Campbell & Anor v Backoffice Investments Pty Ltd & Anor [2008] HCATrans 310 (26 August 2008)

Last Updated: 1 September 2008

[2008] HCATrans 310

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S261 of 2008

B e t w e e n -

DOUGLAS RONALD CAMPBELL

First Applicant

SENTINEL CONSTRUCTION MANAGERS PTY LTD

Second Applicant

and

BACKOFFICE INVESTMENTS PTY LTD

First Respondent

TIMOTHY ANDREW WEEKS

Second Respondent

Application for special leave to appeal

GUMMOW J
KIRBY J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 26 AUGUST 2008, AT 10.50 AM

Copyright in the High Court of Australia

MR A.J.L. BANNON, SC: If it please the Court, I appear with my learned friend, MR J.T.G. GIBSON, for the applicant. (instructed by Rodd Peters Commercial, Media and European Lawyers)

GUMMOW J: We understand that there is to be no oral argument for the first and second respondents.

MR BANNON: That is so.

GUMMOW J: But we have had their written submissions, which are quite detailed.

MR BANNON: Yes.

GUMMOW J: And prepared by Mr Simpkins, were they not?

MR BANNON: Yes, and Ms Wong.

GUMMOW J: Yes, Mr Bannon.

MR BANNON: Thank you, your Honour. Could I seek to demonstrate the point we wish to make by reference to some factual matters and some findings. Firstly, in AB 20 the terms of the relevant share sale agreement appear and could I draw your Honours attention to, firstly, the heading “Warranties” at line 40.

KIRBY J: How long did the trial take before Justice Bergin?

MR BANNON: Eight days. There were a large number of issues. There was misleading conduct plus the oppression suit. A large amount of time was taken up in relation to the oppression suit.

KIRBY J: That is a factor that worries me about the case, Mr Bannon. It is a very fact rich case.

MR BANNON: The comfort I can give your Honour is, firstly, that the oppression does not arise and that took up a vast amount of the evidence. Secondly, the argument we wish to put forward, as I will seek to demonstrate, is encompassed in a very narrow area of fact which accepts findings made by the trial judge. So there is not going to be any issue as to findings.

GUMMOW J: What was the reason for the rather small difference in the award made in the Court of Appeal of damages?

KIRBY J: This is at 351.

GUMMOW J: $850,000 to $853,000.

MR BANNON: Yes. I think the difference was simply that the approach which was taken which was his Honour Justice Giles, agreed with by Justice Basten, said that the oppression claim, in other words the buyout order, was set aside. The buyout order was a buyout for $853,000, whereas a misleading deceptive damages case for the amount put in was $850,000.

GUMMOW J: How would this be an oppression case when it is a partnership case of 50/50 ownership?

MR BANNON: That was one of the issues which was raised by Justice Young. Effectively there was not, in fact, any conduct which could be described as oppression.

GUMMOW J: It will be liable to be wound up on the just and equitable ground, I suppose.

MR BANNON: That was part of the argument which was put forward. After the proceedings were commenced by the plaintiff, there was an agreement that a provisional liquidator should be appointed, but the real issue was the buyout order, whether there were acts of oppression. In other words, if it was no fault of either party and just that the parties could not get on any further, then that would be one thing. It would not have had deleterious consequences in terms of a buyout order on our part. But if there were Acts of oppression, then we are exposed to a buyout order which included, in the learned trial judge’s view, a buyout order effectively as at the date of the initial purchase.

GUMMOW J: What would happen in this Court if leave were granted to deal with the trade practices claim or the fair trading claim? What would then be the significance of the oppression finding?

MR BANNON: At the moment we have won on the oppression side in the sense that the buyout order has been set aside and no other relief was sought.

GUMMOW J: But there would be a notice of contention, I suppose.

MR BANNON: There could be. None has been foreshadowed. My learned junior is saying that they had indicated an intention to file a notice of contention, but I could not see that in the submission. I am sorry. Perhaps I will just check that. At the moment I am not aware of that being asserted as likely, but, we would respectfully submit, that would actually be a cross-appeal rather than a notice of contention because that would be seeking a different order and so they would need special leave in relation to that.

GUMMOW J: It is unfortunate there is no one here today, but there we are.

MR BANNON: Yes.

GUMMOW J: The other thing that is something of concern is that I know $850,000 is a lot of money, but in the scheme of things this litigation is rapidly consuming any damages awards and costs, is it not? This is not a large commercial dispute in the ordinary sense that we are accustomed to seeing.

MR BANNON: I accept that, your Honour, but the difficulty is, from my client’s point of view, he is exposed to an $850,000 damages award plus interest, which, for a man in his circumstances, is everything.

GUMMOW J: It cuts both ways.

MR BANNON: Exactly. I cannot say other than that it would mean everything to the respondent as well.

GUMMOW J: I am sorry, I interrupted you.

MR BANNON: Obviously in terms of, as it were, the visitation jurisdiction, we submit that is something we rely upon, from our point of view, but also in terms of a wider question, as I say, at AB 20 the terms of the contract are set out which includes the warranty section. Clause 7.1 deals with the subject matter of the very warranties which were included at the request of the plaintiff at trial, which includes the 7.2 qualification, namely, that it only runs to the knowledge or belief of the vendor and the 7.3(a) qualification that it only runs in respect of a claim of a certain amount and then 7.4 contains the acknowledgement that there are no other warranties and, in particular, (b) that it availed itself of its opportunities and relied on its own conclusions.

Then over the page at AB 22 is “Schedule 1 to Share Sale Agreement”. That includes clause 10 at the top of page 23 and, in particular, 10.2 which is the schedules. The schedule which was the subject of the so-called Add Backs representation was picked up by 10.2. That document is in fact set out at page 115 of the application book. The learned trial judge found, and there was no appeal from that, or no finding to the contrary, at AB 132, paragraph 218, that the warranty was not breached – that is, the same warranty which was the subject of the finding of misleading conduct by the Court of Appeal – because it was not found that he knew the estimate was wrong.

So immediately one has a conflict between what we say is a carefully drafted warranty, drafted after negotiation, and the outcome on a section 52 case in relation to effectively the same warranty.

GUMMOW J: Where do you say is the critical error on this if you - - -

MR BANNON: If one goes, in effect, to his Honour Justice Giles’ reasoning at page 201, paragraph 45, his Honour says:

Mr Weeks was concerned about the estimates which included the add-backs representation, and sought to obtain documentary support for them, did not mean that they played no part in Backoffice’s purchase . . . they were not disregarded, they were part of arriving at profitability . . . When Mr Weeks said that he “initiated the warranty discussion” when he could not have “an accounting comfort level or a documentary comfort level” and needed “some other kind of comfort level”, that did not exclude regard to (in that case) the add-backs figures as represented, albeit without the accounting or documentary comfort. Obtaining the warranty suggested reliance, if that language be used, in that when the estimates could not be objectively verified . . . it would not be likely that he went ahead in the expectation of an action claiming damages.

The effect of that passage is to say, if you, for example, are parties to a contract, have negotiations and let it be accepted that one of them makes a representation in relation to a business, the other party says, “I am not very satisfied about that, let us negotiate a warranty”, there is a careful negotiation between the parties and they limit the warranty in a couple of material ways, namely, knowledge and, secondly, amount of claim and indeed materiality, the very fact that you negotiate that warranty according to this reasoning increases your reliance on the precontractual representation. We submit that just involves fundamental error.

One may accept that section 52 cannot be the subject of a contract out of, and there are cases that have been referred to that. The Full Court cases we have referred to in the Federal Court have recognised that the party is legally advised, knows the terms of the agreement, but it is a rare case, indeed, that one could have misleading conduct either continuing or there being reliance. The effect of this is to put a party seeking to negotiate fairly, openly, with legal advice on both sides, a contractual position which protects, it may be said, both parties adequately, completely exposed to a continuing claim under section 52. We submit it involves fundamental error and that is the wide importance of the case.

We say Butcher v Lachlan Elder did not deal with that. It dealt with the case in relation to conduit . It is at tab 4 of our bundle. Can I just refer your Honours to the majority judgment. At paragraph 69 there is reference to Waltip v Capalaba:

In that case, Pincus J held that clauses in a deed of acknowledgement providing that no pre-contractual statements had been relied on before the parties entered a lease were of no effect if the facts were to the contrary. Cases of that type concern a problem which is entirely different from the present problem, and cast no light on its solution.

In other words, that is the case of this sort of circumstance. We respectfully submit, although there are statements I think in - - -

GUMMOW J: Is there anything in the minority judgment?

MR BANNON: Justice McHugh deals in more detail with these sorts of cases, but he was in the minority in this particular case.

GUMMOW J: That does not necessarily matter.

MR BANNON: For example, commencing at page 621, paragraph 97 – I am not sure that his Honour squarely addresses these sorts of cases. I am sorry, page 638 under the topic of “The disclaimer” he refers in paragraphs 150 to 152 to some of the cases and Benlist is one of them, but, as I say, it was not pertinent or directly relevant to the particular case at hand. We submit, in terms of a wider interest this Court has not actually considered yet the correct approach to disclaimer cases at least – or at all – in circumstances where one has a pre-contractual negotiation and one has a negotiated contract, legally represented, in particular, we say in circumstances where the very subject matter of the negotiation was the topic of the representation. There has to be some contractual certainty in the commercial world, albeit the parties recognise that section 52 is an overlay and you cannot contract out of it. Nevertheless, the Court must be able to provide some guidance better than this, we respectfully submit, to the commercial parties. May it please the Court.

GUMMOW J: There will be a grant of special leave in this matter. It will be listed as a one-and-a-half day appeal.

AT 11.05 AM THE MATTER WAS CONCLUDED