Frost v Micarone

[2000] HCATrans 353

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A12 of 2000

B e t w e e n -

ALLEN GORDON FROST

Applicant

and

ENNIO MICARONE, LINDA MICARONE, JOSEPH BECHARA and DAAD BECHARA

Respondents

Application for special leave to appeal

GAUDRON J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 10 AUGUST 2000, AT 11.50 AM

Copyright in the High Court of Australia

MR C.J. KOURAKIS, QC:  If the Court pleases, I appear for the applicant. (instructed by Paul A. Richardson)

MR S.W. TILMOUTH, QC:  If the Court pleases, I appear with my learned friend, MR N. NIARCHOS and MR F.C. BROHIER for the Micarone respondents. (instructed by Niarchos & Co.)  I appear with my learned friend, MR G.A. STEVENS for the Bechara respondents. (instructed by Mellor Olsson)

GAUDRON J:   Yes.  That does not mean you are going to get 40 minutes.

MR TILMOUTH:   No, I am not seeking 40 minutes, if the Court pleases, only 20.

GAUDRON J:   Thank you.  Yes, Mr Kourakis.

MR KOURAKIS:   If the Court pleases, the submissions that the applicant seeks to make orally are directed to two issues which are canvassed in the summaries of argument and reply, but which have not, in fact, been formulated as particular grounds of appeal and perhaps I should come to that in a moment.  I should first seek an extension of time in which to file the application that was, I think, one or two weeks out of time.

GAUDRON J:   Yes.  Do you oppose that, Mr Tilmouth?

MR TILMOUTH:   Not if the Court thinks that there are otherwise merits in the application.

GAUDRON J:   In that case, we must hear the merits of the application.

MR TILMOUTH:   If the Court pleases.

GAUDRON J:   Yes, Mr Kourakis, we will hear you on the merits.

MR KOURAKIS:   If the Court pleases, as to the grounds which are specifically formulated as grounds upon which special leave was sought and are found already in the notice of appeal, I do not seek to make any further submissions advancing them but there are two matters that have been canvassed in the summaries and replies but which have not been formulated into those grounds as part of an application, I suppose, that your Honours would consider two further draft grounds and I provide your Honours with ‑ ‑ ‑

GAUDRON J:   You are seeking to amend the draft grounds of appeal?

MR KOURAKIS:   Yes.

GAUDRON J:   Yes.  Is that opposed?

MR TILMOUTH:   Yes, it is, if the Court pleases.

GAUDRON J:   Yes, you see, there is some difficulty about this, is there not, because the respondents will not have had a chance to  ‑ ‑ ‑

MR KOURAKIS:   Your Honours, it is my submission that those two grounds which can now be seen are matters which have been raised in the course of the summaries and I have references to the summaries of argument where they have been both raised by the applicants and then responded to by the respondents. 

GAUDRON J:   It is opposed.  It is very irregular, Mr Kourakis, to do this, but we had better hear you on that, Mr Tilmouth.

MR TILMOUTH:   If the Court pleases, it is opposed on two bases.  The first is, although we have notice in a general sense of the subject matter, what we lack is specifying exactly where it is said the error occurred in relation to the matter, in each of the two matters, grounds 10 and 11, and we also do not have any details of why there was an error.  In other words, this is not attended with the usual summary of argument which lets us know what lies under the claimed heads. 

The second ground, may it please the Court, is one of – if I could put it this way – of chronic delays in this matter.  There was, of course, a late application for leave to appeal which has been dealt with.  A summary was provided to this Court on 14 April; there was a further notice of amended application for special leave to appeal on 12 May; there was another, a third amended notice of application for leave to appeal on 6 June; and a supplementary argument on 23 June; and now we have this one.  In my submission, it must be considered against the history of what has been quite a deal of delay in this matter.

Can I finally remind your Honours, of course, that this matter in general was set for special leave in May in Canberra when my clients presented their application for special leave which was ultimately refused.  The Frost application was supposed to be heard at the same time, as I understand it, but Mr Frost sought and eventually had the matter removed from the list.  Now, it could have all been dealt with at that time.  So this is much too late in the context of that history, in my submission.

GAUDRON J:   We will hear what you have to say, Mr Kourakis, but the matters that have just been raised not only go to the proposed grounds of

appeal, but they go to whether in the circumstances there is anything in this case that does not turn upon its own special facts that would warrant the grant of special leave.  I mean when I say they go to it, they sort of highlight the problem with this case in that the ground keeps changing.

MR KOURAKIS:   If the Court pleases, there is no suggestion that there is any question of general principle.  It is the interests of the administration of justice in the particular case that the applicant relies on and it is the ground which is ‑ ‑ ‑

GAUDRON J:   If he cannot formulate his grounds of appeal in a timely manner, one wonders where the interests of justice lie.

MR KOURAKIS:   Some of the difficulty the applicant has faced in terms of the extension of time are set out in his affidavit and in part explains that problem.  But, your Honours, the ground that is now expressed in ground 10 is simply a ground that the Full Court awarded damages for a claim that the first and second respondents never made and, indeed, awarded damages for a claim that they had attempted to make by seeking leave to amend their pleadings at the conclusion of the trial, but were refused leave by the learned trial judge.

The Full Court, in assessing damages, proceeded to assess them on the basis that that claim was never made.  It arises in this way:  your Honours, the first and second respondents before any of the transactions in which the accountant for the applicant was involved had guaranteed certain loans totalling about $200,000.  There was then refinancing which involved all respondents known and referred to as the Adelaide refinancing.  With respect to that, the third and fourth respondents claimed against the applicant that he had induced them to enter into the Adelaide refinancing, but no such claim was made by the first and second respondents.  After the Adelaide refinancing, all respondents entered into what has been described as the Perpetual refinancing.  It was only with respect to that refinancing that the first and second respondents made any claim of fraudulent representation.  They attempted to amend their pleadings to claim fraudulent misrepresentation inducing them to enter into the Adelaide refinancing transaction after the trial, but that was refused, as I have said.

The importance of the failure to so plead is this, that when assessing the loss for the claim upon which they succeeded, that is, the inducement to enter into the Perpetual transaction, it was obviously important to calculate the benefit that they received.  The benefit that they received from that transaction was the discharge of their prior liabilities under the Adelaide refinancing transactions.  If they had claimed that that transaction also had been induced by fraudulent misrepresentation, then the relevant assessment would have been their existing liability before any of the financing that Frost was involved in and the difference was great.

Can I take your Honours to volume 2 of the application books at page 374 to show the Court how the calculation of pre-existing benefit was made.  At page 374, your Honours, in the joint judgment of the Full Court, one delivered on 19 January 2000 dealing with the assessment of damages, an earlier judgment had been delivered on 10 December 1999 which is very relevantly different.  It was not recalled and the judgment on the 19th does not refer back to the earlier judgment and what changes were made and why, but that is simply a matter of history at this stage.  At page 374, your Honours will see the calculation ‑ ‑ ‑

KIRBY J:   There was a reference to the history of it in the first paragraph on 366, but it is true that the specific matter was not referred to.

MR KOURAKIS:   Yes.  Your Honour, more accurately, the differences are referred to as they are arrived at.  But can I take your Honours to page 374.  Your Honours will see from the last half of the page that there is a reference to a “Principal sum”.  That was the amount borrowed from Perpetual Finance for which all respondents were jointly and severally liable.  As against that, those certain repayments were made as are there set out, leaving the liability as a result of the transaction that all respondents were induced to enter, or the net liability, at some $395,000.  The Full Court then proceeded to assess the pre-existing benefit of the respondents and as to the Micarone pre-existing benefit, it was assessed at $211,000 which was their pre-existing liability to Citibank before the Adelaide refinancing was entered into. 

Your Honours, I do not need to take you to that, but that that is so is clear from page 370 of the same judgment.  In fact, the pre-existing liability of the Micarones under the Adelaide Finance transactions was $263,767.50.  That sum – and there are various tables in the judgment which set this out – but that sum is calculated in this way:  the Adelaide refinancing was arranged in the way I had just explained.  A number of loans were obtained from different financiers in which the Becharas were solely responsible and others where the Micarones were solely responsible.  There was one loan from AGC for which the Micarones and Becharas were jointly responsible.  For the purpose of the calculation and the figure that I have just put to your Honours, I have simply halved that joint responsibility, that loan for which they were all responsible.

But the net effect, if the Court pleases, is that the benefit to the Micarones of the Perpetual refinancing, being the only one for which they made a claim or the pre-existing benefit, was $263,000.  As your Honours can see from the bottom of the able, accordingly, they had a pre-existing benefit which exceeded their net liability.

Your Honours, to make it plain that there was no leave given to amend the pleadings and that there was not any such pleading, can I just take your Honours to the first application book and to page 100 of that book and your Honours will be at the ruling delivered by the trial judge after the close of the case.  Your Honours will see from the foot of that page and over onto page 101 that his Honour sets out a history of an application being made at the close of the case, and reading over to page 101 that it was refused at that time.  Then at about line 45, that after it was refused, the counsel for the respondents announced that no such claim or attempt would be made at that stage to amend the pleadings and the ruling that your Honours are in is the claim that was made after reasons were delivered.

At page 103, at line 45, his Honour again refused the application for amendment to claim fraudulent misrepresentation inducing the Adelaide Finance transaction.  Accordingly, there was no claim for it.  It should have been brought into account for the benefit of the Micarones in the assessment made at page 374.

Your Honours, similar mistakes were made for certain separate items awarded to the Micarones in this judgment of January 2000, but not in the earlier judgment.  They can be seen at page 379.

KIRBY J:   What consequence does this argument have, in your submission?

MR KOURAKIS:   That there was no liability to the Micarones.

KIRBY J:   It seems a curious thing to be raising this in reply to submissions.  It is curious that you are raising this, really, only now.

MR KOURAKIS:   Your Honours, it was raised and squarely raised before the Full Court.  The summaries that went there are raised there.  It is curious that it was not put up front more in the submissions that were first put in in this matter, but it, with respect, is such an injustice precisely because it is ‑ ‑ ‑

KIRBY J:   Is it common ground that it was raised in the written submissions to the Full Court?

MR KOURAKIS:   I have not asked my friends but I have a reference to those and I can find them.  But it is simply, for the reasons I submit, that special leave ought to be granted in the interest of justice in this particular case  is that the award of damages beyond the claim made is perhaps one of the more obvious cases of injustice.  At page 379 ‑ ‑ ‑

GAUDRON J:   That was a matter, though, you could have raised with the Court of Appeal, with the Full Court, before judgment was entered, could you not?

MR KOURAKIS:   These arguments were actually raised after the ‑ ‑ ‑

GAUDRON J:   Is it dealt with in the judgment of the Full Court?

MR KOURAKIS:   No, the only way the Full Court has dealt with it is by simply proceeding to assess damages on the basis or as if the Adelaide refinancing was within the ambit of the claim, that is, that it had been induced by the fraudulent misrepresentation.

Your Honours, at page 379 ‑ ‑ ‑

KIRBY J:   Your argument on this part of the case is that there has been a fundamental error.

MR KOURAKIS:   Yes.

KIRBY J:   That an award of damages has been calculated by reference to a claim which was advanced at trial and rejected by the trial judge.

KIRBY J:   Yes.

GAUDRON J:   What was the order of the trial judge against Mr Frost?

MR KOURAKIS:   I will just take your Honours to that.  In volume 1 ‑ ‑ ‑

KIRBY J:   Is this the passage at 101 to 103 that you have just been taking us to?

MR KOURAKIS:   No, that was refusal of the leave.

GAUDRON J:   What was the actual judgment against your client at first instance?

MR KOURAKIS:   Yes, could I take your Honours, the orders appear at page 107.

GAUDRON J:   Yes?

MR KOURAKIS:   Your Honours, the first order set aside the Perpetual ‑ ‑ ‑

GAUDRON J:   Yes, but the orders against your client?

MR KOURAKIS:   Yes.  If your Honour just gives me a moment.

KIRBY J:   Is it on page 109 in paragraph 4 of the orders:

The amount of contribution as between the second defendant…..shall be as to the second defendant 90% -

MR KOURAKIS:   Yes, that is so, the defendants there being the applicant, Frost, and the solicitor, Belperio.  Judgment against Belperio was overturned on appeal.

GAUDRON J:   What was the ‑ ‑ ‑

MR KOURAKIS:   I am just trying to find the amount, I am sorry, your Honour, I have just  ‑ ‑ ‑

GAUDRON J:   Because I do not think one can look at the Full Court decision and isolate which was a matter on appeal without understanding exactly what was held by the trial judge.

MR KOURAKIS:   Your Honour, it is difficult to compare the two directly because, with respect, the learned trial judge limited ‑ ‑ ‑

GAUDRON J:   I know it is difficult, but I need to know what was the situation.  The learned trial judge certainly found that your client was liable as to 90 per cent of something.

MR KOURAKIS:   Yes.  Your Honour, the difficulty was this, that the respondents before the learned trial judge only had to repay certain amounts to the financier, Perpetual, in order to have the mortgages discharged and so the liability of the defendant, Frost, and indeed, Belperio, was limited to the amounts that they had to ‑ that is the respondents ‑ had to pay to the financier, Perpetual, in exchange for a discharge of the mortgages.  Accordingly, the form of the orders are somewhat different.  Whereas on appeal, the Full Court set aside the orders against the financier, the mortgages were found valid, they were not set aside, and so it is the case that before the learned trial judge, the liability of Frost would have been, for example, that amount of $234,000, the amount which the Micarones had to pay to the financier.

GAUDRON J:   What is the amount now?

MR KOURAKIS:   The amount now starts with the sum of $142,000 but by reason of the addition of further amounts which your Honours can find, they are referred to at 379, comes to just over $200,000.

GAUDRON J:   So, in fact, your client succeeded to some extent on the appeal?

MR KOURAKIS:   Yes, but still had entered against him a judgment which was beyond the claim that had been ‑ ‑ ‑

GAUDRON J:   Now you are seeking special leave in circumstances in which special leave was refused to the other parties to this litigation some months ago, is that not right?

MR KOURAKIS:   Yes, on the questions of liability.

GAUDRON J:   Yes, but it is not clear to me, if you were to be given special leave to raise this matter which you seek to bring in by way of amendment to your grounds of appeal, that it would not have consequences which now cannot be assessed in relation to the persons whose application for special leave was refused in July.

MR KOURAKIS:   If your Honour pleases, the reasons why I submit special leave ought still be granted is that, firstly, it is not just that error.  Further amounts were awarded ignoring the fact that Adelaide Finance had not been the subject of a claim at page 379.

GAUDRON J:   That is really the same ground, is it not?

MR KOURAKIS:   It is just as to the amount.  The argument that the Adelaide refinancing pre-existing liability ought to have been assessed was put at paragraph 58 of the applicant’s summary of argument.  There was a response to it at paragraph 2.8 at page 430 in the Micarones’ reply and the matter was mentioned again at paragraph 3.10 of their reply at page 433 of the second appeal book.  So those matters were raised.  Whether or not notices of alternative contention might be filed by the Micarones is another matter, if they seek to support the damages awarded against them on some other ground.  But, prima facie ‑ ‑ ‑

KIRBY J:   Can you remind me why you were not there in Canberra when the Court constituted by the Chief Justice, Justice Gaudron and myself dealt with the matter?

MR KOURAKIS:   I do not know why they were separated.

GAUDRON J:   It was at the application of your client, apparently.

MR KOURAKIS:   That may be so, I am not instructed on that.  If the Court pleases.

GAUDRON J:   Yes, Mr Tilmouth.

MR TILMOUTH:   Your Honours, if the Court pleases, can I just take you back to that special leave application in Canberra.  We did actually have a ground relating to damages pertaining to interest and that was refused, I apprehend, on the basis it was purely factual and raised no ‑ ‑ ‑

GAUDRON J:   That is what I raised with Mr Kourakis, that ‑ ‑ ‑

MR TILMOUTH:   That is right, and things might have stood different, of course, if there was a grant of special leave on damages in this matter.

GAUDRON J:   It might have stood differently if we had had all these grounds all at once.

MR TILMOUTH:   Exactly, but that was refused on that basis, if the Court pleases.

KIRBY J:   I see the force of that, but the fact is that we now have a party which comes before us and says a fundamental error was made that in recalculating damages, the Full Court has provided damages on a foundation which was argued for, but rejected, at trial.  Now, that would be a fundamental mistake.

MR TILMOUTH:   If made out, but can I make two points about this, if the Court pleases.  The first is that it is difficult, as my learned friend said, to compare Justice Duggan’s judgment with the Full Court because, of course, Justice Duggan determined to set aside the Perpetual transactions on the grounds of unconscionability.  The Full Court reversed him on that and my clients, of course, appealed on that issue, sought special leave and lost.  Now, Justice Duggan also found against the solicitor, as well as Frost, and that too was reversed by the Full Court, basically on the causation issue which, of course, your Honours and the Chief Justice ultimately refused.

KIRBY J:   Yes, I remember this.

MR TILMOUTH:   So, when the Full Court here came to assess damages, there was a completely different basis altogether upon which to look at it because they were then only looking at the damages due to the ‑ ‑ ‑

KIRBY J:   That is true, but they could not deal with it on a basis of pleading which was rejected at trial, the rejection of which prevented the elucidation of the evidence.

MR TILMOUTH:   No, and they did not, and could I take your Honours to page 372 of book 2, if the Court pleases.  This turned out, the lack of pleading, if that is what it was, turned out to be non-material and could I read from paragraph 21, if the Court pleases, at 372:

The Micarones suffered no loss in relation to the Adelaide Finance transaction.  The Becharas pointed to no loss in respect of that transaction.  It is possible, therefore, to put the borrowings arranged by Adelaide Finance to one side and focus on the losses suffered by the plaintiffs in respect of the Perpetual transaction.

That is what their Honours went on to do, if the Court pleases.  So, in my submission, the pleading point is quite irrelevant.  They went on to assess damages on that exact basis, and that is the answer which we say is a complete answer to the point being raised.

KIRBY J:   Where is the passage where the application was refused by Justice Duggan, just to satisfy myself that that ‑ ‑ ‑

MR TILMOUTH:   My learned friend referred to 100 to 101.  There is also a reference, your Honours, to pages 94 and 95 of his Honour’s judgment.  Now, your Honours, it also must be borne in mind that that, of course, only affected, at best for my learned friend, the Micarone respondents.  The Becharas had always pleaded the issue, so the judgment sum as against them is retained anyway ‑ as against Frost for them is retained anyway.  So, in that sense this is a fairly, with respect, academic exercise. 

But accepting for the moment there was no such plea for the Micarones but there was for the Becharas, in my submission, practically speaking, the point would go nowhere.  But for the reasons I have endeavoured to demonstrate in the findings of the Full Court at page 372, they were looking to restore the plaintiffs as they then were in the position they were but for the misrepresentations and they decided to put the Adelaide Finance out of the matter, so the pleading issue became quite irrelevant, in my submission.  That would be my response to that matter, if the Court pleases.  That is all I wish to put, if the Court pleases.

GAUDRON J:   That is all you wish to put, yes.

MR TILMOUTH:   Yes, your Honour.

GAUDRON J:   Thank you, Mr Tilmouoth.  Yes, Mr Kourakis.

MR KOURAKIS:   If the Court pleases, the passage referred to by my learned friend in fact exposes the error.  If there was no loss in the sense that the Adelaide refinancing transaction was properly entered into, properly advised about, then their pre-existing benefit was precisely their share of that borrowing.  In fact, the very fact that the Becharas and the Micarones are treated in the same way, that is by ignoring the Adelaide refinance, also shows that the fact that the Micarones did not claim any fraudulent inducement with respect to that transaction was ignored by the Full Court.  Indeed, much of the argument and the summaries of argument that I referred to to raise this issue dealt with precisely that point, making the submission that I have just made.  Your Honours ‑ ‑ ‑

GAUDRON J:   What you are saying is that the Full Court contradicted itself?

MR KOURAKIS:   No, properly understood in that passage, in my respectful submission, they were simply saying that for the purposes of our calculations of loss, we can ignore Adelaide financing because nothing over and above and beyond the loss suffered as a result of the Perpetual transaction was suffered in the Adelaide Finance transaction, and that is all they meant because, for example, with respect to the Becharas, they had obviously made losses as a result of the Adelaide Finance transaction.  They had been fraudulently induced into a transaction that dramatically increased their liability.  All that the Full Court really meant was that there was no loss over and above the Perpetual Finance loss through the Adelaide refinancing. 

Granted that, when one goes to calculate the loss flowing from the Perpetual refinancing, you start off with that debt being $640,000, you must deduct the pre-existing benefit.  For the Becharas you could ignore Adelaide refinance because they had pleaded fraudulent misrepresentation, and go back to their very early liability for their sum.  For the Micarones you could not ignore the discharge of their liability to Adelaide refinancing because it was a very real benefit and they had not claimed ‑ ‑ ‑

GAUDRON J:   But they had only – am I right in thinking this – they were liable only as guarantors on the Adelaide refinancing?

MR KOURAKIS:   Yes.

GAUDRON J:   Now, what you would have to set aside is not the amount of the guarantee – I mean I think this is perhaps not in your favour – but the estimate as to the likelihood of the guarantee being called up, and that

seems to me to be the right way ‑ if you are right, the right way to approach it, in which event you might get nothing deducted.

MR KOURAKIS:   No, if your Honour pleases, but the Full Court worked on the basis that they were never going to be able to repay that amount.  The family was in ‑ ‑ ‑

GAUDRON J:   That may be, but it just seems to me that there may be a factual substratum missing which would prevent proper resolution of this matter.

MR KOURAKIS:   However their obligations might be assessed under Adelaide refinance, no claim was made for the inducement to enter into it.  If the Court pleases.

GAUDRON J:   Thank you.  In this matter, special leave will be refused and it will be refused with costs, but I will ask Justice Kirby to give the reasons of the Court.

KIRBY J:   Application is belatedly made to add two additional grounds to challenge the decision and orders of the Full Court of the Supreme Court of South Australia in the award of damages ordered by the Full Court in favour of the first and second respondents.  We are not satisfied that the error complained of by the applicant is made out or that he has suffered an injustice, as he complains.  On the contrary, there is a risk of injustice to the other parties whose applications for special leave, including on the issue of damages, was earlier refused by this Court, to permit now the enlargement of the grounds on the part of the applicant.  Otherwise, the matter is not one warranting special leave, turning as it does on its own special facts.

GAUDRON J:   The Court will now adjourn briefly to reconstitute.

AT 12.26 PM THE MATTER WAS CONCLUDED