Merton & Anor v Bank of Queensland Ltd

[2013] HCATrans 155

[2013] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S108 of 2013

B e t w e e n -

MATTHEW MERTON

First Applicant

KAREN BUTLER

Second Applicant

and

BANK OF QUEENSLAND LTD

Respondent

Application for stay

HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM MELBOURNE BY VIDEO LINK TO SYDNEY

ON WEDNESDAY, 24 JULY 2013, AT 9.30 AM

Copyright in the High Court of Australia

MR M. MERTON appeared in person on his own behalf and on behalf of Ms K Butler. 

MR D.R. SULAN:   If the Court pleases, I appear for the respondent Bank.  (instructed by HWL Ebsworth Lawyers)

HIS HONOUR:   Mr Merton, I have had the opportunity to read the application for special leave, the written case and the affidavit that you affirmed on 19 July as well as the summons of that date.  I have read the reasons for judgment of the Court of Appeal, and I have read the reasons for judgment given by Justice Gleeson on 27 May of this year.  First, I should check with Mr Sulan – I take it, Mr Sulan, there is no objection, is there, to the affidavit upon which Mr Merton and Ms Butler seek to rely?

MR SULAN:   No, your Honour.

HIS HONOUR:   Yes, very well.  I have read those documents and thought about them, of course, Mr Merton, but now is your opportunity to say what you want to say in support of your application for a stay.

MR MERTON:   Has your Honour read the respondent’s short outline submission?

HIS HONOUR:   Sorry, yes, I should have added that.  I got to what I thought was the end of the bundle and did not quite get there, but yes.

MR MERTON:   Thank you, your Honour.  I will just refer to clause 6 of that particular note, which seems to be the meat of the whole document, and it refers to the application for a grant of a stay in the court below being refused.

HIS HONOUR:   Yes.

MR MERTON:   The application for special leave – sorry, as his Honour says in that:

the judges of appeal came to the wrong conclusion on the question of construction of the contract which was in issue in the proceedings . . . The case before the primary judge turned on the construction of a private agreement and its own special facts.

We say that Judge Barrett was wrong because he states in line 6 on page 15 of his judgment that:

the agreement contemplated that the “initial funding” would consist of advances not exceeding the aggregate allowed for the first two purposes in the clause 9 table, that is, $1,060,000.  That would be so even if the whole sum was applied to the reduction or discharge of the Westpac debt as contemplated by clause 3.

However, there is no evidence to confirm or suggest that such contemplated agreement exists.  Next, his Honour assumed that the figure of $880,000 was fixed and could not be changed under the contract.  There is no evidence of that.  In fact, the first line of clause 3 confirmed the other way.  Clause 3 of the contract states that the Westpac debt being refinanced to be confirmed in writing by Westpac “availability of loan funds under the loan will be reduced in line with the balance of the debt owing at Westpac”.  In other words, the loan amount would be adjusted, not the subdivision costs being adjusted.

The figure of $880,000 was given to the BOQ by Westpac in February 2008 approximately and at that time that amount was correct because that was in the early days of the loan negotiation.  At that time it was not possible to calculate the exact figure at loan settlement and for this reason clause 3 was created so that it could be varied.

I was not party to the settlement between the Bank of Queensland and Westpac and it was done without my consent or knowledge.  His Honour also assumed that the increased amount above $880,000 to pay Westpac must be an expense of the subdivision funding.  There is no evidence to confirm or deny clause 3 in its second and third line direct that “the increased amount to be taken from the loan fund”, meaning that the available loan will decrease by $139,000 from $2,362,000 to $2,223,000.

The correct amount of initial funding should be $1,070,000, as it was paid, plus a shortfall of funding for the subdivision of $130,000 – in total, $1,200,000.  According to the above interpretation of the mortgage documents the BOQ was in breach of the mortgage contract by not funding fully the subdivision at the time of the initial funding on 26 September 2008.  This was an essential part of the agreement. 

Further, in clause 6, Justice Gleeson says that “I do not consider that there are substantial prospects of obtaining special leave to appeal”.  Well, I think it is very pre-emptive of him to put himself in front of the High Court.  The prospects are very high.  The judges came to the wrong conclusion on construction.  An agreement is essentially a contract, and a contract is between two parties, and the two parties should have equal rights under the contract to have each of their own perspective sides of the contract respected and endorsed.

Furthermore, we seek at today’s hearing only to have the matter stayed so that the properties will not be sold.  These properties have some personal attachment.  The Bank has already sold, and we believe undersold, the value of the properties that it took possession of, which was subject to the mortgage originally.  These properties were offered as extra security under the agreement and we feel that if they go ahead and sell these properties it is not going to satisfy the debt in full.

Mr Sulan’s counterpart, Mr Schneider, argued in the lower court that the Bank was a limited liability company, that it had plenty of assets and if we were successful here in the High Court that they would be able to pay out whatever damages would be necessary.  We do not seek the damages, but it is very hard to go back and buy a property after it has been sold because the new people have obviously bought it with a purpose of keeping it, the same as we did when we bought these properties initially. 

Therefore, we seek from the Court a stay of this application until our full hearing is heard.  I am not aware, and I was not advised, that this was actually the hearing of our submission.  I may be corrected on that ‑ ‑ ‑

HIS HONOUR:   Sorry, let me just interrupt you.  The only question I understand I am to decide today is whether you should have a stay of the orders that have been made by the Court of Appeal and the trial judge.  Is there any doubt in your mind about what we are debating today?  My understanding is the only question is one of stay, but questions of prospects of success are questions that may bear upon whether a stay should be granted.

MR MERTON:   Thank you, your Honour.  We believe that the application will be successful.  There was obviously a breach of contract by the Bank prior to our breach, and right through the whole of the trial before Judge Stevenson we were adamant that we had never been told of what the amounts that were actually paid at settlement were.

So on bringing down his judgment, Justice Stevenson stayed it until 21 September 2012.  On 21 September 2012 when he confirmed his judgment and that the stay was lifted, he directed the respondent solicitor, after the judgment had been delivered, to provide the evidence to us.  That evidence was provided, so when we went to the Court of Appeal we listed a notice of motion before the court and applied to have leave for that evidence to be included in the appeal.

For convenience in the Court of Appeal, the Registrar made the notice of motion returnable on the same day as the hearing had been listed.  At the start of the hearing, I asked the duty judges if we were going to do the notice of motion first to include the evidence to be heard.  However, Justice Barrett said, “We will hear them together”.  I ran my case on the assumption that that evidence would be included, as Justice Stevenson made his judgment saying no evidence was produced.  However no evidence meant that there was no evidence for the respondent and no evidence for the appellants, so I do not understand why he went and then started to make a decision to go with the respondents, whose solicitor had the evidence but, as it would have been adverse to their case, did not produce it to the primary judge.

My understanding is that, under the barrister’s duty of care, the barrister would be to guide the judge to the truth of the matter and not omit such evidence that may be crucial to the case.  The appeal court followed suit by not allowing the evidence, and again followed the primary judge’s decision without regard to the appellant’s rights under the law and ignored the balance of justice to arrive, in my opinion, at the wrong conclusion.

I submit further that we believe that our case is strong.  We believe we have been denied natural justice.  We believe that there has been a total breach of the law of contract in the first part by the respondent, and therefore that is the reason that we ask for this stay.  We have already lost a substantial heritage‑listed property in this agreement.  I have been a Justice of the Peace for 43 years and always look forward to upholding the law, and I have never ever been treated the way that I have been treated by this Bank.  They have been very submissive and tried to suppress our ability to defend the case. 

We sold a property and there were sufficient funds to provide legal assistance to us.  However, the Bank chose to take that and take it off their debt.  Further, in the court below, the judge in his summary said that no interest had been paid off the debt.  That was $14,000 that was taken by the Bank and applied towards the debt, so we believe that that is some of the interest that would have been applied to the debt and therefore the judge had either been misled or was wrong in coming to that conclusion.

That money would have allowed us to get proper legal counsel.  As it is, the Bank has tightened the screws around us and sold our property.  It made us vacate our property.  This has caused further hardship for us having to pay rent and consequently we are in a position where all we want is justice to be done.  That is all we seek because in our belief we had a contract with the Bank and the Bank – for seven months, there is no evidence of any correspondence between the Bank and us where we have pleaded with their branch, “Please, can you give us the money that you agreed to lend to us”, and we got no response.

That was all tendered in evidence and as part of the previous court trials and yet it seems to be that nobody takes our side.  They seem to go one side, which I believe that the balance of justice has to look at both sides.  We did have a legal contract with the Bank.  The Bank was obliged to fund us the subdivision costs, of which the evidence shows that they only funded $50,600, as opposed to letting the first primary judge believe that they funded $180,000.  Therefore, that is our reason for asking that these other properties be spared from sale at the moment until such time as our case has been fully heard.  Thank you, your Honour.

HIS HONOUR:   Thank you, Mr Merton.  Just before you sit down, I understand what you say about the Bank having broken its contract with you.  Assume for the moment that what you say is right, that is, assume that the Bank should have lent you more money than it did, and assume that their failure to do that broke their contract with you.  What is the consequence?  In particular, why does that breach relieve you of the obligation to pay back the amount they did lend?

MR MERTON:   Your Honour, at the sale of the last two properties that they sold they recovered more than the amount that they actually lent.  All of the extra costs are interest that has accrued on the loan since they failed to provide the funds to complete the subdivision.  If you read the first transcript of the primary judge’s trial you will see that I then, out of my own expense, working and accumulating funds, completed the subdivision and handed the subdivision to the Bank in its entirety.  The Bank then sold both of the lots which we believe were undersold.  They are 2,500 square metre blocks in Castle Hill. 

You would not find one, every agent tells me, between $800,000 and $1,000,000 per block, and those blocks were sold to the one buyer at auction for $500,000 each – one was sold for $570,000, sorry, your Honour, and one was $500,000.  At that auction, we had someone who wanted to bid on our behalf and they were refused to be registered to bid, which in turn makes it a closed auction, if you wish.  Albeit of that, you ask me – sorry, your Honour, what was your question again?

HIS HONOUR:   You say the Bank recovered enough from the sale of securities to pay back the principal amount ‑ ‑ ‑

MR MERTON:   $1,070,000, your Honour.

HIS HONOUR:   ‑ ‑ ‑ that had been lent, but there is then interest outstanding.  Is that the position?

MR MERTON:   That is correct.

HIS HONOUR:   Yes, I understand the position.  Is there anything else you want to add, Mr Merton?

MR MERTON:   Only that had the Bank proceeded with the loan at the time, the houses would have been built, they would have been sold, and everybody would have gone away a winner.  We would have got our house and land and been able to either sell it and pay the balance of our mortgage, or get a mortgage on it and still be living in the same property which we lived in for 10 years prior to demolishing the house that existed there.  Furthermore, if that had not been the case, if the Bank had provided the funds, we would not be here.  The Bank would have had all of its funds, all of its interest, and all of its on costs paid out at the settlement.  Thank you, your Honour.

HIS HONOUR:   Yes, thank you very much, Mr Merton.  Mr Sulan, I have, as we discussed at the outset of the hearing, read your short outline submission.  Is there anything further you wish to add?

MR SULAN:   No, only just to assist Mr Merton in answering the question that I think your Honour put to him about why would he not have to pay back the money even if there was a breach of contract.  The position is that clause 7 was the – and breach of clause 7, that is failure to provide the subdivision, was the breach that the Bank relied upon at trial so it was relevant in the Bank’s position at trial to prove that subdivision had not been provided, so it was not really a question of breach.  I just thought I would draw that to your Honour’s attention.

HIS HONOUR:   Yes, thank you.

MR SULAN:   Thank you, your Honour.

HIS HONOUR:   Thank you, Mr Sulan.  Is there anything you need to add in response to that, Mr Merton?

MR MERTON:   Just in response to Mr Sulan’s note is that we believe that the Bank was in breach prior to us breaching because they did not provide the funds for the subdivision.  As I explained to your Honour before, we, at our own expense in personal borrowings then completed the subdivision and handed the two separate titles to the Bank at a later time.  At this point the Bank said “No, you are in breach” and sold the properties.  That was all done prior to the case being heard by Justice Stevenson.  Thank you, your Honour.

HIS HONOUR:   Thank you very much, Mr Merton.

The respondent in this Court, Bank of Queensland Ltd, brought proceedings in the Common Law Division of the Supreme Court of New South Wales seeking, first, an order for rectification of guarantees given by the applicants in this Court, Mr Matthew Merton and Ms Karen Butler, of obligations undertaken by Heritage Village Estate Pty Ltd (HVE) to the Bank; second, a money judgment against Mr Merton and Ms Butler for sums allegedly then outstanding under the guarantees; and, third, orders for possession of certain properties mortgaged to the Bank as security for the indebtedness of HVE.

Proceedings arose out of financial arrangements which the Bank had made with HVE and Mr Merton and Ms Butler following an offer made by the Bank on 12 May 2008 to provide two facilities to HVE, namely a commercial rate loan of $2.362 million and a business overdraft of $65,000.  The agreement relating to the commercial rate loan of $2.362 million described the facility as an interest capitalised variable commercial rate loan with a maximum term of one year and the amount being repayable on demand.  Proceedings at first instance and subsequently have related only to that facility.

The Bank made one advance under the commercial rate loan agreement.  That advance was in the amount of $1,070,016.19.  It was made on 26 September 2008.  The Bank then and thereafter took the position that it was not obliged to make any further advance because HVE had not complied with its obligations under the loan agreement because, in effect, HVE had not brought about the subdivision of a particular piece of real estate at Castle Hill into two lots within the time fixed under the loan agreement.  The Bank maintained that these circumstances excused it from any obligation to advance further moneys under the loan agreement and brought about the consequence that the moneys already lent were repayable.

By contrast, Mr Merton and Ms Butler contended that they had complied with their obligations under the loan agreement and that it was the Bank which was in default of its obligations by refusing to advance further moneys under the facility that had been agreed. 

At trial in the Supreme Court of New South Wales the primary judge, Justice Stevenson, gave judgment for the Bank.  The primary judge held that HVE had defaulted under the loan agreement and that Mr Merton and Ms Butler were liable as guarantors for the indebtedness of HVE to the Bank and accordingly entered judgment for the Bank against Mr Merton and Ms Butler.  In addition, the primary judge held that two properties owned by Ms Butler, one at West Wyalong and another at Nulkaba, stood as security for the indebtedness and that the Bank was entitled to judgment for possession of those properties.  The primary judge resolved disputed questions of construction of the loan agreement in favour of the Bank and against the contentions advanced by Mr Merton and Ms Butler. 

Mr Merton and Ms Butler appealed to the Court of Appeal of New South Wales.  On appeal Mr Merton and Ms Butler sought leave to adduce additional evidence.  Some of the material which they sought to advance was treated by the Court of Appeal as not adding substantially to the evidentiary basis upon which the primary judge had determined the matter and other aspects of the additional material which Mr Merton and Ms Butler sought to adduce in the Court of Appeal were excluded on the application of accepted principles concerning the adducing of new evidence.  I say on the application of accepted principles in the sense that the Court of Appeal referred to those principles and concluded that their application required exclusion of the material upon which Mr Merton and Ms Butler relied.  In this Court, Mr Merton and Ms Butler would seek to controvert that holding.

On appeal the Court of Appeal rejected the arguments advanced by Mr Merton and Ms Butler in support of the contention that it was the Bank which had been in default of obligations between the parties under the loan agreement.  The Court of Appeal dismissed the appeal brought by Mr Merton and Ms Butler.  Mr Merton and Ms Butler then sought a stay of the orders of the Court of Appeal and those made at trial pending the hearing and determination of an application for special leave to appeal to this Court.  One such application was made on 27 May of this year and rejected and following the institution of an application for special leave to appeal to this Court on 7 June 2013, a further application made by Mr Merton and Ms Butler for stay was rejected by the Court of Appeal.

Mr Merton and Ms Butler now apply for an order which would stay the operation of the orders made at trial and affirmed on appeal to the Court of Appeal that the Bank have possession of the properties standing as security for the indebtedness claimed by the Bank for which the Bank has judgment.

The principles to be applied in determining whether a stay should be granted pending the hearing and determination of an application for special leave to appeal have often been considered in this Court.  It is convenient in that regard to refer to the reasons given by Justice Brennan in Jennings Construction Limited v Burgundy Royale Investments Pty Limited [No 1] (1986) 161 CLR 681. In that matter, Justice Brennan referred to the undoubted jurisdiction of this Court to grant a stay pending the hearing of an application for special leave to appeal, at least in cases where such a stay is necessary to preserve the subject matter of the litigation, but as Justice Brennan pointed out – see (1986) 161 CLR 681 at 684:

A stay to preserve the subject‑matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted.

Justice Brennan identified four considerations as material to the exercise of the Court’s discretion whether to grant a stay. He said – see (1986) 161 CLR 681 at 685 – that:

In each case when the Court is satisfied a stay is required to preserve the subject‑matter of the litigation, it is relevant to consider:  first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies.

As has already been noted, the applicants, Mr Merton and Ms Butler, have taken whatever steps were available to them to seek a stay of proceedings in the Supreme Court of New South Wales.  The second of the matters to which Justice Brennan referred is one which need not further be considered in this matter.  There remain for consideration, however, the other three matters to which Justice Brennan referred:  prospects of success, possible loss to the respondent and the balance of convenience. 

In at least the second of the applications for a stay that was made to the Court of Appeal, Justice Gleeson of that court proceeded on the basis that the amount claimed by the Bank and secured by the properties now in question is greater than the likely realisation value of the two properties.  As I understood the submissions made by Mr Merton in support of the application for stay he did not seek to controvert that understanding of the present position and, indeed, submitted that sale of the secured properties will not meet the debts claimed by the Bank in full. 

If that is the case it is then plain that to intercept execution of the judgment given at trial and affirmed on the Court of Appeal will cause loss to the respondent Bank.  Accepting, for the purposes of argument, that Mr Merton and Ms Butler would lose the properties which were given in security and that that loss of itself would constitute for them a detriment it is, I think, nonetheless inevitable that I conclude that the balance of convenience between the parties in this matter lies with the Bank.  The Bank, standing out of the benefit of the judgment given at trial and not disturbed on appeal, is in a worse position the longer execution of that judgment is stayed.

Questions of loss and balance of convenience are, standing alone, not determinative.  In this case it is necessary to consider whether the applicants enjoy such prospects of success of obtaining special leave to appeal as would outweigh the considerations of loss and balance of convenience to which I have referred. 

As Mr Merton pointed out in the course of his oral submissions to me today, this is not the occasion for argument of the application for special leave to appeal.  It must be said, nonetheless, that it is not immediately apparent to me from a close reading of the reasons for judgment given by the Court of Appeal in this matter – see Merton v Bank of Queensland Ltd [2013] NSWCA 115 – that that court has misconstrued the particular contract made between these parties let alone made some error in the application of generally accepted principles governing the construction of that contract.

In these circumstances, I am not persuaded that the prospects of success in obtaining special leave to appeal to this Court are sufficient to outweigh the considerations of loss and balance of convenience to which I have already referred.  Even without regard to questions of loss and balance of convenience, I am of opinion that this is not a case in which the extraordinary jurisdiction of this Court to grant a stay pending hearing and determination of an application for special leave to appeal should have been granted. 

In my opinion the application for stay should be dismissed.  Subject to anything that counsel may say, I would be minded to order that the costs of the application for stay should be the respondent’s costs in the application for special leave to appeal.  A consequence of that order would be that if special leave to appeal were refused the costs of the application for stay would be payable by the applicants to the respondent.  By contrast, if the application for special leave to appeal were to be granted, the costs of the application for stay would lie where they fall.

Does either party seek to be heard about the form of orders?

MR SULAN:   No, your Honour.

MR MERTON:   No, your Honour.

HIS HONOUR:   Very well.  There will be orders in the terms I have indicated.  Adjourn the Court.

AT 10.13 AM THE MATTER WAS CONCLUDED