Goodridge v Leveraged Equities Limited & Anor; Goodridge v Macquarie Bank Limited & Anor

[2011] HCATrans 154

[2011] HCATrans 154

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S57 of 2011

B e t w e e n -

ROSS IAN GOODRIDGE

Applicant

and

LEVERAGED EQUITIES LIMITED

First Respondent

MACQUARIE BANK LIMITED

Second Respondent

Office of the Registry
  Sydney  No S58 of 2011

B e t w e e n -

ROSS IAN GOODRIDGE

Applicant

and

MACQUARIE BANK LIMITED (ABN 46 008 583 542)

First Respondent

LEVERAGED EQUITIES LIMITED (ABN 26 051 629 282)

Second Respondent

Applications for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 JUNE 2011, AT 11.13 AM

Copyright in the High Court of Australia

____________________

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friends, MR G.R. KENNETT, SC and MR N.M.H. KIRBY, for the applicant in each case. (instructed by Firths – The Compensation Lawyers)

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR J.R.WILLIAMS for Leveraged Equities, the respondent in each matter.  (instructed by Freehills)

MR J.C. SHEAHAN, SC:   May it please the Court, I appear with my learned friend, MR G.K.J. RICH, for Macquarie Bank in both matters.  (instructed by Allens Arthur Robinson Lawyers)

GUMMOW J:   Yes, Mr Rayment.

MR RAYMENT:   Your Honours, the applicant, of course, had an original contract only with Macquarie Bank Limited.  It was submitted on his behalf below and we would desire to press upon this Court that nothing changed about that matter.  There was an allegation made at first instance and rejected there but accepted in the Full Court that there was something which happened to produce a novation of the contract so that Leveraged Equities became the other party to my client’s margin loan contract.  The power to novate the contract was contained, if at all, in the clause which is set out at page 247 of the application book.  It is a power to:

assign, transfer, novate and otherwise grant participations . . . all or any part of the benefit of this Agreement and any of its rights, remedies, powers, duties and obligations –

So that it seems to be an ambulatory provision according to confer a power to novate all or any part of either the rights or the obligations or the discretions and the like.  It was treated in the Full Court as being limited to the power to novate the whole contract.  Justice Jacobson, page 168 of the application book, so treated it.  In our respectful submission, paragraph 327 of the judgment does not accord with the language I just read in that his Honour seems to treat it as if it was far more specific than it was and that enables his Honour to reach a conclusion that the clause is not an agreement to agree.  His Honour’s reasoning, in our submission, is not supported by the clause. 

If I could just move beyond that straightaway to the two key questions that we submit arise in the matter.  The first is there was no novation, that is, we have summarised the matter, in our submission, in a way that is not in issue.  If your Honours go to page 219 of the application book in paragraph 2 of the factual background.  The purported novation making my client party to a contract with BNY first and then subsequently with Leveraged Equities is said to arise from a bipartite arrangement to which he is a stranger, that is, a contract described in paragraph 2 of our outline to which the parties are relevantly Macquarie, Macquarie Securitization Limited and BNY, not my client. 

We submit, if you have a power to novate a contract, you cannot exercise that power otherwise than by causing to be entered into a contract between the authoriser and the other party.  It is, we submit, entirely unclear from the Full Court why they rejected that submission.  The learned trial judge accepted it and ‑ ‑ ‑

GUMMOW J:   What do you say about Mr Sheahan’s point at paragraph 20 at page 323 which is a confession on avoidance of the novation point?

MR RAYMENT:   Yes.  He submits that, as a matter of fact, there was a consensual new contract between my client and the next party along or, rather, Leveraged Equities.  The only matter that has occurred so far in this trial about the matter is that the learned trial judge rejected that, that is, he made a finding of fact that there was no consent to any fresh contract between my client and anybody other than Macquarie Bank.  That is the finding at paragraph 124 of the trial judge’s judgment.

GUMMOW J:   Well, the Full Court does not deal with it at 170.

MR RAYMENT:   Does not reach it.  The Full Court does not reach it, your Honours, but the trial judge who heard the evidence about the matter made the finding at page 48, paragraph 124, about that matter.  That is all there really is before your Honours about the matter.  There is, we submit, no reason, as it were, to deal with that matter adversely to my client on this application.  He has won the point before the trial judge.  There is no reason shown why it is not correct. 

In the second place, not only was he not a party to any novated contract, but there was no finding that he was notified of the new contracting party, which would be a very curious situation, in our submission.  You could not have a case where a contract which was bilateral in nature, mutual rights and obligations on both sides, could possibly exist unless you knew who the other contracting party was.  Now, that matter is noted by the Full Court, but again, we submit, not in their reasoning dealt with.  The letter which was relied upon by the other side below as a notice of assignment was not put forward as notice of a novation.  That was not the way in which it was sought to be used below and the Full Court seems to just be silent about the trial judge’s finding that you need notice before a novation can be effective. 

Your Honours, we have sought to deal with the second way in which the case was put below against us on this matter, that is to say, assignment, in the outline of argument in writing.  We submit that the learned trial judge was right to find that the various rights and duties of the parties were inextricably intertwined.  If your Honours would look at paragraph 188 of the trial judge’s judgment, the matter of unworkability is explained.  For this purpose your Honours need to keep in mind the terms of the margin loan agreement which are reproduced in the application book at pages 253 and 254. 

What you had was a contract to make further advances up to the credit limit and the credit limit was not just the amount specified originally as between the parties, but was that amount or the credit limit as worked out under the terms and conditions, whichever was the less, and that depended upon the exercise of discretions by the bank.  “Credit limit”, at page 253, was defined as the lesser of the amount agreed and the market based limit.  The “market based limit” is defined over the page, 254, as:

the value of the Eligible Securities –

Stopping there, that is discretionary, whether something will be an eligible security or remain such –

determined by multiplying the Market Value of those Securities –

and that is discretionary, as your Honour sees from the next definition –

by the Lending Ratio –

and that is discretionary, as your Honours sees from page 253 in the definition.  So the amount of the obligation of the bank to make further advances depends upon the exercise of its discretion about those matters.  Similarly, when you come to a margin call which is in the nature of an enforcement against the borrower of the rights of the lender – if your Honours look at page 230 – again all of those terms are utilised as an integral part of the description of a margin call.  The bank has to form the view that the market based limit, a discretionary thing, and the buffer will produce an excess and then it has a discretion to require payment of amounts. 

If your Honours look, for example, at 5.4, again eligible securities can be provided if you have a margin call which is depended upon the exercise of discretions by the bank.  So if you bifurcate the debt and the obligation, you leave in limbo, as it were, who can exercise all of these rights and you produce the consequence, we submit, that – it is really not just a debt, in other words.  It is a debt, the recovery of which depends upon the exercise of discretions and may fluctuate from day to day or moment to moment.

GUMMOW J:   What do you say about paragraph 38 of Mr Gleeson’s submissions at page 315?  If you were to elevate this case out of a case that depends on a construction of these particular documents but does raise some question of general principle, what then is the answer to paragraph 38?

MR RAYMENT:   Well, paragraph 38 deals with, as it were, the first question about novation, that is, can you have consent in advance to a novation?  It does not deal with the problems that we submit arise in any event, did you have a novation and did you have notice of it?  I began really by pointing out, your Honours, that Justice Jacobson appears to treat clause 21 as only conferring a power to novate the whole contract, whereas it does on its own terms a good deal more than that.

GUMMOW J:   That is a point of construction.

MR RAYMENT:   Yes, it is.  But we submit that the questions of party and notice are indeed matters of general public importance which would arise every time there is a novation and every time one party takes a power to enter into a contract of novation on behalf of another.

Your Honours, then one would go to the question of the margin calls in this case and at page 222 of the outline of argument we have set out the submissions we wish to make about that, that is, there were inconsistent demands, one superseding the other, a point not apparently dealt with at all in the Full Court’s reasons although it was plainly before it for decision.  That is, as we say in paragraph 16, there is a 2.05 pm demand, or found to be a demand, by the Full Court requiring payment of a smaller sum at one time, which is plainly, we submit, superseded by inconsistent demand for payment of a larger sum at a different time, later on the same day and before either of those two times arrives, the other side begin to sell these securities purporting ‑ ‑ ‑

HAYNE J:   I thought sales began sometime after 2.00 pm. 

MR RAYMENT:   Yes, they did, but 2.00 pm was superseded, we submit, by ‑ ‑ ‑

HAYNE J:   I thought you said that sales occurred before either time expired.

MR RAYMENT:   Your Honour is correct.  What they purported to do was say that they were going to do it at midday which would have, effectively, superseded both earlier demands, in our submission.  They did not do so.  In fact, they began to sell at the earlier time in the first demand, but that first demand had been, we submit, superseded so as to require payment only at a time after the forced selling began.  On any view of the matter, we submit that on the construction of the document they could not do it anyway.  They had to give three days notice.  But, your Honours, even if they could give less than three days notice, they superseded their earlier demand by a later demand. 

Your Honours, we sought, as it were, to remind the Full Court that that question of superseding had been squarely raised before their Honours and not dealt with in this judgment very shortly after the judgment was given and, as your Honours would see from the application book, the Full Court declined to set down the motion for argument on the ground that

their Honours intended to write what they had written which in no way explains how you could possibly have inconsistent demands not superseding one another.  So we seek to put this application also upon that basis, that an occasion exists in the interest of justice to review the decision below.  Your Honours, it is for those reasons, as we have put in writing in our submission, that a grant of special leave is appropriate in this case.

GUMMOW J:   Thank you, Mr Rayment.  We will take a short adjournment.

AT 11.30 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.33 AM:

GUMMOW J:   In neither of these matters would an appeal to this Court enjoy sufficient prospects of success to warrant a grant of special leave. However, we express no view as to the correctness of the conclusions expressed by the Full Court of the Federal Court as to the construction and application of section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). In each application, therefore, special leave is refused with costs.

AT 11.34 AM THE MATTERS WERE CONCLUDED