Re Batiste, D.M. v Ex Parte Commonwealth Bank of Australia
[1989] FCA 164
•27 APRIL 1989
Re: DONNA MARIA BATISTE
Ex Parte: COMMONWEALTH BANK OF AUSTRALIA
No. P2657 of 1987
FED No. 164
Bankruptcy - Contracts
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Burchett J.(1)
CATCHWORDS
Bankruptcy - defence to creditor's petition under s.52(2)(b) "that for other sufficient cause a sequestration order ought not to be made" - agreement by bank not to launch bankruptcy proceedings against debtor and not to enforce judgment against property acquired after the date of the agreement - agreement subject to conditions - purported revocation of agreement by bank for alleged breach by debtor - benefits obtained by bank under agreement - discussion of scope of defence under s.52(2)(b) in the light of the authorities - circumstances in which creditor in a transaction closely linked to the transaction upon which the petition relied had acted in high-handed disregard of the legal rights of the debtor while insisting on the strict letter of its own rights so as to entitle the court to exercise a discretion under s.52(2)(b) - petition dismissed.
Contracts - whether oral representation formed a term of the contract - whether a term should be implied in the contract as "so obvious that it goes without saying" - whether the conditions for such an implication set out in the Codelfa Construction case 149 CLR at 346-347 were satisfied - whether a further agreement should be inferred from the circumstances to have been tacitly concluded - whether equity would relieve against forfeiture of the rights conferred on the debtor by the agreement.
Bankruptcy Act 1966 s.52(2)(b)
HEARING
SYDNEY
#DATE 27:4:1989
Counsel for the Debtor: Mr G.G. Masterman Q.C.
with Mr J.K. McLaughlin
Solicitors for the Debtor: Price Brent
Counsel for the Petitioning Creditor: Mr V.R.W. Gray
Solicitors for the Petitioning Creditor: L.C. Hollis
ORDER
The creditor's petition be dismissed.
The creditor pay the debtor's costs.
NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
This is a creditor's petition for a sequestration order, in answer to which the debtor (Miss Batiste) relies on an agreement, made between the petitioning creditor (the bank) and herself, containing a term by which the bank undertook not to launch bankruptcy proceedings against her. The circumstances alleged by Miss Batiste are of some complexity. Her version of them has not been challenged by any evidence on behalf of the bank; nor, although she was cross-examined, did anything emerge to cast any shadow on the credit of her account. This is remarkable, since documents from the bank's file make it plain the entire dispute had its genesis in a diametrically opposed view of the facts entertained at the time by officers of the bank, never since unequivocally withdrawn, which there was no attempt at the hearing to justify.
In 1986 Miss Batiste was the owner of all the issued shares in Huon Valley Springs Pty Limited, the developer of a mineral water processing plant in Tasmania. She and the company had each borrowed large sums of money from the bank, which held a registered mortgage over her leasehold title to a penthouse apartment at the Regent Hotel, George Street Sydney. There are inconsistent indications in the material before me, but it was accepted at the hearing that only a part of the moneys owed by the debtor to the bank was secured by the mortgage. The company had also borrowed a further sum of $500,000 from the Commonwealth Development Bank of Australia. On 6 February 1986, the Commonwealth Development Bank of Australia made demand upon the company for payment within one hour of the sum of $545,020-10, and on the same day appointed receivers and managers of the assets and undertaking of the company.
On 30 May 1986, as appears from a memorandum in the bank's file, a Mr Moloney, acting on behalf of Miss Batiste, put to officers of the bank a proposal that Miss Batiste give up her shares in the company in exchange for a written undertaking by the bank not to make her bankrupt. The memorandum reveals that officers of the bank, who included the senior manager of its New South Wales central division, Mr Simington, considered the offered transfer of shares was essential to a proposed scheme of arrangement in respect of the company, involving the utilisation of its substantial tax losses. In addition, Mr Moloney offered Miss Batiste's proxy for the meeting of creditors at which the scheme of arrangement would be considered. (Miss Batiste was herself a very large creditor of the company, to the extent of about $650,000 according to figures set out in the memorandum.)
The memorandum makes it clear the bank was interested in the proposed scheme of arrangement, under which there was the prospect of obtaining some benefit from the company's tax losses, and also in the possibility of obtaining the benefit of Miss Batiste's share, as a creditor of the company, of the dividend expected to be payable under the scheme. The memorandum notes: "The benefit to the CBA is clearly obvious ... ." It also records discussion of the proposal at a high level in the bank, and a decision "to agree not to pursue Batiste to Bankruptcy" upon conditions including her "executing an authority that full settlement proceeds from the sale of the Penthouse be directed to the CBA. We can worry about a challenge from unsecured creditors when and if that challenge arises." Finally, it was noted that documents were to be prepared by the bank's solicitor so as to be available for execution on 2 June 1986.
Appended to the memorandum is a summary concerning what transpired on 2 June 1986. According to that, the written undertaking which Mr Moloney had requested of the bank was expanded, as a result of discussion in which representatives of the receivers and managers of the company, and also Miss Batiste's solicitor, took part. However, it was recorded:
"The only concession of any consequence granted was to allow Batiste occupancy for another three months (it would take the CBA that long to obtain vacate (sic) possession anyway) and to allow her the opportunity to arrange a private sale."
It is necessary to set out in full the terms of the undertaking given by the bank, which was contained in a letter dated 2 June 1986 on its letterhead, addressed to Miss Batiste. The letter reads as follows:
"Dear Miss Batiste
RE: FACILITIES: OVERDRAWN PRIVATE ACCOUNT HUON VALLEY SPRINGS PTY LTD
LEASE FINANCING HUON VALLEY SPRINGS PTY LTD OVERDRAWN PRIVATE ACCOUNT DONNA MARIA BATISTE SECURITY: COMMONWEALTH BANK OF AUSTRALIA ("THE BANK") MORTGAGE FROM DONNA MARIA BATISTE : LEASE FINANCING AGREEMENT WITH HUON VALLEY SPRINGS PTY LTD ("THE COMPANY") : UNLIMITED GUARANTEE FROM DONNA MARIA BATISTE The Bank undertakes not to initiate bankruptcy proceedings against you in respect of your indebtedness to it arising from the above referred to facilities. Notwithstanding the Bank's agreement in this regard the Bank retains all rights to institute, proceed with, and enforce legal proceedings against you for the full amount of all monies owed by you to the Bank. The Bank acknowledges that it is not the Bank's intention to institute such proceedings except in circumstances where the Bank considers it legally necessary to do so to protect or further the Bank's interest or to properly secure the Bank's rights. However, the Bank's right to enforce any judgment or judgments obtained against you shall be limited to the extent of any assets held by you directly or indirectly as at today's date. This right will not apply in respect of any after-acquired assets subsequent to today's date. Further, the Bank may at any time participate as a creditor to the full extent of any debts owed to the Bank (whether pursuant to a judgment or otherwise) in any bankruptcy following presentation of a petition by any third party creditor or any arrangement proposed by you under the Bankruptcy Act.
The Bank's agreement is subject to satisfaction by you of the following conditions:-
1 On the date hereof you deliver to the Receivers of the Company a duly executed and effective transfer of all your shares in the Company and do all things when and as required to effect a transfer of same;
2 On the date hereof you deliver to the Bank a duly executed power of proxy in favour of the Bank in the form annexed hereto marked "A" in respect of your rights, title and interest as a creditor of the Company;
3 Your entitlement to receive a distribution as an unsecured creditor of Huon Valley Springs Pty Ltd under the scheme of arrangement proposed by that Company is to be paid into a trust account in the name of John Edward Walker of Walker Wayland to be held by him and distributed pro rata to your existing creditors as at today's date. The fees and expenses of Walker Wayland incurred in connection with that firm's participation on your behalf in administration of this trust fund are to be paid out of the trust fund. The trust fund is to be distributed by the trustee within three months of the date of receipt of your distribution under the scheme of arrangement from the Scheme Manager.
4 On the date hereof you deliver to the Bank a direction in the form annexed hereto marked "B" in respect of proceeds of sale of Penthouse R3, the Regent of Sydney, 199 George Street, Sydney NSW; 5 Your statement of assets annexed hereto marked "C" is true and accurate; and 6 In relation to the property Penthouse R3 the Regent of Sydney 199 George Street Sydney you will co-operate with the Bank in the exercise of its power of sale pursuant to its mortgage of the said property. The Bank agrees to allow you to remain in occupation of the property for a period of three months from today's date at which time vacant possession will be given subject to any further agreement of the Bank PROVIDED HOWEVER that should the Bank require you to give vacant possession of the property within the said period of three months to enable the Bank to itself grant possession to a purchaser from the Bank on completion of any agreement for sale (to be completed within the said three months period) in respect of the property OR if the Bank should be required to obtain possession of the property by any person having a legal interest in the said property greater than the Bank's interest as mortgagee THEN in either such event you will grant vacant possession of the property to the Bank within 14 days of the date of notice from the Bank in that behalf or in accordance with the time limitations imposed on the Bank in the particular circumstance.
In the event that you are able to yourself find a purchaser at a price, or refinance the property in an amount, equal to market value of the property in accordance with the Bank's independent valuation thereof the Bank will accept payment of such amount in discharge of the mortgage obligation. The Bank's rights pursuant to the first paragraph of this letter will remain in relation to any shortfall between the total debt owed to the Bank and the amount received. This undertaking is revocable immediately upon any or all of these conditions not being satisfied by you.
Your acknowledgement of and agreement with the terms of this undertaking will be indicated by your signing and delivering to the Bank the duplicate copy of this letter annexed hereto.
Yours faithfully
(signed) J Vanner
J J VANNER
Deputy Chief Manager
I Donna Maria Batiste hereby acknowledge and agree with the terms of this document.
(signed) Donna Batiste
........ ........ .......
DONNA MARIA BATISTE"
No question was raised by the bank at the hearing concerning the annexures.
Mr Brian Hallett, the then solicitor for the debtor, swore an affidavit in the proceedings, on which he was not cross-examined. He deposed that on 2 June 1986 he attended the meeting at the offices of the bank at Royal Exchange Building, Pitt and Bridge Streets Sydney, when the document dated 2 June 1986 was executed. His affidavit continues:
"In the course of the meeting held on 2 June 1986 Mr Keith Simmington (sic) ... in reference to paragraph 6 of the letter ... said to me, 'I expect the Bank's independent valuation should be available within 10 to 14 days. I will forward a copy to Mr Moloney when it is received.'"
Mr Hallett annexed to his affidavit a copy of his file note dated 2 June 1986. This recites the persons present at the conference, including Mr Simington and the bank's deputy chief manager, Mr Vanner, and the time taken by the conference, which was very lengthy, and continues:
"Letter today's date drafted and signed. Bank to forward to M. Moloney copy of its independent valuation to enable D.B. to perhaps exercise rights under Para.6 (p 3). Simington expects valuation should be available 10 to 14 days. M. Moloney will advise us when received."
It is not in dispute that no copy of any valuation was ever forwarded by the bank to Mr Moloney. Although an independent valuation was obtained by the bank from Richard Stanton (NSW) Pty Ltd ("Richard Stanton"), dated 11 July 1986, that valuation, which was in the sum of $975,000, was not accepted as satisfactory by the bank, and the bank refused to disclose it, or the amount of it, to Miss Batiste or her advisers. Furthermore, the bank, although its officers gave anxious consideration to the question whether it should do so, never commissioned any other independent valuation. Despite the fact that these matters are plainly revealed by the bank's own file, it persisted over a number of months in claiming, contrary to the fact, that Miss Batiste was preventing it from obtaining a valuation.
At the time of execution of the undertaking of 2 June 1986, Miss Batiste also executed a proxy (as required by the bank) in respect of the meeting of creditors of the company, an authority (also as required by the bank) addressed to "The Purchaser", directing payment to Commonwealth Bank of Australia (without limitation to the amount secured by the mortgage) of moneys payable on completion of a sale of the apartment, and a statement of her assets which revealed that she had her interest in the penthouse, an equity worth about $45,000 in an apartment at Hamilton Island, then in the process of being sold under a mortgagee's sale, her rights as a creditor against the company, and clothing and personal effects.
On 30 June 1986, the bank wrote to Miss Batiste informing her that Richard Stanton had been engaged to carry out a valuation, and seeking her co-operation. The inspection in fact occurred on 4 July, the valuation being furnished to the bank on or about 11 July. The bank was extremely disappointed. As I have indicated, it disregarded the promise made by Mr Simington, and endeavoured to keep the valuation secret. However, by letter dated 21 July 1986, which bears a received stamp showing the date 7 August 1986, Mr Simington wrote to Miss Batiste as follows:
"We refer to the terms and conditions of our letter of Undertaking dated 2 June 1986. The Bank has engaged the services of Richardson & Wrench Pty Ltd to act as selling agents and it will be necessary for them to carry out a valuation of the Penthouse. Mr Ron Pillinger, from the aforementioned Estate Agent, will contact you within the next few days to arrange a mutually agreeable time for him to call.
Your co-operation in affording Mr Pillinger every assistance would be appreciated."
It will be seen that the letter makes no reference to Mr Simington's promise to forward a copy of the bank's independent valuation when received. The valuation to which the letter refers would not be an independent valuation at all, but a valuation by the bank's selling agent. In fact, as is made clear by the evidence before me, discussions had taken place between a representative of the bank and Mr Pillinger in which it had been decided that, for the very reason that he was to be the selling agent, he should not perform a valuation. In those discussions, no distinction had been drawn between an independent valuation and a valuation for the bank, the decision being based on a general policy of the bank that a selling agent should not perform the valuation of the property to be sold. (The policy admitted exceptions - but these related to isolated small towns where only the one person with appropriate expertise was available.)
Before the long delayed receipt of the letter dated 21 July 1986, Messrs Hallett & Company, Miss Batiste's then solicitors, had sent by hand to the General Manager, NSW Branches Administration, of the bank a letter dated 5 August 1986 referring to "the letter of agreement of 2 June 1986 and in particular to paragraph 6 thereof." Messrs Hallett & Company continued:
"It is noted that the Bank's independent valuation was conducted by Richard Stanton
(NSW) Pty Limited some weeks ago but that despite several verbal requests by Mr Michael Moloney a copy of that valuation has not been furnished to him. In this regard we should remind you that in the course of discussion on 2 June 1986 we were informed there would be no difficulty in providing Mr Moloney with a copy of the Bank's independent valuation when received.
You will appreciate that Miss Batiste is unable to exercise her right to 'find a purchaser at a price, or re-finance the property in an amount, equal to market value of the property in accordance with the Bank's independent valuation thereof' unless we are appraised of such valuation and receive a copy thereof. For the Bank not to do so would frustrate our client's ability to attempt to exercise her rights as set out in paragraph 6.
It is accordingly requested that we be provided with a copy of the valuation of Richard Stanton (NSW) Pty Limited as soon as possible."
Not having received any reply, Messrs Hallett & Company again sent by hand a letter, dated 15 August 1986, referring to further verbal requests which had been made since the previous letter for a copy of the valuation report. The letter of 15 August 1986 continued:
"You will appreciate that it is all but impossible for Miss Batiste to conduct any meaningful negotiations with prospective purchasers or financial advisers in respect of the property with the object of exercising her rights pursuant to Paragraph 6 of the Bank's letter of 2 June 1986 unless she is furnished with the information which both Mr Moloney and ourselves have requested. In this respect we reiterate the Bank's assurance given verbally on 2 June 1986 that a copy of the Bank's independent valuation would be made available following receipt thereof by the Bank.
For the Bank to withhold from Miss Batiste information requested, for whatever reason, clearly frustrates her ability to exercise rights as agreed to by the Bank. We accordingly again request that you furnish to us a copy of the Bank's independent valuation, namely, the report of Richard Stanton (NSW) Pty Limited, as a matter of urgency. We further request that, in view of the delay that has occurred in providing such copy, a reasonable period of time should be allowed in which Miss Batiste can attempt to exercise her rights under Paragraph 6."
Following this letter also, the Bank's silence continued. Eventually, on 28 August 1986 (a bare five days before the expiry of the three months period mentioned in the agreement of 2 June 1986), the bank's solicitor sent by hand a letter to Messrs Hallett & Company. This letter made no reference to the letter of Messrs Hallett & Company of 15 August 1986, with its request for the allowance (in view of the delay which had occurred) of a reasonable period of time for Miss Batiste to attempt to exercise her rights under paragraph 6 of the agreement, but referred to the earlier letter of 5 August 1986. The bank's solicitor continued:
"The Bank's valuation of the mortgage property has not, as yet, been determined. In the exercise of its power of sale by private treaty a mortgagee is bound to sell in good faith and for a fair price (refer Davey v. Durant (1857) 1 De G & J 535). In determining a 'fair price' estimates of the value of the mortgage property from competant
(sic) estate agents and/or valuers must be obtained. In the present circumstances the Bank considers, and has always considered, it desirable to obtain, as a minimum, two valuations. The agreement between the parties does not, and cannot, diminish the Bank's rights and duties as a mortgagee. The agreement in its own terms neither confines the Bank to obtaining one valuation nor to being bound by any particular valuation. Your client will be informed when the Bank has completed its procedures. Your client has agreed to co-operate with the Bank in the exercise of its power of sale. I am instructed that she is refusing the Bank further access to the property and thereby preventing a second valuation from being carried out. She is, accordingly, in breach of the agreement.
I point out that your client is required to give vacant possession of the property to the Bank on 2nd September next. Should she not vacate the premises by this date then the Bank will consider, in light of developments, taking immediate ejectment proceedings against her.
However, I suggest that it is in the interests of all parties to achieve a sale of the property at the highest possible price. Your client's failure to co-operate in allowing inspection of the property damages her own prospects and leaves the way open for the Bank to take legal action against her for the full amount of moneys owed."
This letter demands some comments. In the first place, it does not deny (and the bank has never denied) the oral agreement alleged by Miss Batiste's solicitor to have been made with so very senior an officer of the bank as Mr Simington. Next, the letter ignores entirely the rights the bank had agreed to give Miss Batiste to refinance the property or sell it herself at "the bank's independent valuation". The proposition that the agreement cannot diminish the bank's rights is, on the face of it, extraordinary. The letter evinces an attitude of total and high-handed disregard of the rights the bank had granted Miss Batiste, not as a matter of grace and favour, but as the price of the proxy and of the other benefits Miss Batiste had conferred on the bank.
Then, the letter contains an allegation against Miss Batiste of obstruction by refusal of access to the property. This allegation was promptly and specifically denied by Miss Batiste. Although, as will appear, the bank persisted in the allegation through 1986, it presented no evidence whatever in support of it at the hearing, and I am satisfied that no instructions had ever been given by the bank to anyone to carry out the alleged "second valuation". It may be that at some time someone, for some purpose, attempted to speak to Miss Batiste at the penthouse apartment and was unable to do so. Such an occurrence would not be surprising, since her father was then terminally ill with cancer, and she was spending much time at his bedside. That was not lack of co-operation. In answers to interrogatories, it was conceded on behalf of the bank that it did instruct its solicitor "that the Debtor was refusing the Creditor further access to the Property, and thereby preventing a second valuation from being carried out." In answer to a question seeking details of the refusal and prevention, it was stated:
"The Creditor believed on 29 August 1986 that the Debtor had prevented a second valuation from being carried out by failing to enable access to be obtained to the property. This is not a matter on which the Creditor relies for the purposes of these proceedings."
This careful reply not only refrains from asserting the fact, but restricts the belief about it to the day following the date of the solicitor's letter (perhaps on the basis the letter was not delivered until then). At the time, the assertion was not so restricted, but was repeated both in the bank's internal memoranda and in later correspondence. I can only conclude from the evidence that the bank did not have any real grounds for the belief it claimed to hold, but made a too ready assumption in order to hide its embarrassment about the valuation, and its determination to ignore the inconvenient rights it had agreed to allow Miss Batiste. The precise source of the assumption, and the nature of the error that underlay it, were not revealed by the bank's evidence, although it was disclosed that the occasion of the alleged incident of failure to enable access to be obtained (whatever exactly it was) was some time about 21 July 1986. Evidence given on the voir dire by a senior valuer of Richardson and Wrench Limited, which by consent order was treated as evidence upon the hearing, left no doubt that no valuation of the penthouse apartment had ever been requested of that company by the bank. What is also clear is that, before Richard Stanton was approached, a Mr Pillinger of Richardson and Wrench Limited (who was available to give evidence but was not called) had been spoken to about the possibility of acting on the sale or doing a valuation; he was not asked to do a valuation, as he expressed a preference for acting on the sale, nor was he instructed to take steps to sell, until very much later, since the bank had not made up its mind about a sale price.
Apparently, Mr Simington was no longer available from some time before 22 August 1985. This may perhaps have contributed both to the bank's failure to keep steadily in mind its obligations under the agreement of 2 June, and also to the persistent dominance of assumptions over facts in the bank's subsequent decision-making.
Messrs Hallett & Company replied promptly to the bank's solicitor's letter of 28 August 1986. Their letter is dated 1 September 1986. It makes the following points:
"1. The agreement of 2 June 1986 was in fact made on the basis that the Bank intended to obtain an independent valuation of the property. The discussions on that date were of a single independent valuation and the terms of the letter of agreement are in our view referable to a single valuation rather than to a plurality of valuations.
2. ...
3. ...
4. On 2 June 1986 we were advised that the Bank's independent valuation would be completed within 'a fortnight' and a copy furnished to Mr Moloney. This timetable allowed our client ample time in which she could herself attempt to find a purchaser in terms of the final paragraph of Clause 6. In fact our client has spoken to prospective purchasers and has at least one, and possibly two, interested parties. However, no meaningful negotiations can be conducted until the most basic terms (sic) of all, namely, price, is known to our client.
5. Our client has in fact co-operated with the Bank and has never denied the Bank or its representatives access to the property. We understand that officers of Richard Stanton (NSW) Pty. Limited inspected the property within two (2) days of their contacting our client. It is not our client's wish to enter into any dispute with the Bank concerning these matters. Indeed the agreement of 2 June 1986 was specifically aimed at avoiding just that. Our client's desire in this regard is unchanged. In order to resolve what is apparently perceived to be an impasse we propose that the Bank arrange for Richardson & Wrench Pty Limited to contact the writer who will in turn make arrangements for that company's valuer to inspect the property. In this regard we point out that no-one from Richardson & Wrench Pty Limited has ever spoken to our client to arrange an appointment to inspect.
Following receipt of the further (and we trust final) valuation we seek your assistance (sic - sed quaere assurance) that copies of both of the independent valuations will be furnished to us and that a reasonable period of time (quaere will be) allowed for our client to herself attempt to find a purchaser. We do not see this request is in any way unreasonable having regard to the terms of Clause 6 of the letter of agreement of 2 June 1986 and the timetable discussed on that date. The fact that the timetable has encountered setbacks is, with respect, not the fault of our client who has for many weeks been attempting to obtain from the Bank information to enable her to pursue sale negotiations. We reiterate that for weeks our client has been attempting to obtain from the Bank a copy of the Richard Stanton (NSW) Pty Limited valuation. That the Bank would furnish a copy was specifically promised on 2 June 1986.
Should you wish to discuss any aspect of the matter please do not hesitate to contact the writer."
On 4 September 1986, Mr Hallett had a telephone conversation with Mr Wayne Christie (or Christey) who was the bank's officer actually handling the matter under the supervision of senior management. (Mr Christie swore an affidavit in the proceedings which counsel for the bank elected not to read.) According to Mr Hallett's file note of the conversation, Mr Christie said the bank was in a quandary, and did not know whether to obtain a further valuation or simply to proceed with a mortgagee's sale. Mr Hallett said he had been promised a copy of the valuation, but needed at least a figure. Mr Christie claimed the agreement was ambiguous, to which Mr Hallett responded: "(A)ll we really want is a figure. We have talked to purchasers and discussed a broad range of $1m to $1.4m but can't talk meaningfully unless we receive a figure from the bank." The picture conveyed by this conversation, of which the file note is a very detailed one, is that the bank was at a complete stand until it could decide whether to proceed to seek a fresh independent valuation or not. It seems clear there was no present intention to attempt to sell the property until that fundamental question was cleared up. Nothing at all was said about Mr Hallett's request for further time, or about Miss Batiste being required to vacate the apartment. On the footing on which the matter was discussed, there was no reason to treat vacation as of any significance to the bank, since it was yet to decide on the course it wanted to pursue. Mr Hallett repeated the assurance in his letter to the effect that, if the bank wanted a valuation by Richardson & Wrench Limited, as had been suggested, it had only to contact Mr Hallett. This statement is most likely to have been made on the assumption that, for the present, Miss Batiste was going to continue in occupation, since otherwise Mr Hallett would probably have been quite unable to do anything about arranging an inspection.
There appears, indeed, to be perhaps some inconsistency between the attitude evidently taken by Mr Christie in the conversation and that evinced by the previous letter of 28 August. If the bank was really not agreeing to Miss Batiste remaining in the unit for the time being, but was insisting upon her vacating it (as the letter asserted), that would probably have been for purposes which included prompt sale without the obtaining of any independent valuation acceptable to the bank, since it had been made clear the independent valuation already obtained was not acceptable, and there had been no decision to obtain any other. If to obtain possession in order to make possible a sale without any independent valuation was a purpose outside the agreement, then any seeking of possession by the bank at this stage would have been for purposes other than those of the agreement. That this would indeed have been the case is evidenced by the fact that, over a period of several months thereafter, no steps were taken to obtain an independent valuation, but steps were taken directed to the effecting of a mortgagee's sale.
A memorandum in the bank's file, dated 9 September 1986, is illuminating as to the attitude of its officers at this time. The memorandum appears to have been prepared by Mr Christie, but bears quite extensive annotations by more senior management. It demonstrates there had been no decision to obtain a further independent valuation. The question is asked: "Can we take the risk and obtain an updated valuation only to find it no better than Stanton's and thus in dispute with Batiste once again?" The comments endorsed on the memorandum indicate a very considerable (even personal) animus against Miss Batiste, who is described as "deserv(ing) no compassion whatsoever]" There is a reference to Miss Batiste's alleged breach of the terms of the undertaking "by not allowing Ron Pillinger of Richardson & Wrench entry to the Penthouse". It is plain the memorandum was part of the bank's decision-making process - as to whether to pursue the agreement, or whether to attempt to terminate the agreement, on the ground of Miss Batiste's alleged non-co-operation in denying access to Mr Pillinger about 21 July 1986, and proceed to a mortgagee's sale. Mr Christie writes as if Miss Batiste's claim that she had been promised a copy of Richard Stanton's valuation was itself evidence of lack of co-operation] He then supposes that an old valuation by the well known valuers and estate agents Messrs Raine & Horne was quite likely to have been "not above board". This comment is followed by the remarkable suggestion: "We could always go 'under the table' ourselves and obtain a valuation to our liking but as previously stated we have no guarantee that Batiste will accept another valuation and there is the possibility our actions could become known." The previous sentence in the memorandum is the subject of a comment by a more senior officer about Miss Batiste's alleged "lack of co-operation", but the statement I have quoted is left unremarked.
In the course of the discussion, it is noted that Miss Batiste "requests unspecified time to remain in occupancy of the Penthouse to enable her to effect a private sale", and that a decision was required "on whether to proceed with a forced eviction/realisation or go along with Batiste's demands in the hope she will co-operate in the future." The smouldering language appears to refer to the claim, made by Mr Hallett on behalf of Miss Batiste, that she was entitled to a copy of Richard Stanton's valuation, and to the alleged failure to co-operate with Mr Pillinger. There is no suggestion that Miss Batiste was already in breach of the agreement by failing to vacate on 2 September. Having regard to the tone and terms of the document, it is very hard to account for this except on the footing that it was tacitly accepted Miss Batiste could remain until the bank had made the fundamental decision whether to pursue the agreement or to seek to terminate it for her alleged non-co-operation back in July.
The memorandum mentions, as a consideration against eviction and realization (that is, against revoking the undertaking), the risk that the bank would lose the benefit of the authority "to receive full sale proceeds" obtained from Miss Batiste as part of the arrangement. In that event, it is pointed out, "the monetary limitations of the Bank's mortgage would come into play." The proxy and Miss Batiste's shares in the company were no longer matters of concern, since the memorandum records that the bank (with the aid of the proxy) had at the creditors meeting secured passage of the motion to adopt the scheme of arrangement, but the Supreme Court of Tasmania had rejected the scheme upon the objection of a creditor whom the receivers and managers had sought to exclude. The remark is added to the memorandum: "So all our effort and the negotiations around the agreement which is itself a cause of dispute, was in vain."
Notes written on the memorandum indicate that, by 15 September, a decision had been taken by senior management to "pursue her (that is Miss Batiste) to the ultimate and that includes to bankruptcy", and to "move to have Miss Batiste evicted and then move forward with a mortgagee sale." Yet nothing was done, perhaps because on 23 September Miss Batiste's solicitors wrote to the bank, referring to their letter of 1 September and the subsequent telephone conversation with Mr Christie, and enclosing an offer Miss Batiste had obtained for the purchase of the property at a price of $1.1 million. The bank rejected this by letter dated 24 September 1986, but may have delayed for some period in the hope that a further offer would be forthcoming at a higher price. (The election of the bank to put before me the evidence only of an officer who was unacquainted with the matter until the end of October means that it is necessary to rely on whatever inferences may properly be drawn from documents - in addition, of course, to the evidence of Miss Batiste and Mr Hallett.) Then, by a letter bearing the date 20 October 1986, but not delivered, as appears from the received stamp on the letter, until 27 October 1986, the solicitor for the bank wrote to Messrs Hallett & Company as follows:
"Reference is made to your previous correspondence and in particular to your letter of 1 September last. The Bank has never agreed that it would obtain one and only one valuation, or that it would be bound by any particular valuation. There has never been any understanding or agreement, verbal or otherwise, to this effect.
The Bank denies that Batiste has co-operated with it in the exercise of its power of sale. It points, amongst other things, to Batiste's refusal to allow access to the property to a representative from Richardson & Wrench Pty Limited for the purpose of conducting a valuation.
Batiste has not satisfied the conditions of the letter of agreement of 2 June, 1986 and, consequently, the agreement is revoked. The bank now proposes to submit the property to auction and requires Batiste to give it vacant possession on or before 30th October next failing which ejectment proceedings will be immediately commenced against her."
It appears that ejectment proceedings were ultimately commenced in the Supreme Court of New South Wales. Those proceedings were defended. Whilst they were in progress, Miss Batiste received a further offer, on 6 February 1987, in the sum of $1,400,000, subsequently increased to $1,500,000. The bank consented to sale at that price, and in due course received the net proceeds. Mr Masterman, senior counsel for Miss Batiste, claimed that the amount received by the bank exceeded the amount due under the mortgage, though by a relatively small margin, so that the bank could only have been entitled to insist upon such receipt by virtue of the authority to receive signed by Miss Batiste pursuant to the agreement of 2 June 1986. The documents appear to confirm that claim, and counsel for the bank put no figures before me to demonstrate the contrary. The evidence includes written advice from the bank's solicitor that the amount required to discharge the mortgage was $1,467,648-88, as at 1 April 1987, with a daily rate of interest accrual of $846-56. The matter was settled on 27 April 1987, when the bank received $1,497,046-73. It was then entitled under the mortgage to receive, on the basis of the figures mentioned, the sum of $1,489,659-44. Apparently, therefore, the bank received over $7,000 under its authority to receive, notwithstanding its purported revocation of the agreement.
The bankruptcy notice founding the creditor's petition was served on 9 June 1987, and the petition was presented on 16 December 1987 alleging that Miss Batiste was justly and truly indebted to the bank in the sum of $1,192,244-32 for money lent, together with interest to 30 June 1987, making a total of $1,230,461-46.
Section 52(2) of the Bankruptcy Act 1966 provides as follows:
"If the Court is not satisfied with the proof of any of those matters (ie the matters stated in the petition, its service, and that the debt is still owing), or is satisfied by the debtor -
(a) that he is able to pay his debts; or
(b) that for other sufficient cause a sequestration order ought not to be made, it may dismiss the petition."
This subsection follows the expression of the power to make a sequestration order in discretionary language in subs.(1) - "may make a sequestration order ... " - and is followed by further discretionary powers conferred upon the Court.
In Re Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384 at 391 Gibbs J., in the context of a different defence of "sufficient cause" why an order should not be made, namely, that administration under a deed would be preferable, said:
"The Court has a discretion to exercise; it is a wide discretion and must be exercised in the light of all the circumstances, not forgetting on the one hand that the petitioning creditor, if he has proved the existence of the debt and the act of bankruptcy, has what may be called a prima facie right to a sequestration order, and, on the other hand, that the fact that a majority in number and value of the creditors desires an administration under the deed is a matter to be considered, and is an important matter if the majority is substantial. Finally, however, the Court has to decide in what manner the discretion should be exercised in all the circumstances of the particular case, having regard to the interests of the various parties and the interest of the public (cf. Faulkner v. The Commonwealth (1962) 20 ABC 148 at 153 and Re Galvin (1952) 16 ABC 38 at 42-43). In exercising that discretion it may consider the fact that it has been suggested that there was a preference, even though it has not been proved, even prima facie, that the suggestion was correct."
The last comment shows how wide the discretion is.
In Re Galvin (supra) at 43, Clyne J. said:
"The interest of the public is also a very important consideration. Involved in this consideration is the conduct of the debtor. If it appears that some reason exists for creating a doubt as to the honesty of the debtor in his dealings with his creditors, then a full investigation into these dealings is, I think, necessary."
I do not think there can be entirely excluded from a discretion to make available the very special powers and procedures of bankruptcy a consideration also of the conduct of the creditor. For obvious reasons, the interests of the general body of creditors will normally ensure that this is not a significant matter. But the present case is certainly exceptional. If the proper view of it is that the bank, having entered into an agreement under which it received all that it bargained for, then seized upon a pretext to deprive the debtor of the whole benefit of the bargain to her, a discretion which did not embrace that matter could not fairly be described as wide. (Cf. Sunbird Plaza Pty Ltd v. Maloney (1988) 77 ALR 205 at 214.) Of course, the bank denies that the facts wear any such complexion, but in effect it submitted, through its counsel, that even if they did, the court is bound to make a sequestration order.
The width of the provision was emphasized in the joint judgment of Fisher, Morling and Wilcox JJ. in Clyne v. Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5, where their Honours said:
"The circumstances which may constitute 'other sufficient cause' for dismissing a bankruptcy petition are extremely variable. It is not appropriate to attempt to catalogue or circumscribe them: see Cain v. Whyte (1933) 48 CLR 639 at 645."
That circumstances special to the particular debtor may justify refusing to make an order appears from the judgment of Long Innes J. in Re Huntington; Ex parte The Council of the Shire of Warringah (1935) 8 ABC 161 at 166.
In Cain v. Whyte (supra) at 645, Henchman J. of the Supreme Court of Queensland, whose judgment was adopted by the Full High Court at 648, said:
"To my mind, the High Court of Australia did not intend to put a limit on the meaning of the words 'other sufficient cause' in Dowling v. Colonial Mutual Life Assurance Society
(1915) 20 CLR 509, and I do not propose to be the first to say that such wide words as 'other sufficient cause' are necessarily limited to meaning a cause in the nature of fraud or abuse of the provisions of the bankruptcy law. I can well conceive that 'other sufficient cause' might arise in connection with any particular case. To my mind, it is the duty of the Bankruptcy Judge to examine in each case, if the question is raised, whether there is other sufficient cause than the fact that the debtor is able to pay his debts in full, for refusing to make an order."
But he added at 645-646:
"I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in sec.56(2) (of the Bankruptcy Act 1924), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order."
This passage was cited by a later Full Court of the High Court in Rozenbes v. Kronhill (1956) 95 CLR 407 at 414, a case concerned with what amounts to attempted extortion and its effect upon the discretion.
The High Court returned to the defence of "other sufficient cause" contained in s.56 of the Bankruptcy Act 1924, which is not distinguishable from the defence, with which I am concerned, under s.52(2) of the Bankruptcy Act 1966, in Faulkner v. The Commonwealth (1962) 36 ALJR 352; 20 ABC 148. At 352;150, Dixon C.J., with whom Kitto and Owen JJ. agreed, said of the provision:
"It confers a discretion. It assumes that the judge is satisfied of the initial facts and then says that if he is satisfied by the debtor 'that for other sufficient cause no order ought to be made' he may dismiss the petition."
The Chief Justice proceeded to consider the circumstances of the case, involving a deed of arrangement the consistency of which with the terms of the Bankruptcy Act 1924 was disputed. At 354;153-154, Dixon C.J. said:
"When a judge comes to exercise this discretion he has a very difficult task really. Prima facie the statute appears to me, and bankruptcy legislation in the past has been so interpreted, to mean that if the conditions for bankruptcy are made out, the bankruptcy should take place unless in the interests of the bankrupt or the creditors or both, having regard to the general circumstances, it would be preferable to allow some other course to take place. This deed of arrangement is a very peculiar one. Its validity was canvassed. I am not myself sure that validity is the right way of looking at it. ... The point here is whether, having regard to the provisions of the Bankruptcy Act and the provisions of this deed, bankruptcy remains, not merely the prima facie, but the preferable course, preferable that is to say to allowing proceedings to go on confined to the deed, correcting its clauses where it is in conflict with the Act by the provisions of the Act. ...
There is nothing in the status or position of the debtor to make him a special case. ... The learned judge concentrated a great deal on what was described as the validity of the deed, which meant the consistency of the deed with the provisions of Pt. XII and the bankruptcy legislation and he thought it was not valid in that sense. He thought further that if it was valid it would make no difference. I am of opinion that the real question was and remains whether it is a proper case to say that there was sufficient cause not to make an order."
In the present matter, senior counsel for the debtor contended that if (which he denied) the bank had validly revoked the agreement, the debtor was entitled in equity to relief against forfeiture of her interest in the agreement, or relief against the penalty which he said was involved. These propositions conceal a number of complexities inherent in the agreement and the circumstances. However, in this case as in Faulkner's case, it seems to me that the real question remains whether it is a proper case to say that there is "sufficient cause" not to make an order. The statutory ground, expressed as it is in non-technical language of the widest import, cannot be squeezed into the moulds of particular legal categories and confined strictly to them. At the same time, a court will assess what is claimed to be a sufficient cause in accordance with legal principles.
It is now necessary to examine the terms of the agreement in some detail. A preliminary question is whether the agreement is wholly contained in the document, which is in the form of a letter with Miss Batiste's "acknowledge(ment) and agree(ment)" endorsed at the foot of it. There is nothing in the terms of the letter itself, or in the nature of this method of evidencing the terms of an agreement, to require a conclusion that the agreement between the parties is confined to what is there set out. According to the argument for the debtor, it was not so confined; there was also an oral term requiring the bank, in effect, to obtain and forward promptly a copy of its independent valuation referred to in the letter. The bank denied this in argument, but not by evidence. It called no evidence from any of the several persons who represented it at the formulation of the agreement. In the circumstances, I accept as completely reliable the evidence of Mr Hallett, supported as it is by his contemporary notes. The effect of the failure of the bank to call its own officers who were present, and particularly the very senior officer who is alleged to have expressed the oral term asserted by the debtor, goes further than simply to whether the words were used. If an inference is reasonably open favouring the debtor's case, the failure of Mr Simington to put forward any version of the conversation which might rebut that inference, and make the conversation appear to wear a different complexion, may be taken into account in the decision whether or not to accept the inference: Jones v. Dunkel (1959) 101 CLR 298. In those circumstances, and bearing in mind the importance of the matter to Miss Batiste and its close and natural relationship to one of the clauses of the letter, I have no hesitation in concluding that "the proper inference is that the relevant statement or representation was, when viewed objectively and in context, offered and accepted as, or as part of, a contractual promise" (Hospital Products Limited v. United States Surgical Corporation (1984) 156 CLR 41 at 120, per Deane J. - see also ibid, per Gibbs C.J., at 61-62), and that it became a term of the agreement. It was not a mere representation, and certainly not one which honesty would permit the bank to disregard.
I should add, before considering further what the agreement actually required in this respect, that if there had been no oral term agreed, I should still have thought the letter implicitly required the bank to inform the debtor of the amount of its independent valuation. Otherwise, the debtor's right to refinance the property in that amount, or to sell it for that amount, would have been, if not illusory, at least very nearly unworkable. The bank's attempt to answer this point by reference to the eventual sale actually achieved is quite disingenuous; that sale was not at a price equal to an independent valuation, nor pursuant to the agreement, which the bank had by then purported to terminate; and, in any case, it cannot be suggested that it would have been practicable for the debtor to have asserted her right under the agreement to refinance the property at the bank's independent valuation without knowledge of that valuation.
But what is the meaning of the expression "the bank's independent valuation"? No argument was put on behalf of the debtor at the hearing to support the view, at one time asserted by her solicitor, that this must refer to the Richard Stanton valuation. I agree with what I think was really conceded that "the bank's independent valuation" means more than merely an independent valuation commissioned by the bank. Such a valuation could only become the bank's independent valuation upon its acceptance by the bank. On this basis, the bank was perfectly entitled to decline to accept the low valuation of Richard Stanton.
But the entitlement of the bank to reject Richard Stanton's valuation was not an entitlement to dispense with the agreement. The agreement clearly implies that an independent valuation was to be obtained, and the evidence reveals, as its background, a common contemplation that the bank would fix a market value by means of an independent valuation. It was not open to the bank, consistently with its promise to afford the debtor an opportunity to refinance the property, or to sell it, in an amount or at a price equal to market value in accordance with the bank's independent valuation, simply to proceed to evict her and sell without obtaining any such valuation.
It is also to be noted that the clause under discussion is, as a matter of the structure of the letter, a qualification upon condition 6, the condition requiring the debtor's co-operation in the exercise of the power of sale. It is that condition which includes the bank's agreement to allow Miss Batiste to remain in occupation "for a period of three months from today's date at which time vacant possession will be given subject to any further agreement of the Bank." I think the intention conveyed by the clause, read as a whole and against the background of the circumstances in which it was drafted, is that Miss Batiste should be able to avoid eviction by refinancing the property, or to the extent consistent with a sale which she might be able to negotiate, but that otherwise the bank should be entitled to insist upon her departure at the end of three months to facilitate its exercise of its power of sale. It will be noticed that the clause commences with a reference to co-operation "in the exercise of its power of sale". There is no suggestion, either in the clause itself or in the evidence, that the bank required possession for any other purpose. There cannot be omitted from the circumstances under which the agreement was concluded the fact that the bank's only intention with reference to the property was to sell it, or the fact that a prompt obtaining and communication of the bank's independent valuation was contemplated. The proviso envisaging the possibility of sale by the bank within the three months is not inconsistent with this view of the agreement, since the independent valuation was expected to be available extremely soon.
The question arises whether any further implication should be made in the event (which occurred) that, contrary to the common expectation of the parties, the bank failed to obtain its independent valuation within the three months. In such a case, I have already concluded it could not sell under its power of sale, since that would abrogate the right it had given the debtor by reference, and by reference only, to "the bank's independent valuation". Could it nevertheless insist upon the vacation of the premises by the debtor? Just because, as the terms of Mr Hallett's conversation with Mr Simington demonstrate, the parties were in fact completely confident the bank's independent valuation would be available in a matter of days, it is plain they gave no thought to the question I am now considering. If that question had been raised by the officious bystander, whose intervention the authorities so persistently envisage, is it plain the parties would have united in telling him that, of course, if the bank were unable to sell, and if Miss Batiste were unable to sell or refinance, because the bank had not obtained its independent valuation at the end of three months, the bank would have to allow a further period?
In his often cited judgment in Codelfa Construction Proprietary Limited v. State Rail Authority of New South Wales (1982) 149 CLR 337 at 346-347, Mason J. stated as "(t)he basis on which the courts act in implying a term" a proposition which he drew from the judgment of MacKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd (1939) 2 KB 206 at 227:
"Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying ... ."
Here, the period of three months is set in the context of a condition requiring the debtor to co-operate with the bank in the exercise of its power of sale. The whole of what follows, down to the concession to the debtor of a right to refinance or sell herself, is directed either to facilitating the exercise of the power of sale or to expressing qualifications upon it. Clause 6 takes its place after a series of clauses intended to confer other remedies upon the bank - clause 1 requiring a transfer of the debtor's shares in the company to facilitate the proposed scheme of arrangement, clause 2 requiring a proxy in respect of her voting rights as a creditor of the company for the same purpose, clause 3 providing for the garnering of her entitlement under the proposed scheme of arrangement, clause 4 securing to the bank any surplus proceeds of sale of the unit after satisfaction of the security, and clause 5 ensuring that no source of recoupment of the bank's losses would be omitted. In this context, clause 6, too, is concerned with a discrete subject matter - the exercise of the bank's power of sale. It also contains the qualification on that exercise of the debtor's right to refinance or sell herself. There has never been any suggestion it contemplated possession for some other purpose, such as a letting by the bank, if the mortgage permitted the taking of such a course. What was contemplated was only a sale or refinancing of the property.
In these circumstances, given that Miss Batiste was to have the right to protect her position by refinancing the property in an amount which could only be ascertained by the bank's independent valuation, and given Miss Batiste was obliged to co-operate with the bank so that her continued occupation could not hinder its carrying out of the limited steps open to it prior to the obtaining of its independent valuation, there seems no reason at all why her possession should not continue. At the same time, to require her to vacate would be to deprive her of the opportunity the expected prompt valuation and the agreed right of refinancing would have offered of preserving her continued possession. Of course, she could have no control over the obtaining of the bank's independent valuation. In the circumstances postulated, it would be unjust and unreasonable to exclude her. It would be reminiscent of the fable of the dog in the manger. (I do not for a moment imagine the bank would in fact have insisted upon her vacating the premises if it had not mistakenly thought she had failed to comply with her obligation to co-operate.) But a term is not to be implied in a contract because it would be just or reasonable to imply it. The basis must be that it is "so obvious that it goes without saying". I think it was obvious in that sense that, in the unlikely event that the bank should not have obtained its independent valuation by the end of the three months period, it was required to agree to an extension at least until its independent valuation had been communicated to Miss Batiste. I think if the question had been raised at the time, the parties (unless unreasonable, which should not be assumed) would have united in saying so. See Liverpool City Council v. Irwin (1977) AC 239 at 258, where Lord Cross of Chelsea stated the ground for implication of a term by saying: "if its absence had been pointed out at the time both parties - assuming them to have been reasonable men - would have agreed without hesitation to its insertion."
An implied term must not only rest upon the foundation I have described. It must also comply with certain conditions which Mason J. in the Codelfa case (ubi cit. supra) took from the Privy Council decision in B.P. Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings (1977) 52 ALJR 20 at 26 (see also the authorities collected by Lockhart J. in State Bank of New South Wales v. Commonwealth Savings Bank of Australia (1985) 6 FCR 524 at 553): "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." What I have already said shows that the first three of these are, in my opinion, satisfied. Perhaps some additional comment on the second is desirable. I do not think the rights conferred on Miss Batiste in respect of sale or refinancing, and particularly in respect of refinancing, could be regarded as having business efficacy if she could be required to vacate before having any opportunity to exercise these rights; in that event the contract would be very ineffective in its provision to her of an opportunity to safeguard her possession. The fourth point is, I think, also satisfied. Though, of course, minds might differ as to the precise expression of the clause to be implied, what I have suggested is certainly capable of clear expression. It may be that the implication goes further, but that is immaterial in the circumstances of this case.
The fifth and final condition stated in the passage cited from the B.P. Refinery case requires some separate discussion. The express provision in clause 6 of the contract contemplates further agreement, extending the period of three months, in unspecified circumstances. I do not think the implied term would contradict that provision; it would rather grow out of it. It could not be regarded as a contradiction simply because it would modify the effect of the express terms of the contract, since every implied term must do that. I do not think an exception from the general effect of a contractual term is, in the relevant sense, a contradiction of it.
For these reasons, I do not think the bank is entitled to sustain its purported revocation of the agreement on the basis that Miss Batiste had not satisfied a condition that she give vacant possession of the penthouse apartment to the bank on 2 September 1986. Of course, that was not the basis on which the bank's solicitor acted when he wrote the letter of 20 October 1986, more than a month and a half later. This fact raises an additional question, whether tacit consent had in fact been given to Miss Batiste's continuance in occupation. It also raises the question whether the bank is now entitled to rely on a matter not raised at the time which, if it had stood alone, would seem most unlikely to have led to the same decision.
As regards the last point, it is sufficient to refer to Sunbird Plaza Pty Ltd v. Maloney (1988) 77 ALR 205 at 213 where Mason C.J. said:
"Shepherd v. Felt & Textiles of Australia Ltd
(1931) 45 CLR 359 stands as authority for the general proposition that a termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time and even though the ground actually relied on is found to be without substance."
The other point is more difficult. For about seven weeks, no express reply at all was written (and for about eight weeks none was sent) to the request made by Miss Batiste's solicitors. Either period was over half the length of the originally agreed period of occupancy. When, finally, the bank made up its mind about the larger issues and the letter of 20 October was composed, neither in that letter, nor in the internal memorandum which evidences the decision, was there any suggestion that Miss Batiste was in breach of the agreement simply by virtue of a continuance in occupation contrary to the contractual arrangements between the parties. It stretches credulity that the matter was simply overlooked; it seems more likely that the bank's officers were conscious of a tacit agreement to Miss Batiste's continued occupation while the bank was considering its position. After all, it was certainly not Miss Batiste's fault that Richard Stanton's valuation was unsatisfactory to the bank, with consequent delays that seriously restricted the possibility of her obtaining benefits under the agreement. It is not to be assumed an extension was granted because it would clearly have been reasonable to have granted it; but when the question is what inference to draw from the circumstances, the fact that it would have been the reasonable thing for the bank to have done is a relevant consideration bearing on the probabilities. In the end, the factor which I find persuasive is that the detailed and somewhat agonized appraisal of the situation, which the bank's officers undertook, did not lead them to suggest any breach in the respect now alleged. Instead, they went back to what the bank's own records reveal as a stale, vague and unsupported complaint, then some three months old, which subsequent consideration seems to have entirely dissipated. The better view of the facts, I conclude, is that the bank tacitly agreed to the request for an extension of the period of three months, so that the purported revocation, which admittedly fails on the ground actually taken at the time, cannot be supported on the basis, argued at the hearing, that Miss Batiste's continued occupation after 2 September 1986 was itself a breach of the agreement.
If, however, the bank did validly revoke the agreement, the question would arise whether Miss Batiste is entitled to relief upon equitable principles. Mr Masterman Q.C. claimed that the revocation, if otherwise effective, would constitute a forfeiture or penalty against which equity would relieve the debtor in the circumstances. Counsel for the bank disputed that the circumstances would justify the intervention of equity, but he put his argument primarily on the footing that the contract in question is a commercial contract not relevantly affecting any proprietary interest. He cited Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera Ecuatoriana (1983) 2 AC 694, a case which should, however, be read with care in Australia having regard to the comment made by Deane and Dawson JJ. in Stern v. McArthur (1988) 62 ALJR 588 at 603.
I do not think the debtor's case in equity can be brushed aside so easily. The argument was presented as if all that was involved was the term by which the bank agreed not to initiate bankruptcy proceedings against the debtor. But the agreement was wider than that. It embraced also a term that "the Bank's right to enforce any judgment or judgments obtained against (the debtor) shall be limited to the extent of any assets held by (the debtor) directly or indirectly as at today's date (ie 2 June 1986). This right will not apply in respect of any after-acquired assets subsequent to (that) date." This may be a novel right, but it seems to me that if Miss Batiste acquired or acquires property after 2 June 1986 the agreement gave her a right as against the bank in respect of that property capable of attracting the equitable doctrines in respect of relief against forfeiture. If the bank validly revoked the agreement, it terminated that right. The terms of the agreement do not permit the "undertaking" of the bank to be limited to the matter of the initiation of bankruptcy proceedings, as an undertaking severed from the rest of the agreement. On the contrary, the language of the document repeatedly uses "undertaking" and "agreement" as interchangeable terms. Furthermore, the right in respect of after-acquired assets is quite directly linked in the document to the agreement with respect to bankruptcy proceedings.
The doctrines according to which equity relieves against forfeiture or against a penalty have been the subject of detailed examination in Shiloh Spinners Ltd v. Harding (1973) AC 691 at 722 et. seq.; Legione v. Hateley (1983) 152 CLR 406; Stern v. McArthur (supra); and CSS Investments Pty Ltd v. Lopiron Pty Ltd (1987) 16 FCR 15. In their joint judgment in Legione v. Hateley Mason and Deane JJ., at 444, referred to "the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct". What is unconscionable conduct in the relevant sense is made clear in the same judgment at 449, though their Honours warn: "It is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale." Their Honours refer to conduct which "has effectively caused or contributed to the purchaser's breach of contract", and to the case where "the object of the rescission is not to safeguard the vendor from adverse consequences which he may suffer as a result of the contract remaining on foot, but merely to take unconscientious advantage of the benefits which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract". The judgment proceeds:
"In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach?
(4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?"
In Stern v. McArthur, Deane and Dawson JJ. at 604 said:
"One situation in which equity has traditionally granted relief is where provision for forfeiture has been made to secure the payment of money and the party in default seeks relief upon the basis of payment of the amount owing together with the appropriate compensation. In that situation the object of the provision is achieved and it would be unconscientious for the other party to seek to take advantage of the forfeiture. An obvious application of this principle (although it may have emerged separately) is the equity of redemption in the case of a mortgage. There, no proof of fraud, mistake, accident or surprise is required to establish the equity because the very nature of the transaction is such that the court, acting upon conscience, will grant relief ... ."
See also, per Mason C.J., in Sunbird Plaza v. Maloney (supra) at 214.
In applying these statements to the present case, it is important to recall that the whole agreement is concerned with the payment of money. It is about the enforcement of the bank's rights to obtain payment of the moneys secured by its mortgage and also of other moneys lent by it. Ultimately, the purpose of the provision concerning the delivery up of possession was simply to secure that the bank was paid. And the purpose of the provision for revocation was to ensure that the other conditions of the agreement, and relevantly the condition about delivery of possession, were complied with.
On the facts of the present case, the first of the numbered questions posed by Mason and Deane JJ. in Legione v. Hateley, which I have set out above, must be answered that the bank did contribute to the debtor's breach alleged by it. The bank's failure to proceed expeditiously to obtain the independent valuation for which the contract provided made it virtually impossible for Miss Batiste to take effective steps towards the sale or refinancing of the property during the three months originally allowed by the contract. Indeed, the real genesis of the dispute was the bank's failure to grasp the nettle it had sown when it had rejected the independent valuation of Richard Stanton without commissioning any other in its place. This conduct not only answers the question posed in Legione v. Hateley, but it also raises questions in respect of the bank's own obligations under the contract having regard to the principles discussed in Secured Income Real Estate (Australia) Limited v. St. Martins Investments Proprietary Limited (1979) 144 CLR 596 at 607-608; Meehan v. Jones (1982) 149 CLR 571 at 590; Newmont Pty Ltd v. Laverton Nickel NL (1982) 44 ALR 598; and in the dissenting judgment of Aickin J. in Ansett Transport Industries (Operations) Pty Limited v. The Commonwealth of Australia (1977) 139 CLR 54 at 102.
The second and third of the questions stated in the passage I have quoted from Legione v. Hateley should also be answered in a manner favourable to Miss Batiste. Her failure to vacate the apartment on 2 September, as the bank's counsel acknowledged in argument, was productive of no loss. I have already held that it was not even treated by the bank as a breach of contract at the time. It flowed from a genuine view of the contract asserted on behalf of Miss Batiste, and there is no reason to think that it involved any wilful disregard of her obligations. (Cf. DTR Nominees Proprietary Limited v. Mona Homes Proprietary Limited (1978) 138 CLR 423 at 432-433.) At that stage, the bank had itself for some time been acting in high-handed disregard of its obligation to obtain its independent valuation. The fourth question also favours Miss Batiste. She stands to lose a significant right in respect of after-acquired property, as well as a protection against bankruptcy proceedings by the bank, in circumstances where she has already provided the full consideration to be provided by her. The unlooked-for outcome that the scheme of arrangement in respect of the company was still-born does not take away the fact that she provided the proxy and share transfer which the bank sought. Indeed, she also provided an authority to receive which appears to have been utilized despite the purported revocation. There is no suggestion in the evidence that the bank suffered any loss by reason of the debtor's remaining in possession as at 2 September 1986; at that date, the bank's problem was that it still had no idea what price to seek for the penthouse apartment. The fifth question, translated into terms appropriate to the present case, asks whether the bank would be adequately safeguarded if relief were granted. As the bank has already received everything for which it contracted, this question answers itself.
In my opinion, if the bank was otherwise entitled to revoke the agreement on 20 October 1986, it would be necessary for the court to intervene to avoid injustice, since insistence upon that revocation, in the circumstances of this case, would constitute unconscientious conduct. (See Stern v. McArthur (supra) at 603.)
The arguments advanced in this case have covered a great deal of ground, but ultimately, as I have said, the real question remains whether it is a proper case in which to say that there is "sufficient cause" within the meaning of s.52(2) of the Bankruptcy Act for the court to decline to make a sequestration order and dismiss the petition. In the light of all the circumstances of the case, and having regard to the agreement of the parties reached on 2 June 1986, I conclude that I am entitled to exercise a discretion against the petitioning creditor, and I think that I should do so. Even if I had taken a different view of the effectiveness of the bank's purported revocation of the contract, that would not have concluded in its favour the question posed by s.52(2). At least where a creditor has, in the transaction upon which his petition relies, or in a transaction closely linked to it, acted in high-handed disregard of the legal rights of the debtor, while insisting on the strict letter of his own rights, I think a court is entitled to exercise a discretion under s.52(2)(b). How that discretion will be exercised depends on all the circumstances. In this case, I would on that ground also decline to make a sequestration order. Accordingly, the creditor's petition will be dismissed with costs.
I find it unnecessary to consider whether, if the agreement had been validly revoked, the bank's attempt to obtain special benefits under it (and in particular to obtain, on exercise of its power of sale, more than the amount secured by its mortgage) would in itself have attracted the principle referred to in Halsbury, 4th edition, volume 3, para.322 and in Rozenbes v. Kronhill (supra).
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