EMCL Pty Ltd & Anor v Esanda Finance Corp

[2000] HCATrans 392

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M113 of 1999

B e t w e e n -

EMCL PTY LTD

First Applicant

FINPAC HOLDINGS LIMITED

Second Applicant

and

ESANDA FINANCE CORPORATION LIMITED

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 8 SEPTEMBER 2000, AT 12.10 PM

Copyright in the High Court of Australia

MR P.K. SEARLE:   If your Honours please, I appear for the applicants.  (instructed by Jerrard & Stuk)

MR K.W.S. HARGRAVE, QC:   If it please the Court, I appear on behalf of the respondent.  (instructed by Corrs Chambers Westgarth)

GUMMOW J:   Yes, Mr Searle.

MR SEARLE:   Your Honours, this case raises two important special leave issues.  There is also a preliminary question concerning an extension of time in which to make the application.

GUMMOW J:   An affidavit has gone on about that now, has it not?

MR SEARLE:   And my learned friend has seen that and he joins no issue on that.  So if I could turn to the two issues.  The first are the principles to be applied in determining what are the terms of written contract which has been orally varied and the second concerns, in effect, the interest rate issue.  In both cases this Court has handed down a recent decision which impacts on each of the issues.  In the case of the first it is the case of Federal Commissioner of Taxation v Sara Lee, which is in the respondent’s authorities and does follow the judgment of Justice Taylor in Tallerman’s Case and in that case they outline, in effect, that there are two separate ways in which to – at page 350 of the ALR.  Firstly, the last paragraph, paragraph 22 at 350.

GUMMOW J:   I doubt if my colleagues were intending to lay down any new law.

MR SEARLE:   Precisely, your Honour, that is my point.  They were not proposing to make ‑ ‑ ‑

GUMMOW J:   They were applying it.

MR SEARLE:   Yes, your Honour, precisely.  All they have done is refer to the 1957 decision of Tallerman.

GUMMOW J:   That is enough.  It happens to be a decision of this Court.

MR SEARLE:   In a way it was enough, your Honour, except that, as your Honour is aware, the decision in Tallerman, the majority decision in Tallerman, is, firstly, obiter dicta and, secondly, only one judge decided that way in Tallerman and that was Justice Taylor.

GUMMOW J:   Do you want to attack Tallerman, do you?

MR SEARLE:   No, your Honour.

GUMMOW J:   You want to attack Sir Alan Taylor’s judgment or ‑ ‑ ‑

MR SEARLE:   No, your Honour.  No, your Honour, not in the slightest.  If one turns to Tallerman’s Case, which does outline therein the proper principles, it is in the applicants’ books of authorities, which is volume 1 at tab 10.  It is accepted by ‑ ‑ ‑

GUMMOW J:   Was not Sir Alan’s Taylor’s judgment in Tallerman applied in Dan v Barclay?

MR SEARLE:   Yes, your Honour.

GUMMOW J:   By a plurality judgment.

MR SEARLE:   Yes, your Honour.  It is fair to say that Justice Taylor’s judgment has been accepted from page 143 to 144 as outlining the law on precisely the point I wish to raise and your Honour is quite right, if the law is as outlined in Justice Taylor’s judgment, there is no special leave point that I raise on this first point.  If it is all there - now, of course, Justice Taylor agreed with the joint judgment which decided to base this case on an entirely different basis.  At 144, after the passage that:

the determining factor must always be the intention of the parties –

at about line 10, his Honour then at about line 12 refers to the principles in Salmond and Williams on Contracts:

Partial rescission…does not completely destroy the contractual relation between the parties.  It merely modifies that relation by cutting out part of the rights and obligations involved therein, with or without the substitution of new rights and obligations in their place –

so much is unarguable.  Then:

Partial rescission is not the extinction of the contract but the variation of it.”

And, of course, as your Honours are aware, the 19th century cases held precisely the opposite, that the variation is a rescission of the old contract.  And this is the important passage:

Hence it is said “A contract may be varied (1) by way of partial rescission without the substitution of new terms in place of those rescinded, or (2) by way of partial rescission with the substitution of new terms for those rescinded, or (3) by the addition of new terms without any partial rescission at all.”

This case involves two, in my submission.  If one turns to the judgment of the Full Court on the point, they deal with it in the application book, page 61 to 62, in particular at 62.  At the bottom of 61 their Honours outline the two alternative reformulations, that is, to determine the terms of the contract as varied, then at 62 in the first paragraph they consider the purpose of the variation, and then, importantly, in paragraph 21 they deal with this question which does raise a special leave point:

A second matter to note is that the language of the variation as recorded by the note is silent as to whether notice is to be given before or after disposal.  Further, the note does not require, on its face, that the notice should be written.  In these respects the note differs significantly from the original cl 4(c).  In addition, the language used is to the effect that the clause should be amended to “provide” notice.  The word “provide” is consistent with the view that the purpose of the clause was to dispense with the requirement of notice “prior” to disposal.  Its effect in terms is to provide for notification of a sale to be given by the close of the day –

What their Honours have done, in my submission, at page 62 is to effectively treat the 19th century cases as if they were still extant.  They have treated the variation as being a whole rescission of the original clause and they have considered that the variation is silent as to certain matters.  For example, the old clause required that the notice be written and it be prior notice of a proposed disposal.  The variation is silent as to those matters, that is true, but the variation does not rescind the old contract.

If it were still the case as per the 19th century cases which were rejected in Tallerman and were rejected by this Court this year in Sara Lee, then the approach of the Full Court may have been correct, that is, to look at the variation as if it rescinded the old clause and, therefore, the fact that the new clause was silenced would have been relevant as to whether the notice had to be written or it had to be a prior notice of proposed disposal.  But, to the contrary, the law, in fact, is as Justice Taylor had held it in Tallerman and as followed in this Court in the Sara Lee Case.

HAYNE J:   Does it come to this then, Mr Searle, that you say there are well‑accepted principles that were not followed by the Full Court?

MR SEARLE:   No, your Honour.  In my submission, that is only the start of the exercise and, in effect, the transcript of the Sara Lee Case illustrates the principle perhaps better even than the decision because ‑ ‑ ‑

HAYNE J:   Lots of things are said in the course of argument, Mr Searle.

MR SEARLE:   Yes, your Honour.

HAYNE J:   There seems to be a whole industry building up, combing the transcript for straws in the wind.  It is a futile industry which should stop.

GUMMOW J:   It is a waste of your clients’ money to pay you to do that sort of thing, an absolute waste.

MR SEARLE:   If one then considers that the law up to 1957 and, indeed, as of the Sara Lee decision in June this year, it is in relation to this case as outlined 144 that the contract may be varied – and it is (2):

by way of partial rescission with the substitution of new terms for those rescinded –

how is it to be done?  How are the terms to be reformulated and what are the principles?  Justice Heerey got it totally wrong, with respect.  He construed the old clause, held there was a variation, did not reformulate the clause and then did not reconstrue the new clause.

GUMMOW J:   How did the Federal Court come to be construing this agreement anyway?  What was the root of its jurisdiction in this case?  On the face of it, it just looks like a contract case.  When I say “just”, it looks like a contract case.  How did the Federal Court get involved in it?

MR SEARLE:   Well, your Honour, that was not an issue which had been raised below.

GUMMOW J:   I know.  I am asking you.  I am asking you.  I just want to know.

MR SEARLE:   Yes.  It did involve questions of Commonwealth taxation laws.  It is, in effect, directly related to the provisions of the Tax Act, of 57AF.  The entire arrangement was based on that and it involved a consideration of the depreciation provisions of the Tax Act.

GUMMOW J:   But the Commissioner is not a party.

MR SEARLE:   Pardon, your Honour?

GUMMOW J:   What was it that attracted the Federal – what section ‑ ‑ ‑

MR SEARLE:   Sorry, your Honour.  It was a section 52 case, misleading and deceptive conduct.

GUMMOW J:   I see, and that dropped out of the case relevantly, did it?

MR SEARLE:   Well, that was always a part of the case.

GUMMOW J:   But this was a separate issue hived off, was it?

MR SEARLE:   Yes, your Honour.

GUMMOW J:   Yes, I understand.  So has the whole case been determined yet?

MR SEARLE:   No, your Honour.  There are still possibly thousands of cars that are still based on the ‑ ‑ ‑

GUMMOW J:   No, no, the issues.  Has the case been determined yet on all issues?

MR SEARLE:   The discount rate issue was redetermined in favour of the applicants and the judgment has been paid up to an amount of September 1998, but there are ‑ ‑ ‑

GUMMOW J:   No, no, have all issues tendered for judicial determination been determined or have all of them not determined been dropped away?

MR SEARLE:   They have all been determined, your Honour.

GUMMOW J:   I see.

MR SEARLE:   So, in my submission, the real question is determine how one follows on from what Justice Taylor had said, when you have a partial rescission with the substitution of new terms for those rescinded, the first point to raise is that if the new terms are silent on something which is expressed in the old, for example, if the contract is written, what is the principle to be applied?  Ordinarily, if one were to imply a term, one could not ever contradict an express term in the extant agreements.  Yet here there are express terms in the extant agreement, not expressly overridden, but the variation is silent as to them.

So one raises the question, “What is the actual principle that one terms in reformulation prior to getting to the question of the construction of it?”  And, of course, in this case only after one has dealt with the construction can one deal with the condition precedent issue.

GUMMOW J:   I see here one of the respondent’s complaints is that the statement of the factual background in the applicants’ application is relevantly incomplete.  I do not want to pursue that necessarily any further now, but it underlines perhaps what Justice McHugh and I have just been saying in the earlier application.

MR SEARLE:   I certainly accept what Justice McHugh said in the earlier application.  However, in my submission, the facts are not incomplete.  This is simply a construction case, in effect.  The terms of the variation and the terms of the contract are nearly all that is needed.  There is a whole series of factual background which is not relevant to the issues to be determined.  My learned friend also does not say that there is anything that we have said which is inaccurate, just ‑ ‑ ‑

GUMMOW J:   What about this finding said to have been made about the second variation, pages 100 and 104, paragraph 18?  That is said to knock the thing on the head.

MR SEARLE:   No, your Honour, not in the slightest.  If I take your Honour to the relevant passage in the judgments.  It is at page 33 of the application book.  The second question in the case was:

Was there an oral variation…..to provide for notice on the day of a disposal?

And his Honour held there was.  Then his Honour was asked the question, alternatively, whether there was a second variation, and he held:

In the event that the Master Discount Agreement was not orally varied…..I find that –

there was a second variation.  So his Honour held that there was an oral variation and, therefore, the alleged second variation is not part of the contract.  In the end, the judge had to decide, in effect, what are the terms of a variation.  He held there was an oral variation and then held that only if he was wrong and there was not an oral variation, then there was a subsequent variation by contract.  In fact, the same point was made in relation to estoppel in the following page, at application book 34.  Again, the question was that if there was no agreement made, was there any type of estoppel?  What one comes back to is the terms of the oral variation to determine its contractual terms just as one would determine or look at that representation to determine the extent to which one was estopped.

GUMMOW J:   But then they are issues of construction, are they not?

MR SEARLE:   They are only issues of construction and reformulation of a clause which has been orally varied.  That is all there is in this case and, your Honour, it is very, very different to Tallerman, which involved massive series and complex facts.  In my submission, it is the rare case – it is a rare opportunity to set out the principles.  If I could just briefly comment then on the ‑ ‑ ‑

GUMMOW J:   You have a second point, have you not?

MR SEARLE:   The second point, yes, your Honours.

GUMMOW J:   Well, you are time is moving on, is it not?

MR SEARLE:   The interest rate point.  The judgment of Justice Heerey on the interest rate point – it is at page 44 of the application book – follows a long line of authorities which had been extant since 51A was inserted into the Federal Court Act providing for interest.

GUMMOW J:   Have you got some point of construction about 51A or are you complaining about the exercise of a power coupled with a discretion which is conferred by 51A?

MR SEARLE:   In my submission, what the complaint is, is the Full Court wrongly held that his Honour’s discretion had miscarried concerning 51A, that is, that his Honour’s approach was entirely proper and appropriate and consistent with principle.  His Honour at 44 dealt with the various rates.  He outlines the practice of the court, as he outlines at line 17:

the Federal Court has adopted a practice of applying the interest rates specified for the Supreme Court of the State in which the case was being heard.

He refers to Namol and Justice Davies.  He refers at the bottom of the page to the decision being followed by Justice Burchett in Alec Finlayson and also in Kettle Chip and also in Nagy by Justice ‑ ‑ ‑

HAYNE J:   The point the Full Court made was that there was a failure to take account of a material consideration, namely, that the Namol practice was founded on the State rate reflecting a commercial rate.  Now, the Full Court assigns error in that way.  Why should we now take it up?  What is the point that you say we need to resolve?

MR SEARLE:   It is this, your Honour, that is not an error.  This Court in Grincelis last month, 3 August, in No 3 in the applicants’ authorities, dealt with precisely the question of 51A and what its purpose was and the your Honours’ joint judgment together with the Chief Justice and Justices Gaudron and McHugh, appears at tab 3.

GUMMOW J:   That was an appeal from the ACT Supreme Court, was it not?

MR SEARLE:   Yes, your Honour.  Can I take your Honour to the passage at paragraph 16 ‑ it is only on the third or fourth page – headed “The statutory purposes of an award of interest” and it is partly to compensate and then, in addition, at the bottom line your Honours held:

It may be, however, that statutory provisions for interest serve not only that purpose, but also a purpose of encouraging early resolution of litigation.

And your Honours have referred in footnote [21] to the Victorian Act.  The Victorian Act, differently to the New South Wales Act, is recited at tab 3 and it expressly provides that the court must impose those rates in Victoria.

HAYNE J:   The Victorian rates are penal rates.

MR SEARLE:   They are?

HAYNE J:   Penal.

MR SEARLE:   Yes, your Honour.

HAYNE J:   They are 2 per cent above long term bond or something, are they not?

MR SEARLE:   Precisely for that statutory purpose.

HAYNE J:   Yes.

MR SEARLE:   And there is nothing wrong, in my submission, in the exercise of his Honour’s discretion to apply the long‑standing practice of applying the Victorian rates which state that then he must apply that rate, irrespective of whether it is commercial or not, but all the Victorian authorities dealing with the exercise of that discretion say precisely the same thing.

GUMMOW J:   The discretion here was the discretion under the Federal Court Act, was it not?

MR SEARLE:   Yes, your Honour.  Now, the question is, has his Honour miscarried by applying the practice of the Federal Court that when sitting in each State ‑ ‑ ‑

GUMMOW J:   No, no.  The question is whether the Full Court, which prima facie is the court to control the exercise of these discretions, fell into error in taking the view it did about the trial judge’s exercise of discretion.

MR SEARLE:   With respect, there are two.  In the Full Court’s decision there is the exercise of the discretion component, about which I can say nothing ‑ ‑ ‑

GUMMOW J:   That is right.

MR SEARLE:   ‑ ‑ ‑ to your Honours, clearly.  I can only appeal if the Full Court erred in holding that his Honour’s exercise miscarried, and that is the point.  In my submission, by following the long‑standing practice and applying the rule that Victorian litigants, whether they walk into the Federal Court or the Supreme Court, they will have the same type of discretion applied in the award of interest.  That is not an error.  That is not an error.  He was quite capable and able to take into account that all litigants in Victoria should receive the same interest rate, whether they come into the Federal Court or into the Supreme Court.  Otherwise, they would all go to the Victorian – you could determine who is going to go into which court by having a higher penal rate.  That is not a miscarriage, in my submission.  In my submission, his Honour correctly exercised that discretion.  If your Honours please.

GUMMOW J:   Yes, thank you.  Yes, we do not need to call on you, Mr Hargrave.

The applicant seeks special leave to agitate two points.  The first concerns the construction of an agreement and the applicant seeks to extract from the judgment of the Full Court of the Federal Court a question of general importance respecting contractual variations.  We are not satisfied that there is involved any point of such general application which would warrant the grant of leave.

The second point concerns the decision of the Full Court which discerned error in the exercise of discretionary judgment about the rate of pre‑judgment interest to be allowed to the successful plaintiff.  On this latter

question an appeal would enjoy insufficient prospect of success to warrant a grant of special leave.  The necessary extension of time is granted, but special leave is refused and refused with costs having regard to the written submissions.

AT 12.31 PM THE MATTER WAS CONCLUDED