Dierickx & Anor v. HP Mercantile Pty Limited & Anor

[2014] HCATrans 107

[2014] HCATrans 107

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S19 of 2014

B e t w e e n -

LUDO VICTOR DIERICKX AND WENDY ANNE DIERICKX

Applicant

and

HP MERCANTILE PTY LIMITED

First Respondent

TUMUT RIVER ORCHARD MANAGEMENT LIMITED (IN LIQUIDATION)

Second Respondent

Application for special leave to appeal

FRENCH CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 MAY 2014, AT 9.29 AM

Copyright in the High Court of Australia

MR I.M. JACKMAN, SC:   May it please the Court, I appear with my learned friend, MS S. FENDEKIAN, for the applicants.  (instructed by Piper Alderman Lawyers)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR P.M. KNOWLES, for the first respondent.  There is a submitting appearance for the second respondent.  (instructed by Versace McKenzie Lawyers)

FRENCH CJ:   Yes, so noted.  Yes, Mr Jackman.

MR JACKMAN:   The issues upon which we seek special leave can be divided in two, and the first issue is what we call the “title to sue” issue which raises a question about the effect of a conventional estoppel ‑ ‑ ‑

HAYNE J:   Why?  Why does it raise that issue, in a case where assignor and assignee are both parties to the suit?

MR JACKMAN:   Yes.

HAYNE J:   Why?

MR JACKMAN:   The assignor was joined as a defendant to the suit.  The assignor made no claim.

HAYNE J:   Exactly so.

MR JACKMAN:   Because there was no assignment by the assignor ‑ as a matter of fact and law, there was no assignment.  All there was, was a conventional estoppel between assignor and assignee.  The effect of that is that if anybody had a cause of action as against us on the debtor side of the ledger, it was the assignor.

HAYNE J:   What, there was no debt?  There is a debt owed to someone, is there not?

MR JACKMAN:   Let it be assumed that ‑ ‑ ‑

HAYNE J:   It has got to be assumed, has it not, Mr Jackman, and is that not the first and principal assumption to make, that on this branch of the case the debtor is indebted to someone?

MR JACKMAN:   Yes, on this branch of the case and excluding the misleading conduct side of the case, yes.

HAYNE J:   Then the question becomes who ‑ putative assignor, putative assignee ‑ both are parties to the suit.  At the end of the day there will be an estoppel by record barring the putative assignor from any claim against the debtor.

MR JACKMAN:   Indeed, yes.1

HAYNE J:   The debtor, on this assumption, is indebted to someone.

MR JACKMAN:   Yes, to someone and ‑ but for one feature of the case, the party to have made a claim against us would have been the assignor, namely, TROM, but for one feature of the case and that is that before the suit in November 2011 TROM actually assigned whatever was left of its rights to HPM.  So, TROM had no rights left.  There is then a limitation point which, on our case, precludes HPM from relying upon that assignment.  But fundamentally the point is that although the assignor, namely TROM, was joined, quite rightly, as a defendant to –well, it was joined as a defendant to the suit; TROM made no claim.

HAYNE J:   The debtor’s position is, “Yes, I am indebted”, what, to no one?

MR JACKMAN:   No, the debtor’s position is that originally the debtor was indebted to TROM.  There was no assignment from TROM to anybody else until November 2011 and that assignment was too late by reason of the Limitation Act.

FRENCH CJ:   This is the fifth assignment you are talking about?

MR JACKMAN:   Yes.

HAYNE J:   So, the debtor is indebted to TROM?

MR JACKMAN:   The ‑ ‑ ‑

HAYNE J:   The answer has to be yes, does it not, Mr Jackman?

MR JACKMAN:   No, because TROM has now assigned away whatever rights it had to HPM.  But for that fifth assignment, yes, the answer is the debtor would have been indebted to TROM which made no claim.  It was joined as a defendant but TROM made no claim.  That is at the heart, as your Honour rightly recognises, with respect, of our case about title to sue.

Now, it does raise, in our submission, a question concerning the effect, if any, of a conventional estoppel on parties who are not parties to the estoppel, because of course we played absolutely no role in generating the conventional assumption upon which the estoppel is founded.  As this Court laid down in Partridge v McIntosh, a conventional estoppel is “a personal matter, between the particular parties” and their privies, that is, those who claim under or through them.  The rights of third parties depend on the actual facts and the application of the law to the actual facts.  That is our position, and we are entitled, in our submission, to point to the fact that as a matter of actual fact, there was not an assignment by TROM to TPL until November 2011.

FRENCH CJ:   What do you say to the proposition in paragraph 8 of the first respondent’s submissions at 281 which equates the position of HBM and TROM with that of equitable assignor and assignee by virtue of the estoppel?

MR JACKMAN:   Well, that is shorthand.  There is no equitable assignment and there is no legal assignment.  There cannot be an equitable assignment because the reason there is no assignment at all is that the Boards of Directors of TROM and DPL did not authorise it.

FRENCH CJ:   I understand, no assignment at law.

MR JACKMAN:   At all.

FRENCH CJ:   At law.

MR JACKMAN:   At all.  There cannot have been an equitable assignment without proper board authorisation either.

FRENCH CJ:   But the proposition being put against you is that the estoppel gives rise to the equivalent of an equitable assignment.

MR JACKMAN:   As between the parties to the estoppel.  That much may be accepted as between them because the conventional estoppel prevents either TROM or TPL from denying that an assignment took place, even though the actual fact of the matter is there was no assignment.  So, as between them, it is tantamount to an equitable assignment.  We can accept that.  But that is because of the conventional estoppel which applies only between the parties to the estoppel and their privies.

Now, if I can take the Court to the heart of the Court of Appeal’s reasoning at appeal book 173, in paragraph 108 almost halfway down the paragraph, there is a proposition which we accept as correct, that:

HPM is a privy of Treetop through a chain of assignments and can therefore take advantage of the estoppel binding TROM.

We accept that because they are privy in interest, they are claiming under or through the parties to the original estoppel.

FRENCH CJ:   I understand the proposition.  It all turns on the effect of the original so‑called first assignment.

MR JACKMAN:   It does, quite, and there is no first – there is no assignment.  All there is, is a conventional estoppel and it turns on the effect of that conventional estoppel.  Then at line 41, there is a sentence which is absolutely crucial and contains, we submit, three flaws.  The first proposition is:

The Borrowers are TROM’s privies in a relevant sense –

Now, that is flawed.  We are not told in what sense.  The only candidate, in our submission, could be privity in interest but we are not privy in interest; we are on the debtor’s side.  We are not claiming under or through anyone who holds the chose in action against ourselves.  That is an absurdly illogical position.  What is more, there is no attempt, in that sentence or elsewhere, to grapple with the problem posed by Partridge v McIntosh, that a conventional estoppel does not apply against third parties.  In that case, there was a tendency by estoppel between Mr Partridge and his financier and a feature of that estoppel would have been that the financier as landlord would be entitled to levy distress against goods found on the property.  But that could not be imposed on Mrs Partridge, the wife of Mr Partridge, because she was not a party to the estoppel, nor a privy to it.  She did not claim under or through her husband in any relevant sense.

HAYNE J:   Let it be assumed for the purposes of argument that the analysis by reference to privity is flawed, seriously flawed.  We return to the basic proposition.  D contracts a debt with C, so debtor contracts a debt with creditor.  For whatever reason, creditor engages in transactions, activities, with A, an assignee putatively.  As between creditor and A, creditor cannot be heard to say against A, “You have no title to the debt”.

MR JACKMAN:   I accept that.

HAYNE J:   A sues the debtor, joining creditor.  Our present position, is it not?

MR JACKMAN:   That is the present position, yes.

HAYNE J:   Can debtor say in those circumstances, not indebted to anyone, which is where it can?

MR JACKMAN:   Not indebted ‑ ‑ ‑

HAYNE J:   To anyone, was my proposition, Mr Jackman, because that seems to be the position that you have ultimately to adopt.

MR JACKMAN:   Well, with respect, not, because, we say, the debtor is entitled to say, “I am not indebted to the party who is suing me, who is making the claim against me”, and that is sufficient.  There is a way around it.  The original creditor can make the claim against the debtor.  The original creditor, as the courts below have said, will then hold the proceeds of that action on trust for A, the assignee.  Alternatively, if the creditor C refuses to bring proceedings then a derivative suit can be brought by the assignee saying, “I am the beneficiary of that trust and my trustee unreasonably refuses to bring the proceedings, therefore I bring the proceedings in the trustee’s name”.  That is another way of doing it.

HAYNE J:   Therefore, the application for special leave devolves into a procedural imbroglio.  Not a point of substance.

MR JACKMAN:   Well, with respect, it is because we are saying there are ways in which this could have been done.  They could have been picked up and used, quite readily, but they were not.  In those circumstances, the party that sued us, the only party that sued us, namely, A in your Honour’s example, did not have a claim against us.  That is all, in our respectful submission, that we need to establish on that.

HAYNE J:   By satisfying judgment entered on behalf of A, you would have an irrefutable discharge of any obligation which was owed to C, the creditor.

MR JACKMAN:   Yes, I accept that.

HAYNE J:   If you chose, you could have, if in doubt as to the party to whom the debt was owed, brought the money into Court and interpleaded as between A and C.

MR JACKMAN:   That is another thing that could have been done and was not done.

HAYNE J:   But was not.

MR JACKMAN:   Our simple point is that the party to whom we owed the obligation in debt did not make a claim against us and that, in our submission, is sufficient.  Now, can I deal, then, with the second category of issues which involves misleading conduct and non‑disclosure by a fiduciary?  This is a matter which affects some 1,236 investors because it is a matter of construing prospectuses in this respect, in a common form.  Thirty‑nine of those 1,200‑odd have already been sued and without a grant of special leave, in our submission, the Court of Appeal’s decision has the practical effect of placing an insuperable obstacle in the path of those investors seeking to raise this point in any current or future litigation.

The four judges who have decided the point have been split two all on the issue.  The two judges who actually quoted what the prospectus said in their reasons found in our favour.  They were Justice White and the learned President in the Court of Appeal.  Unfortunately for us, the other two comprised the Court of Appeal majority, but it is a significant thing, that that aspect of the case, in our submission, that those who found in our favour were those who actually did quote the words of the prospectus in the body of their reasons.

Can I take your Honours to appeal book 98?  In the judgment of Justice White at first instance at 98, line 40 is the first key passage from the prospectus that the amount of $12,000 will be paid as follows:

(a)Payment of orchard enhancement and maintenance expenses of $11,500 –

Then, on the next page at paragraph 233 in the quotation:

“Orchard Establishment Expenses
The expenses associated with the establishment of Farming Allotments are payable out of the initial amounts received from Growers under the Farming Agreements.

FRENCH CJ:   Is the complaint that they just got characterisation wrong on the facts?

MR JACKMAN:   Well, construction of a document is either a question of fact or a question of law, depending largely on one’s taste in the matter.

FRENCH CJ:   The question is whether it constitutes misleading or deceptive conduct ‑ ‑ ‑

MR JACKMAN:   Quite.

FRENCH CJ:   ‑ ‑ ‑ on the facts.

MR JACKMAN:   Well, it is a matter of construing what the document says, and what Justice White and the learned President said was that the effect of those passages is that the $11,500 paid by investors would be used or be available for use for the purpose of orchard enhancement and for the purpose of maintenance expenses.  That is, it is a representation concerning source and application of funds which is falsified because, as a matter of fact, what happened the moment the 12,000 was received by TROM, it was immediately repaid to its financier, the Commonwealth Bank.

Justice White goes on in paragraph 237 to deal with the evidence of reliance and observes in 238 that there was no cross‑examination on that evidence, and in paragraph 243 at page 103 deals with the materiality of the representation by reference first to the argument put by HPM that “there was no issue that the promised works were not carried out” and “the orchards were established”, but that does not meet Mr and Mrs Dierickx’s allegation:

The allegation is that had they known that the moneys raised would not be available for use in carrying out the works, they would not have proceeded.

His Honour says:

One can understand that a prudent investor would not have proceeded without inquiring how the work would be funded.

At paragraph 245, his Honour finds the contravention of section 52 in that positive misrepresentation concerning use or availability for use of money which, in fact, was not available for that use because it was immediately repaid to the Commonwealth Bank.

HAYNE J:   This is an analysis that depends upon earmarking the particular funds that are provided by the investor, that cash will be available for application in this manner?

MR JACKMAN:   Well, I do not want to overstate the proposition because it is not – one error that the majority in the Court of Appeal makes, in my submission, is to characterise the argument as being tantamount to a Quistclose trust.  That is at appeal book page 177.  I am not using ‑ ‑ ‑

HAYNE J:   Assume you do not go that far but there is ‑ ‑ ‑

MR JACKMAN:   In a sense there is earmarking, but it is in a commercial sense, not a legal sense.  There is no separate bank account set up.  There is no intention to declare a trust for a particular purpose.  We do not go that far.  We expressly disavow it.

HAYNE J:   The commercial question is whether the party to whom the moneys are paid has the liquidity to apply the necessary funds, and liquidity can come in all manner of forms.

MR JACKMAN:   Quite, that is so.

HAYNE J:   What representation is there about the liquidity of the company?

MR JACKMAN:   Well, very little.

HAYNE J:   Just so.

MR JACKMAN:   There is a statement of assets and liabilities that the Court of Appeal goes into in some detail but that being a statement of assets and liabilities does not point out what undrawn finance facilities TROM had available.

HAYNE J:   Just so.

MR JACKMAN:   So that it is quite consistent with what they said in the prospectus that they had borrowed under some long‑term finance facility from its financier to lend the $12,000 per allotment to the investors, and then when they get that $12,000 back as contribution for the investment, TROM is saying, “We are going to use $11,500 of that in order to enhance and maintain the orchard”.  That is how the prospectus reads but the prospectus does not tell us very much at all about the liquidity of TROM, but what the prospectus does tell us, if not expressly in terms of a clear implication, is that the $11,500 is to be used in a particular way.

So, we do not need earmarking in a Quistclose‑type sense, but there is a commercial representation concerning the source and application of funds.  We do not have to put it higher than that.  What the majority in the Court of Appeal said in particularly paragraphs 112 to 115 is that it was obvious to investors that the loan by TROM of $12,000 plus the receipt back by TROM of the $12,000 did not itself give rise to any new injection of funds. That is correct.  Looking at it in those narrow terms, it does not give rise to any new injection of funds, but that does not mean that the $12,000 received by TROM would not be applied in a commercial sense to orchard enhancement and maintenance instead of being repaid immediately to TROM’s financier.

The prospectus is pregnant with an assumption that TROM has some other source of long‑term finance in order to lend the $12,000 to the investors.  But there is nothing in the prospectus which undermines the clear effect of those passages quoted by Justice White and the learned President to the effect that, “$11,500 of the money that we, TROM, get back, we are going to use for orchard enhancement and maintenance”.

FRENCH CJ:   Thank you, Mr Jackman, your time is up.

MR JACKMAN:  May it please the Court.

FRENCH CJ:   Mr Walker, we will just hear from you on the estoppel point.

MR WALKER:   May it please the Court.  Justice Hayne raised for consideration the appropriateness of a privity analysis.  Could I take you in the application book to page 36, the way Justice White put it at first instance, starting at paragraph 83 where there was recourse attempted by counsel for my client to the well‑known statement in Ramsay v Pigram, not in itself, of course, a pioneering statement.  Yes, there was a privity argument asserted by us, but the way the case was determined at first instance and on appeal, very deliberately eschewed that manner of proceeding.

One needs to look at the whole of the way in which the conclusion set out in paragraph 84 unfolds.  It starts by saying you do not need to go down ‑the implication is perhaps you should not go down ‑ a simple privity route.  Then there is reasoning which, in our submission, satisfyingly answers what I will call the roots and rootedness in justice, that is, the natural justice of the position between the parties in relation to resort to the estoppel because, with respect, it is plain, particularly form the exchange between my learned friend and your Honours this morning ‑ it is plain that the applicants simply wished to say of the two people opposite them in the Court that it was one and not the other who had the right.  It was one and not the other that had the right and, as my friendly frankly and robustly puts it, because it was only the other who sued.  That is the end of the case.

Now, it is in that respect that the approach by the learned trial judge which we stress can be seen not to depend, quite overtly not to depend, upon a privity analysis, in 84 is entirely satisfying, betrays no error of principle and, therefore, raises no question for the Court which is otherwise simply seized with an attempt for the third time to ventilate what might be called the merits between these parties to a commercial dealing.  At the end of 84, having set out in those sentences I do not need to read but upon which we would place reliance for their, with great respect, evident cogency, then his Honour says at about line 45 ‑ this is perhaps courteous defence to the way counsel had put it:

If this is another way of saying that Mr and Mrs Dierickx are bound by the estoppel, then in the relevant sense –

that is, in the sense necessary to be bound ‑

they are privies of TROM by seeking to assert TROM’s alleged rights.

That last phrase is a neat, if compact, way of pointing out the forensic relation between the parties where the avowed debtor says the person claiming to be my creditor has an ineffectual title to do so and there is before the Court another person who is by reason of the ineffectiveness of that chain of title, the creditor, and it is not suing.  It is in that way, in our respectful submission, that there is neither anything of concern in relation to doctrine for this Court to correct by way of a grant of special leave and examination on full appeal, nor is there any sense of disturbance concerning the merit of the position.

In the Court of Appeal, the majority reasoning is contained, as my learned friend has already shown you in the passage starting on page 172 and then with the substance of the matter on page 173, particularly, in the combination of paragraphs 107 and 108 to which my learned friend has already taken you.  At the end of paragraph 107, one sees the way in which with this chain of assignments, the ordinary justice of the position requiring the joinder of assignor and assignee is carried forward in a completely unremarkable fashion; nothing to see there from a special leave point of view.

In paragraph 108, an approach very similar to ‑ indeed, paragraph 109 suggests it is seen as the same as ‑ the trial judge’s is set out by Justice Emmett.  It is true that there is language of privity to the forefront of the explanation in paragraph 108 but, in our submission, that is to be understood by the succeeding reference in paragraph 109 to the lack of error in the reasoning that had led to Justice White’s conclusion.

HAYNE J:   The proposition that the borrowers are TROM’s privies in any sense is, I would have thought, a proposition of some difficulty.

MR WALKER:   Not a useful figure of speech, no, your Honour.

HAYNE J:   Well, if it is only there as a figure of speech, it is a very unfortunate figure of speech.

MR WALKER:   That is why I went to paragraph 84 in the trial judge’s reasons.  In our submission, properly understood, this was not a decision using privity in what might be called a literal sense but, having entirely dealt with the position in a non‑privity analysis which should cause this Court no alarm then, by reason of the way the argument had been framed, returns to that language of privity.

HAYNE J:   Well, the judgment responds to the arguments advanced.

MR WALKER:   Quite so, and, in our submission, it will be none the worse for that in terms of this Court of Appeal decision being the last word on this issue.  It is, in our submission ‑ ‑ ‑

HAYNE J:   Well, the proposition that by asserting ‑ seeking to assert TROM’s rights makes you a privy, is a proposition of some alarm.

MR WALKER:   Your Honour, I think that is exactly what I have been saying, that that is why I went to that paragraph because it can only be in what I might call a figurative and unreliable way that one would use that language.  The judge eschews it.  It is for those reasons, in our submission, that there is, though we say nothing to weaken the force of the doubts that can be expressed about the language of privity, we point to the fact that the decision does not simply go off on any such fallacy.  The argument that is embraced points to the forensic position between the parties whereby the claimant is able to rely upon an estoppel.  Because the claimant is able to rely upon estoppel, the debtor ‑ the avowed debtor ‑ is disentitled without any notion of being, as my friend pungently puts it, without any notion of it being a privy of someone opposite in interest.  It is for those reasons, in our submission, that there is no special leave point raised by this unfortunate reference to “privity” in the course of diddling with the arguments by which the estoppel inured to the benefit of my client in the courts below.  If it please the Court.

FRENCH CJ:   Yes, Mr Jackman.

MR JACKMAN:  My learned friend relies on paragraph 84 of the trial judge’s reasoning but that is not expressly relied upon or agreed with by the Court of Appeal, and it is difficult to discern the principle which is being applied in paragraph 84 by the trial judge.  In our respectful submission, it is inconsistent with Partridge v McIntosh which stands for the proposition that a third party will be bound by an estoppel only if there is privity in the sense of a claim under or through a party who is bound or entitled to enforce the estoppel.  Nor does it sit with Grundt v Great Boulder in which Sir Owen Dixon said that the parties bound are those who participated in the generation of the conventional assumption.

One needs to go a little bit beyond what Sir Owen Dixon said because his Honour was not thinking of the question of privies, but if one takes Partridge v McIntosh together with Grundt v Great Boulder one does not have a principle which goes as far as the trial judge goes in paragraph 84.  That, in our respectful submission, explains why the Court of Appeal does put at the forefront the notion of privity because on a proper application of principle that is the only way in which the estoppel could have an effect as against us.  May it please the Court.

FRENCH CJ:   Thank you.  The related questions of whether statements in the prospectus constituted misleading or deceptive conduct, or a breach of fiduciary duty on the part of the promoter of the scheme in which the applicants invested, turn on matters of fact and characterisation of the terms of the prospectus which do not give rise to a question of general importance warranting the grant of special leave.

As to the question of whether the first respondent had title to sue the applicants in respect of the purportedly assigned debts, while the correctness of the reasoning of the Court of Appeal that the applicants were bound by the estoppel as privies of the second respondent is doubtful, the question invites a debate about whether the proper party has sued, notwithstanding that the creditor was joined as a party by its asserted assignee.  The question is, in substance, procedural and does not warrant the grant of special leave.  Special leave will be refused with costs.

AT 10.02 AM THE MATTER WAS CONCLUDED