Fortson Pty Ltd & Anor v Commonwealth Bank of Australia

[2008] HCATrans 292

[2008] HCATrans 292

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A6 of 2008

B e t w e e n -

FORTSON PTY LTD AND DOUGLAS DRAGAN JOVANOVIC

Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 8 AUGUST 2008, AT 10.17 AM

Copyright in the High Court of Australia

MR R.W. SALLIS:   If the Court pleases, I act for the applicants.  (instructed by Commercial & General Law)

MR R.G. FORSTER, SC:   If the Court pleases, I appear with my friend MR C.D. McCARTHY for the respondent.  (instructed by Commonwealth Bank of Australia)

GUMMOW J:   Yes, Mr Sallis.

MR SALLIS:   Thank you, your Honour.  Your Honours, the relevant background to this matter is set out in the judgment No 4 of District Court ‑ ‑ ‑

GUMMOW J:   We have looked at that.  What is the special leave point?  You had better take us to that.

MR SALLIS:   Your Honours, I am happy to do that.  Can I give just a few minutes of some of the background which is critical to those issues?

GUMMOW J:   You proceed as you wish, but we need to get to the point.  That is why we read the books.

MR SALLIS:   Thank you.  I understand that, your Honours.  At the original trial before Judge Lowrie all the valuers generally agreed the definition for “market value”.  Mr Williamson valued the freehold of the Plaza Hotel property, which I will refer to as the property, at $1.1 million.  That was the market value valuation.  Mr Taylor valued it at $1 million.  The Bank’s senior in‑house valuer, Mr Tom Cashman, valued it at $950,000, all based on the traditional definition of “market value” as per Spencer v The Commonwealth of Australia.  The only odd valuer out at that time was Mr Burton who valued the property at $660,000.

GUMMOW J: Mr Sallis, the starting point is section 420A of the Corporations Act, is it not, which is set out on page 74?

MR SALLIS:   It is.

GUMMOW J: How does that found this sort of litigation? In other words, it is in section 420A of the Corporations Act?

MR SALLIS:   Yes.

GUMMOW J:   How does it give rise to this particular remedy in this sort of litigation?

MR SALLIS: It is common ground, your Honour, that the Bank was the controller within the definition of that section and that the section applied, and the first major issue before you, the major question for leave and point of law, is the correct test to be applied for an assessment of damages under that section. I am not aware of any High Court decision on this and the only superior court decisions are in fact the 2004 and the 2008 Full Court judgments in this case and they directly conflict. Justice Debelle’s decision or judgment in the 2008 Full Court judgment clearly highlights the difference between his Honour and the leading judgment in the 2004 decision, that is, the judgment of Justice Besanko. His Honour Justice Debelle attempts to explain the difference away, but we say that the two decisions are directly in conflict. Justice Debelle basically says that the proper test for an assessment of damages under section 420A is the traditional market ‑ ‑ ‑

GUMMOW J: Where you say “damages under section 420A”, where does section 420A confer a right to damages?

MR SALLIS: Your Honour, it does not expressly state it, but the 2004 Full Court decision, and all three judges were unanimous about this, Justices Mullighan, Gray and Besanko, found that a breach of section 420A did confer the right to compensation – I will call it damages – and even the 2008 Full Court did not differ in that approach.

GUMMOW J:   Very well.  Go on.

MR SALLIS: At first instance Judge Lowrie found in favour of the Bank on the question of liability. He found that the section had not been breached. The 2004 Full Court found that the sale of the property was in breach of section 420A of the Corporations Act and remitted the question posed by Justice Besanko at paragraph 117 of his Honour’s judgment, which is at page 96 of the application book, referred that question to the District Court for hearing and determination.  That is where this application really begins. 

When that question was referred to his Honour Judge Lee in the District Court, Judge Lee took the approach, and clearly took the approach, as is highlighted in his judgment and in fact as reflected in the judgment of Justice Debelle in the 2008 Full Court judgment, Judge Lee found that the judgment of Justice Besanko, and in particular paragraphs 117 and 118 of that judgment, stated that the test to be applied was not simply what was the market value of the property, but it was more than that. The test was, had the Bank appointed an agent, conducted a proper marketing campaign and put the property to market, what price would the Bank have achieved? We have called that the sale price test; in other words, what price would the property have achieved had the provisions of section 420A been complied with?

Now, Justice Debelle in the 2008 Full Court judgment disagrees with that approach and says that is not what Justice Besanko meant and said that Judge Lee in the District Court had completely misinterpreted what Justice Besanko had said.

HAYNE J:   No, Justice Debelle concludes at page 214, paragraph 103 that the hotel was sold for more than market value.

MR SALLIS:   He does conclude that, but, your Honour, I say he does two things.  He firstly gets the test wrong, and that is a very important point of law.  What is the test?  Full measure of damages I will call it, under section 428.  There is no authority in this country other than these two Full Court decisions and they are in conflict.  Secondly, as I will come to in my submissions, Justice Debelle makes a number of fundamental errors of fact.  In other words, his Honour Justice Debelle makes findings of fact that are totally inconsistent with unchallenged and uncontested evidence and findings of fact in lower courts.  I will come to them, but I will highlight them.

His Honour, for example, says that Mr Williamson, when he did his valuation and gave his evidence, had not taken into account any of the records of the business.  Now, that just plainly is wrong and I will take you to the passages in the transcript where you will see that before the original trial, before Judge Lowrie, Mr Williamson goes through and looks at and examines the daily taking sheets, the original daily taking sheets, which contained the room numbers, the dates, the occupancy rates, the income, all the particulars you would expect in the handwriting of the night manager, Mr Stefanovic, who gave evidence, and his evidence that he gave is set out in Judge Lee’s ‑ ‑ ‑

GUMMOW J:   What remedy do you seek here?  You want it to go back to the District Court and start again?

MR SALLIS: Well, your Honour, we have no choice. It is not our fault that the first Full Court gets the test completely right for the assessment of damages, sent it to the District Court, Judge Lee uses the correct legal principles and then the 2008 Full Court totally disagrees with the first Full Court and disagrees with Judge Lee and applies a completely erroneous principle of law and gets a lot of the facts, uncontested and unchallenged findings of fact, quite wrong, and then usurps the function of the lower court and assesses damages and finalises the matter on wrong principles of law as to the test to be applied, and that is the most fundamental issue in the case, what is the correct test for the assessment of damages under section 420A, and gets that wrong.

Secondly, his Honour Justice Debelle relies upon fundamental and essential findings of fact which are directly in conflict with unchallenged, uncontested evidence, and on that basis we say that it is not the applicant’s fault but the matter has to be remitted back to the District Court for an assessment of damages based upon the proper test.  Now, the proper test should be determined by ‑ ‑ ‑

GUMMOW J:   Proper test being what?

MR SALLIS:   The test that Justice Besanko set out in paragraphs 117 and 118 of his Honour’s judgment.

GUMMOW J:   On page?

MR SALLIS:   In the first Full Court, page 96 of the application book, paragraphs 117 and 118.  If your Honours would like, I can take you to the relevant parts of those judgments, the beginning of paragraph 117, where his Honour sets out the question to be answered and then explains what he means by that.

GUMMOW J:   What do you say is the error in the second Full Court?  Where is the passage that displays the error by Justice Debelle?

MR SALLIS:   Your Honour, there are a number of passages.  They are set out on pages 225 and 226 of the application book.  There are references to Justice Debelle’s judgment.  There are numerous references and if you read just some of the quotes that I have set out in the application for special leave, you will see that even Justice Debelle points out that the language of Justice Besanko appears to draw a distinction between market value and what I will call the sale price.  There is a very, very fundamental difference, your Honours, between the first Full Court and second Full Court.  Put in a nutshell, the 2004 Full Court said that the ‑ ‑ ‑

GUMMOW J:   The section talks about market value, does it not?

MR SALLIS:   Yes, but it talks about market value, your Honour, in relation to the test on liability. Section 420A sets out – and section 420A is on page 74 of the application book. When it talks about market value, it talks about it in the sense of what the test for the liability for the breach of the section is. In subsection (a):

if, when it is sold, it has a market value – not less than the market value –

That is what the 2004 ‑ ‑ ‑

GUMMOW J: Section 420A imposes a duty actually.

MR SALLIS:   It does, your Honour, and the duty is where there is a market value to sell for not less than the market value, but otherwise where there is not a market value, then to obtain the best price that is reasonably obtainable. Your Honour will see on page 74 of the application book that Justice Gray in the first Full Court judgment sets out a bit of a history. It was the Dr Harmer Report that led to the enactment of section 420A and it is very instructive to see that at the bottom of page 74 of the application book, Justice Gray says:

In particular, the duty should be to take reasonable care in the management of property and, if the property is sold, to ensure that it is not sold at a price below the best price reasonably obtainable.

That is a direct quote from the Australian Law Reform Commission and it was that report, Dr Harmer’s Report, that led directly to the enactment of this section. So the argument is that if section 420A is breached, what is the proper test for the assessment of damages? Is it the test that Justice Debelle says applies, namely, that you use the traditional market value approach as in Spencer v The Commonwealth. or is it the test that Justice Besanko says where Justice Besanko makes it abundantly clear that that test of the traditional market value may be quite different from the proper test for the assessment of damages under section 420A. That difference is reflected in the express wording of Justice Besanko, with whom Justice Mullighan agreed, at paragraph 117 on page 96 of the application book.

HAYNE J:   Do you accept that when this hotel property was sold, it had a market value?

MR SALLIS:   Yes, there is no argument about that.

GUMMOW J:   Well, you are in 420A(1)(a), right?

MR SALLIS:   Yes. That is on the issue of liability. Section 420A does not expressly set out the measure of damages, the test for the measure of damages, and what you have really is two Full Courts who both are unanimous but unanimous in direct conflict as to what the proper test is and, really, when one reads Justice Debelle’s judgment, Justice Debelle himself highlights the difference between the two approaches and then says that, if you like, the first approach of what we argued was the 2004 approach was just so wrong. Now, Judge Lee in the District Court, of course, took a totally different approach and took the Besanko test, as I will call it, and applied that. Justice Debelle said that Judge Lee had just applied the wrong test.

Now, there is no authority, your Honours, in this country as to what the proper test is.  I think your Honours could take judicial notice of the fact that there would be thousands, if not more than thousands, of mortgagee sales, either through the courts or out of the courts per annum in this country and that although section 428 only applies to corporations, your Honours would be fully aware that many residential homes are owned by companies either in their own right or as trustees of family trusts.  So, there are a huge number of residential dwellings, as well as commercial dwellings, that are affected by this case and there is no authority in this country on the test to be applied for the assessment of damages under section 428, other than the two Full Court judgments here, the 2004 and 2008 judgments, which are in direct conflict.  Justice Debelle highlights the difference in the two approaches in his own judgment and then rejects the interpretation that Judge Lee took of the 2004 Full Court judgment.

The other matter which may or may not concern this Court is that there is clear authority in this State that one Full Court must not overrule a previous Full Court unless the previous Full Court is plainly wrong.  Your Honours, it is not only the wrong test that Justice Debelle applies, but he also gets some of the evidence terribly, terribly wrong and he really founds his judgment based on a number of findings of fact which are inconsistent with unchallenged and uncontested evidence.

There is also an issue of the denial of procedural fairness and natural justice.  That is referred to in paragraphs 2.7.and 2.8 of the application book.  It is very easy to read.  If your Honours could just refer to paragraphs 2.7 and 2.8 and you will see that Justice Bleby in the second Full Court when we were discussing the assessment of damages says, “We can’t hear the assessment” and yet that is exactly what the Full Court then proceeded to do, was to simply assess the damages based on the wrong legal test and based upon findings of fact which were totally inconsistent with the unchallenged evidence. 

Some of the unchallenged evidence was this, that Justice Debelle found that none of the valuers had looked at any of the records of the business and that is just plainly wrong and it is in the application book that Mr Williamson’s evidence was that before the original trial he had looked through the daily taking sheets, which were in court when Mr Stefanovic gave his evidence, as to what the daily takings, if you like, were of the business.  Mr Williamson looked at those records.  Justice Debelle criticises Mr Williamson and says that his evidence had not been accepted because he did not look at the records.  That is just not right.  In fact, it was Mr Burton who did not look at the daily takings sheets at the original trial and before

Judge Lee refused to look at any records or any documents and continued to do so.

Another issue before this Court for special leave is the non‑disclosure to the court and to the applicants by the bank that its expert witness, its sole expert witness, Mr Burton at the time, he gave his sworn valuation evidence before Judge Lee, was a full‑time employee of the bank and had a mortgage jointly with his wife for about $780,000 over their matrimonial home with the bank.  Now, the Full Court found that this non‑disclosure made no difference, but, with the greatest respect, the Full Court cannot say that of the lower court.  The Full Court is not in a position to know whether that would have affected Judge Lee’s assessment of the credibility and the weight to be attached to the two valuers.  In fact, Judge Lee himself in his judgment says that he found the evidence of both valuers, if you like, finely poised.

So what you have here is a very, very important principle of law.  Should a corporate citizen – and that is what the Commonwealth Bank is.  It is the first or second largest bank in the country.  It is a corporate citizen.  It admits that it went to court, called an expert witness who under our practice direction 46A is meant to be an independent witness and Justice Debelle agrees with that in his judgment, and does not disclose to the court and does not disclose to the opposition that the witness, the so‑called independent expert witness that the bank is calling, is in fact at the time that witness gives his evidence a full‑time employee of the bank.  Unless there is anything further, they are my submissions, your Honour.

GUMMOW J:   We do not need to call on you, Mr Forster.

This litigation has been conducted on the assumption that section 420A of what was then the Corporations Law considered by itself confers a remedy in damages in litigation between parties in the position of the applicant and the respondent.  We are not to be taken as endorsing that assumption.

If leave were granted there would be no occasion, given the way the litigation has been conducted, to consider the intersection between section 420A and the general provisions of section 232 of the statute concerning the duty and liability of an officer of a corporation and the further intersection between section 232(4), a civil penalty provision, and the remedies provision in section 1317HD.

We see, however, no error in the construction of the phrase “market value” in section 420A(1)(a) which was applied by Justice Debelle in the South Australian Full Court. An appeal to this Court against the finding in the Full Court that the property was not sold at an undervalue would enjoy insufficient prospects of success to warrant a grant of special leave to appeal. Nor do we consider that the interests of justice require a grant of special leave. Special leave is refused with costs.

We will adjourn to reconstitute.

AT 10.39 AM THE MATTER WAS CONCLUDED