposes of s 9 of the Law Reform Miscellaneous Provisions Act 1965 (NSW) and s 5R and s 5S of the Civil Liability Act (par 65). The Bank also alleged that Mr Chand had failed to mitigate his loss, essentially for the same reasons relied upon for the Bank's claim that Mr Chand's conduct was the real cause of his loss (par 66).
Finally, in par 64(h) of its defence, the Bank "otherwise" denied the allegations in par 64 of Mr Chand's amended statement of claim, which contained Mr Chand's claim to damages. In his amended statement of claim Mr Chand gave particulars of damage of $1,447,124, without any detail as to how that claim was made up.
Negligence claim
Mr Chand pleaded his negligence claim in par 58 of his amended statement of claim in the following terms: "Further, or in the alternative, the [Bank] through its servants or agents, was negligent in failing to process [Mr Chand's] redemption request dated 25 September 2007". It may be that the Bank did owe some form of duty of care to Mr Chand. However, Mr Chand did not specifically plead the existence of such a duty, or give particulars as to how it arose, or what its content was. He simply alleged in par 58 that the Bank was negligent. In that paragraph Mr Chand set out six particulars of negligence. Particulars 2 to 5 were concerned with an alleged failure by the Bank to warn Mr Chand that the effect of his redemption request, by not expressly requiring that the redemption proceeds first be applied by the Bank in repayment of Mr Chand's margin loan, would be to require the Bank to make a margin call. Those particulars are now irrelevant for reasons that I will deal with below. The sixth particular concerned the failure of the Bank to warn Mr Chand that extraordinary circumstances existed that enabled the Bank either to suspend applications or reject applications. That particular is also irrelevant, as the Bank has not claimed it did not redeem the investments because it had made a determination that there were extraordinary circumstances that justified the suspension or rejections of applications.
The only operative particular of negligence is: "58.1 Failing to process [Mr Chand's] redemption request dated 25 September 2007". Plainly, that is an allegation that the failure to act upon the request was sufficient of itself to demonstrate that the Bank's conduct was a breach of duty that it owed to Mr Chand.
The Bank, in its defence, denied the allegation that it had been negligent. It was not given an opportunity to admit or deny that it owed a duty of care to Mr Chand. In final submissions Mr Neil maintained Mr Chand's case in negligence. As the Bank has admitted a breach of contract, it is not clear how the maintenance of the negligence claim could advance Mr Chand's case. It will be convenient to defer further consideration of the negligence claim until after the contract claim has been considered, as that course will facilitate an understanding of the proper course to take in relation to the negligence claim.
Resolved pleading issues
It is necessary to consider three relatively obscure issues, that appear to arise on the pleadings. They can be disposed of shortly because they concern issues that were resolved by the course of the proceedings.
First, Mr Chand provided two particulars of the allegation of breach of contract by the Bank in par 57. The first was the failure to redeem Mr Chand's investments in accordance with his redemption request dated 25 September 2007. That is the claim that Mr Chand pursued at the hearing. The second was the alleged failure by the Bank to advise Mr Chand that, by processing the redemption request, Mr Chand's loan would be placed in margin call. Mr Chand's redemption request gave a direction that the proceeds of redemption be paid into his personal account. It did not specifically instruct the Bank to pay out his margin loan first, and then to pay the balance into his personal account. If the instruction was complied with literally, the Bank would not retain any part of the redemption proceeds to secure the margin loan. The loan to security ratio would be breached, and the Bank would be required to make a margin call to restore its security. This particular of breach appears to be an attempt by Mr Chand to anticipate a defence, which the Bank did raise, but then abandoned.
Secondly, the Bank responded in its defence to Mr Chand's allegation in par 47, that on 25 September 2007 he transmitted a redemption request to the Bank "to close his account and to make a full withdrawal from the CFS Investments with the balance being paid into [Mr Chand's] nominated bank account", by admitting receipt of the instruction, but saying that the effect of the instruction was that the Bank should credit Mr Chand's personal account with the whole of the proceeds (thereby implying that the proceeds would not first be used to pay out Mr Chand's margin loan). The Bank denied Mr Chand's allegation, in par 49, that he had authorised the Bank to apply the proceeds of the redemption of his investments to clear the margin loan balance.
Mr Einfeld made it clear during the hearing that the Bank did not challenge the adequacy of the terms in which the redemption request made by Mr Chand was expressed. That, with respect, was a sensible approach, as it would seem to be self-evident that the form that Mr Chand submitted contained an implied request to the Bank to use the proceeds to pay out the margin loan first. That concession by the Bank had the effect that it admitted the allegations made by Mr Chand in pars 47 and 49 of his amended statement of claim.
As the Bank did not pursue the defence that it pleaded, based on the literal meaning of the redemption request, the basis for the second particular of breach of contract pleaded by Mr Chand has disappeared, and it is no longer relevant.
Thirdly, the Bank, in its defence, denied Mr Chand's allegation, in par 57, that it was a breach of contract for the Bank to fail to act upon Mr Chand's redemption request. The only positive basis for that denial pleaded by the Bank was the effect of two exclusion terms in clauses 37.1 and 37.4 of the revised terms of the margin loan agreement between Mr Chand and the Bank.
Mr Einfeld made it clear in final submissions that the Bank accepted that its conduct constituted a breach of its contract with Mr Chand. He acknowledged that the Bank's "omission was the trigger that, as it were, set off the chain of events that ultimately led to Mr Chand's financial losses" (T 230.2).
The Bank did not refer to the effect of the exclusion clauses in the margin loan agreement in its final submissions. The Bank appears to have abandoned reliance on the exclusion clauses.
Damages claimed by Mr Chand
Mr Chand now claims damages of $1,570,480.81, plus interest.
Mr Chand provided particulars of the damages that he claims in par 37 of his plaintiff's outline of case dated 27 November 2013, and in a document headed "Quantum" that was handed up as an aid to submissions. The later replaced the former, and as the structure of the claim is the same in each case, it is sufficient to refer to the latter.
The Quantum document is in two parts. The first assesses damages as at 31 July 2008, which was the date when the Bank acknowledged to Mr Chand that it had received his redemption request. The second assesses damages as at the date of the trial. As I understand it, in submissions Mr Neil accepted that the second assessment is the one upon which Mr Chand asks the court to act (T 219.24). The structure of the claim is that it contains four parts, being (a) loss of equity of $1,034,636.81; plus (b) net interest charged by the Bank on the margin loan after 25 September 2007of $35,853; plus (c) $500,000, being the margin calls of $400,000 and $100,000; less (d) $33,870.70, being the present value of Mr Chand's residual investments. For convenience I will sometimes call the loss described in (a) the "equity loss", or the "$1 million". I will call the two margin call payments the "margin calls". I do not follow the calculation of the amount of $35,852 in par (b), but that does not matter to the decision that I have made.
Mr Chand claims that he suffered the equity loss on or about 25 September 2007, when the Bank failed to pay the $1 million into his bank account. He says that he lost the margin calls on 22 April 2008 and 31 July 2008 when he paid the amounts of $400,000 and $100,000 respectively to the Bank.
According to Mr Chand, the equity loss occurred because of the failure by the Bank to redeem Mr Chand's investments in accordance with his redemption request, its failure to pay out the margin loan, and its failure to pay the balance of $1,034,636.81, to be precise, into Mr Chand's bank account. The $1 million was then lost because in the ensuing period to 31 July 2008 the portfolio value of Mr Chand's investments fell below the amount of his margin loan, and never recovered.
The margin calls are, however, in a different position. While those payments were made as a result of the Bank making calls under the margin loan agreement, the actual payments did not involve conduct by the Bank (although officers of the Bank may have given advice to Mr Chand about whether he should make the margin call payments, rather than redeem his investments). Mr Chand elected to pay the margin calls rather than to redeem all of his investments. The value of the margin calls was subsequently lost, because of further falls in the portfolio value of Mr Chand's investments. Mr Chand's own conduct therefore increased his loss by some $500,000 above the equity loss caused by the Bank's breach. In principle, an issue therefore arises as to whether Mr Chand is entitled to recover damages based upon the loss of the margin calls, notwithstanding that his actions increased the amount of his loss.
The Bank's position in relation to Mr Chand's damages claim, as set out principally in its further amended defence filed on 1 May 2013, is that it denies that Mr Chand is entitled to any damages, notwithstanding that the Bank admits that it breached its contract with him. The Bank submitted, in its note as to assessment of damages dated 9 December 2013, that Mr Chand suffered no more than nominal damage on 25 September 2007, as at that date the value of his investments, less the amount of his margin loan, was equal to the amount of the equity loss. No loss was actually suffered on that date. Thereafter, for some three months to mid-December 2007, the net value of Mr Chand's equity was either more than his equity loss, or only slightly less.
As I understand the Bank's submissions, it does not contest the amounts that formed the elements of Mr Chand's damages claim in the Quantum document. It submitted that Mr Chand is not entitled to more than nominal damages, because the prospective loss flowing from its breach of contract could entirely have been avoided by Mr Chand, and his own voluntary actions became the only real cause of his loss actually occurring.
Witnesses
Mr Chand was the only witness in his own case. He affirmed an affidavit on 4 October 2013, which contained the substance of the evidence that he chose to give. For convenience I will simply call this affidavit "Mr Chand's affidavit".
Mr Chand affirmed a further affidavit on 29 November 2013. The purpose of this affidavit was to respond to evidence provided by the Bank's witnesses. Mr Chand annexed to this affidavit an Annexure A that set out, among other things, Mr Chand's calculation of what he called the "Redemption Value" of his investments on a daily basis between 1 September 2007 and 31 July 2008. The redemption value was, in substance, the amount that Mr Chand would have calculated on the identified day, as being the amount which he would have received if the Bank had duly processed a hypothetical redemption application submitted to it on that day. Mr Chand said that the only information published by Colonial First State on its website was the portfolio value for the investments, which according to Mr Chand was two days old when published, if looked at on a particular business day. The portfolio value was the amount of the proceeds of the redemption of the investments, before repayment of the margin loan. The redemption value on any day was calculated by Mr Chand as being the latest published portfolio value, less the margin loan balance, plus the repayment pro rata of the unused portion of the prepaid interest that Mr Chand had paid to the Bank, less the monthly adviser's fee charged by the Bank. Mr Chand made it clear that the figures for redemption value represented the best estimate that Mr Chand himself would have made on the given dates, based upon his need to make running estimates on the basis of the limited information available to him.
The Bank subjected Mr Chand to thorough cross-examination on his affidavit, but in effect accepted the figures in Annexure A to the second affidavit.
Mr James John Noel Dickson swore an affidavit in the Bank's case on 2 November 2012. Broadly, Mr Dickson gave evidence as to the objective facts relevant to Mr Chand's dealings with the Bank. He also provided a spreadsheet that set out Mr Chand's portfolio values and loan balances for the period 1 September 2007 to 31 January 2008. In a second affidavit, sworn on 15 November 2013, Mr Dickson explained in detail how he had caused the data in his spreadsheet to be compiled. He also extended the spreadsheet to cover the period 1 September 2008 to 31 July 2008. Mr Matthew Colin Thomson swore an affidavit in the Bank's case on 15 November 2013, which supported the figures for the portfolio values of Mr Chand's investments for the period 1 September 2007 to 31 July 2008. Mr Dickson and Mr Thomson were not cross-examined by Mr Neil. The spreadsheets provided by Mr Dickson, and supported by Mr Thomson, provided the starting point for the preparation by Mr Chand of Annexure A to his second affidavit.
2004 - 2005 investment
The first investment in the Bank's Colonial First State - FirstChoice Wholesale Investments that Mr Chand acknowledged in his affidavit was made by application form dated 22 April 2005. However, he agreed in cross-examination that he first made an investment in that product on 12 November 2004.
On that date Mr Chand signed an application form to invest $595,000 of his funds into seven "single manager single sector" options, in the amount of $85,000 each.
Mr Chand agreed that he discussed the proposed investment with Mr Molesworth before he completed the application form. Mr Molesworth advised Mr Chand to adopt a long-term strategy, and to invest in Australian shares for a minimum timeframe of around six years. Mr Chand declined to accept this advice, as it was not his intention to invest for that long. In those circumstances Mr Chand agreed with Mr Molesworth that the latter would process the application on the basis that it was, what was called, a "Transaction Without Advice". Mr Chand agreed that Mr Molesworth warned him on several occasions that the Bank bore no responsibility for his investment, as no advice had been given. On 12 November 2004 Mr Chand signed a Client Acknowledgement, which was part of a letter from Mr Molesworth to him called "Transaction Without Advice". Mr Chand acknowledged in the document that "no advice was either sought from, or given by [the Bank]" in respect of the transaction; and that the Bank "takes no responsibility for any outcomes resulting from the above transaction". The Client Acknowledgement included a warning that Mr Chand "may risk financially committing [himself] to a product that might not be appropriate to [his] needs and objectives".
Mr Chand said in cross-examination that he preferred a short-term to a long-term investment strategy because he was looking to buy a house, and his purpose in making the investment was to increase the amount of his capital for the purpose of purchasing a house.
On 22 April 2005 Mr Chand made an application to the Bank for a margin loan facility with a credit limit of $1 million. Mr Chand provided his existing investments in First Choice Wholesale Investments products as the initial security for the margin loan. The application form indicated that Mr Chand intended to make a total investment worth $1,315,000.
It is not necessary to consider the terms of the original margin loan agreement that the Bank entered into with Mr Chand in detail, as those terms were superseded at a later date
Mr Chand met with Mr Molesworth again on 22 April 2005 in order to organise the margin loan from the Bank, and to increase his investment. Mr Molesworth's notes say that Mr Chand wished to make a drawdown from the margin loan facility, for which he applied to the Bank on that date, of $756,000. It appears from the cross-examination that Mr Chand required $700,000 to increase his investment, and $56,000 to fund prepaid interest. The notes record the following:
"... I informed him that he needs to have a long-term investment outlook when negative gearing and a financial plan will need to be completed. He refused, he also stated that he wanted tax relief in the short run only. I strongly advised that I could not be able to endorse this decision and a TWA would have to be completed if he wanted a margin loan through me. He was aware of the dangers + risks associated with this investment and authorised me to go ahead on a TWA basis..."
Mr Chand agreed that this note reflected the substance of the advice that he was given.
Mr Molesworth provided Mr Chand with a "Transaction Without Advice" letter in similar terms to that dated 12 November 2004. It contained the same "Client Acknowledgement", which Mr Chand signed on 22 April 2005.
On 22 April 2005 Mr Chand made an application to the Bank to increase the amount of his investment. The application records the selection of the same seven options that Mr Chand selected on 12 November 2004; this time with an individual value of $100,000 each, giving a total of $700,000 for the additional investments.
Mr Chand was cross-examined concerning the steps that he took to monitor his investments and to protect him from the risk of incurring losses. He said that, once he had taken out the margin loan, he followed the financial markets generally and the value of his investments with a keen interest. He said that, because he could not monitor things all the time and his investments were short term, "if there was any volatility in the market" his investments would have to be withdrawn (T 34.25). If Mr Chand's investments had started to fall in value at any point, he might have taken some urgent action to avoid suffering a loss (T 36.40).
On 21 September 2005 Mr Chand forwarded to the Bank an application to redeem part of his investments worth $81,709.38. He gave instructions to sell $10,000 worth of each of six of the options that he had acquired, and to sell $21,708.38 worth of the seventh. Mr Chand said that, before he made the redemption application, he telephoned the Bank to obtain the precise value of his current loan. At that time he was told that he could redeem his units and pay off part of the loan by sending an instruction by fax on 8292 5252. That was the number he used for making his application.
Mr Chand agreed that, after he made his redemption application on 21 September 2005, the Bank confirmed the redemption request within two days.
On 26 October 2005 Mr Chand made an application to the Bank to switch his entire investment in "Barclays Wholesale Australian Share", which had a value of $190,626.01, into an investment called "CFS Geared Share" for the same amount. Mr Chand did not refer to this transaction in his affidavit. Mr Chand agreed in cross-examination that he understood that the new fund was a geared fund, and that meant that there was a potential for greater capital growth. Mr Chand did not seek any professional advice about the desirability of this change. He made his own decision based upon statements received from the fund manager.
On 24 November 2005 Mr Chand made an application to the Bank to redeem the entirety of his current investments. He said that he did so because he proposed to have an extended holiday in Fiji, partly for the purpose of attending his sister's wedding. Mr Chand's passport, an extract of which was in evidence, shows that he was given a Fiji entry visa for four months from 25 November 2005, and that he departed from Nadi to return to Australia on 15 January 2006.
Mr Chand said he redeemed the whole of his investment because he would not be able to monitor his funds, as he was going away on an extended holiday. He regarded holidays as "down time", and he "would not be monitoring funds or looking at the internet, answering phones" (T 41.35).
Mr Chand agreed that the Bank sent him an acknowledgement of receipt of his redemption request dated 25 November 2005, the next day. He said that he might not actually have received the acknowledgement until he returned from Fiji. The Bank also sent Mr Chand a withdrawal confirmation on 29 November 2005, five days after the date of the redemption application. The total amount credited to Mr Chand's bank account was $1,430,833.08.
On 7 December 2005 Mr Chand sent an email to the Bank to advise that the Bank had failed to credit Mr Chand with the unused portion of the prepaid interest of $61,708.38 on the margin loan, which had been paid on 23 September 2005. Mr Chand sent this email while he was in Fiji. He said that he sent it from an internet cafe while he was in Suva. In cross-examination Mr Chand explained the email by suggesting that he must have withdrawn some money from his bank account, and noticed that the amount of money he had been expecting to be paid following the redemption was not received (T 45.30). Mr Chand agreed that his absence from Australia in Fiji did not prevent him identifying the date upon which his account had been closed. He said that he probably knew the amount of the expected refund of prepaid interest, because he had taken notes with him when he left Australia. Mr Chand accepted, however, that he did not have a present recollection in the witness box of taking notes with him to Fiji. Mr Chand agreed that he had access to his emails, if he chose to use the services of an internet cafe, which was relatively close to where he was staying in Suva. He also agreed that, while he was in Fiji, he used the internet to access details of his account to determine both the amount of the repayment he was expecting, and whether it had been paid (T 50.30).
After this redemption of the whole of his investment, Mr Chand maintained his funds in a low interest deposit account with the Bank, until he renewed his investments in the Bank's Colonial First State - FirstChoice Wholesale Investments product on 7 June 2006.
2006 Investment contract
In early June 2006 Mr Chand had another meeting with Mr Molesworth; according to Mr Chand, after he sought advice from a teller employed by the Bank as to how he could obtain a better interest return on his funds.
Mr Molesworth provided Mr Chand with a copy of the current Product Disclosure Statement for Colonial First State's FirstChoice Wholesale Investments product. The PDS was in two parts, and was Issue No 4 dated 6 March 2006.
Following his discussion with Mr Molesworth, Mr Chand submitted an investment application form to Colonial First State on 7 June 2006. The second page of the PDS (not given the page number 2) made it clear that the PDS contained the terms upon which Colonial First State offered to enter into agreements with investors; for example in the statement: "The offer made in this PDS is available only to persons receiving this PDS within Australia" (emphasis added). The application form (page 41 of the PDS) contained a number of matters to which Mr Chand signified his agreement, including that: "I...am...bound by any terms and conditions contained in this PDS and the provisions of the Constitutions of the options that I...am invested in as amended from time to time" (emphasis added).
The PDS therefore set out, at least in part, the contractual terms of the investment agreement between Mr Chand and the Bank. The terms of the agreement concerning account management are the most material to the resolution of the present dispute. Those terms are found in Part 1. (Part 1 is divided into Sections, but the individual paragraphs are not numbered. The analysis of the PDS therefore requires the identification of relevant page numbers. The PDS that is in evidence is in Exhibit 1 Volume 1 Tab 15. Many relevant page numbers have not been reproduced in the process whereby the PDS was included in the Exhibit. For the purpose of the analysis set out below, relevant page numbers have been reconstructed using the copy of the PDS that commenced at page 129 of Exhibit SAC-12 to Mr Chand's affidavit).
The following provisions of Part 1 of the PDS are material. Section 4, commencing at page 15, dealt with account management. On that page potential investors were invited to manage their investment by internet, telephone, email or fax. The fax number given was (02) 9303 3267. That was a different number to the 8292 5252 number that Mr Chand used at the time he made his 25 September 2007 redemption request. The Bank has not taken any point based upon the failure by Mr Chand to use the fax number in the PDS.
There was a table on pages 16 and 17 that outlined the various ways that investors could establish and transact on their accounts. There was a column headed: "Information I need to know". Beside this heading there was a footnote reference 1, which was set out at the foot of page 17. It said: "Completed request, received into our office on New South Wales (NSW) business day prior to 3 PM (Sydney time) will be processed as at the date of receipt. Funds will be debited from your nominated account on the day we receive your application." Although in express terms the footnote could only be applicable to transactions that required the transfer of funds from investors to the Bank, the heading to which the footnote relates would apply, by reason of the set out of the table, to the making of withdrawals.
The making of withdrawals was dealt with specifically in the table on page 17. The options for requesting withdrawals included the use of faxes. The part of the table dealing with withdrawals contained the statement: "Withdrawal requests received on a NSW business day prior to 3 PM (Sydney time) will be processed using that day's unit price and generally paid within seven working days."
Page 18 contained information concerning "Accessing information on your account." The PDS stated that the Bank "will ensure that you are kept informed about your investment by sending you... a confirmation for each investment, switch or withdrawal..." The Bank also stated that investors would be provided with an Online Identity Number and Personal Identification Number in order to access information about their investments on the internet. Investors were also invited to access information on their investments by calling Investor Services on 13 13 36.
Page 20 contained information concerning "Transactions and unit pricing". The following was set out concerning "Withdrawals":
"Withdrawals
When we receive your withdrawal request the proceeds are calculated at the next determined exit unit price. In extraordinary circumstances we may suspend withdrawals.
Transaction cut-off times
If your valid transaction request is received in our office before the relevant cut-off time as shown in the table below, it will be processed that day using the next determined unit price. [The relevant cut-off time for withdrawals is 3 PM (Sydney time) on a NSW business day].
If your valid transaction request is received after the cut-off times shown above your transaction will be processed the following NSW business day.
Transaction processing and unit prices
We calculate unit prices each NSW business day. If your valid investment, switch or withdrawal request is received by the relevant cut-off time, you will receive the next determined unit price.
The next determined unit price for any NSW business day is calculated at the close of trading of all markets of that day. Therefore, the next determined unit price is not known until the following business day. It is important to consider this when making your transaction request."
The following "Limitation of liability" was set out on page 25. (In its defence the Bank relied upon exclusion clauses contained in the relevant margin lending agreement, and not upon these provisions. They are set out for completeness).
"Limitation of liability
→...
→ Subject to the paragraph above, we are not liable in any way (including in negligence) for any losses that you suffer (however caused) through using or supplying information by phone, fax, email, FirstNet or FirstLink.
→... We are not liable for, and you release and indemnify us against any liabilities, claims, losses or costs arising from our acting in accordance with any communication that we received by phone, fax or email about your account or investments with us or arising from the use of FirstNet or FirstLink by you or any person using your OIN and PIN".
Page 25 also contained the following provision concerning the receipt of information by the Bank by fax:
"→Fax machines may be convenient, but they are not always reliable. If a query arises over what information we received by fax, we will not accept a fax transmission report from your machine as evidence that we received the fax. This is because, although your fax machine may have confirmed that the fax was sent, we may not have received the complete fax at our end".
The PDS therefore contained specific terms that governed how the Bank would confirm the receipt of withdrawal applications, process valid withdrawal applications, the withdrawal price to which investors would be entitled, and the time investors could expect to receive the proceeds of the withdrawal.
The Bank was required to send a confirmation of withdrawal to the investor, but no time limit was specified.
The provisions in the PDS under the heading "Withdrawals", which are set out above, required that withdrawal requests received on a day before the cut-off time "will be processed using that day's unit price". The PDS contained an elaboration that withdrawal requests received before the cut-off would be processed "using the next determined unit price". That statement is explained by reference to the calculation of unit prices daily. The next determined unit price is calculated at the close of trading of all markets on that day. The next determined unit price is therefore not known until the following business day.
It would appear to follow that, for a withdrawal request made before the cut-off on Monday, the unit price could only be calculated after the close of trading of all markets on that day. Monday's unit price could only be published after close of business on Monday, or on Tuesday. An investor who contemplated making a withdrawal on Tuesday after publication of Monday's unit prices could not know what Tuesday's unit prices would be. The investor would have to take a risk on movements in unit prices after the close of the markets on Monday. The effect of these provisions is that investors were required to act upon unit prices that were not the actual prices upon which their portfolio values would be calculated.
However, if an investor submitted to the Bank a valid withdrawal request, the Bank was obliged to process the withdrawal and pay to the investor an amount calculated by reference to the "next determined unit price". That was an absolute obligation on the part of the Bank, in the sense that the investor would be entitled to payment based upon the next determined unit price, irrespective of whether or not the Bank actually processed the application, and whether or not any failure to process the application was due to the Bank's negligence or any other cause.
Investors were given an expectation that they would receive the proceeds of any withdrawal application into their nominated accounts within seven days, although the Bank was not bound to pay in that time.
The agreement contained a term that the Bank would not be bound to accept a fax transmission report from an investor's fax machine as evidence that the Bank had received the fax.
2006 investment
Part 2 of the PDS that Mr Molesworth gave Mr Chand contained, among other things, a list of the available investment options, and also a brief description of each option, which generally included a statement of its objectives and strategy, as well as an identification of the underlying managers. In the case of many of the options there was a brief description of the nature of the investment such as "defensive", "conservative", "high growth" et cetera. In many, but not all cases, a "Minimum suggested timeframe" for the duration of the investment was given, as well as an indication of the level of risk involved, which was done by the use of an arrow pointing to part of a semicircular diagram that ranged from low to medium to high risk.
On 9 June 2006 Mr Chand completed the Bank's Credit Limit Increase Application Form to increase the credit limit of his margin loan to $1,500,000, and forwarded the application to the Bank. The credit limit increase was approved on 15 June 2006.
On the same date Mr Chand completed an application form taken from Part 1 of the PDS to make investments in Colonial First State's Colonial First State - FirstChoice Wholesale Investments product. Mr Chand applied to invest $400,000 in each of five options. He funded the $2 million price by contributing $900,000 from his own funds, and drawing down $1,100,000 from the margin loan.
On 16 June 2006, that is 7 days after the date of the application, the Bank (under the name Colonial Geared Investments) confirmed to Mr Chand by letter that it had received and processed his instructions to make the $2 million investment.
The Bank also, on 21 June 2006, (under the name Colonial First State) confirmed the making of the investments. Colonial First State was the nominee that held the investments for Mr Chand, subject to the requirements of the margin loan agreement.
Mr Chand agreed in cross-examination that, on the next day or so after his meeting with Mr Molesworth, he received a Statement of Advice. (The copy of this document in Exhibit 1 is falsely dated 29 November 2011, which may be connected with the date that a copy of the document was printed out of an electronic database). Mr Chand agreed that he did not inform Mr Molesworth that anything in the Statement of Advice was wrong (T 55.30). The document establishes at page 5 that the advice contained in it was based on Mr Chand's request for financial planning advice. However, it stated that, as Mr Chand had declined to provide full personal information, Mr Molesworth had not been able fully to assess Mr Chand's financial needs, circumstances and objectives in making his recommendation. The document, at page 8, recorded a number of answers given by Mr Chand to questions concerning his risk profile. Mr Chand had stated that he was: "Experienced with all investment sectors and understand the various factors which may influence performance". In response to a question concerning his attitude to "volatility of returns" he said: "I am interested in aggressive growth strategies, including borrowing for investment purposes, and understand the possibility of negative returns". Mr Chand hoped to achieve: "High capital growth and minimal income". In order for his investments to be "tax-advantaged", Mr Chand said: "...my main objective is to minimise income tax and I am prepared to accept capital fluctuation to achieve this." Mr Molesworth described Mr Chand as having an "Aggressive investor profile", and stated that the most appropriate strategy for someone with that profile was to invest 100% in growth assets. In cross-examination Mr Chand agreed in substance that he had provided all of this information to Mr Molesworth, and he accepted Mr Molesworth's description of his investment profile.
The Bank, on or shortly after 4 June 2007, approved an application by Mr Chand to increase his credit limit to $2,100,000.
On 6 June 2007 Mr Chand sent a further application to the Bank for the purpose of acquiring an additional $800,000 worth of units in Colonial First State FirstChoice Investments - Wholesale. He funded the investment by contributing an additional $100,000 of his own funds, and by borrowing a further $700,000 under the margin loan agreement.
The Bank notified Mr Chand that it had received and processed his instructions for the additional investment by letter dated 15 June 2007; nine days after Mr Chand made the request.
On 10 July 2007 Mr Chand forwarded to the Bank an application to switch 100% of his investments in "Platinum Wholesale International" worth $1,098,526.68 into the same value of units in "Colonial First State 452 Geared Australian Shares".
The Bank notified Mr Chand by letter dated 16 July 2007, five days later, that his instructions had been processed.
Mr Chand gave evidence of the steps that he took to properly manage his investments in pars 40 to 42 of his affidavit. He said that he tried to keep up-to-date with general economic and financial developments, and financial news. He monitored market movements, and tracked the movement of his portfolio value to determine the effects of market events on his portfolio. He read publications such as the business section of the Sydney Morning Herald, the Financial Review, and websites such as Yahoo! Finance and Bloomberg. He monitored the movement and values of indices such as the ASX, Dow and Nikkei. He correlated new events with market movements, and then correlated market movements with movements in unit prices or fund values for his investments.
Revised Margin Loan terms
Mr Chand accepted that "in 2007" the Bank sent to him new terms and conditions for the margin loan (affidavit par 29). The new terms are included in Exhibit 1 Volume 1 at Tab 23. Mr Chand has not contested in these proceedings that the Bank was entitled to make the margin calls that it made on Mr Chand during 2008. It is therefore not necessary to consider in any detail the terms of the margin loan agreement that imposed the loan to security ratio, or the terms upon which the Bank could make margin calls.
It is sufficient to note that clause 4.1 of the margin loan terms and conditions required that, "if at any time the current loan-to-security ratio is equal to or exceeds the margin call loan-to-security ratio, then you must act within the time period specified in Clause 4.2 to ensure that the current loan-to-security ratio does not exceed the base loan-to-security ratio, except where we have acted in accordance with Clause 4.2(d)." The italicised terms in clause 4.1 are defined in a dictionary that follows clause 37. Clause 4.2(d) entitled the Bank to act unilaterally in certain exceptional circumstances to sell the security provided by the borrower.
The Bank, however, in par 57 of its defence relied upon the following terms of the margin loan agreement:
"37.1 We may exercise a right or remedy or give or refuse our consent in any way we consider appropriate including by imposing conditions...
37.4 We are not liable for loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising a right or remedy, whether or not caused by our negligence."
25 September 2007 redemption application
On 25 September 2007 Mr Chand sent a redemption request to the Bank by fax in which he requested the Bank to redeem all of his current investments. The failure of the Bank to act upon this request has given rise to the present proceedings.
Mr Chand commenced his explanation for his ultimate decision to redeem all of his investments by offering the following statement in par 43 of his affidavit:
"Upon the global market volatility starting in mid-August 2007, I considered highly geared stock to no longer be a safe investment option. The volatility also required extra constant monitoring of my investments. I made a decision to exit my investments with the Bank at the next available opportunity."
Mr Chand gave, as an additional reason for his decision to realise his investments, that he intended to leave Australia on 21 December 2007 to visit his mother in Fiji, and while he was away he would not be able to monitor his investments with the same level of rigour that he could whilst in Australia. The evidence shows that Mr Chand had followed the same course before he left Australia for a holiday in Fiji in November 2005.
In cross-examination Mr Chand agreed that by September 2007 he "considered highly geared stock to no longer be a safe investment (T 80.7). He said that "because there was a lot of volatility around" he needed more details on the market and had to read up more on finance news from the finance websites. He said, "the volatility was mainly overseas" (T 80.17).
Mr Chand provided evidence of the process that he adopted in selecting an appropriate exit point to submit his application (affidavit pars 44 to 49). Mr Chand set himself an exit target of $1 million, which would have seen him break even on the capital he personally had paid for his investments. (Mr Chand had received a number of income distributions). He said that the Bank did not provide unit prices in real time, and that the unit prices that were put on the Colonial First State website were at least two days old. Each day's unit prices were published after 3 PM the next day. Withdrawals submitted before 3 PM used unit prices for that day that would be published, according to Mr Chand, after 3 PM the next day. Mr Chand said that he monitored the market from the end of August 2007 to late September 2007 to pick an exit date. He made his decision on the evening of 24 September 2007, when, according to his calculations, he was likely to receive $1 million net from the realisation of his portfolio.
One of the reasons why Mr Chand decided on 24 September 2007 to act was that he "noted that it was a rising market", so that "the redemption value would have been approximately $1 million even if the market fell slightly the next day" (par 48). Mr Chand's proposition was that, as the latest published unit prices were a couple of days old, if Mr Chand committed himself to redeem his investments on a particular day, and the unit price was calculated after the close of markets on that day, there was a risk of loss over the transaction period because of unpredictable movements in unit prices. If, in the period immediately preceding the application to redeem, unit prices had been trending upwards, then that fact would justify some confidence that the implementation of the redemption would not cause an unexpected loss.
As has been noted, the Bank did not process the application, even though at a later time the Bank discovered that it had received the application, which bore a received stamp dated 25 September 2007. The reason why the Bank failed to act on the application has not clearly been unexplained.
The Bank proved that, at the time Mr Chand faxed his 25 September 2007 application to the Bank, the fax machine that he used produced a transmission report, that indicated that the transmission of the whole four pages of the redemption application had been completed successfully, and there was no apparent error in the transmission. Mr Chand produced the transmission report in response to a notice to produce. The notice to produce is not in evidence, and the date it was served is not established.
Mr Chand's response to Bank's failure to redeem
After Mr Chand lodged his redemption request on 25 September 2007, he did not, according to his own evidence, seek to make any enquiry of the Bank until late October or early November 2007, most probably about 5 November 2007. Mr Chand dealt with events in the period between the lodgement of his request and the making of his enquiry in four brief paragraphs of his affidavit (pars 52 to 55). He said that he did not receive from the Bank or Colonial First State an immediate response to his application form. He said that, from previous dealings, he found that it would usually take perhaps 10 working days before he would receive written confirmation in the post. He was not too concerned about an initial delay, as it appeared to him that units would have to be sold from more funds than had previously been redeemed, which may require more time to act on. After he did not hear anything for a month regarding the withdrawal, "it seemed unusual". He then made the enquiry that I will discuss below.
Mr Chand agreed in cross-examination that he expected his request to be implemented soon. He expected the net proceeds of the realisation of his investments to be paid into his Net Bank Saver account with the Bank in accordance with his instructions. Mr Chand was cross-examined as to whether his asserted expectation that it would take 10 working days for his instructions to be implemented was an over-estimate of the likely time, by reference to the response times of the Bank in relation to Mr Chand's earlier transactions (T 89.8 to 91.34). He justified his estimate by reference to the most recent switch he had done (T 89.23), and also said it was based upon the time "it took the initial investment to come through" in early June 2006 "that had taken roughly 3 working weeks" (T 89.31). Mr Einfeld put to Mr Chand that he actually expected to get a response within a week, although if it took a little longer than normal, it might take as much as 10 working days (T 89.18).
Mr Chand agreed that he checked online within, at the most, two working weeks, to ensure that the deposit had been made into his Net Bank Saver account (T 91.45). He agreed that he was aware after five days that the $1 million had not been paid into his account (T 92.11).
Ultimately, Mr Chand agreed that, even if three weeks were to be allowed, which would be to 16 October 2007, he was aware by at least that time that his instructions had not been carried out (T 94.49 to 95.40).
Mr Chand agreed that, upon becoming aware, at some time in September, or on or before 16 October 2007, that his instructions had not been carried out, he did nothing. He did not telephone Colonial First State, or the Bank, or Mr Molesworth, or send an email to anyone at the Bank (T 93.41 to 94.14 and 94.37).
After 25 September 2007, Mr Chand agreed, the market remained "buoyant", and he was aware also that his units had remained "buoyant". He agreed that he checked (T 94.14 to 20). Asked whether he had been "content to remain in the market at that time" Mr Chand responded: "it wouldn't have bothered me" (T 95.20 to 33).
Mr Chand denied that he remained in the market in the hope that it would improve further (T 96.5 to 97.30). He said: "I had given them enough time to basically process it, and then I called them" (T 97.14).
Mr Chand gave the following evidence concerning the conversation that he says that he had with a call centre operator that he made on about 5 November 2007, by calling 13 13 36. After his identity was validated (par 56) the following conversation took place:
"Me: Could you please check the status of a withdrawal request which was faxed on 25 September?
Operator: I'll have a look on the system.
Operator: I cannot see any withdrawal requests against your account. Are you sure it was sent on 25 September?
Me: Yes that's correct.
Operator: Sorry I still cannot see any withdrawals from you.
I thought about that response. Since I had no reason to doubt the operator, as he had no personal interest at stake, or to question the integrity of [Colonial First State] or the [Bank] at the time as my previous investments had been trouble-free when I had transmitted my redemption request to the [Bank] by facsimile, I came to the conclusion that it was probably a technical fault of some sort that may have caused a possible dropout during transmission of my fax and that the Bank had not received the Withdrawal Form.
Me: Thank you.
I then hung up".
Mr Chand did not contact the Bank directly about the whereabouts of the withdrawal form until late July 2008.
Mr Chand agreed in cross-examination that he did not make any notes of the conversation. Mr Einfeld did not suggest to Mr Chand that the conversation with the call centre operator did not occur at all. Mr Einfeld did obtain from Mr Chand an acceptance that, when he prepared his affidavit in 2012, he was doing his best to recall a conversation that had occurred some four years earlier (T 101.20). Mr Einfeld then continued the cross-examination on the basis that: "I will assume that your recollection is entirely accurate" (T 101.23). Mr Chand had given evidence in par 57 of his affidavit that he did not subsequently contact the Bank about the whereabouts of the withdrawal form "as they had made it quite clear that they had not received it and I had no grounds for doubting them". The words just set out within quotation marks were rejected when Mr Chand's affidavit was read, on the objection of the Bank. Nonetheless, Mr Einfeld cross-examined Mr Chand on the issue of whether he believed, or was entitled to believe, that his application form had not been received by the Bank, given that all that the call centre operator had said to him was that the operator could not see any withdrawal request on the system. It will be convenient to deal with this issue more fully below in the course of considering the attack that the Bank made on the credibility of Mr Chand's evidence.
Mr Chand's evidence as to his actions, between his conversation with the call centre operator and his departure from Australia to visit his mother in Fiji on 21 December 2007, was given in pars 59 to 66 of his affidavit. He said that, to ensure that he was no worse off as compared to 25 September 2007, he needed to determine a fairly accurate redemption value as at that date for comparison purposes. He said that, since he was not monitoring markets while waiting for the withdrawal form to be processed, there was a need for him to reacquaint himself with the market to ensure the most optimal next exit date.
As noted above, in the period after 25 September 2007, Mr Chand agreed, he did monitor at least the value of his investments. It would have been incredible had he claimed not to have done so, given that the redemption value was about $1 million, and he was subject to onerous obligations under his margin loan agreement. Mr Chand must have meant by his evidence in his affidavit, that he ceased to conduct the detailed monitoring of the financial and market sources that it had previously been his practice to carry out.
Mr Chand said that, on the weekend of 10-11 November 2007, he used the evidence available to him to carry out a more accurate calculation of the redemption value of his investments on 25 September 2007, and assessed that value at approximately $1,030,000. He then set his redemption target value as $1,030,000.
From 12 November 2007 to early December 2007, Mr Chand said he monitored markets as closely as possible. As he was unable to monitor markets during working hours, it was necessary for him to monitor his investments at night. He said that "rising markets" would act as a "safety net, in case there were corrections the next day when the redemption was actually submitted" (par 63). He said, in the period up to early December 2007, "it was not possible to pick a stable point" because redemption values "fluctuated heavily between $900,000 and $1,010,000" (par 64).
From early December 2007, Mr Chand claimed, it became impractical for Mr Chand to constantly monitor the markets because of a "busy full-time job". Mr Chand explained in cross-examination that, as the firm for which he worked closed down for Christmas holidays, extra work was required to complete work in progress. Mr Chand said: "given the fluctuations observed in the past four weeks and the need to exit before 20 December 2007 because of pre-planned overseas holidays, I decided to wait for dividends to be paid which would make up for the shortfall" (par 65).
Mr Chand denied in cross-examination that, when in par 65 of his affidavit he said that he decided to "wait for dividends to be paid which would make up for the shortfall", the shortfall to which he was referring was a redemption value less than his target of $1,030,000 (T 130.25). He insisted that the shortfall referred to the possibility that he could make a loss as a result of the redemption transaction because he had to commit himself to the redemption on the basis of unit prices that were two days old (T 128.35).
Mr Chand received a distribution of around $52,000 on 18 December 2007. However, by that date the redemption value had fallen to $815,000. By 20 December 2007 the redemption value had fallen further to $800,000. By this time, according to Mr Chand, it was not possible to withdraw without incurring substantial losses. He decided to wait for a recovery in the New Year (par 66). Mr Chand said that while he was overseas from 21 December 2007 to 26 January 2008 "there was next to no monitoring by me of unit values during that period": (par 68).
When asked in cross-examination why he did not send another request to the Bank from the same or a different fax machine the next day after his conversation with the call centre operator, Mr Chand said that he went back to monitoring the market; basically following the same process that he had done in September (T 109.10). He accepted that he could have provided a fresh withdrawal form in a physical sense: "...but I would not have done anything without reassessing my position" (T 109.25). Mr Chand accepted that there was "no physical bar" to his asking the operator to put him through to a supervisor so that he could follow up the enquiry, or to go to the Bank or ring Mr Molesworth to follow up what he was told by the operator (T 109.27 to 49). He accepted that he "made a positive decision not to do any of those things" (T 110.5). Asked whether "it was a deliberate and considered decision" Mr Chand said: "it was the easiest decision to make" (T 118.42). Finally, Mr Chand agreed that, at the time he spoke to the operator, the market "was higher than in September" (T 117.31).
Mr Chand accepted that, after his conversation with the operator, the market had remained quite "buoyant" (T 110.21) and that the value of his units had risen over October (T 110.32). His position was that he decided to stay in the market in order to monitor the market to pick another exit date (T 114.25), and that, because the unit prices available to him were two days old, it was necessary for him "to pick a rising market" (T 115.7). In essence, Mr Chand asserted that "the market was flat" (T 115.38), and that appears to be his justification for not having submitted to the Bank a further redemption request
When asked in cross-examination whether it was his expectation, in the second half of 2007, that, if he stayed in the market, he would receive a dividend of around $50,000 in December, Mr Chand said "no" (T 119.39). Mr Chand's position was that he was not expecting to receive a distribution, but he was "stuck" in the market longer than he had expected (T 119.43), and he understood that a distribution could be expected if he was still in the market towards the end of December.
Mr Chand agreed that he took the "deliberate course" to stay in the market and do what he wanted to do because there was "no need to panic" (T 121.15).
Mr Chand accepted that he understood that his "units were high risk investments" (T 123.32), but claimed that he was able to protect himself by means of the "stringent monitoring process" that he had recommenced (T 123.41). He understood that the words "high risk" meant that the units were volatile, both upwards and downwards (T 124.10).
Mr Chand denied that it was his position that, if he could not calculate an exit point over $1,030,000, he was "going to stay in the market to kingdom come even if [his] units were falling and were volatile downwards at a rapid rate" (T 124.24). He agreed that there was nothing mandatory about $1,030,000, and that it was "just my initial target" (T 125.14).
Mr Chand said that "I pretty much had a point where I was just going to get to the point I wanted but the drop was too sudden and I didn't have a plan B so that's, that's what caught me out" (T 125.29).
Movements in Mr Chand's redemption value to 21 December 2007
As has been noted, Annexure A to Mr Chand's second affidavit contained a calculation made by Mr Chand, based upon data provided by the Bank's witnesses, showing what he would have estimated the redemption value of his investments to have been for every day between 1 September 2007 and 31 July 2008. As noted above, the redemption value is equal to the value of Mr Chand's portfolio of investments, less the amount owing under his margin loan, less any amount payable for financial planning advice, plus the proportion of the pre-paid interest that was returnable if the investments were redeemed on that day. Annexure A is included at the end of these reasons for judgment.
The evidence of the redemption value and movements in that value over the period may be relevant to a number of issues in these proceedings. First, the evidence may bear upon the veracity of Mr Chand's explanation of the process that he adopted in selecting 25 September 2007 as the initial exit date for the redemption of the whole of his investments. Secondly, the information may assist in a judgment about whether, when Mr Chand discovered that the Bank had not implemented his redemption request, he changed his mind and made a definite decision to stay in the market in the hope of achieving a better return than he would have achieved if the Bank had implemented his 25 September 2007 request. Thirdly, the evidence may be material to a consideration of Mr Chand's true state of mind in the period between 25 September and about 5 November 2007, when he progressively came to understand, initially that the Bank had not acted upon his request, and then that it may not effectively have received the request or entered it into its computer system. Fourthly, and critically, the evidence of daily redemption values may be important to an examination of Mr Chand's state of mind and intentions in the period between 5 November and 21 December 2007, in which he says that he was looking for an appropriate exit date, that he did not find before the significant fall in the market that occurred in mid-December. Finally, the evidence may have a bearing on the issues raised by the Bank whereby it alleged that Mr Chand was guilty of contributory negligence, and failing to mitigate his loss.
Although Mr Chand tendered Annexure A, he made no attempt to explain in any detail how the amounts of the redemption value for any periods related to the general evidence that he had given. He did not take any of the figures and demonstrate how those values caused him specifically to act in any relevant situation.
It is fair to assume that Mr Chand had a reasonably clear understanding of his redemption value on a day-to-day basis for the period between 1 and 25 September 2007, as this was the period in which, according to his evidence, he was giving detailed attention to picking an appropriate exit date.
The opening redemption value on 1 September was $931,558.88, and the equivalent figure on 25 September 2007 was $1,034,636.81. The redemption value first exceeded $1 million on 24 September 2007. It was on the evening of that day that Mr Chand decided to submit his redemption request the following day. As the breakeven point for Mr Chand's investments was $1 million, the figures provide evidence that Mr Chand waited until the apparent redemption value reached his breakeven point, and then decided to redeem.
The redemption value appears to have fluctuated a number of times over this period. It increased about $13,000 between 1 and 4 September. It fell about $65,000 between that date and 10 September. It then increased by about $67,000 to 14 September, before it fell by about $60,000 to 18 September. There were daily falls of about $25,000 from 4 September, $39,000 from 9 September, $30,000 from 16 September and $30,000 from 17 September. The redemption value jumped by about $85,000 between 18 and 19 September and then rose relatively consistently to top $1 million on 24 September 2007.
Given the absence of detailed evidence and explanation about the significance of the figures, it will only be safe to draw relatively general conclusions. The figures for redemption value between 1 and 25 September 2007 appear to provide broad support for the evidence given by Mr Chand. There is enough evidence of volatility to provide some support for his expressed concern about making an unexpected loss from a change in the redemption value over the period in which his redemption was effected. There was an upward trend between 18 and 24 September 2007. However, as I have noted, there is reason to conclude that Mr Chand's decision to redeem was also influenced by the fact that the redemption value had reached his breakeven position.
In the period from 25 September to 5 November 2007, Mr Chand agreed, he was aware of the market value of his units and the situation of the market generally, which he accepted as being "buoyant". Mr Chand must have followed the market price of his units at least sufficiently to make an educated judgment as to the amount, from day to day, of the redemption value. Otherwise, his conduct in not pursuing the Bank and making further enquiries, once he knew that the expected $1 million had not been deposited into his bank account, would be inexplicable.
The most notable feature of the redemption values during this period is that they did not fall below $1,034,636.81. The redemption value reached a high point of $1,189,246.40 on 11 October 2007. On a significant number of days the redemption value was in the order of $100,000 higher than the value on 25 September 2007.
The redemption value figures still exhibited some volatility, with the greatest daily increases and falls being in the order of $60,000.
Although the redemption values were consistently greater over this period than the whole of the period between 1 and 25 September 2007, they were relatively stable, as if the market was flat. To the inexpert eye the figures do not appear to suggest that the market had entered a period of sustained growth in value.
The figures for redemption values in the period between 5 November and 21 December 2007 suggest that the market value of Mr Chand's investments had fallen generally when compared to the period between 25 September and 5 November. If Mr Chand reinstated his practice of assessing the redemption value on a daily basis from about 11 November 2007, he would have noted that the value had been over $1 million for the previous week. In the period between 12 November and 29 November 2007 the redemption value fell below $1 million except for four days. The lowest values were about $913,000 between 22 and 25 November 2007.
However, the redemption value jumped by about $40,000 between 29 and 30 November 2007 and stayed just above $1 million between the latter date and 5 December 2007, when it increased by about $45,000 overnight and then by about $35,000 to 7 December 2007. The value stayed at about $1,082,000 on 7, 8 and 9 December 2007, and then gradually decreased over the next five days to $1,030,270.98 on 13 December 2007. That last value is, of course, almost identical to the redemption value on 25 September 2007.
It is true that the redemption values between 6 and 13 December 2007 do not suggest a rising market, as opposed to a market that was flat. However, the redemption value was slightly over $1 million between 30 November and 5 December 2007. Collectively those circumstances should have satisfied Mr Chand's description of the rising market that he was looking for, in order to choose an appropriate and safe exit point. During the 6 to 13 December period the redemption value was also at or above Mr Chand's chosen target value.
One of the consequences of the fact that Mr Chand did not, in either of his affidavits, explain his actions at a level of detail that related his general descriptions with the day-to-day redemption values, is that Mr Chand did not provide any real explanation of why he did not send a redemption request to the Bank on some day in the period 6 to 13 December 2007, except to the extent that he suggested that, at a date that was not specifically identified, he became distracted by increasing employment obligations.
After 13 December 2007 the amount of the redemption value progressively decreased from $984,336.67 to $783,633.07 on 20 December 2007, the day before Mr Chand left Australia for Fiji. As Mr Chand received a distribution of $52,000 on 18 December 2007, that may explain the drop in value from $814,415.19 on 18 December to $783,633.07 on 20 December 2007.
Plaintiff's Fiji holiday
Mr Chand's passport shows that he entered Fiji on 21 December 2007, and left that country on 27 January 2008. During that period the redemption value of Mr Chand's investments fell from $832,449.81 on 21 December 2007 (having increased by about $50,000 from the preceding day) to $548,725.96 on 27 January 2008. The low point in the period was $218,967.52 on 22 January 2008, which represented a fall of some $278,000 over two days. Mr Chand said that: "Relying on fund managers to make decisions to minimise losses seemed to me to be the only option" (affidavit par 70).
I find that the Bank has established its case that Mr Chand's own actions were the operative cause of his loss, for which he alone should be held responsible.
I will now consider, alternatively, whether Mr Chand's failure to avoid the loss that he suffered, after the Bank's breach of contract gave rise to that prospective loss, was sufficiently unreasonable, as between himself and the Bank, that Mr Chand "cannot really be said to have incurred [that] loss", to use the words of Heydon JA in Sherson & Associates v Bailey that have been set out above.
If the principle considered in Allianz Australia Ltd v Waterbrook does not apply unless the plaintiff has freely, deliberately and knowingly embraced an existing, known loss, then the only basis available to the Bank to escape responsibility for Mr Chand's loss because Mr Chand's own conduct justifies that result will be the application of the principles concerning the consequences of the unreasonableness of Mr Chand's conduct.
However, if I am correct in the findings that I have made above concerning what may be described as the voluntariness of Mr Chand's embracing the continuation of his risk of loss are correct, it would seem to follow directly that Mr Chand's conduct would not pass any applicable test of reasonableness.
How is the court to determine whether, as between Mr Chand and the Bank, Mr Chand has acted so unreasonably that the Bank should not be held accountable for the consequences in fact of its breach of contract? This is a particular form of normative question. It is necessary to derive the criteria for answering the question from legal principle (Travel Compensation Fund at [29]), and it will be necessary to identify and articulate "an evaluative judgment by reference to 'the purposes and policy of the relevant part of the law'" (Wallace v Kam at [23]).
It is necessary to start with an "identification of the nature of the risk against which [Mr Chand] sought protection and of the loss [Mr Chand] suffered, considered in the light of the kind of wrongful conduct in which [the Bank] engaged" (Travel Compensation Fund at [35]).
The source of the Bank's obligation is the contract into which Mr Chand and the Bank entered.
As already noted, the term of the contract that the Bank breached was not a promise by the Bank to avert the loss that has occurred. It was a promise to implement effectively an instruction by Mr Chand that would allow him to redeem his investments, and extinguish his margin loan obligations, at a time of his own choosing.
The requirements of reasonable conduct, as between the parties, after the breach of the contract by one of them, should arise from a determination of the objective expectations of reasonable persons in the position of the parties, having regard to their mutual knowledge of the circumstances of each party, in the context of all of the relevant events known, or which ought to have been known, by the parties. The principal objective expectation of the parties to contracts is that the contractual obligations of the parties will faithfully be performed. It is a reality, however, that contractual obligations are not always performed, for reasons ranging from the culpable to the inadvertent, or unavoidable. Parties to contracts will have reasonable objective expectations as to how each party should respond to particular breaches by the other, even if, at the inception of the contract, those expectations are suppressed by optimistic expectations of performance.
Fundamental objective expectations of parties to contracts extend beyond the expectation of performance, to the expectation that each party will act reasonably to fulfil the other parties' expectation of benefit, that each party will act positively, but only to a reasonable extent, to avoid loss following a breach by one of them, and that even the innocent party will have regard to the interests of the party in default to minimise its own loss for the benefit of both itself, and the defaulting party.
The requirements of reasonable conduct by an innocent party to a breach of contract by the party in default must flow from an analysis of the terms of the contract, in the context of the circumstances of the breach. This analysis may require (a) the identification of the term breached; (b) the identification of all possible consequences of the breach; (c) consideration of the risk of serious consequences occurring; (d) consideration of the possible severity of those consequences; (e) an ascertainment of the knowledge of the existence of the breach by each party; (f) an analysis of the respective capacities of the parties to take available actions to avert the risk or minimise the consequences; and (f) consideration of the extent to which each party knows that it has the capacity to avert or minimise the consequences, because of an absence of knowledge or means on the part of the other parties to do so. Perhaps other considerations may arise in cases that involve different facts than the present.
In the present case the term breached required the Bank to carry out ministerial steps that would effect the redemption of Mr Chand's investments, the repayment of his margin loan, and the payment of the balance into his bank account. As the redemption process was Mr Chand's only instrument for terminating his risk to the market, and his consequential risk under his margin loan agreement, any breach of the term had potentially serious consequences.
If Mr Chand had suffered a loss by reason of a fall in the value of his investments between the time of the breach and the time when Mr Chand became aware of the breach, it is clear that the Bank would have been legally responsible for the consequences. For one thing, the reasonableness or otherwise of Mr Chand's own conduct would not come into consideration, because he would not have had an opportunity to renew his redemption request.
However, as noted above, a feature of the redemption process is that it is simply and reliably repeatable.
Further, as it is in the nature of markets that prices fluctuate up and down, it follows that a breach of the obligation to redeem may not necessarily lead to any loss being incurred. There is a clear risk of loss. However, depending upon the circumstances of the market, at least in the short term, there was a possibility that Mr Chand's position would be improved by an opportunity to select a later date to renew his redemption request, just as there was a possibility that he would suffer loss.
The ease with which Mr Chand could renew his redemption request, after he learned of the Bank's failure to implement his initial request, justifies a conclusion that reasonable persons in the position of Mr Chand and the Bank would expect him to exercise his discretion as to whether, and if so when and in what circumstances, he should renew his redemption request.
That conclusion is supported by the consideration that the existence of the risk of the market remained constant, and the nature of the risk fluctuated and required monitoring on a continuous basis.
It was clear as between Mr Chand and the Bank that only Mr Chand was in a position to monitor his investments, and to react to changes in market risk, and market opportunities. The Bank did not provide that service to Mr Chand.
Further, the right to renew his redemption request was in the discretion of Mr Chand alone. Even if the Bank had discovered the redemption request a short time after 25 September 2007, it would not have been entitled under the contract simply to execute the request without obtaining prior confirmation from Mr Chand. The PDS set out timing requirements for the process of redemption, and did not authorise the Bank to initiate the process at a time not contemplated by the redemption request. If the Bank had learned of its breach, all that it could have done was to bring the breach to the attention of Mr Chand, to seek further instructions, and to hope that Mr Chand would either co-operate in a process of redeeming his investments in a way that avoided loss, or kept it to a minimum, or alternatively that Mr Chand decided to stay in the market and release the Bank from the consequences of its breach.
In these circumstances the opportunity for Mr Chand's salvation lay entirely in his own hands.
On any view the Bank could not in these circumstances be on risk indefinitely for legal responsibility for the consequences in fact of its breach of contract, irrespective of what those consequences might be. It seems clear that Mr Chand could not simply stay his hand so that, if market values increased he could redeem at a time of his choice and enjoy the improved return, but look to the Bank to make up any shortfall if market values ultimately fell. Mr Chand could not, by inaction, effectively make the Bank his insurer against the risk of a fall in market value occurring. The essential question must be, not if, but when and in what circumstances, would Mr Chand's conduct have the effect that Mr Chand had, so to speak, reset the arrangement between himself and the Bank so that he had re-assumed the risks that he originally knowingly accepted in making his investments.
The initial decision that Mr Chand was required to make was whether he would seek to hold the Bank responsible for its breach, and consequently seek to achieve the result that he would have enjoyed if the Bank had acted on his redemption request, or whether he was content with the outcome of the failure of his initial redemption request, so that he would stay in the market and choose a later time for redemption. Because of the continuing, unpredictable nature of the risk, reasonable parties would expect the party in the position of Mr Chand to address the issue positively and make a decision over a reasonably short time. The duration of the reasonable decision-making period would depend upon the circumstances, but once Mr Chand acclimatised himself to the fact that he continued involuntarily to be exposed to the market, and after he had an opportunity to reacquaint himself with developments in the market since he submitted his redemption request, he would be expected to make an election.
In the present case it may not be necessary to consider the consequences of Mr Chand's failure to advise the Bank of its breach, or to consider whether Mr Chand took too long in making his election as to whether to hold the Bank of the consequences of its breach, or to voluntarily stay in the market at his own risk. The evidence shows that Mr Chand made a deliberate decision to stay in the market for the purpose of attempting to secure the same result as he would have enjoyed if he had submitted his redemption request on a date in October 2007, rather than on 25 September 2007. Mr Chand positively elected to stay on risk.
If my conclusion is correct that Mr Chand could not reasonably elect intentionally to stay on risk, when he had a sufficient opportunity to avoid any loss caused by the Bank's breach, but still hold the Bank accountable for the ultimate consequences of its breach, without even telling it of its position, then it follows that Mr Chand's conduct was unreasonable, and as he has caused his own loss when he could equally have caused that lost to be avoided, his conduct satisfies a test of unreasonableness that absolves the Bank from liability for the consequences of its breach.
The Court of Appeal held in Sherson & Associates v Bailey that the plaintiffs did not act unreasonably in failing to reinforce the roof supports before the roof collapsed, even though they had been warned that additional bracing was required. Although each case depends upon its own facts, it is necessary to consider whether, by parity of reasoning, Mr Chand's inaction in the present case should be excused. In that case the court held that the expert reports did not suggest that there was a need for urgency in carrying out the steps recommended. The evidence did not establish that the plaintiffs recognised that there was a possibility that the building would collapse. It was open to the plaintiff to assume that, if they kept an eye on the building to observe the progress of any cracking, the remedial work could be postponed until the severity of the problem became clear. Fitzgerald JA stressed that the response that was reasonably required of the plaintiffs was related to the risk which they confronted, and that the expert opinions that the plaintiffs had obtained did not clearly indicate that there was a serious risk that the building would collapse, or that remedial work was urgent.
Furthermore, in that case the plaintiffs would have been required to obtain expert advice that directly dealt with the remediation work that was necessary to prevent the building suffering substantial damage as a result of the defendants' defaults. While the issue of the cost of obtaining the necessary advice and carrying out the remediation was not specifically addressed, it seems clear that the cost would probably have been significant, so that it was reasonable for the plaintiffs to defer incurring that cost, except in response to the appearance of signs of structural deterioration that warranted the expenditure.
The circumstances of the present case are in my view materially different. Until mid-December 2007 Mr Chand's loss was entirely prospective. Mr Chand believed that it was no longer prudent for him to remain in the market, given changed market circumstances, the high-risk nature of his investments, and that his own position was highly geared, as were some of his investments. Mr Chand's own case was that he was attempting to exit the market. I have found, however, that, contrary to Mr Chand's case that he was trying to secure the same result as he would have enjoyed if the Bank had implemented his redemption request, he was in fact waiting to see if he could do better. Mr Chand had a simple means to redeem his investments at any time. Importantly, he was able to issue a new redemption request without incurring any cost, or subjecting himself to any risk. He had no basis for believing that, if he ignored an opportunity to redeem without loss, and the market suffered a significant fall, he would have any subsequent opportunity to recover his position. Finally, it is also important that, on the findings I have made, Mr Chand decided to stay in the market with knowledge of the risks that were involved.
I therefore find that Mr Chand's conduct during the period up to mid-December 2007 was the cause of his loss in a manner that requires that he, rather than the Bank, be legally responsible for that outcome.
In considering the issue of the reasonableness of Mr Chand's conduct I have not ignored the element of doubt, which I have considered above, concerning whether Mr Chand's redemption request simply went astray after it was received by the Bank, or whether some officer of the Bank became aware of the request, decided that it was not an instruction that should be acted upon by the Bank, but neglected to contact Mr Chand to obtain further instructions. In principle the reasonableness of the Bank's conduct should be weighed in the balance when determining responsibility for the realisation of Mr Chand's loss. As I have said above, the positive evidence and the probabilities weigh in favour of the conclusion that Mr Chand's redemption request simply went astray. There is some ground for concern, however, that arises because the Bank made claims that the redemption request could not be implemented because it did not contain an instruction to pay out Mr Chand's redemption request. The Bank actually pleaded that fact, but did not pursue it. It cannot be known whether the point was a retrospective rationalisation, of which the Bank subsequently thought better. I have asked myself the question: what if an officer of the Bank did become aware of the receipt of the redemption request, and decided not to act upon it, or contact Mr Chand - would that make any difference, and if so what difference?
After the Bank committed its breach, it could not have changed its mind and simply redeemed Mr Chand's investments outside the timeframe contemplated by the redemption request, without obtaining a further instruction from Mr Chand. The most the Bank could have done was to contact Mr Chand to advise him that it had not implemented his request, and ask him what Mr Chand wanted the Bank to do. It is a matter for speculation what then would have happened. Mr Chand may have instructed the Bank to redeem, and depending upon the timing, that may have yielded a better or worse result than as at 25 September 2007. Mr Chand may have instructed the Bank not to act upon the redemption request. Mr Chand did not make anything of this issue in his case, or in his final submissions. In particular, he did not put a positive case that the Bank was aware on or soon after 25 September 2007 that it had received his redemption request. He did not try to establish what he would have done, had he received advice from the Bank at any particular time that it had failed to act upon his request. Given my view that the probabilities support the conclusion that the redemption request went astray, and the necessarily speculative enquiry as to what might have happened if my view is incorrect, I have concluded that it is not appropriate for me to attempt to weigh the possibility that the Bank knew that it had received the redemption request in the balance in considering the reasonableness of Mr Chand's conduct.
It is appropriate that I return to make a number of observations about the issues of burden of proof, and the standard of reasonable conduct that is required of the plaintiff in the context of proof of causation and mitigation of loss.
I have found that Mr Chand's conduct in failing to renew his redemption request on an appropriate date in the period between the time that he became aware that the Bank had not implemented his redemption request and about 13 December 2007 relieved the bank from legal responsibility for the loss suffered by Mr Chand after that time. If that conclusion is wrong, then the significance of Mr Chand's conduct after mid-December 2007 becomes relevant.
In the period up to mid-December 2007 Mr Chand's loss was for all practical purposes prospective. As I have said, at times there were virtual gains, and at other times virtual losses, compared to the position at 25 September 2007. It is perhaps fortuitous that the most propitious time for Mr Chand to renew his redemption request, if he did so after the October high values ended in the first week of November, was the week ending 13 December 2007. After that time his equity loss was progressively realised, albeit somewhat erratically as the value of his investments fluctuated significantly, though with an underlying downward trend. The first additional interest charge was made in December 2007, and subsequent charges followed. Mr Chand made margin call payments in April and July 2008, and they were also lost. On the particular facts of this case it is a reasonable and practical approach to view Mr Chand's conduct in the period up to mid-December 2007 from the perspective of his ability to act reasonably to avoid the whole of his prospective loss becoming realised. Once, however, the value of his investments fell substantially after mid-December 2007, his position changed fundamentally. It might not have immediately been obvious, but from that time Mr Chand was in a loss-making position. At least from the low point of redemption value of $218,967.52 on 22 January 2008, it must have appeared to Mr Chand to be a matter of complete uncertainty as to whether he would ever be able to substantially recover his equity loss and consequential losses. The only choice available to Mr Chand was to cut his losses, and the fluctuations in values, and the impenetrability of future events, put Mr Chand in an entirely different position than he was in up to mid-December 2007.
I do not see that I have had to rely upon the burden of proof in forming my view that it was Mr Chand's conduct that was the legally responsible cause for his prospective losses becoming real. It is true that Mr Chand failed to prove crucial aspects of his case. I have not accepted that Mr Chand did not appreciate that the Bank was not going to implement his redemption request until early November 2007. I have not accepted that he believed the Bank did not effectively receive his request. In fact Mr Chand had evidence that it did. I have not accepted that Mr Chand looked for an exit point from the market at the same redemption value as at 25 September 2007. Rather, he took his chances on the market recovering to October 2007 values. I have not accepted that no exit point occurred that satisfied Mr Chand's criteria. There was such an exit point between 30 November and 13 December 2007. Those conclusions do not, however, mean that Mr Chand failed to carry the burden of proving that the Bank continued to be responsible for his realised loss, as a result of some inadequacy of the evidence put forward by Mr Chand. The whole of the evidence sufficiently proved the facts necessary to make a positive decision on the issue of whose conduct was truly responsible for the loss becoming realised.
In fact, even if it be the case that Mr Chand had the burden of proof, I have proceeded on the basis that, as the Bank's conduct caused Mr Chand's loss in fact, I should not find that Mr Chand's conduct absolved the Bank from those consequences, unless I was comfortably persuaded that the whole of the evidence justified a finding to that effect.
It is my view that in the period up to mid-December 2007 the standard of reasonable conduct expected of Mr Chand should be the same whether the conduct is considered as going to the causation of the realisation of his loss, or the mitigation of his prospective loss. As appears to have been the case in both Medlin and Knott Investments, there is no reason to conclude that Mr Chand had to achieve different standards of reasonable conduct in relation to the avoidance of loss for the purposes of causation and the mitigation of loss. Indeed, the statement of principle by Heydon JA in Sherson & Associates v Bailey at [77] is put as a matter of general principle, as if it was sufficient to say: "A plaintiff cannot be said to have really incurred any loss which might have been avoided by his taking such steps as a reasonably prudent man in his position would have taken to avoid further loss to himself", without being too troubled about whether this is a statement going to causation or mitigation, or both.
If, in the context of determining legal responsibility for loss that has resulted from the conduct of both Mr Chand and the Bank, "any question of reasonableness should be framed in terms of what is reasonable as between the plaintiff and the defendant", as stated by the plurality in Medlin at p 13, and if the reasonable steps required of Mr Chand to mitigate his loss required Mr Chand to act in the interests of the Bank as well as his own interests, as was acknowledged in the St Vincent's Hospital case, it is difficult to see how the standard of conduct required on the part of the plaintiff could, as a general rule, differ as between causation and mitigation.
I have set out above the statement of the principles that govern mitigation that was given in the St Vincent's Hospital case. I accept that the courts usually impose a standard of reasonable conduct upon the plaintiff that is not high, because the wrongdoing of the defendant has put the plaintiff involuntarily in the position where the plaintiff must act to reduce loss, which is likely to be "a position of embarrassment" so that the plaintiff should not be expected to embrace significant risk in the interests of attempting to diminish the defendant's liability. However, the reference to the significance of the embarrassing position into which the defendant's breach may thrust the plaintiff should not be taken to be a statement of invariable principle, which applies without reference to the nature of the breach, its consequences and the relative capacities of the plaintiff and the defendant to avoid loss occurring, or to minimise it, on the particular facts of the case. As a matter of common experience the defendant's wrongful act may put the plaintiff in a position of serious disadvantage, where the steps available to the plaintiff to attempt to avoid or reduce the loss that will flow from the breach are themselves risky, time-consuming or expensive. However, that may not always be the case. The standard of the conduct required of the plaintiff to take reasonable steps to avoid or reduce loss may in some cases be much higher than is usually expected, because of special features of the case such as the ease and reliability of the steps available to the plaintiff to avoid or reduce the loss.
In my opinion it is appropriate to divide the period between Mr Chand's discovery that the Bank had not acted on his instruction and mid-2008, by which time the whole of Mr Chand's loss had effectively been realised, into two separate sub-periods. Between the time Mr Chand realised that the Bank had not implemented his redemption request, and mid-December 2007, Mr Chand's loss was in substance prospective. That is the first period. Following the relatively dramatic fall in the portfolio value in mid-December 2007, Mr Chand's world, so to speak, changed significantly. He was thrust by circumstances into a loss-making position. That is the second period.
In the first period the Bank's breach did not in fact cause Mr Chand to experience disadvantage and embarrassment, save to the limited extent that involuntarily he remained at risk of changes in the market, and in respect of his liability under the margin loan agreement. Mr Chand therefore was exposed to the need to reconsider making a redemption request, so that he might suffer loss if he failed to do so at a propitious time. However, as noted, Mr Chand was in a position of strength in that he was able by a simple means to renew his redemption request at a time of his own choosing, and he could have done so on occasions that would have avoided his loss. As it happens, the best time for him to leave the market would have been between when he learned that his request had not been acted upon and about 7 November 2007, or between 6 and 13 December 2007, which was at the end of the first period. In the first period, as a practical matter, Mr Chand had the opportunity to avoid his prospective loss becoming actual. The standard of conduct required of him to achieve that result is the same, in my view, whether the question is approached from the perspective of Mr Chand's conduct causing the loss, or failing to mitigate a prospective loss.
After mid-December 2007, however, it is appropriate to regard Mr Chand as having suffered a loss, and as having been thrust more clearly into the position of disadvantage and embarrassment that generally causes the courts to be solicitous towards plaintiffs in relation to the standard of reasonable care that is imposed upon plaintiffs in respect of the mitigation of loss.
The standard of the obligation upon Mr Chand to mitigate his loss during the second period is substantially less than it was during the first period to avoid his prospective loss becoming actual loss. It is probably more natural to consider Mr Chand's conduct during the second period as being more a matter of mitigation, than causation.
That proposition may not be true in relation to the payment by Mr Chand of the two margin calls, as those payments actually increased Mr Chand's loss. There may be scope for debate about whether, by making the payments, Mr Chand caused his loss to increase, or whether the payments should be regarded as a reasonable attempt by Mr Chand to mitigate his loss, which unfortunately was unsuccessful.
I have considered the reasonableness of Mr Chand's conduct after the end of 2007 above, in the context of the subsequent variations in the portfolio value of his investments and the circumstances in which he responded to margin calls. I have already explained why I find that the Bank has not established that Mr Chand unreasonably failed to act to mitigate his loss, as it materialised during 2008, and afterwards.
As Mr Chand's claim has failed, the contributory negligence defence that the Bank pleaded in par 65 of its further amended defence does not arise. However, as I have held that Mr Chand's loss arose from a breach by the Bank of a contractual term that did not amount to "a breach of a contractual duty of care that is concurrent and co-extensive with a duty of care in tort" for the purposes of the definition of "wrong" in s 8 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9 of that Act would not have applied, and the principle in Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 would have operated to defeat a contributory negligence defence.
Had it been necessary to do so, I would have held that the Bank's defence in par 57 of its further amended defence, based upon the terms of clause 37 of the margin loan agreement failed. The Bank did not place positive reliance upon this defence in its final submissions. It is difficult to see in the context of this case how any limitation terms in the margin loan agreement could absolve the Bank for liability for failure to perform its obligations under the contract that was formed when Mr Chand accepted the terms of the PDS. The Bank's submissions did not explain how clauses 37.1 and 37.4 applied. It does not appear from an examination of those provisions how they could do so.
Orders
I make the following orders:
(1)Order that the plaintiff's claim be dismissed.
(2)Order the plaintiff to pay the defendants' costs
(3)Order pursuant to UCPR r 31.16A and r 33.10, and Practice Note No S C Gen 18 par 26:
(a)that the exhibits be returned forthwith to the parties who tendered the exhibits to be held by them in compliance with Practice Note No S C Gen 18 par 28;
(b)that the parties return any exhibits that were produced to the Court by any person in answer to a subpoena or notice to produce to the person who produced the document forthwith upon the expiry of any time for which the party to whom the exhibit is returned is required to retain the exhibit;
(c)that all material produced directly to the Court by any party in answer to any notice to produce that has not become an exhibit be returned forthwith to the party who produced the material; and
(d)that the Registry should forthwith return, or otherwise deal with in accordance with Practice Note No S C Gen 18 par 27, all material produced to the Registry in answer to any subpoena or notice to produce."
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Addendum (PDF)
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