Esanda Finance Corporation Limited v Contractor Services Pty Ltd

[1992] HCATrans 146

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P39 of 1991

B e t w e e n -

ESANDA FINANCE CORPORATION

LIMITED

Applicant

and

CONTRACTOR SERVICES PTY LTD

First Respondent

and

BERYL FRANCES WILLOUGHBY, JOHN
FRANCIS WILLOUGHBY, MICHAEL

STEPHEN WILLOUGHBY, DONNA

MARGARET WILLOUGHBY and MARK

ROBERT WILLOUGHBY

Second Respondents

and

Esanda 1 8/5/92

WILLOUGHBY INVESTMENTS PTY LTD

Third Respondent

Application for special leave

to appeal

DEANE J
DAWSON J
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 8 MAY 1992, AT 1.01 PM

Copyright in the High Court of Australia

MR D.R. WILLIAMS, QC:  May it please Your Honours, I appear

with my learned friend, MR R.J. AINSLIE, for the

applicant. (instructed by Mallesons Stephen

Jaques)

MR A.B. SHAND, QC:  If it please the Court, I appear with my

learned friend, MS J.I. BISHOP, for the

respondents. (instructed by Clayton Utz)

DEANE J: Yes, Mr Williams?

MR WILLIAMS:  Your Honours, I hope, have a copy of an

outline of submissions which the applicants have

prepared.

DEANE J: Yes, we have all read it, Mr Williams.

MR WILLIAMS:  As indicated, special leave is sought in this

case on the basis that the interests of the

administration of justice, both generally and in

the particular case, require consideration of the

case by the High Court. An appeal to the Full

Court of the Federal Court of Australia is an appeal strictly so called for constitutional

reasons and by reason of the statute under which

the court is constituted. In that Act,

section 24(1) provides that:

Subject to this section and to any other

Act ..... the Court has jurisdiction to hear and

determine:

(a) appeals from judgment of the Court

constituted by a single Judge;

There is then provision made in section 27 that:

In an appeal, the Court shall have regard

to the evidence given in the proceedings out

of which the appeal arose, and has power to

draw inferences of fact and, in its

Esanda 2 8/5/92

discretion, to receive further evidence, which
evidence may be taken on affidavit, by oral

examination before the Court or a Judge or

otherwise in accordance with section 46.

Then there are certain powers in section 28

relating to the form of decision that may be made.

What is missing from that, of course, is the power

to rehear the case on the evidence below. In our

submission, that is of significance in considering

the powers of the Full Court of the Federal Court
in contrast with the powers of at least some, if

not all, of the powers of the Full Courts of the

Supreme Court.

In this case, at the trial the learned trial

judge found that the misrepresentations alleged to

have been made by Esanda had not been made or, if

representations were made, they were true.

His Honour also rejected an argument put forward that Esanda had arranged for the borrowing by the

Willoughbys in order to secure the substitution of

a better borrower.

In the light of those findings, it was not necessary for His Honour to consider the next

question which would have arisen if he had found a

misrepresentation, namely whether that caused any

loss. He made no finding of any sort in relation

to that point. The Full Court differed from

His Honour the trial judge in finding that Esanda

through Smith had made a misleading statement,

namely that the previous owners, the vendors, had

been servicing a loan of an equivalent amount to

that sought by the Willoughbys. That is not

challenged in this application.

What is challenged is the Full Court's finding

in pursuing the next step, where they found that

the misrepresentation induced the Willoughbys to

purchase the hotel. That finding appears at

page 83 of the appeal book, second line:

this court should ..... find that the first

appellant's purchase of the property ..... was

induced by misleading conduct engaged in by

the first respondent.

Now, our submission is that the Full Court should

not have considered that question at all.

GAUDRON J:  Mr Williams, the question of inducement was

fully argued was it, however?

MR WILLIAMS:  It was argued on the basis that the matter, on one view, would have to go back to the trial judge.

Esanda 3 8/5/92

GAUDRON J:  It was not argued in a way enabling the Full

Court to make a finding?

MR WILLIAMS:  In our submission, it could not have been

argued on that basis. The Full Court would have

had to have made an assessment of the credibility

of testimony of witnesses it had not heard.

GAUDRON J: Was that said in the Full Court? In one respect

your argument very much turns on the way in which

it was conducted in the Full Court.

MR WILLIAMS:  I was not there, but I am instructed

Justice Sheppard maintained the view throughout

that the matter had to go back. I should not say

"maintained the view", offered the view throughout

that the matter had to go back, and that was very

much the submission, from our point of view, as to

what should have happened.

GAUDRON J:  Do you go so far as to raise a point about

natural justice as it were?

MR WILLIAMS:  We do. It arises in an earlier stage than

that. Perhaps if I might, I could just take

Your Honours to what, we say, are the matters that

the Full Court took into account in deciding in

favour of the respondents on the inducement point.

These are referred to in paragraph 8 of the outline

of submissions. The Full Court, really, relied on

inferences only and implicitly recognized that it

was not in a position to make an assessment of the

credibility of the witnesses, so it relied on

inferences to draw a conclusion but refrained from

embarking upon an examination of the more detailed

evidence that would have necessitated a review of

the witnesses. The first point appears in the book

at page 78, that is that the statement made by

Smith, line 5:

would be likely to reassure a prospective

purchaser as to the quality of the hotel
business.

The statement was that the vendors were servicing a

loan of an equivalent amount. Now, it can be

accepted that, as an inference, that is correct.

The second point is in the book at page 82, where

Their Honours refer to evidence given by Smith the alleged misrepresenter, that he offered

encouragement to the Willoughbys by making that

statement, and the court says:

there seems no reason to reject the

suggestion, made by Smith himself, that what

he said gave encouragement to the Willoughbys.

Esanda 4 8/5/92

So the court has inferred the next step, namely,

that the Willoughbys were, in fact, moved by that

offer of encouragement.

The third point relied upon was that by its

examination of the accounts maintained by the

vendors, the court was able to conclude that the

statement was misleading. But in the course of

doing that, they seem to have formed a view that

Smith could not have known otherwise; but they did

not at any stage essay into the subject of what

Smith knew or what Smith said he knew. They then

said that there was an element of deliberation in

the respondent's course of conduct, and on that

basis, at page 80 -

it becomes easier for the applicant to satisfy

the Court that what was apparently intended

was achieved.

So again, there is only an inference. There is no finding, in the sense of a primary fact, that there

was an inducement.

Now, we challenge that third inference because

it is based, we would say, implicitly upon a

primary fact that only the Full Court found. It

was not dealt with by His Honour at all because it
was not an issue and it was not even put to the

witness. That treatment by the Full Court can be

seen in a number of passages. At page 64,

referring to Smith's evidence at line 12, it is

said he had -

detailed knowledge of the functioning of the

hotel ..... a year before. He gave no evidence

in support of the view that he continued to

have such knowledge from that point on.

He then said in a memorandum a year later that the

hotel -

was well known to us.

And the Full Court concluded, at the bottom of that

page:

It seems plain that Smith either knew, or at least gave his superiors to understand that he

knew, a great deal about the Leederville

Hotel's business.

On page 72 the court pointed out, at line 21 -

that such strength as the case against Esanda

has is derived largely from documents

Esanda 8/5/92

revealing the hotel's financial position and

Smith's knowledge of it -

and then they say, somewhat obliquely -

presumably obtained on discovery -

highlighting, in our submission, that they did not

undertake an examination of what documents Smith

had available to him.

These documents throw light in particular

upon the statement, admitted to have given

"some encouragement" to the Willoughbys. That slightly ambiguously states the evidence which

was that he offered some encouragement.

On page 76, the court infers from its

examination of documents - which are not documents

shown to have been in the possession of Esanda but

were the vendor's documents, the vendor's financial

statements and bank statements - at the bottom of

page 76:

It is hardly conceivable that Esanda was

unaware, through Smith, that since acquiring
full ownership of the hotel the Johnson

family's companies, had been unable to make

from the business profits as much as the
interest payments to Esanda, or that Esanda

could have been ignorant of the fact that the

payments in the then current financial

year ..... were being made by borrowings from a

bank, the debt to which had grown

considerably.

The court is there inferring that Esanda had

access to the Commonwealth Bank's statements that

At page 77, the court asked the question at the vendors had, which has not been shown at all. line 10:

Suppose Smith knew no more than that the

business had been making heavy losses in 1987

and earlier, and had no idea what its fate had

been since.

They then go on to say that his statements were:

at least likely to mislead -

or -

hardly a fair statement of the position.

Then, if:

Esanda 6 8/5/92

as seems probable -

line 22, Smith -

positively knew that the business could not in

December 1988 itself service the loan, a

statement that would give rise to the idea

that it was able to do so was obviously

misleading;

assuming as a probability that Smith had knowledge,

and then:

if, on the other hand, Smith had no further

information than he had acquired in 1987, when

the business had been doing very badly, he

still had not right to say it.

Well that is fine, the statement was misleading, we

accept that. At page 80, the court then considered
the question of knowledge and said in the opening

sentence that the Willoughbys did not plead:

that Esanda had knowledge -

They then say:

There is clear documentary evidence, however,

in favour of the appellants on this point and

it would seem to us to be pedantic to ignore

it.

The clear documentary evidence is not identified at

this point. All it says:

To prove a case of misleading conduct causing

loss, an applicant need not show that the

respondent knew or had means of knowledge of

the truth, or that the respondent attempted to

induce the actions which caused the loss. It

is enough to show that the conduct was, in

fact, misleading and, in fact, caused loss.

But where there is evidence that the

respondent had access to facts falsifying the

representation, suggesting that there was an

element of deliberation in the respondent's course of action, it becomes easier for the applicant to satisfy the Court that what was

apparently intended was achieved;

There is a reference there to "access to facts'·',

not a reference to knowledge, and that is the point

from which the inference against Esanda is drawn

which results in the court concluding in favour of

the Willoughbys on inducement.

Esanda 7 8/5/92

Now, contrasting that with what the trial

judge did, we see at pages 28 and 29 at line 20

that:

Smith's evidence was broadly consistent

with this account -

given by Gerritsen, who was another Esanda officer.

He agreed that he had given some encouragement

to the Willoughbys -

by what he said.

I accept the evidence of Gerritsen and Smith

in this regard -

He then, at page 38 line 15:

I am satisfied on the evidence that on neither

occasion did he -

namely Smith -

go any further than to indicate that the

Johnsons were servicing their commitment to

Esanda. This was a true statement -

on his Honour's version.	He then rejected the
conspiracy theory.

At the trial it was not put to Smith that he

knew that the representation was false. There was

some hint that Willoughby, in conducting the case,

did wish to put it, but it was never put, and the

only evidence that remains then is the evidence of

what documents were available to Smith, and Smith

indicated that he had some, what he referred to as

"old financials" which were financial statements

not from the Johnsons, but from the owner prior to

them, and some valuations. Those valuations went

into evidence and supported the capacity of the

Johnsons to service the loan. There is no other

material that has been suggested was available to

Smith.

Now, we would say, in the light of those events, that the Full Court's conclusion that there

was, in effect, deceit or fraud on the part of

Smith, involves a positive rejection of evidence

Smith gave, and it involves findings that were not

dealt with in the evidence and can only be, in our

submission, primary facts and not inferences of

fact. The point about what information was

available to him was not put at the trial to Smith,

nor was it put to him that he had access to facts

which falsified what he said. Out of that we would

Esanda 8/5/92

say it is unsafe and unfair; it is a very extreme

example of the noncompliance with the rule in

Browne v Dunn, in one sense, even making amends for

the fact the Willoughbys were not represented by

counsel.

But leaving aside that, as Your Honour

Justice Gaudron raised, in our submission, it raises a major question of procedural unfairness.

GAUDRON J: But that very much depends how the case was

conducted.

MR WILLIAMS: Well, it was open to the Full Court to have,

in effect, guided the Willoughbys to call Smith to

put those propositions to Smith. That was not done
and the issue was not raised in the course of the

hearing.

GAUDRON J:  And it was presumably open to the person who was

representing your client on that occasion to say,

"Now, these issues must be limited in this way

because of".

MR WILLIAMS:  But the focus, I submit, was really on whether

the trial judge was right in not finding that the statement made was misleading, and that was under challenge even at the appeal stage. The question

of what followed from there was a secondary

question.

DEANE J:  Mr Williams, I notice the written submissions of

the respondent, which I presume you have seen, have

you?

MR WILLIAMS: Yes, Your Honour.

DEANE J: So, at page 4, (d), (e) and (f), that the issue of

inducement was fully argued before the Full Court:

is that disputed?

MR WILLIAMS: That is not disputed, but in our submission it

does not take the matter any further.

DEANE J: Except it does bear upon Justice Gaudron's

question to you. If, in the context of an issue

being fully argued in the Full Court, it is not

plainly submitted that it is not for the Full Court

to reach a decision on it, it goes to the question

whether there has been a miscarriage of justice.

MR WILLIAMS:  The question of whether the issue of

inducement was one that should be dealt with by the

court or should go back to the trial judge was a

live issue in the course of the appeal.

Esanda 9 8/5/92

DEANE J: As I read that, in the context where the trial

judge has not made a finding about inducement, the

assertion that the issue of inducement was fully

argued carries with it, to me, the inference that

what was argued was whether or not there was

inducement because otherwise one would have thought

it would be simply common ground that, if you reach the stage of inducement, "We don't have to argue it because it goes back to the trial judge".

MR WILLIAMS:  It can still be argued, with respect,

Your Honour, on the basis that it is a matter to be

determined by the Full Court whether it ought to go

back to the trial judge or whether the Full Court

itself is able to deal with the issue. What the

court has decided is, in effect, no, it will not go

back to the trial judge. No concession was made

that it should be dealt with by the Full Court.

One member of the court was putting the view that

it should go back.

GAUDRON J: But equally, I take it from what you have said,

there was no submission that it must go back,

otherwise it would seem odd that it was fully

argued.

MR WILLIAMS:  Your Honour, I am instructed that Mr Ainslie

firmly submitted that it had to go back to the

trial judge. It was an issue before the Full

Court.

GAUDRON J:  Why then was it argued?

MR WILLIAMS: Well, there can be differing views on an issue

between the court and counsel on one side and
counsel on the other side, and the submissions must

deal with all the issues before the court. It was not conceded in any sense that it was for the Full

Court to decide inducement. It was left on the

basis that it had to go back.

In our submission, if the Full Court is to

assume jurisdiction to engage in an exercise of

primary fact finding, it can only be on the basis

of a concession; it cannot be on a basis of an

assumption of that jurisdiction. In any event, to

make such a finding was, in our submission, plainly

in breach of rules of procedural fairness,

including the rule in Brown v Dunn in that, and in

breach of the principles against the appellate
courts embarking upon an assessment of credibility

of witnesses that it has not seen.

Even if the matter were live before the Full

Court, in our submission the Full Court has erred

because they have made three inferences from facts

before them, including one based on a primary

Esanda 10 8/5/92

finding of their own, but they have failed to

consider whether there was evidence to rebut those

inferences. They have treated it as if those

inferences, of themselves, finally determine the

matter.

There was a mountain of evidence to which

reference can be made, and we have sought to set it

out in paragraph 14 of the outline of submissions,

to which the court did not have regard. There were

statements, for example - and I will just simplify
them without going into detail - that the reason

the Willoughbys purchased the hotel was for its

real estate value, and not because their primary

purpose was to operate it at a profit.

There was evidence that suggested they had an overwhelming view of their own ability to run a

hotel better than anybody else and, on that

account, paid no regard to financial results

produced by the vendors. There was also a

suggestion that they did not believe the financial

statements, even if they had had regard to them.

They would not have believed them if they had had

regard to them.

In the light of all that sort of evidence, it

is only the trial judge who could make a finding of

the totality of the evidence as to whether there

was a causation of the loss in terms of section 82

of the Trade Practices Act by the misleading
statement. In our submission, the administration

of justice requires that this case be referred back

on that issue. They are our submissions.

DEANE J: Thank you, Mr Williams. The Court need not

trouble you, Mr Shand.

The Court considers that the Full Court of the Federal Court plainly had jurisdiction to make the

findings which it made. Whether, in the exercise

which arose for the decision of the Full Federal

of its jurisdiction, it was appropriate for the

Court.

In the circumstances of this case, we are not

persuaded that the Full Court's decision to

determine the issue of inducement gives rise to any

question of general principle appropriate to

attract a grant of special leave to appeal to this

Court. The application is therefore refused.

MR SHAND:  I seek an order for costs of the application,

Your Honour.

Esanda 11 8/5/92

DEANE J:  Mr Williams, is there anything you can say in that

regard?

MR WILLIAMS:	No, Your Honour.
DEANE J:	The application is refused with costs.

AT 1.29 PM THE MATTER WAS ADJOURNED SINE DIE

Esanda 12 8/5/92