McDonald, N.E. v Commonwealth Bank of Australia

[1993] FCA 719

NEIL EDWARD McDONALD and JUDITH ANNE McDONALD v. COMMONWEALTH BANK OF
AUSTRALIA
No. NG468 of 1993
FED No. 719
Number of pages - 3
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
WILCOX, FRENCH and FOSTER JJ

CATCHWORDS

Trade Practices - misleading or deceptive conduct - unconscionable conduct - representation by Bank to shareholder in business - questions of fact - findings of credit by trial judge - no basis for disturbing trial judge's conclusions.

HEARING

SYDNEY, 28-29 September 1993

#DATE 29:9:1993

Counsel for the Appellants: Mr G. McVay

Solicitors for the Appellants: Diana Perla and Associates

Counsel for the Respondent: Mr R. Forster

Solicitors for the Respondent: L.E. Taylor

ORDER

The Court orders that:

1. The appeal is dismissed.

2. The appellants pay the respondent's costs of the appeal.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

WILCOX, FRENCH and FOSTER JJ This case concerns dealings between the appellants and the Commonwealth Bank of Australia between November 1990 and May 1991. On 18 June 1993 Davies J dismissed proceedings brought by the appellants against the Bank and gave judgment on a cross-claim against the appellants in favour of the Bank in the sum of $390,484.81. His Honour also made an order for possession of land the subject of mortgages in favour of the Bank. That judgment is the subject of this appeal.

1. The principal events leading up to the transactions between the appellants and the Bank are set out in the judgment of the trial judge and it is unnecessary to repeat them in any detail here. In substance, the appellants were induced by misleading and deceptive conduct on the part of their former accountant and Esanda Finance Corporation Ltd to acquire an interest in their accountant's car dealer company, to lend it money and to provide securities to Esanda which was the company's financier. The appellants succeeded at first instance and on appeal in proceedings against the accountant and Esanda and successfully resisted a cross-claim brought against them by Esanda.

2. The appellants also provided security to the Commonwealth Bank of Australia in relation to the company's liability to that Bank by way of overdraft borrowings on its trading account. The securities comprised variously a $50,000 term deposit, subject to a charge in favour of the Bank, a deposit of certificates of title to land owned by the appellants, a mortgage over the land and personal guarantees in favour of the Bank which were provided between November 1990 and May 1991. The securities were said to have been provided as the result of misleading or deceptive conduct on the part of the Bank's officers including misrepresentations about the financial state of the company, misrepresentations as to the nature and effect of certain of the transactions and misrepresentation that the mortgage security was required as a temporary measure only pending the provision of a satisfactory second mortgage over the assets of the company. Allegations of undue influence, unconscionable conduct, fraud, negligent mis-statement, breach of contract and collateral warranty were made and extensively particularised in the statement of claim.

3. The claim against the Bank and the defence to its cross-claim against the appellants pursuant to the securities provided turned principally on evidence of conversations and communications between the appellants and two bank officers, Mr B.L. McGuigan, the Acting Manager of the Lithgow Branch and Mr N.C. Dunbar who became the Manager in November 1990. Central to his Honour's findings of fact was his view of the credit of these two officers. He relied upon their evidence in preference to that of the appellants, although he did not think that the appellants were attempting to mislead the Court. He found expressly that the Bank gave no assistance to the appellants' accountant in his deception of them.

4. Counsel for the appellants in his closing address at trial, expressly conceded that Mr Dunbar was an honest witness. On the other hand it was alleged that in April and May 1991 Mr Dunbar had falsely represented that mortgage security to be provided by the appellants was a temporary measure only to be held until the Bank obtained a second mortgage over property of the company. Further, it was said, that on 24 May 1991, at the time that the appellants provided a guarantee in favour of the Bank, he deliberately failed to disclose to them what he knew, namely that the likelihood of their expectation that the mortgage provided by them would be released upon provision of a second mortgage over the company's assets, was slim. This, it was said, was because he wanted to ensure that the Bank's exposed position was covered rather than disclose the true position and risk losing the opportunity of obtaining the mortgage and guarantee. These aspects of the appellants' case were prominent in argument before the Court. They faced a number of difficulties. In relation to the representations made prior to the execution of the mortgage by the appellants there was no term reflecting the promise in the mortgage which was signed by them in the presence of a solicitor. It was an inherently improbable promise given that at the time it was said to have been made, Mr Dunbar did not have a valuation of the company's property and was not in a position to know whether a second mortgage over that property would be sufficient. The attribution to Mr Dunbar of what amounts to fraudulent concealment of the truth at the meeting of 24 May 1992 was at odds with the concession that he was an honest witness and the finding as to his credit. While he had accepted in cross-examination that there was only a slim chance that the Bank could accept security by way of second mortgage over the company's assets as sufficient for its needs, that was in the context of the level of indebtedness at that time. At one point the appellants' concern about the release of the mortgage seems to have been related to their desire that it not be registered as that would lead to the issue of a new title. For family reasons, they wanted to retain the old certificate with the name of previous family owners of the land on it. On Mr McDonald's evidence, following the provision of the second mortgage over the company's assets on 13 May 1991, they did not seek a discharge of that mortgage until about August or September of 1991. The guarantee executed on 24 May in favour of the Bank seems to have been executed prior to the conversation on that day concerning the prospects of the mortgage security being released. No causal connection between the execution of that guarantee and the alleged non disclosure was able to be demonstrated.

5. It is also worthy of observation that the appellants were not dealing with the Bank as strangers to the company's business. They were 49% shareholders and had been since July 1990. There was evidence of general knowledge on their part of the financial condition of the company. Importantly, there was also evidence of the exercise of discrimination and judgment in their support for the business particularly in their refusal at one stage to execute an unlimited guarantee.

6. His Honour had the benefit, which this Court does not, of having been exposed to the evidence in the case over some eight days. He had the opportunity, which we do not, of viewing all the evidence in its context and attributing weight and significance to it on that basis. It does not require any outdated adherence to faith in judicial ability to judge witnesses by their demeanour to say that his Honour had an advantage which this Court does not. Counsel for the appellant has advanced detailed criticisms of numerous factual aspects of the judgment. Whatever criticisms of detail may be open, he has not persuaded this Court that his Honour erred in substance in the findings which were necessary to support the conclusions at which he arrived. The appeal should be dismissed with costs.