Graeme Webb Investments Pty Ltd v St George Partnership Banking Limited S97/2001 [2002] HCATrans 78 (5 March 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S97 of 2001

B e t w e e n -

GRAEME WEBB INVESTMENTS PTY LTD

Applicant

and

ST GEORGE PARTNERSHIP BANKING LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 5 MARCH 2002 AT 10.09 AM

Copyright in the High Court of Australia

MR P.M. BISCOE, QC: If the Court pleases, I appear with my learned friend, MR R.G. KAYE, for the applicant. (instructed by Robilliard & Robilliard)

MR M.J. SLATTERY, QC: May it please the Court, I appear with my learned friend, MR C.R.C. NEWLINDS. (instructed by Landerer & Co)

GLEESON CJ: Yes, Mr Biscoe.

MR BISCOE: If the Court pleases, we submit that this is a suitable case for the granting of special leave because the principles of law which arise in this case are the subject of some uncertainty and were formulated wrongly.

GAUDRON J: Before you go to the principle of law, what do you say it was the duty of St George Partnership Banking to do or not do in the particular circumstances of this case?

MR BISCOE: Yes. What we submit is twofold: first of all, that they directed or interfered with the receivership such that they became responsible for the receiver's misconduct.

GAUDRON J: All right. So you assert some sort of vicarious liability.

MR BISCOE: In that area of the case, yes.

GAUDRON J: All right. What do you say it was the receiver's duty to do?

MR BISCOE: The receiver's duty can be put in the alternative. First of all, we put primarily, was to accept the CBFC offer.

GAUDRON J: On behalf of whom?

MR BISCOE: On behalf of both the company and the Bank.

GAUDRON J: And did the company have the money to pay it out? Has that been proved? First of all, I mean I have great difficulties with this case. It does not seem to me that the terms of the offer have been proved and if the receiver were to accept on behalf of the company it does not seem to me it has been proved that the company had $600,000 and I remain to be told as to why it would have been the duty of St George Banking to pay out another $600,000.

MR BISCOE: But, your Honour, with respect, there was no question of CBFC being paid any money until the business was sold on a "going concern" basis.

GAUDRON J: I see. So, what was the offer?

MR BISCOE: The offer was, your Honour - - -

GAUDRON J: That you say that has never been proved.

MR BISCOE: No, no. With respect, the offer was proved and, indeed, the Court of Appeal found that - and they overturned the trial judge on this - the receiver failed to accept the offer.

GAUDRON J: Yes, what was the offer?

MR BISCOE: The offer was that CBFC would accept $600,000 from the proceeds of sale of the business on a "going concern" basis in satisfaction of its debt of about $1.2 million.

GAUDRON J: Yes, and was it sold on a "going concern" basis?

MR BISCOE: No, it was not.

GAUDRON J: And you say that was an open-ended offer? It was to be held open?

MR BISCOE: Yes.

GAUDRON J: Yes. Well, are there findings about that? So, people would just say, "Yes, we'll pay you $600 if we can - without any obligation to find a sale". I do not think the offer could have been as simple as that in spite of the finding.

MR BISCOE: Your Honour, with respect, there was no uncertainty as to what the terms of the offer were.

GAUDRON J: Yes, it was a conditional offer. At best it must have been a conditional offer, was it not: "if you sell the business on a `going concern' basis."?

MR BISCOE: That is so.

GAUDRON J: Was the condition satisfied?

MR BISCOE: The condition was not satisfied because the offer was not accepted.

GAUDRON J: No. Was there a time limit on the offer? Was there a time limit to be applied?

MR BISCOE: No. Well, we would accept, I suppose, although the court below did not address it, that there would be some sort of time limit on it, yes.

GAUDRON J: Was the time limit satisfied? Were there findings about that?

MR BISCOE: Well, the sale did not occur.

GAUDRON J: No. Six months had passed, or thereabouts, had it not - five months?

MR BISCOE: Yes, five months.

GAUDRON J: I think there are so many problems in this that one never gets to any question of principle but you really have to say, have you not, that it was an offer that was irrevocable?

MR BISCOE: No.

GAUDRON J: Before you can get to - - -

MR BISCOE: No. Can I say what we would say about the factual matter that your Honour has raised? It was critical to a sale on "going concern" basis that AGTA's furnace be included in the sale.

GAUDRON J: One can understand that.

MR BISCOE: Secondly, there was an offer made by CBFC to accept $600,000 from the proceeds of the sale on a "going concern" basis in satisfaction of its debt.

GAUDRON J: So that means, assuming a sale on a "going concern" basis which never occurred.

MR BISCOE: Correct. It did not occur, but your Honour has to take into account these circumstances. On the findings below the receiver and manager failed to accept that offer and falsely - - -

GAUDRON J: Well, on the first instance he did accept it.

MR BISCOE: If your Honour is referring to the finding of the trial judge, that was overturned.

GAUDRON J: Yes, I know, and what I want to know is who was the offeree and in what capacity?

MR BISCOE: The offeree was certainly, in our submission, the Bank.

GAUDRON J: The Bank, the St George Partnership Bank.

MR BISCOE: Yes, and we would say AGTA.

GAUDRON J: And so you say - - -

MR BISCOE: You see, that offer had been preceded by an offer which went the other way which had just been rejected.

GAUDRON J: It was not an obligation to pay out the first finance company.

MR BISCOE: No, your Honour, it was not.

GAUDRON J: No. So, let us assume that they have accepted the offer for a moment.

MR BISCOE: Yes.

GAUDRON J: Where does that lead you? It was never sold on a "going concern" basis and I see nothing to make that offer irrevocable. As I understand it, an offer is revocable at any time before acceptance. That is the general law, is it not?

MR BISCOE: Yes, but your Honour was asking me to assume that it had been accepted.

GAUDRON J: Okay, let us assume that it had been accepted. What then if you do not sell it on a "going concern" basis? Where is the evidence that you would have sold it on - - -

MR BISCOE: All the evidence, your Honour - - -

GAUDRON J: All the evidence was that you had not sold it, that your negotiations by Mr Graeme Webb, by your client, by the Bank, had come to nothing.

MR BISCOE: On the contrary. As we say in paragraph 24 of our written argument, as at March 1993, the receiver's report was:

that all was in readiness for the Receivers to conclude the sale of the business as a going concern - - -

GAUDRON J: To whom?

MR BISCOE: To a third party.

GAUDRON J: Yes. There was no sale in the offing, was there, as such? There was no sale that this breach frustrated.

MR BISCOE: Your Honour, that, with respect, is not quite right. There were discussions going on with third parties.

GAUDRON J: Yes.

MR BISCOE: The business had been going very well and the real question was, if this offer had been accepted and if there had not been a - - -

GAUDRON J: If it had not been accepted, then the question would have been within what period was the condition to be satisfied?

MR BISCOE: Your Honour is overlooking the fact that there was a misrepresentation made to my client that the offer had been accepted. Now, as we say in paragraph 20 of our written argument - - -

GAUDRON J: Misrepresentation by whom?

MR BISCOE: The receiver, and as we say in paragraph 20 - - -

GAUDRON J: Who might have been the agent of the company or who might have been - - -?

MR BISCOE: Well, we say it was the agent both of the company and of the receiver.

GAUDRON J: Yes, but let us get back to this. What you are really saying is a person who guarantees a security is owed a duty by the security holder to what? This was the first question I asked you. To what?

MR BISCOE: In the circumstances of this case, to do two things - - -

GAUDRON J: Well, tell me, in general principles - - -

MR BISCOE: Yes, to do two things. One, accept the offer.

GAUDRON J: No, tell me what the general duty is. Do not tell me to accept the offer. What is the nature of the duty that you assert?

MR BISCOE: The nature of the duty which we assert is twofold, not by neglect or default - - -

GAUDRON J: Okay. To exercise reasonable care, we will say. That is as we understand the law generally. To exercise reasonable care to do what?

MR BISCOE: In relation to the offer that had been made and in relation to the - - -

GAUDRON J: No, no.

MR BISCOE: And, if I may finish, in relation - - -

GAUDRON J: What is the general duty of a security holder to the person who has guaranteed the debt which is secured? Do not tell me in the circumstances.

MR BISCOE: Yes.

GAUDRON J: Tell me what you assert is the duty in law that is owed.

MR BISCOE: All right.

GAUDRON J: And then tell me whether it is equitable or common law and then tell me how it was breached.

MR BISCOE: First of all, not to impair the security.

GAUDRON J: Duty to take reasonable - but, they did not impair the security, did they? They still held the security. You are asserting a duty to something else.

MR BISCOE: Well, what they did was to diminish the value of the other security that was held, namely the assets of the business because - - -

GAUDRON J: No, they did not do it. Somebody else diminished the value.

MR BISCOE: Because they did not accept the offer and because they - - -

GAUDRON J: The value was diminished by the actions of somebody else.

MR BISCOE: But the actions of somebody else only occurred on our argument because of the conduct of the receiver in not accepting the offer and, secondly - - -

GAUDRON J: Well, your argument is silly in that event, because one of the reasons why they occurred was because the other person held security that was unsatisfied, or was owed a secured debt that was unsatisfied.

MR BISCOE: Yes, that was certainly true but the argument was that they - - -

GAUDRON J: You cannot say "only".

MR BISCOE: Well, what we say is that this third person that your Honour refers to, CBFC, was willing to enter into a deal which would have permitted the business to be sold on a "going concern" basis. That is one part of what we say. The second part of what we say is that the receiver positively represented to the surety that he had accepted it.

GAUDRON J: Okay. What is the duty - the first way you put it is a duty to take reasonable care not to impair the security.

MR BISCOE: Or diminish it, yes.

GAUDRON J: Or diminish it, okay. The second duty you assert - and that, you say, is a common law duty or an equitable duty?

MR BISCOE: Well, it is an equitable duty. I think we have suggested that a common law duty also arises, although we acknowledge there is authority against that.

GAUDRON J: Now, if you assert that duty, must you not assert in the circumstances of this case, a positive duty to take steps to buy a third party to prevent diminution?

MR BISCOE: They, in the circumstances of this case, did not have to buy it in the sense that the money would have just come out of the proceeds of sale.

GAUDRON J: They had to take steps to prevent diminution by the actions of a third party.

MR BISCOE: Yes.

GAUDRON J: That is the duty you assert in this case, ultimately, is it not?

MR BISCOE: No.

GAUDRON J: You do not.

MR BISCOE: No. I say two things. If I might just finish both of them. The first is that the duty was not to allow the security which it held over the assets of AGTA to be diminished.

GAUDRON J: By? You have used the passive voice. To be diminished, by?

MR BISCOE: By failing to accept that offer which was on the table.

GAUDRON J: To be diminished by - I was asking for the active participle.

MR BISCOE: I see, yes. By accepting the offer that was on the table and, secondly, if I might finish my second proposition, by not informing us falsely that it had been accepted, because the evidence - - -

GAUDRON J: Now, where are your findings about that, that the Bank falsely advised you that it had been - - -

MR BISCOE: No, I did not say the Bank did. The receiver did.

GAUDRON J: Well, that is the person against whom you are asserting a duty.

MR BISCOE: Yes. We say that the Bank became responsible for the receiver's conduct in that regard because it - - -

GAUDRON J: The receiver's false and misleading conduct.

MR BISCOE: Yes.

GAUDRON J: How come?

MR BISCOE: Because it interfered with the receivership and because the receiver had become its agent.

GAUDRON J: Well, where has this duty come from? Where is this duty to ensure that a receiver does not engage in conduct which misleads a guarantor? Where does that come from?

MR BISCOE: All right. We put it this way, that so far as the first limb of it is concerned, that when the Bank interfered with the receivership in the numerous ways we have set out in paragraph 27, we say there that it was directing the receivership and, in particular, was calling the shots over this offer; that it then became responsible for the receiver's misconduct.

GAUDRON J: Yes, but where does the duty come from?

MR BISCOE: It comes from the fact of its direction or interference with the receivership.

GAUDRON J: Is it vicarious? No, it is not a vicarious responsibility, is it, you assert?

MR BISCOE: Yes, that is one of the ways we put it, but we say that the principle is if a creditor interferes with the receivership in a way that happened in this case it becomes responsible for - - -

GAUDRON J: Have you findings that it did?

MR BISCOE: No, we do not, and the reason that we do not is that - - -

GAUDRON J: Well, in the absence of those findings to that effect, you cannot pursue that claim in this Court, can you?

MR BISCOE: Well, we can, in our submission, because one of the things of which we complain is that although they considered that principle, that is the principle of directing or interfering with the receivership, the court never went on to consider its application.

GLEESON CJ: Well, I am looking at pages 65 and 68 of the application book.

MR BISCOE: Yes, your Honour.

GLEESON CJ: Under the heading "Mr McDonald's agency".

MR BISCOE: Yes.

GLEESON CJ: The judgments against you proceeded on the basis, did they not, that he was the agent of the company to whom he had been appointed receiver.

MR BISCOE: Yes, that is true.

GLEESON CJ: And then in paragraph 60 on page 68 they considered the possibility that although he was not St George's agent, St George might be liable in certain circumstances.

MR BISCOE: Yes, exactly, your Honour. As to the first of those two points, the way we sought to come at it was this, that the court based its finding of non-agency on the fact that there was the usual provision in the charge, that it be the agent of the company. Then it rejected an argument that we had put that the effect of a winding-up order, which was made subsequently and before the events of which we complain, terminated that agency.

GLEESON CJ: Well, that is also covered by the charge. That is covered on page 65, line 40.

MR BISCOE: That is right, and it says there that:

the Receiver shall be the agent of the Bank."

GLEESON CJ: To an extent:

To the extent that a Receiver's power and authority to act as agent of the Company is restricted by the commencement of winding-up - - -

MR BISCOE: Yes. Now, the question of which - - -

GAUDRON J: Is this, though, an action in deceit? It must be.

MR BISCOE: No, your Honour. No, it is not an action in deceit.

GAUDRON J: This part of it.

MR BISCOE: No, your Honour, it is not. It is not. What we wanted to establish first of all to get off the ground in this case was that there was an agency for the Bank. We were stopped in that endeavour because of a finding that the effect of the winding-up order was to terminate the agency for all purposes.

GAUDRON J: But, as you answered me, it is a duty on the part of the St George Bank not to mislead Graeme Webb Investments.

MR BISCOE: That was the duty which arises independently of the question of agency.

GAUDRON J: Well, it may arise independently but we are now talking about what you said was false and misleading statement.

MR BISCOE: Yes.

GAUDRON J: So, we are talking about an action in deceit, are we not?

MR BISCOE: No, we are not. It was an action under the Trade Practices Act.

GAUDRON J: Okay. Well, thank you. So, we are now talking about an action under the Trade Practices Act?

MR BISCOE: At that level of the case. If I could just go back to the Chief Justice's earlier point? The question which arises on the issue of whether or not the receiver continued to be the agent of the company after the winding-up order depends upon which theory that you adopt. As your Honour recall, two theories have evolved. The one favoured by the Court of Appeal in this case is the one which, traditionally, is sheeted home to Leslie Homes, which says that the agency for the company continues but not to the extent of being able to create a debt provable in the winding up.

The other theory which has emerged is the one which is favoured, certainly by the English authorities such as Gosling v Gaskell in the House of Lords, some of the High Court cases in which we have suggested is consistent with the only occasion on which this Court has considered the point in Visbord's Case in the judgment of Justice Williams, namely that the agency terminates entirely and on that view of the matter, the theory is that thereafter, that is after the winding-up order is made the receiver acts as principal or, if the facts so establish it, as agent for the secured creditor.

GLEESON CJ: Yes, thank you, Mr Biscoe. Mr Slattery.

MR SLATTERY: Your Honours, in our submission, essentially the applicants put their case for special leave two ways on the basis of agency - two agency arguments and also on the basis of a direct breach of duty by St George Bank against the applicant.

This is not an appropriate case for special leave, we say, in relation to the agency case for these reasons. Firstly, there is a complete answer to that case provided by the exclusion clauses which are set out in the charge documents which are at page 76 of the appeal book. That is an answer, we say, to the top of page 76 at paragraph 78 of the judgment. The exclusion clauses which are set out at subclause (g) and (o) wholly cover, in our submission, and this was not decided by the Court of Appeal below or Justice Newman, but subparagraph (g) dealing with:

in any other way with the whole or any part of any security...which it holds now or in the future to secure the secured monies.

...

(o) Any other event, act or omission whereby the obligor's liability to the Bank would, but for this provision, have been discharged or affected."

The history of the matter is this, your Honours. There was a severance of a claim for possession of property in support of the security. Severed from that was this cross-claim which has ultimately gone to the Court of Appeal and now to this special leave application.

In substance, what the claim here is is a claim inconsistent with the original judgment which was to satisfy the obligations under the guarantee and what is sought to be done here is, in effect, to claim damages to get the money back which was paid under the guarantee. We say that subparagraphs (g) and (o) are a complete answer to that claim. In complete answer to both parts of the claim they would be a complete answer not only to the agency case. If my learned friends were to succeed and establish on argument that Re Leslie Homes was wrong and that, indeed, for all legal purposes my client was the principal of the receivers, we would submit that this is an answer to that claim.

Alternatively, if they were to find the necessary findings of fact, which we say are absent, to make out the direct duty claim, either in equity or in common law that they say is owed to them by the Bank to interfere with the receiver's conduct, this would also be an answer to that so that if these legal issues were to be raised, we submit, your Honours, that ultimately they would be obiter in relation to the final judgment of the Court. We also say that this is not an appropriate vehicle for the - - -

GAUDRON J: What about the trade practices claim, which does not seem to have been dealt with by the Court of Appeal, notwithstanding that there was a distinct ground of appeal, page 31, about the receivers engaging in misleading or deceptive conduct?

MR SLATTERY: Your Honour, that does not bite against the Bank unless agency is established, in my submission, by one means or another, by conduct or by - - -

GAUDRON J: Well, it may or it may not. Let us assume - I mean, this is a corporation. It is in trade and commerce. All of this was being done in trade and commerce. What about if the Bank sat by, knowing that the matter had not been resolved but knowing that it was an issue, and did nothing? There are occasions when inactivity can constitute false and misleading conduct.

MR SLATTERY: That may be so, your Honour, but this is not one of them for this reason, that the very conduct that my learned friend has complained about which was being misled that there had been agreement entered into by Mr McDonald - - -

GAUDRON J: I do not know about that, but they had accepted the offer, the details of which seem to me not to be fully clear.

MR SLATTERY: The very same report was given to the Bank, your Honour, so that, in effect, the Bank is in the same position as the applicant so that any case to the effect that the Bank owed a duty to inquire about the conduct of the receivers and acquired some relationship of principal and agent for the purposes of section 52 would have to be met by that finding, in my submission. But fundamentally there are no factual findings in the court below which would found such a section 52 case in any event.

The last thing I would submit is this, your Honours, that this is not a case in which there is any obvious injustice that cries out to be rectified by the grant of special leave because this is a case, effectively, where Mr Webb, the principal of the applicant company, played a game of commercial brinkmanship with the St George Bank, CBFC and the receivers and he failed. Effectively what the findings are at page 43 are these - this is paragraph 16 of the judgment of the Court of Appeal:

Mr Webb had access to sufficient funds -

at all times -

to pay CBFC, he preferred not to do so. He sought to use his ability to obstruct a sale of GWI's assets to negotiate a financial outcome which was satisfactory to him and his companies.

He did so for the purposes, as paragraph 17 says, of trying to release another security property which he had.

In my submission, this is nothing more than a deliberate exercise in brinkmanship which failed and Mr Webb took a commercial risk and that, having so failed, this is not a case where there is any obvious injustice that needs to be rectified by a grant of special leave. Those are my submissions, your Honours.

GLEESON CJ: Thank you. Yes, Mr Biscoe.

MR BISCOE: If the Court pleases, as to the last point, the fact that parties were jostling position does not mean that there was any injustice. The fact is that on our case so very briefly there was a misrepresentation that was made. In paragraph 20 of our statement of argument, which is accepted as correct for the purposes of this application, we point to the falsity of the representations that were made and, on that evidence, we would have, except for that representation, paid out CBFC itself ourselves and none of this would have happened. So far as the agency point is concerned, if we succeed on that agency - - -

GAUDRON J: But, again, it does not seem to me that there was an offer - you see, this case is very strange. You say that you would have paid out the money. Would you have paid out $600,000 or the whole of the money that was owing, which was about twice that amount?

MR BISCOE: Yes. I think the evidence was that, as we say in paragraph 20, Mr Webb would have paid the $600,000 or more - - -

GAUDRON J: But there was not an offer to accept $600,000 in full satisfaction, was there? There was an offer to facilitate sale as a going concern by accepting $600,000 really from the proceeds of sale.

MR BISCOE: That is true, but, of course, it would have obviously been more beneficial to CBFC if it had got the money before then and that is what the evidence of paragraph 20 was directed to. On the agency point, if we were successful in getting over that agency point and we thought we had pointed to a very large amount of evidence concerning agency, which is listed in paragraph 27 of our submissions, plus the express concession which we refer to in paragraph 19 of our argument by St George that McDonald was clearly acting on instructions from the Bank as its agent, that if we got up on that agency point then we could attract principles of vicarious liability and succeed on the agency point.

So, we would respectfully suggest that if you are talking about justice in the case, that there is justice in our case, both on agency, given the events to which we have referred in paragraph 20, and given our claim under the Trade Practices Act. If the Court pleases.

GLEESON CJ: Having regard to the factual basis on which the case was conducted and the findings made in the courts below, the Court is of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave, and the application is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 10.40 AM THE MATTER WAS CONCLUDED