Fenbury & Ors v Hong Kong & Shanghai Bank & Ors No. Scgrg-95-1923 Judgment No. S6659
[1998] SASC 6659
•1 May 1998
FENBURY LIMITED (IN LIQUIDATION) & ORS v THE HONG KONG & SHANGHAI BANKING CORPORATION LIMITED AND HONG KONG BANK OF AUSTRALIA LIMITED
Civil
Debelle J
This is an application to strike out a third party claim or, in the alternative, to dismiss it. The application is made pursuant to Rule 25.04 and other Rules as well as under the inherent jurisdiction of the Court. The primary application is for summary dismissal of the third party claim. It is convenient to outline the action as between the plaintiff and the defendant for the purpose of appreciating the nature of the third party proceedings.
The plaintiffs are three companies in liquidation, Fenbury Limited (“Fenbury”), Dolfinne Developments Pty Ltd (“Dolfinne”) and J N Taylor Finance Pty Ltd (“J N Taylor Finance”). Fenbury was incorporated in the Island of Jersey on 26 August 1988. On 7 September 1995 it was wound up by an order made in this Court. Fenbury is a wholly owned subsidiary of Dolfinne which, in turn, is ultimately controlled by J N Taylor Holdings Limited (in liquidation) (“J N Taylor Holdings”). On 15 January 1991 Dolfinne was wound up by an order made in this Court. J N Taylor Finance is a wholly owned subsidiary of J N Taylor Holdings. On 15 January 1991 J N Taylor Finance was also wound up. By reason of the shareholding in J N Taylor Holdings of Bond Corporation Holdings Limited (“Bond Corporation”) and other companies in the Bond Corporation Holdings Limited Group, Bond Corporation exercised effective control over J N Taylor Holdings and its subsidiaries including Fenbury from 31 August 1998 and at all material times thereafter.
The defendants are two banks. They and other banks acted as bankers for Bond Corporation and other companies within the Bond Corporation Group. Hong Kong and Shanghai Banking Corporation Limited (“Hong Kong Shanghai Bank”) is a company incorporated in Hong Kong. Hong Kong Bank of Australia Limited (“Hong Kong Bank Australia”) is incorporated in Australia and is ultimately controlled by Hong Kong Shanghai Bank.
On 31 August 1988 Fenbury was the registered owner of a sailing vessel called “Jessica”. On about 26 October 1988, the name of the vessel was changed to the “Schooner XXXX”. On about 5 September 1989 the defendant banks agreed to lend Bond Corporation $50 million. Security for the loan included a mortgage over the “Schooner XXXX”. By letter dated 8 September 1989 (“the facility letter”) Hong Kong Bank Australia offered Bond Corporation an overdraft facility of up to $50 million maturing on 31 October 1989 subject to Bond Corporation complying with a number of conditions precedent. The period of repayment was later extended to 14 November 1989. Bond Corporation accepted the offer.
The conditions precedent included the Hong Kong Shanghai Bank providing to Hong Kong Bank Australia a guarantee of payment, when due, of all amounts payable by Bond Corporation pursuant to or in connection with the lending facility. Another of the conditions precedent required an irrevocable and unconditional indemnity in favour of Hong Kong Shanghai Bank from Mr Alan Bond and a number of companies in the Bond Corporation Group. One of those companies was Fenbury. It was a further condition that Bond Corporation deliver to Hong Kong Bank Australia a certified copy of each power of attorney under which a person signed the indemnity. Thus, Fenbury had to provide an indemnity as well as a copy of any power of attorney pursuant to which the agreement had been signed. In addition, Fenbury had to provide security in the form of a ship’s mortgage over the “Schooner XXXX”.
Fenbury purported to comply with the conditions of the facility letter. The indemnity was provided in a deed executed on its behalf by a Ms Maureen Noonan. It was called “the indemnity agreement” and I will adopt that name. I will return to the manner in which the agreement was signed and in which Bond Corporation and Fenbury purported to comply with the conditions precedent. In the result, Bond Corporation drew down $30 million on 8 September 1989. Later, on 15 September 1989, it drew down a further $13 million and finally, on 11 October 1989, it drew down the remaining $7 million. Bond Corporation later failed to repay the loan to the defendant banks. The banks enforced their security. One of the securities enforced was the ship’s mortgage in respect of the “Schooner XXXX”. In the result, the banks recovered approximately $7 million as the proceeds of the sale of the ship. In this action Fenbury seeks to recover the proceeds of that sale from the banks.
Fenbury alleges that the indemnity agreement is void or voidable in that it was not duly executed, that the banks were aware that the indemnity agreement had not been duly executed, and that the execution of the indemnity agreement was not in the best interests of Fenbury. Fenbury, therefore, claims that it had no obligation to the banks under the indemnity agreement and that the Hong Kong Shanghai Bank had no entitlement to receive the proceeds of the sale of the “Schooner XXXX”. Fenbury further alleges that, in consequence of the non-existence of the indemnity agreement, the ship’s mortgage was unenforceable as against it. In the event that the indemnity agreement and the ship’s mortgage are enforceable, Fenbury alleges that it received no benefit from the transaction and was insolvent at the time it entered into the indemnity agreement. Fenbury further alleges that the directors of Fenbury and the banks knowingly assisted and facilitated the furtherance of a fraudulent and dishonest design on behalf of the directors of Fenbury by agreeing to receive the benefit of the “Schooner XXXX” and the proceeds of sale. It also alleges that the banks received the proceeds of sale knowing that the directors of Fenbury had acted in breach of their fiduciary duty to the company.
Fenbury, therefore, claims that the banks are liable to account to it on a number of grounds for the proceeds of sale. Those grounds include the existence of a constructive trust to account, the allegation that Fenbury has a proprietary interest in the assets of the banks in an amount equal to the value of Fenbury’s loss, as well as equitable damages.
The Third Party Claim
The banks have issued a Third Party Notice against three parties. They are, first, Bedell & Cristin, a firm of solicitors practising on the island of Jersey; secondly, Mr M H Richardson, a partner in the firm of Bedell & Cristin; and, thirdly, Mr A J Dessain, also a partner in Bedell & Cristin. Bedell and Cristin acted for Fenbury from time to time. Messrs Richardson and Dessain are also directors of Fenbury. Bedell and Cristin acted as solicitors in relation to some aspects of the dealings between Fenbury and the banks in connection with the loan of $50 million. At all material times Richardson was the partner in Bedell & Cristin handling the matter.
Mallesons Stephen Jaques (“Mallesons”) is a firm of solicitors practising in Sydney and other places. The Sydney office of Mallesons acted for the banks in connection with the loan of $50 million to Bond Corporation. Mr Gavin Robertson was a solicitor in Mallesons handling the matter. At a little after 5.30pm on 5 September 1989 Robertson sent a letter by facsimile transmission to Bedell & Cristin asking the firm to make an urgent search of Fenbury and seeking advice on certain issues. All of the documents relevant to this application were sent by facsimile transmission. The reader can, therefore, assume that each document mentioned in these reasons was sent by facsimile transmission unless the contrary is indicated.
It is necessary to remember that in September 1989 the time in Jersey was nine hours behind that in Sydney. Thus, a document sent by facsimile transmission from Sydney at 5.30pm on Tuesday 5 September 1989 would be received in Jersey a little after 8.30am on 5 September. It is convenient to give equivalent times rather than to allow for the time spent transmitting the facsimile.
A little after 5.40pm on 6 September 1989 Robertson sent another letter to Bedell & Cristin which was received at 8.40 in the morning of 6 September 1989. The letter sought further assistance and advice in relation to the same transaction. It asked Bedell & Cristin to prepare a fixed and floating charge over all of the assets of Fenbury, which charge was to include a covenant that Fenbury would procure registration of the “Schooner XXXX” and of a mortgage of the vessel as soon as possible. The letter concluded by stating that Bond Corporation wished to draw down the funds on Friday, 8 September. The penultimate paragraph of the letter was in these terms:
“The funds are required to be drawn down by Bond Corporation Holdings Limited (“the borrower”) on Friday, Sydney time. This in effect requires that the Jersey security be settled and executed by close of business Thursday, your time.”
Thus, Robertson was allowing two days for the documentation to be prepared and executed. The reference to “the Jersey security” is plainly a reference to the fixed and floating charge. Not only was Robertson seeking Bedell & Cristin’s urgent assistance in drawing the fixed and floating charge but he was also clearly aware of the differences in time between Sydney and Jersey. Obviously, at that time, Mallesons did not know that Bedell & Cristin acted for Fenbury or that Richardson and Dessain were directors of Fenbury.
Richardson was the partner in Bedell & Cristin who responded to these two enquiries by Mallesons. Thereafter, he continued to deal with Mallesons in relation to this transaction. On 6 September 1989 (Jersey time) he responded by letter to Mallesons’ first letter sent on 5 September. The time when he sent the letter was not proved. Before answering the various requests set out in the letter, he pointed out that Bedell & Cristin acted for Fenbury, and that he and Dessain were directors. The relevant parts of his letter read:
“FENBURY LIMITED
We refer to your facsimile of 5th September concerning the above mentioned Company.
We in fact act for and provide administrative services in Jersey to this Company. We have taken instructions from our client who has no objection to our disclosing the information which you require. You should be aware that a Company search against the Company would not have given details such as those you require other than the address of the registered office and the names of the registered shareholders.
In answer to your questions, as far as we are able:-
1...... The Directors are Anthony James Dessain and Michael Henry Richardson, two lawyers in this office and the Secretary is Circle Advisors Limited, again of this address.”
The letter then goes on to answer Mallesons’ requests in their letter dated 5 September. On the same day (Jersey time) Richardson sent another letter to Mallesons, this time in answer to the second letter from Mallesons sent on 6 September. There is no evidence of the time when this letter was sent. He repeated that Bedell & Cristin acted for and administered Fenbury and questioned whether it was appropriate for Bedell & Cristin to continue to act for Mallesons in relation to the arrangements with the banks. He also stated that Bedell & Cristin would not be able to prepare the security documents within the specified time. I set out all of the letter:
“FENBURY LIMITED
I refer to your fax of 6th September, received here this morning.
As indicated in my first fax to you of today’s date, this firm acts for and administers Fenbury Limited; therefore I am not sure whether it is appropriate for us to act for you in relation to the Hongkong & Shanghai Banking Corporation. We could only do so if both parties agreed to our so acting.
In any event:
1...... It will frankly be impossible for me or any of my colleagues to prepare security documentation within the time specified.
2...... It is not possible as a matter of Jersey law to grant a floating charge over a company’s assets. It may be possible for a Jersey Company to enter into such a charge governed by some other law and it would then be likely that the Company would have capacity to grant a charge and it would be a matter for that other governing law to determine whether this was a good security. If the assets in this case are situate in Queensland and New South Wales then presumably the laws of one of those territories should govern the charge documentation and it would therefore be better for you to prepare a document and, if it is agreed that we can act for both parties, for us to review it.
As you will also be aware from my first fax, as the Directors of the Company are in Jersey, it is likely that the documentation will need to be executed here.”
Thus, at some time on Wednesday 6 September (Jersey time), Richardson had informed Robertson at Mallesons first, that the documentation, including the power of attorney, could not be prepared in the time specified and, second, that the documentation would have to be executed in Jersey. It is obvious that both Richardson and Robertson were very conscious of the time difference between Sydney and Jersey.
Robertson responded by letter at about 7.42pm on 7 September 1989 (10.42am on 7 September in Jersey). By then the banks had decided to take a ship’s mortgage only as security. Robertson also asked Richardson to arrange for certain resolutions to be carried by the Board of Fenbury and for a power of attorney to be executed. The letter read:
“FENBURY LIMITED
Thank you for your prompt advices.
The Bank has now decided to simply take a registerable Ships Mortgage on the basis that it will be subsequently registered once the vessel is registered here in Australia. We have prepared the form of Mortgage and it is presently with Bond for approval. I understand that Graeme Baker of Bond will be in touch with you to arrange for the relevant resolutions to be passed and for the Power of Attorney to be executed.
Can you please confirm to me direct overnight that these matters have been done and that the relevant documents are being held to the order of the Bank. Please also fax copies.”
The documents to which Robertson referred in that letter were plainly the resolutions and the power of attorney. Given the time difference, the request in the last paragraph seeking confirmation “direct overnight” could only mean that Robertson was seeking an answer on Friday (Sydney time). In other words, “overnight” referred to Sydney time.
Mr Graeme Baker was a senior employee of Bond Corporation in Perth. On 7 September (Perth time) he sent to Richardson at Bedell & Cristin the power of attorney and the form of resolutions proposed to be carried by the Board of Directors of Fenbury. There were two sets of resolutions. The first was in these terms:
“BOND CORPORATION HOLDINGS LIMITED:
The Chairman tabled copies of the following draft document relating to the proposed AUD50,000,000 overdraft facility to be provided to Bond Corporation Holdings Limited (“BCHL”) by Hongkong Bank of Australia Limited which is to be guaranteed by the Hongkong and Shanghai Banking Corporation (“HKSBC”):
1. Indemnity granted by the Company in favour of HKSBC;
2...... A First Registered Ships Mortgage over the vessel Schooner XXXX.
The above documents will be referred to as the “Documents”.
RESOLVED that:
1...... the execution of the Documents would be in the best interests of the Company; and
2...... the Company enter into each of the Documents and undertake and observe the obligations contained in the Documents:
EXECUTION BY ATTORNEY:
RESOLVED that the Common Seal of the Company be affixed to a Power of Attorney in a form approved by any director of the Company to enable execution of the Documents.”
The second was in these terms:
“BOND CORPORATION HOLDINGS LIMITED:
The Chairman noted that members of the Company had agreed that the meeting was duly convened notwithstanding that less than the requisite period of notice of the meeting had been given.
The notice convening the general meeting was read. The Chairman noted that the Company had been requested to execute the following document:
1...... Indemnity granted in favour of The Hongkong and Shanghai Banking Corporation;
2...... A First Registered Ships Mortgage over the vessel Schooner XXXX.
As security for certain obligations of Bond Corporation Holdings Limited.
The above documents will be referred to collectively as the “Documents”.
The resolutions set out in the notice convening the general meeting were discussed.
RESOLVED that:
1...... the execution of the Documents would be in the best interests of the Company; and
2...... the Company enter into each of the Documents and undertake and observe the obligations contained in the Documents; and
3...... the Board of Directors be authorised to approve the execution of the Documents.”
The power of attorney appointed a number of persons as attorneys for Fenbury. They were Maureen Anne Noonan, Darryl Leonard Guihot, Richard Graham Anderson (all employees of Bond Corporation) and any partner of Mallesons practising in the Australian Capital Territory. The powers exercisable by an attorney acting under this power were limited to the execution of the indemnity agreement and the ship’s mortgage.
.................. At 4.53pm on 7 September 1989 in Jersey (1.53am on 8 September in Sydney) Richardson sent a letter to Robertson. It is an important letter. It read:
“FENBURY LIMITED
Thank you for your facsimile of 7th September.
I confirm that I have received the relevant draft documentation concerning the Power of Attorney to be granted by Fenbury Limited.
I confirm that a Power of Attorney by Fenbury Limited in favour of Maureen Anne Noonan, Darryl Leonard Guihot and Richard Graham Anderson will be executed by Fenbury Limited dated 8th September 1989 and that the original of this together with extracts of the Board Resolutions approving the execution of the Power of Attorney will be delivered to you on behalf of Hong Kong and Shanghai, in the first instance by fax tomorrow, our time, 8th September.”
Robertson would have received that letter at his office on the morning of 8 September, the day when it was intended that the lending transaction would be completed.
It is apparent from these documents that, on the morning of Friday 8 September 1989,
Robertson knew that the power of attorney had not been executed.
Robertson knew that Richardson had said that the power of attorney would be executed and dated 8 September 1989. It is not clear from the letter of 7 September whether the power of attorney would be executed on 8 September but it is reasonable to infer that that is what the letter meant.
Robertson knew that on 8 September Richardson said that he would send by facsimile transmission copies of the resolutions of the Board of Directors and of the power of attorney. However, he did not know precisely when on 8 September they would be sent.
Richardson did not send any document at all to Robertson on 8 September. Nevertheless, notwithstanding the failure of Fenbury to send either the resolutions or the copy of the power of attorney, Ms Noonan executed the indemnity agreement and Bond Corporation was permitted to draw down $30 million. There is no evidence either as to when Ms Noonan executed the indemnity agreement or when Bond Corporation drew the sum of $30 million.
At 11.25am on 8 September 1989 Robertson at Mallesons sent a letter to Graeme Baker listing matters which required attention in order to satisfy the conditions precedent for the lending transaction to proceed. There is no need to set out the whole of the letter. It is sufficient to refer to paragraph 7, which read:
“7..... In relation to Fenbury all I have received is the following fax. Obviously there is no way that I will be able to persuade any of my colleagues to sign on behalf of Fenbury on the basis of this letter”.
The document he described as “the following fax” is the letter sent by Richardson on 7 September. The persons he describes as “my colleagues” are his partners in the office of Mallesons at Canberra. Thus, it can be readily inferred that Robertson was checking what had to be done to satisfy the conditions precedent. It is apparent that he was alert to the fact that the power of attorney had not then been authorised by resolution of the board of Fenbury and that he took the view that Richardson’s letter dated 7 September did not contain sufficient authority for any of the intended attorneys to act.
One of the conditions precedent required by Hong Kong Bank Australia was that it should have in its hand a certified copy of each power of attorney under which a person signed a transaction document. A transaction document was defined in a way which included the indemnity agreement.
The indemnity agreement was executed on behalf of Fenbury by Ms Noonan. The execution clause states that she signed sealed and delivered the deed on behalf of Fenbury “under power of attorney dated 7 September 1989”. There was no such power of attorney.
On 8 September 1989 in Jersey, the directors of Fenbury met and carried the following resolution:
“BOND CORPORATION HOLDINGS LIMITED:
The Chairman tabled copies of the following draft document relating to the proposed AUD50,000,000 overdraft facility to be provided to Bond Corporation Holdings Limited (“BCHL”) by HongKongBank of Australia Limited which is to be guaranteed by the HongKong and Shanghai Banking Corporation (“HKSBC”):-
(i) Indemnity granted by the Company in favour of HKSBC;
(ii)... A First Registered Ships Mortgage over the vessel Schooner XXXX.
The above documents will be referred to as the “Documents”.
RESOLVED that:-
(1)... the execution of the Documents would be in the best interests of the Company; and
(2)... the Company enter into each of the Documents and undertake and observe the obligations contained in the Documents;
EXECUTION BY ATTORNEY:
RESOLVED that the Common Seal of the Company be affixed to a Power of Attorney in a form approved by any director of the Company to enable execution of the Documents.”
At 5.35pm on 11 September 1989 in Sydney (8.35am on 11 September in Jersey), Robertson sent the same letter to Richardson, Graeme Baker and Simon Davis. Davis is an officer of Hong Kong Bank Australia in Sydney. It read:
“FENBURY LIMITED
We are most concerned that we have not yet received confirmation from you that the relevant Resolution and Power of Attorney has been executed.
The transaction was partially completed last Friday in the absence of this confirmation and it is now required urgently to allow the remainder of the transaction to be completed.”
It is to be noted that Robertson does not ask if the resolutions had been carried on 8 September, or whether the power of attorney had been executed. He merely seeks confirmation of that fact. At 6.15pm that day (Sydney time) he sent another letter to Baker and Davies. It read:
“Further to the settlement held last Friday I thought it might be useful to recap on certain outstanding matters:
1...... The Mortgage over the vessel “Schooner XXXX” - you will have seen my fax to the Jersey lawyers chasing them up on the Resolution and Power of Attorney.
2...... I note that one of the secured Deed of Acknowledgment has yet to be executed by B & McK Custodians Limited. Please confirm that this is in hand.
3...... Have the Fenbury Memorandum & Articles been delivered to our Perth Office?
4...... Please advise when I can expect to see the evidence of Bell Satellite has been transferred to the Bond Group.”
It is apparent from these two letters that Robertson is again checking the list of matters requiring attention for the loan transaction to proceed but is doing so after the first draw down of $30 million.
On 11 September 1989, at a time which was not proved, Richardson responded by letter to Robertson’s letters of 7 and 11 September. It should be remembered that he had already sent an earlier response to the letter of 7 September. In his letter he sent a certified copy of the resolutions carried by the directors of Fenbury on 8 September and a copy of the power of attorney executed on 11 September authorising the attorneys named therein to execute the indemnity agreement and the ship’s mortgage The power of attorney was certified by a notary public in Jersey. The documents indicate that this was the first notice the banks had received of the date of execution of the power of attorney.
On 12 September 1989, the ship’s mortgage was executed by one of the attorneys named in the power dated 11 September. The execution of this document was required before the next draw down on 13 September.
Those are the facts upon which the banks base their claim against the third parties. The banks assert that the third parties were on 7 September 1989 aware that:
Hong Kong Bank Australia proposed to advance moneys to Bond Corporation conditional upon, inter alia, the execution of an indemnity in favour of Hong Kong Shanghai Bank by Fenbury and execution of the guarantee in favour of Hong Kong Bank Australia by Hong Kong Shanghai Bank;
it was the intention of Bond Corporation to arrange for the execution of the indemnity agreement on behalf of Fenbury under power of attorney to be granted by Fenbury to Noonan, amongst others;
it was the intention of Hong Kong Bank Australia to advance moneys to Bond Corporation immediately upon the execution of the indemnity agreement and guarantee;
execution of both the indemnity and the guarantee was scheduled to occur on 8 September 1989, Sydney time; and
a part of the moneys were required to be advanced on 8 September 1989, Sydney time.
The Banks rely on several causes of action which are all founded on the letter sent on 7 September 1989 by Richardson to Robertson.
The banks first assert that the letter represented to Mallesons and the banks that a power of attorney authorising Ms Noonan to execute the indemnity agreement on behalf of Fenbury would be executed and dated 8 September 1989. The banks say that the third parties thereby represented that Ms Noonan would be authorised by Fenbury to execute the indemnity agreement on 8 September or, alternatively, that the third parties would ensure that a power of attorney authorising her to sign the indemnity agreement would be either executed before she signed the indemnity agreement or executed and sent to Mallesons by way of ratification of the execution by her on 8 September. The banks assert that the representations were made with the intention that the banks should act on them.
Next, it is alleged that the third parties owed a duty to the banks to take reasonable care to ensure that Ms Noonan would be authorised to execute the indemnity agreement on 8 September and to advise the banks, or the banks’ solicitors, if she was not. The banks allege that the third parties had the capacity to cause the power of attorney to be granted on 8 September and their failure to ensure that was done, or to advise the banks that it had not been done, constituted a breach of their duty of care.
Thirdly, the banks rely on ss41 and 42 of the Fair Trading Act, 1987 (NSW). They allege that, if the power of attorney was not exercised on 8 September, the representations made in the letter were representations made with respect to a future matter; that the third parties did not have reasonable grounds for making the representations; and that the misrepresentations were thereby misleading and deceptive. If the representations were made with respect to a future matter, the third parties will be deemed not to have reasonable grounds for making them in the absence of proof to the contrary and will thereby be misleading: see s41 of the Fair Trading Act (NSW). The banks also allege in the alternative that the letter of 7 September constituted an implied representation that Ms Noonan was authorised to sign the indemnity agreement on 8 September and the misrepresentation was misleading or deceptive.
Finally, the banks claim that, if they are held to be liable to Fenbury for equitable damages, to make restitution, or are liable to account to Fenbury as a constructive trustee by reason of a breach by Richardson and Dessain of their duties as directors of Fenbury, Richardson and Dessain are liable to contribute to the amount to be paid to Fenbury: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 349-352.
In order to succeed on their application for summary judgment, the third parties must demonstrate that the banks’ claim cannot succeed on any possible view of the facts or the law: Rule 25.04(1)(c). The third parties acknowledge that, for the purpose of this case, there is no practical difference between the test in Rule 25.04 and that in Rule 46.18(a).
The jurisdiction summarily to dismiss an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance for the parties to reach a definite and certain conclusion: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, where there is a list of the various expressions which have been used in the cases to describe the tests to be applied. Although great care must be exercised to ensure that, under the guise of achieving expeditious finality, a proponent is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal, the exercise of the jurisdiction is not reserved for those cases where argument is unnecessary to demonstrate the futility of the plaintiff’s claim: General Steel (supra) at 130. See also Halsbury’s Laws of England (4th Ed) Vol 36 para 73, where the learned authors point out some very important points have been decided on applications to strike out. The requirement that the Court be satisfied that it has the requisite material picks up the effect of the decisions in Goodson v Grierson [1908] 1 KB 761 at 764, 766 and Bayne v Riggall (1908) 6 CLR 382 at 396-7, 398. But those decisions demonstrate that the Court does not merely speculate as to the existence of further fact. Instead, there must be something which points to the possible existence of further facts, such as a proposition of law (as, for example, in Goodson v Grierson) or something which points to the existence of further evidence (as in Bayne v Riggall).
The allegations set out in the Statement of Claim in the third party proceedings suggest that there is no evidence of any other fact which might colour the interpretation of the documents. Further, it is not possible to identify in any of the documents a reference to some other fact, such as a telephone conversation or another document, which might affect the interpretation of the documents. The banks have proved one other fact, namely, the letter sent by Baker to Richardson on 7 September 1989. Nevertheless, I am satisfied that there is nothing which points to the existence of any other relevant facts. Counsel for the banks also pointed to the absence of any sworn evidence from Richardson and Dessain as to either the circumstances in which, as directors of Fenbury, they approved Fenbury entering into the indemnity agreement and the ship’s mortgage, or their state of mind when they wrote the letter of 7 September 1989. But it is for the banks to prove their case and their case essentially turns on Richardson’s letter of 7 September.
The third parties concede that the letter dated 7 September 1989 represented that a power of attorney would be executed on, and dated, 8 September 1989. They also concede that the representation in the letter proved to be inaccurate because the power of attorney was not executed until 11 September 1989. It is open to argument that the letter is a representation as to a future fact. If Richardson did not have reasonable grounds for making the representation, it is deemed to be misleading: s41 of the Fair Trading Act (NSW). The third parties have the onus of establishing that Richardson had reasonable grounds for making the representation: s41(2) of the Act. The third parties have not adduced any evidence which discharges that onus. In the circumstances, I am not prepared to hold that the banks cannot succeed on that ground. I am not, therefore, prepared to dismiss the banks’ claim against the third parties under Rule 25.04.
There remains the issue whether the third parties are entitled to an order striking out any other part of the banks’ Statement of Claim on the ground that it discloses no reasonable cause of action against them.
Given that evidence may be adduced by the third parties in relation to the issue of whether the representation was reasonable, it is not appropriate to say that the pleadings as to the alleged misrepresentation do not disclose a reasonable cause of action. In reaching this conclusion, I acknowledge the force of several criticisms made by the third parties of the banks’ case on this issue. The mere fact that a case is weak and is not likely to succeed is no basis for striking it out on this ground: Moore v Lawson (1915) 31 TLR 418; Wenlock v Moloney and Others [1965] 2 All ER 871. Further, the position may be quite different if evidence is adduced by the third parties for the purpose of proving the reasonableness of the representation. That evidence may bear upon the issue whether in all the circumstances a misrepresentation was made.
Similar considerations affect the issue whether there was a negligent misrepresentation. The banks allege that a duty of care exists because Richardson made a representation to them as to when the power of attorney would be executed and they were not advised that it was incorrect, or had ceased to be correct, and they consequently acted to their detriment in reliance on that representation. The case for the banks may have the difficulties to which the third parties point but, here again, if evidence is called on the reasonableness of the representation, that evidence may bear upon this issue also. For these reasons, I am not prepared to strike out the claims for misrepresentation and negligence.
The banks’ claim for contribution might also be difficult to sustain. But I am not prepared to find that it does not have reasonable prospects of success. Given that I will have to determine the issues, it is better that I not descend into detailed reasons for my decision.
For all of these reasons, the application by the third parties is dismissed.
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