Lundie & Anor v Rowena Nominees Pty Ltd

[2006] HCATrans 586

[2006] HCATrans 586

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P17 of 2006

B e t w e e n -

JUDITH DIANNE LUNDIE AND ROBERT CHARLES LUNDIE

Applicants

and

ROWENA NOMINEES PTY LTD (RECEIVER & MANAGER APPOINTED) (IN LIQUIDATION)

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON THURSDAY, 26 OCTOBER 2006, AT 11.08 AM

Copyright in the High Court of Australia

MR J.R. LUDLOW:   May it please the Court, I appear for the applicants.  (instructed by Lawrence Legal Solutions)

MR G.R. DONALDSON, SC:   May it please your Honours, I am for the respondent.  (instructed by Jackson McDonald)

GLEESON CJ:   Yes, Mr Ludlow.

MR LUDLOW:   Your Honours, we submit that this case raises five special leave points with a common theme running through all of them.  I will come to that theme in a moment.  The first three points are procedural points and the other two points are substantive points.  I will identify them in this way.

The procedural points are, first, what we would describe as an Order 16/Forsayth point.  The second one is what we might describe as a semi‑Taufahema point in that it is similar to an issue that is raised in Taufahema.  The third point is what we would describe as an Annetts v McCann point, that is, should we have got more limited relief.

The substantive issues are, first, the offer and acceptance point which we say was agitated at both levels but has not been dealt with yet, and the other point is what we would describe as a Toll versus Bowstead point which we say does not arise on the pleadings but was fully argued and we say that the submissions made against us in reliance upon Bowstead are completely answered by a paragraph in Toll that we relied upon in the Court of Appeal but which the Court of Appeal did not mention.

Your Honours, the common theme running behind all of these points is our contention that the focus of the court at both levels should have been on the case that has been pleaded against us and on the way the matter was fought at first instance.

GLEESON CJ:   The basis on which you failed at first instance and on appeal, as I understand it, can be found in paragraph 16 of the judgment of Master Sanderson on page 7 and paragraph 83 in the judgment of Justice McLure on page 44 which is a not unconventional response to strike‑out applications, that is to say, the judge responds to a strike‑out application by saying, “I would like to know more about the facts”.

MR LUDLOW:   Your Honour, this was not a strike‑out application.

GLEESON CJ:   Or application for summary judgment.

MR LUDLOW:   We made an application for summary judgment, so we were seeking a final order on the merits and ‑ ‑ ‑

GLEESON CJ:   Yes, and the judge has responded or the decision‑maker has responded to that by saying, “Well, we understand the arguments but we would like to know more about the facts before we” ‑ ‑ ‑

MR LUDLOW:   This takes us back to the point I made earlier, your Honour.  There needs to be consideration of the way the case was fought at first instance.  When we applied for summary judgment our contention was the claim against us is frivolous and vexatious and we have a good defence to it on the merits. 

Now, the respondent could have reacted to that application in a number of ways.  It could have said, “We want a trial because there is a clash of oral evidence”.  It did not do that.  It could have said, “We want to amend our statement of claim, here is a draft and here is some evidence supporting it”.  It did not do that either.  It could have said, “We accept that there is an arguable defence but we want to file a reply and here is some evidence in support of that and a draft”.  It did not do that either.  What it did was apply for summary judgment against us and the liquidator swore an affidavit saying the allegations in the statement of claim – that is the original statement of claim – are true and there is no defence to that.

So the way the case was fought at first instance was, is there anything in this pleaded case?  In other words, is the pleaded case frivolous and vexatious and is there a good defence on the evidence before the Master to the pleaded case?  Now, that is the way the case was fought at first instance.  When we went on appeal we tried to fight the case in exactly the same way.  We argued that the case pleaded against us at first instance was frivolous and vexatious and that we had a good defence to it.  The respondent completely changed its position and we say that it is an injustice to us that it even attempted to do that, let alone was permitted to do so. 

What the respondent did was neither attempt to defend the Master’s reasoning, nor file a notice of contention, but it did say that, “We want a trial now.  We want to amend our statement of claim and we want to file a reply that will rely in part upon evidence that our opponents led against us at first instance in opposition to the different case we ran at first instance”.  We say – this is the Taufahema point – that really the case that had been put against us on appeal was completely different, inconsistent with the case at first instance, and it was a case that just should not have been permitted to be argued, let alone succeeded. 

What has happened now is that the respondent has been permitted by the Court of Appeal to go to trial on a case that is inconsistent with the case that ran before the Master and relies on evidence that we led in opposition to that case.  So it is a Taufahema point in a civil case where the argument on which the respondent has already succeeded is similar to the case that the prosecution is running in this Court in seeking special leave to appeal.  Now, we accept that that is a criminal case and this is a civil case, but it is a very similar issue.

GLEESON CJ:   It is not only a criminal case.  It is a pending application for special leave to appeal.

MR LUDLOW:   That is right.  Now, the way this Court first heard Taufahema last month indicates that it is an important issue.  We are actually putting an argument that is very similar to the issue that has been put by the respondent in that case and, again, this is a civil case, so there is a difference, but part of our argument is that although the Court of Appeal purported to conduct an appeal by way of rehearing, what it actually did was conduct an appeal by way of hearing de novo, and there is a difference.  We have suffered an injustice because of that difference and it is an injustice that can only be corrected now, because if it is not corrected now, the case will run to trial on a basis inconsistent with the way we fought the case before the Master and, as I said, relying on evidence we led before the Master in opposition to their inconsistent case. 

That perhaps is the strongest special leave point – it is a procedural point – and, as Justice Heydon indicated in Favell during argument, if we can win on a point like that, then this Court can finally resolve any other legal issue that arises, including the substantive issues I have referred to earlier.  What I have just said sort of covers the Order 16/Forsayth point and the Taufahema point.

So far as the Annetts v McCann point is concerned, that is related to the offer and acceptance point.  The way we fought the case at both levels was to target specifically the plea of offer and the plea of acceptance.  Now, that was a perfectly orthodox way of fighting one of these applications:  to focus on what has been pleaded against us and attack that.  That is what we did and the Master clearly identified the paragraphs we were attacking.  He described one of those allegations against us as being, that appears not to be quite right, and the other one, he said, that appears not to be true.  So he recognised what we were attacking but he misunderstood the issue which is one of the reasons why he erred.

When we went before the Court of Appeal we ran essentially the same argument.  The Court of Appeal’s response to it was, “We are not really all that concerned about what has been pleaded in this case because the pleading can be amended and a reply can be filed, so we do not really mind terribly much what has been pleaded and we can just let it go on to trial”. 

Our argument is what we were required to do was show either that the pleaded case was frivolous and vexatious or that we had a good defence to the pleaded case.  So there needs to be a focus on what was pleaded.  We say there was no such focus and we say, by reference to what the Master said, that we very nearly succeeded before the Master in picking out those key allegations.  They were the allegations of offer and acceptance and we only had to win on one of those allegations to win outright because the only claim that was pleaded against us was a claim in contract.

If there is no offer capable of acceptance by the respondent, then there is no contract, and we contended that, and if there is no valid acceptance of our offer, then again we win.  That was our focus all along and the Master sort of grasped it in one sense but did not grasp it in the other but, unfortunately, the Court of Appeal, we say, did not grasp either of these issues and did not deal with them at all.  There is nothing in the judgment to indicate anything other than the Court of Appeal acknowledged that these submissions had been made.  The Court of Appeal just does not deal with them. 

One of the judges described the alleged contract as a contract of loan.  I think it was her Honour, Justice McLure.  She did not even say alleged contract of loan.  The other judge, I think, described it as a loan agreement or a loan contract.  There are various references in the catchwords to loan agreement.  There is nothing about loan application.  There is nothing about offer and acceptance.

CRENNAN J:   But it is not an appeal.  It is an application for leave to appeal.

MR LUDLOW:   That is right, and, your Honour, the court appears to have upheld our contention that the Master had dismissed our application at first instance on a basis that had not been argued and was wrong.  So we say there was an indication by the court that it accepted that the Master had erred so that the circumstances were appropriate to consider the matter again by way of rehearing, not by way of hearing de novo.  So the precondition for a grant of leave was made out. 

The reason why the court refused leave was that it just did not focus on what were the real issues in the substantive sense and there has just been no determination at either level of the very core of our argument which was that the plea of offer cannot succeed and the plea of acceptance cannot succeed either.  These issues just have not been considered.  The Court of Appeal noted that we had raised them but it did not consider them at all.

Your Honours, just turning to the next point which we would say is the Toll versus Bowstead point.  We say that the Bowstead point does not arise on the pleadings.  What is said in reliance upon Bowstead is that somehow by some strange principle of agency law our application to borrow money from a client of the respondent could be accepted by the respondent as principal.

GLEESON CJ:   Did your clients borrow any money?

MR LUDLOW:   No, we did not.  No money was ever paid to us and we say we never offered to borrow money from the respondent ‑ ‑ ‑

HAYNE J:   Or at your direction?

MR LUDLOW:   No.

HAYNE J:   Paid to you or at your direction?

MR LUDLOW:   We authorised money to be paid under a loan contract between us and a client of the respondent.  We gave no authority for anything else to be done.  In relation to the issue of the proper construction of the documents, we succeeded in the Court of Appeal and we came as close as possible as you can come to succeeding before the Master without actually succeeding.  The Master did not want to decide the issue because he dismissed the interlocutory application but, as I said, he indicated that the plea of offer was not quite right and the plea of acceptance appears not to be true.  That is about as close as you can get to upholding our submissions on the construction point at both levels.  So we have won on the construction point. 

The Court of Appeal has accepted that it was never anyone’s intention on the proper construction of the documents that the respondent be the lender and yet the respondent is suing us, alleging that we applied to borrow money from it and that it accepted that application.  There is a plain conflict between the proper construction of the documents as already determined in our favour by the Court of Appeal and the proposition they are putting.  They say this is supported by an English textbook and we say it is contrary to Australian authority and most particularly to the Toll Case which we cited to the Court of Appeal and relied upon very heavily but which the Court of Appeal just did not discuss. 

This was one of the central planks of our argument.  We relied on the recent unanimous decision of this Court which we say completely kills this argument based upon an English textbook and the Court of Appeal did not consider it.  All it says about Toll is that we cited it.  There is no discussion of it.  It is not even mentioned in the body of the judgment.  I can refer your Honours to the particular passage in Toll if your Honours would like me to do so.  It is paragraph [47].

Now, this, of course, is not an agency case in the sense of this case.  I understand at least two of your Honours were party to this judgment.  The Court was considering the legal effect of signing a document intended to effect legal relations and it says:

The importance which, for a very long time, the common law has assigned to the act of signing is not limited to contractual documents.  Wilton v Farnworth was not a contract case … Legal instruments of various kinds take their efficacy from signature or execution.  Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution.  It is that commitment which enables third parties to assume the legal efficacy of the instrument.  To undermine that assumption would cause serious mischief.

Now, “serious mischief” is an important point – I am quoting from this Court.  What the respondent is contending in reliance upon Bowstead is that although we signed an application which on its proper construction was not an application to borrow money from the respondent as lender, somehow some principle of agency undermines the proper construction of our document and enables them to create a contract – and remember contracts can only be agreements – with them as lender.

We say, if on the proper construction of this document and the other documentation, as found in our favour by the Court of Appeal, it was never our intention to borrow money from the respondent as lender, how can there possibly be a loan agreement between us and the respondent as lender, which is what the respondent has pleaded against us.  The plea is we applied to borrow money from the respondent and the respondent accepted that application.  That plea is just not right and the principle that they are espousing in reliance upon this English textbook is completely contradicted by Toll which purports not only to relate to contractual documents but to any sort of document signed by a person intending to effect legal relations.

We did not apply to borrow money from the respondent as lender.  The Court of Appeal has already found in our favour on that point, but what the Court of Appeal has said is that for some reason the issue whether there is a loan agreement – and we say how can there be an agreement between us and the respondent as lender – should go to trial.  We say that the Toll Case is a complete answer to that and, as I said, we cited and relied upon Toll very heavily in the Court of Appeal and it is not even discussed.  This is one of the surprising things about this judgment, that the very core arguments that we raised are not even discussed.  Some of them are acknowledged but some of them are not even mentioned.

CRENNAN J:   You might be right at the end of the day, but what the Court of Appeal was deciding is whether or not there was a triable issue, whether Rowena was entitled to sue on the agreements, and that is the finding, there was a triable issue.

MR LUDLOW:   That assumes that there is an agreement.  That is the problem.  It assumes the very thing that we were focusing our attack on.

HAYNE J:   No, it assumes that there is an argument whether there is an agreement.  It does not assume there is an agreement.  It assumes there is an argument about whether there is an agreement.

MR LUDLOW:   We say on the proper construction of the document there cannot have been an agreement and we have won on the construction point.

GLEESON CJ:   Your argument has to be and had to be, and this was the way it would have had to be put to succeed below, that it is impossible that any facts could advance the position of either party beyond the position in which it stands now.

MR LUDLOW:   Correct, and that is in relation to the pleaded case, and we say the focus had to be on the pleaded case.  We say that the Bowstead issue does not even arise on the pleaded case but that it is entirely misconceived – or at least the respondent’s contentions are entirely misconceived.  Now, your Honour, this is not just a question of the proper administration of justice.  It goes far beyond that.  For example, the proper construction and application of Order 16 and the Taufahema issue affect lots of courts.  About half of Australia’s superior courts have an order similarly worded to Order 16, including this Court.

GLEESON CJ:   But on the face of them the facts in this case look incomplete, do they not?

MR LUDLOW:   Your Honours, the case was fought at first instance on the basis that all of the documentary evidence that needed to be put in had been put in and that there was no other evidence that was relevant.

GLEESON CJ:   What was going on here?  Was there not a commercial venture established which would, among other things, have entitled participants in the venture to allowable deductions from income tax?

MR LUDLOW:   Correct.

GLEESON CJ:   Now, that involves incurring an outgoing.

MR LUDLOW:   Yes.

GLEESON CJ:   What was the nature of the outgoing?

MR LUDLOW:   The outgoing was liabilities to the promoters of the scheme.  Now, it was not compulsory to borrow money in relation to this scheme, it was voluntary, and the applications to borrow money were not applications to borrow money from the respondent.  They were applications to borrow money from other people.

GLEESON CJ:   That is why I asked you earlier, was there any application to borrow any money from anybody?

MR LUDLOW:   There was.  We applied to borrow money from people who were represented to us as clients of the respondent.  In fact there were no clients, but we did not know that.

GLEESON CJ:   And did the borrowing fund the outgoing that was the subject of the claimed allowable deduction?

MR LUDLOW:   No, your Honour, the claim for the allowable deduction related to liabilities incurred to the promoters of the scheme.  There is no claim for interest deductions or anything like that.

GLEESON CJ:   Liabilities of what kind?

MR LUDLOW:   I think it related to – this is page 21 of the application
book – lease and management fees.  Now, we claimed a tax deduction on the basis of the assumption that these had been paid in accordance with what had been represented to us, ie, by clients.  It turned out that that assumption was wrong.

GLEESON CJ:   Where would the funds have come from to pay them?

MR LUDLOW:   Well, this is the problem.  It was a back‑to‑back arrangement and it did not involve the people we were applying to borrow money from because they did not exist.  We did not know that.  We made our claim for a tax deduction on the basis of assumption that there were these clients, but the ATO carried out an investigation – and this is in evidence – and they found out that there were not any such people, they just did not exist.

So the allegation is that if we apply to borrow money from people who did not exist and whom we did not know did not exist, then the respondent can accept that application.  We say that, quite apart from the fact that that has not been pleaded, it is nonsense anyway, and the question whether it is correct is an important question of law.  It is a question that transcends Australia.  It affects England, New Zealand, Canada and various other common law jurisdictions as well. 

It is a very important issue.  The substantive issues are actually more important than the procedural issues, but the procedural issues are also very important.  We say that a lot of the submissions we made to the Court of Appeal were not even considered, including submissions relying very heavily on decisions of this Court.  I mean, there is a recent trilogy of cases – I am sorry, the red light is showing, your Honour.  I will sit down now.

GLEESON CJ:   Thank you.  We do not need to hear you, Mr Donaldson.

The Court of Appeal of the Supreme Court of Western Australia dismissed an application for leave to appeal to that court from a decision of a Master dismissing an application for summary judgment.  We think that there are insufficient prospects of success of an appeal to warrant a grant of special leave, and the application is dismissed with costs.

We will adjourn.

AT 11.30 AM THE MATTER WAS CONCLUDED