Westpac Banking Corporation v Haynes - [2017] SASC 23

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
WESTPAC BANKING CORPORATION v HAYNES; HAYNES v ST GEORGE BANK A DIVISION OF WESTPAC BANKING CORPORATION
[2017] SASC 23
Judgment of The Honourable Justice Nicholson
2 March 2017
BANKING AND FINANCE - BANKS - BANK ACCOUNTS - INTEREST, OVERDRAFTS AND ADVANCES
BANKING AND FINANCE - BANKS - LIABILITIES OF BANKS - NEGLIGENCE
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - RIGHTS AND LIABILITIES OF MORTGAGOR AND MORTGAGEE
BANKING AND FINANCE - BANKS - DUTIES OF BANKS
Matter No. 1211 of 2014 is a claim in debt by Westpac Banking Corporation (the Bank) against its former customer, Jonathon Wilfred Haynes, for an amount said to be due pursuant to an overdrawn portfolio loan account and certain other fully drawn advances. Matter No. 1436 of 2014 is a claim by Mr Haynes against St George Bank, being a division of Westpac, seeking damages for, inter alia, alleged failures by it to act prudently, as required by clause 25.1 of the Code of Banking Practice, when assessing Mr Haynes’ capacity to service the portfolio loan account when an extended limit was agreed to in October 2009. To the extent that Mr Haynes were to succeed with his damages claim, such damages would be available to reduce the amount otherwise due to the Bank on its debt claim. The trial for each claim was heard concurrently.
As at October 2009, Mr Haynes had been a customer of the Bank for almost two years. He had, what is described in the evidence as, a portfolio loan account with the Bank. When first acquired, in 2007, the portfolio loan account credit limit was $1,700,000 and was secured by a number of real property assets including Mr Haynes’ residence at 37 Player Court, St Peters. However by October 2009, the original credit limit had been reduced to $912,000 and the only real property remaining as security was the St Peters property. On 24 January 2009, Mr Haynes entered into an unconditional contract to purchase a property at Longwood which had been deployed as a flower farm. The Longwood property contract provided for a long settlement period (19 October 2009).
On or about 9 October 2009, the Bank made a formal offer to Mr Haynes to increase the credit limit on his portfolio loan account to $1,790,000 in order to facilitate the Longwood purchase, which offer was accepted by Mr Haynes.
The increase of $878,000 was the amount needed to enable the Longwood settlement to take place and to cover anticipated transaction costs. Longwood was added as part of the security for the portfolio loan account. It was Mr Haynes’ intention thereafter to sell his St Peters residence, to cease undertaking real estate agency and property development work and to retire to the Longwood property but with a view to continuing its operation as a flower farm. The parties anticipated that St Peters would sell relatively quickly and for a price in the order of $1,600,000.
However, the St Peters property proved difficult…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] SASC 23
Decision Date: 2 March 2017

CaseChat Overview and Summary

Westpac Banking Corporation v Haynes was a case heard by the Federal Court of Australia. The plaintiff, Mr Jonathon Haynes, sued the defendant, Westpac Banking Corporation, for allegedly breaching a term of a credit agreement. The dispute centred around the bank's failure to assess Mr Haynes' capacity to service a loan, which the bank claimed was not a breach of the agreement. The bank also argued that even if there was a breach, it did not result in any compensable loss to Mr Haynes. The court was required to determine whether the bank breached the credit agreement and, if so, whether the breach resulted in any compensable loss to Mr Haynes.

The court considered the evidence presented by both parties, including documentary evidence and witness testimonies. The court found that Mr Haynes was an intelligent and experienced businessman, but his reliability and credibility were questionable. The court noted that Mr Haynes had a high tolerance for risk and relied heavily on borrowed funds. The court was not convinced that Mr Haynes had no understanding of taxation issues and the financial world, as he claimed. The court concluded that Mr Haynes had not proved that the bank's alleged breach of the credit agreement caused him any compensable loss.

The court held that even if the bank breached the credit agreement, it did not result in any compensable loss to Mr Haynes. The court found that Mr Haynes had not established that the necessary finance would not have been made available by the bank or some other financier and accepted. The court also held that Mr Haynes would have suffered no direct loss as he received full value in exchange for the obligation to repay the principal amount drawn down in order to settle the Longwood purchase. However, Mr Haynes would have incurred consequential losses which would not have been incurred but for the fact of the finance having been made available and the Longwood purchase completed. The court concluded that Mr Haynes was entitled to be compensated for various categories of such consequential expenditures and other losses.

The court ordered that Mr Haynes' claim be dismissed for the reasons stated above. The court did not award any damages to Mr Haynes as it found that he had not proved any compensable loss. The court also noted that the amount drawn down would, in any event, remain payable and have to be accounted for in any damages assessment.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

As a consequence, the Bank maintains that even if (which it denies) it failed to observe the requirements of clause 25.1 with respect to the assessment of Mr Haynes capacity to service the loan, liability in favour of Mr Haynes will not necessarily follow. Questions of causation of loss, including whether or not the extension of the portfolio loan account credit limit would have been granted in any event will need to be considered. Observations concerning the witnesses who gave evidence on behalf of Mr HaynesMr Jonathon Haynes Much of the evidence of significance to the Haynes Action was either documentary (correspondence, bank records and the like) or given by a witness with the assistance of notes and other written records. In many respects, the documentary trail tells the story as to how and in what circumstances the credit limit for the portfolio loan account was extended. However, there are aspects of Mr Haynes’ case, particularly in respect of but not limited to causation issues, where his reliability and credibility is of importance. The evidence of Mr Haynes in chief and under cross-examination extended over a number of days. The following observations reflect the impressions I formed at the time of hearing Mr Haynes’ evidence. My subsequent review of the transcript has not caused me to depart from these initial impressions. I found Mr Haynes to be an intelligent and shrewd man who has acquired, over some decades, substantial experience in and knowledge about his work in real estate sales and property development. He has been financially successful over the years. Whilst Mr Haynes would have the Court believe that he had no real interest in or understanding of taxation issues and the financial world, I am satisfied that he had a significantly more than reasonable working knowledge and understanding of those matters, at least insofar as they interacted with his real estate agency and property development work. He was not an abecedarian in these respects. Mr Haynes impressed me as a person with a high tolerance for risk and who was prepared to conduct his business dealings and personal affairs with substantial reliance on borrowed funds. Mr Haynes was relaxed and confident during his evidence in chief although, as to be expected, was not then tested or put under any pressure. However, I formed a poor view of his reliability and, ultimately, his credibility during his sustained cross-examination. Mr Haynes was lucid and expansive but he repeatedly failed to focus on the content of questions asked. Instead, he routinely took the opportunity to restate and argue his case. It often was difficult to distinguish evidence of genuine recollection from reconstruction with the benefit of hindsight and reflection about what would be of most assistance to his case. I was left with the firm impression that Mr Haynes had acquired an understanding of what he believed to be critical issues in his case and had schooled himself on certain topics which he repeatedly wished to impress upon the Court. This, of itself, does not mean his evidence was necessarily inaccurate. However, when challenged, rather than dealing with each question on its merits, Mr Haynes often retreated to his prepared speech.

Decision

Reasons for decision

NICHOLSON J

Further, even if restricted to six months, this still would have been a substantial period within which to effect a sale of St Peters and an adequate one in the context of Mr Haynes’ then state of mind. There would be no question of Mr Haynes and his son having to move from St Peters before the son had finished the school year. Finally on this point, Mr Haynes’ state of mind in October 2009 would have been that even if St Peters were not to sell within the six month period or such longer period as may have been negotiated, the loan would have been in place and the sale process underway. Any further delay before being able to discharge the bridging loan would have been relatively brief. I am not persuaded that the more restrictive conditions that would come with a conventional residential bridging loan would have dissuaded Mr Haynes from proceeding.Conclusion as to causation of a compensable loss Mr Haynes has not proved that, even if the Bank had breached the clause 25.1 warranty, the necessary finance would not have been made available by the Bank or some other financier and accepted. He has not established that the Longwood purchase would not have proceeded. On Mr Haynes’ case as to breach, no compensable loss has been proved and his claim is to be dismissed for this reason as well.Assessment of any compensable loss In the event that I were to be in error, to this point, as to breach and causation of compensable loss such that, on Mr Haynes’ case, the finance necessary to complete the Longwood purchase would not have been forthcoming, the question of how to assess Mr Haynes’ damages would arise. I agree with the Bank’s submission to the effect that Mr Haynes will have suffered no direct loss in the sense that Mr Haynes, at the time of accepting the Bank’s extended facility, received full value in exchange for the obligation to repay the principal amount drawn down in order to settle Longwood. The amount drawn down would, in any event, remain payable and have to be accounted for in any damages assessment. However, Mr Haynes would be seen to have incurred consequential losses which would not have been incurred but for the fact of the finance having been made available and the Longwood purchase completed. Mr Haynes has pleaded an entitlement to be compensated for various categories of such consequential expenditures and other losses. Mr Haynes used the drawn down advance of $850,000 plus an amount for transaction costs in order to complete the Longwood purchase. As at that point in time, Mr Haynes acquired property with a value equal to his debt obligation to the Bank, apart from the additional amount drawn down for transaction costs. However, whilst Mr Haynes also received full value (the drawn down funds) for his assumed obligation to repay the money advanced to fund the Longwood settlement transaction costs, these costs were wasted. Mr Haynes has received nothing tangible and would not have incurred these costs or the debt to the Bank. I do not accept the Bank’s contention that the wasting of the advance for the transaction costs would not have been caused by the breach; those amounts would be recoverable by Mr Haynes.

Ratio Decidendi

Legal Principle Established

Established by: NICHOLSON J

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