Spira & Ors v Commonwealth Bank of Australia

[2004] HCATrans 465

[2004] HCATrans 465

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S521 of 2003

B e t w e e n -

JOHN SPIRA

First Applicant

DIAMOND PRESS AUSTRALIA PTY LIMITED (IN LIQUIDATION)

Second Applicant

DIAMOND PRESS HOLDINGS PTY LIMITED (IN LIQUIDATION)

Third Applicant

PRINTING AND MAILING PTY LIMITED (IN LIQUIDATION)

Fourth Applicant

PRINTING AND INTERNET HOLDINGS PTY LIMITED (IN LIQUIDATION)

Fifth Applicant

PRINTING AND INTERNET INVESTMENTS PTY LIMITED (IN LIQUIDATION)

Sixth Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

GLEESON CJ
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 NOVEMBER 2004, AT 9.51 AM

Copyright in the High Court of Australia

__________________

MR R.B.C. MACFARLAN, QC:   If the Court pleases, I appear with my learned friend, MR J.P.A. DURACK, for the applicants.  (instructed by Middletons Lawyers)

MR J.R. SACKAR, QC:   I appear with MR R.S. HOLLO for the respondent, if the Court pleases.  (instructed by J K O’Sullivan Solicitors)

GLEESON CJ:   Yes, Mr MacFarlan.

MR MACFARLAN:   Your Honours, the applicants’ case has two limbs, one relies upon section 51AA of the Trade Practices Act and one on an implied term of the contract between the parties.  If I could address the former first.

At the centre of the case was a March 1999 variation to an earlier facility agreement between the Bank and the customers.  The applicants said that they were pressured into that variation agreement by the unconscionable conduct of the Bank.  The variation agreement contained an onerous term regarding repayment, that is, a

term that some $20 million would be repaid by the end of the year there in question, and as it transpired, the applicants were unable to meet that repayment term and their inability to do so led to the Bank being able to impose a requirement that the whole facility be repaid by a subsequent date.  Again, the applicants were unable to do that and that led to the voluntary administration of the applicants and then their liquidation.

The Court of Appeal rejected the argument that there was unconscionable conduct upon which the applicants were entitled to rely upon the ground that by the variation agreement the applicants were given a right to some additional funding.  That ground of the Court of Appeal was the only ground which it gave for its determination against the applicants.

The Court of Appeal had found conduct on the part of the Bank which can be described as reprehensible conduct and which the Court of Appeal appeared to assume would qualify as unconscionable conduct if it were operative.  Could I refer your Honours to the summary in the Court of Appeal judgment of that conduct at page 103 of the application book, line 15:

The appellants have therefore established a breach of contract by the Bank with regard to the $3M, an unlawful threat by Mr McCoy – 

of the Bank – 

on 24 February, and his true but wholly unjustified statement the same day that Mr Spira had lost all credibility with the Bank.

The unjustified threat, the unlawful threat, your Honours, was one to call up the facility.  The Court of Appeal found that that would have been unwarranted and that the making of a threat to do so was therefore unlawful – I am sorry, the threat was made to commit something that was unlawful conduct.

Your Honours, the error that we say the Court of Appeal made on this limb was that it assumed that the fact that there was afforded to the applicants by the variation agreement some additional right automatically barred any unconscionable conduct from being operative.

McHUGH J:   Is this not part of the problem of the case that the evidence is in a very unsatisfactory state and the legal issues that you raise may never be reached because this Court might have a different view of the evidence.  Take this whole question of the threat.  After all, the judge at first instance made findings in favour of Mr McCoy and made adverse findings concerning Mr Spira’s credibility, and Mr McCoy said that he only mentioned the possibility of a receiver in a particular context.  I know what the Court of Appeal said about it, and they said it was a threat, but it is a bit difficult to see it as a threat, though, is it not?

MR MACFARLAN:   Your Honour, there was a broad, and we think forcefully put, attack in the Court of Appeal on the trial judge’s findings as to credit.  They were not resolved ‑ ‑ ‑

McHUGH J:   I know that.  That just makes the case all the more difficult.  There is the funny section of the Court of Appeal’s judgment where they say they do not think that some of these findings were justified, and then they say they will not deal with it.

MR MACFARLAN:   The outcome of that, your Honour, is that we have not been afforded our right of appeal – right to a concluded appeal – in respect of those matters.

McHUGH J:   That is not a ground of special leave that you have raised, is it?

MR MACFARLAN:   It is relevant, your Honour, whether this is a suitable vehicle.  If the Court of Appeal gives one and one only reason which is flawed, your Honours, with respect, cannot then turn back to the trial judge and say the trial judge found X, Y and Z when we had an appeal against those findings and, as it would appear from the Court of Appeal judgment, made considerable progress.

McHUGH J:   Mr MacFarlan, this Court is now overwhelmed with work.  The days when we could sit for days or even hours examining factual matters, I think, have gone, and the profession has to face up to that, that factual findings are going to have to stop in the courts below, otherwise the Court just cannot carry on with its principal business, namely, laying down the law for the nation and resolving constitutional questions.

MR MACFARLAN:   Your Honours have a means available, your Honours, to deal with that, that is, remission.  If the one reason given by the Court of Appeal is flawed then the consequence should not be the refusal of special leave.  It should be that the matter is remitted to the Court of Appeal to be dealt with properly.  Your Honours, the point as to whether this ‑ ‑ ‑

McHUGH J:   You have not raised this as a ground of appeal or a special leave point, have you?

MR MACFARLAN:   We have raised the point that there was one only ground that should have been decided otherwise.  We have spoken about remission, certainly in respect of damages, but if your Honours were inclined to make a broader remission then so be it.  We would not argue with that, your Honours.

McHUGH J:   Yes, carry on.

MR MACFARLAN:   This is not the normal case, your Honour, where the lower court has given two, perhaps three or even more reasons, and the Court sees that the first one is flawed, but then looks to see that the applicants would fail on the second ground or the third, or both of them.  There is no second or third ground, and it is unjust to the applicants not to allow them to be afforded what is a right, a right of appeal, your Honours, and the Court is not necessarily having to look at the facts if it is not so inclined.

GLEESON CJ:   Where do we find the statement of this flawed ground most clearly?

MR MACFARLAN:   Your Honours, the findings can be seen at page 104 of the application book, first, line 42, paragraph 82 of the Court of Appeal’s judgment:

The Borrower’s request for that additional accommodation entitled the Bank to seek to impose whatever terms it thought appropriate as conditions of its agreement to that increase including a requirement for a substantial repayment by a fixed date.

To like effect is paragraph 90 at the foot of page 106, second sentence:

The Bank was legally and commercially justified in making its agreement to provide a further $15M – 

we do not agree with that amount but that is beside the point – 

conditional on the Borrower accepting an obligation to repay $20M by the end of the year.

Your Honours, why that is flawed, in our submission, is that it does not address the correct question.  The correct question can be identified by analogy to what Justice McHugh said in Crescendo in the Court of Appeal decision.  Was the transaction induced by the unconscionable pressure applied by the other party?

Now, the fact that there may have been some additional accommodation afforded did not mean that there was not operative pressure, because the Bank had wrongfully withheld from the applicants $3 million which was urgently needed for its operations, and the applicants had no choice but to enter into this variation agreement to obtain that funding to keep going.

The fact that the applicants were also given funding further into the future may be important in looking at the question of fact, but it is a question of fact.  It is not an automatic barrier, in our submission, and of course, the unconscionable conduct, your Honour, need not be the sole cause of what occurs.  In the duress context, Justice McHugh made that point in Crescendo, and by analogy we would rely Henville v Walker talking about inducements ‑ ‑ ‑

McHUGH J:   Even the whole question of unconscionability has some problems, has it not, Mr MacFarlan?  After all, the mistakes as to the breach of covenants were induced by Mr Spira’s own representations, were they not?

MR MACFARLAN:   That was one element of it, your Honour, and the Court of Appeal rejected our case on that, but what they did uphold was the case that the Bank was fully aware and treated the supposed breaches of covenant as minor, insignificant and/or inconsequential, and to call up the facility and appoint a receiver on the basis of inconsequential default would, according to the Court of Appeal, have been a breach of the implied term to act in good faith.

McHUGH J:   The reason I put these things to you is that lurking in this case are one or two important questions, but the case just seems murky.  I do not know that we will ever reach those problems, and there seems to be a lot of arguments about various other aspects of the case and I have put a couple of them to you.

MR MACFARLAN:   Your Honour can go straight to the question by looking at the Court of Appeal’s ground, asking whether that addressed the correct question, which we say it did not, and then if your Honours are so inclined, having stated what the correct question was and that it should have been addressed, remitting the matter.

The case is very much to be contrasted with the Berbatis decision, your Honours, because in that case the lessee had no right to a renewal.  It alleged that the landlord acted unconscionably in withholding a renewal, that the tenant was not able to point to any legal right it had which was being withheld.  In this case, the Bank used its withholding of $3 million of approved funding to pressure the borrower into this transaction and it used also its threat to call up the whole facility and appoint a receiver.

McHUGH J:   Was not there a finding of fact by the trial judge that the withholding of the $3 million did not induce the contractual variation including the $20 million debt reduction?

MR MACFARLAN:   He did not hold that, no, your Honour.  He did not find the unconscionable conduct found by the Court of Appeal.  He did make a finding of breach as to the three million.  That is certainly so, but he did not address the question of whether the withholding of the three million induced entry into the variation agreement.  He looked at whether the three million caused some loss but looked to the events that followed in the subsequent years rather than to its relationship to the agreement.

McHUGH J:   What did his Honour mean at page 61 line 14 when he said:

Nor did the denial of access to the $3 million lead to the Second Variation.

That is what I had in mind, Mr MacFarlan.

MR MACFARLAN:   If your Honour reads the next sentence:

It was the consequence of DPG’s request for further funds ‑

That is the same approach as the Court of Appeal saying, in effect, that the inclusion of the additional funding precluded a finding that the $3 million was operative.  I would ask your Honours to remember that the additional funding that was approved was funding into the future through to 30 June 2000, and it was 12 and a half million through to that period, but what was extracted through the variation agreement was a term which required a much larger sum, namely, $20 million to be repaid at a much earlier date.  The harshness of the transaction is manifest, in our submission.  Your Honours, that is what we would say about the first limb.

The second limb of our case, the implied term, was related to the implied term of good faith.  Now, the trial judge and the Court of Appeal found that there was in the contract an implied term that in the exercise of its powers and discretions the Bank would act in good faith fairly and reasonably.

The Court of Appeal also found that there was a threat to act otherwise.  So the issue arose as to whether the implied term was capable of extending to a threat to act inconsistently with the obligation of good faith.  There was one ground, and one ground only, given by the Court of Appeal for that conclusion, and that was that there was an overlap with the tort of intimidation.

McHUGH J:   Mr MacFarlan, can I just interrupt for a second?  When in paragraph 94 the Court of Appeal said that:

During oral argument the Court formed a provisional view that some of these findings could not be supported – 

and so on, did it tell counsel that, or was argument stopped on these things?  What happened?

MR MACFARLAN:   I am sorry, I missed your Honour’s question?

McHUGH J:   Did the court announce to counsel that it had formed a provisional view that some of these findings could not be supported, or what was meant by it?

MR MACFARLAN:   No, your Honour, what is meant is that the court presumably formed that view in the course of consideration of the matter but did not find it necessary to ‑ ‑ ‑

GLEESON CJ:   The court is dealing, is it not, in paragraph 94, with a statement in the judgment of Justice Gzell that some of Mr Spira’s evidence was deliberately dishonest, and as I understand 94, the court said it was unnecessary for Justice Gzell to make that statement about Mr Spira, and indeed, in some respects, the evidence that formed the basis of that statement was supported by other evidence.  They were, to put it roughly, criticising the trial judge for making an unnecessary finding of dishonesty.

McHUGH J:   I understood it the same way, but what I was interested in is whether the court announced that to counsel and whether or not it affected the argument in any way, or was it something that just happened, and you found out for the first time in the judgment?

MR MACFARLAN:   The latter, your Honour, yes.  What your Honour the Chief Justice said is partially correct, with respect.  Certainly that is one of the things that the court is saying there, but it is saying also that some of the findings could not be supported in its provisional view.  That is at line 50.  We have not had an appeal on that, we have not had a concluded appeal and we submit we are entitled to that.

Your Honours, on this implied term matter, the ground upon which the Court of Appeal found against us, that is, there was an overlap with the tort of intimidation and, therefore, no implication of the relevant terms should be made, was not mentioned by counsel for either party, either before the trial judge or in the Court of Appeal.  It was not mentioned by the court.  We have had absolutely no opportunity to deal with that matter, and

there are good answers to it.  In particular, we rely upon Astley v Austrust for the reasons that are given in the reply.  If the Court pleases.

GLEESON CJ:   Thank you, Mr MacFarlan.  Yes, Mr Sackar.

MR SACKAR:   If the Court pleases, on the first issue of unconscionability, it is tolerably clear that both the trial judge and the Court of Appeal rejected any notion of it.  The appeal, I should tell your Honours, in the Court of Appeal went for five days, and what is obvious from both the trial judge and the Court of Appeal’s analysis of the factual material is that Mr Spira and his group were in desperate need of additional funding.

Now, the $3 million which both the trial judge and the Court of Appeal found the Bank was relevantly in breach of its agreement had no causative effect at least because within a very short space of time, a matter of weeks, Mr Spira was making an application to the Bank for an additional $8 million and that then turned into an agreed facility in 1999 of $15 million – I know that precise amount is in dispute, but the simple fact of it is that the context in which the alleged unconscionability is said to have arisen, and for that matter, the breach of the implied term, was in a context where the borrower was seeking to gain additional moneys which he and his group were otherwise not entitled to under the facilities which then existed.

Now, so far as the Court of Appeal is concerned and so far as the error that has been pointed to in my learned friend’s outline at appeal book page 128, it is that the Court of Appeal applied the wrong test because, in effect, unlike Justice McHugh in Crescendo who made the point that it need not be a sole cause, the Court of Appeal moved seemingly to a number of causes, and determined the matter on that basis.

When one goes to paragraphs 82 ‑ if I may just invite your Honours to application book page 104, they deal with the additional request there, then the credit submission in paragraph 83.  In paragraph 84 they deal with Justice McHugh and Crescendo.  Of course, that was not, as far as I can detect at least, a matter which was argued before the trial judge, that is, Crescendo ‑ I could be corrected on that but I do not believe it was an issue that arose in that form – but they posed the correct test, it is clear, by saying:

the first inquiry “is to ask whether any applied pressure induced . . . The Judge was not persuaded of this because –

Now, that is the reason given by the judge, but it is plain, in our respectful submission, that they did, indeed, approach the correct test, if that is what is complained about, and they like the trial judge in the totality of what is a

very complex series of factual materials ‑ as I said in the context of this borrower seeking matters which he was not otherwise entitled to under the existing facilities – they then considered, as did the trial judge, but for slightly different reasons, that there was no relevant unconscionability.

Likewise, when it comes to the implied term, we say that it is not necessary for the reasons we have put in our outline, and I hear what my learned friend says about not being heard on the issue, but we say that that decision by the Court of Appeal could not be attended with sufficient doubt to require a grant of special leave in this matter.  They are our submissions.

GLEESON CJ:   Thank you.  Yes, Mr MacFarlan.

MR MACFARLAN:   Your Honour, the only matter concerns whether the issue was before the court as to the duress character of the case.  It was clearly pleaded in the pleading of the unconscionability case that the applicants were entitled to remedies as a result of the sort of conduct that the Court of Appeal found.  If the Court pleases.

GLEESON CJ:   We are of the view that this case does not provide a suitable vehicle for the agitation of some of the issues which the applicant seeks to raise, and we are not persuaded that the interests of justice require a grant of special leave.  The application is refused with costs. 

AT 10.16 AM THE MATTER WAS CONCLUDED