Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd S308/2002 [2002] HCATrans 499 (14 October 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S308 of 2002

B e t w e e n -

CHOCOLATE FACTORY APARTMENTS LTD

Applicant

and

WESTPOINT FINANCE PTY LTD

Respondent

Application for stay and expedition

GAUDRON J

(In Chambers)

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 14 OCTOBER 2002, AT 9. 42 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: Your Honour, I appear for the applicant. (instructed by Frank G. Kalyk)

MR D.E. GRIEVE, QC: May it please your Honour, I appear for the respondent. (instructed by RBHM Lawyers)

HER HONOUR: I have read the affidavits and material. Can I proceed on the basis that they have been read?

MR JACKSON: Thank you, your Honour. Your Honour will have also, I think, a copy of the applicant's submissions.

HER HONOUR: I do. One moment though, I have not the right file.

MR JACKSON: I have a set here if your Honour wants them.

HER HONOUR: Yes. No, I have them now, thank you. We can assume, can we, that this falls comfortably within the principles which would necessitate a stay, subject only to whether there is an arguable case for the grant of special leave.

MR JACKSON: Yes, your Honour, that is our submission and in relation to that question, the arguable case for the grant of special leave, could I say we have today delivered a reply - and I appreciate it is out of time - to our learned friend's submissions. I will give your Honour a copy of that if I may now on the undertaking to file it today and, your Honour, what it goes to essentially is this, that your Honour will have seen that the respondent's summary of argument is one which in a sense seeks to say there was money owing under the mortgage and that is the end of the matter, and it was money owing under the mortgage in the first place - I am sorry, your Honour, I am putting that badly - it was money owing under the mortgage and that in a sense is the end of the matter. That is the approach that was taken by the Court of Appeal.

The second contention is essentially that the money, as the Court of Appeal said, was money which is in a sense to be taken to be advanced on the basis of a conventional estoppel. Your Honour, the essence of the point which we seek to make is simply this, that the loan agreement was one whereby the money was to be paid at our direction and on our say so, not without doing so - not without that occurring. The transactions that effected the payments had the result that the construction company was treated as having been paid in circumstances where, in our submission, there had not been authorisation of that and there is now, of course, litigation to determine how much was properly payable.

HER HONOUR: At what stage is that litigation?

MR JACKSON: Your Honour will have seen the statement of claim in that matter. There is also has been - can I give your Honour the exact last position of it? It is in Mr Kalyk's affidavit, your Honour. The first of the two affidavits, I think. Your Honour will see in paragraph 12 of that there is a reference to exhibit FK11. Exhibit FK11 sets out the last order, I think, your Honour, that was made in the Supreme Court. Your Honour will see provision for the defence and so on and there is a set of directions going up to - direction No 12 is the last direction which would be required to be complied with at the present time. Your Honour, that is in a sense where the matter lies.

Your Honour, as to the substance of the issue to be raised in this Court, our contention is that the Court of Appeal in the first place applied a view as to the inability of a mortgagor to obtain interlocutory relief from a court which goes quite beyond the law which presently does or, with respect, should apply. Effectively it is said that the mortgagor is in a position where, if any money is owed, then interlocutory relief cannot be obtained unless there is a payment out of the whole of the mortgage.

Now, your Honour, the second thing in relation to the case is that the point we would seek to raise - and this is one which it is right to say depends more on the facts of the particular case - that the circumstances simply could not give rise to any conventional estoppel and your Honour will have seen that it is very difficult to identify from the reasons of the Court of Appeal what were the facts that gave rise to the estoppel and, indeed, if I may say so with respect, no greater elucidation appears from our learned friend's submissions in the summary of argument to identify what it is. Your Honour, that is the essence of what I would seek to say about the issues involved.

Your Honour, it is an interlocutory application, of course, in terms of the substance of the matter but it does give rise to an important question about the ability of courts to give relief in the case of mortgages. Your Honour, those are the submissions I would seek to make.

HER HONOUR: Yes, thank you. Could I just ask: the mortgagee has in fact had the benefit of some money?

MR JACKSON: Yes, your Honour.

HER HONOUR: What amount are we now talking about? About $500,000, are we?

MR JACKSON: Yes, your Honour. Could I go to the - - -

HER HONOUR: Mr Grieve is shaking his head.

MR JACKSON: Yes, your Honour. When I say "the benefit", the amount that has been paid - your Honour will have seen that there has been, pursuant to the order of Justice Hamilton, paid into an account held by the respondent's solicitors. Now, so far as the actual money is concerned, if one goes to the decision of the Court of Appeal - your Honour, that is exhibit FK2.

HER HONOUR: Yes, thank you.

MR JACKSON: It is summarised, your Honour, in our submission for the purposes of this application in paragraph 11 - of, I am sorry, on our submissions on this application. Your Honour will see that in paragraph 11 there was paid in about 1.7 million. The amount that the respondent claimed was 1.294 and the Court of Appeal - this is paragraph 12 - ordered that the amount in excess of the amount claimed by the mortgagee be paid out to us.

Then so far as the 1.294 was concerned, it held that 519,000 of that should be paid out to the respondent and the balance held pending further order and then the further order was that the other amount which is there - 775,000 - be paid out to the respondent. So two amounts are involved. They are 519,000 still so held and 775,000 still so held.

HER HONOUR: But is there any real dispute about the 519,000?

MR JACKSON: Well, in our submission, there is, your Honour, because the 519,000 we say was money that was paid out and thus added to the mortgage - I say "paid out" loosely - without authority. Your Honour, what we say - and this is one aspect of the Court of Appeal's reasons which we would attack, that your Honour will have seen that it said, "Well, you don't really attack that." What was said, your Honour - and I am referring to paragraph 23 of the Court of Appeal's reasons which extracts a bit of the affidavit of Mr Church before that court. It says then in paragraph 23 and goes on to paragraph 24:

The denials do not extend to the $519,198.48 except the item . . . $37,976.58.

However, your Honour, paragraph 17, the paragraph quoted in paragraph 23, is one that starts, as your Honour will see:

"Further, the plaintiff disputes the quantum of the amounts claimed . . . in the following respects:

What the Court of Appeal appears not to have appreciated, with respect, is that there was an anterior challenge to the fact of the making of the payment at all. So if your Honour says, "Is it in dispute?", the answer is, "Yes". So those are the amounts, your Honour, that are involved.

HER HONOUR: Yes, thank you. Yes, thank you, Mr Grieve.

MR GRIEVE: The further factual issue that my friend seems to desire to agitate in the argument in reply has to do with the authority of the management company to post entries in the books of the applicant. That was not an issue, as we would understand it, either at first instance or before the Court of Appeal, but it is yet another factual issue which the applicant would desire to raise with a view to endeavouring to complicate what is a comparatively simply matter. We trust that the essential facts are sufficiently set out in our summary of argument as to what actually happened.

The applicant also seems to wish to make much of the fact that the journal entries were posted after the event, so to speak. There is nothing unusual about that. Journal entries are frequently posted after the year end's balance date to reflect transactions that occurred during the year. So that, in essence, all that this applicant is endeavouring to inveigle the Court into doing is to trawl through a whole series of accounting records - - -

HER HONOUR: I think that is the function of the Equity Court.

MR GRIEVE: Indeed, it is, not this Court.

HER HONOUR: But is there an arguable case?

MR GRIEVE: We submit not.

HER HONOUR: You submit not.

MR GRIEVE: For the reasons that are set out in the argument, in essence, that at the end of the day, when one does the exercise of trawling through all the figures, if your Honour will forgive the expression, it is tolerably plain that before the judge at first instance and before the Court of Appeal the claims made by way of assertion by the applicant, both against the respondent financier and the building company, did not exceed the claims made.

HER HONOUR: I do not follow that.

MR GRIEVE: It is a tedious point, if I may say so, but we have set it out in the summary of argument in some detail as to how all the money came in and went out.

HER HONOUR: This is your summary of argument in the special leave application?

MR GRIEVE: Yes. It really starts in "PART II: THE FACTUAL ISSUES IN CONTENTION". The calculations appear in paragraphs 12 and following. Paragraph 14 sets out the end result as to how these various amounts to which the Court of Appeal made reference were finally calculated. In the end result, the evidence before the judge at first instance, being primarily the evidence led by the applicant here as plaintiff there, was to the effect that its claims against the construction company were on any view less than the money due to the construction company. That apart - and that was strictly irrelevant to the state of play between the financier and the applicant - the financier's claim was beyond debate.

HER HONOUR: However, can I ask you this, the conventional estoppel - it is only by reason of the conventional estoppel that the Court of Appeal found that there was not an arguable case.

MR GRIEVE: That is correct.

HER HONOUR: Was that a matter about which there was argument in the Court of Appeal?

MR GRIEVE: Not to any real degree. The key to it - - -

HER HONOUR: No. I mean, even were you right in what you say about the figures at first instance, it is not entirely clear that the approach of the Court of Appeal was totally orthodox, is it?

MR GRIEVE: Well, I would be compelled to answer that with a qualified "yes", but could I say this about it - and this is the key to the case - paragraphs 12 and 13 of our argument in reply reveal that on 10 December 2001 the applicant company itself, without any involvement on the part of the financier, the manager or the construction company, caused its banker, BankWest, to pay to the respondent financier, for whom I presently appear, $1.216 million in cash.

Now, those two components, the applicant's activity in directing its banker to pay that money to the respondent and the banker's activity in acceding to that request, were the two matters of crucial significance that swayed the balance in the Court of Appeal and underpinned the conventional estoppel. It was inexplicable - - -

HER HONOUR: But what was this conventional estoppel, that you owed money or that you would not dispute that the applicant owed money - - -

MR GRIEVE: Yes.

HER HONOUR: - - - or that the applicant would not dispute its indebtedness? What was it?

MR GRIEVE: The conventional estoppel was that the respondent would effect and had effected the advances contemplated otherwise than in cash, that is to say, by way of journal entry, and once the applicant company was found to have embraced that convention, it was found to have then estopped from denying that the advances were made in that fashion.

HER HONOUR: But how could that be found by the Court of Appeal? That seems to look like a final determination of fact. How could that happen on an interlocutory application?

MR GRIEVE: It could have readily happened, with respect. If the evidence reveals that the events are A, B and C and there is no doubt about it - - -

HER HONOUR: But there was no argument on this issue, was there?

MR GRIEVE: Before the court at first instance or the Court of Appeal?

HER HONOUR: Either.

MR GRIEVE: Yes, of course, there was.

HER HONOUR: Before the Court of Appeal?

MR GRIEVE: Yes. The case of conventional estoppel was advanced in terms in the Court of Appeal and their Honours accepted it and it was advanced in terms before the court at first instance.

HER HONOUR: Was there evidence? Was there cross - - -

MR GRIEVE: No, the evidence took - no, I am sorry, I will answer the second part of your Honour's question.

HER HONOUR: But that seems to be one of the problems, does it not, Mr Grieve?

MR GRIEVE: No, with respect not. The evidence - I answered the second part of your Honour's question in the negative. I should have answered the first part in the affirmative to begin with. The evidence that was before the court, both at first instance and on appeal, consisted of relevantly the journal entires, the minute by the applicant company directing the banker to make the payment and evidence of the payment made by the banker. For all intents and purposes, that was the crucial evidence.

The payment, if I may say so, by the banker at the direction of the applicant company to the respondent company in cash was inexplicable otherwise than on the basis for which we contended, namely that the loans had been effected otherwise than in the manner contemplated in the agreement, that is to say by journal entry rather than by cash. There is nothing unduly complicated about that.

HER HONOUR: There is still a question about security. I mean, there may be another explanation which does not involve security.

MR GRIEVE: Well, whatever other conceivable explanation there may be - and we concede none - - -

HER HONOUR: But this goes to question of conventional estoppel. What seems to have happened is that the Court of Appeal has said not an arguable case - - -

MR GRIEVE: That is right.

HER HONOUR: - - - by making a finding in interlocutory proceedings that goes to the ultimate merits.

MR GRIEVE: They made findings of fact which were plainly open to them and having made those findings of fact, they then concluded, as they were bound to, that the applicant as plaintiff at first instance had not discharged its onus of proving that there was a triable issue or a serious question to be tried.

HER HONOUR: Well, why is the matter proceeding? Why is the matter proceeding?

MR GRIEVE: The litigation?

HER HONOUR: Yes.

MR GRIEVE: That is a matter primarily as between the applicant and the construction company. That is a common garden variety building case and that was how it was instituted in the first place and then the financier has been, as it were, dragged into it. But the mere fact that a plaintiff maintains an action does not mean that the action is maintainable.

HER HONOUR: Well, I understand all that, but is it not the case that it was said at first instance that it was an arguable case?

MR GRIEVE: That is how the judge at first instance saw it, yes.

HER HONOUR: And it has subsequently been held that there is no arguable case?

MR GRIEVE: Correct.

HER HONOUR: On the basis of a matter that is to be the subject of litigation?

MR GRIEVE: I am not sure that I would necessarily make that concession.

HER HONOUR: Well, I just do not understand how this conventional estoppel can be said to have come into play in the Court of Appeal when it does not seem to have been in play at first instance.

MR GRIEVE: It was in play at first instance, with respect. The judge just paid no attention to it, but it was put to him in writing - not just orally, but in writing, and he just put it to one side and disregarded it. So it was not a question of a Coulton v Holcombe-type point. We had raised it at first instance. The judge simply ignored it. So we took it upstairs and the Court of Appeal accepted it. Whatever other conceivable explanation for the transactions to which I have referred may exist, they were not raised, either at first instance or in the Court of Appeal.

HER HONOUR: I must say I am considerably confused. How did the transaction between the applicant company and its banker give rise to an estoppel as between it and you, do you say?

MR GRIEVE: Because the applicant company resolved to direct its banker and did directs its banker to pay to my client $1.216 million in cash, which the bank then did, and there was no earthly reason for the applicant company to have done that and for the bank to have acceded to its direction other than for the fact that the applicant company owed my client a substantial amount of money, an amount exceeding that sum.

HER HONOUR: Why?

MR GRIEVE: Well, one asks the question, "Why would it?" It is not in the business of being a charitable donor.

HER HONOUR: No, but why do you say it must have owed it in excess? This does not seem to have been gone into in detail by the Court of Appeal, does it?

MR GRIEVE: Yes, it was the subject of full argument.

HER HONOUR: Go to the judgment.

MR GRIEVE: Yes.

HER HONOUR: What is there said by the Court of Appeal about this? I must say I have never heard of people taking appeal proceedings on an interlocutory - but go on - on factual issues, but go on.

MR GRIEVE: Well, if the primary judge - - -

HER HONOUR: I mean, it is ridiculous. It is absolutely ridiculous that this Court should be put in a position of being in debt dispute resolution court, absolutely ridiculous - - -

MR GRIEVE: With respect, I agree.

HER HONOUR: - - - but show me what the Court of Appeal said. I cannot understand why, if the matter is all so urgent as to require the time of this Court, we are still up to direction hearings in Equity. When did this matter start? May.

MR GRIEVE: Thereabouts, yes.

HER HONOUR: Yes. Now, I had thought that there was a commercial division of the Supreme Court that could deal with these matters expeditiously. I had thought Equity dealt with these matters expeditiously. It is just ridiculous. Show me what the Court of Appeal said.

MR GRIEVE: At paragraph 10 they record the making of the loan agreement.

HER HONOUR: Well, wait a minute. You forget that I do not actually have anything like proper papers. Exhibit FK - - -?

MR GRIEVE: FK2.

HER HONOUR: FK2.

MR GRIEVE: Paragraph 10 records the making of the loan agreement and the critical provision upon which the applicant relies.

HER HONOUR: Yes.

MR GRIEVE: Then in paragraph 13 there is reference to the advance of the $1.216 million by the applicant's banker.

HER HONOUR: "It would then appear that a further" advance was made, yes.

MR GRIEVE: Then there is reference to the resolution by the applicant's directors that operated to have that money paid by the bank to my client, as is recorded in paragraph 14. Then there is reference in the ensuing paragraphs to the journal entries that were posted and there is a detailed reference in paragraphs 19 and following to the accounts that passed between the parties. Then there is reference to the applicant's assertions as to those accounts which takes us on to paragraph 31 and following. At 34 Mr Justice Young said:

To succeed then, the plaintiff had to show that (a) there is an arguable case; (b) that the balance of convenience . . . and (c) damages are not an adequate remedy. The case concerns (a).

Then he considered to analyse that question.

HER HONOUR: Paragraph 35, that has to be arguably wrong, has it not?

MR GRIEVE: Perhaps.

HER HONOUR: Yes.

MR GRIEVE: Yes. It may have been put a little better.

HER HONOUR: Yes.

MR GRIEVE: But that is not a ground for special leave.

HER HONOUR: Well, I do not know.

MR GRIEVE: But he then deals with the argument about estoppel by deed and then at paragraph 40 cites the principle in Con-Stan. Paragraph 41:

it is necessary to examine the evidence to see the strength of the case on conventional estoppel.

Then he notes the close relationship between the parties and records again at 43 the fact that the applicant:

knew that the $1.216 million to be received from the Bank of Western Australia Ltd would be paid to Finance in reduction of the amount secured by its mortgage rather than to Constructions.

The building company. He records the fact that accounts were sent in March by our people and he then records in 47:

Care must be taken to separate any disputed claim by Constructions against the plaintiff from the claims of Finance against it.

Which, with respect, is plainly right. Then in 49:

Whilst, of themselves the journal entires are not persuasive as they were made by people in the Westpoint camp, they add to the case that there was a convention between the parties that Finance would provide finance for the project and that even though no cheques were drawn as required by the loan agreement, Finance did advance monies to the plaintiff by reducing its debt to Constructions so that after allowing for the payment of $1.216 million by the Bank of Western Australia at least $481,213.90 was still owing to Finance when the proceedings were commenced.

On the evidence before the Court the plaintiff did not establish a prima facie case that no monies were owing - - -

HER HONOUR: Well, there we go again.

MR GRIEVE: Yes, but of course what the plaintiff - - -

HER HONOUR: But that seems to be - let us assume - now, we know there is 1.2 million there. Let us assume that they have an arguable case as to .75 million.

MR GRIEVE: Yes, assume that.

HER HONOUR: What would then entitle the Court of Appeal to refuse interlocutory relief entirely?

MR GRIEVE: Well, in principle nothing, but if in fact - and it is rather like a rolling stone - it is demonstrated that they have no arguable case on account X and their argument that underpins account X also underpins account Y and their dispute about account Y, then once the argument that supports account X falls, so too does it relation to account Y. That was the way in which the matter evolved. They did not have discrete arguments about the two accounts. They really only had the one argument and once the one argument was found to be wanting, it followed as night day that as a matter of fact there was no genuine dispute about any of the money claimed.

HER HONOUR: Why do accounts have to be taken? I mean, if there is no arguable case, why do accounts have to be taken?

MR GRIEVE: Well, I am not sure of the answer to that question, with respect. I would have submitted that there was no need for any account since there was no arguable case. The accounts were all there. For that reason we submit that it is - - -

HER HONOUR: Well, it is all very confusing that Court of Appeal judgment, I have to say.

MR GRIEVE: Well, it may have been expressed a little better but in the end result on analysis it does not withstand criticism.

HER HONOUR: The question is can you say - I mean, the real issue here is could it be said that there is no arguable case for the grant of special leave. That is presumably what you are saying.

MR GRIEVE: I would put the question a little differently. I would say, "What are the applicant's prospects of obtaining special leave? Are they substantial or otherwise?" That may be just a matter of words but, in my submission, the answer to that is, no, they are not sufficiently substantial to warrant any further stay. I think I have put the reasons for that. Yes, that is all I wish to put, your Honour.

HER HONOUR: Now, both sides are interested in expedition, is that right?

MR JACKSON: Yes.

HER HONOUR: It is not opposed. I would be minded to grant the relief sought by the notice of motion pending the hearing and determination of the special leave application. I am just looking to find the notice of motion. What is the order you seek?

MR JACKSON: Your Honour, it is the summons.

HER HONOUR: They all get lost when they combine the special leave file with the notice of motion. Yes.

MR JACKSON: I am sorry, your Honour. There are paragraphs (i) and (ii). Paragraph (iii) really seems excessively ambitious perhaps.

MR GRIEVE: Yes.

MR JACKSON: And we would ask that the costs of the application be costs in the cause.

HER HONOUR: You give the usual undertaking for damages?

MR JACKSON: Yes, your Honour, we do. In relation to costs, if your Honour wants me to deal with it now, we also ask your Honour to certify for counsel.

HER HONOUR: Yes. Now, I am not quite happy with an order which says "be restrained from acting on the orders of the New South Wales Court of Appeal". I think I would prefer to say that the orders of the New South Wales Court of Appeal be stayed pending determination of the application for special leave to appeal.

MR JACKSON: Yes. Your Honour, that seems satisfactory to me. May I just check to see that it may not cause any problems putting it that way.

HER HONOUR: Yes. Well, I suppose there are - - -

MR JACKSON: That seems satisfactory, your Honour, as far as we are concerned.

HER HONOUR: Now, the bad news. The matter can be heard in Melbourne on 13 December.

MR GRIEVE: Well, the weather in Melbourne is not intolerable at that time.

HER HONOUR: Is that possible, Mr Jackson?

MR JACKSON: Your Honour, there is no reason why the matter cannot be heard there.

HER HONOUR: Yes, thank you. Well, the special leave application will be expedited to be heard in Melbourne on 13 December 2002 and pending determination of that application and, if special leave is granted, pending the determination of any appeal in the matter, there will be a stay of the orders of the Court of Appeal of the Supreme Court of New South Wales of 13 and 22 August and 5 September 2002. I note the applicant gives the usual undertaking as to damages. Costs of this application to be costs in the special leave application and, finally, certify for the attendance of counsel.

Is there any other matter to be dealt with?

MR GRIEVE: May it please your Honour.

HER HONOUR: Thank you.

AT 10.21 AM THE MATTER WAS CONCLUDED