Tatts Group Limited v The Treasurer of Victoria; Tabcorp Holding Limited v The Treasurer of Victoria

[2015] HCATrans 27

[2015] HCATrans 027

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M94 of 2014

B e t w e e n -

CROMWELL PROPERTY SECURITIES LIMITED (ACN 079 147 809) AS RESPONSIBLE ENTITY OF THE CROMWELL PROPERTY FUND

Applicant

and

FINANCIAL OMBUDSMAN SERVICE LIMITED (ACN 131 124 448)

First Respondent

PETER RADFORD

Second Respondent

ROBYN RADFORD

Third Respondent

Application for special leave to appeal

HAYNE J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 FEBRUARY 2015, AT 11.28 AM

Copyright in the High Court of Australia

____________________

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned, MR P.D. HERZFELD, for the applicant.  (instructed by Allens Lawyers)

MR P.J. HANKS, QC:   Your Honours, I appear with MR M.W. WISE for the first respondent.  (instructed by Arslans Lawyers)

HAYNE J:   There is a submitting appearance for the second and third respondents.  Yes, Mr Jackson.

MR JACKSON:   Thank you, your Honours.  May I take just a moment to get to the heart of the matter before I address our argument?  As the Court will have seen, the application concerns the dispute resolutions system into which we, as a financial services licensee providing services to retail clients, were required to enter and the requirement, your Honours, is found in the combination of two provisions of the Corporations Act.  One is section 912A(1)(g) and the other is subsection (2)(b) of the same provision.

Your Honours, they refer to there being a provision of the licence of such a person dealing with those matters and the relevant provision of the licence your Honours will see at page 124 of the application book, paragraph 165.  May I take your Honours to that for just a moment?  You will see that at the top of page 124.  Now, your Honours, as appears at page 126 in paragraph 171, the first respondent’s scheme is regulated by, amongst other things, terms of reference, but not every matter referred to the first respondent, however, is to be heard by it.  That is the part of the scheme with which the application is concerned. 

Your Honours will see paragraph 5.2 which is set out in a couple of places but could I take your Honours to page 74, paragraph 11.  You will see the terms are set out there and the reliance placed by us was on paragraph 5.2(a) and your Honours will see that referred to specifically by Justice Tate at page 137, paragraph 200.  You will see at the bottom of page 137, her Honour says:

Cromwell made an application to FOS for it to exercise its power to exclude the Dispute on the basis that it was more appropriate for determination by a court.

That is paragraph 5.2(a) at page 74.  That request, your Honours, was refused.  I am sorry, I should say, your Honours, the grounds that were relied on your Honours will see at page 75 set out in paragraph 12.  That request was refused and your Honours will see in paragraph 14, again on page 75, the quotation for the reasons for refusal.  Now, your Honours, we challenged that and the challenge failed at two levels below.

Your Honours, could I turn then to the central matter that we wish to advance.  It was not in dispute before the courts below that a standard of reasonableness was to be applied in determining whether the decision should be set aside.  The standard which was applied, however, was one of Wednesbury unreasonableness, if I could use that expression, and that can be seen in the decision of the majority at page 103 in paragraph 93.  Your Honours will see the reasons for that view being set out in the remainder of that paragraph, and by Justice Tate at page 152, paragraph 231.

Now, your Honours, if I could just say, the basis on which that approach was adopted was that the proceedings were akin to those where parties by contract had appointed an arbitrator – or perhaps I should say more akin to proceedings where parties had appointed an arbitrator by contract, or provided for arbitration by contract, rather than say the exercise by one party to a contract of a power conferred on that party when a standard of reasonableness, and perhaps I could use the expression “objective reasonableness”, would apply.

Your Honours, that that is so, that that approach was taken and the reasoning for it can be seen, if I could give your Honours the references to the passages very briefly.  In the majority, page 24, paragraphs 66 to 67.  I am sorry, your Honour, that is a mistake, I should have said page 93 – yes, and 66 and 67, your Honours.  I referred mistakenly to the primary judge.  Now, your Honours, that is the first reference.  The second is at page 101, paragraph 86; and the third is at page 104, paragraph 95; and, your Honours, Justice Tate at page 152, paragraph 231.

Could I say, your Honours, that our submission is that the test to be applied is not to be determined, as it were, by analogy.  Rather, the question is what is required by clause or paragraph 5.2.  Now, your Honours, the core aspects in that regard, we would submit, are those to which we have referred in our submissions in‑chief at page 199 in paragraphs 17 and 18. 

Your Honours, we would submit that those features are ones which suggest that in performing its tasks under the terms of reference, and in particular under this provision, the respondent is to act reasonably, that is, reasonably as between the parties to the matter.  In particular, your Honours, in circumstances where one party to the dispute is there, namely ourselves, not there by choice in any usual sense of the term when I am referring, of course, to the fact that we are required to participate in one of these schemes.

HAYNE J:   Now, in this case, leaving aside the supposed distinction between the two forms of reasonableness, what is complained of is a breach of the obligation or the stipulation in the term of reference.  Is that right?

MR JACKSON:   Yes, your Honour.

HAYNE J:   In circumstances where a reason or set of reasons is assigned for the decision or no set of reasons are given?

MR JACKSON:   Well, your Honour, it is right to say a set of reasons, but your Honours will have seen the reasons are set out in very brief form and that is at page 75, paragraph 14.

HAYNE J:   Therefore what is the court, confronted with the claim, obliged to do by way of reasoning, do you say, to determine that the reasons assigned by this body, what, do not stack up, are not preferable?  What is the question?

MR JACKSON:   Well, the question, your Honour, is this.  One sees that there is a provision which has contractual effect.  No one seemed to dispute that that was the nature of the area.  One sees then an issue that is raised before the body or the first respondent and the first respondent has to determine that issue.  Now, one sees that there is a submission that the power should be exercised in our favour and the power that is sought is one that we submit should be exercised reasonably. 

Now, what does “reasonably” mean?  It means one takes into account (a) the nature of the matter, (b) the submissions that are made in relation to it, and the question that the court then has to perform is whether, in the light of the circumstances, that is a view which is reasonable, not just a view that a person might arrive at within the scale of views in the Wednesbury sense.

HAYNE J:   Well, that seems to suggest that the court is, in effect, sitting as an appellate body from the decision‑maker, FOS.

MR JACKSON:   Well, your Honour, no more so than in the case of any contractual provision where the exercise of the power is to be one that is to be exercised reasonably.  No more so, in one sense, than in the case, even if the Wednesbury test were to apply, because it is a question of what the test is in a proceeding which seeks to set aside a decision of some other body.  Now, one can call that appellate using the word perhaps in a non‑technical sense, but it does not differ from that and, your Honour, it does not lose any force because one is able to give a description of that kind.

HAYNE J:   At root my question is based in a challenge to the distinction which seems to have underpinned the whole of the argument of this case, that there is useful distinction being drawn and I need to understand better than I presently do, Mr Jackson, what you say that distinction is.

MR JACKSON:   Well, your Honour, may I seek to put it this way and I want to say two things.  The first is that what your Honour has put in a sense reflects the argument that we seek to advance, that one does not start with an a priori assumption that it falls into class A or class B, class A being Wednesbury, class B being objectively reasonable.

Having said that, it becomes a question of what is the difference between the tests and the difference between the tests, in our submission, is in a sense this, that if one is applying the test of saying is it unreasonable because it is a decision that no person could properly make on the material before the body in question, the Wednesbury‑type test, that is one thing.  The other test is one where we say is this decision one which is objectively reasonable in the sense that on the circumstances it is a decision that a reasonable person would make.

NETTLE J:   What is the difference between the two?  You just put them on the converse.  The first was that no reasonable person could have made it.  The second one was that a reasonable person could have made it.  There is no via media, is there?

MR JACKSON:   Well, your Honour, there is, in a sense.  If there were no distinction between the two, then one would not have, for example, the difference between appeals from the exercise of a discretion and an appeal on a decision.

NETTLE J:   That may be so, but what is the difference?

MR JACKSON:   The difference, your Honour, is that if one is looking at, for example, an appeal from the exercise of discretion which, as I say, is akin to a Wednesbury type, one sees in the ordinary course of events that there are the four usual reasons for setting aside a discretion.  Your Honour will be familiar with them, including what is commonly described as the last or final one, House v The King, and that is it is a decision no reasonable person could have made.

Now, if one is looking at a decision of the kind to which we are submitting, what is the decision, is it a reasonable decision on the fact?  Now, your Honours, that differs, in our submission, in degree, of course, from the first of those and it differs in the sense that there are decisions that would fall within the former but not within the latter.

NETTLE J:   Why, because under the former it would be enough to show it were not reasonable to show that the decision‑maker took into account say an irrelevant consideration?

MR JACKSON:   Well, that is one ‑ ‑ ‑

NETTLE J:   For example, whereas for Wednesbury you would have to show whether or not they did it was so highly unreasonable in result no one could have come to that conclusion.

MR JACKSON:   Well, your Honour, I think I would put it slightly differently from that, with respect, in the sense that in certainly the former case – if one is talking about Wednesbury, I can call that the former category – one would say in relation to that that it would be a ground for setting aside the exercise of the discretion on the basis that an irrelevant matter had been taken into account.  It would not necessarily follow but it would be a matter.

It would equally be an indication that a discretion had not been exercised objectively reasonably if an irrelevant matter had been taken into account.  So, your Honour, I do not suggest that there is not some interrelationship between the two, but what I am suggesting is that there is a more stringent test, which is the one that should be applied.  Your Honours, if there were not, what was the Court of Appeal doing?  It seemed to discuss the topic at very considerable length.

HAYNE J:   Responding to argument, I trust, Mr Jackson.

NETTLE J:   …..very persuasive argument.

MR JACKSON:   Your Honours, could I just say this?  We would submit that if one looks at the complaint that was made in the present case, it was apparent – sorry, may I just say this, your Honours, before I come to that.  In relation to the question of the nature of the test that should be applied, we would submit two further factors which are relevant in the matter.  One is that the financial services licensee is bound by any determination of the

body to which the claimant accepts, but the claimant would not be bound by any determination which we would be minded to accept.

The second feature, your Honours, of course, is that this is a case where the first respondent, of course, does have an interest in the business in the sense of keeping his business going to perform and keep this type of work.  Your Honours, could I say this?  The summary of the reasons of the majority can be seen at page 115, paragraph 136 and, your Honours, could I just say in relation to it that had been preceded, of course, by a lengthy discussion which appears in paragraphs 96 to 135.

Could I just say though, your Honours, that if one looks at the complaint that was brought by the second and third respondents, it is apparent, in our submission, that the likelihood of involvement by the Garnaut body was high, and your Honours can see this in the complaint that was made which is set out by Justice Tate at page 135, paragraphs 197 to 199.  Could I just invite your Honours to note paragraph 12 of that at the top of page 136?  That is paragraph 12 of paragraph 197 in the quotation.  You will see there is a reference there to there being product disclosure statements having been made.  You will see if you go to paragraph 18 of that complaint:

If I had been made aware of this matter by the Responsible Entity [Cromwell], I would have immediately instructed Garnaut to redeem –

et cetera.  Then paragraph 19, again, “we have been made aware”, and paragraph 22, again, “If I had been made aware of the Fund’s” et cetera.  If one goes to paragraph 198 where there are further quotations, and your Honours will see again paragraph 25, “If I had been made aware”, and in paragraph 199, paragraph 9, “We are aware” and so on.  Your Honours, the point I would seek to make about it is that it is a case where the possibility of liability of the adviser was manifest and, in our submission, the response which is set out in the passages to which I have taken your Honours already, for example, at page 141, paragraph 206, could not be regarded as reasonable.

Your Honours, finally may I say this.  As is apparent from page 205, line 10 in Ms Morrison’s affidavit, the first respondent has 16,000 members and line 15, it is one of only two such bodies having approved external dispute resolution schemes.  In our submission, the matter is of sufficient importance to merit the intervention of the Court.

HAYNE J:   Thank you, Mr Jackson.  Yes, Mr Hanks.

MR HANKS:   Thank you, your Honour.  Your Honours were taken to paragraph 136 in the judgment of the majority, if I can call them majority, although the court was unanimous on this point.  The majority explained ‑ ‑ ‑

HAYNE J:   Sorry, what page?

MR HANKS:   It is on page 115, your Honour.

HAYNE J:   Thank you.

MR HANKS:   Your Honours see how the Chief Justice and Justice Osborn introduced, as it were, their disposition of the complaint lodged by Cromwell.  In light of the nature of the dispute, the preliminary nature of the decision of our client FOS:

lack of evidence available to FOS at the time in relation to the relevance of material from Garnaut –

that is the adviser –

possibility of evidentiary unfairness, we do not accept that the decision to refuse to exclude –

was unreasonable in the sense that their Honours had concluded was a relevant standard, a Wednesbury standard.

HAYNE J:   How do you on your side of the record articulate the difference between the two standards that are said to be in play, or do you say there is a difference?

MR HANKS:   Indeed, just as Justice Digby and the three members of the Court of Appeal identified a difference, your Honour.  One of the difficulties that we have, of course, is that their variance on the concept of “reasonableness” which itself is slippery, but nevertheless, to say of a decision that it is a decision that no reasonable decision‑maker could have made puts it at one end of the spectrum, definitely.  To say that the decision is ‑ ‑ ‑

HAYNE J:   Or does it go anywhere beyond last category Avon Downs analogous to last category House v The King?

MR HANKS:   No, your Honour, no, it does not.  The way in which it was put by the primary judge and the three members of the Court of Appeal, it is effectively the same proposition.  It is the proposition derived from, as your Honour will recall, from the Carlton Football Club Case.  It achieved some passing confirmation in Mickovski where it was not directly an issue but it was noted as a relevant standard for this body, FOS.  It is, in our submission, a different standard from the Berg Bennett standard where some positive quality of reasonableness is required for the decision. 

Now, appreciating what Justice Nettle said to our friend that these are simply different ways of almost expressing an identical proposition, depends from which end you start, but we assist with the notion that the courts have recognised a distinction between those standards.  For example, the courts may say we will assess this decision, is it reasonable, which is getting very close to saying ‑ ‑ ‑

NETTLE J:   No, it does not.  It says, “is it demonstrated that it is unreasonable”.  That is the question which the court asks itself.

MR HANKS:   Well, that is the right question, your Honour, but there are cases where under particular forms of contract a contracting party that is armed within the contract with the power to make a decision that will operate to its advantage and to the disadvantage of the other contracting party has been found to be subject to an implied obligation to make a decision that is reasonable.

NETTLE J:   Accepting that is so and coming to the position that we are in where a court is looking back on a decision which has been made and asking itself the question, is it demonstrated that that decision was unreasonable, what can it do other than ask itself has it been demonstrated that a reasonable – the decision‑maker could not have made that decision?

MR HANKS:   There is a different way of formulating it and, indeed, all members of the Court of Appeal identified that different way of formulating it.

NETTLE J:   Of course they did, but what is the difference in substance?

MR HANKS:   Well, your Honour, I submit that there is a significant difference between saying of a decision, does it have a credible justification or explanation.  The Li standard asked that question.  Can one find some credible support or justification for this decision?  That is different from saying of the decision, does it have the positive qualities of being reasonable.

NETTLE J:   Not does it have the positive qualities, is it showed that it lacks them.

HAYNE J:   It does not.

NETTLE J:   Once you approach the matter that way, which as you say correctly, is the correct way to approach it, what is the difference logically between the two tests?

MR HANKS:   Perhaps I should not be arguing against myself, your Honour, because if there is no difference between ‑ ‑ ‑

HAYNE J:   Well, it leads to the question then is there shown to be a basis on which the actual orders made by the Court of Appeal would be set aside?  The reasoning may or may not be open to challenge, but would the orders be set aside?

MR HANKS:   If the reasoning, your Honour, is not open to challenge, if their Honours are correct in identifying the standard by reference to which our client’s preliminary decision was to be assessed and if they did not fall into error in concluding that the decision met that standard, and all of that is spelt out in detail in the reasons of the majority and with one exception, Justice Tate agreed with the substance of that reasoning – there was one point only on which she disagreed, if the reasoning is ‑ may I use the word unimpeachable ‑ if that be the case then how can the orders be inappropriate?  There is no basis on which one could then impugn the orders.

HAYNE J:   I was rather coming at it from the other end of the deal, Mr Hanks, but there we are.  Yes.

NETTLE J:   Could I just ask you, is it conceivable that if the Court of Appeal had applied the correct test, or at least the plurality of the Court of Appeal had applied the correct test, as you describe it, they could have come to any different conclusion?

MR HANKS:   No, it is not, your Honour, for this reason.  The decision made by our client was made six or seven weeks after the complaint was lodged.  Your Honours will recall that the complaint was lodged in April, the objection was made in May and within two weeks the decision was handed down that at this stage we will not refuse to receive or deal with the complaint.  And it was made clear in the reasons that that request under clause 5.2 of the terms of reference could be renewed as the matter matured.  So, in the circumstances, your Honour, it is not credible that you could assess that decision as lacking the positive quality or characteristics of being reasonable.  That is my answer to your Honour’s question.

NETTLE J:   Yes, thank you very much.

MR HANKS:   Now, that seems to be the kernel of the application today.  I will not respond to any arguments that have not been put orally, your Honours.  I think I will sit down.  Thank you, your Honours.

HAYNE J:   Thank you, Mr Hanks.  Yes, Mr Jackson.

MR JACKSON:   Your Honour, I think I will stand up, if I may.

HAYNE J:   Thank you, Mr Jackson.

MR JACKSON:   Your Honour, may I just say that whether there is any difference between the two tests that are being discussed is itself an important point.  Could I just say this?  If one looked at a situation where an amount had to be awarded, say, to a person carrying out a contract and the amount that was the possible range, let us say, was between an amount of $1 million or $8 million, and if that had to be reviewed, if the test of review was whether – and let us say $1 million was awarded, and if the test for review was whether that sum was one that might have been awarded by anyone applying the Wednesbury test, then it might well be that the challenge to it would fail because a person acting reasonably in one sense, in the Wednesbury sense, could have awarded that.  On the other hand, if the test was whether it was a reasonable amount to award, then the proper answer might well be that the amount that should have been awarded could not have been relevantly lower than, say, $4 million.

NETTLE J:   Is that true also of the test is is it demonstrated that it was not a reasonable award?

MR JACKSON:   I am sorry, I just did not hear the last part of what you said.

NETTLE J:   I said is that true also if the test is is it demonstrated that it was not a reasonable award?

MR JACKSON:   Yes, it is, your Honour.  It then becomes a question of the criterion to be adopted in answering the question that your Honour posited a moment ago, and that is the issue.  Could I just say this, your Honours?  In relation to the question whether there was a practical difference, it will be appreciated that the Court of Appeal adopted the Wednesbury test in relation to it and did not go beyond that. 

We would submit, if one looks at what was said by the dissenting judge in the event, Justice Tate, at page 173, in paragraph 279 through to 293, that they indicate that the case is one where it would have been appropriate to find in our favour on an objective test.  Now, her Honour did not go on to say that and it is bound up with what she says in the concluding

paragraph of that, that it was the presence of Garnaut to acting on behalf that was ultimately the motivating feature for her.  But, your Honours, we would say those factors that are there suggest that our case is one where we ought to have succeeded.  Your Honours, those are our submissions.

HAYNE J:   Thank you, Mr Jackson.

The points of principle which the applicant seeks to agitate in this matter would not conveniently fall for decision if special leave to appeal to this Court were to be granted.  There are insufficient prospects of disturbing the actual orders made by the Court of Appeal to warrant a grant of special leave in this matter.  Special leave to appeal is refused.

MR HANKS:   We do apply for costs, your Honour.

HAYNE J:   With costs, yes. 

AT 12.01 PM THE MATTER WAS CONCLUDED