State of Western Australia v Bond Corporation Holdings Ltd

[1991] FCA 405

Re: STATE OF WESTERN AUSTRALIA
And: BOND CORPORATION HOLDINGS LIMITED; WARDLEY AUSTRALIA LIMITED; LAWRENCE
ROBERT CONNELL and WARDLEY AUSTRALIA SECURITIES LIMITED
Nos. WA G116 and 118 of 1990
FED No. 405
Practice and Procedure
(1991) 13 ATPR 41-129

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Spender(1), Gummow(1) and Lee(1) JJ.

CATCHWORDS

Practice and Procedure - application for leave to appeal against decision on strike out application - correctness of the reasoning in Commercial Bank of Australia v Carruthers (1964) 6 FLR 247 - proper construction of s. 6 of Lord Tenterden's Act 1828 (Imp.) - whether grant of leave appropriate - leave refused.

Bankruptcy Act 1966

Trade Practices Act 1974

Usury, Bills of Lading, and Written Memoranda Act 1902 (N.S.W.) Companies (Queensland) Code

Statute of Frauds Amendment Act 1828 (9 Geo. IV, c. 14) (U.K.) ("Lord Tenterden's Act")

Commercial Bank of Australia v Carruthers (1964) 6 FLR 247

Diamanti v Martelli (1923) NZLR 663

The Mutual Life and Citizens' Assurance Company Limited v Evatt (1968) 122 CLR 556

Clydesdale Bank Limited v J. and G. Paton (1896) AC 381

HEARING

PERTH

#DATE 17:7:1991

Counsel and solicitors Mr E.M. Heenan QC and
for the appellant: Mr R.E. Cock instructed by the State

Crown Solicitor.

Counsel and solicitors Mr D.M.J. Bennett QC and
for the third respondent: Mr M.J. Stevenson, instructed by Messrs

Jackson McDonald.

ORDER

The application for leave to appeal be refused.

There be no order as to costs of the application.

NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

By motion dated 26 February 1991, the third respondent ("Mr Connell") seeks leave to appeal from orders made on 15 February 1991 by a Judge of this Court (French J.) upon a motion by Mr Connell, dated 23 January 1991, in which orders had been sought dismissing the action or striking out portions of the Amended Statement of Claim in this consolidated proceeding. On 22 February 1991, French J. extended up to and including 26 February 1991, the time limited to Mr Connell for filing the present motion for leave to appeal. The application for leave was opposed by the applicant in the principal proceeding ("the State").

1. The nature of the principal proceeding out of which the present application for leave to appeal arises, is outlined in the Reasons for Judgment in appeal No. WA G17 of 1991, and these reasons should be read against the background of what is there said. But it should be noted that the State brings its action against the respondents upon differing grounds. Against the first, second and fourth respondents, the allegation is that the State has suffered loss or damage by contravention of s. 52 of the Trade Practices Act 1974 ("the Act"). Against Mr Connell, it is alleged that within the meaning of s. 75B of the Act, he was involved in the contravention of s. 52 by Rothwells Limited ("Rothwells"). Rothwells itself is not sued. In that regard, the State asserts in para. 4 of the Amended Statement of Claim:
   

"4. The third respondent ('Connell') was at all material times a duly appointed director of Rothwells Limited (in

Liquidation) ('Rothwells') and the chairman of the board of directors of Rothwells and insofar as is material hereto acted within his authority as director and chairman of the board of directors of Rothwells."

The State also pleads against Mr Connell an action in deceit, within the accrued jurisdiction of the Court.

1. We were assisted in ascertaining the import of the grounds put forward by the applicant in the Draft Notice of Appeal, by a written outline of submissions. From this, it became apparent that complaints were made that the primary Judge had not acceded to submissions that the pleading was embarrassing in various respects. But, in addition, two points of law were put forward. It was said that if made out each would have a significant effect upon the outcome of the proceedings, and each disclosed defects in the pleading which could not be cured by amendment. It is convenient to turn first to these two points.

2. The first concerns the significance for the present case of the reasoning in Commercial Bank of Australia v Carruthers (1964) 6 FLR 247, a judgment of Manning J. sitting in Commercial Causes in the Supreme Court of New South Wales.

3. In paras. 40 - 47 of the Amended Statement of Claim, it is alleged that after 27 October 1987, Rothwells drew down $150 million pursuant to the facility granted by National Australia Bank Limited ("NAB"), that the facility was repaid by Rothwells to the NAB on or about 17 October 1988 at a time when Rothwells was insolvent, that provisional liquidators were appointed to Rothwells on 3 November 1988, that they contended that the payment by Rothwells of $150 million constituted a voidable preference, that they demanded payment to them of that sum by the NAB, that NAB and the State denied that the payment in 1988 constituted a voidable preference, that NAB called on the indemnity dated 26 October 1987 ("the Indemnity") in respect of the demand by the provisional liquidators, and that a dispute arose between the State and the NAB in relation to the Indemnity, the State contending that the 1988 payment by Rothwells discharged the Indemnity whilst the NAB contended that the Indemnity still remained in full force and effect. Then it is alleged (para. 47) that the dispute between the State and the NAB, and the claim by the provisional liquidators against the NAB, were "reasonably settled" by certain payments.

4. It was submitted to the primary Judge that the Indemnity was discharged once and forever when Rothwells made the payment to the NAB on 17 October 1988, and that even if the payment constituted a voidable preference under the provisions of s. 122 of the Bankruptcy Act 1966, as applied to the liquidation of Rothwells under the Companies (Queensland) Code, the liability of the State as guarantor was not "revived".

5. On the present application for leave, counsel for Mr Connell submitted that, as a matter of law, this was not a case where the State might have been liable on the Indemnity to NAB upon its call in respect of the demand by the provisional liquidators upon NAB. For that proposition, counsel relied upon Carruther's Case supra.

6. In response to a submission to the same effect, the primary Judge had stated that the decision of Manning J. could not be taken "to be unarguably correct". His Honour noted that the reasoning in Carruthers' Case supra, particularly in its treatment of earlier English decisions and in the distinctions drawn between the relevant British and Australian legislation, was criticised by Professor O'Donovan and Mr Phillips in their work "The Modern Contract of Guarantee", 1985, pp 199-202. His Honour also noted that the terms of the Indemnity with which the present dispute is concerned differed, arguably in material respects, from the terms of the guarantee considered in Carruthers' Case.

7. It is sufficient for present purposes to say that in our view there is sufficient cogency in the points made by the primary Judge to make it the preferable course to leave this issue for resolution at the trial. It is to be remembered also that the instrument in question in the present proceedings is expressed in terms not merely as a guarantee, but as an indemnity, a distinction which may be significant; see "Chitty on Contracts", 25th Ed., Vol. 2, paras. 4406, 4419, 4434, O'Donovan and Phillips, supra at 21-26.

8. The second point of law urged by the applicant arises under s. 6 of the Statute of Frauds Amendment Act 1828 (9 Geo. IV, c. 14) (U.K.), "Lord Tenterden's Act", which, we were informed, is in force in the State of Western Australia and has not been re-enacted by the Parliament of that State.

9. Section 6 is in the following terms:
   

"6. No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person to the intent or purpose that such other person may obtain credit, money, or goods upon, unless such representation or assurance be made in writing, signed by the party to be charged therewith."

The word "upon" where it secondly appears in this section is meaningless and is to be disregarded in construing the section: Diamanti v Martelli (1923) NZLR 663 at 667 per Salmond J.

1. In paras. 18 (a) and 37 (a) of the Amended Statement of Claim, the State alleges that by failing to inform, inter alia, the representatives of the State at a meeting on Saturday 24 October 1987 that certain representations by other parties were not correct, Mr Connell represented to the State that Rothwells was a sound financial institution which had substantial net assets, whereas he knew or did not care whether it was true or false that Rothwells was not a sound financial institution and did not have substantial net assets. In para. 21, it is alleged that at all material times Rothwells was not a sound financial institution, and did not have substantial net assets.

2. These allegations are put forward as one integer in the cause of action by the State against Mr Connell in deceit. Counsel for Mr Connell contends that the allegation which we have detailed involves the State in bringing an action of a description to which s. 6 of Lord Tenterden's Act applies. The result would be that Mr Connell would have a good defence to that much of the allegations in deceit. The primary Judge dealt with a submission to that effect by saying that it was arguable whether the statute did apply to the action in deceit, but that it was a matter to be distinctly pleaded by way of defence.

3. Counsel for the State submitted that it was no part of the State's claim that the representation in question as to Rothwells was made by Mr Connell to the intent or purpose that Rothwells obtain credit, money or goods within the meaning of the statute. Counsel contended that the provision by the State of the Indemnity to NAB in respect of the loss to NAB which might arise by default of Rothwells did not fit within the terms of the statute, and that, at the very least, there was an arguable point which should be tried out. In that regard, he referred to the construction of the statute (as it appeared in the Usury, Bills of Lading, and Written Memoranda Act 1902 (N.S.W.)) by Barwick C.J. in The Mutual Life and Citizens' Assurance Company Limited v Evatt (1968) 122 CLR 556 at 580-581. (This point was not taken on further appeal to the Privy Council (1971) AC 793.) On his part, counsel for Mr Connell sought to derive comfort from authorities including Clydesdale Bank Limited v J. and G. Paton (1896) AC 381, which concerned the impact of the statute upon liabilities arising on bills of exchange. But, in the result, we would not grant leave to test the rival contentions at this stage.

4. There is another point which bears upon the grant of leave. Counsel for the State indicated that if the State were successful on the limitation point agitated in the appeal No. WA G17 of 1991, the State would be seeking general leave to amend. That would bear upon para. 4 of the Amended Statement of Claim as it now stands. We have set out the text of this earlier in these reasons. As pointed out in argument on the application for leave, it is not clear as para. 4 now stands, whether or not the deceitful representations alleged elsewhere in the pleading against Mr Connell, were made on his own behalf so that in addition to being the acts or omissions of Rothwells, they were the acts or omissions of Mr Connell. The consequence may be that there is a liability in deceit, so far as Mr Connell is concerned, but that the representations in question remain the conduct of Rothwells for the purpose of ascertaining whether Lord Tenterden's Act has any application. Upon this particular hypothesis, the Act would not appear to have an application.

5. All of these considerations lead to the conclusion that the defence raising Lord Tenterden's Act should be separately and distinctly pleaded after such amendment as may be made to the Amended Statement of Claim in the light of the outcome on the appeal, No. WA G17 of 1991.

6. The remaining grounds in respect of which leave is sought concern alleged deficiencies in the pleading of allegations against Mr Connell. Counsel complained that the pleading did not make plain in para. 19 the nature of the adoption of the Bond Saturday Fee Representation found in sub-para. 12 (a) (iii). He further contended that the primary Judge was in error in holding that sub-para. 37 (b) sufficiently pleaded the falsity of the 1987 audited accounts of Rothwells even when read in association with paras. 21 and 22. Other criticisms of like nature were made of the pleading, reflecting what counsel for Mr Connell says was a failure to plead the cause of action in deceit in the time honoured manner, namely, (i) representation, (ii) falsity, (iii) knowledge of falsity, (iv) intent to induce, (v) actual inducement, and (vi) damage. Counsel submitted, with considerable cogency, that the Statement of Claim suffered from the presence of rolled-up allegations which it was then embarrassing, in the technical sense, to expect the defendant to disentangle.

7. As we have indicated, we understood the tenor of the address of counsel for the State to be that he recognised the need of amendment, and in the light of the outcome in appeal No. WA G17 of 1991, an application for general amendment may now be expected.

8. In all the circumstances, we would refuse the application for leave to appeal. However, we would make no order for costs on the application.