Westpac Banking Corporation v Klef Pty Ltd

[1998] QCA 311

IN THE COURT OF APPEAL	[1998] QCA 311
SUPREME COURT OF QUEENSLAND
Brisbane
Before	McMurdo P. Pincus J.A. Jones J.

Appeal No. 8204 of 1998

[Westpac v. Klef P/L]

BETWEEN:

WESTPAC BANKING CORPORATION

(ARBN 007 457 141)

(Defendant) Applicant

AND:

KLEF PTY LTD

(ACN 002 311 453)

(Plaintiff) Respondent

Appeal No. 8205 of 1998

[Westpac v. Dynies P/L]

BETWEEN:

WESTPAC BANKING CORPORATION

(ARBN 007 457 141)

(Defendant) Applicant

AND:

DYNIES PTY LTD (ACN 008 586 570)

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 16 October 1998

1 These are applications for leave to appeal under s. 118(3) of the District Court Act 1967 against

orders of the District Court dismissing summonses issued by the applicant in actions pending in that court to strike out paragraph 15 of each of the respondent’s plaints, which are in similar terms. The

two applications raise the same issues and it is convenient to deal with them by discussing only the

first application, that relating to the action brought by Klef Pty Ltd. We propose to call that company

the plaintiff and the applicant Westpac Banking Corporation will be called the defendant. With the

consent of all parties, full argument was heard as to the merits of the appeals: should the applicant

be successful, that argument was not significantly more complex than, and was interconnected with,

the argument relied on in the applications for leave to appeal.

2           The plaintiff issued proceedings in the District Court claiming monies said to be recoverable by it from

the defendant, on three grounds. The application brought in this Court relates to one of the bases

of the plaintiff’s claim, namely that of damages for fraudulent misrepresentation. The plaint alleges

in effect that the defendant advised the plaintiff that it had approved the establishment of an offshore

currency loan on terms including that all payments by the plaintiff to the defendant should be free of

deductions. The plaint says that the defendant’s letter of approval suggested that the plaintiff accept

the terms the defendant proposed, including a term that payments should be free of deductions and

that was said to have an effect of imposing on the plaintiff an obligation to pay withholding tax. Then,

the plaint alleges, the defendant provided the plaintiff with a letter proposing acceptance by the

plaintiff of an offshore loan facility on conditions including one which was to the effect that payments

made by the plaintiff should be free of taxes "unless [the plaintiff] is compelled by law to deduct or

withhold the same", in which event the plaintiff should pay such additional amount as would result in

the receipt by the defendant of the sum it would have got "had no such deduction or withholding been

made".

3           The plaintiff’s case based on fraud is, in essence, that the defendant implicitly represented that these

arrangements were lawful, whereas they were in fact unlawful. The plaint goes on to say, in

substance, that the loan arrangements foreshadowed were made and carried out, that the defendant

further represented that it was entitled "to charge the plaintiff with withholding tax" and that, acting

in reliance upon the representations set up, sums reimbursing withholding tax were paid by the

plaintiff to the defendant. The plaint made allegations which, if correct, appear to bring the case

within the decision of the High Court in David Securities Pty Limited v. Commonwealth Bank of

Australia,[1] insofar as that case decided that certain sorts of arrangements between mortgagor and

mortgagee are void under s. 261(1) of the Income Tax Assessment Act 1936 ("the Act").

[1] (1992) 175 C.L.R. 353.

4 Then, having alleged that the defendant’s terms were void under s. 261 of that Act, the plaint said

that the defendant knew or ought to have known that. By way of particulars, the plaint said in effect

that the defendant would or should have been aware that the plaintiff’s agreement to pay the

withholding tax was void under s. 261 of the Act and "recklessly failed to take appropriate steps to

so inform itself". The defendant’s solicitors wrote a letter to the effect that they desired certain

documents and particulars to be supplied. They said they could not plead a defence until this was

done. That assertion, if one examines the particulars sought, appears not to be very candid. The defendant’s solicitors required to know the times at which it was alleged the defendant either

possessed or ought to have possessed the relevant knowledge of the covenants and stipulations

which it was alleged the defendant knew to be void, which of the defendant’s servants or agents

possessed the relevant knowledge and matters of that kind - requests for information possession of

which seemed most unlikely to have any bearing upon the content of the defence. Some of the

defendant’s requests were answered and some not. The defendant applied to the chamber judge

at the District Court Brisbane for relief including that the claim for damages for fraudulent

misrepresentation be struck out.

5           The arguments advanced below were, we gather from the reasons of the learned Chief Judge of the

District Court who dealt with the matter and from the outline of argument there relied upon by the

defendant, that there was no allegation that the representations were made with the intention of

inducing the plaintiff to enter into the borrowing arrangement; that the representation pleaded cannot

be extracted from documents and conversations particularised and that the particulars are

inadequate. The judge rejected all these contentions.

6           The argument advanced in this Court had a different emphasis from that submitted below. Counsel

for the defendant additionally argued that the allegation of fraud made was one based on inferences

and should be struck out as an abuse of process: reference was made to the decision of the Federal

Court in White Industries (Qld) Pty Ltd v. Flower & Hart (a firm),[2] in which it was held that, in

circumstances there set out in some detail, a claim brought in fraud in that Court was an abuse of process. It was argued in this case that it is evident on the face of the pleading that the fraud claim

has this character.

[2]             [1998] 806 F.C.A. (14 July 1998).

7           It is convenient to begin by referring to some remarks of Lord Herschell in Derry v. Peek,[3] to which

authority counsel for the applicant referred us. Lord Herschell there referred with approval to a

statement to the effect that in a fraud action if the defendants -

". . . stated a fact which was untrue for a fraudulent purpose, they at the same time not believing that fact to be true, in that case it would be both a legal and moral fraud". (367)

Then at p. 374 Lord Herschell expressed the opinion that fraud is proved -

". . . when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false". (emphasis added)

[3]             (1889) 14 App.Cas. 337.

The plaintiff has not pleaded its case using the language we have quoted, but that circumstance

cannot prevent it from arguing, depending on the evidence given at the trial, that it can succeed on

the basis that the defendant made an implicit representation of law fraudulently, without believing it

to be true. Evidence at a trial commonly raises issues of fact not precisely covered by the pleadings:

Southern Resources Ltd v. Residues Treatment and Trading Co. Ltd.[4] The plaintiff can hardly

be expected to know now precisely what was the state of the defendant’s belief with respect to the

legality of requiring the plaintiff to meet the tax obligation. It would, nevertheless, be wise for the

plaintiff to heed the requirement to plead allegations of fraud specifically, should it become aware of additional relevant facts or issues upon which it intends to rely: see Ghazal v. Government

Insurance Office of New South Wales.[5]

[4] (1990) 56 S.A.S.R. 455, 465.

[5] (1992) 29 N.S.W.L.R. 336, 347-350.

8           It is unnecessary to state a concluded view about all the propositions advanced. It is clear that the

submission that the case of fraud pleaded is an abuse of process has no real substance on the

material before this Court. If one is to consider what commonsense inferences might be drawn,

depending on the evidence at the trial, a judge might infer that the defendant formed a view about the

legality of its requirement to be reimbursed for withholding tax - a requirement which, it is alleged,

was not a lawful one. Counsel for the plaintiff has, in this connection, drawn our attention to the fact

that in the David Securities case, the proposition that the corresponding obligation there in question

was made void by s. 261 of the Act was not challenged, when the case was before the Full Court

of the Federal Court, by counsel on behalf of the major bank which was the defendant in that case.

9           One should not attempt to predict precisely the inferences a trial judge might draw. There will at that

stage presumably be documents before the court showing what view the defendant took at relevant

times on the s. 261 issue. Of course, if the defendant produces no material on that point, a judge

may be able to legitimately decide the case on the basis that such material could not have assisted

it. But it is in our view evident that a trial judge might conclude, depending on the evidence adduced or not adduced, that the defendant probably knew there was very good reason to doubt the legality

of its demand and dishonestly induced the plaintiff to think otherwise.

10         It is a strong thing to shut a plaintiff out, on the basis of the content of its pleading, and that can never

be done unless it is clear that on no evidence admissible under that pleading could the case succeed:

General Steel Industries Inc. v. Commissioner for Railways (N.S.W.).[6] Further, the argument

advanced before us is not one which, so far as may be deduced from the reasons given below and

the outline of submissions there relied upon by the defendant, was put before the primary judge.

[6] (1964) 112 C.L.R. 125, 129-130.

11         An application for leave to appeal from an interlocutory judgment will commonly be refused unless

it appears that the decision from which it is sought to appeal is attended with sufficient doubt to

warrant its being reconsidered and also that, supposing the decision below to be wrong, substantial

injustice would result if leave were refused: Decor Corporation Pty Ltd v. Dart Industries Inc.[7]

[7] (1991) 33 F.C.R. 397, 398-400.

12         The defendant claims that if the fraud plea is struck out, the question as to whether the plaintiff’s

remaining cause of action is statute barred could be determined as a separate question in the action.

It further claims it will be forced to incur costly interlocutory steps, especially by way of discovery,

should the fraud plea remain. Whilst the cost of interlocutory steps is concerning, neither of these

matters in our view constitutes substantial injustice in this case, warranting the granting of leave to

appeal.

13         Further, the defendant has not demonstrated that there is a question of law involved in such a case

as to warrant the grant of leave, nor does any other consideration support the making of such an

order. Indeed, the interests of justice would seem to be best served by a trial on the merits in the

District Court. The applications for leave to appeal are refused.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane

Appeal No. 8204 of 1998

[Westpac v. Klef P/L]

BETWEEN:

WESTPAC BANKING CORPORATION

(ARBN 007 457 141)

(Defendant) Applicant

AND:

KLEF PTY LTD

(ACN 002 311 453)

(Plaintiff) Respondent

Appeal No. 8205 of 1998

[Westpac v. Dynies P/L]

BETWEEN:

WESTPAC BANKING CORPORATION

(ARBN 007 457 141)

(Defendant) Applicant

AND:

DYNIES PTY LTD (ACN 008 586 570)

(Plaintiff) Respondent

McMurdo P.
Pincus J.A.

Jones J.

Judgment delivered 16 October 1998

Judgment of the Court
APPLICATIONS FOR LEAVE TO APPEAL REFUSED.

CATCHWORDS:	CIVIL - Section 118(3) District Court Act 1967 applications for leave to appeal from an interlocutory judgment - plaints alleging fraud in defendants’ implicit representation that arrangements were lawful when in fact unlawful
David Securities Pty Ltd v. Commonwealth Bank of Australia (1992) 175 C.L.R. 353 White Industries (Queensland) Pty Ltd v. Flower & Hart (a firm) [1998] 806 F.C.A. (14 July 1998) Derry v. Peek (1889) 14 App.Cas. 337 Decor Corporation Pty Ltd v. Dart Industries Ltd (1991) 33 F.C.R. 397
Counsel:	Mr P.A. Keane Q.C. with him Mr J.K. Bond for the applicant in each case. Mr P.R. Dutney Q.C. for the respondent in each case
Solicitors:	Allen Allen & Hemsley for the applicant in each case. Quinn & Scattini for the respondent in each case.
Hearing Date:	6 October 1998