Finding & Anor v Commonwealth Bank of Australia B52/1999 [2000] HCATrans 360 (21 June 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B52 of 1999

B e t w e e n -

DAVID JOHN FINDING and JEAN EDNA FINDING

Applicants

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

GAUDRON J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 21 JUNE 2000, AT 3.05 PM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR A.P. CRAWFORD, for the applicants. (instructed by James Byrne & Rudz)

MR P.A. KEANE, QC: May it please the Court, I appear with my learned friend, MR D.A. KELLY, for the respondent. (instructed by Ryrie A. Bridges)

GAUDRON J: I take it you are free to - - -

MR KEANE: I am, your Honour.

GAUDRON J: Yes, thank you. Yes, Mr Jackson, thank you.

MR JACKSON: May I just say one thing about the case before turning to the matters of importance in our submission. This is a case where a bank, selling as mortgagee exercising the power of sale of a hotel property, sold it to a then financially substantial customer of itself - we, at the time, had $1 million deposited with the Bank - for a price which went towards recouping its loss, but a price which it knew was far more than the value of the property. It financed us into the purchase, taking additional security, the purchaser's home, in circumstances where it knew that the securities would be likely to be called on.

Now, your Honours, the conduct of the Bank in those circumstances, where it had several interests, of course - the conduct of the Bank in failing either to advise of the value of the property, or to recommend that we seek independent advice as to value, was, it is submitted, misleading and deceptive in terms of section 52, on the one hand, and, on the other hand, in breach of an obligation which it owed to us.

GAUDRON J: Now, what about reliance, for the purposes of section 52, at least?

MR JACKSON: And, your Honour, I was just about to say before I could develop our submission on that - may I come to say something about reliance. The primary judge's findings on that appear relevantly at pages 13 and 14. What your Honours will see at the bottom of page 13, particularly paragraph 3, if one looks at the evidence which the Chief Justice extracted to arrive at the conclusion which appears at lines 20 and 21 on page 13, what your Honours will see is that what Mr Finding actually said was that if he had known what the bank valuation was, he probably would have split the difference. Your Honours will see that at page 14 between lines 10 and 15.

Now, he had earlier said, your Honours, in a passage which is at pages 339 to 340 of the transcript - and this is in the supplementary material which we have given your Honours, and that it was in his evidence in-chief - that he would not have entered into the transaction, the movement of his evidence - - -

GAUDRON J: Which page was that?

MR JACKSON: It is in a supplementary bundle of documents that your Honours will have and the relevant part of it, your Honours, is part of the original transcript at the bottom of page 339 of it at about lines 45 through to page 340 about line 5. So, that is his evidence in-chief. In that evidence in-chief, he said they would not have gone ahead. The part that the Chief Justice quotes then comes from pages 381 and 382 - your Honours will see those pages included in that material also - commencing about line 40 on page 381 and going through to 382 about line 22. So that the effect of his evidence was that he:

would probably split the difference between what I said it was worth and what they said.

Now, your Honours, "splitting the difference" meant splitting the difference between $960,000, which was the valuation, and the offer which he was, at that stage, making of $1.4 million, or was proposing to make, giving a difference of 440,000 - - -

GAUDRON J: But the explanation is that, why he would not have gone ahead at that stage is not simply that, but he found out that the TAB was not to be in the hotel, or that the TAB was not in it.

MR JACKSON: Your Honour, that was $25,000 out of that. The difference, in the end, was minimal so far as that was concerned. That just reduced the price from 1.4 to 1.375. But the difference between the two is approximately $440,000; half of that is about $220,000. On the evidence - and such an offer, if he had split the difference, may or may not have been accepted by the Bank and the evidence there was as to what the Bank might have accepted appears in the first page of the additional materials, which is a Bank notation. Your Honours will see at the bottom of it:

Firm contract required

1.3 - 1.5 - would consider.

Now, even if the Bank had accepted such an offer, what it would have meant is that his borrowings would have been reduced by the 220,000 or he would have had 220,000 more to service the borrowings, because the $1 million went in the end. Your Honours, that is relevant also to the finding made by the Chief Justice in the next paragraph of page 14 in his reasons in paragraph 4. True it is that he:

determined to offer the $1.4m quite independently of other influences.

But had he been aware of the valuation, it would have affected that also, in our submission.

GAUDRON J: You have to say then, for this argument, by failing to disclose the valuation the Bank represented that it was worth 1.4 million, did it?

MR JACKSON: Well, not necessarily 1.4 million, your Honour, but - - -

GAUDRON J: This was an auction?

MR JACKSON: No, it was not an auction.

GAUDRON J: There was originally going to be an auction?

MR JACKSON: There was to be an auction, but this was a sale by private treaty in the end. Your Honour, what we would submit is that if one goes to the section 52 issue, the primary judge applied an incorrect test, which you will see at page 19 about line 20. I invite your Honours to read the whole of that paragraph. What his Honour said was required was that there be a duty to disclose and in the absence of such a duty, there could not be "misleading or deceptive conduct". That, your Honours, seems inconsistent with the approach taken by, for example, the Full Court of the Federal Court in Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at pages 32 and 40.

If I can just take your Honours to that for a moment. There are two passages, your Honours. One is where Chief Justice Black, at page 32 in the first new paragraph on the page, referred to the fact that it was not a question simply of saying "is there a duty to disclose". One has to look at the whole circumstances in the case of "silence" And your Honour Justice Gummow, and the other members of the court agreed with your Honour's reasons also, said at page 40, in the paragraph commencing in the middle of the page:

In my view, to inquire in such a case whether an independent "duty to disclose" has arisen is to digress from the application of the terms of s.52.

A little further down the page, your Honours, about point 8, after a reference to Lam v Ausintel Investments, your Honour said:

I agree with what was said by Justice Samuels in Commonwealth Bank of Australia v Mehta -

I invite your Honours to read that quotation.

GUMMOW J: Now, the Full Court, though, accepted that.

MR JACKSON: Yes, your Honour, but, if I could just say, I was going to take your Honours to the Full Court. If one looks to see what the Full Court did, the Full Court then appears to have narrowed the ambit of that test, again. Your Honours will see what was done by the Court of Appeal in relation to this issue, which appears at pages 46 and 47. Having referred to relevant passages from Demagogue, their Honours said about line 23:

Leaving aside the special position of the party subject to a fiduciary or analogous duty, one would ordinarily expect -

your Honours, I will not read it out, but we would invite your Honours to read the remainder of that page through to the end of the paragraph on the next page where, essentially, what was done, in our submission, was to substitute a different and narrower test, rather than looking to all the circumstances.

GAUDRON J: What do you say the misrepresentation was and what are the circumstances that made it that misrepresentation?

MR JACKSON: Your Honour, the misrepresentation had, essentially, two aspects, but I suppose one can put them into one. One was that the property was one which could sustain borrowings of the kind in question.

GAUDRON J: Well, that has to be assessed in the light of the terms on which finance was approved.

MR JACKSON: Well, indeed, your Honour, but it is one thing to say, "It is up to you." It is another to say that but, at the same time, to have the unexpressed reservation that, "We cannot see how you can make it work." It is different if one is talking about borrowers and lenders who are absolutely at arm's length, but when you have a situation where the circumstances are those to which - and this is in answer to the second part of your Honour's question - where one has the circumstances adverted to in paragraph 28 of our written submissions at page 62, the combination of factors there referred to, in our submission, those circumstances give rise to an obligation to speak in the sense that it is misleading not to do so.

Your Honours, this is not just the simple case of the Bank lending and saying, "It is a matter for you, if you can make a go of it. If you do not, you will lose your business and you will lose your house." But the Bank has an interest in getting one mortgage paid out, on the one hand; and, on the other hand, instead of the ephemeral nature of the possibility of payment of that, getting something which is real money under circumstances where it knows there is real money to get. Your Honours, I will not read those out, but those are the factors which, in our submission, give rise to the obligation. Now, your Honours - - -

GAUDRON J: But you do have to put into those factors the disclaimer that was given, do you not?

MR JACKSON: Yes, your Honour, but the disclaimer is one which is simply saying that the Bank cannot tell you, "This will trade well in the future." It is not - - -

GAUDRON J: But it says more than that: "Approval has been given against their sound business record and security available". Now, this was communicated to the applicant?

MR JACKSON: It was found that it had been, yes, your Honour, orally. Your Honour, I cannot say that that finding is one that could be set aside, but what I am seeking to say about it is that it is simply one of the factors.

Your Honours, could I take your Honours then to our written submission - I went to paragraph 28 - to the submission that we seek to make out in relation to the existence of a fiduciary duty in paragraphs 26 to 31 of those submissions and, in particular, what we would seek to say is that cases of sales by financial institutions as mortgagees exercising powers of sale with re-finance are not uncommon and the role of "silence" in relation to them does, in our submission, merit the special leave. Could I refer your Honours to paragraphs 36 to 39 also, and I wonder if I could adopt but not explain paragraph 40.

GUMMOW J: What relief would be sought here?

MR JACKSON: Your Honour, what there was - - -

GUMMOW J: I mean, the Bank has enforced its security, has it not?

MR JACKSON: Yes, a claim for damages, in the end. The Bank has not enforced its security against the house as yet, I do not think, your Honour. What we would submit is that one has to look at the circumstances, and there are, as is put in some of the submissions, a kind of graduated duties depending on the circumstances. One is not simply dealing with circumstances where, on the one hand, there is a fiduciary; on the other hand, banker and customer, no fiduciary. The obligations, in our submission, both generally and otherwise, arise from the circumstances and, your Honour, it is a question whether they arose in the particular case. Our submission is that the way in which the courts below approached it was too narrow in that regard.

GAUDRON J: Thank you, Mr Jackson. Yes, Mr Keane.

MR KEANE: Your Honours, dealing first with the question of fiduciary duty, in our respectful submission, the error, fundamental and apparent, in the applicant's written argument is in the proposition that a conflict of interest can, itself, be a source of duty in the sense that it can turn an arm's length commercial transaction with no other characteristics that would attract fiduciary duty into a fiduciary relationship, and, in that sense, this case is a fortiori Breen v Williams and there is, in our submission, little prospect that the Court would accept a proposition which turns things on their head in that a person in an arm's length commercial relationship is permitted and, indeed, expected to consult his or her own interest.

The conflict of interest between buyer and seller, and borrower and lender, is manifest and the obvious opposition of the interest negatives a fiduciary relationship, the essence of which is that the fiduciary acts in the interests of the person to whom the duty is owed. It is only the fiduciary who is not permitted to favour his or her own interests, for that reason we say. The case here is a fortiori Breen v Williams, that an arm's length commercial relationship is a long standing one does not make it a fiduciary one. There is the specific finding at page 16, that, in this case:

the plaintiff did not "assume the role of an advisor". The plaintiff did not give not give any relevant advice to Mr Finding, but left the matter entirely to the independent judgment of the defendants. What I have found as to the attitude of Mr Finding indicates that he did not, vis-a-vis the plaintiff, have that "higher degree of trust and reliance", not withstanding the length of their past relationship. The findings set out in the numbered paragraphs above especially, tell quite strongly against a contrary contention.

The respondent refused to disclose the valuation. It was not simply a case of not making it available. It actually refused to provide it. That is at page 13, lines 17 to 19, and, in our respectful submission, that is what the authorities relied upon by our learned friends at paragraph 33 of their outline actually say should be done in order to avoid incurring a responsibility to advise properly, that is to say, having accepted some obligation to advise, coming under an obligation to give a full and comprehensive piece of advice and - - -

GAUDRON J: Well, that is not the only way they put it, though, is it?

MR KEANE: Your Honour, I am - - -

GAUDRON J: They say that they should have been advised to get independent advice about the transaction.

MR KEANE: Well, your Honour, with respect, in terms, the finding that your Honour the presiding Judge has referred to at page 10 at the bottom, that finding to the effect that the Bank said, "This assessment is your responsibility entirely", really leaves that argument, in our respectful submission, with little ultimate prospect of success of being accepted. The difficulty for the applicant really is that they cannot get away from having a bit of a go at the notion that the parties were not absolutely at arm's length. Now, one can say that while there may be a number of factors which go to an assessment of whether a failure to disclose is misleading or deceptive, in so far as it is sought to lift the misleading and deceptive conduct case up - - -

GUMMOW J: Well, I think the Court of Appeal may have interpreted some of these cases too narrowly, but your strength probably lies in the actual facts of this case.

MR KEANE: Quite, your Honour, and, in our respectful submission, the difficulty that the applicant faces is a series of facts found unfavourably for them. Importantly, they are facts that the applicants knew the hotel was trading at a loss when they bought it and they knew it was unable to service its borrowings - that is at page 13, lines 6 to 10, and the Court of Appeal, page 40, lines 5 to 10 - and they were told that the respondent, the Bank, did not accept that the business would trade satisfactorily in the future. That was the applicant's responsibility, or the assessment of that was their responsibility, and they were put on notice that they were being given the loan because of the security and their record as customers.

So that, even apart from the finding that there was relevantly no reliance, because, in truth, the findings were acting on their own assessment, in our respectful submission, it can hardly be said to have been misleading or deceptive not to have provided them with a valuation in circumstances where they knew they were not being provided with it - they had asked for it and had been refused, they had no basis for expecting advice - and they were told that the decision they were making was their own. It seems to us, with respect, to be a case that does not warrant a grant of special leave on a footing that those findings are not such as to be able to be conjured into a theory of liability on the part of the Bank. Those are our submissions, unless the Court has something for us.

GAUDRON J: Thank you. Yes, Mr Jackson.

MR JACKSON: Your Honours, may I just say something in relation to the question of independent advice. My learned friends rely on a finding that appears at the top of page 16, but it is apparent from that, that that referred back to the findings that were made at pages 13 and 14, to which we had referred in our submissions in-chief, and, your Honours, it is dependant on that for its validity.

GAUDRON J: Yes, thank you.

The Court of Appeal may have given too narrow an interpretation of the scope of section 52 of the Trade Practices Act 1974 in its judgment in this matter. However, given the facts of this case and, in particular, the terms on which the Bank approved finance for the purchase of the hotel, there is an insufficient basis for doubting the correctness of the actual decision of the Court of Appeal in this matter. Accordingly, special leave is refused and it will be refused with costs, costs having been the subject of attention in the written submissions.

AT 3.30 PM THE MATTER WAS CONCLUDED