David Securities Pty Ltd & Ors v Commonwealth Bank of Australia

[1990] HCATrans 245

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S63 of 1990

B e t w e e n -

DAVID SECURITIES PTY LTD

Applicant

A & T RAHME & SONS PTY LTD

Second Applicant

ANTOINE RAHME

Third Applicant

THERESE RAHME

Fourth Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave

to appeal_

DEANE J

DAWSON J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 OCTOBER 1990, AT 3.43 PM

Copyright in the High Court of Australia

David 1 12/10/90

MR v. BRUCE, QC:  May it please Your Honours, in this matter

I appear for the applicant with my learned friend,

MR C.L. LONERGAN. (instructed by Messrs

V. Ranzetta & Co)

MR A.R. EMMETT, QC:  May it please Your Honours, I appear

with my learned friend, MR. J. MARSHALL, for the

respondent. (instructed by L.E. Taylor Esq.)

DEANE J: Mr Bruce.

MR BRUCE:  Your Honours, as is apparent, this is a claim

arising out of one of the innumerable foreign

exchange loans that have been made in this country.

DEANE J:  I thought you were going to say it was an eleventh

floor matter.

MR BRUCE:  It is getting close, Your Honour, but there are

two .... satisfy that criteria. Your Honour, in

relation to the grant of special leave, subject to

a couple of qualifications to which I will advert,

the respondent does not oppose the grant of special
leave in this matter.

Your Honours, there are three matters in respect of which leave is sought and if I may, with

Your Honours' permission, deal with them in perhaps

a reverse order. Firstly, there is the question of

whether moneys which have been paid pursuant to a

mistake of law may be recovered by the payer.	The
matter, when it was dealt with before the Full

Court of the Federal Court proceeded on the basis

assumed by both parties that section 261 of _he

Income Tax Assessment Act rendered void a provision in the Commonwealth Bank's loan documents which required the payment of withholding tax by the

borrower. The argument proceeded on that basis and

judgment was delivered on that basis saying,

assuming it be void, none the less the money was

paid and it cannot be recovered because the law is

of the law, subject to this Court changing that	that you cannot recover money paid under a mistake
expression of the law.

DAWSON J: Changing the law.

MR BRUCE:  Yes. I have been the victim of that,

Your Honour, so I thought perhaps, Your Honour, it

may be appropriate to change shoes. My friend is

content for special leave to be granted on that
question, subject to this: they wish to reserve
the question of whether or not section 261 operated

to render the provision in the loan documents void.

That was a matter which was conceded below but they

now wish to keep open. I am sorry, my friend

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corrects me. It was not conceded but it was argued

on the basis that section 261 operated and - - -

DEANE J: Except if it did not so operate, that would not

raise - - -

MR BRUCE:  It would not raise the question, yes,

Your Honour.

DEANE J: But it also would not raise any question

appropriate for a grant of special leave.

MR BRUCE:  Yes, Your Honour, that is so. It may well be, as

my friend points out, the effect of section 261

itself is a special leave application because the

term in the loan documents was pretty much a

standard term requiring the payment by a borrower
of withholding tax as a condition, rolling over
their loan, so we may not get to what we consider
to be the ultimate point, but none the less, on the
intermediate point there is a matter of general

public importance which we would request this Court

to deal with. We would be submitting, when the

occasion arises, if that point is taken when the
matter ultimately came on for hearing that

section 261 operates, it is void, and then we get

to what we would respectfully submit is the

substantive issue in that area of whether or not

the law should remain as it is or should be

changed.

Secondly, Your Honour, my friends wish to

reserve the question of whether the absence of

evidence of mistake - that is specific evidence of

mistake,· someone getting in the witness box and
saying "I was mistaken as to the law." is a bar to

recovery or whether this Court's views in relation

to reliance are appropriate to a situation such as

this.

Your Honours, having referred to those two

caveats, in respect to the principal matter, that	is whether or not money may be recovered, perhaps
it really only needs to be stated shortly that we would submitting to Your Honours that that is an
archaic view of the law which is not supported by the trend of authorities in this Court, Pavey v
Matthews and the Voyager case, which show a trend
towards the entitlement to recover moneys which are properly recoverable and recovery which should not
be precluded or prevented by a law such as this
which is described in a passage in the judgment of
Their Honours in the Full Federal Court as being "the dead hand of the past".
Your Honours, we would secondly say that the Full Court was, in any event, in error in saying

David 3 12/10/90

that the Bank did not hold the primary

responsibility for the mistake: (a), they prepared

the documents which were tendered to the borrowers

for execution, and secondly, they calculated the

amount of money which was payable and which was

sought from the borrowers pursuant to those

agreements, and we would be respectfully submitting

that that conduct, while it did not go specifically

to misleading as to what the law was, when an

institution such as the Commonwealth Bank holds out

to borrowers up at Dee Why that the legal

obligation of the borrower is to pay a sum of

money, then they are guilty of misleading the

borrower as to its legal obligations.

Thirdly, Your Honours, we would say when the Full Court said, at page 185 line 26, that it was

"at least a mistake as to law mixed with fact",

then that raises perhaps a further question which

may be easier to approach rather than reversing the

specific provisions of the law and specific

authorities saying that you cannot recover moneys
paid solely under a mistake of law.

Your Honours, the second area is the question

of whether or not the change in the interest rate
which was applicable was a penalty or not a penalty

and there is no opposition to the grant of special

leave on that, I think, without any qualification.

There is no qualification to that, Your Honours.

Very briefly, the provisions were that there

was a particular interest rate payable; in the

event of a default there was another interest rate

payable which was higher, but it was not

retrospective. It applied from the time at which

the moneys became due and payable. They became due

and payable triggered by a variety of defaults,

some of which may have been significant, some of

which may have been minor, and it would be our

submission that even though there was no

retrospective operation the change in interest

rates was a penalty because it did not reflect a

genuine pre-estimate of the damage which was

sustained by the Bank because of a failure to pay

on the appointed day.

Your Honours, the principal matter, that is relating to the obligations of the Bank vis-a-vis

its customers in relation to foreign exchange

loans, there is no opposition to the granting of
leave on that question subject to reserving the

question of whether the statement of facts which

appear in the application book is accurate and

that really is, with respect, a minor reservation.

What we are submitting in relation to that matter,

Your Honours, is that there is an obligation which

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arises - I could take Your Honours through the

facts if Your Honours wished -

DEANE J:  Mr Bruce, you will need to if you want to convince

me that the decision of the court below - the

actual decision on this aspect is attended by

sufficient doubt in the circumstances of this case

to warrant the intervention of this Court.

MR BRUCE: If Your Honour pleases. In relation to the

appeal, the claim arose in this way:	a bank
manager at Dee Why - - -

DEANE J:  I might say, for myself, you should not assume

that the lack of opposition of the respondent is

persuasive in relation to either of the other

points, particularly the interest point.

MR BRUCE:	The 260 point, Your Honour?
DEANE J:	The penalty point.

MR BRUCE: If Your Honour pleases.

TOOHEY J: 

Mr Bruce, just before you begin on this aspect of

the matter, could you just identify for us in
relation to the draft notice of appeal the grounds
that are relevant to the matter you are about to

develop.

MR BRUCE: Certainly, Your Honour. At page 210,

Your Honour, 2.A; we do not press B; C; they are

the grounds, Your Honour.

TOOHEY J:	Thank you.
MR BRUCE:	Your Honours, the case arose when the

TOOHEY J: If B goes, does that eliminate, as it were, an

essential that you have to make good?

MR BRUCE:  No, Your Honour. A and Bare in the alternative,

with respect.

TOOHEY J:  So what are you suggesting, that there was a

breach of the duty of care but not to be found in

conduct contravening section 52 of the Trade

Practices Act in the representations that are

mentioned in paragraph B?

MR BRUCE:  I am sorry; Your Honour is quite correct. I was

in error in dealing with that. Your Honours, what

we are relying on is the common law duty which - we

do not press "(or engaged in conduct contravening

s52 of the Trade Practices Act)".

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TOOHEY J:  So Bis to stand without the bracketed

words - - -

MR BRUCE:  Yes, Your Honour, we do not press - I am sorry, I

was in error.

TOOHEY J:  So we eliminate the Trade Practices Act

completely from our consideration, do we?

MR BRUCE:	Yes, Your Honour.
TOOHEY J:	Thank you.
DEANE J:	And point A, when it does not refer to a duty of

care in conventional terms, is largely predicated, is it, on the proposition that a foreign currency loan is like a bomb?

MR BRUCE: That is one way of putting it, Your Honour. It

is certainly predicated on the basis that it is a

product which has a dangerous component in it.

DEANE J:  And it is not enough to send somebody off for

proper independent advice?

MR BRUCE:  They sent someone off to an accountant at Dee Why

who, to the knowledge of the bank manager, had been

involved in one foreign exchange transaction.

DEANE J: Then unless one accepts the analogy of whether it

is a bomb or whatever other Rylands v

Fletcher substance, what is left in the negligence claim; the question whether sending somebody to an accountant at Dee Why is an adequate discharge of

the conventional duty of care?

MR BRUCE:  Your Honour, how we would put it is that firstly,

there is a duty of care to explain to the customer
the risks which are inherent in the nature of the

obligation which he has undertaken. Secondly, we

would put it on the basis that the Bank assumed an	obligation of explaining, partly explained it but	did not completely explain it, when the documents
were signed on 17 December 1984. So that there are
two alternative bases: (a), there is a duty of
care to do it in any event; if there was not a duty of care, they assumed the obligation and did not
fully discharge it.

DEANE J:  Mr Bruce, so that you can see the sort of thing

that is running round the back of my mind in

relation to this, I would not find it surprising

that a bank would select this case as the case on

which it wanted to embroil this Court in the

negligence question. That being so, the non-
opposition of the Bank, in one sense, is a cause

for greater caution on the part of the Court

David 6 12/10/90

whether this is really an appropriate case for us

to set off on this third point.

MR BRUCE:  Yes, Your Honour, I appreciate what Your Honour

says fully, with respect. However, having said

that, we would submit that it is an appropriate

case for the Court to deal with for the reason

that, while there are certain findings of fact

which at first blush may not be perhaps conducive

to success by the applicant, none the less when one

comes to look at the judgment and the approach

proceeding on the basis of a certain standard of

taken by both the judge at first instance and

care that had to be applied and we would

respectfully say that when one takes, to use

Your Honour's bomb analogy, that into account,

Their Honours never really turned their mind to the sort of standard that was appropriate and did not

turn their mind to the question of whether or not,

having embarked upon it, bearing in mind the nature

of the product which was being proffered by the

Commonwealth Bank - - -

DEANE J: Might I perhaps also mischievously ask: is the

Bank's lack of opposition on an all or nothing basis? I mean, what if we were disposed to give

you leave on your first point only?

MR BRUCE:  There has been no qualification on that. They

may come, but they certainly have not been put to

date.

DEANE J:  I think Mr Emmett was indicating there are not any

qualifications.

MR BRUCE: If Your Honour pleases.

TOOHEY J:  Can I just add to your problems, Mr Bruce, by

asking you in respect of grounds A, Band C which you are in the process of outlining to us, on the

that would appear to attract the grant of special	face of those grounds there is nothing about them
leave.

MR BRUCE:	Not in the notice of appeal, no, Your Honour.
TOOHEY J:	So could you identify for us, in respect of that

matter, that is the matter encompassed by those

three grounds, what the special leave point is?

MR BRUCE:  Yes, Your Honour. There is the question of what

is the duty of care and the question of the

obligation to discharge it and whether that has

been breached by the actual conduct of the Bank in

these circumstances.

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TOOHEY J:  The second part sounds very much like a question of fact, does it not?

MR BRUCE: Subject only to this, Your Honour, that while,

with respect, most propositions of law are all

founded on an application to fact, it is a case in

which, in our respectful submission, the Court

could lay down the principles and in the course of

that, when one looks at the principles, then one is

led to the conclusion in the particular case.

DEANE J:  Mr Bruce, going back for a moment to the first

point, the grounds of appeal in relation to that

are E, F and G on page 211?

MR BRUCE:	Yes, Your Honour.
DEANE J:	And then Dis the second point, Bis gone, so it

is A and C - - -

MR BRUCE: Well portion of B, Your Honour, the words in

parentheses in B.

DEANE J:  The bracketed section in Bis gone. Subject to

that, it is A, Band Con the first one?

MR BRUCE: Yes, Your Honour. If I could go to the facts of

the case. The male applicant went along with his

son to the Dee Why branch of the Commonwealth Bank

to sign some documents.

DEANE J:  You can assume we are reasonably well acquainted

with the facts in so far as they are set out in the

judgments.

MR BRUCE:  Your Honours, I was simply doing no more than

summarizing the facts in the judgments.

DEANE J:  You can highlight any particular points about them

that you might care to.

MR BRUCE:  The facts that I would highlight, Your Honour,

are that there was no approach by the applicants
seeking foreign money. In the course of a
conversation with the Bank they indicated that

there was a property which they had which would

like - a development which they were doing, which

they would like to keep but they could not keep it

because the Bank was then charging them sixteen and

a half per cent. The Bank then volunteered that

there was a way of getting what was described as

cheap money for some 5 per cent plus bank charges

and it was on the basis of that suggestion that the

procedure was put in train.

The Bank suggested that one accountant that

the applicants could approach was a Mr Morgan who

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was at Dee Why who had, I think, a friendly

professional relationship with the Bank manager and

who was a customer of the Bank and, apparently to

the knowledge of Mr Craig, the Bank manager, had

acted for one foreign exchange borrower in the

past.

DAWSON J: That does not appear from the judgment; that

appears elsewhere, does it?

MR BRUCE:  It is there, yes, Your Honour. I can turn it up

for Your Honour, but it is definitely there. It is

in His Honour Mr Justice Hill's judgment where he

said that he was aware he had acted for one

borrower in the past, some time I think in 1984.

The Bank wrote a letter, which is set out in the

judgment, which contained a warning to the
prospective borrowers. There were then some

meetings with the accountant who explained to them

some of the risks.

His Honour the judge at first instance,

Mr Justice Hill, found that the male member of the

family had limited English and did not read

English; that his wife spoke good English; that

they had a son who was involved who had graduated

the year before from civil engineering at the

University of New South Wales; that they had no

prior experience in or knowledge of the terms.

There were various explanations to them but they

came along on 17 December 1984 and met with Mr

Craig and he gave them an explanation which is set

out at page 40 of the appeal book where His Honour

says, starting at line 15:

While I am satisfied that Mr Craig did explain

the basic provisions of the agreement, I think that the account he gave of the explanation in

evidence was substantially a reconstruction

rather than his actual recollection. However,

I think that it is more probable than not that

Mr Craig did refer to the options given in the	loan agreement for bringing the loan back on
shore in the event of adverse exchange
movements and that hedging was discussed,
probably in the context that a hedging agreement would eliminate the exchange risk
but that the cost of hedging would eliminate the interest rate advantage of the foreign loan.

Now, that is the finding of the extent of the explanation which was given by the Bank to the

borrowers. Your Honours, we would say that bearing

in mind the nature of the product which was being

proffered, that there was any further explanation

and that is in fact a matter which is left open by

David 12/10/90

His Honour Mr Justice Toohey's judgment in James'

case, dealing with the question of a duty which a

banker has to explain a loan transaction to a

customer. His Honour there left open the question
of whether there was a general duty to do that, and

we would say, with respect, Your Honours, that that

is a matter of considerable importance to be

resolved in this case.

If it be resolved in favour of the applicant,

then we would respectfully submit that nothing in
the judgments below or in the facts, when properly

applied to that determination of the legal

principles, would preclude the applicant from

succeeding on the appeal.

Secondly, Your Honours, we would say that once

Mr Craig embarked on that explanation as he did,

and as was found by His Honour Mr Justice Hill at

page 40, that that was a failure to properly

explain because we would rely on the decision of

Cornish in the English Court of Appeal which said

in effect, once you start to explain, you have to

do it properly, and we would say and submit to you,

on the hearing of the appeal, that what appears at

page 40 could by no stretch of the imagination be

said to be a proper discharge of a duty which had

been assumed, whether there be an obligation to do

it or not.

Your Honours, I do not, with respect, propose

to canvass the propositions relating to Hawkins v

Clayton as to proximity. We would say that that

would, with respect, follow, that there was a duty,

bearing in mind the nature of the transaction and

that the degree to which it was necessary to warn

the borrowers is something which is spelt out and

arises from that proximity, bearing in mind what

this Court has had to say in Sutherland Shire

Council v Heyman.

Your Honours, on those bases, and bearing in

mind the tremendous dichotomy between the decided

cases at first instance and at intermediate

appellate level in this country and the large

number of cases which are awaiting determination,

that this is an appropriate case for this Court to

express a determination of the obligations which
are cast upon the Bank, and to deal with this case
on the basis that it can give rise to a proper

determination of the issues. While I appreciate

what Your Honour Mr Justice Deane had to say about

the attitude expressed by the respondent, we do not

proceed on the basis that they are giving us gifts

but we proceed, with respect, on the basis that

when the matter is determined, it is open to the

David 10 12/10/90

Court to find properly that the applicant would

properly succeed on the appeal.

That is all I wish to put to Your Honours.

DEANE J: Thank you, Mr Bruce. Mr Emmett, is there anything

you want to say?

MR EMMETT:  May it please Your Honours, only this, that the

respondent and the banking industry generally

regard the question of the content of the duty of a

banker in the circumstances that were commonplace,

it seems, in 1984 - perhaps 1983 to 1985 - in

connection with foreign currency loans is a matter

of great significance. There are, in fact, many

many cases still awaiting hearing in New South

Wales and we suspect elsewhere in the country.

There have been a number of judgments so far which

are by no means consistent in the statement of

principles.

The respondent certainly regards it as

important that the content of the duty be ruled

upon by this Court in an appropriate case. The

Bank has therefore taken the view that it is

appropriate not to oppose leave in relation to this

case because it is, in fact, a vehicle whereby the
Court would have the opportunity of saying

something about the content of that duty. Whether or not there is a breach of it, of course, depends upon the content of it, so that whereas a separate

ground is whether or not a breach occurred, that

would really be answered by a statement of what

the - - -

DEANE J:  I think you should really assume that if the Court

were of the view that on the facts it was clear

that no claim in negligence should succeed, that at

least some members of the Court would consider it
undesirable to start by defining the full scope of

the duty. In other words, if a case were to go up

where the outcome was plain, it would not be an

appropriate vehicle for the Court to embark upon an

examination of the nature and content of the

relevant duty of care in relation to other

circumstances.

MR EMMETT:  I think we accept that the Court's function is

not to write textbooks or articles about what the

law is in circumstances that are purely

hypothetical, but the way in which the duty is put

by the applicant in these proceedings is

sufficiently high that if it is accepted, then

there would be a liability. We will certainly be

contending to the contrary, but it may well be that
there may be a series of these cases that would

have to do to the Court before the final content of

David 11 12/10/90

the duty can be determined.	But in a sense, this
is the first point - - -

DEANE J: Well, the court below has really held that this is

not a Rylands v Fletcher case.

MR EMMETT:  As I understand it, my friend wants to contend

to the contrary.	We would certainly support
vigorously what the Full Court says.	I do not

think I can say anything more than that,

Your Honour, other than to indicate the Bank's

attitude. It is not crocodile tears or otherwise.

So far as the other matters are concerned, the penalty question itself is a matter of some

significance. Although the language of this

particular clause is not necessarily a standard

form, the concept of it is not uncommon in

commercial lending transactions and the distinction

traditionally which exists between treating as a

penalty something which involves increasing the

amount payable by reason of default, but a

reduction for payment on time as not being a

penalty, may or may not flow into this slightly

different concept.

DEANE J: It is really a very different concept though, is

it not -

MR EMMETT: It is indeed a different concept.

DEANE J:  - - -when you are saying not - payments that have

fallen due are increased because of something but

payments in the future will vary if something has

occurred~

MR EMMETT:  Again we would be submitting very strongly that

it is not a penalty but the fact that there is some

doubt expressed by the trial judge and perhaps some

difference of opinion at trial level is a reason

why the matter should be clarified.

So far as the third issue is concerned, there

are two steps before one gets to what might be the

primary special leave point, that is whether or not

a pure mistake of law is sufficient answer. There

are the two hurdles that must be overcome, but both

of them, it would seem to us, are probably

appropriately dealt with by this Court. One is

whether, or not in the absence of actual evidence of

mistake it is still appropriate for a court to

infer a mistake. The second one is the 261 point.

We would like to be able to argue the section 261

point. It was argued before the trial judge. He

found a way of avoiding making a decision on that

question. The Full Court, although counsel for the

Bank before the Full Court in effect argued the

David 12 12/10/90

mistake point on the assumption that section 261

applied to it without conceding it, still reserved it and the Full Court made some observations about

section 261 which would be of some assistance to

Your Honours if Your Honours were disposed to

entertain the matter.

DEANE J:	Thank you, Mr Emmett.
MR EMMETT:	May it please Your Honour.

DEANE J: Is there anything arising out of that, Mr Bruce?

MR BRUCE:	No, Your Honours.
DEANE J:	The Court is not persuaded that, in the particular

circumstances, there is more than one of the three

distinct aspects of this case in relation to which

special leave to appeal.

the actual decision of the Full Court of the warrant the grant of

That aspect is the applicant's claim in

respect of the applicant's payment of additional

amounts pursuant to subclause 8(b) of the loan

agreement, that is to say of amounts equal to

payments which the learned trial judge assumed to

have been made in respect of withholding tax. The

grounds in the draft notice of appeal relating to

that claim are those set out in subparagraphs E, F

and G of paragraph 2.

Accordingly there will be a grant of special

leave to appeal restricted to that aspect of the

matter.

Mr Emmett, you will probably have to file a

notice of contention or something like that, will

you?

MR EMMETT:  Yes, we expected that that would be the case,

Your Honours.

DEANE J:  If when Mr Bruce examines the matter in the

context of what has been said the grounds in E, F

and Gare somehow thought - and I am not suggesting

they are - not to be adequate to cover the matters

that have been indicated, the appropriate course

would be to reach agreement on what are the

appropriate grounds, needless to say to cover only the matters indicated, and then if the appeal book and argument is prepared on the basis of the

amended grounds, leave to amend can be sought at

the commencement of the hearing.

David 13 12/10/90

MR EMMETT:  May it please Your Honours.

MR BRUCE: If Your Honours please.

AT 4.19 PM THE MATTER WAS ADJOURNED SINE DIE

David 14 12/10/90