Irani v St George Bank Limited

[2007] HCATrans 393

[2007] HCATrans 393

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M34 of 2007

B e t w e e n -

BOMAN IRANI AND HOMAI IRANI AND SHALRIDGE PTY LTD AND THIRTEENTH CORP PTY LTD AND COMBULK PTY LTD AND EIROS PTY LTD AND APADANA PTY LTD AND BOMAN IRANI PTY LTD

Applicant

and

ST GEORGE BANK LIMITED

Respondent

Application for special leave to appeal

HAYNE J
CALLINAN J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 3 AUGUST 2007, AT 10.01 AM

Copyright in the High Court of Australia

MR C.L. PANNAM, QC:   If the Court please, I appear with MR G.J. PARNCUTT on behalf of the applicants.  (instructed by Comlaw)

MR R.M. GARRATT, QC:   If the Court please, I appear with my learned friend, MR D.L. BAILEY, for the respondent.  (instructed by Herbert Geer & Rundle)

HAYNE J:   Yes, Dr Pannam.

MR PANNAM:   Your Honours, the point that is sought to be ventilated in this Court if special leave if special leave was to be granted is a very short point but, in our respectful submission, a very important point and it is this.  Was it an express term of the fully drawn advance facility in this case that the obligation to repay was only to be satisfied in a particular way, that is, by access to the Westpac guarantee that was provided as security for the advance.

HAYNE J:   In that respect, could you go to pages 166 and 167 of the application book which is the offer of the facility.  Is that a record or is that a document which is part of the constitution of the agreement?

MR PANNAM:   Yes, that together with ‑ ‑ ‑

HAYNE J:   What is the purpose of referring in that letter to the various other securities if the guarantee is the sole place of recourse for the $2 million?

MR PANNAM:   For this reason, your Honour.  This was the fourth of a series of facilities that had been granted by the bank.  There were three previous facilities and in respect of those facilities the securities that are detailed in that letter have been provided.  In those circumstances, it would be sound banking and general commercial practice for those guarantors and the persons who granted those securities to be informed and, indeed, to consent to the grant of this new facility of $1.88 million because it may be that in certain circumstances they may have been called upon, remote though they may be, to meet that obligation.

HAYNE J:   The fundamental proposition for which your side contends is that the FDA was isolated from all other transactions and supported only by the $2 million guarantee, is it not?

MR PANNAM:   It was isolated to the extent that it provided for a particular mode of repayment.  Apart from the letter, if one goes page 209 of the application book and looked at the particular terms of the advance, what language could be clearer than that which appears in the paragraph at the bottom of page 209:

At the completion of the Interest Capitalisation period, the full debt is to be cleared by way of St George Bank calling on the Bank Guarantee for $2,000,000.00 provided by the Westpac Banking Corporation.

To say that that paragraph represented simply a notification by the bank that it was going to insist upon repayment at the end of the 12–month period as the Court of Appeal said, in our respectful submission, is to distort its meaning.  To say that it was a warning, as is being said below, that at the end of the period the bank would look for payment of the amount of the facility simply ignores the express language of the clause.  In our respectful submission, if that is right, it bears no other meaning.  If one looks at what the Court of Appeal said about that, if I can go to the reasoning of the Court of Appeal, it is very brief, and take the Court to pages 129 and 130 of the application book, the argument was dispatched in just under a page.  It begins at l9 and starts off by saying:

The appellants adopted an extreme position, which denied any area of operation to most of the terms in the FDA facility and the respondent’s standard terms. 

In our respectful submission, that is not right.  The only part of the standard terms that were put to one side was the cross–collateralisation that was provided for in those terms insofar as this particular debt was concerned.  The next sentence, which I will not read, is very difficult to follow because it does not seem to make sense, in our respectful submission.  Something seems to have gone wrong.  The main part of the reasoning appears in paragraph 20 on the next page, page 130.  After expressing agreement with the trial judge’s construction they say the:

construction is at odds with the terms and basic structure of the FDA facility. 

In our respectful submission, that is the point that your Honour Justice Hayne made to me before but, in our respectful submission, all that that represented was was that it was just prudent banking practice to get the consent of persons who have provided that clutch of securities for this new facility and inform them of it and require their consent.  Then it goes on to say, about five or six lines down:

Indeed, the appellants’ construction involved denying any obligation on the part of Pinnacle to repay the debt. 

That is simply wrong.  There was an obligation to repay the debt, but that obligation was to be met in a particular way by the calling up of the bank guarantee.  Then there is the point about the nullification of the standard terms.  Those are the standard terms and conditions that were capable of applying, would apply the method of drawdown and all of those aspects of the transaction.  Then it said that it boiled down:

to a simple exchange of promises:  the respondent would pay $1.75 million to Pinnacle and Pinnacle would give to the respondent a bank guarantee in an amount of $2 million. 

That, in our respectful submission, is a gross simplification of the transaction.  There would be all manner of implied terms, for example, take this case.  What happened was that the bank, as your Honours have seen, attempted to access the bank guarantee in accordance with, our submission is, the proper construction of the document but what happened?  That the matter came on on the basis of an interlocutory injunction that was sought by Tranteret before Justice Ashley and it was alleged that the bank had engaged in misleading and deceptive conduct, that is to say that in its dealings with Tranteret, the provider of the Westpac guarantee, it had engaged in conduct that made the guarantee unenforceable.  In those circumstances the argument would be that the bank, having disabled itself from accessing the guarantee which was the sole source of payment, could not then come back and look to Pinnacle for payment.  That would have to be done on the basis of implications into a contract that is not as simple as the one that is identified by the Court of Appeal. 

HAYNE J:   What, with the result that the debt would not be repayable at all?

MR PANNAM:   In circumstances where the bank had disabled itself from being able to call up a guarantee by its own conduct, there would be, in our respectful submission, the clearest of implied terms that the other contracting party would not engage in conduct that would deny the benefit of the contract to the other, the basic Mackay v Dick principle. 

HAYNE J:   But the consequence would be, the bank having lent the $2 million, could not have it repaid. 

MR PANNAM:   Because of its own conduct, yes.  Then down the bottom of the page the Court of Appeal in its joint judgment said that the passage I read before represents:

no more than a statement of the respondent’s then intention to wind up the facility at the expiration of 12 months –

In our respectful submission, however you read that paragraph in the facility letter, it cannot bear that interpretation.  Their Honours go on simply to say:

At all events, in our view the sentence did not constitute a promise that the respondent would not enforce any obligation or security other than the bank guarantee. 

In our respectful submission, again that simply reads out of the arrangement the particular arrangement for repayment of this facility.  The principle which we have referred to would be that the bank cannot go to the standard form conditions in order to trigger and enforce the securities but because of the particular negotiated term in this case, it was limited in the way that it could have the loan repaid.  Anyway, it is a short point.

HAYNE J:   Turning for its resolution upon the construction of the particular documents.

MR PANNAM:   It may, but there is also the basis the administration of justice demands an investigation of the facts of this particular case because the consequence was dramatic so far as the Iranis were concerned.  A debt of $2 million more than they owed was called up and enforced by the bank against their security.  Apart from the matters that are in the written submissions, I do not think there is anything I can add.

HAYNE J:   Yes, thank you, Dr Pannam.

The matters which the applicants seek to agitate in an appeal to this Court depend for their resolution upon the particular terms of the relevant agreements between the parties.  No disputed point of principle would fall for consideration if special leave to appeal were to be granted.  In any event, we see no reason to doubt the correctness of the conclusion reached by the Court of Appeal.  Special leave to appeal is refused.  It must be refused with costs.

The Court will adjourn to reconstitute.

AT 10.12 AM THE MATTER WAS CONCLUDED