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
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Details
- Case
- [2014] NSWCA 126
- Decision Date
CaseChat Overview and Summary
The appeal in *Razdan v Westpac Banking Corporation* concerned a margin lending facility provided by the respondent bank to the appellant. The appellant alleged that the bank had made misleading or deceptive representations regarding the forced sale of his share portfolio if a specific gearing ratio was reached. He further contended that the bank's failure to immediately liquidate his portfolio when this ratio was exceeded, despite an alleged representation to do so, resulted in a greater debt exposure than would have otherwise occurred. The appellant also raised claims of breach of implied terms of reasonableness and good faith, unconscionable conduct, estoppel, and failure to mitigate.
The court was required to determine whether certain statements made by a bank officer constituted representations as to a future matter, and if so, whether the appellant had reasonably relied upon them. Additionally, the court had to consider whether the bank was estopped from enforcing its contractual rights under the margin lending facility due to reliance on these representations. The court also examined whether the bank's conduct in selling the appellant's share portfolio was unconscionable, and whether there had been a breach of an implied term of reasonableness and good faith in the contract.
The court dismissed the appeal, finding that the appellant had not established his claims. The terms of the margin lending facility, particularly clauses relating to margin calls and the bank's rights and discretions, were central to the reasoning. The court noted that the facility placed the onus on the borrower to monitor the loan and take action when margin calls were triggered, and that the bank was not obligated to provide advice or take steps beyond those expressly set out in the agreement. The court also found that the bank's actions were consistent with its contractual rights and did not amount to unconscionable conduct or a breach of implied terms.
Consequently, the appeal was dismissed, and the appellant was ordered to pay the respondent's costs. The court also established a short timetable for any application to vary the costs order, to be dealt with on the papers unless objection was raised.
The court was required to determine whether certain statements made by a bank officer constituted representations as to a future matter, and if so, whether the appellant had reasonably relied upon them. Additionally, the court had to consider whether the bank was estopped from enforcing its contractual rights under the margin lending facility due to reliance on these representations. The court also examined whether the bank's conduct in selling the appellant's share portfolio was unconscionable, and whether there had been a breach of an implied term of reasonableness and good faith in the contract.
The court dismissed the appeal, finding that the appellant had not established his claims. The terms of the margin lending facility, particularly clauses relating to margin calls and the bank's rights and discretions, were central to the reasoning. The court noted that the facility placed the onus on the borrower to monitor the loan and take action when margin calls were triggered, and that the bank was not obligated to provide advice or take steps beyond those expressly set out in the agreement. The court also found that the bank's actions were consistent with its contractual rights and did not amount to unconscionable conduct or a breach of implied terms.
Consequently, the appeal was dismissed, and the appellant was ordered to pay the respondent's costs. The court also established a short timetable for any application to vary the costs order, to be dealt with on the papers unless objection was raised.
Orders
Orders of the court
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.]
Background
Background to the litigation
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 Calls7.1 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 necessaryso 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 Liability36.1 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.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
BERGIN CJ
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.**********
Ratio Decidendi
Legal Principle Established
Established by: BERGIN CJ
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