Hadfield v Commonwealth Bank of Australia [2005] HCATrans 779 (30 September 2005)

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Hadfield v Commonwealth Bank of Australia [2005] HCATrans 779 (30 September 2005)

Last Updated: 17 October 2005

[2005] HCATrans 779

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S234 of 2005

B e t w e e n -

DENNIS RONALD HADFIELD

Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 30 SEPTEMBER 2005, AT 10.44 AM

Copyright in the High Court of Australia

MR D.J. HIGGS, SC: If the Court pleases, I appear with my learned friend, MR F. ASSAF, for the applicant. (instructed by Jackson Smith)

MR R.G. FORSTER, SC: May it please the Court, I appear with my learned friend, MR A.A. HENSKENS, for the respondent. (instructed by J.K. O’Sullivan)

CALLINAN J: Gentlemen, before you begin, I should say that I have some shares in the Commonwealth Bank. It is between 6,000 and 7,000.

MR HIGGS: I am sure that that presents no problem for us, your Honour. Your Honours, even though there was a stark difference of opinion between the Court of Appeal and the trial judge in respect of the ultimate outcome, in our respectful submission, the reasoning between the two courts was not all that different and it is perhaps best exemplified by the observations of Mr Justice Bryson at page 135 of the application book in paragraph 104 where it was observed that in respect of the various decisions made by the Bank, if a registrable linen plan for execution had been delivered to the Bank in relation to the proposed subdivision, it would have required a reconsideration of the previous decisions not to exceed or entertain the overtures that had been made by Mr Hadfield for the sale to proceed not in one line, as referred to by other courts, but in two lots. In our respectful submission, at the very least that is so and it highlights that at that point in time the normal course that would follow would be discussion as between the borrower and the Bank as to how to effect the borrower’s wish for the matter to be sold in two lots.

CALLINAN J: Mr Higgs, could I ask you a question about the facts. I do not know whether it turns upon the fact that this land was originally I think old system land.

MR HIGGS: That is right.

CALLINAN J: Where I come from, there is practically no old system land at all. There is a reference to a difference of about nine acres in the quantity of the land. One of the complaints of your client was that it was sold as 23 acres instead of I think 31 or 32 acres. Can you explain to me why there was a question about whether there were an additional nine acres.

MR HIGGS: Yes. Your Honours, the original survey of the property set the boundaries of the property by reference to a creek. What was suspected, and probably that which is correct, is that the course of the creek changed and hence over some hundred-odd years because of the change in the creek, there was a change in the area of land or, alternatively, that there was a mistake at the time of the original survey and it had not been revisited. I hasten to add that in relation to this application for special leave, our application does not rely on those issues that were agitated.

CALLINAN J: I knew that. I just needed to understand it, that is all, thank you. That answers my question.

MR HIGGS: Thank you, your Honour. The nub of our case is this, that the difference in the approach of the learned trial judge and the Court of Appeal was that the Court of Appeal says one would wait until the delivery of a registrable linen plan before you embark upon discussions with the borrower as to how to implement the sale of the property in two lots as opposed to in one line.

The departure between the trial judge and the Court of Appeal seems to arise in this way. The trial judge took the view that because of the repeated requests by the borrower for the property to be sold in two lines, and in particular the repeated requests for there to be a consent to the subdivision, always met with an unqualified rejection, particularly on 5 October that I will come to in a moment, the trial judge took the view that that was the time when more discussion should have been embarked upon as to how the wishes of the borrower, who was observed by the trial judge and no doubt would have been observed by the Bank to have been somewhat illiterate, that that is the time when there should have been at least some encouragement to the borrower or some overture that would have indicated to the borrower that if he persisted, then a satisfactory arrangement may have been put in place so as to permit the property to proceed to be sold as two lots rather than one.

In a way that was referred to in the internal memorandum from the legal department that is referred to at pages 11 and 12 of the application book that was ultimately obtained by the Bank on 31 December, which at the top of page 12 we would submit properly sets out that, although it was the Bank’s present intention to sell the property as one lot, if there be consent to the property being sold in two lots, it could be done “strictly without prejudice to the Bank’s rights to exercise Power of Sale.”

There are a number of complaints or observations made by the Court of Appeal that said that it was not unconscionable for no discussion of this type to have even been embarked upon with the borrower, despite his repeated requests for some indication that there would be co-operation in the subdivision beforehand because nothing concrete, nothing solid, had been put to the Bank by him because, until something concrete and solid had been put, they did not know whether what was being proposed was that he would sell it himself and, because of the previous history between borrower and Bank, that there was some discomfort, some reasonable apprehension on the part of the Bank as to whether he would have proceeded with the subdivision and the like.

GLEESON CJ: I think it is expressed on page 133 in paragraph 100, is it not?

MR HIGGS: Yes, that is so, your Honour, but our point is this, that when one goes to the history of dealings between the Bank and Mr Hadfield, it was common ground, it was not in dispute, that what we had is the development application being obtained in December 1992, we have a request in January 1993 from Mr Smith as to whether or not he would consent to the subdivision after the development application had been obtained and as set out on page 103 onwards of the application book. It was then indicated in unqualified terms that it was too late and that they would not entertain any overture of subdivision – and I interpose – in any circumstances.

The only softening in attitude perhaps was the conduct of the Bank when there was an auction undertaken by Mr Hadfield in respect of the sale of the northern lot in March 1993 – referred to on page 104 of the application book – where he knew that he could not sell but he wanted to demonstrate that there was some reasonable price that could be fetched for the land. Thereafter, relations seemed to deteriorate to a point that by 5 October there was the request by the applicant to Mr Smith for consent to the subdivision.

The reasons for the rejection of the consent in unqualified terms is set out on page 108 of the application book between lines 10 to 25, firstly, that to allow this to happen meant that the Bank would need to finalise the costs or meet the costs of the subdivision. There was no suggestion as observed by the Court of Appeal in other parts of the judgment that that was ever requested. It was a fairly minimal amount; it was only $410 to $510 for the registration fees.

There was nothing to stop the Bank, similar to the suggestions made in the legal officer’s recommendations in the memorandum that I have just taken your Honours to, that there could not have been some discussion with the borrower that, “Well, provided you can do it quickly enough and meet the costs, then obviously it would be better for everyone for there to be a subdivision”, because there does not seem to have been a great dispute between the parties that if in fact Mr Hadfield had come along and said, “Look, I’ve done it save for your signature on the linen plan and I’ve got it set up in such a way that all I have to do is a mere formality, lodge the documents and you’ll have two lots rather than one”, there is no real dispute that the overwhelming expectation would be that a sale along those lines would have fetched a significantly higher price.

So the first reason does not seem to go anywhere. The second reason that they would need to cede possession, as observed by the legal officer in discussion with Mr Hadfield, that could have been negotiated. Thirdly, and in our favour, we would suggest, with respect, here we have on 5 October a proposed sale of one of the two lots for $245,000 where, with interest running at 18 per cent per annum, the residual debt would have been only $5,000. That is not a complete answer because, as against us, it would mean that it was urgent for the Bank to sell the property as quickly as it could because things were mounting up.

The point that we make is that in view of that rampant interest rate and the way in which this debt was galloping out of control, in the event of it being possible for the subdivision to be arranged – and on the evidence the trial judge found that it could be arranged in six weeks in all likelihood – what was there to stop the Bank from engaging in conversations telling Mr Hadfield, “If you start things now and you get it done in time so as to not stand in the way of our proposed auction, then that is something that we would favourably consider”? There would have been nothing wrong with that at all, and yet he was constantly met with a blanket rejection.

CALLINAN J: Mr Higgs, what about what Justice Bryson said at paragraph 137 at page 150 which was specifically agreed with by Justice Tobias, that this was all potential contained within the land. Theory has it – and I do not think that the theory is wrong – that the price that land realises is a price for the land plus all of its potential and that that would have been the result of the auction.

MR HIGGS: No, with respect, your Honour, because all of the Bank valuations that are referred to in the trial judge’s judgment have a significantly higher price being fetched.

CALLINAN J: I know that but I question those valuations, particularly when the land was advertised as having a “development approval for subdivision”. Then, I think in the Bank memoranda it is pointed out that even if you get that approval, that is going to take time, it is going to take some cost, more than simply the $500 or so referred to, and interest is going to accrue and the debt is going to increase during that period and one might offset the other.

MR HIGGS: Your Honour, there are a number of answers to that. First off, there was never any valuation evidence to underpin what is observed at paragraph 100, that passage that your Honour - - -

CALLINAN J: I do not think you need it. I think it is so fundamental, I think it is elementary.

MR HIGGS: Save for this, that the experts who did give evidence at the trial gave competing opinions as to what the value would be but never in terms of there not being a significant difference in the sense of a significantly higher price if the subdivision had been effected as opposed to it not being effected. It is true that the fact that the development application was there and the land was advertised as having the consent – that is true and there is force in what your Honour has just said. I do not mean to entirely disagree with it.

CALLINAN J: I mean, I would question valuation evidence to the contrary. It is just so fundamental in valuation principle.

MR HIGGS: But, your Honour, what we do have and what we do know is this, that it was uncontested that at the time there were purchasers available for the land for $245,000 and $97,500 respectively for the larger and the smaller of the lots, the southern and the northern lots. That was never contested. I appreciate that the sale of the northern lot was subject to some terms, and I do not want to overstate it, and there might have been difficulties in obtaining those terms, but that needs to be also viewed in the context of the earlier experience where again the uncontested evidence was that earlier that year the scrappier of the two lots had fetched a bid of $110,000 at auction at a time when Mr Hadfield was not in a position to sell it.

CALLINAN J: I thought that was the vendor’s bid. I thought it was $80,000.

MR HIGGS: There was a report in – the Bank was only aware that at that time the property had fetched $80,000. Actually, I do withdraw what I have just said because the Bank memorandum was that the client – and presumably that is a reference to Mr Hadfield – had told the Bank that it was $80,000 that had been bid at auction, whereas it would appear that the evidence – and it may have been contested. I apologise for the oversight, but I do not think that it was seriously contested that in truth the actual bid was $110,000. Even if that is wrong, at least it was worth $80,000. So what we have not only because of valuations which – you can find an expert to say almost anything in a court.

CALLINAN J: That is why there are some fundamental principles that do not depend upon what so-called experts say.

MR HIGGS: Yes, but we do have that the information available to the Bank at the time was there is a price going to be fetched for these two lots of land which was significantly higher than the reserve that they had on this property of between $280,000 and around about $310,000 and something that was quite significant to Mr Hadfield at the time and should at least, as and from the beginning of October when there would appear to be a firm decision to sell in one line, have been discussions with him in order for it to be explored as to whether or not he could bring about this subdivision in fact within the time frame that he had to meet in order for the auction not to be delayed.

There was plenty of time because the first advertisement for this auction was on 27 January 1994 and, as your Honours know, the auction was undertaken on 26 February. In those circumstances, in our respectful submission, there was over nine weeks in order for him to put his house in order, and yet there was no discussion from the outset to find out whether he could ever meet the obligations. He was constantly rebuffed and - - -

CALLINAN J: But the trial judge seems to have made a finding that the Bank should have made a further advance, perhaps of only a relatively small amount, but that it should have made a further advance to finance the completion of the subdivision.

MR HIGGS: I think that that should, with respect, be read in this way, that if called upon that is what the Bank ought to have done, but that was never our case. It was never Mr Hadfield’s case that he needed the $410 to $510 to get it through.

CALLINAN J: Was there a finding by the trial judge to the effect that I have just said?

MR HIGGS: Yes, there is a finding by the trial judge that that is what ought to have occurred, but we do not rely on that and nor do we need to. I see the time. We say that it is a special leave point because of the conflicting of the authority between here and overseas that we have referred to in the written submissions. True it is that our submission is that we should win because it was unconscionable for him not to be given the opportunity to effect the subdivision. We do not for one minute suggest that if it had not been brought to the Bank’s attention that there would have been an obligation on their part to subdivide the land – we do not say that the test is mere negligence. We do agree that there needs to be something more.

What we do say is that it was unconscionable for Mr Smith repeatedly to rebuff the overtures where we were seeking consent to the subdivision and he in an unqualified way was saying, “Too late; don’t bother”. In those circumstances the upshot was that we were deprived of the opportunity of even having the chance of getting the subdivision
through. With the benefit of hindsight we would have got it through, and there is much force in the observations of the Court of Appeal that that is not the test, you have to look at it prospectively.

In the time frame that was available, it was unfair, it was unconscionable, for Mr Smith to rebuff the overtures by Mr Hadfield. It was manifestly safe for him to enter into discussions with Mr Hadfield for him to undertake steps to have the subdivision effected. It is perfectly understandable that that was not achieved in the time given the constant rebuffs. So, as against the special leave argument that we put, it is said there is nothing all that controversial here. We all know that the unconscionability test applies. However, there seems to be, if we be right, a significant difference of opinion as to what unconscionability comprises here.

In relation to the conversion point, just very quickly if I might, in the application there is the interpretation of a letter at page 163 as being no refusal by the Bank to consent to the removal of the deep litter. That is to be found in paragraph 164. If we could refer your Honours to the terms of settlement that is in the additional material that was delivered yesterday, we needed consent to go onto the land. Paragraphs 2 and 3 of the terms of settlement comprised an undertaking by us to the court that we would not go onto the land in the event of us not having the consent. On any view, in our respectful submission, that letter withdrew the consent that we were to go on the land to remove the deep litter or the manure.

In those circumstances, it amounted to, contrary to the findings of the Court of Appeal, conduct on the part of the Bank that was inconsistent with our right of immediate ownership. If your Honours please.

GLEESON CJ: Thank you, Mr Higgs. We do not need to hear you, Mr Forster.

The decision of the Court of Appeal turned on the application of established principles concerning the duty of a mortgagee to the facts and circumstances of the particular case. The findings of fact made by the Court of Appeal were such that even if, as the applicant contends, those established principles should be reconsidered and to some extent reformulated, the applicant’s case against the Bank would nevertheless fail.

We think also that having regard to the evidence in the case and the findings of fact made by the Court of Appeal there are insufficient prospects of success of an appeal to warrant a grant of special leave. The application is dismissed with costs.

AT 11.07 AM THE MATTER WAS CONCLUDED