Ideas Plus Investments Ltd v National Australia Bank Ltd
[1999] WASC 200
IDEAS PLUS INVESTMENTS LTD -v- NATIONAL AUSTRALIA BANK LTD [1999] WASC 200
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 200 | |
| Case No: | CIV:1615/1999 | 12 OCTOBER 1999 | |
| Coram: | MASTER BREDMEYER | 21/10/99 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Application allowed in part | ||
| PDF Version |
| Parties: | IDEAS PLUS INVESTMENTS LTD NATIONAL AUSTRALIA BANK LTD |
Catchwords: | Pleading Application to strike out parts of statement of claim Claims arising out of payment of irrevocable letter of credit |
Legislation: | Australian Securities & Investments Commission Act 1989 (Cth), s 12BA(1) Trade Practices Act 1974 (Cth), s 4, s 51AA, s 51AAB, s 52 |
Case References: | The Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447 United City Merchants (Investments) Ltd & Ors v Royal Bank of Canada & Ors [1983] 1 AC 168 Bromley v Ryan (1956) 99 CLR 362 Burton v President of the Shire of Bairnsdale (1908) 7 CLR 76 Prenn v Simmonds (1971) 1 WLR 1381 Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurstville) Pty Ltd [1971] 1 NSWLR 472 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
NATIONAL AUSTRALIA BANK LTD
Defendant
Catchwords:
Pleading - Application to strike out parts of statement of claim - Claims arising out of payment of irrevocable letter of credit
Legislation:
Australian Securities & Investments Commission Act 1989 (Cth), s 12BA(1)
Trade Practices Act1974 (Cth), s 4, s 51AA, s 51AAB, s 52
Result:
Application allowed in part
(Page 2)
Representation:
Counsel:
Plaintiff : Mr M J McCusker QC & Mr J W Byrne
Defendant : Mr W S Martin QC & Mr L D Ayres
Solicitors:
Plaintiff : J W Byrne
Defendant : Minter Ellison
Case(s) referred to in judgment(s):
The Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447
United City Merchants (Investments) Ltd & Ors v Royal Bank of Canada & Ors [1983] 1 AC 168
Case(s) also cited:
Bromley v Ryan (1956) 99 CLR 362
Burton v President of the Shire of Bairnsdale (1908) 7 CLR 76
Prenn v Simmonds (1971) 1 WLR 1381
Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurstville) Pty Ltd [1971] 1 NSWLR 472
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
(Page 3)
1 MASTER BREDMEYER: This is an application by the defendant to strike out par 3, par 4, par 5, par 6, par 8, par 9, par 13 and par 15 of the statement of claim as not disclosing any reasonable cause of action and for other reasons. The plaintiff's written outline of submissions of 12 October 1999 proposed a number of amendments to the pleading. I propose to grant leave to the plaintiff provisionally to make those amendments.
2 I propose to strike out par 3 and par 4 of the pleading as irrelevant to the causes of action.
3 I propose to allow par 5 as amended. This paragraph and later ones plead an arguable contract between the plaintiff and the defendant.
4 I consider par 6 is in order. By virtue of some words found in par 5(4) its meaning is that, pursuant to the support contract, the Hong Kong Shanghai Bank at the request and cost of the plaintiff issued a letter of credit in favour of the defendant to pay $5 million expiring on 30 September 1998 and subject to the two conditions set out therein. It is pleaded in 5(4) that the defendant received and accepted the letter of credit pleaded in 6.
5 I consider that par 8(1) should be struck out because the particulars of the agreement are inadequate. It does not state how the plaintiff and the defendant reached the agreement. The statement that the agreement can be inferred from the amendment letter of 9 September 1998 is not particularly helpful as that document was issued not by the plaintiff but by the Hong Kong Shanghai Bank to the defendant. Also the sending of a letter to the defendant may be an offer to vary the contract but does not show the defendant's acceptance of that offer. Paragraph 8(1) should be repleaded along these lines:
8(1) In about early September 1998, the plaintiff and the defendant agreed to vary the support contract by extending the letter of credit to 30 September 1999 and by varying the terms of the letter of credit.
Particulars
The agreement is to be implied or inferred from the fact that the plaintiff procured the Hong Kong Shanghai Bank to issue to the defendant a written amendment dated 9 September 1998 to the letter of credit, as referred to in par 9, and the defendant
(Page 4)
- accepted that by continuing to supply banking facilities to Whittakers.
6 I consider par 8(2) is in order. That pleads the defendant's knowledge or constructive knowledge that the plaintiff was obliged to deposit funds with the Hong Kong Shanghai Bank or otherwise provide security to the bank in order to obtain a letter of credit. That plea is not relevant to proving the plaintiff's loss but it may be of value to the plaintiff in asking the court to imply the term pleaded in par 5(5).
7 I consider par 9 is in order with the addition of the words underlined in line 2: "… issued an amendment to the letter of credit to the defendant …"
8 I consider par 13 needs amendment and should be struck out. It should plead that the defendant breached the support contract as varied in par 8 and par 9 in that it demanded payment from the Hong Kong Shanghai Bank when in fact the conditions pleaded in par 9 had not been met, because the defendant had not taken the necessary steps under the debenture to sell the charged property so as to arrive at a shortfall between the unpaid loans and the amount realised by such sale and had taken no steps to enforce its rights under the debenture other than to appoint receivers and managers.
9 I consider par 14 needs to be expanded. It needs to state that the representation which was said to be misleading and deceptive and unconscionable was so because the defendant had not taken necessary steps to enforce its rights under the debenture executed by Whittakers in that it had not sold the charged property so as to arrive at a shortfall between the unpaid loans and the amount realised by such sale. With an amendment along those lines I consider par 14 would be in order. I consider that plea pleads an arguable case of misleading and deceptive conduct under s 52 of the Trade Practices Act and an arguable case of unconscionable conduct both in equity and under s 51AA of the Trade Practices Act.
10 It was argued for the defendant that to allow this pleading of misleading and deceptive conduct and/or unconscionable conduct to lie against the defendant would run contrary to well established authority and would spoil the long recognised commercial efficacy of irrevocable letters of credit. I was referred to United City Merchants (Investments) Ltd & Ors v Royal Bank of Canada & Ors [1983] 1 AC 168. In that case
(Page 5)
- Lord Diplock wrote the leading judgment and the other four law Lords agreed with it. At p 183 Lord Diplock said:
"If, on their face, the documents presented to the confirming bank by the seller conform with the requirements of credit as notified to him by the confirming bank, that bank is under a contractual obligation to the seller to honour the credit, notwithstanding that the bank has knowledge that the seller at the time of presentation of the conforming documents is alleged by the buyer to have, and in fact has already, committed a breach of his contract with the buyer for the sale of the goods to which the documents appear on their face to relate that would have entitled the buyer to treat the contract of sale as rescinded and to reject the goods and refuse to pay the seller the purchase price. The whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods and that does not permit of any dispute with the buyer as to the performance of the contract of sale being used as a ground for non-payment or reduction or deferment of payment.
To this general statement of principle as to the contractual obligations of the confirming bank to the seller, there is one established exception: that is, where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue."
12 In the present pleading there is no buyer or seller and there is no issuing bank and confirming bank. But to draw an analogy, the defendant can be considered as the seller - the seller of services not goods. It was the beneficiary of the letter of credit and it issued the certificate in order to get paid. The plaintiff, by analogy, is the equivalent of the buyer. It procured the letter of credit. In this case there is no confirming bank. The
(Page 6)
- issuing bank, the Hong Kong Shanghai Bank, is the bank which also paid out the money. In this case the defendant (the seller) is not suing the issuing bank. No-one is saying that the issuing bank should not have paid out in June 1999 under the letter of credit on receipt of the certificate from the defendant which certified that the three conditions mentioned in the letter of credit, which are quoted in par 9(1) of the pleading, had been complied with. In this case it is the "buyer" (the procurer of the letter of credit) suing the "seller" for breach of contract etc. The principle established in United City Merchants (supra) does not preclude that.
13 In this case as pleaded, the certificate said to be false was a misrepresentation to the issuing bank. It was regular on the face of it and on the authority of United City Merchants, the issuing bank was not required to look beyond it. But that representation to the issuing bank arguably amounted to misleading and deceptive conduct. By that misrepresentation to the issuing bank the plaintiff (a third party) suffered loss. The securities it had offered to secure the letter of credit were called upon. That fact needs to be pleaded.
14 I consider par 15 needs to be expanded to plead that the misleading and deceptive conduct and the unconscionable conduct caused loss to the plaintiff, namely the execution by the Hong Kong Shanghai Bank upon securities offered by the plaintiff to procure the letter of credit. I will strike out par 15 to allow it to be amended.
15 The defendant says s 51AA of the Trade Practices Act cannot be pleaded because by s 51AAB:
"Section 51AA does not apply to conduct engaged in relation to financial services."
16 Financial services are defined in s 4 of the Trade Practices Act as having the same meaning as in Division 2 of Part 2 of the Australian Securities & Investments Commission Act 1989. In that latter Act, s 12BA(1) defines "financial service" by reference to "financial product". These definitions are:
"financial product means:
(a) a facility for taking money on deposit (otherwise than as part-payment for identified services) made available in the course of conducting a banking business within the meaning of the Banking Act 1959; or
(Page 7)
- (b) a security; or
(c) a futures contract; or
(d) a contract of insurance (including a life policy or a sinking fund policy within the meaning of the Life Assurance Act 1995); or
(e) a retirement savings account within the meaning of the Retirement Savings Accounts Act 1997; or
(f) a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993;
but does not include a foreign exchange contract.
financial service means a service that:
(a) consists of providing a financial product; or
(b) is otherwise supplied in relation to a financial product."
17 I consider it is arguable that in providing the certificate to the Hong Kong Shanghai Bank the defendant was not engaged in conduct in relation to "financial services". It was not engaged in providing a "financial product".
18 Section 51AA(1) provides:
"A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time. of the states and territories."
19 The phrase "within the meaning of the unwritten law" refers to case law, ie common law and equity on this topic. I quote from Mason J in The Commercial Bank of Australia Ltd v Amadio & Anor (1983) 151 CLR 447 at 461-462:
"It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan (1956) 99 CLR 362 at 405:
'The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly
(Page 8)
- be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.'
- Likewise Kitto J (ibid at 415) spoke of it as 'a well-known head of equity' which-
'… applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.'
It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created."
20 I consider it is arguable in this case that the plaintiff was in a position of special disadvantage vis-à-vis the defendant when the defendant issued its certificate to the Hong Kong Shanghai Bank on 28 May 1999 which caused that bank to pay out the letter of credit. The plaintiff's special disadvantage was that it had already paid out, as it were, the $5 million to the Hong Kong Shanghai Bank. By that I mean it had deposited funds or securities with that bank to procure the irrevocable letter of credit. It was not like a guarantor who still has his money when he receives a notice of demand from the creditor. When he receives the notice of demand he can choose not to pay it if he considers the notice is bad in some way, for example if he considers the principal debtor is not in default.
21 In issuing the certificate the defendant was seeking to enforce its security. Deane J in Amadio (supra) at 474 said:
(Page 9)
- "Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so." (Emphasis mine.)
- Unconscionable conduct is not limited to the defendant's conduct in the formation of a contract.
22 In summary, I give leave to the plaintiff to amend par 5, par 11 and par 12 as proposed by the plaintiff in its written submissions of 12 October. I amend par 9 by adding the words "to the defendant" in line 2. I will strike out par 8(1), par 13, par 14 and par 15 of the pleading. I will give leave to the plaintiff to amend the same within a certain time. I will hear the parties on this and on costs.
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