Fisher, C.R. v Westpac Banking Corporation Ltd

[1993] FCA 492

CHRISTOPHER ROBIN FISHER AND FAY ANNETTE FISHER v. WESTPAC BANKING CORPORATION
LTD; GREGORY MUNRO and RURAL ADJUSTMENT AND FINANCE CORPORATION OF WESTERN
AUSTRALIA
No. WAG75 of 1993
FED No. 492
Number of pages - 9
Practice and Procedure - Property
(1993) 43 FCR 385

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J(1)

CATCHWORDS

Practice and Procedure - pleadings - statement of claim - logical incoherence - viable causes of action capable of exposure - statement of claim as a whole flawed - statement of claim as a whole struck out.

Property - deeds - escrow - meaning of escrow - document as escrow to be capable of taking effect upon satisfaction of conditions - no cause of action for "breach of condition of escrow".

Words and Phrases - "escrow".

Trade Practices Act 1974 s.82

Wm. Cory and Son Ltd v. Inland Revenue Commissioners (1964) 1 WLR 1332

Watkins v. Nash (1875) 20 LR Eq 262

Macedo v. Stroud (1922) 2 AC 330

Terrapin International Ltd v. Inland Revenue Commissioners (1976) 2 All ER 461

Alan Estates Ltd v. W.G. Stores Ltd (1981) 3 All ER 481

Wardley Australia Ltd v. State of Western Australia (1992) 175 CLR 514

HEARING

PERTH, 14 July 1993

#DATE 20:7:1993

Counsel for the Applicants: Mr J Baker

Solicitors for the Applicants: Chan Galic

Counsel for the First and Second Respondents: Mr A. McCarthy

Solicitors for the First and Second Respondents: Parker and Parker

Counsel for the Third Respondent: Mr K. Pettit

Solicitors for the Third Respondent: State Crown Solicitor

ORDER

The Court orders that:

1. The statement of claim be struck out.

2. There be leave to the applicants to file a substituted statement of claim.

3. The applicants pay the respondents' costs of the strike out motions.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Introduction

FRENCH J In this action, two farmers, Christopher Fisher and his wife, Fay, sue Westpac Corporation, one of its rural area managers, Gregory Munro, and the Rural Adjustment and Finance Corporation of Western Australia (RAF Corp). The claim arises out of the provision of mortgage security to Westpac and RAF Corp in connection with an advance which, it is said, was promised to the Fishers on behalf of Westpac but never made. Causes of action in breach of contract, fraud, misleading or deceptive conduct, unconscionable conduct and breach of fiduciary duty are made. The respondents have moved to strike out the statement of claim or parts of it. The statement of claim itself is a somewhat confused document. Before turning to the criticisms of it made by the respondents it is necessary to set out the content in summary form.

The Statement of Claim
2. Christopher Robin Fisher and Fay Annette Fisher are residents of Hopetoun on the South Coast of Western Australia. They are the registered proprietors of land near Hopetoun, being Oldfield Location 638. They claim to be of limited commercial and legal experience (para.1). Westpac, they say, is a financial corporation and Mr Munro's employer (para.2). Munro was Westpac's manager for the Ravensthorpe area in Western Australia, which includes Hopetoun. He is said, on the various occasions relied upon in the statement of claim, to have been acting within the scope of his authority as an employee of Westpac and to have been personally interested in "facilitating" the pleaded conduct of Westpac because of a system of bonuses and rewards available to him as an employee of the Bank (para.3). In para.4 of the statement of claim it is asserted against RAF Corp, which is the third respondent, that:

"The third respondent is and at all material times was a financial corporation as that term is defined in the Act."

1. The Fishers allege that on 20 July 1989, Mr Fisher made an oral agreement with Munro, on behalf of Westpac, by which Westpac promised to advance to the Fishers $270,000 for the purposes, inter alia, of providing working capital and to enable subdivision and sale of Lot 638. The Fishers were to secure the advance by a mortgage over the land in favour of Westpac. The oral agreement was to be reduced to writing (para.5). It is then said that, for the purpose only of reducing the agreement to writing, the Fishers signed a blank form of a Bill of Mortgage and delivered it to Munro (para.6). On these facts it is alleged that the "form of Bill of Mortgage" was to be "held in escrow upon the sole condition precedent that the parties execute the written agreement on the terms pleaded at paragraph 5" (para.7).

2. Westpac, it is said, breached the oral agreement in that it did not reduce it to writing and did not lend the Fishers the sum of $270,000 (para.8). And in para.9 there is said to have been a "breach of the condition of the escrow pleaded at paragraph 7". The paragraph provides:
   

"9. In breach of the condition of the escrow pleaded at paragraph 7 the First Respondent, by the Second Respondent, completed the form of Bill of Mortgage referred to in paragraph 6 and purported to witnesseth and dated a form of Bill of Mortgage in favour of the Third Respondent signed by the Applicants on different terms and conditions (which the Second Respondent and/or persons unknown to the Applicants altered after the Applicants' said signing of the said Bill of Mortgage in favour of the Third Respondent) and attended to registration over the Applicants' land of same purportedly as security for the First and Third Respondent's then existing loans to the Applicant."

The "condition of escrow" referred to in para.7, referred to only one blank form of mortgage. It is then contended, in effect, that the terms and conditions of the mortgages referred to in para.9 did not reflect any agreement between the Fishers and Westpac or between the Fishers and RAF Corp. (para.10)

1. Paragraph 11 alleges fraud in the following terms:
   

"11. In the further premises, registration of the Bills of Mortgage by the First and Third Respondents was procured by the fraud of the First and Third Respondents (as that term appears in section 200 of The Transfer of Land Act 1893 (WA))."

There is no allegation of what acts on the part of the first and third respondents constituted the alleged fraud. In para.12 it is said that in consequence of the breaches of contract and of escrow the Fishers suffered loss and damage. The loss and damage is set out as follows:

"(a) the Applicants were deprived of unencumbered title to lot 638 upon which title they desired to raise sufficient working capital generally including capital to sub-divide the said land and sell same for a profit;

(b) the liquidity of the Applicants was thereby affected;

(c) they were obliged to incur much worry, stress, anxiety and inconvenience and administrative expense."

A further and alternative plea is set up that Westpac, through Munro, impliedly represented to the Fishers:

(i) that Westpac's present intention was to make the loan of $270,000.

(ii) that Westpac had a "future intention"

(sic) of reducing the agreement to writing and advancing the said sum of $270,000. (para.13)

It is said that Westpac had no such intention and that there was no reasonable basis to support its professed future intention (paras. 14 and 15). I observe in passing that an implied representation of the existence of a future intention seems, on the face of it, nonsensical. If what is implied is a present intention to undertake a future course of action, then the proper plea is of a present intention. Westpac and Munro's conduct in making the representations is said to have been misleading and deceptive and likely to mislead and deceive (para.16). The Fishers say they relied upon the representations in signing the blank form of Bill of Mortgage and delivering it to Munro and in not taking steps then available to them to secure working capital by mortgage of Lot 638 for the purpose of its subdivision and sale (para.17). Westpac and Munro are said to have known and intended that the Fishers should rely upon the representations (para.18). The Fishers say they suffered the loss and damage pleaded in para. 12 as a result of the misleading and deceptive conduct (para.19).

1. Westpac is alleged "further in the premises" to be estopped from denying an obligation to bring a written loan contract into existence and from denying an obligation to advance the Fishers $270,000 (para.20). Munro, in so far as he was Westpac's agent, is said to have been knowingly concerned in and party to and to have aided and abetted Westpac in the misleading and deceptive conduct. He is said therefore to be responsible to the Fishers in damages (para.21).

2. Unconscionable conduct is raised next with the allegation that the Fishers occupied a position of special disadvantage vis-a-vis Westpac in July 1989. In this respect reliance is placed upon their commercial ignorance, legal inexperience and financial need, their previous dealings with Westpac, their previous indebtedness to it and their custom of receiving advice and approval from the Bank for a budget in respect of their farming operations. Further, Mrs Fisher is said to have been diagnosed as suffering from cancer, which diagnosis was known to the Bank (para.22). In the premises, it is said, there was no reasonable degree of equality in bargaining power between Westpac and the Fishers (para.23). In making the agreements and representations referred to in paras. 5 and 13, Westpac took unconscientious advantage of the position of the Fishers. Reliance is placed upon the alleged misrepresentation of Westpac's intentions, the effecting of registration of a mortgage over the Fishers' property without their consent and the fact that it was an encumbrance over the Fishers' only unencumbered property at the time. Further, Westpac is said to have acted unconscientiously in representing to the Fishers that a budget it had prepared for trading in the next preceding year was approved and thereby impliedly promised that payments for that year in respect of a loan from the Primary Industry Bank of Australia (PIBA) would be met out of the overdraft facility. Westpac is also said to have appropriated sale proceeds from certain property the Fishers sold to third parties in order to discharge their indebtedness under the overdraft facility. The bank is said to have declined to allow the Fishers, after the discharge of the overdraft facility, to operate any other overdraft facility with it and that in consequence of the appropriation and lack of provision of further loan moneys, the Fishers defaulted in repayment of the PIBA loan. Westpac is accused of having removed the funds which the Fishers needed to continue their business and to have deprived them of any prospect of raising funds from any other financial institution (para.24). In taking such unconscientious advantage of the position of the Fishers, Westpac is said to have failed to counsel them to seek independent advice before delivering blank forms of mortgage (here pleaded in the plural) to Munro (para.25). The Fishers say that at the time they executed the blank forms (plural) in favour of Westpac they were unable to make a worthwhile judgment about their own interests (para.26) and that the bargain made between them and Westpac was manifestly to their disadvantage and to the advantage of Westpac (para. 27). "In the further premises", Westpac's action was unconscionable and the mortgages, it was said, should be set aside (para.28). It is to be noted that there is no anterior pleading of the execution of more than one blank form of mortgage in favour of Westpac (see para.6). Again "in the further premises", Westpac is said to be liable in equity to compensate the Fishers for the loss each has suffered as a consequence of its unconscionable conduct (para.29). Munro is said to have aided, abetted, counselled and procured that conduct and to be liable jointly with Westpac in equity to the Fishers.

3. A claim for breach of fiduciary duty is also raised. The duty is said to be based upon dealings between the Fishers and Westpac over successive years since 1978 (paras.31 to 33). In making the agreement, the representations pleaded, and the acts referred to in para. 24, Westpac is said to have been in breach of its fiduciary obligation to the Fishers in that:
   

"(a) the registration of the Mortgages aforesaid was dishonest;

(b) the representations concerning an agreement or an intention for the advancement of further funds was not made in good faith;

(c) (Westpac's) interests in obtaining further security from the (Fishers) and in reducing (their) current indebtedness on the overdraft facility was:

(i) in conflict with the (Fishers') interests in continuing to finance its business operations; but notwithstanding the same,

(Westpac) did not disclose its interest or intention to the

(Fishers) nor advise (them) to seek independent advice, nor give the (Fishers) an opportunity of seeking the same;

(ii) in conflict with the (Fishers') interests as borrowers of the PIBA loan;

(iii) such as to advantage (Westpac) and disadvantage the

(Fishers)...." (para.35)

In the premises, it is said, the Bills of Mortgage should be set aside in the exercise of the Court's equitable jurisdiction to do so (para.36). The Fishers claim compensation in equity for loss they have suffered as a consequence of the breach of fiduciary obligation (para.37). And Munro, it is said, aided, abetted, counselled and procured Westpac to breach its fiduciary obligation and is liable jointly with Westpac in respect of the same (para.38).

The Concept of Escrow
9. The contention that a blank form of mortgage signed by the Fishers was delivered to Munro to be held in escrow is central to the first part of the statement of claim. It is to be noted in passing that the description of the document signed by the Fishers as a "blank form Bill of Mortgage" is itself incomplete. It does not disclose in what respect the form was blank. It must be taken, however, to refer to a document having the form of a mortgage but missing certain parts which may or may not have extended to the identity of the parties, the land, the amount secured and the terms of repayment. In this respect, material facts are omitted. It follows that the acts involved in the completion of the Bill of Mortgage, alleged in para.9, are not revealed, even as a matter of necessary implication. Since they appear to involve and are connected with the allegation of fraud, that is an omission which cannot be overlooked.

1. Also of importance is the contention in para.7 that the Bill of Mortgage was to be "held in escrow upon the sole condition precedent that the parties execute the written agreement on the terms pleaded at paragraph 5". To try to make sense of this pleading it is necessary to consider what is meant by the reference to holding the bill of mortgage "in escrow". The word "escrow" is an old word for "scroll" - Wm.Cory and Son Ltd v. Inland Revenue Commissioners (1964) 1 WLR 1332 at 1346 (Diplock LJ). In old law it refers to a deed delivered conditionally to a third party, the delivery being incomplete and the deed therefore not taking effect until fulfilment of the conditions - Co. Litt 36. Blackstone wrote of a delivery to "a third person, to hold till some conditions be performed on the part of the grantee: in which last case it is not delivered as a deed, but as an escrow; that is, as a scroll or writing, which is not to take effect as a deed till the condition be performed; and then it is a deed to all intents and purposes" - Bl. Comm. Bk. II p.307. The old law requirement of delivery to a third person is reflected in the current definition of escrow in the Shorter Oxford English Dictionary:
   

"A deed, bond, or other engagement delivered to a third party to take effect upon a future condition, and not till then to be delivered to the grantee."

However the requirement of delivery to a third party is no longer the law and has not been the law for over one hundred years. In Watkins v. Nash (1875) 20 LR Eq 262 at 266, Hall VC said:

"...when a delivery to a stranger is spoken of, what is meant is a delivery of a character negativing its being a delivery to the grantee or to the party who is to have the benefit of the instrument. You cannot deliver the deed to the grantee himself, it is said, because that would be inconsistent with its preserving the character of an escrow. But if upon the whole of the transaction it be clear that the delivery was not intended to be a delivery to the grantee at that time, but that it was to be something different, then you must not give effect to the delivery as being a complete delivery, that not being the intent of the persons who executed the instrument."

In Macedo v. Stroud (1922) 2 AC 330 at 337, Viscount Haldane, delivering the judgment of the House of Lords, said:

"It is no doubt true that a deed may be delivered on a condition that it is not to be operative until some event happens or some condition is performed."

And in Terrapin International Ltd v. Inland Revenue Commissioners (1976) 2 All ER 461 at 466, Walton J noted that under old law an escrow had to be delivered to a third party but observed:

"Now all this has been changed: the grantor may himself keep possession of the escrow, or it may initially be delivered to the grantee, who in such a case will be restrained by equity from acting on it until the condition has in fact been fulfilled. But none of this detracts from the reality of the position that, until the condition has in fact been fulfilled, the escrow is not a deed and is not effective for any purpose. Fulfilment of the condition is now no longer followed by actual unconditional delivery, but the situation in law is the same; that is to say, it is not until the condition has been fulfilled that the document becomes, for the first time, a deed effective for its purpose."

The notion of escrow was also discussed by the Court of appeal in Alan Estates Ltd v. W.G. Stores Ltd (1981) 3 All ER 481 where Lord Denning said at 486:

"The doctrine of "escrow" is a relic of medieval times. It dates from the time when conveyances were made by feoffment and livery of seisin. It has survived to the present day and often operates in regard to conveyances of land or the creation or disposition of estates and interests in land such as a term of years. It has changed its features much since the days of Sheppard's Touchstone (1st Edn, 1641; 7th Edn, 1820) and Preston's Abstracts of Title (1st Edn, 1818-19; 2nd Edn, 1823-24). We no longer speak of a first delivery or a second delivery. But it does predicate a document which is executed and delivered. The accustomed formula is "signed, sealed and delivered". When that formula is used in the document and it is signed by the party (or in the case of a company its seal is affixed) and attested by a witness with intent by the maker that it should be binding on him, it is conclusively presumed to be "signed, sealed and delivered". If it is handed over to another unconditionally, it is delivered as a deed. If it is handed over to another conditionally, it is delivered as an escrow. It only becomes a deed when the conditions are fulfilled."

Ackner LJ at 487 defined an escrow thus:

"If an instrument be delivered to take effect on the happening of a specified event, or on condition that it is not to be operative until some condition is performed, then pending the happening of the event or the performance of the condition the instrument is called an escrow..."

It should also be noted that despite some difference of opinion in the cases the prevailing view appears to be that the title conveyed by a deed delivered as an escrow relates back, as between the parties to the deed, to the date of delivery and not the date upon which the conditions attaching to the delivery are fulfilled - Alan Estates Ltd v. W.G. Stores Ltd (supra) at 486 (Lord Denning) and 492 (Sir Denys Buckley), contra at 489 (Ackner LJ).

1. To summarise the effect of these authorities, an escrow is an instrument delivered under conditions which prevent it from taking effect until their fulfilment. It is nevertheless an instrument capable of taking effect upon the fulfilment of those conditions. The better view appears to be that when it takes effect the instrument operates inter partes from the date of its delivery.

2. Returning to the statement of claim, it is apparent that the pleader has misconceived the concept of escrow. It is used in the statement of claim in varying senses including that of a status and that of a promise. The assertion in para. 7 that the bill of mortgage was to be held "in escrow" depends upon the facts asserted in paras. 5 and 6 as to the oral agreement and the execution by the Fishers of a blank form of mortgage. The term "escrow" describes an instrument capable of taking effect upon the satisfaction of the conditions on which it is held. That is not a description which a blank signed form of mortgage can meet. The use of the term "escrow" is misconceived in this context. Even more misconceived is the notion of a "breach of the condition of the escrow" asserted in para.9 and the notion reflected in para.12 that there is a cause of action for breach of escrow which will sound in damages. Paragraphs 7 and 9 disclose no reasonable cause of action in so far as they invoke the concept of escrow.

The Completion of the Mortgages
13. Paragraph 9 of the statement of claim alleges, inter alia, the completion and execution by Westpac of the signed blank form of mortgage referred to in para.6. There is also alleged the purported witnessing and dating of a form of mortgage in favour of RAF Corp. This also appears to be a reference to a mortgage previously signed by the Fishers. No such signing is pleaded earlier in the statement of claim. Moreover, the purported witnessing and dating is part of the alleged "breach of condition of the escrow". So far as it characterises the execution and attempted registration of the RAF Corp mortgage as a breach of condition of escrow, the pleading is fatally flawed. In any event, there is no relevant anterior fact pleaded in relation to the RAF Corp mortgage.

1. There is then the contention in para.11 that registration of "the Bills of Mortgage" by Westpac and RAF Corp was procured by their fraud (as that term appears in s.200 of the Transfer of Land Act 1893 (WA)). The "further premises" alleged in the opening words of para.11 are not disclosed. The word "fraud" does not appear in s.200 of the Transfer of Land Act 1893. It is plain that para.11 of the statement of claim cannot stand as against either Westpac or RAF Corp.

The Contract Claim
15. Paragraph 8 of the statement of claim alleges breach of contract by Westpac in that it did not reduce the oral agreement to writing and that it did not lend to the Fishers the sum of $270,000. A failure to reduce the agreement into writing cannot be pleaded as a breach of the oral agreement. No promise was pleaded that it was Westpac which had the responsibility of reducing the agreement to writing. If Westpac refused to co-operate in that process, then that fact should have been pleaded.

1. The damages claimed for the alleged breach of the contract are as set out in para.12. The failure on the part of Westpac to advance the money promised to perform the agreement is said to have led to loss and damage by depriving the Fishers of unencumbered title to their land. But had the contract proceeded, they would have given mortgage security over the land. This is not a head of loss recoverable in contract. The statement that their liquidity was affected goes nowhere in terms of establishing loss. The allegation of loss constituted by worry, stress, anxiety and inconvenience said to have arisen from the alleged breach, does not include material facts disclosing the relevant causal connection.

The Case in Misleading or Deceptive Conduct
17. The claim for damages for misleading or deceptive conduct was attacked on the basis that it was time barred by virtue of s.82 of the Trade Practices Act 1974. It is said to have been plain that the Westpac mortgage was registered on 22 August 1989, as to which there was affidavit evidence, and that the loss claimed in para.12(a) was suffered then. The time limited for instituting the Trade Practices Act claim therefore expired, it was said, in August 1992. The present action was commenced on 31 May 1993. However, in light of the observations of the High Court in Wardley Australia Ltd v. State of Western Australia (1992) 175 CLR 514, I am not satisfied that it is clear beyond doubt that the claimed loss was incurred at the time of the registration of the mortgage. I would not therefore strike out the plea in misleading or deceptive conduct on that basis. To the extent, however, that it is connected to the confused and incomplete recitation of material facts in the earlier paragraphs of the pleading, it rests upon an uncertain foundation. As I have already noted, the plea of misrepresentation of a future intention seems to be misconceived.

The Pleas in Unconscionable Conduct and Breach of Fiduciary Duty
18. The allegation in para.24 is that the bank took unconscientious advantage of the position of the Fishers in making the agreements referred to in para.5 and the representations in para.13. But the conduct relied upon in para.24 largely post-dates the making of the agreements and the representations pleaded. The paragraph is logically incoherent and cannot stand. Paragraphs 25 to 30 are dependent upon para.26 and will fall with it.

1. Paragraph 34 alleges the existence of fiduciary obligations owed by the Bank to the Fishers. Paragraph 35 alleges breach of those duties by the Bank in making the agreement, in making the representations and by the acts referred to in para.24. The various heads of conduct relied upon are characterised as being in breach of the alleged fiduciary obligations on the basis that:
   

(a) The registration of the mortgages was dishonest.

(b) The representations concerning an agreement or an intention for the advancement of further funds were not made in good faith.

(c) The bank's interest in obtaining further security from the Fishers and in reducing the Fishers' current indebtedness to the Bank on the overdraft facility was:

(i) in conflict with the Fishers' interest in continuing to finance their business operations but notwithstanding the same the Bank did not disclose its interest or intention to the Fishers nor advise the Fishers to seek independent advice nor give the Fishers an opportunity of seeking the same;

(ii) in conflict with the Fishers' interests as borrowers of the PIBA loan;

(iii) such as to advantage the Bank and disadvantage the Fishers having regard to the arrangements then in place between the Bank and PIBA.

Particulars of the arrangements between the Bank and PIBA, it was said, would be provided following discovery and inspection.

1. As I have already observed, the circumstances of the completion and registration of the Westpac and RAF Corp mortgages have not been adequately exposed by the anterior pleading. In particular, what was done to complete the blank forms is not stated. Nor is it pleaded that the Fishers executed a blank form of mortgage in favour of RAF Corp, although that seems to be assumed. Further, as was submitted for the respondents, the alleged dishonest registration of the mortgage is not conduct in the making of the agreement or the representations or the acts pleaded in para. 24.

2. Paragraph 35(c) alleges conflict of the interests of the Bank and the Fishers in various respects. In my opinion, however, the pleading of the facts comprising the making of the agreement and the pleading of the representation as to future intention are so defective that this plea also should not be allowed to stand until it can find a surer foundation.

CONCLUSION
22. This is a case in which, with appropriate surgery, the Court may be able to expose a viable cause of action in the statement of claim. In particular, the claim in misleading or deceptive conduct may be viable in so far as it refers to misrepresentations as to present intentions. However, the pleading is so defective in setting out in an intelligible and complete form the material facts founding the causes of action raised that I do not think it should be allowed to stand at all in its present form. I propose therefore to order that it be struck out with leave to file a substituted pleading.