Pan Foods Co Impt Drs P-Ltd & Ors v ANZ Bkg Gp

[1999] HCATrans 26

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M57 of 1998

B e t w e e n -

PAN FOODS COMPANY IMPORTERS & DISTRIBUTORS PTY LTD, PANAGIOTIS KAPOBASSIS, MARIA KAPOBASSIS, DIMITRIOS THEODOROPOULOS and ANDRIANA THEODOROPOULOS

Applicants

and

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED, CARSON & McLELLAN and ANDREW JAMES McLELLAN

Respondents

Application for special leave to appeal

McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 12 FEBRUARY 1999, AT 11.52 AM

Copyright in the High Court of Australia

MR H.C. BERKELEY, QC:   If the Court pleases, I appear with my learned friend, MR M.J. COLBRAN, QC, and with us, our learned friend, DR. K.P. HANSCOMBE.   (instructed by GSM Lawyers.

MR J.H. KARKAR, QC:   If the Court pleases, I appear with my learned friend, MS W.A. HARRIS, for the respondents.  (instructed by Freehill Hollingdale & Page)

McHUGH J:   Yes.  The Court thinks we might be assisted by hearing from you first, Mr Karkar.

MR KARKAR:   Certainly, your Honour.  Your Honours, in our respectful submission, the proposed appeal involves no question of law of general public importance. 

McHUGH J:   Well, in one sense, that is no doubt right but the matter which does trouble us at the moment is that, arguably, the applicant did not have a proper hearing of its appeal before the Court of Appeal by reason of Justice Kenny’s failure to deal with one of the issues; that issue being whether or not the debenture agreement was enforceable.

MR KARKAR:   Your Honour, that issue was easily disposed of by a reference to her Honour’s judgment.  In our respectful submission, her Honour dealt with that.  I apprehend that what your Honour is referring to is ground 2(d) of the application which appears at page 166?

McHUGH J:   Yes.

MR KARKAR:   Which is rearticulated in ground 4 and perhaps 5 - - -

GUMMOW J:   Yes, at page 170.

MR KARKAR:   - - - at page 170, yes.  Your Honours will notice first of all the way the ground is formulated at page 166.  It is formulated that:

Upon the proper construction of the Facility Agreement…..Justice Kenny was also wrong to hold that the firstnamed respondent could enforce the security under Clause 18(q) of the debenture without the need for demand or a notice of demand.

That indicates there that there is an acknowledgment that her Honour decided the point.  Then, at page 170, as your Honour Justice Gummow pointed out, in ground 4, it is said that, again:

On the proper construction of the Facility Agreement…..Her Honour was wrong to hold that the Bank could appoint a receiver under Clause 18(q)…..without the need for a notice in the form required by Clause 11.1(e) of the General Conditions –

In the alternative, it is said that her Honour did not deal with the point.  In our respectful submission, there can be no doubt that her Honour dealt with the point. 

Your Honours will know, when one looks at her Honour’s judgment, that her Honour first of all decided that the notice under the agreement was in effect, so the Bank could not rely on the notice under the agreement.  She then went on to consider - - -

McHUGH J:   Well, she said they had not complied with Clause 11.l(b).

MR KARKAR:   That is right, that is to say, the notice that was issued under Clause 11.l(b) and (e) was in effective.  Notwithstanding that, her Honour then immediately followed by saying, “Let me consider the debenture.”

GUMMOW J:   Yes, but that raises the question of the relationship between the anterior debenture and the later special terms.

MR KARKAR:   But, your Honours, it is inherent, in our respectful submission – it is absolutely inherent in her Honour’s judgment that having decided that the notice was ineffective, she then went on to determine the question under the debenture.  It is inherent in her judgment that she decided that the Bank could rely on the debenture, notwithstanding that it could not rely upon the agreement.

McHUGH J:   It may be, but perhaps she did not deal with it.  But if she did decide it, she did not give any reasons for it, and that is a denial of procedural fairness.

MR KARKAR:   In our respectful submission, your Honours, she did not give - - -

McHUGH J:   After all, we have a situation:  we have the trial judge saying they cannot rely on it; we have Justice Buchanan saying the same and I rather gather the President also was of the same view.

MR KARKAR:   Your Honours, her Honour may not have expressly stated the question in the way the notice of appeal sets it out.  The reason for that is simply this:  that was not the way the case was argued before the Court of Appeal or before his Honour.  It was never put before the Court of Appeal -and we have given your Honours a supplementary application book – that the Bank could only appoint a receiver under Clause 18(q) if it had complied with the general conditions.  On page 272 of the supplementary book your Honours will see the argument that was put.  Your Honours will see, in paragraph 3 the reference to the relationship between the mortgage debenture and the agreement, and then on page 274, at line 15, there is a reference to “THE SECURITIES” and all that is done there is paragraph 3 of Part 1, which I referred your Honours to, is repeated.

In our respectful submission, this point, when one looks at his Honour the trial judge’s judgment, your Honours will see that he did not deal with it and your Honours will see that neither Justice Buchanan nor Justice Winneke dealt with it in the manner that is articulated in the notice of appeal.  This Court has said on a number of occasions it is inappropriate to grant special leave in order to ventilate a point that was not argued below.

McHUGH J:   What do you say about what appears at 116 in the judgment of the President, No (4)?  He said that the securities have to be read in the overall context.

MR KARKAR:   Your Honours, the way the Bank put its case before the trial judge and before the Court of Appeal was in this way:  they said that irrespective of whether the Bank can rely upon the general conditions, the moneys were payable on demand whether there was default or not.  Now, that point, your Honours, was rejected by the trial judge and was rejected unanimously by the Court of Appeal.  Your Honours, that is the point that is dealt with at paragraph (3) at page 116 of his Honour’s judgment. 

In paragraph (4) the President acknowledges that the judgment of the trial judge related to the situation where the Bank argued that it could rely upon the debenture, notwithstanding there was no default.  Point (4) went to the case where there was default and it is in respect of point (4) that the Court of Appeal disagreed with the trial judge.

McHUGH J:   But were there not two questions, really, involved here?  First of all is whether the Bank could rely upon the debenture in any event, having regard to the terms of the subsequent facility agreement, and, secondly, whether or not, assuming that they could, they ever intended to rely on it, and the third question is whether or not the conditions of reliance were made out.  Now, her Honour only deals with the last of those three matters, does she not?

MR KARKAR:   Her Honour deals, in our respectful submission, with all of them.  On the first point, she agreed with Mr Justice Buchanan that where there is no default the Bank could not rely on the debenture.  Then she decided that the Bank did form the opinion under 18(q) and decided that notwithstanding that it did not rely on it – there is ample authority of this Court going back to the last century, that even if you did not rely on it at the time, you are going to rely on it later.  So, in our respectful submission, her Honour did decide each of the points that your Honour has raised.  In fact, it is quite wrong, in our respectful submission, to say that her Honour did not deal with every issue that was put before her.

Now, to articulate the issue in the way it has been articulated in the notice of appeal is really to cloud the manner in which the matter was argued before the trial judge and before the Full Court.  Certainly, that argument was not put.  If it was put it would have been in the submissions and it would have been in the judgment of the trial judge and each of the members of the Court of Appeal.  It was not even in Mr Justice Buchanan’s reasons for judgment.

McHUGH J:   I thought he agreed with the trial judge in respect to that.

MR KARKAR:   Yes, but the trial judge did not decide that point.  It was not put before the trial judge.  What the trial judge said is that where there is no default, the Bank could not rely on the debenture.  Might I just take your Honours back to page 116 of President Winneke’s judgment.  In paragraph (3) on the page his Honour articulated the decision of the judge below that where there is no default the Bank cannot make a demand under the debenture.  Your Honours will see that his Honour went on to say:

(4)  It would seem that the finding to which I have just referred was directed to the bank’s submission that it was entitled to enforce its securities “on demand” in circumstances where there had been no default by Pan.

So her Honour decided, in agreement with the trial judge, that the Bank cannot rely on the debenture when there is no default but she did agree with the trial judge that the Bank could rely on the debenture where there is an event of default under the debenture.  It is inherent in the logic of her judgment that where there is an event of default under the debenture, the Bank could proceed under the debenture.

McHUGH J:   When you say it is “inherent in the logic of her judgment”, you have to concede though that she does not address the issue in terms, that she assumes the point in your favour.

MR KARKAR:   Your Honour, with the greatest of respect, she does not address the issue in the terms that are set out in the notice of appeal, I accept that, but that was never put to her or to the trial judge, but she addresses the issue as was put to her and as was put to the trial judge.  In our respectful submission, it is most unfair to say that her Honour did not deal with every issue.  We raised five points as to why the notice was good.  We lost on three; we won on two.  We only had to win on one, your Honours.  But her Honour, whilst she determined two of them, she agreed in relation to the other three with Mr Justice Buchanan.  So, it cannot be said that her Honour did not actually deal with every point.

GUMMOW J:   Now, which were the two points you won on?

MR KARKAR:   I won on the point – the President held that there was a valid notice under the agreement.

McHUGH J:   Under 11.1(b).  He held you were – Justice Buchanan made no finding.

MR KARKAR:   He held that it was not given.

GUMMOW J:   What was the event of default for 11.1(b).

MR KARKAR:   Under 11.1(b) it was the material adverse effect.  It was an event of default under the agreement.  The agreement provided that if ‑ ‑ ‑

GUMMOW J:   Under 10.1, which paragraph?

MR KARKAR:   It is 10.1(j), I believe, your Honours.  Yes, 10.1(j) which appears on page 8.

GUMMOW J:   Which involves formation of an opinion.

MR KARKAR:   That does not involve the formation of an opinion.

GUMMOW J:   10.1(j)?

MR KARKAR:   The cognate one – I am so sorry, it does, yes, your Honour.  Yes, it does.  His Honour held that that was satisfied.  So, we won on that point, that under the agreement we were entitled to serve the notice, and we also won the point that under the debenture we are entitled to serve the notice.  Now, of course, there were several reasons we advanced in the alternative.

GUMMOW J:   Now, what is the provision under the debenture about serving the notice?

MR KARKAR:   Your Honour will find that on page 19, Clause 18(q) and then Clause 19, your Honour.

GUMMOW J:   Well, 18(q) again requires formation of an opinion.

MR KARKAR:   Yes, and her Honour found that - - -

GUMMOW J:   But 19 is just an appointment.

MR KARKAR:   An appointment with the receiver, yes.

GUMMOW J:   It is not a notice of anything.

MR KARKAR:   No, indeed.  Clause 18(q) is the relevant provision in relation to the event of default and 19 - - -

GUMMOW J:   That is self-operating.  It does not require a notice.

MR KARKAR:   No.  Now, her Honour held that the Bank formed the necessary view under the debenture and his Honour the President - - -

McHUGH J:   But what evidence did she have to support that?

MR KARKAR:   Ample evidence.  She refers to that – we have set the evidence out in our outline of submissions, your Honours.  It is compendiously set out there at page 185 from line 15 down.  Your Honours, the facts of this case were very compelling.  The company had returned - - -

McHUGH J:   Yes, but the problem with those statements is that they provided a great deal of evidence upon which a bank officer could have formed the opinion but that does not mean that any bank officer actually formed the opinion; ever directed his or her mind to it.

MR KARKAR:   Well, it was open to her Honour to form that judgment, to make that inference of fact, and it is not a ground for giving special leave.  This Court has said time and time again that the judge may have formed her own inference.

McHUGH J:   I accept that.

MR KARKAR:   She was entitled – I mean, the law in relation to this has been well settled in this Court since Devries and Patterson’s Case early this century and there is really no point of principle involved in that.

McHUGH J:   You probably have not read the decision of State Rail Authority that was handed down this week, but - - -

MR KARKAR:   I have not read that, your Honour, no.

McHUGH J:   Some might say that Devries and other cases have got a bit of a gloss on them.

MR KARKAR:   Yes.  No, I have not read that.  But, your Honour, there is no point of principle involved in whether her Honour was justified in drawing the inference.  There was ample evidence that the company was broke; that if it went on the security was going to be in jeopardy and that the appropriate officer was entitled to form that opinion.

This is also not a case, your Honours, where any injustice can be said to have occurred to these applicants.  Your Honours will recall that the misleading and deceptive conduct case was unanimously defeated in the - - -

McHUGH J:   Well, it is a question whether the documents were complied with.  Banks live on the terms of the documents.  They enforce them to the last drop of meaning of them, and it is fair enough that those who are affected by the operation of these documents should insist that the banks comply with them.

MR KARKAR:   We accept that, your Honours, but the practical result of this case is that even if successful on appeal, the applicants are going to owe a lot of money to the Bank which is going to consume their securities.  An appeal is futile.  We have set out in our supplementary book a table which shows that because now the misleading and deceptive conduct case has gone, no damages can be awardable in respect of it.  The only damages that are available now are for trespass of conversion.  They are effectively $300,000.  Adding interest on to that might bring them up to $600,000.  These people owe the Bank over $1.2 million.  The Securities are going to be consumed.  There is just no joy at the end of the road.

Once the misleading and deceptive conduct case had gone, there is really no utility in this case going forward, in our respectful submission.  In any event, if this case goes on, the Court will be determining issues peculiar to this document, peculiar to this transaction, and peculiar to what happened to this case.

McHUGH J:   It is a most unpromising vehicle for the grant of special leave, subject to the question of procedural unfairness.  Parties are entitled to have their cases properly tried and their arguments determined.  The critical point at the moment, from my point of view, is whether your

opponent will be able to rebut your argument that this point was never taken.

MR KARKAR:   I have shown your Honours that this point was never articulated in the manner that it is.  Indeed, in our respectful submission, the articulation of it in the application and the notice of appeal indicates that it was determined.

McHUGH J:   Yes.  Thank you, Mr Karkar.

MR KARKAR:   If your Honour pleases.

McHUGH J:   Yes, Mr Berkeley?  You might concentrate on this contention that ingenuity of counsel has dreamed this up.

MR BERKELEY:   Could I take your Honours to page 145 at line 30.  This is the judgment of Justice Buchanan.  It deals with the matter that Justice Kenny did not, and he says:

The appellant contended that the debenture was to be considered independently of the facility agreement made in March 1993 and that a creditor in whom a number of rights repose can elect those which will be enforced.  In the present case it is the first proposition which is in question.  If the Bank did have independent rights arising from the debenture which were inconsistent with its rights under the March agreement, it could enforce those rights.  The question is whether inconsistent rights existed.  In my opinion they did not.  The transaction of March 1993 embraced both the facility and the securities, that is, the terms of the transaction were to be found in the letter of offer, the documents referred to in the letter and the security documents.  When those documents are considered as a whole and the words of the letter are recognized as “the immediate language and terms selected by the parties for the expression of their meaning”, it is clear that the sums lent were to be repaid in accordance with the terms of the letter.  The parties did not expressly deal with the securities, but it is to be implied –

and so on.

GUMMOW J:   That is not quite right:  they did.  They did deal with the securities in 10.1(a).  A default under any transaction document – which is defined to include “a security” - - -

MR BERKELEY:   Your Honour will remember this debenture was executed in 1988 and the loan was renegotiated in 1993 and the new loan agreement was signed by the parties which contemplated new securities would be executed.  They were never executed.  So, when the thing came to court on the first instance, the onus was on the Bank to justify the appointment of a receiver and they did that, inter alia, by reference to the debenture.  Then we took the point that the debenture has nothing to do with it because it is collateral and you cannot enforce the security until the principal loan is repayable.  For that, you look solely to the loan agreement which itself set out in 20 or 30 acts of default in the general conditions. 

So, our point all along was the debentures are completely irrelevant.  If you want to know anything about terminating the agreement or giving a notice calling up the loan or whether there has been an act of default, you have to look at the loan agreement.  That was our case all along.  We did not distinguish expressly Clause 1, notice on demand; Clause 19; those were things raised by the Bank.  Indeed, it was a complete red herring for the Bank to raise an act of default under the debenture because there had been the notice given which, on any view, would be a sufficient demand for the terms of the debenture.  Now, we compediously replied to all of that by saying the debenture has absolutely nothing to do with it.  You cannot rely on that until you get past the first hurdle.  You have to find that the time has arrived either in one way or another for the money to be repayable, for that loan to become enforceable.  Until you get to that stage the debenture is nothing.

Now, that was our argument in the first instance; that was our argument in the Court of Appeal.  Mr Justice Buchanan dealt with it in the way your Honours have seen.  It is unthinkable that he would have gone to enter it in such detail if we had not made the point.  Now, he having decided that the debenture was not applicable, he does not then go on to consider the question of 18.1(q) and whether the Bank officers was of an opinion or not.  You do not get to that stage until you first of all decide that the debenture is of some relevance, and that is what we are complaining about.  Justice Buchanan dealt with it.  The learned President dealt with it by saying he agreed with what the trial judge had said about it in number (3).  It is weird actually; one never sees - - -

McHUGH J:   Well, it is such an obvious point.

MR BERKELEY:   Yes, it is though a page has been left out, but it does mean that in an age when, by and large, the State Courts of Appeal are the final courts, we have not had – and this point was pivotal – if it was decided in our favour, the appeal would have been dismissed.  Now, we have not had the appeal, the only appeal we are entitled to.

McHUGH J:   Yes, Mr Karkar, what do you say about that?

MR KARKAR:   We say this, your Honours:  if the argument that is said to have been advanced below - - -

McHUGH J:   The case that is put against you is that from beginning to end it was the applicants’ case that the mortgage had nothing to do with it, as such; that you had to comply with the terms of the facility agreement before you could rely on the mortgage.

MR KARKAR:   If that be the case, then Justice Kenny, with the greatest respect, decided that against the applicants.  She said that the Bank could rely upon the debenture.

McHUGH J:   But she gave no reasons for that.  It was such an important point, one would have thought that reasons should be given.  The failure to give reasons is itself an error of law, in an appropriate case.

MR KARKAR:   She, in our respectful submission, did give ample reasons.  There are two pages of them.  I mean, that is the short answer, with the greatest of respect.  She dealt with every issue that was raised.  She said precisely this, at page 127, at line 12:

I indicate at the outset that I agree with most of Buchanan, JA’s conclusions on those issues, save for the matters discussed below –

So she, like the President, considered Mr Justice Buchanan’s judgment and said, “I agree with them save in the manner that I have set out”, and what she did set out at pages 134, the last line, to page 136, reasons why the Bank could rely on the debenture.

Your Honours, in our respectful submission, as a matter of law, this submission that the Bank could not rely on the debenture at all in the event of default must be, with the greatest of respect, fanciful.  Suppose, your Honours, in the security document, the debenture there was “Provision for the appointment of the receiver because of an event of default”.

McHUGH J:   I do not think it is said that they cannot rely on the provisions of the mortgage debenture but it is said that the provisions in your favour were not triggered until you complied with the provisions of the facility agreement.

MR KARKAR:   That is the argument that was never put and that is the argument that I will indicate to your Honour was not in their written submissions, it was not discussed by the trial judge and it was not discussed expressly by her Honour.  But it is inherent in the logic of her Honour’s

judgment that having decided that the notice was ineffective and then go on to say that the debenture could be relied upon, that she determined that the debenture could be relied upon even though resort was not had or ineffective resort was had to the agreement.  If your Honours please.

McHUGH J:   Thank you, Mr Karkar.  Have you taken out an order yet in this case, Mr Berkeley?

MR BERKELEY:   Mr Karkar might be able to help because it was their appeal, but we have been in correspondence with the other side and suggested they do it.  We have agreed on the form of order.  Whether they have done it yet or not, we do not known.

GUMMOW J:   There is no reason why you cannot take the lead if they drag their feet in taking out the order?

MR BERKELEY:   Probably so.  I cannot say for sure, your Honour.  But it probably was in there – we would have had to apply to the Court because it was left at the stage - - -

GUMMOW J:   At the moment, we have just some transcript at page 162.

MR BERKELEY:   Yes, your Honour.

GUMMOW J:   Line 15.  He says:

The formal order of the Court will be that the appeal is allowed with costs.

But then there is a quite complex treatment of consequential orders and nothing seems to have happened and this was some months ago.

McHUGH J:   Yes.  Well, Mr Berkeley, there will be a grant of special leave in this particular case but make sure that order is taken out and the record is in proper form.

MR BERKELEY:   Yes, if the Court pleases.  Will the costs be reserved, your Honour?  The costs of the application will merely be reserved?

McHUGH J:   Costs are part and parcel of the appeal.

AT 12.25 PM THE MATTER WAS CONCLUDED