Purcell Partners (A Firm) (ABN 71 502 905 832) and Settlement Group Pty Ltd (ACN 117 803 684)

[2014] HCATrans 290

[2014] HCATrans 290

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M36 of 2014

B e t w e e n -

PURCELL PARTNERS (A FIRM) (ABN 71 502 905 832)

Applicant

and

SETTLEMENT GROUP PTY LTD (ACN 117 803 684)

Respondent

Application for special leave to appeal

CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 12 DECEMBER 2014, AT 11.15 AM

Copyright in the High Court of Australia

MR P.J. RIORDAN, QC:   If the Court pleases, I appear with my learned friend, MR A.R. KIRBY, for the applicant.  (instructed by DLA Piper Australia)

MR J.R. LUDLOW:   May it please the Court, I appear for the respondent.  (instructed by HWL Ebsworth Lawyers)

CRENNAN J:   Yes, Mr Riordan.

MR RIORDAN:   Your Honours, on 18 June 2007 there was seven representatives attending for a settlement.  It was a very ordinary occasion.  Settlements of this manner are the ways in which virtually all property transactions are completed in Australia, not to mention many commercial transactions as well.

CRENNAN J:   It was one afflicted by more than one error, was it not, Mr Riordan?

MR RIORDAN:   Yes, it was.  Well, in fact, one error, your Honour, we would say not picked up by somebody else, is the way we would analyse it, if your Honour is going to the question of whether the mistake was induced, but it proceeded in the normal way, in the first instance, your Honour.  As a refinancing transaction, everybody sat around; they provided the discharges, the withdrawals and the cheques which it had been proposed that would be tendered.

What Justice Dixon refers to in his, we would say, helpful analysis at paragraphs 115 to 121, pages 69 to 71 of the application book, as being the conditional settlement where each party gets the opportunity to see what they are going to receive for what they are going to give up, and in accordance with that practice each of the seven representatives confirmed that they were satisfied with what it was that they were to be given, and on the confirmation from all seven the settlement was then completed.

CRENNAN J:   Well, beneath that, the applicant here failed to get some payout figures and we had a settlement broker who handed a discharge back.

MR RIORDAN:   That is so, after confirming, plain enough, that the cheque that he was about to receive was the correct amount.  But, your Honours ‑ ‑ ‑

CRENNAN J:   Yes.  Now, it seems as though the majority in the Court of Appeal accepted an argument from the respondent that the applicant had breached its contract with the incoming lender by not getting the necessary payout figures.  Is that right?  So that, in other words, the applicant was the sole author of their own loss, if I could put it what way.

MR RIORDAN:   That is certainly the conclusion that the President came to, and we say that that is not correct and I might identify why we say that, if I could.

CRENNAN J:   Yes, we would be assisted by that.

MR RIORDAN:   The facts were, if I can mention those, that the incoming mortgagee, by its solicitors in the usual way, wrote to the outgoing mortgagees, if I can refer to them in that way, and in particular to this outgoing mortgagee advising them when they were proposing to payout the mortgages over this and another property and seeking information as to the figure that would be required for that payout.  There is no suggestion that anything wrong was done there.  That is the correct question.  The answer came back from the outgoing mortgagee ‑ ‑ ‑

CRENNAN J:   This is John Investments?

MR RIORDAN:   Correct.  Correct, your Honour.

CRENNAN J:   Yes.

MR RIORDAN:   The answer came back saying, this is the amount.  We will attend the settlement.  Please present these cheques.  What the Court of Appeal seized on was that the “re” ‑ the subject matter of that letter only referred to one of the mortgages, not both of the mortgages that were to be discharged.  The third thing that happens is that in error the outgoing mortgagee never informs the incoming mortgagee of the other figure.  What happens is that they do though arm their representative at the settlement with discharges for both mortgages.  So, they go away along armed with discharges for both mortgages and then the incoming mortgagee presents the cheque which is the only cheque, the only amount, or the two cheques, as had been requested by the outgoing mortgagee.

CRENNAN J:   There is no relationship though with the incoming lender and the outgoing mortgagee, is there?

MR RIORDAN:   We say there is.  It is not a contractual relationship ‑ ‑ ‑

CRENNAN J:   No.

MR RIORDAN:   ‑ ‑ ‑ and plainly that is what the Court of Appeal focused on.

CRENNAN J:   Yes.

MR RIORDAN:   But there is in terms of Justice Brennan’s analysis in Waltons Stores a real expectation of a relationship, we would contend.  It is the mortgagees all well know that the purpose for which they are attending the settlement is that on the payment of the money, the incoming mortgagee, the payee, will receive priority.  That is the relationship, and we say there is no question that in the property commercial world, that is the expectation of the parties.

KIEFEL J:   In any event, you say that the approach of the Court of Appeal, to approach it in light of contractual matters, is not correct and it should have been analysed in terms of either estoppel or priority, as between mortgagees.

MR RIORDAN:   That is so, your Honour.

KIEFEL J:   How can your estoppel survive, or how does an estoppel get up or survive the problem with mistake on the part of the outgoing mortgagee?

MR RIORDAN:   Well, we say, your Honour, the mistake on the part of the outgoing mortgagee leads to the incoming mortgagee conducting itself and paying out when otherwise it would not have because it was told at the settlement that it would get what was expected.  We say that is the very nature of why these settlements are conducted in this manner.  People all actually turn up and we say that is the very reason why they do, so there can be no argument that everybody is aware of what they are giving and they are getting.

KIEFEL J:   But there is a mutuality of mistake here, is there not?  I mean, there is a common mistake, I should say.

MR RIORDAN:   We say, no.

KIEFEL J:   That is the question of whether or not it was ‑ I am sorry, you do not have to go to the question of whether or not it was induced, perhaps, but you could say that it was one common to it.  It is just hard to see how an estoppel can operate in a factual scenario where the parties are mistaken.

MR RIORDAN:   Well, of course ‑ ‑ ‑

KIEFEL J:   I mean, how can you make a representation to someone when they have been responsible for creating the mistake in your own mind?

MR RIORDAN:   Well, we first challenge that idea of responsibility because it was at no time did the incoming mortgagee suggest to the outgoing mortgagee that that was figure.  That was the figure the incoming mortgagee put forward.  It made a mistake.  It led certainly to the incoming mortgagee to believe that was the figure.

CRENNAN J:   But do not borrowers ‑ talking about assumptions when everyone comes to one of these settlements ‑ do not borrowers assume that they will not be entitled to a discharge unless there is the ability to payout the full amount?

MR RIORDAN:   There is no doubt, your Honour, the ‑ ‑ ‑

CRENNAN J:   This is a problem which Justice Kiefel was touching upon in relation to estoppel.

MR RIORDAN:   The borrower continues to have his obligation but plainly the person who is actually attending is the incoming mortgagee and it is interested in ensuring that it is going to receive the security that it has bargained for in consideration of the payment.

CRENNAN J:   It all points ‑ John Investments would assume that they can enforce the right to retain the discharge pending repayment in full, surely.

MR RIORDAN:   Not we say, your Honour, when they actually represent to the incoming mortgagee, yes, that is the correct figure you have given me.  For that figure, that cheque, I will give you a discharge.  That is the critical nature of the representations that are made, we say, at settlements, and that is the fundamental purpose of settlements, and so everybody gets the opportunity to correct any mistake that may have been made and, if a mistake is made, it will be identified at that time by the parties saying, no, you have not given me the right figure, whoever’s mistake it might be.  In this case, we say it was the outgoing mortgagee’s mistake.

KIEFEL J:   In any event, this is an estoppel we are discussing as between the outgoing mortgagee and the incoming mortgagee.

MR RIORDAN:   Yes.

KIEFEL J:   How do the applicant and the respondent come to benefit from or suffer from an estoppel?  How does it operate for them?

MR RIORDAN:   The way this case was decided was the Court of Appeal said that despite the fact that the settlement agent, that is the respondent, was specifically told after the settlement ‑ ‑ ‑

KIEFEL J:   This is the instruction ‑ ‑ ‑

MR RIORDAN:   Yes, this is the instruction.

KIEFEL J:   ‑ ‑ ‑ do not hand over the discharge.

MR RIORDAN:   Do not hand over the discharge.

KIEFEL J:   What is the estoppel that you are relying on?  I know you say that that should not have been dealt with on a contractual basis, but what is the estoppel as between the applicant and the respondent?

MR RIORDAN:   It is not between the applicant and the respondent.  What occurred was, this uncertainty created through the settlement leads, of course, to liability as to who is liable between the solicitor and its agent.  But the way the President determined this case was to say that after the settlement, when the incoming mortgagee’s representative was holding the discharge and all the documents it needed to register its interests as it expected to do, that it had no right to hold onto the discharge.

The estoppel we say arises because the very purpose of the settlement was to allow the representation and the mutual representations to be made, and the representation was made that if you give me the cheque, I will give you the discharge.  The President of the Court of Appeal, with whom Justice Redlich agreed, said that in fact that cannot be relied upon by that agent to hold the discharge.  The agent was bound to give back the discharge and that was because it was analysed saying, well, he is the agent for the borrower.

We say that was not the correct analysis.  It does not reflect the commercial reality that the incoming mortgagee is attending, through its representative, for the purpose of getting the assurance that for the money it will hand over, it will get its security.  So we say that this analysis, that the incoming mortgagee can have no better right to keep the discharge than the borrower, undermines the very purpose of the settlement process and the persons attending.  So whilst certainly, your Honour, the borrower would still continue to be bound to repay the full amount of the debt, if a mistake was made by the outgoing mortgagee, what we are dealing with is who has the priority between the two parties.

We say that the effect of the conduct of the outgoing mortgagee in confirming the acceptance of the cheque and representing that they would hand over, which led to the incoming mortgagee handing over all its cheques to all of the others and committing itself to the arrangement when otherwise undoubtedly it would not, is a reason why the outgoing mortgagee cannot go back and say, look, I am sorry, we have made a mistake, because the incoming mortgagee could say, well, you may have made a mistake but I have acted on you ‑ ‑ ‑

KIEFEL J:   I have to say, the representation that you are relying upon is the outgoing mortgagee handing over the discharge, that is, the representation constituted by that conduct.

MR RIORDAN:   Could I say, a moment before that, because there is, as Justice Dixon points out, settlement.

KIEFEL J:   Whatever ‑ ‑ ‑

MR RIORDAN:   Yes, that is right.

KIEFEL J:   ‑ ‑ ‑ I still do not understand how that representation ‑ ‑ ‑

CRENNAN J:   Affects the incoming lender.

KIEFEL J:   Yes.

MR RIORDAN:   To the incoming lender?

CRENNAN J:   Yes.

KIEFEL J:   Yes, and also how it leads to relief as between the applicant and the respondent.

MR RIORDAN:   That is because the reason why the President gave as to why this claim should fail, and the trial judge was overturned, because they said it caused no loss because, of course, it said the representative, holding the discharge after he had already gone was obliged to give it back and so, in other words, they could unwind that part of the settlement.  That was what the President determined and therefore he said, well, what loss was caused by the failure to follow the instruction, so he determined it on that basis.

CRENNAN J:   Well, he is really operating on the basis that the borrowers are not entitled to a discharge unless they are able to pay out the full amount.

MR RIORDAN:   That is so.

CRENNAN J:   His Honour, the learned President, does deal with precisely these arguments at paragraphs 37 to 40 in the judgment.

MR RIORDAN:   He deals with – well, first he does what your Honour says, with respect; that is quite right.  He says that you just deal with it like the borrower.  So the borrower could not refuse to give back the discharge because the borrower was still obliged.  We say that fails to give recognition to the whole purpose of the other mortgagees attending the settlement.

CRENNAN J:   Well, he has relied on that, of course, in the context which Justice Kiefel has put to you, that otherwise you are purporting to rely on an estoppel between the outgoing mortgagee and the incoming lender.

MR RIORDAN:   That is where we say ‑ ‑ ‑

CRENNAN J:   That is where you say there is a Waltons v Maher point.

MR RIORDAN:   Yes, that is where we say the estoppel arises.

CRENNAN J:   Yes.

MR RIORDAN:   We say the settlement gives rise to it and that is what we say is the public significance of this ruling.  We say that this will lead to uncertainty in settlements because it has been perceived, we would contend, that people attend settlements; they hand over their cheques on the basis that is final, as Justice Dixon identified in his analysis of settlements.  What this gives rise to, on the analysis of the learned President, is that he says, no, whilst that might be the way the mortgagees think about it, one mortgagee can recant and say, well, no, I was part of the whole settlement but I now wish to recant ‑ ‑ ‑

CRENNAN J:   Or the applicants could check the payout figures before they go to the settlement.

MR RIORDAN:   Well, they cannot.  They can only check with what they are told.  The only error that was made by the solicitor for the incoming mortgagee was that he did not detect that the subject matter of the response, after he had asked for payout figures for the two mortgages ‑ ‑ ‑

CRENNAN J:   But this is a third party action, is it not?

MR RIORDAN:   Yes.

CRENNAN J:   The action for negligence has been dealt with.

MR RIORDAN:   Yes, but the honourable President put much weight on the fact that the solicitor for the incoming mortgagee had not made inquiries to check that the figure was right.  We say that is a very harsh onus to put on.  It is reasonable if the question is properly asked, but one would think the answer was properly given and that one would then proceed to the settlement, and if there has been an error it will be picked up at that time.  But the outgoing mortgagee did not pick it up, not at that time, and that is what led to the problem, and we say that is contrary to the way settlements in this country are carried out ‑ all the expectation, that level of uncertainty.

So in a nutshell, your Honours, we say that the majority in overturning the trial judge relied on the fact that the incoming mortgagee could have no better right than what the borrower had and determined it on contractual principles and put to one side what we say is the fundamental nature of a settlement and the assurance that had been sought at that time.

On the question of the estoppel as between the incoming mortgagee and the outgoing mortgagee, such that would have led the agent to be able to properly follow the instruction and say, no, we are not returning the discharge, the President relied upon the fact that there was no existing contractual relationship between the parties and, therefore, he said that the first limb of the analysis undertaken by Justice Brennan in Walton Stores was not made out.

We say that Justice Dixon was correct in his analysis of it and that one does not require certainly a contractual relationship, and that the whole nature of the relationship between the two parties and the exchange of cheques is to say, when I pay you this cheque and you give me this discharge, I will have priority over your position, and that is the existing relationship that was sought to be maintained.

In terms of the error, we say it was not induced by the incoming mortgagee.  Your Honour, we say the error was, as we have indicated, made by John Investments when they gave the wrong figure, when they then sent their agent along armed with discharges for both mortgages without advising what was the sum they wanted and then at the settlement, critically, confirming it.

So, we contend, your Honour, that the Court of Appeal decision does not accord with the settlement customs and practices expected in this country and should not be permitted to stand without review by the Court.  We say the case does provide a proper vehicle to consider the special leave question because of the fact that the fundamental basis for the rejection of the claims on the third party claim was the question of what were the rights vis‑a‑vis the incoming mortgagee and the outgoing mortgagee and, in particular, did the agent of the incoming mortgagee have a right to hold the discharge.

CRENNAN J:   Yes, whether there was an entitlement to return of the discharge which in turn, of course, goes to the entitlement of the borrower to be registered as the first ranking mortgagee.  That is the essence of it, is it not?

MR RIORDAN:   That is so, and in terms of the proposition of the error of the incoming mortgagee, we say that the errors were really almost entirely upon the outgoing mortgagee failing to advise of the correct figures, then confirming that the figure was correct when in fact it was not.  They are the submissions.

CRENNAN J:   Thank you, Mr Riordan.  We will not trouble you, Mr Ludlow.

The decision of the majority in the Court of Appeal of Victoria is not attended by sufficient doubt to warrant the grant of special leave.  Special leave to appeal is refused with costs.

AT 11.35 AM THE MATTER WAS CONCLUDED