Lopwell Pty Limited v Clarke & Ors

[2010] HCATrans 17

[2010] HCATrans 017

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney     No S233 of 2009

B e t w e e n -

LOPWELL PTY LIMITED (ACN 097 862 818)

Applicant

and

DALLAS JAMES CLARKE

First Respondent

JULIET JANE CLARKE

Second Respondent

MILK MAKERS DAIRY HEIFERS PTY LIMITED (ACN 065 343 713)

Third Respondent

GLEN ARTHUR FREEMAN

Fourth Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 FEBRUARY 2010, AT 12.45 PM

Copyright in the High Court of Australia

__________________

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR P. KULEVSKI for the applicant.  (instructed by Robinson Legal)

MR J.M. IRELAND, QC:   If the Court pleases, I appear with MR R.D. MARSHALL and MR A.D. CROSSLAND on behalf of the first, second and third respondents.  (instructed by Patey & Murphy Solicitors)

GUMMOW J:   It appears that the fourth respondent was declared bankrupt some time ago, is that so, and there is an affidavit of service upon the trustee of the estate, but today there is, however, no appearance for the fourth respondent.  Yes, Mr Gleeson.

MR GLEESON:   Your Honours, the question we seek to raise concerns the scope of the doctrine of catching bargains in equity.  The question is whether the courts below under the guise of applying that doctrine have in fact created a new category of equity which extends conscience beyond proper bounds.  Your Honours, the centrepiece of the application could be found at pages 72 to 73 of the book, where ‑ ‑ ‑

GUMMOW J:   What was the interest charged on the ‑ ‑ ‑

MR GLEESON:   Very high, your Honour.  It was 18 per cent per month for a loan which was a three-month loan required to be paid at that time.  The central factual matter we point your Honours to, with respect, at pages ‑ ‑ ‑

GUMMOW J:   What was the principal sum?

MR GLEESON:   $1,473,000.

GUMMOW J:   What was the total outstanding?

MR GLEESON:   At the date the guarantee was called upon, $10,000,000, your Honour, and your Honours appreciate that at trial the amount sued upon ‑ ‑ ‑

GUMMOW J:   I think in the 18th century they might have had some views about this.  The question is whether we have any better views in the 21st century.

MR GLEESON:   Your Honour, could I put the central factual discrepancy we seek to rely upon.  It is at pages 72 to 73.  The central difference is between the matters known to the lender about the transaction, on the one hand, and what occurred in the private dealings between the surety and the accountant.  As to the first matter, what the lender knew is set out at page 72, paragraphs 3 to 5.  As to the second matter, what occurred in the private dealings between the guarantors and the accountant appears to involve two critical equitable frauds.  The first, that the accountant had an undisclosed conflict of interest in the main transaction and the second, it appears that a relationship of undue influence was established on the facts and that that influence was used by the accountant to induce the guarantors to enter the loan.

The critical question that we raise is whether the fact that the transaction may have a term which has a potential to operate harshly in some circumstances means that a lender is taken to be on notice of any and every equitable fraud which may have occurred on the other side of the transaction.  We would submit not.  Your Honours would see in the Court of Appeal’s approach that in attempting to apply the catching bargains doctrine, the starting point, at page 49, which was orthodox, was to cite this Court’s authority that the special disadvantage needed to be between the two parties engaged in the dealing, that is, it would need to be between the guarantors and the lender.  However, the analysis, with respect, has gone astray, at page 52 in paragraph 46, where the Court has not asked that question.  It has asked a different question, namely, was there something in the dealings between the guarantors and the accountant which created a special disability.  So immediately the focus has shifted ‑ ‑ ‑

GUMMOW J:   You have to show the primary judge was wrong too, have you not?

MR GLEESON:   And the primary judge did the same thing, with respect, your Honour.  That can be seen in his judgment particularly in making the findings concerning the internal ‑ ‑ ‑

GUMMOW J:   Paragraph 45, page 22?

MR GLEESON:   Yes, your Honour.  In those paragraphs, what we seek to rely upon is that the critical two areas of the so-called disability which concerned a conflict of interest and the fact that a conventional accountant’s relationship had been converted into a basis for exercising undue influence, were not shown to be known to Mr Sharkey, the loan officer for the lender.  So at this point his Honour has, with respect, not focused on whether the disability said to exist was one which was known, or should have been known to the lender.

Your Honours, just to conclude on the Court of Appeal’s reasoning, at page 53 in paragraph 48, before there has been any examination of whether there was a special disability vis-à-vis the lender, the court has cast the onus on the lender to establish the transaction was fair.  The first time the court comes close to the relevant question is in paragraph 53 and the critical aspect of the court’s reasoning is probably paragraph 60 and we submit it involves a conflation of a number of equitable doctrines.  Essentially, the court has said if there is any term which may operate unfairly, the opposing party will be put on notice that there may have been a failure to properly explain the transaction on the other side and from there, notice that there may be some unknown disability operating on the other side of the transaction.  If that is correct, whenever there is a term which is out of the run-of-the-mill case, the lender is taken to be ‑ ‑ ‑

GUMMOW J:   The criticisms you might direct at the Court of Appeal, I am not sure they could be directed to the primary judge.

MR GLEESON:   Could I seek to answer your Honour’s question.  In the passage your Honour referred to ‑ ‑ ‑

GUMMOW J:   He was clearly aware of the different grounds, as one might expect.

MR GLEESON:   Yes.  In the passage your Honour referred to at page 22, which is paragraph 45, the submission we make is that what his Honour has not identified is that from the matters he there refers to, this lender in fact, or a reasonable lender would infer that there had been an equitable fraud of some unknown sort on the other side of the transaction.  Specifically his Honour has, at the bottom of page 23, rejected the Barnes v Addy case on the ground that the lender had no knowledge of the accountant’s private interest.

Your Honours, we had sought to deal with the primary judge’s findings as well in the table we had prepared at pages 77 to 78 of the submissions.  The second column refers to the findings as to the lender’s knowledge and that fully incorporates all findings by the trial judge and he has either not found or expressly refused to find that the lender knew of

each of the six critical elements of the special disability.  Your Honours, if that analysis is a fair one of both judgments, we submit that the question raised is one of general principle.  May it please the Court.

GUMMOW J:   We do not need to call on you, Mr Ireland.

We see no error of principle in the findings of fact and application of the law by the trial judge in the Equity Division of the Supreme Court of New South Wales.  It follows that the outcome in the New South Wales Court of Appeal should not be disturbed on further appeal to this Court.  Special leave is refused with costs.

AT 12.56 PM THE MATTER WAS CONCLUDED