HSBC Bank Australia Limited v Abboud & Anor

[2023] HCATrans 49

[2023] HCATrans 049

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S135 of 2022

B e t w e e n -

HSBC BANK AUSTRALIA LIMITED ABN 48 006 434 162

Applicant

and

NICHOLAS ABBOUD

First Respondent

MICHAEL THOMAS POTTS

Second Respondent

Application for special leave to appeal

GAGELER J
STEWARD J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 21 APRIL 2023, AT 11.10 AM

Copyright in the High Court of Australia

MR D.F.C. THOMAS, SC:   May it please the Court.  I appear with MR B. MICHAEL for the applicant.  (instructed by Ashurst)

MR S.M. NIXON, SC:   If the Court pleases, I appear with my learned friends MS M.E. ELLICOTT and MS A. ZHENG for the second respondent.  (instructed by Hall & Wilcox)

GAGELER J:   Thank you, Mr Nixon.  Mr Thomas.

MR THOMAS:   May it please the Court.  Your Honour will find the reasons of the Court of Appeal in relation to HSBC’s appeal at volume 2, page 407, paragraph 302.  HSBC’s application, as your Honours know, concerns the so‑called “extension agreement” by which HSBC granted a temporary increase in the funds available to be drawn upon by Dick Smith Holdings from $60 million to $80 million.  And as noted at paragraph 302, line 45, it was common ground below that Mr Potts, who was the Chief Financial Officer of DSH:

misled HSBC when seeking the Extension Agreement –

That misleading conduct concerned perhaps the two most important matters in a banker’s analysis of the loan application; namely, the purpose for which the additional funds were sought and the financial position of the borrower at the time of application.

As your Honours see from paragraph 303, it was common ground that Mr Potts had misled HSBC as to the purpose of the loan and in particular had failed to disclose that the funds were, in fact, needed because the company was in serious financial difficulty and lacked funds to pay its existing creditors on time.  So, the issue before the Court of Appeal was a question of causation and loss, and they are both matters that we challenge.  Can I move through them sequentially?

GAGELER J:   On this point, there was no difference between the trial judge and the Court of Appeal?

MR THOMAS:   In relation to the liability finding?

GAGELER J:   In relation to causation.

MR THOMAS:   Causation – that is correct.  That is why I wanted to start with the extract from the primary judge at paragraph 311 of the Court of Appeal judgment, page 411, which we say is at the heart of the special leave question that we have identified.  Your Honours see that in the first sentence of the extract from paragraph 583 there is a positive finding in favour of the bank, that is that if Mr Potts ‑ ‑ ‑ 

GLEESON J:   But not in favour of the bank’s case as it pleaded it.

MR THOMAS:   Well, that is a point of contention between the parties, and I can explain how we put it.  The issue or finding, which is really the only positive finding in this paragraph, that was if the CFO had disclosed that the reason DSH wanted increase in its facility was because it was facing serious liquidity problems, HSBC would not have entered into the extension agreement on the terms that it did.

Then the difficulty arises, we say, but it may well still have granted an extension on some terms, and one asks immediately, what terms?  Financial, temporary, security, interest?  None identified, none pleaded, none put to witnesses, none the subject of any submissions before the trial judge.  At the bottom of the extract his Honour continues the speculation, we say, where he says:

It is hard to believe that if HSBC was satisfied that DSH needed an additional $20 million to trade out of its difficulties –

Pausing there, there was no finding that it was satisfied:

it would not have advanced that sum on any terms when the Banks agreed to an extension of the facility once they knew the true position.  Certainly, there is no evidence from HSBC which would explain why it would not have agreed to advance the money on some terms if it had known the true position.

Now, we say that error was embraced, wrongly, by the Court of Appeal, one sees that ‑ ‑ ‑

GAGELER J:   Now, what kind of error is it?  How do you describe the error?  How do you categorise it?

MR THOMAS:   We say the error, your Honour, is a requirement on the part of a complainant to go beyond identifying a cause, which is what the statutory regime requires and what Henville v Walker, I & L Securities require in this Court – to go beyond that, to disprove the possibility that under a hypothetical transaction, equivalent loss would have been incurred.

GLEESON J:   Your case was a no‑transaction case.

MR THOMAS:   Exactly, and it was put by the Court of Appeal at paragraph 318 at the top of page 415 as a “different transaction” case.

GLEESON J:   I think you might be reading too much into that.  I think, as I read that, what the Court of Appeal is saying is that you needed to have a different transaction case in order to succeed.

MR THOMAS:   If that is what they were saying, they were equally in error, in my respectful submission, because they were forcing a banker who had been misled to run a case that it did not wish to run in the face of a finding that the bank would not have executed the extension agreement if it had known the true position.

GLEESON J:   You did not have to run it, but you were going to fail on the case that you had run.

MR THOMAS:   And why we say that is, with respect, erroneous is because it imposes, as I have said, that additional obligation to disprove the possibility of alternative hypothetical transactions.  That is a ripe matter for this Court to consider, because there are now three inconsistent approaches to this question at the intermediate appellate court level.  The first case, as their Honours recognised in paragraph 317 of their reasons, is the Full Federal Court decision in Wyzenbeek where the Full Court held that it was not permissible for a defendant to raise deploy the possibility of an alternative hypothetical transaction, i.e., counterfactual analysis was not relevant and was not permitted to be undertaken on a known transaction case.

Now, in making those findings, the Full Court held that the contrary views of the Queensland Court of Appeal were plainly wrong, so we have an immediate difference between the two courts in relation to that matter.  And we say the further difficulty that we face with respect to the Court of Appeal was they posited a third intermediate position, which raises distinctions that are without support in the authorities and without support in any rational sense.

GAGELER J:   This might be way too simplistic, but you pleaded a no transaction case, and the response to that, as I understand it, at first instance and in the Court of Appeal, was that the counterfactual that you asserted, no transaction, was not established on the balance of probabilities.

MR THOMAS:   Now, we disagree with that.  I appreciate the question, because an agreement is only the sum of the terms of the agreement.  We know – there is a finding at 583 that I took your Honours to – that the agreement would not have been executed by HSBC.  That finding was challenged by my friends on appeal unsuccessfully.  Now, the point is, and why this is a suitable vehicle is, once that finding is in place, it is unchallenged, the question of the relevance of counterfactuals looms large and must be resolved.

What is an agreement on some other terms?  What terms?  How is the claimant, HSBC, having been misled, to prepare for court and to put on evidence where the respondent never articulated the alternative case?  It would have been open to the CFO to say, we would have negotiated, or the bank would have negotiated to provide $10 million, or $17 million at 50 per cent interest, or $17 million at a greater level of security, and none of that occurred.

GAGELER J:   But my problem with this – I am not sure if it is the alternative case.  I think it is your case; the problem is with your case – no transaction.

MR THOMAS:   The transaction, we know, could have not occurred, and did not occur on the – would not have occurred on the findings, because there would be no agreement pursuant to which the additional $20 million dollars occurred.  What we were faced with for the first time in the reasons of the trial judge, as I was saying, without the benefit of any submissions, evidence or pleadings, was a merely possibility that we may have entered into some different transaction.

It was that rabbit hole of speculation that the Full Court in Wyzenbeek was concerned to reject, because, having looked at the text, context and purpose of the regime and having looked at your Honours’ line of cases on the need, and only the need for a cause, what one would be doing would be entering into a world of speculation, assessment of risk, loss of chance, and the likelihood of transactions that assists no one.  That becomes particularly relevant if your Honours think about the way in which this additional advance of funds would occur.

An extension agreement could only occur between people, and the requirement for the bank to prove that it would not have advanced the sum on any terms, whatever those terms might be, necessarily assumes that DSH would have borrowed the $17 million on any terms.  That is a conceptually difficult matter in circumstances where there was no evidence from Mr Potts – he was not called to give evidence; there is no articulation of any alternative – quite different, if, for the example, they had come up with, articulated a counterfactual.  None of that occurred.  What one finds in the Court of Appeal is an intermediate case, which, as I have said, is fundamentally flawed.

If one looks at paragraph 314, their Honours posit a distinction between entry into a contract by reason of misleading, deceptive conduct, and the variation of contractual terms after entry as a result of misleading, deceptive conduct.  That is the first line of paragraph 314.  They state that counterfactual analysis and the requirements to disprove hypotheticals is relevant, at least, to the second of those two distinctions.  They come back to this in paragraph 316 where they speak of, in line 4, “a true case” – a so‑called:

true case of where parties were brought into contractual relations because of the contravening conduct.

And then in 318, posit a so‑called:

intermediate case where the misleading or deceptive conduct caused a variation the contractual relations between the parties between whom there was already an ongoing contractual relationship.

The error, we say, follows from the balance of that paragraph where their Honours say it was:

not enough for HSBC to obtain relief under the statute merely to conclude that it would not have entered into the Extension Agreement on the terms that it did –

We struggle, with respect, with the concept of “merely”, given that that necessarily recognises a causal connection between misleading conduct and decisions taken by the bank.  We wish to emphasise that this difference in approach between Wyzenbeek, Jamieson in the Queensland Court of Appeal and the Court of Appeal in this case is not a mere question of doctrine.  It goes to the heart of how a commercial party is required to prove causation in a commercial cause and how a court is required to articulate and determine questions of causation, and the rabbit hole that the Court of Appeal opened up for itself is one that is going to cause, in our respectful submission, uncertainty, complexity and ultimately, incongruity with the statute.

GAGELER J:   At least complexity is inherent in the nature of an ongoing banker/client relationship, one would think.

MR THOMAS:   Except that that raises additional considerations, but one cannot – and I respectfully embrace the finding I have in my favour that this agreement would not have been signed – that it cannot be for HSBC to posit with the benefit of no knowledge each alternative possible transaction that could have occurred, and then to somehow or other embark on admissible evidence that would articulate why those hypothetical transactions were unavailable to it.

GLEESON J:   You have another problem, which is no loss.

MR THOMAS:   Yes, and can I turn to the second special leave question, if the Court pleases.  That question, we say, gives rise to a discrete and interesting question regarding the availability of the rule in Clayton’s Case in the context of misleading and deceptive conduct.  The Court of Appeal described our attempted use of that rule as “innovative”, and that is a badge of honour, in my respectful submission, in a special leave list.  It is innovative in the sense that no court has yet had an opportunity to consider the question.  But it is entirely basal in that the rule, as your Honours know, which is debits paid or credited, refer to debits taken out first in time is a fundamental rule of banking law in this country that governs every banking transaction that occurs on any running account.

GAGELER J:   Well, the Court of Appeal did not like the word “rule”.

MR THOMAS:   No, and I accept that it is a presumption, but it is a presumption that clearly applied on the facts of this case, having regard to the findings that their Honours made at paragraph 337.  Their Honours recognised that:

There was at all times a running account with a single outstanding balance.

And they recognise, we say correctly, at line 5 of paragraph 337 that:

There was only ever (relevantly) a single contract between HSBC and DSH . . . There was not in point of law a separate “line” of credit as between banker and customer –

And, as I have said:

There was at all times a running account with a single outstanding balance.

The difficulty the Court had seemed to be twofold.  The first is that, with respect, in paragraph 337, halfway down the paragraph, they retreated from their finding that there was a single contract and a single line of credit by asking themselves:

whether the indebtedness which was discharged was indebtedness under the Syndicated Facility as opposed to the Extension Agreement.

Now, that was obviously the wrong question to ask, and it was inconsistent with what their Honours had just identified at the top of the paragraph, and inconsistent with what immediately follows, because their Honours noted that:

the latter –

the extension agreement:

was simply an amendment of the former and there was only ever a single contract governing the relations between banker and customer –

Now, it is very difficult to identify a consistent rationale as a matter of approach for why the rule would not have applied by way of presumption.  The second issue, which is one, obviously, that I do not wish or like to have to raise on a special leave, is that the rule in Clayton’s Case, I accept, was not advanced at trial.  Our position, as we have put in writing, is that this is not, in truth, a Suttor v Gundowda point at all.  Counsel would have been entitled at trial in closing submissions to assert that Mr Potts had failed to disprove the operation of the presumption in this case.

GAGELER J:   If it is a presumption rather than a rule, then it is a bit more problematic, is it not, than Suttor v Gundowda?

MR THOMAS:   We say no.  It is certainly a little more nuanced than I would otherwise wish it to be, but the point is that it is a presumption that operated in my favour, and as a presumption that operated in my favour, I could call attention to the presumption in closing submissions at trial and point to the fact that there was never an attempt by Mr Potts to disprove the application of the presumption.

GAGELER J:   Which had not been raised before.

MR THOMAS:   Which had not been raised before, because it was only asserted – and I think your Honours have seen this in the submissions, I do not want to use the word “day 29 of the trial”, I just have – but only asserted by Mr Potts on the 29th day of the trial and never pleaded, so in those circumstances, it is unsurprising.

I say, in addition, that counsel on an appeal could review the evidentiary landscape and could assert before the Court of Appeal, as I did, that there had been a lack of evidence adduced by Mr Potts to disprove a presumption that, on any view, would have applied in my favour to render the amounts paid or credited to the running account in December attributable to the earliest in time debits on the syndicated facility, and the result of that, we say, on any view, your Honours, is that there was no repayment and, therefore, the full amount of loss that the bank suffered remained at the time of the collapse of the company.

Unless your Honours have any additional questions for me, those are my submissions on both special leave questions.

GAGELER J:   Thank you, Mr Thomas.  Mr Nixon, we do not need to call on you.

MR NIXON:   If the Court pleases.

GAGELER J:   We are not persuaded that this case raises a question of legal principle warranting the consideration of this Court.  Special leave is refused with costs.

MR THOMAS:   If it please the Court.

MR NIXON:   If the Court pleases.

GAGELER J:   The Court will, at this stage, adjourn until noon.

AT 11.30 AM THE MATTER WAS CONCLUDED