European Bank Limited v Robb Evans of Robb Evans & Associates

[2009] HCATrans 251

[2009] HCATrans 251

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S91 of 2009

B e t w e e n -

EUROPEAN BANK LIMITED

Applicant

and

ROBB EVANS OF ROBB EVANS & ASSOCIATES

Respondents

Application for special leave to appeal

GUMMOW J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 OCTOBER 2009, AT 10.21 AM

Copyright in the High Court of Australia

MR R.J. WEBB, SC:   May it please the Court, I appear with my learned friend, MR D.T. KELL for the applicant. (instructed by Baker & McKenzie)

MR A.S. MARTIN, SC:   May it please the Court, I appear with my learned friend, MR G.M. DREW for the respondent. (instructed by Deacons Lawyers)

GUMMOW J:   Yes, Mr Webb.

MR WEBB:   Your Honours, the undertaking as to damages, the subject of this litigation, was given to the Court of Appeal in its earlier proceedings to support an order preventing payment by Citibank to European Bank of the debt represented by the account of European Bank with its co‑respondent.  The underlying right claimed by the respondent was that, in his capacity as receiver, he was the owner in equity of the Citibank account.  The Court of Appeal had found that Citibank was indebted to European Bank, the holder of the account, and that Evans had no interest in or right to it.

GUMMOW J:   You succeeded before Justice Gzell.

MR WEBB:   We did, your Honour.

GUMMOW J:   I guess you want to reinstate your success there.

MR WEBB:   Yes.

GUMMOW J:   What do you say indicates error in the Court of Appeal’s reversal of the primary judge?

MR WEBB:   Your Honour, we say that the Court of Appeal erred in two ways and differently amongst the members of the Court having regard to their reasons.  The reasons of the judges were different, one to the other.  The first error was that the court departed from the principle which is stated by Lord Diplock in Hoffmann‑La Roche that there are two separate matters for inquiry in a claim on an undertaking.  The first is whether the undertaking ought be enforced against the respondent at all.  That raises questions such as the disentitling conduct, if any, of the plaintiff.  The second is, if it is to be enforced, as to what the principles as to the assessment of damages and particularly in relation to remoteness are to be.  In the case of his Honour Justice Campbell in particular, we say that his Honour mixed those two elements in his reasoning and that to a lesser extent Justice Basten did as well. The second error that we point to is in relation to the question of the approach to remoteness as to damages.

GUMMOW J:   You had some findings of fact in your favour, did you not, by the primary judge?

MR WEBB:   Yes.

GUMMOW J:   At paragraphs 74 to 77.

MR WEBB:   Yes, and the ultimate findings at 78 consequent upon that.

GUMMOW J:   What happened to those findings of fact?

MR WEBB:   Those findings of fact were left undisturbed.  They were challenged on appeal but undisturbed.  The Court of Appeal felt that, despite those findings, which it found properly made, the applicant was nevertheless to be held out of its damages having regard to the nature of the loss, firstly, and on the basis that it was not confined to proceeding by way of analogy to the contract test for remoteness set out in Hadley v Baxendale as followed by his Honour the primary judge.

GUMMOW J:   Do you support what I might call the Hadley v Baxendale approach?  Before you answer that, you should realise that in other jurisdictions that has been followed, I think, particularly in the United States under the Federal Rules of Civil Procedure, rule 65.

MR WEBB:   Your Honour, we say firstly in relation to that matter that what is plainly correct as a matter of principle is that when one gets to assessment of damages it must be undertaken by reference to fixed principles as to remoteness - injustice results if it is not – and, secondly, that we support the Hadley v Baxendale approach but recognise that there has been development, including in this Court, of the thinking about that test and what it in fact imports as a matter of principle.

GUMMOW J:   In Air Express 146 CLR at 324 – this is against you, I suppose – Justice Mason said that little was to be gained from looking at causation in contract or tort.

We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connexion or standard of causal connexion which is most appropriate to that purpose.

It was a dissenting judgment but it seems pretty cogent.

MR WEBB:   Yes.  The Court in Air Express was of course concerned with the question of causation, not remoteness, and did not focus upon the appropriateness of the test as to remoteness as provided for in the contract realm, but it did indicate that, both at first instance and on appeal, prima facie, that was the correct approach, reflecting what Lord Diplock ultimately said in Hoffmann‑La Roche.  The proposition that we put shortly is that the Court of Appeal erred in proceeding as though damages were to be assessed on the undertaking on a basis not confined by principle in the realm of remoteness and that ‑ ‑ ‑

GUMMOW J:   What was the significance of this letter that was written?  It said against you that you should have “fessed up” at the beginning when the undertaking was being given.

CRENNAN J:   Or applied under the liberty to apply.

MR WEBB:   Your Honour, as is evident from the findings made by his Honour the primary judge there was no actual intention to invest in euros at the time the undertaking was given, but subsequent changes made that something which the Bank would have done if it was unconfined by the orders of the Court.  The simple proposition we put is that the undertaking having been given, it is there expressly to protect the applicant against the very sorts of damages that it ultimately suffered and that one cannot shift to the respondent an obligation to keep coming back to court every time it wants to revisit.

CRENNAN J:   But for your purposes you would say, would you, that it is sufficient to show that the European Bank would have invested in a particular way at a particular time, and nothing more needs to be shown.

MR WEBB:   Yes, provided at the time of the giving of the undertaking that the test as to remoteness is satisfied.  To take another approach would be productive of multiple proceedings in relation to the refinement of orders and undertakings in relation to them from time to time.  I should say his Honour Justice Basten did seem to take the view that the fact that it wrote the letter rather than applied to court counted against the applicant on the question of assessment.

CRENNAN J:   I suppose that is in the context that you are on notice of the basis on which the moneys held are being invested at the time when the undertaking is given, because that is part of the orders made.

MR WEBB:   Of course, the order being made at the time the undertaking is given is of uncertain foundation given the uncertainty of the underlying claim and because, as Justice Campbell notes throughout his reasons, there are a multitude of uncertainties going forward which cannot be anticipated by the court or the parties at the time the order is given and the undertaking supports it.  The question is simply whether a defendant in the position of the applicant here is entitled to rely on the undertaking or is bound to keep approaching the court to seek revision of the interlocutory regime pending final determination as circumstances dictate.

The point we make is that in particular cases what happens post order an undertaking may amount to disentitling conduct, that is to say the enforcement might be refused altogether, but there was never a case run in this matter on the basis that there ought not be an enforcement and the question as to the letter then falls away.

CRENNAN J:   This was really narrowly about whether or not you are entitled to the benefit of showing that you could have got a better result than the result obtained pursuant to the order.

MR WEBB:   Yes.  If I may put it this way, it is narrowly about whether, at the time the undertaking was given and the companion order was made as between the parties, it was contemplated that the sort of loss ultimately suffered was a not unlikely loss, to use the language of some of the cases.

GUMMOW J:   It is rather unfortunate - it is not the product of the activity of either side of the Bar table - these undertakings are of enormous day‑to‑day importance.  If there is to be an appellate decision dealing with it, it is hopeful it should be clearly and unanimously expressed if that is possible.

MR WEBB:   As I have submitted to the Court already, of course, Air Express does not deal with this question of remoteness, having regard to the question on which that case turned and because of the immense importance, as some of the commentators say, of the undertaking as a practical matter in the running of litigation we say it is ‑ ‑ ‑

GUMMOW J:   Air Express was decided in 1981 at the time of exchange control legislation.

MR WEBB:   Yes, that is so, your Honour.

GUMMOW J:   The world has moved.

MR WEBB:   Justice Aickin’s decision at first instance was in the late 70s so it has moved even more since then.  That is regarded by the judges in the Court of Appeal as the most useful statement of principle.

GUMMOW J:   Is there provision in the New South Wales Supreme Court Rules these days for entry of judgment in foreign currencies?

MR WEBB:   Yes, your Honour.

GUMMOW J:   That is a change too.  Thank you, Mr Webb.  Yes, Mr Martin.

MR MARTIN:   Your Honours, the express terms of the undertaking in question as to damages are clear and beyond doubt.

GUMMOW J:   Where are they?

MR MARTIN:   Your Honour, the undertaking is found at application book page 54, paragraph 26 of the judgment of Justice Campbell.  

GUMMOW J:   Yes, thank you.

MR MARTIN:   There is nothing in the express language of the undertaking which suggests that the assessment of compensation should be limited by drawing some analogy with the law of contract, law of tort or equitable remedies.  The only limits which arise from the express words of the undertaking is that the order be one which the court considers to be just and that the payment that is to be made is to be a payment for compensation.

Now, undertakings as to damages are given to courts in the making of very different interlocutory orders and undertakings in a multitude of different factual situations.  The Court is aware of orders being granted in relation to seizure orders, freezing orders, stay of proceedings, stay of execution, judgments.  The very fact that an undertaking as to damages may be given in such differing circumstances, some of which may be seen to be inviting the analogy of the law of contract, others clearly being seen as the analogy of the law of contract and have nothing to do with it whatsoever we submit demonstrates clearly that the express words of the undertaking as to damages should not be limited by reference to such analogies.

GUMMOW J:   I am not sure that helps you, really, Mr Martin, because this litigation was all about pursuit of moneys on an international scale, was it not?

MR MARTIN:   Yes.

GUMMOW J:   One immediately starts thinking about foreign currency conversions for these parties.

MR MARTIN:   Yes, but as the Court of Appeal ‑ ‑ ‑

GUMMOW J:   Does not a particular situation of the litigation in relation to the parties bear upon these questions of what is just?

MR MARTIN:   Yes, it would, your Honour, but as the Court of Appeal noted, the trading in currency is a speculative activity.  It was regarded as not just for the respondent – the circumstances to be regarded as an insurer for such speculative activities.

CRENNAN J:   But this particular respondent would have been on notice of the kind of business done by the European Bank.

MR MARTIN:   Yes, of notice, but as the Court of Appeal has noted, the respondent ‑ ‑ ‑

GUMMOW J:   Just remind us, where was the situs of the business operations of European Bank centrally located?

MR MARTIN:   Vanuatu, your Honour.  To answer Justice Crennan’s question, at the time the undertaking was given by the respondent, the respondent had no reason to believe and had no knowledge that the Bank wished to convert the moneys from US dollars into euros.  It had no idea at that stage and no reason to expect that that would be done, having regard to the fact that the terms of the orders were for the moneys to be paid into Court in US dollars.

Now, your Honours, there may well be cases where a just order for compensation could be made without the limitations of awards in damages in contract or in tort.  In this case the usual undertaking as to damages which has found its origin in equity provides a flexible formula which should not be unduly restricted by the application of rigid rules.

GUMMOW J:   That may be right, but I think the flexibility may come back and bite you, as Chief Justice Gleeson would have said.

MR MARTIN:   Yes.  Your Honours, the second basis as to why we submit the application should be refused is that, even though the reasoning of the Court of Appeal judges differed slightly, they all concluded that in the circumstances of this case a just order for compensation would involve the applicant merely receiving a payment of interest at the commercial rate for the moneys that it was kept out of, recognising that the normal measure of damage of loss for use of money is interest.

GUMMOW J:   The moneys already being in a foreign currency.

MR MARTIN:   Moneys in a foreign currency paid into court, earning interest in accordance with the interest rates that prevailed in respect of that currency at the time.  That was the compensation that the court said was just in the circumstances.

GUMMOW J:   Is there any accommodation in the Supreme Court Rules of New South Wales for differential interest rates depending upon the money being foreign currency in court or Australian currency?

MR MARTIN:   No, your Honour.

GUMMOW J:   There is not, is there?

MR MARTIN:   At the time of the undertaking being given by the respondent, the respondent neither knew nor had reason to believe at the time that the applicant would engage in such activities – that is the currency trading by converting the US dollars into euros.  Secondly, the respondent at the time the undertaking was given did not undertake the risk of the applicant seeking to engage in that type of activity.  The order simply made pursuant to which the undertaking as to damages was given deprived the applicant of the use of the funds.  The order did not deprive the applicant or prevent the applicant from doing what it wished by way of entering into business transactions including borrowing money, investing or indeed speculating in foreign currency.  That was always open to the applicant to do.

Now, it is our submission that it would not be just, as found by Justice Campbell at paragraphs 74 and 75 at application book page 75, for the applicant to recover its claimed loss because the respondent had undertaken the risk of the applicant engaging in foreign currency speculation.  That was a risk not undertaken by the applicant at the time the undertaking was given.  Secondly, it would not be just, as found by Justice Basten at paragraph 72 of application book page 53, for the respondent to be regarded as an insurer of speculative profits which might have been obtained by the applicant.

As Justice Gyles said in his judgment at paragraph 131, application book 100, a just order for compensation for the applicant was the interest earned in the most appropriate currency which was adequate recompense for being out of its money.

GUMMOW J:   The appropriate currency.

MR MARTIN:   The appropriate currency at that time was US dollars, your Honour, because that was the currency that the moneys were paid into court and pursuant to which interest was earned.

HEYDON J:   You may be right about all this, but the fact is that four very experienced commercial judges have come to four entirely different points of view.  Is it not desirable that some endeavour be made to bring about a little more unity?

MR MARTIN:   Your Honours, at the end of the day, each of the ‑ ‑ ‑

GUMMOW J:   I am not sure, if I was a primary judge, that I would know where I stood.

MR MARTIN:   Each of the Court of Appeal judges concluded that it was not just for an order to be made in respect of the recovery of the claimed moneys that the applicant seeks.  We submit that there is no basis for concluding that the Court of Appeal’s conclusion about the injustice of the applicant succeeding in its claim was wrong in this regard.  In any event, your Honours, even if the rule of remoteness of damages for breach of contract as contended for by the applicant were to be applied, we submit that the claimed loss here still would be regarded as too remote according to that rule.

GUMMOW J:   Yes, but it may be a mistake to focus immediately upon the second limb of Hadley v Baxendale.  What is really focused upon I think is the idea behind the second rule, given the relationship between these parties and the nature of the commodity in which they have been dealing, namely tracing moneys.  The case is all about tracing moneys across the world.

MR MARTIN:   Yes, it is, your Honour.  Your Honours, Justice Gyles, we submit, held correctly at application book page 100 at paragraph 130 that the claimed loss of profit upon a business speculation was:

not the natural consequence of the order and is too remote to be classed as “just” compensation.

Now, we submit that there is nothing being put to your Honours to suggest that that conclusion was wrong.  Furthermore, Justice Basten at application book page 52, paragraph 20, upheld the ground that the claimed loss was not the natural consequence of the order.  His Honour was of the view that it was too remote to say that the movement in exchange rates was a natural consequence.  It was extrinsic to the reasons why the applicant had been kept out of money.  So having regard to such conclusions, we would submit, your Honours, that even if the rule in Hadley v Baxendale applied, based on those conclusions it would not have been satisfied here.  Those are our submissions.

GUMMOW J:   We do not need to hear you in reply, Mr Webb.  There will be a grant of special leave in this matter, it to be a one‑day appeal, I would imagine.  We would be assisted, though, with material indicating how these problems are dealt with in other common law jurisdictions, not excluding the United States, and we have already referred to the Federal Rules of Civil Procedure, rule 65.  There are detailed writings on this question of remedies in the United States by Professor Dobbs who has produced a multi‑volume treatise on the subject.  Someone had better look at that.

We will adjourn to reconstitute.

AT 10.47 AM THE MATTER WAS CONCLUDED