183 Eastwood Pty Ltd ACN 614508600 v Dragon Property Development & Investment Pty Ltd ACN 616387485 [2023] HCATrans 146 (20 October 2023)

Last Updated: 20 October 2023

[2023] HCATrans 146

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S51 of 2023

B e t w e e n -

183 EASTWOOD PTY LTD ACN 614508600

Applicant

and

DRAGON PROPERTY DEVELOPMENT & INVESTMENT PTY LTD ACN 616387485

Respondent

Application for special leave to appeal

GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 20 OCTOBER 2023, AT 10.27 AM

Copyright in the High Court of Australia

GAGELER J: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR B.W. WALKER, SC appears with MR S.D.D. PUTTICK for the applicant. (instructed by Ma & Company Solicitors)

MR A.P. CHESHIRE, SC appears with MR R.D. TURNBULL for the respondent. (instructed by Lexsons Law Firm)

GAGELER J: Mr Walker.

MR WALKER: May it please the Court. This is a case where the phrase “silence or inaction” is at the heart of the matter and needs to be explained. As your Honours know, the route to liability against our client lay in the ostensible authority of the man who, in law school jargon, was the “rogue”. He had achieved, fraudulently, alterations to the official register – that conducted by ASIC, available to the world – designating himself as the natural person who, on the face of things, could speak for and bind the corporation.

Before that was corrected, as it was capable of being corrected by our officers, there was the inspection of that register by the respondent – on behalf of the respondent, in such a way as to conduce on the findings that would not be in question in this Court, their eventual loss. It is of the essence of our position in claiming special leave and seeking the opportunity to demonstrate important error in the outcome that there was no suggestion, no finding, that there was any awareness on the part of the relevant corporate minds of the applicant that the respondent was, unfortunately, engaging in dealings with the rogue on the strength of, among other things, what the register revealed, that is, conveyed.

The “silence or inaction” comes in because, of course – it is not silence in the literal sense but a failure to stop the message conveyed by another, namely by the rogue through the medium of the register, which was the means by which, in the decision as to which of two innocent parties should bear the loss caused by the rogue, the courts below have held us liable on account of a failure earlier to correct the register.

GAGELER J: Mr Walker, could I just ask, what is the relevance of the knowledge, or lack of knowledge, of the particular dealings? Is not the holding out a holding out to the world?

MR WALKER: The answer to the last question is yes. I was about to come to that. That may or may not be critical; it is certainly important. It was a holding out to the world, not by us, of course; it was a holding out to the world by the register.

GORDON J: Well, that is not quite right, Mr Walker, in the sense it was a holding out by you to the world in the sense that you knew for 116 days that the register was inaccurate and that you took no step, notwithstanding that knowledge of the inaccuracy, to rectify it.

MR WALKER: Your Honour is quite right. I was coming to the sequence. May I abbreviate the letters as follows: as your Honours are aware, the sequence starts with the rogue altering the register, without our knowledge; proceeds then to our discovering that; proceeds then, unknown to us, to the respondent relying, among other things, on it, and then concludes with our correcting the register. As Justice Gordon correctly points out, there was a period – and by no means an inconsiderable period – during which there was the inaction, to which I have drawn attention in this composite phrase “silence or inaction”.

Now, if I can try and weave the two strands that your Honours’ separate questions present, as follows, with respect to a holding out to the world, in our submission, that needs to be examined closely with respect to the notion of a duty to correct an error upon it being discovered. In that proposition, of course, lies the proposition that until the error is discovered, there would be no duty. And that gives rise to factual questions concerning, for example, the artificiality of what I call real time constant monitoring of what ASIC reveals.

Those could be put to one side in this case. They were not examined. That is, there was not the kind of fine-grained factual analysis of how the circumstances actually produced a time at which, were the common law the only word on the topic, one might say that we had been negligent in failing to correct the register. Because it was a holding out to the world, and the notion of a reasonable expectation, surely based upon something of the nature of a duty to speak or correct lies at the bottom of it, one asks the question whether there was created anything like a duty of care to avoid negligent misstatement, including by omission, by reason of failing to correct the register. That, in our submission, in itself is a very large question which is subsumed by the legislative scheme, but in any event, as a matter of common law, sufficiently important to justify special leave.

I refer to the legislative scheme because, as your Honours know, the respondent was clear in its non‑reliance, non‑invocation of any of the provisions concerning what I am going to call statutory justified reliance upon so‑called assumptions, and, for that matter, relying upon anything that might have appeared by way of an obligation imposed by or implied from statute for more timely correction of the register than occurred in this case. Both of those were disclaimed, disavowed, and form no part of the reasoning against us.

GORDON J: Is that right, given the way in which Justice Leeming dealt with it at, I think, application book 102? In the sense that his Honour identified that the description of the duty is probably problematic, but even if there was a duty, his Honour identified a number of statutory provisions in the Corporations Act which he said gave rise at least to an offence – arguably an offence under that Act, and which committed them to speak out with the knowledge that they had for the 116 days of the falsity of the register.

MR WALKER: Yes, that needs to be unravelled, of course. No one is suggesting that we committed an offence. That is the rogue who did that. What I think is suggested in that passage – which is, with respect, tentative, as it were, at the tail end of his Honour’s reasons – the reference that bites against us is presumably the reference to section 180. In our submission, here is a matter of both important statutory interpretation as well as a coherence between common law and statute.

The notion that there is an obligation in section 180 which is more onerous than the obligation concerning the statutory obligations for annual returns to ASIC is, in our submission, again an aspect of this case which distinctly calls for a grant of special leave. This is to introduce, through the common law, liability for a failure to intervene, by correction of the register, before someone unbeknownst to the corporation – I stress that. That is my answer to Justice Gageler’s question. It does matter that there was no knowledge of the intended dealing through the rogue with the corporation occurring before the correction had been made – that is, no knowledge by us – because it defeats any suggestion that there was, by dint of a relation of possible commercial dealing, excited the ordinary duty of care that not to mislead by negligence, including by omission.

In our submission, there is an incoherence introduced if precisely the same outcome can be produced by saying – without needing to go through any analysis or any obligation of a legal kind, let alone a common law duty of care – there will be liability if you have not done something which you could have done earlier than you did. That is, to beg the question: are you in a position relationally with the plaintiff such that your failure to do so renders you liable? That sounds like the breach of a duty.

GAGELER J: Mr Walker, what is the nature of the duty that you say is required? Is it necessarily a legal duty?

MR WALKER: No, it is not, and that is one of the reasons why special leave, in our submission, is appropriate. It is not possible, respectfully – that is, particularly for previous generations of judges – to dismiss the references to duty in the same or similar contexts as being, so to speak, “loose” or even worse, “non‑technical”, or even worse, “unhelpful”, because when, for example, in the closely‑related intellectually cognate area of estoppel, there is, of course, the then‑standard, we submit, still correct use of language by Chief Justice Gibbs in Heid v Reliance Finance, to which we draw attention at page 113 of the book in our paragraph 43.

It goes back to an earlier generation which again, respectfully, cannot simply be regarded as overtaken by the passage of years, to which we have drawn attention by our citation with some emphasis, on pages 110 and 111, paragraphs 27 and 32, to Mr Justice Rich in Thompson v Palmer. These, as your Honours know, are not stray or maverick references. The language of duty has been used.

Now, it may have been paraphrased, it may have been glossed, but it surely has not been radically altered, let alone expanded, by use of more recent language in the context of understanding misleading or deceptive conduct in statutory contexts to the reasonable expectation engendered by the combination of conduct and relation between commercial counterparties.

GAGELER J: So, Mr Walker, it is something more than reasonable commercial expectations but something less than a legal duty.

MR WALKER: It will, in many cases, actually be a legal duty. That is, when the relation is such that the duty of care not to make negligent misstatements, including by omission, exists. They were exactly parallel. But, yes, the thrust of the second part of your Honour’s question is correct, that it will embrace cases where, for example, by dint of insufficient knowledge or appreciation of the possibility of someone out there relying, there would be no duty of care, in the common law sense, a breach of which sounds in negligence.

But there is a duty to speak that is invoked by consideration of both the relation, the circumstances, and what I am going to call the lineaments of decent behaviour. So, a reasonable expectation is the phrase, which has usefully been deployed, to describe the outcome of those matters I have just summarised, which produces, with respect to a defendant, a judicial adjudication that by failing to act or speak – to act, in this case, so as to avoid false speech by the register – there has been engendered a belief, understandably and intelligibly in the counterparty – the plaintiff – which, according to the principles of ostensible authority, are either related
to or are part of the principle of estoppel, amount to a position to which the defendant should be held.

GORDON J: May I ask a question of fact about that in the application of this case. If it is, as I understand the submission, by reference to some standard of decent behaviour, whether it is a duty or reasonable commercial expectations, is this an appropriate vehicle when one has not only a 116‑day delay, but a conscious decision by your clients not to correct the register because they were going to do a commercial deal with the rogue?

MR WALKER: Your Honour, those facts, and debate about their significance, far from rendering the case an inappropriate vehicle, ensures that the Court can have a more complete survey of the matter, so as to draw, for example, any factual or characterisation distinctions according to different forms of conduct, requisite to pronouncing whether or not the law has changed from Thompson v Palmer; whether or not Chief Justice Gibbs was using language loosely in Reliance Finance. That is the first point.

In our submission, far from preventing the case presenting the issue to the Court, what your Honour has raised is, if I may say so, more appropriate to be seen as a question of factual and characterisation contest between the parties itself, intensely useful for these matters which cannot be determined in the abstract. They need facts. It is for those reasons that whoever won that characterisation fight would, in our submission, do so in the context of the rule or principle which ought to be pronounced following argument at the higher or more abstract level.

It ought to come down to the question of: what does it mean in the authorities of this Court when the word “duty” is used? Justice Gageler asked me how I use the word “duty”. I have tried to explain. But the real question is: what does this Court mean? This Court, of course, speaks with every non‑overruled decision in the books. It is for those reasons, in our submission, that this is a case that, notwithstanding the evident issue to which Justice Gordon draws attention, which is both rightful a decision and a useful foundation for a proper sharper, if I may so, with respect, pronouncement of the rule by this Court.

May it please the Court.

GAGELER J: Thank you, Mr Walker. Mr Cheshire, we do not need to call upon you. We are not persuaded that the special leave question formulated by the applicant would be likely to be determinative of an appeal to this Court, nor are we persuaded that an appeal would have significant prospects of success. In those circumstances, special leave to appeal is refused with costs.

The Court will now adjourn until 11.30 am.

AT 10.45 AM THE MATTER WAS CONCLUDED