Razdan v Westpac Banking Corporation
[2014] NSWCA 126
•14 April 2014
Court of Appeal
New South Wales
Case Title: Razdan v Westpac Banking Corporation Medium Neutral Citation: [2014] NSWCA 126 Decision Date: 14 April 2014 Before: McColl JA [1]
Macfarlan JA [22]
Bergin CJ in Eq [36]Decision: 1. Appeal dismissed.
2. The appellant to pay the respondent's costs of the appeal.
3. Any application to vary the costs order to be filed and served within 7 days supported by written submissions not to exceed 3 pages.
4. Any written submissions in response to the application to be filed and served within 7 days of receipt of the application and are not to exceed 3 pages.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: MISLEADING OR DECEPTIVE CONDUCT - where numerous representations relied upon in respect of a margin lending facility - whether a particular statement was a representation as to a future matter - whether reliance upon representations
ESTOPPEL - whether bank is estopped from relying upon its legal rights under the margin lending facility - whether reliance on representations
CONTRACT - whether implied term of reasonableness and good faith - whether breach of implied term
UNCONSCIONABLE CONDUCT - whether conduct of bank in selling the appellant's portfolio of shares unconscionableLegislation Cited: Australian Consumer Law 2010 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Fair Trading Act 1987 (NSW)
Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth)
Trade Practices Act 1974 (Cth)Cases Cited: Attorney General (NSW) v World Best Holdings Limited (2005) 63 NSWLR 557
Austotel Pty Ltd v Franklins Self Serve Pty Limited (1989) 16 NSWLR 582
Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc and Ors (2009) 71 ACSR 1, [2009] QSC 58
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd (2011) 284 ALR 601, [2011] NSWCA 300
Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199
Fubilan Catering Services Pty Ltd v Compass Group (Aust) Pty Ltd [2007] FCA 1205
Gould v Vaggelas [1984] HCA 68; 157 CLR 215
GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd (2001) 191 ALR 342
Hawkins v The Queen [1994] HCA 47; 181 CLR 440
Henville v Walker [2001] HCA 52; 206 CLR 459
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230, [2008] FCAFC 2
R v Connors (1990) 20 NSWLR 438
Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233
Ting v Blanche (1993) 118 ALR 543
Tonto Home Loans Australia Pty Limited v Tavares [2011] NSWCA 389
Willett v Thomas [2012] NSWCA 97Texts Cited: KR Handley Estoppel by Conduct and Election Thomson Sweet & Maxwell (2006)
Spencer Bower, Turner and Handley, Actionable Misrepresentation, (4th ed 2000, Butterworths)
Spencer Bower, The Law Relating to Estoppel by Representation, (4th ed 2004, LexisNexis UK)Category: Principal judgment Parties: Anil Razdan (Appellant)
Westpac Banking Corporation (Respondent)Representation - Counsel: Counsel:
DA Smallbone (Appellant)
J Stoljar SC/J Hynes (Respondent)- Solicitors: Solicitors:
Vaikom Rajeev (Appellant)
Minter Ellison (Respondent)File Number(s): 2013/129744 Decision Under Appeal - Before: Cogswell DCJ - Date of Decision: 05 April 2013 Publication Restriction: Nil
HEADNOTE
[This headnote is not to be read as part of the judgment]
In 2005 Anil Razdan (the appellant) entered into a margin lending facility (the Facility) with St George Bank Limited (the bank), which subsequently became an asset of the Westpac Banking Corporation. The appellant's Facility went into margin call in September 2008, during the Global Financial Crisis. The appellant managed his account through in-depth telephone conversations with bank employees. During the course of one of these conversations he was told that if the gearing ratio reached around 95% the bank would immediately sell his portfolio. On around 16 and 17 October 2008 the bank sold the appellant's portfolio. The proceeds of the sale were less than the amount outstanding on the loan.
The appellant was unable to pay the shortfall and on 29 April 2010 Westpac commenced proceedings in the District Court to recover this amount. The appellant filed a cross-claim that raised issues of: misleading and deceptive conduct; estoppel; breach of an implied term of the Facility to act reasonably and in good faith; and unconscionable conduct. On 5 April 2013 Cogswell DCJ dismissed the Cross-Claim and entered a verdict and judgment for Westpac.
The appellant appealed on the basis that the primary judge erred by failing to uphold his Cross-Claim in relation to:
(i) Misleading or deceptive conduct;
(ii) Estoppel;
(ii) Breach of the implied term to act reasonably and in good faith; and
(iv) Unconscionable conduct.The Court held, dismissing the appeal:
In relation to (i)
1. Per McColl and Macfarlan JJA (Bergin CJ in Eq dissenting): The bank employee's statement (that if the gearing ratio reached around 95% the bank would immediately sell the appellant's portfolio) was not a representation for the purposes of s 51A of the Trade Practices Act 1974 (Cth), s 41 of the Fair Trading Act 1987 (NSW) and s 12BB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). This is because the bank's conduct, viewed objectively and as a whole, did not have a tendency to lead the appellant into error and a reasonable person in the position of the appellant would not have treated the statement as made with the intention of inducing him to take a particular action: [3] - [5], [23] - [34].
Australian Competition and Consumer Commission (ACCC) v TPG Internet Pty Ltd [2013] HCA 54; (2013) 88 ALJR 176 applied
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 considered
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 applied
Gould v Vaggelas [1984] HCA 68; 157 CLR 215 cited
Hawkins v The Queen [1994] HCA 47; 181 CLR 440 cited
Henville v Walker [2001] HCA 52; 206 CLR 459 cited
R v Connors (1990) 20 NSWLR 438 cited
Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233 applied
Willet v Thomas [2012] NSWCA 97 considered2. It was essential for the appellant to establish a connection between the representation and his loss. There was no such link because the appellant did not rely on the bank employee's statement. His lack of reliance is demonstrated by three key circumstances. First, he stated under cross-examination that he "did not take seriously" anything that the bank employee in question said. Second, he did not mention the representation in his subsequent communications with the bank, even after it became clear that it was not accurate. Third, he originally pleaded the representation in a different form, which was altered after reviewing the transcripts of his conversations with the bank: [6] - [21], [22], [125] - [136].
Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 considered
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 considered
De Bortoli Wines Pty Limited v HIH Insurance Limited (in liq) [2011] FCA 645; (2011) 200 FCR 253 considered
Gould v Vaggelas [1984] HCA 68; 157 CLR 215 considered
Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) and Ors [1999] FCA 357; (1999) 43 IPR 545 considered
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 considered
March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 considered
Ricochet v Equity Trustees [1993] FCA 99; (1993) 41 FCR 229 considered
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 considered
Smith v Chadwick (1884) 9 App Cas 187 considered
Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 consideredIn relation to (ii)
3. For an estoppel to arise there must be the creation or encouragement of an assumption by the representor and reliance on that assumption to the detriment of the representee in circumstances where departure from the assumption would be unconscionable. For the reasons discussed in relation to the misleading or deceptive conduct issue, the appellant did not rely upon the representation: [1], [22], [137] - [140].
Austotel Pty Ltd v Franklins Selfserve Pty Limited (1989) 16 NSWLR 582 applied
In relation to (iii)
4. On the assumption that a term of reasonableness and good faith is implied into the Facility, there was no evidence that the bank had breached it. On the contrary, it tried to help the appellant maintain his portfolio during the extraordinary circumstances of the Global Financial Crisis: [1], [22], [141] - [145].
In relation to (iv)
5. S 12CA of the ASIC Act picks up the equitable doctrine of unconscionability. The range of unconscionable conduct is wide and can include undue pressure, exploiting vulnerability, trickery or misleading conduct. The bank did not pressure, exploit, trick or mislead the appellant as it made it clear he was responsible for managing his own portfolio, encouraged him to seek advice and provided him with information. The appellant was not vulnerable, as he was an educated and experienced investor. Furthermore, he did not rely on the bank's representation and during the course of their discussions he would have understood that this representation was inaccurate: [1], [22], [146] - [151].
GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd (2001) 191 ALR 342 applied
Tonto Home Loans Australia Pty Limited v Tavares (2011) 15 BPR 29, 699; [2011] NSWCA 389 applied
JUDGMENT
MCCOLL JA: I agree with the orders proposed by Bergin CJ in Eq and, subject to what follows, with her Honour's reasons.
As Bergin CJ in Eq has explained, the appellant's case was primarily advanced on the basis that Mr Mesaros' statement on 7 October 2008 that the Bank would cause a forced sale of his share portfolio if the gearing (or loan balance to security value ratio) reached 95% (the "95% representation") constituted misleading and deceptive conduct in contravention of s 42 of the Fair Trading Act 1987 (NSW) (the "FTA" as in force at the time of the relevant events) and/or s 52 of the Trade Practices Act 1974 (Cth) (the "TPA" as in force at the time of the relevant events) and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act") (hereafter the "Acts") because it was a representation as to a future matter which the respondent did not have reasonable grounds to make (see s 51A, TPA, s 41, FTA and s 12BB, ASIC Act).
I agree with Macfarlan JA that, considered in context, the 95% representation did not constitute a representation for the purposes of s 51A of the TPA (and the like provisions in the FTA and ASIC Act). This question turned on whether the respondent's conduct, viewed objectively and as a whole, had a tendency to lead the appellant into error; the question whether it had that effect was "logically anterior to the question whether a person has suffered loss or damage thereby [although] there may be practical overlaps in [their] resolution": Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 (at [24] - [25]) per French CJ; see also (at [102]) per Gummow, Hayne, Heydon and Kiefel JJ where the plurality emphasised that the task of the court is to examine the relevant course of conduct as a whole, looking objectively at the alleged conduct in the light of the relevant surrounding facts and circumstances; Australian Competition and Consumer Commission (ACCC) v TPG Internet Pty Ltd [2013] HCA 54; (2013) 88 ALJR 176 (at [49]) per French CJ, Crennan, Bell and Keane JJ).
Viewing the respondent's conduct in making the 95% representation as a whole for the purposes of the characterisation exercise means that the Court had to have regard to all its conduct in relation to that representation, including its making and any statement, action, silence or inaction in connection with it: Campbell v Backoffice Investments Pty Ltd (at [102]).
Having listened to the recording of the conversation between Mr Mesaros and the appellant, I agree with Macfarlan JA's descriptions of it (at [32] - [33]). The statement did not appear to assume any prominence in a conversation which, like many the appellant had with Mr Mesaros around this time, canvassed a variety of scenarios about what the appellant could do to manage his loan having regard to the rapidly fluctuating share market and the various scenarios in which Risk might intervene. Looking at the statement, objectively, in the context of the many communications between the parties, it was not, in my view, a statement which had a tendency to lead the appellant into error.
I would add the following observations about the reliance issue.
Assuming the appellant made good the proposition that the respondent had engaged in misleading and deceptive conduct, it was incumbent upon him to establish that, in substance, he had suffered loss or damage "by" that conduct: s 68 FTA and s 82, TPA (as in force at the time of the alleged conduct) and s 12GF, ASIC Act (the "damages provisions").
The word "by" in the damages provisions expresses the notion of causation and is understood as reflecting the common law practical or common sense concept of causation as discussed in March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 except insofar as that is expressly or impliedly modified or supplemented by the provisions of the Act: Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 (at 525) per Mason CJ, Dawson, Gaudron and McHugh JJ; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 (at 480) per Gaudron J, (at 489) per McHugh J (Gummow J agreeing).
In Smith v Chadwick (1884) 9 App Cas 187 (at 196) Lord Blackburn said that if it was proved that a defendant "with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of a nature as would be likely to induce a person to enter into a contract" and the plaintiff did so, "it is a fair inference that he was induced to do so by the statement". In Gould v Vaggelas [1984] HCA 68; 157 CLR 215 (at 236), which concerned an action for damages for deceit, Wilson J (Gibbs CJ agreeing) recited Lord Blackburn's statement with approval in discussing the circumstances in which inducement (reliance) may be inferred. As his Honour made plain, such an inference is one of fact and may be rebutted by the facts of the case: Gould v Vaggelas (at 236) per Wilson J; see also (at 250) per Brennan J.
Campbell v Backoffice Investments Pty Ltd was an appeal from a decision of this Court, Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359. In that case Giles JA concluded (at [48]), applying Wilson J's analysis in Gould v Vaggelas (at 236), that one of the plaintiffs, Mr Weeks, had relied upon representations concerning estimates of sales revenue and estimates of future profitability based on those figures.
The plurality made three cautionary points (at [143]) about the use of Gould v Vaggelas analysis:
"[143] Three points may be made about this proposition. First, it is a proposition expressed in relation to the law of deceit, not the operation of statutory provisions for the award of damages suffered by contravention of consumer protection provisions proscribing misleading or deceptive conduct. Secondly, the proposition carries within it a number of subsidiary questions, such as what is a 'material' representation, and when is a material representation 'calculated' to induce entry into a contract. Thirdly, because the proposition is directed to the drawing of inferences, consideration of its application must always attend closely to all of the evidence that is adduced that bears upon the question being examined. With considerations of these kinds in mind, Giles JA was right to point out that reliance is not a substitute in the context of the Fair Trading Act for the essential question of causation. Moreover, it is also right to observe, as Giles JA said, that '[i]t may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known.'" (Emphasis added)
In the passage of his reasons in Campbell v BackOffice Investments Pty Ltd to which the plurality referred, Giles JA (with whose reasons on this issue Basten JA agreed) said:
"44 Reliance can itself be a difficult concept, and is not a substitute for the essential question of causation. It may be artificial to speak of reliance in determining what action or inaction would have occurred if the true position had been known: see Smith v Maloney (2005) 92 SASR 498 at 514 - 5 and Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 at [161]. Of particular significance to the present case, causation may be found notwithstanding that any belief in a representation is qualified by doubt, and even when the representee seeks to protect itself against the possibility that the doubt is justified. If the representation still operates on the representee's action or inaction which occasions loss or damage, the loss or damage is suffered by the misleading or deceptive conduct, notwithstanding that the label of reliance may not appropriately describe what occurred." (Emphasis added)
Recognising the cautionary statements by the High Court concerning the application of "common law analogues for the understanding of application of Acts such as the Fair Trading Act", Allsop P (with whom Basten and Young JJA agreed) has suggested that the test of causation for the purposes of the damages provision requires "a sufficient and direct link between the conduct and the consequences ... in order that the purpose and [fundamental and protective] policy of the legislation be vindicated": Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 (at [71]). Adoption of a test so framed was not argued on appeal, but, even if it had been, in my view the outcome would not have differed.
Taking into account the emphasis the High Court has placed on identifying a causal connection between the impugned conduct and the loss or damage, I am unable to discern that the making of the 95% representation caused the appellant's loss or damage or, to express the conclusion in terms of the damages provisions, that the appellant suffered loss or damage "by" that conduct.
Like the issue of whether the respondent engaged in misleading or deceptive conduct, the question whether the appellant's loss was caused by the 95% representation must be determined objectively. Thus, it was unnecessary for him to give express evidence as to how the 95% representation influenced his action. Indeed, courts are cautious in accepting assertions of reliance in this context because they are regarded as essentially self-serving: Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) and Ors [1999] FCA 357; (1999) 43 IPR 545 (at [50]) per Kiefel J (Wilcox J agreeing (at [11]). They are similar to statements as to what a person would have done if some impugned conduct had not occurred which have little probative value unless the "reliability of their evidence" is confirmed by "reference to objective factors": Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 (at [32] (fn (64)) per McHugh J; (at [93] Item 7) per Kirby J; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 (at [24]) per McHugh J. Thus, in Ricochet v Equity Trustees [1993] FCA 99; (1993) 41 FCR 229 (at 235) the Full Federal Court (Lockhart, Gummow and French JJ) upheld the trial judge's finding of no reliance by the key people concerned, notwithstanding direct evidence as to reliance. However, a declaration of non-reliance by a person said to have been affected by the conduct is relevant to the question of causation: Campbell v Backoffice Investments Pty Ltd (at [29]) per French CJ.
The same contextual factors involved in characterising conduct to assess its notional effects may play a role in determining causation: Campbell v Backoffice Investments Pty Ltd (at [24]) per French CJ. Further, the weight of the factual inference will vary with the circumstances in which the representation is made: De Bortoli Wines Pty Limited v HIH Insurance Limited (in liq) [2011] FCA 645; (2011) 200 FCR 253 (at [70]) per Stone J; app De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28 (at [67]) per Jacobson, Siopis and Nicholas JJ.
Determining causation involves a careful scrutiny of the facts: Campbell v Backoffice Investments Pty Ltd (at [143]) per the plurality. Further, although questions of causation are determined objectively, it may be necessary to consider subjective factors relating to a particular person's reaction to conduct found to be misleading or deceptive or likely to mislead or deceive. Thus a statement may be misleading or deceptive in the sense that it would have a tendency to lead anyone into error, but, if it is disbelieved by its addressee, it would not ordinarily be causative of any loss or damage flowing from the subsequent conduct of the addressee: Campbell v Backoffice Investments Pty Ltd (at [28]) per French CJ. A failure to complain about an alleged misrepresentation may go to the likelihood of reliance: Gould v Vaggelas (at 237) per Wilson J, quoting Connolly J at first instance). However, causation may be found, notwithstanding entry into a contract containing a contractual disclaimer of reliance: Campbell v Backoffice Investments Pty Ltd (at [31]) per French CJ; (at [130]) per Gummow, Hayne, Heydon and Kiefel JJ.
Returning to the facts of this case, I am unable to conclude that the 95% representation had any operative effect on the appellant's conduct. It clearly assumed no particular significance in the appellant's mind at the time it was made. This is no doubt in part because of the desultory tone in which it was said as well as the fact that Mr Mesaros made it clear, as the appellant appreciated, that he could not advise the appellant. As French CJ explained in Campbell v Backoffice Investments Pty Ltd (at [24]), this is an area where the question whether a statement was misleading or deceptive overlaps with the question whether the conduct caused the appellant loss or damage. As the appellant well understood at the time the 95% representation was made, Risk had "total control" and Mr Mesaros had "nothing": (see Bergin CJ in Eq (at [132]). That the statement evinced little more than a "yup" from the appellant, reflected his evidence at trial that he "didn't take anything seriously that David Mesaros said to [him]" (see Bergin CJ in Eq (at [92]).
As Bergin CJ in Eq has concluded (at [134] - [135]) and as the primary judge found (at [47]) the appellant did not mention the 95% representation again in the course of dealings with the respondent concerning his portfolio and his loan obligations in circumstances when it might be expected he would. Thus he did not raise it when, for example, on 15 October 2008 Mr Mesaros said Risk was going to force sell if the ratio "gets close to 100", nor after the Bank sold all his shares leading to a shortfall (as he was advised on 17 October 2008) of around $400,000. Had the 95% representation influenced the appellant's conduct in relation to managing his loan exposure, it might have been expected that he would have protested at that stage that, had the respondent done a forced sale at 95%, he would not have suffered the losses incurred when the sale ultimately proceeded. When seen in this context, the appellant's evidence at trial "that he did not liquidate his portfolio because the Bank told him that it would force sell his portfolio at 95%" (see Bergin CJ in Eq (at [130]) has the self-serving quality which deprives it of any cogency when viewed in the light of his conduct in October - November 2008. As a matter of common sense, one would expect the appellant to have complained about the respondent's failure to give effect to the 95% representation at the time he was first confronted with the extent of the shortfall when his share portfolio was liquidated.
It is also cogent, in my view, as the respondent submitted, that the appellant did not apparently recall the 95% representation until he listened to the tape recordings of his communications with Mr Mesaros prior to the trial. It was this which appears to have prompted the third iteration of his cross-claim filed in the course of the trial, but the fact his recollection had to be prompted in this respect demonstrates how inherently improbable it is to conclude that he placed any weight upon it at the time it was made.
In my view, the primary judge, who of course had the advantage of seeing the appellant give his evidence, did not err in concluding that the appellant failed to establish that the 95% representation caused him any loss or damage.
MACFARLAN JA: I agree that the orders proposed by Bergin CJ in Eq should be made and, subject to the following observations, agree with her Honour's reasoning.
Contrary to her Honour's assumption, I do not consider that, when considered in its context, the statement of Mr Mesaros relied upon by the appellant constituted a "representation" for the purposes of s 51A of the Trade Practices Act 1974 (Cth).
One of the principles stated by Wilson J in a well-known passage in his judgment in Gould v Vaggelas [1984] HCA 68;157 CLR 215 at 236 was summarised by the Full Federal Court in Sutton v A J Thompson Pty Ltd(in liq) (1987) 73 ALR 233 at 240 as follows:
"If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation".
As pointed out by the Full Court, this and Wilson J's other principles were stated with reference to a common law action for deceit but are equally applicable to contraventions of statutory provisions concerned with misleading and deceptive conduct. The Full Court went on to say:
"In this formulation, the possibility that a foolish person might be misled by some representation which no normal person would take seriously, is covered by the exclusion of representations which are not 'calculated to induce' entry into the contract - the test is objective, but must take into account the respective positions of the parties, including such matters as their knowledge of each other through previous dealings and their respective familiarity with the subject-matter of the contract."
A similar point is made with respect to the common law in Spencer Bower, Turner and Handley, Actionable Misrepresentation, (4th ed 2000, Butterworths) at [117] where the authors state that an intention to induce, as well as actual inducement, is essential to render a misrepresentation actionable (see also Spencer Bower, The Law Relating to Estoppel by Representation, (4th ed 2004, LexisNexis UK) at V.3.3-V.3.5).
Consistent with this approach is that of the High Court in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 where the plurality concluded that the defendant vendors' agent "made no representation of any kind, beyond stating what information the vendor wished to communicate to the purchasers" (at [35]), and that it was necessary in determining whether the agent had engaged in misleading or deceptive conduct to consider the agent's conduct as a whole (at [39]) and "what a reasonable person in the position of the purchasers, taking into account what they knew, would make of the agent's behaviour ... " (at [50]). The Court pointed out that misleading and deceptive conduct does not necessarily have to involve a representation (at [32], [128] and [179]). However, as it usually does, the approach taken in that case is applicable to the present where, by reason of the language of s 51A of the Trade Practices Act, the conduct in question, to be actionable, must constitute "a representation".
In a separate judgment in Butcher, McHugh J emphasised that the determination of whether conduct is misleading or deceptive is an objective question to be determined by reference to the defendant's conduct as a whole (at [109]). His Honour applied the principles stated in Gould v Vaggelas to which I have referred above and noted their adoption in Sutton v A J Thompson Pty Ltd.
The approach taken in these authorities is consistent with the ordinary meaning of "represent" which is most relevant to the present context, namely, "to set forth clearly or earnestly with a view to influencing opinion or action or making protest" (Macquarie Dictionary meaning number 10).
To like effect is the authority in the field of criminal law that the term "untrue representation" in a statutory provision concerned with the inducement of confessions involves, inter alia, a statement made with the object of procuring a confession (R v Connors (1990) 20 NSWLR 438 at 446 - 7; Hawkins v The Queen [1994] HCA 47; 181 CLR 440 at 446 - 7).
The above observations are not intended to indicate that carelessness will preclude a representee claiming damages where there has been actual reliance upon a representation calculated to influence the representee's conduct (see for example Henville v Walker [2001] HCA 52; 206 CLR 459 at [165]). Thus a failure to check the accuracy of misleading representations does not deprive the representee of a remedy (Sutton v A J Thompson at [241]). An untrue statement will be actionable if a reasonable person in the position of the person to whom it was made would have regarded it as a serious statement intended to influence his or her behaviour and the latter has in fact relied on it, whether or not acting carelessly in doing so.
In the present case, the statement relied upon, "[o]nce you get 95%, that's it, they're going to force sell", was made in the midst of one of a number of lengthy conversations between the appellant and Mr Mesaros. Reading the conversations as a whole, I would not conclude that a reasonable person in the position of the appellant would have treated the statement as made with the intention of inducing action on his or her part or, to use the language of Sutton v A J Thompson, as "calculated" (in an objective sense) to do so. The statement was made "en passant", as part of a lengthy to-ing and fro-ing between the appellant and Mr Mesaros. There was nothing in the conversations to suggest that, by this statement, Mr Mesaros was attempting to persuade the appellant to do something, or otherwise influence his actions in a presently relevant respect.
This view, formed after examination of transcripts of the conversations, is confirmed by listening to the tape recordings of them. The relevant statement of Mr Mesaros assumed no prominence or force at all. Indeed, it sounded like an aside, made quickly and in a voice trailing away.
As submitted by the respondent, "[t]here was clearly nothing promissory or cast-iron about the statement. It was a passing, spontaneous prediction made in the flow of one of many discussions" (written submissions [49]). As the respondent also submitted, the statement was "not made in the context of Mr Mesaros being asked as to when Risk would move to liquidate" (ibid at [50]) nor, I would add, by way of Mr Mesaros volunteering a serious statement upon which the appellant might be expected to rely as to when "Risk" would or might act. A contrast may be drawn with the statements in Willett v Thomas [2012] NSWCA 97 which the primary judge in that case described as "heavily interwoven with puffery, eagerness and undue optimism" but which were nevertheless held on appeal to have been actionable because, despite their generality, they were clearly intended to and did encourage the provision by those to whom they were made of funds for investment.
The comments I have made are equally fatal to the other causes of action upon which Mr Razdan relied. As Mr Mesaros' statement would not have been regarded by a reasonable person in the appellant's position as intended to be relied upon, it did not amount to a representation which could found an estoppel and could not assist the appellant in obtaining a finding of breach of an implied term of reasonableness and good faith or a finding of unconscionable conduct.
BERGIN CJ in EQ: The appellant, Anil Razdan, appeals from the judgment of the primary judge, his Honour Judge Cogswell SC of 5 April 2013 in the District Court of New South Wales (the Judgment). The primary judge entered a verdict and judgment for the respondent, Westpac Banking Corporation, for $586,662.43 and dismissed the appellant's Cross Claim.
The respondent sued the appellant for the outstanding amounts owing under a margin lending facility (the Facility) into which the appellant had entered with St George Bank Limited (the Bank) in 2005. The Facility became Westpac's asset pursuant to s 22 of the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) with effect from 1 March 2010.
The appellant's pleadings included a claim that an officer of the Bank had made misleading or deceptive representation to him upon which he claimed he relied, including that the Bank would cause a forced sale of his share portfolio if the gearing ratio (or loan balance to security value ratio) of 95% was reached. It was alleged that although the gearing ratio exceeded 95% after the representation was made, the Bank failed to immediately liquidate the appellant's share portfolio leaving him with an exposure to the Bank whereas, if the sale had occurred earlier the debt, or amount outstanding, would have been satisfied by the proceeds of sale. There were also claims of breach of an implied term of reasonableness and good faith, unconscionable conduct, estoppel and failure to mitigate.
Background
The Bank operated an electronic system known as the Margin Lending System (MLS). Pricing data and other information was automatically updated on the MLS as events such as changes in share values occurred, albeit with a delay of approximately 20 minutes (Blue 444). In practical terms the Bank calculated the market value of the shares by "simply" taking the value of the shares and multiplying that amount by the number of shares held by the borrower. The market value was reduced by the value of any sold call options on the account (Blue 446).
The borrowing limit under margin lending facilities was the maximum amount the Bank was willing to lend a customer based on the amount of security provided. It was calculated by taking the market value of the particular security and multiplying that amount by what is known as the "gearing ratio" relevant to the security. In practical terms the gearing ratio was set according to the Bank's internal risk policy framework, reviewed on a regular basis. The gearing ratios were determined by assessing the fundamental performance of the particular security as well as "considering numerous quantitative and qualitative factors" (Blue 447).
The Facility also operated on what was known as a "buffer" which allowed the loan value to move above the borrowing limit up to a maximum, generally within a 10% range, without triggering what is known as a "margin call". It provided borrowers with some flexibility in managing market volatility. The determination of whether a loan account went into margin call was arrived at automatically in the MLS, rather than manually, by reference to the amounts ascribed to the amount outstanding, the borrowing limit and the buffer (Blue 448-449).
The Facility included the following provisions:
7. Margin Calls
7.1 Subject to clause 7.5, if the amount outstanding exceeds the sum of:
(a) the borrowing limit; and
(b) the buffer,
at any time, you must take the action referred to in clause 7.2 by 2 pm [EST] on the next business day after the event occurs.
7.2 The action you must take if the amount outstanding exceeds the sum of the borrowing limit and the buffer is to:
(a) repay some or all of the amount outstanding;
(b) provide us with additional security interests which are acceptable to us;
(c) arrange to, or give us irrevocable instructions to, sell, dispose of or redeem some or all of the mortgaged property [with the proceeds being used to reduce the amount outstanding or being deposited to the credit of the Cash Management Trust Account]; or
(d) take any other steps we consider necessary
so that the amount outstanding no longer exceeds the borrowing limit.7.3 You are responsible for being in a position to receive any communications from us in relation to this clause and to act within the time limits specified in this clause.
7.4 As further and better security to us, you and each other security provider irrevocably authorise each attorney appointed in the power of attorney contained in the application form to take, in accordance with that power of attorney, any steps we consider necessary (including any of the steps listed in clause 7.2) to ensure the amount outstanding no longer exceeds the borrowing limit. This authority arises whether or not we try and advise you that you need to comply with clause 7.1.
7.5 If
(a) the amount outstanding exceeds the sum of:
(i) the borrowing limit; and
(ii) the buffer,
at any time during a trading day; and
(b) during:
(i) the trading day in which that event occurs the All Ordinaries Share Price Index on the trading platform operated by ASX the market value of any security comprising part or all of the mortgaged property falls by more than 5%; or
(ii) the three trading days preceding that trading day the All Ordinaries Share Price Index on the trading platform operated by ASX or the market value of any security comprising part or all of the mortgaged property falls by more than 10%,
as further and better security, you and each other security provider irrevocably authorise each attorney appointed in the power of attorney contained in the application form to take, in accordance with that power of attorney, any steps listed in clause 7.2 we consider necessary to ensure the amount outstanding no longer exceeds the borrowing limit.
7.6 We may vary the gearing ratio or the market value of a security, or the percentage taken into account in the buffer at any time in our absolute discretion, even if it makes clause 7.1 or clause 7.5 apply.
7.7 You and each other security provider acknowledge that:
(a) you must monitor whether clause 7.1 applies at any time, and we have no responsibility to do so;
(b) if at any time we choose not to notify you that you have an obligation under clause 7.1, or exercise our rights under clause 7.4 or clause 7.5 despite then being entitled to do so, that is not a waiver of our right to do so subsequently.
7.8 Our rights under this clause 7 (whether we exercise them or not) do not limit any of our other rights at law or under these terms and conditions.
...
36. Limitation of Liability
36.1 We need not do anything (including disclosing anything or giving advice, or doing anything we are entitled to do under this facility) except as expressly set out in this agreement.
...
36.5 Neither the nominee nor we are responsible for or liable in respect of:
(a) any change or movement in the value of any security comprising part of the mortgaged property; and
(b) any information, advice or opinion (including any information, advice or opinion relating to any security) provided by us or any other person on our behalf whether or not it is provided at your request or relied on by you or by others.
The "Risk Disclosure Statement", signed by the appellant at the time of his application for the Facility, included the following:
Margin calls
If the value of the overall security held by us drops below a certain proportion of the loan you will receive a margin call. You can not just "wait out" any downturns in the market.
You will have a limited time to deal with any margin call by either repaying to us enough of your facility or giving us more securities on the relevant applicable acceptable securities list. If you fail to act within the time periods specified in the terms and conditions, then some of your securities may be sold so as to ensure the amount outstanding no longer exceeds your borrowing limit.
We may at any time remove an investment from the acceptable securities list. This may reduce the borrowing limit. If we do so you may be required to provide other security or repay some of your loan to ensure the amount owing does not exceed the borrowing limit.
If the Bank did not exercise its rights, powers or remedies under the Facility at any given time, it was entitled to exercise them later (cl 38.2). It is not in issue that the Bank was entitled to conduct a forced sale of the appellant's shares and that the Facility provided that the appellant was obliged to pay the outstanding amount under the Facility irrespective of the amount recovered from a forced sale.
Between 2005 and 2008 the Facility went into margin call on a number of occasions. There were occasions when the appellant waited to see if the market moved in his favour to bring his loan back below the borrowing limit, obviating the need to sell shares. If this did not happen then the appellant would sell shares to effect that outcome. On other occasions the Bank conducted a "forced sale" (a sale of the shares by the Bank to the exclusion of the appellant's involvement). However things became very difficult in September and October 2008 with the impact of the Global Financial Crisis (GFC).
There is no issue that the appellant's Facility went into margin call at the end of September 2008. At that time the amount outstanding was $4,543,970.77. The borrowing limit under the Facility was $3,728,659.94 and the buffer was $537,722.13. The buffer was determined by multiplying together the market value of the shares on 30 September 2008, being $5,377, 221.27 and the percentage of 10%. The Facility was therefore in margin call because the amount outstanding exceeded the sum of the borrowing limit and the buffer (Blue 449-450).
On 30 September 2008 the amount needed to bring the account out of margin call was $815,310.83. That figure was calculated by subtracting the amount outstanding ($4,543,970.77) from the borrowing limit ($3,728,659.94) (Blue 449-450).
On 3 October 2008 an officer of the Bank telephoned the appellant and informed him that he needed "$200,000 to cover the margin call". That communication apparently occurred after business hours on Friday evening 3 October 2008, the eve of a long weekend in New South Wales.
From Tuesday 7 October 2008 to 18 October 2008 (and thereafter) there were numerous conversations (all of which were tape-recorded) between the appellant and an officer of the Bank, Mr David Mesaros, with whom the appellant was dealing in respect of the Facility. Although the content of the conversations is not in issue, the parties are at issue in respect of the characterisation of what was said in the conversations. It is therefore appropriate to refer in some detail to those conversations.
The transcripts of the telephone conversations between the appellant and the officers of the Bank were of conversations between 3 September 2008 and 4 June 2009. The conversations on 3 September 2008 included the appellant checking his "wealth buffer position' and being informed that he was "negative $327,156" and he would "hit margin call" at "negative $608,000" (Blue 698-699).
On 10 September 2008 the appellant telephoned the Bank and spoke to Mr Mesaros. He complained that the Bank had telephoned his brokers and advised them he was in margin call rather than ringing him directly. Mr Mesaros confirmed that the appellant's Facility was in margin call and that he would look after his account in future because he was the account manager (Blue 699). After further discussion the appellant and Mr Mesaros decided that they would see how the market panned out the following day (Blue 700).
On 11 September 2009 the appellant spoke with another officer of the Bank and was advised that he was in margin call for "almost $700,000" and that his buffer was roughly $560,000. The officer informed the appellant that the market had "just dropped again" and he needed to clear the margin call by two o'clock that day. The appellant advised the Bank officer that "if the market just pulls me out, that's alright, otherwise I can sell you know". He said "Usually that's what happens, in a couple of days, the market just pulls me out of it" (Blue 702). The officer then advised the appellant that the Department of the Bank (Risk) had taken an interest "because of the size of the margin call" and that "we can give you until two o'clock tomorrow". There was then a discussion as to what action the appellant would take on the account and he asked whether the Bank was selling some stock. He asked "what else can I do at the moment?". He was advised that he could put cash into the account or he could transfer extra security. The appellant said that he would sell certain stock that would give "maybe at least $100,000" (Blue 703-704). There were other conversations in September and early October 2008 when the appellant checked the level of the margin call and whether there was the capacity for him to "protect a share price" (Blue 706-709).
The conversation between a bank officer and the appellant on Friday evening, 3 October 2008, was not tape-recorded because it was apparently made from a mobile phone. Its terms were recorded in the Bank's records which included the bank officer advising the appellant that his loan was in margin call and that he needed to sell $200,000 worth of shares to cover it (Blue 90).
On the following Tuesday after the long weekend, 7 October 2008, the appellant had a number of telephone conversations with Mr Mesaros. The first conversation was one in which Mr Mesaros telephoned the appellant and advised him that he had received an e-mail from Risk. He informed the appellant that he was trying to hold Risk off "as much as possible" but that it was asking if "we could put some more money in the account". Mr Mesaros advised the appellant that the buffer amount was "509" and that the appellant was "in there by $912,000" and they were "looking about $403,000 at the margin". The appellant asked Mr Mesaros how long he could hold Risk off because he would have to sell shares. He said "that's the only thing I can do, I mean, I can't put in the money". After further discussion about the Market, Mr Mesaros suggested that the appellant should "start selling some shares" and that he would speak to Risk and hold them off if the appellant started "reducing the exposure a little bit" (Blue 709-710). After further discussion about the utility of buying back options, Mr Mesaros informed the appellant "I can't advise you" (Blue 711). He also suggested that the appellant should speak to his adviser and ask where he could generate more income (Blue 712). The appellant informed Mr Mesaros that he could "put $150,000 today" and that it was "not a problem" (Blue 713). Mr Mesaros said that the appellant should "start looking at shares that you could possibly sell". The appellant said that although he did not want to sell, he could sell BHP shares because there were no options written in relation to those shares. He said, "I've been waiting, hoping for the market but, you know, the market has fallen too much" and it was "not helping me at all". Mr Mesaros said that he would "hold off today" but that if the appellant wanted to sell he should do so "by all means" (Blue 714).
Mr Mesaros telephoned the appellant again on 7 October 2008 and the conversation included the following (the appellant is "AR" and Mr Mesaros is "DM) (Blue 717-718):
DM: Tough call. You've got to find an equilibrium look it's very, very. You need to sit down. I wish I could help because I don't want to make the wrong decision and something might go wrong. You need to sit there and work it out. But there are some of the things available. Maybe sell the shares, or maybe write a call option a bit further out, two months maybe, I don't know, I can't comment. Speak to your adviser. Let them have a look at it. But they do get commission out of this. It's probably best that you speak to them.
AR: Yep.
DM: And see what they recommend and which way is the best way to go forward.
...
DM: ... Yeah, just probably best to sell it off. The more I think about it. But look, don't let me comment. You have a think about it and you decide on that part because if, I can't really comment on this. ...
After further discussion about whether the appellant could reduce the outstanding amount by selling options, Mr Mesaros informed him that "[a]t the moment you're in 92%" and the following conversation occurred (Blue 719):
DM: You there? Sorry about that. Yeah, I've just done a quick calculation. Say, if you could sell about $200,000 worth.
AR: $200,000 worth.
DM: $200,000-$300,000, yeah.
AR: OK.
DM: I see its 70% geared but that's a start. As long as we could start from there and then we can work on a from (sic). See, actually, I've got $400,000. But we could work in increments. Say, $200,000 and then slowly $200,000 again. But ideally if we could get $400,000 as a whole package, then it'll reduce it down back up to under 90% or 95%. Yeah.
The next conversation on 7 October 2008 was relied upon as the 95% representation. The recording of the particular part of the conversation was played during the hearing of the appeal. It was in the following terms (Blue 720-721):
DM: Margin Lending. Oh, Anil?
AR: Yeah, David. I just wanted to ask you, the market is turning around. Do you still want me to sell go ahead with the sales.
DM: Yeah, no, it's turned around a bit. I'm just worried about the Dow Futures. It's still indicating, I'll just see what, it was pointing. Let's have a look. It's just, it's more of a sign of good faith. Just so Risk can see that we are trying to work towards getting this back into order.
AR: That's right, yeah.
DM: But the Dow Future. I'll just see how the Dow Futures looking at the moment, won't be a sec.
AR: Because they trading about $30 now.
DM: Yeah. The Dow's up a bit, 28 points. Just if we can, just as a sign of good faith at this moment, just have a look at what stock to sell and just sell, just if we can, see it's 91% geared. Yeah, no, cause if they see tomorrow nothing's come through, they'll start having not a whinge, they will, they'll be a bit more aggressive and just go in there and start selling themselves.
AR: OK.
DM: Yeah. Just if we can. Just as a sign of good faith, just put an order in there, get it executed, and then we'll take it from there.
AR: Just something not a lot, is it?
DM: Yeah. Just probably we still need, I'll just do a quick calculation.
AR: Because my value must have improved now, isn't it?
DM: It has, it has. I'm just getting your details on my screen.
AR: You people must be very busy isn't it, I suppose most of the clients must be having the same thing.
DM: Oh yeah, no, the majority of, everyone's in the same position at the moment, it's very, it's very, only a few that might be still fine in terms of having funds available, but a lot of people are in margin call at the moment. Have a look around because what's happening, the way you're positioned, the way your account stands at the moment, you're 91% into, your 91% geared.
AR: Yep.
DM OK. Once you get 95%, that's it, they're going to force sell. Your market value for your portfolio comes to $4.6 million. Your loan's $4.5 million.AR: Yep.
During the balance of this conversation Mr Mesaros conducted what he referred to as "an assimilation" to see how the account looked on an hypothetical sale of BHP shares. He informed the appellant that "it" was pushing up to 97% (Blue 721-722). After further discussions about hypothetical sales of shares, Mr Mesaros said that the reason the gearing was pushed up to 97% was because, although the value of the shares may have been reduced, "the loan itself is not being reduced" because only a certain percentage (30%) had "come through" the system (Blue 723).
On 8 October 2008 Mr Mesaros telephoned the appellant and informed him that the "market's had a bit of a shocker - overnight it looks like it's going to be another bad day today. We need something sold today. I need something sold" (Blue 727). Mr Mesaros said the sale should take place before 12 o'clock that day and that it would be best to work on $400,000 worth of shares. Mr Mesaros informed the appellant that he was worried that Risk "might suspend the account and sell them themselves." (Blue 728). The appellant had a further conversation with Mr Mesaros that day in which he discussed selling BHP Billiton Limited (BHP) or OZ Minerals Limited (OZL). The appellant decided he would sell OZL shares and telephoned the Bank later that day to advise that he had sold the OZL shares (Blue 727).
On 9 October 2008 Mr Mesaros telephoned the appellant and asked him to send him the contract note in relation to the sale of the OZL shares (Blue 729). After discussion about the way in which the market was behaving and the fact that banks "worldwide" were "stepping up in the market and trying to halt the slide", Mr Mesaros said that the Bank would "hold off" for the time being (Blue 730-732).
On 10 October 2008 Mr Mesaros telephoned the appellant and informed him that he had to sell some more shares that day and that if he could send him a quick email, he would try to hold off Risk as much as possible (Blue 733). Mr Mesaros suggested that the appellant should just try and sell another $200,000 worth of shares (Blue 734).
On 15 October 2008 Mr Mesaros and the appellant had a further conversation which included the following (Blue 734):
DM: I just got our Risk guys seeing what we can do to try and get this fixed. At the moment it's sort of fluctuating close to, where is it, I'll just get it up Anil, nearly 100, no. Where are we? 94% it's come off a little bit, but they're just worried if it gets close to 100, they're going to, I've just been told, if it gets close to 100, then they're going to force sell.
AR: OK.
Mr Mesaros said that if there was no "resolution" and the appellant could not come up with something the following morning, "they're just going to go in there and force sell" (Blue 737).
On 16 October 2008 Mr Mesaros telephoned the appellant and said that everyone was in "panic mode". He said that he would find out what was happening in 10 or 15 minutes when the officer from Risk came into work (Blue 740-742). A short time later Mr Mesaros telephoned the appellant and informed him that Risk had "basically said they're going to force sell. They said don't sell anything. If you can't bring the cash or anything across at the moment or you can't do anything else, left with on (sic) option is it's going to go in and force sell it today". Mr Mesaros informed the appellant that the "way the market is at the moment" they were "going to force sell it today" and they were going to do so "at the opening". He informed the appellant there was nothing he could do and it was out of his hands. He apologised and said that Risk were "putting it together" as he spoke. The appellant said "Alright, no worries. Thank you." (Blue 743-744).
During the period from 3 October 2008 to 14 October 2008 the appellant bought and sold a number of call options in Telstra, Woodside Petroleum Limited (WPL) and Oil Search Limited (OSH). That resulted in a credit to the Facility of option premiums in respect of Telstra of $1,396.16, WPL of $23,659.92 and OSH of $63,046.85 (Blue 451-452).
On 9 October 2008 the appellant sold 122,124 OZL shares (settled on 13 October 2008) for an amount of $166,646.09. On 13 October 2008 the appellant sold 7,000 shares in BHP (settled on 15 October 2008) for an amount of $192,441.15 (Blue 451).
On around 16 and 17 October 2008 the Bank sold all but a few of the appellant's shares for the amount of $3,866,115.45. On 19 December 2008 the Bank sold the remaining shares for the amount of $747.46. The proceeds of sale of the shares were less than the amount outstanding.
The Proceedings
The appellant was unable to pay the outstanding amount and Westpac commenced proceedings against the appellant for the outstanding balance.
The pleadings
Westpac filed the Statement of Claim in the District Court on 29 April 2010 seeking a verdict and judgment in the amount of $452,953.72, plus interest and costs. The appellant filed a Defence on 4 June 2010. After Westpac filed a Notice of Motion to strike out that Defence on 17 August 2010, the appellant filed a Defence and a Cross-Claim on 21 September 2010.
The appellant's Cross-Claim was amended on 25 October 2011 (Amended Cross-Claim) and was further amended during the trial in March 2013 (Further Amended Cross-Claim). It is apparent that the appellant and/or his legal representatives did not review the transcripts of the taped conversations between the bank officers and the appellant prior to the filing of the Amended Cross-Claim in October 2011
Westpac relied on the history of these amendments in support of its contention at trial and on appeal, that the appellant did not rely upon the representations made to him by the Bank.
Misleading or deceptive conduct
Prior to the filing of the Further Amended Cross-Claim, the appellant had claimed that the Bank had represented that once the gearing ratio of the Facility reached 90%, the Bank would "immediately" force sell his share portfolio (the 90% representation). He claimed that in reliance upon the 90% representation and on the instructions of the Bank, he had sold shares in his portfolio to the value of $192,441.15 to reduce the amount outstanding (Red 24 and 40).
The appellant had originally pleaded only one representation (the 90% representation) and alleged it had been made on or about 3 October 2008 (Red 23). In the Amended Cross-Claim filed in October 2011 the appellant alleged that there were five representations made by the Bank on 3 October 2008, in reliance upon which he sold shares in his portfolio to the value of $192,441.15 (Red 38-40).
It was alleged that on or about 3 October 2008 the Bank represented to the appellant that the Facility had been placed in margin call and an amount of $200,000 was required to be paid to "cover such call". This was referred to as the "First October Representation" (Red 38). It was also alleged that the Bank represented that the $200,000, if paid, would bring the Facility out of margin call. This was referred to as the "Second October Representation" (Red 38). It was also alleged that the Bank represented that if the $200,000 was paid, the appellant would have no legal obligation to take any further action under clause 7.2 of the Facility. This was referred to as the "Third October Representation" (Red 38). It was further alleged that the Bank represented that if it sold any shares, the sale would be of such quantity as might be necessary to discharge the margin call of $200,000 and no more. This was referred to as the "Fourth October Representation" (Red 38). It was further alleged that the Bank represented that if the value of the Facility reached around 90% of the value of shares in the appellant's portfolio the Bank would immediately sell the shares. This was referred to as the "Fifth October Representation" (Red 38).
The appellant alleged that the First and Fourth October Representations were express and the balance were implied from the terms of the First and Fourth October Representations, having regard to the terms of the Facility, in particular clauses 7.1, 7.2, 7.4 and 7.5 (Red 38-39). The appellant also claimed that the Fifth October Representation was implied from the terms of the Risk Disclosure Statement that if the appellant did not act upon the margin call, the Bank could sell the shares to "ensure the amount outstanding no longer exceeds your borrowing limit"; and from the circumstance that the Bank had previously conducted a forced sale of the appellant's shares in circumstances in which the value of the shares exceeded the amount outstanding to the Bank under the Facility (Red 39).
It was alleged that the October Representations were misleading and deceptive because: the Bank did not immediately sell the shares when the value of the Facility reached 90% of the value of the appellant's shares; at the time of the margin call an amount "vastly in excess of $200,000" was required to be paid to cover the call and return the Facility to its Borrowing Limit; an amount of $200,000, if paid, would not have brought the Facility back within its Borrowing Limit; and the Bank did not sell only such quantity of shares as might be necessary to discharge the margin call at $200,000 and no more (Red 39-40). It was alleged that the appellant was induced by the October Representations to sell shares to the value of $192,441.15 and not sell any further shares to meet the "margin call" on 3 October 2008 nor liquidate his share portfolio (Red 40).
The appellant submitted that the fact that he did not mention the 95% Representation in subsequent communication with the Bank was not sufficient to displace his evidence, honestly given, that he relied upon it. That submission needs to be viewed in the light of the fact that on 15 October 2008 Mr Mesaros said that Risk was going to force sell if the ratio "gets close to 100". If the appellant had truly stayed his hand from selling the whole of his portfolio in reliance upon the 95% Representation, this was an exquisite opportunity to say to the Bank that it had an obligation to sell at 95% and not to wait until the ratio reached 100%. No such statement was made. It was the opportunity for the appellant to say to the Bank that he had held off selling his portfolio of shares because he thought the Bank would sell the shares at 95%. Nothing of this nature occurred.
The appellant submitted that the conversations in which he expressed disbelief that there was a shortfall after the sale of his portfolio were consistent with his claim that he relied upon the 95% Representation (Orange 18:[47]). By the time the appellant expressed such surprise, Mr Mesaros had informed him that the Bank was going to sell if the ratio was close to 100%. A sale at this level might have engendered a belief that there would be no shortfall. The fact that the appellant said nothing about his claimed reliance on the 95% Representation, in particular when Mr Mesaros mentioned the forced sale at 100%, is a powerful indicator of the appellant's position at the time. The primary judge was entitled to take the appellant's lack of complaint into account.
I am not satisfied that the primary judge erred in finding that the appellant did not rely upon the 95% Representation.
Grounds 10 and 11 - Estoppel
In dealing with the whole of the appellant's claim, the primary judge said that he did not regard "the assertions" in the pleadings "as forming the basis for any conduct which would estop Westpac from making the claims which it does". His Honour said that he did not find "any clear and unambiguous representation which could be the basis of such an estoppel" (Red 64-65: [45]).
The primary judge concluded that the 95% Representation was not "the kind of assertion which would found an estoppel" (Red 65: [46]). His Honour based this finding on the fact that the statement was made "in the context of lengthy conversations". His Honour had listened to the conversation which included the 95% Representation. Although the primary judge did not describe the listening experience the irresistible conclusion is that his Honour reviewed the conversions in context to conclude that the 95% Representation was not "the kind of assertion which would found an estoppel".
An estoppel "follows on findings of representation, causation, change of position and prejudice": KR Handley, Estoppel by Conduct and Election Thomson Sweet & Maxwell (2006) p 19 [1-027]. There must be the creation or encouragement of a particular assumption by the representor and reliance on that assumption to the detriment of the representee in circumstances where departure from the assumption would be unconscionable: Austotel Pty Ltd v Franklins Selfserve Pty Limited (1989) 16 NSWLR 582 at 610.
It follows from the findings above in relation to reliance that even if the 95% Representation was clear and unambiguous, there was no reliance upon it.
Grounds 12 to 15 - Breach of Implied Term of Reasonableness and Good Faith
The appellant complained that the primary judge erred in holding that the express terms of the Facility "took precedence". It seems to me that what the primary judge intended to convey by that statement was that it was not permissible to imply a term of reasonableness and good faith that would be inconsistent with the express terms of the contract. His Honour said (Red 64: [43]):
I am of the opinion that although I would be prepared to find that there was an implied term of reasonableness and good faith in the contract, the express terms of the contract take precedence and there is no evidence of any breach on Westpac's part of such an implied term. Indeed the agreement provides that the bank is not to be held responsible for anything said even if it was said negligently.
The appellant made detailed submissions as to why the 95% Representation was not "information, advice or opinion" within the meaning of those terms in clause 36.5(b) of the contract. It was submitted that clause 38.4 does not exclude an implied term that the Bank would exercise rights and remedies reasonably and in good faith.
The appellant accepted that the Bank had a right to sell his share portfolio. However he complained that the Bank informed him that it would sell his portfolio when the gearing ratio reached 95% and it did not do so. It is not only the Bank's failure to sell at 95%, but also that it did not sell prior to the point at which a shortfall would occur, that is claimed to be conduct lacking in reasonableness and good faith.
The 9 days between 7 October 2008 and 16 October 2008 included events of an extraordinary nature affecting the financial markets of the world. It is clear that it was a crisis that put people into what Mr Mesaros described as "panic mode" (Blue 742). The discussion between Mr Mesaros and the appellant that included reference to banks "worldwide" trying to halt the slide, is indicative of the extraordinary circumstances under which the finance/banking sector was operating (Blue 732). There was overwhelming evidence that far from acting unreasonably or conducting itself with a lack of good faith, the Bank tried to assist the appellant to retain his portfolio of shares in the hope of the market turning around. However this did not occur and the forced sale took place on 16 October 2008.
On the assumption that a term of reasonableness and good faith is implied into the Facility, there was no evidence that the Bank acted unreasonably or not in good faith. The trial judge did not err in finding that there was no breach of an implied term of good faith and reasonableness.
Grounds 16 & 17 - Unconscionability
It is neither possible nor desirable to provide a comprehensive definition of the term "unconscionable" but in general the range of conduct is wide and can include "undue pressure and taking advantage of vulnerability or lack of understanding, trickery or misleading conduct": Tonto Home Loans Australia Pty Limited v Tavares (2011) 15 BPR 29,699, [2011] NSWCA 389 per Allsop P (as his Honour then was) at [291]. The appellant claimed that the conduct of the Bank in telling him that his portfolio would be force-sold once it reached 95% gearing; not mentioning that his portfolio was already over 95% and on some days 100%, in the context of paying close attention to how heavily geared the appellant's portfolio was; and then force-selling the portfolio at a loss and suing him for the difference, should be regarded as unconscionable conduct.
Although the appellant claimed that the Bank did not inform him that the gearing ratio had gone over 95%, it is clear that there were discussions from which the appellant would have understood that his gearing ratio was either 95% or above. For instance when Mr Mesaros informed him that the ratio was at "94% so it's come off a little bit", he must have understood that it had been at or above 95% (Blue 734). Similarly when Mr Mesaros informed the appellant that Risk would sell if the ratio got close to 100%.
The primary judge's reasons for rejecting the allegation of unconscionability were expressed to be the "same reasons" as those applicable to his Honour's findings concerning misleading and deceptive conduct (Red 66 [48]). The Bank submitted that there was plainly no conduct on its part that could be regarded as "highly unethical" or attended by such "moral obloquy" as to amount to unconscionable conduct: Attorney General (NSW) v World Best Holdings Limited (2005) 63 NSWLR 557 at 583.
The case as pleaded relied upon s 12CA and s 12CC of the ASIC Act. S12CA(1) prohibits a person in trade or commerce from engaging in conduct "in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories". Section 5 of the ASIC Act provided that "financial service" relevantly had the meaning given to it by s 12BAB of the ASIC Act. Pursuant to s 12BAB(1) a person provides a "financial service" if they provide financial product advice; deal in a financial product; or provide a service that is otherwise supplied in relation to a financial product. Having regard to the conclusion stated below, it is not necessary to decide whether at the relevant time a margin lending facility was a financial product within the meaning of the ASIC Act. Certainly it was defined as such from 2011 in Regulation 2BA of the ASIC regulations.
In GPG (Australia Trading) Pty Ltd vGIO Australia Holdings Ltd (2001) 191 ALR 342 Gyles J referred to the "much debated but unresolved questions" in respect of the "kind of unconscionability" which is referred to in 12CA of the ASIC Act: at 386 [114-115]. After analysis of the relevant cases, his Honour concluded that it is the "equitable doctrine which is picked up by the reference to the unwritten law in s 12CA of the ASIC Act, rather than other situations in which unconscientious conduct is relevant to the grant of equitable relief, such as equitable estoppel": at 389 [123]. His Honour concluded that it was implicit that the construction of s 12CA of the ASIC Act will be governed by the same considerations that determine the construction of s 51AA of the TPA: at 390 [126].
The evidence clearly established that the Bank, through Mr Mesaros, did everything possible to meet the appellant's wishes of saving his portfolio from liquidation. The Bank provided him with detailed and up-to-date information and suggested he seek independent advice. Under the terms of the Facility, it was the appellant's obligation to monitor his account and manage his level of risk. It is therefore clear that, far from pressuring, tricking or misleading the appellant, the Bank made it clear that he was responsible for managing his own portfolio, encouraged him to seek advice on the best way to do that and provided him with information on the fluctuating and volatile market at that time. Furthermore it is clear that the appellant was not vulnerable. His Honour found, that the appellant was educated and an experienced investor. In any event he did not rely on the statements made by the Bank. I am not satisfied that the primary judge's conclusion in relation to unconscionability was in error.
The respondent indicated in its written submissions that it wished to be heard in respect of costs. It is appropriate in my view to make the costs order which would generally follow consequent upon the dismissal of the appeal, but to establish a short timetable for the exchange of written submissions concerning any application to vary that order, such application to be dealt with on the papers unless there is objection to that course.
Conclusion
The orders that I propose are:
1. Appeal dismissed.
2. The appellant to pay the respondent's costs of the appeal.
3. Any application to vary the costs order to be filed and served within 7 days supported by written submissions not to exceed 3 pages.
4. Any written submissions in response to the application to be filed and served within 7 days of receipt of the application and are not to exceed 3 pages.
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