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[1996] FCA 1136
Federal Court of Australia
1996-12-24
Hill J
Original judgment source is linked above.
The present proceedings are brought by Mr Terrence Golby and Mr Timothy Golby (the applicants) against the Commonwealth Bank of Australia ("the Bank") seeking damages and related orders, including an injunction restraining the Bank from enforcing its security over property of the applicants. As pleaded, the applicants' case is primarily that the Bank was in breach of contract. Alternative ways in which the case is put involve a claim for negligent misrepresentation, a claim of contravention of s52 of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act") and a claim for breach of fiduciary duty. Although the case was originally listed for five days of hearing, counsel for the parties cooperated in reducing that to two days, accepting that minute differences in versions of conversations would ultimately not alter the outcome which, as will be seen, really depended upon a very narrow issue. It was accepted that where witnesses were not cross-examined, the case should proceed on the basis that alternative versions of conversations were put to them and, to the extent that those versions differed from their own versions (and subject to affidavits filed), they had denied what was put to them. However, it must be said that such differences as existed in versions of conversations were relatively minor. The Bank cross-claimed seeking judgment against the applicants for the amount claimed to be owing to the Bank by the applicants together with interest to the date of judgment, as well as an order that the Bank be entitled to possession of the land the subject of security to the Bank. As at 1990, the applicants carried on in partnership a business of earthmoving contractors. In late 1989, a Mr George Barry, who was a cousin of the applicants, approached Mr Terrence Golby to see if the applicants would be interested in doing some bridge work for a sub-division on land owned by Mr Barry known as "Abington Park" at Ingebyra in New South Wales. In September of that year, Mr Barry had entered into an agreement with Emby Developments Pty Ltd ("Emby"), a company in which his son, Michael, was interested, to develop the sub-division. It seems that Michael wished to get out of this agreement and that Mr Barry was finding difficulty financing the development on his own. It was for this reason that Mr Barry approached the applicants with the suggestion that they might assist in providing additional security so that Mr Barry could obtain more finance. In turn, they would take over the development work for the sub-division. Mr Terrence Golby did some calculations and estimated that the transaction was likely to be profitable to the applicants. Accordingly he approached Westpac, with which bank the applicants then conducted business. The application to Westpac did not receive an enthusiastic response. Mr Barry then suggested that the Commonwealth Bank, with whom he dealt, might be interested. Accordingly Mr Terrence Golby, together with Mr Barry, met with the then officer in charge of the Jindabyne sub-branch of the Bank, Mr Alston, in or about late February 1990, to inquire whether the Bank would be interested in lending money to enable the applicants to complete the sub-division if the applicants put up security additional to that given by Mr Barry. At this stage I should say that Mr Terrence Golby impressed me to be an honest witness. No attempt was made to impugn his credit. I therefore accept his evidence, particularly where it conflicts with the evidence of Mr Alston or Mr Hall, not that their credit was in issue but because it was clear that they had little real recollection of the discussions they had with Mr Golby.
Mr Terrence Golby said to Mr Alston during the course of the interview: "The loan will have to be paid back from the sales of the lots when the subdivision is completed. If we can get the amount requested we will be leaving half the construction costs to come out at a later time. What we borrow is to be repaid out of the sales of the lots and the loan should be in all three names and you are to act only on the instructions of all three of us. The account will be operated by Tim and I with either of us to sign." Mr Terrence Golby told Mr Alston that, if the arrangement proceeded, he and his brother would take over where Emby had left off, paying the amounts owing by Emby and taking over all of that company's obligations. Mr Terrence Golby alleges, and Mr Alston denies, that Mr Alston recapitulated that the loan was to be repaid out of the proceeds of the sales of the sub-division. Instead, Mr Alston, in a somewhat self-serving way, says that he would not have said that because it would have amounted to confirming on behalf of the Bank a proposed arrangement which was not in his power to approve. I think that it is more probable than not that Mr Alston did recapitulate the arrangement as Mr Terrence Golby alleges. However, nothing really turns upon the conflict. It is apparent that Mr Alston had no real recollection of the detail of any part of the conversation. I do not find it necessary to decide whether Mr Alston, as Mr Terrence Golby alleges, indicated that it would be a condition of approval that all the Golby's banking business be transferred to the Bank, or merely indicated that the Bank would "like to have your other banking business". The inference was, no doubt, inescapable that it would assist in obtaining approval for the finance if the Golbys moved their banking business from Westpac to the Commonwealth Bank. Mr Alston referred Mr Terrence Golby to the Cooma branch of the Bank to see Mr Leigh Hall who at the time was the Loans Officer at that branch and who had had prior contact with Mr Barry and had been involved in financing the sub-division to the stage it had reached. Mr Hall was thus familiar, at least in general terms, with the sub-division proposal. In connection with an earlier application by Mr Barry for finance, Mr Hall had been told by Mr Barry that it was anticipated that the development would be completed within a twelve month time frame. Mr Hall was aware that some of the work had been completed but that there had been higher than expected costs. Mr Hall was also aware, and despite his denials to me it was clearly of some significance to him as a banker, that Mr Barry's brother, Tom, and his son, Michael, were principals of a real estate agency operating in Jindabyne. This was a connection which Mr Barry had been "targeting" for some time. No doubt the interest to Mr Hall lay in the trust account business which the agency could bring to the Bank, as well as other associated business. On 12 March 1990, Mr Terrence Golby met with Mr Hall in Cooma. Mr Hall had no recollection of the circumstances which led up to that meeting. Nor for that matter did he have any recollection at all of any conversations relevant to the present proceedings. It may be inferred that Mr Alston contacted Mr Hall and it is probable that Mr Barry did likewise. Mr Terrence Golby puts the meeting with Mr Hall as having taken place on 20 March 1990. However, on 12 March Mr Hall prepared an internal memorandum dealing with the application for accommodation made to the Bank by the applicants. It is obvious from a perusal of the information in that document, containing as it does details of the then existing facilities which the applicants had with Westpac, as well as details of security offered, that the memorandum was dictated following upon a meeting with Mr Terrence Golby, if not also a meeting with Mr Barry. The memorandum notes that it relates to an application for accommodation on behalf of the applicants and Mr Barry. It notes too that Mr Barry had approached Mr Hall in December 1989 for accommodation of $130,000 for the payment of private debts and that approval for this borrowing was forthcoming. It records that the Emby proposal, which had been the subject of applications to the Bank for finance, had not eventuated following Michael Barry's decision to withdraw from the project. The application, which the internal memorandum documented, was for a bill facility by way of "joint borrowing" of $470,000 to complete the sub-division. Under the heading "Reduction Arrangements" appeared the words "Clearance in full from sale of subdivision blocks". Under the heading "Collateral Advantages" was the following discussion: "We will secure acquisition of Golby family business following approval. Michael Barry has been offered the Raine & Horne business franchise from his uncle, Tom who is soon to retire. Business is expected to cost $100000 for which Michael will be seeking assistance shortly. Michael owns property himself and still conducts his personal banking through Westpac as with the Raine & Horne banking. We have been assured by Michael's father, George that we will acquire Michael's personal and business banking. Good opportunity also exists to market land loans for subdivision blocks using real estate outlet, considering Barry families interest in early sales." It is apparent from the document that Mr Hall had extracted from Mr Golby an estimate of the costs of completing the subdivision of $470,000. Mr Hall noted that sales of five lots in the sub-division had already been negotiated and contracts exchanged for them. The details of the offer, as recorded by Mr Hall, were as follows: "* That all development costs Viz $470,000 rounded up to $500,000 outlaid now are firstly repaid from initial sales/settlements.
(d) After the Owner and the Developers have each received the several sums to referred to in (a), (b) & (c) set out above and on the preceding page, the Owner's solicitors shall pay the nett proceeds of all such sales as to 60% to the Developers and as to 40% to the Owner." Clause 10 provided: "The Owner agrees to execute a mortgage over Lot 100 D.P. 627117 and Lots 40 and 81 D.P. 756667 being the whole of the land comprised in Certificate of Title Folio Identifier 100/627117 and part of the land comprised in Certificate of Title Volume 8627 Folio 72 to secure advances by C'WEALTH BANK to the Developers provided that the Developers indemnify the Owner absolutely against all claims made by C'WEALTH BANK against the Owner pursuant to the terms of the said mortgage and/or in respect of the moneys thereby secured and the Developers agree that all proceeds of sales received by them as provided in clauses 8.(a), (c) and (d) hereinbefore contained shall be paid to C'WEALTH BANK in reduction of the amount secured by the said mortgage until such amount is repaid in full." Clause 11 provided: "IT IS EXPRESSLY AGREED between the parties that the period of eight (8) months referred to in Clause 4 hereinbefore referred to shall be extended by the period of any delays occasioned to the Developer in the performance of the obligations on their part hereinbefore contained by inclement weather and/or delays caused by Telecom or Monaro Electricity." Finally, clause 12 provided: "Notwithstanding anything hereinbefore contained it is expressly agreed between the parties that any cost of the development in excess of the sum of THREE HUNDRED AND SIXTEEN THOUSAND THREE HUNDRED AND SEVENTY FOUR DOLLARS ($316,374.00) (excluding interest on moneys borrowed by the Developer and road works) shall be borne equally between the Owner and the Developer and that no payment shall be made to the Owner pursuant to Clause 8(b) hereof until the Owner and the Developer have been repaid in full for any payments made by them pursuant to this Clause." Thereafter, the moneys under the bill facility with the Bank were drawn down and expended. Although, and I find it as a fact, the applicants believed that the sub-division could be completed within the time stipulated by the contract and sales would be made sufficient to recoup the moneys borrowed from the Bank in the twelve months from drawing down the facility, or for that matter the twelve months from the date of registration of the sub-division plan, that was not to be. The overall cost of the sub-division was $605,000, although that figure includes $150,000 which it would seem would be the profit of the applicants in the road building side of the development. As Mr Terrence Golby said in his affidavit: "In order to keep the borrowing down we constructed the roads ourselves for $150,000 and left the other $150,000 to be paid from the sales of the subdivided blocks. In effect then Tim and I put up security for the development and subsidised the development by $150,000 construction costs." The delay in the sub-division came about in part by virtue of wet weather, in part by problems with the surveyor, and in part by virtue of delays with the council. If it be relevant, I would find on the material before me that the delay in completing the sub-division did not arise from any fault on the part of the applicants. Major construction work was finished by November 1990; the roads were gravelled by February 1991. Mr Terrence Golby had discussions with Mr Barry on a number of occasions between late 1990 and early 1991 about the problems with the surveyor. Mr Barry agreed that the surveyor could not be sacked and replaced by another surveyor as the new surveyor would not know where to start. It was not until August 1991 that a sub-division plan was received from the surveyor. The plan was lodged with the Snowy River Shire Council on 27 August 1991. An amended plan was lodged on 24 September 1991. Ultimately the plan was registered on 24 January 1992. Between 26 April 1990 and 24 January 1992, there was considerable correspondence between Mr Barry's solicitor, Mr Agnew, and the applicants' solicitor (initially Mr Ahern, and later Mr King, then Mr Wall). Mr Agnew's letters have a somewhat aggressive tone and complain of delay. It is unnecessary to go into the detail of this correspondence. In it Mr Ahern explains the delay, by reference to wet weather and survey and other technical difficulties. Mr Agnew alleges Mr Barry did not agree with these reasons for the delay and threatens to engage other contractors. According to Mr Terrence Golby, whose evidence on this matter is not the subject of any conflicting evidence, Mr Barry himself knew that the delays were not the fault of the applicants and that among themselves the Golbys and the Barrys were friendly and cooperative. According to Mr Terrence Golby, Mr Barry on occasions said words to the effect: "I know it's not your fault. We'll just have to press on and get it done." According to this evidence, Mr Barry had said to Mr Terrence Golby that he had not given Mr Agnew instructions to write threatening letters. Mr Barry told Mr Agnew he was not concerned that the applicants were late in completing the work. He said "I know you have done all you can". It must be emphasised that there is no evidence on oath from either Mr Barry or Mr Agnew. Mr Agnew's side of the story emerges only from correspondence in evidence, not sworn to, and obviously where the material in that correspondence conflicts with the unchallenged sworn evidence of Mr Terrence Golby, the evidence of Mr Terrence Golby must be accepted.
On 29 May 1991, a meeting was held at Mr Agnew's office at which Mr Terrence Golby, Mr Ahern and Mr Barry all attended. The meeting discussed various matters, including electricity and Telecom requirements, council approvals, water resource problems, sewer conservation matters and the like. The notes of the meeting do not in any way deal with any questions of complaints as to timing. Nevertheless the correspondence between Mr Agnew and Mr Ahern continued. It contains comments from Mr Agnew such as that in a letter of 1 August 1991 to the effect, "our client is becoming increasingly concerned at the delay in completion of the subdivision works". In the meantime, the amount owing on the Bank's facility was increasing as interest was debited to it. Thus, at 1 October 1991 the amount owing was $512,106.58. On 9 December 1991 Mr Agnew wrote to Mr Ahern advising that Mr Barry was "fed up" with the situation as, notwithstanding the terms of the contract, the sub-division plan had not been registered. Mr Agnew wrote, inter alia: "In view of the inordinate delay on the part of your clients in completing their part of the agreement, which cannot fall within clause 11 of the deed, as there were no delays of the type contemplated by that clause during the correct period of the contract, we have now been instructed by our client to advise that when the sales of existing contracts are completed, the money will be paid to the credit of your clients in accordance with the clause 8(a) of the deed but that thereafter intends to appropriate the proceeds of any sales to himself in accordance with clause 8(b), as if your clients had completed the contract in accordance with the terms of the deed, the period during which they would have received funds over and above the amount of $470,000 would expire on the 26th of this month." The letter nevertheless suggested a round table conference. Mr Agnew's correspondence appears rather to have been ignored by Mr Ahern, which may well reflect the view that Mr Agnew's correspondence did not have the imprimatur of Mr Barry's instructions. On or around 27 February 1992, Mr Agnew wrote to the manager of the Cooma branch of the Bank confirming that, pursuant to the agreement between the applicants and Mr Barry, the nett proceeds of the sale of all lots were to be paid to the credit of the loan account, Golby, Golby and Barry, in reduction thereof until the Bank received instructions to the contrary "from the three of Mr G L Barry and Messrs T & T Golby." Thereafter, contracts which had been exchanged and were awaiting registration of the sub-division plan for completion, commenced to be settled. On 4 March 1992 the sale of two lots was effected and the balance (after Mr Agnew's costs) of $109,954.60, was credited to the joint indebtedness. Between 4 March 1992 and 11 March 1992 completion was effected of five lots. After Mr Agnew's costs were deducted from the sale proceeds, there was deposited to the credit of the joint account the sum of $268,541.59. Thus, as at 12 March 1992, the debit balance of the account was $265,576.04. A further $5,325.96, being a deposit on the sale of one of the lots settled (Lot 2) was apparently credited to the cheque account of the applicants rather than to the joint account. Further amounts were thereafter credited to the joint account so that as at 23 March 1992 the debit balance of that account stood at $105,672.84. On 25 March 1992, Mr Agnew wrote to Mr Ahern saying: "As you are aware, it was originally contemplated that the matter, at this stage of time, would have progressed to where our client would have started to receive his money after your clients had received $450,000.00 and we have now been instructed to advise that our client wishes an urgent resolution of this problem as he is not prepared to wait any longer to receive his moneys, as he needs them to settle outstanding commitments." There is also a threat of legal proceedings in the letter. On 3 April 1992, settlement was effected of the sale of Lot 12. On completion Mr Agnew caused the sum of $10,263.09 to be paid to the credit of the joint bank account. An amount of $10,000 had apparently been paid in cash by the purchaser to the applicants. After Mr Agnew's costs were deducted, an amount of $40,775.19 was banked to the credit of Mr Barry. Mr Agnew had unilaterally determined that from thenceforth Mr Barry was to receive all the proceeds of sale. Obviously the Bank, as holder of the security over the sub-divided land, was in a position to ensure where the funds to be received on settlement were to go. Nevertheless without any reference to the applicants, the Bank allowed the security to be discharged in part and credited the balance, in excess of $10,263.09, to Mr Barry. As at 1 May 1992 the joint account stood at $103,444.93. In making this arrangement with the Bank, in total conflict with the instructions he had given the bank on 27 February 1992 that any change to the arrangement required the signature of both of the applicants and Mr Barry, Mr Agnew advised the Bank that $470,000 had been paid to the applicants so that future payments were to be made to the credit of Mr Barry, unless Mr Agnew advised to the contrary. Mr King, who by that time was acting for the applicants in place of Mr Ahern, responded, inter alia, explaining delays, denying breach of contract, and alleging that Mr Barry was in breach of clause 8(a) of the development agreement, because twelve months had not elapsed since the date of registration of the plan of sub-division during which time the first $650,000 was to be paid to the applicants. He, too, threatened legal action.
On 8 April 1992 Mr King wrote to the Bank seeking an explanation for the Bank having released the funds to Mr Barry and an assurance that the Bank would not further so do without the applicant's approval. For its part the Bank merely responded by saying that the funds had been dispersed in accordance with instructions from Mr Barry's solicitor, and if the applicants desired to discuss the matter further they should speak directly to Mr Agnew. Mr King responded, reminding the Bank that the account was an account of three persons and not one, and that one of the persons conducting the account could not change the arrangements on the account without the agreement of the others. Mr Agnew responded to Mr King, repeating allegations of delay and asserting that the correct interpretation of the deed of 26 April 1990 was that clause 8(a), in its reference to the date of registration of the plan of sub-division should read that date or eight months from the date the deed was executed, whichever first happened. Mr Agnew's interpretation could not be sustained and no attempt was made in argument to support it. Mr Agnew continued to assert Mr Barry's entitlement to receive the next $260,000 of sale proceeds. On 9 June 1992 Mr Agnew advised the Bank of the exchange of a contract for the sale of Lot 13 for a sale price of $50,000. He told the Bank that the nett proceeds of sale were to be applied in reduction of Mr Barry's indebtedness to the Bank. On 15 June the Bank saw fit to respond to Mr King's letters of 8 April and 14 April which, until then, the Bank had ignored, asserting that it had acted in good faith and alleging that it had the verbal agreement of Mr Terrence Golby for the settlements to proceed. That verbal authority was denied by Mr Terrence Golby and no evidence was forthcoming on the part of the Bank to support it. I can only find that the Bank had no such authority, and that the senior manager of the Bank who made that claim lied when he said that Mr Terrence Golby had so agreed. The Bank then forwarded to Mr King authorities for the release of various lots for execution by the applicants, saying that it would not attend any further settlements until those authorities were executed by the applicants. The Bank advised Mr Agnew to similar effect. Mr Agnew wrote to Mr King asserting that the Bank had no right to refuse to hand over the title or discharge mortgages without the concurrence of the applicants, indicating that the applicants had no standing so far as the title of the property was concerned. This assertion was repeated in a letter to the Bank. Settlement of Lot 13 was arranged by Mr Agnew for 10.30am on 13 July 1992. As appears from a diary note of that day, the Bank first decided that it would attend the settlement, placing the funds received into a suspense account until the dispute between the applicants and Mr Barry was resolved. When Mr Agnew was advised of the Bank's decision, he became upset and irate, questioning why the Bank should take any notice of the applicants when Mr Barry was the owner of the land. Mr Agnew argued that the account should never have been set up in a way that Mr Barry was a party, suggesting that Mr Barry "wouldn't know what day it was", ie that he had not understood the position when accepting the arrangement. Mr Agnew threatened to hold the Bank liable in damages for any delay. At this stage it would seem that someone from the Bank spoke to the Bank's solicitors. The advice received was apparently that it was in the Bank's best interests to settle on Mr Barry's authorisation and to credit the proceeds to Mr Barry's indebtedness. The basis of this advice does not appear, nor is it clear whether the reference to the "best interests of the bank" is a reference to commercial or legal considerations. Thus the Bank determined to act in its best interests and to prefer one of its customers (Mr Barry) to the detriment of other of its customers (the applicants), instead of taking the rather wiser course of putting the money into a suspense account until the entitlement to the money as between Mr Barry and the applicants could be determined, if necessary, by litigation between Mr Barry and the applicants. A decision was made by a Mr Fletcher on behalf of the Bank, that further settlements could proceed with the proceeds being applied in reduction of Mr Barry's indebtedness, and once that indebtedness was cleared then in reduction of the joint indebtedness of the applicants and Mr Barry. In the result, the sum of $43,809 was credited to Mr Barry's account. Further correspondence passed between Mr Agnew and Mr King in an attempt on the part of Mr King to secure a compromise. That correspondence was to no avail. On 8 September 1992, Mr Wall, who in the meantime had replaced Mr King as solicitor for the applicants, wrote to the Bank noting that it appeared that the Bank had allowed the proceeds of sale of Lot 13 to be paid directly to Mr Barry. Incidentally, it may be noted that the Bank at no stage appears to have advised the applicants that it had decided to allow the proceeds of sale to be credited to Mr Barry, or that it had credited further amounts in that way. Mr Wall asked certain questions of the Bank and requested copies of certain information. To this letter the Bank responded, saying that documents requested would be provided if the Bank's costs and expenses of complying were paid. On 3 November 1992, the applicants commenced proceedings against Mr Barry and the Bank in this Court in the Australian Capital Territory. It is unnecessary to refer specifically to the matters alleged in the pleadings. The Bank responded by alleging a default by the applicants under the facility entitling them to cancel the accommodation and requiring immediate payment of $96,000 and interest. It is not quite clear how this sum of $96,000 was calculated, since the balance outstanding in accordance with a bank statement as at 1 December 1992 was $110,574.69. On 16 December 1992, the sale of a further lot was settled for $50,000. The proceeds were again credited to Mr Barry. The consequence mathematically appears to be that, as at 24 January 1993, the anniversary of the registration of the plan of sub-division, the Bank had permitted to be credited to Mr Barry's account the sum of $145,963.16. It is the case of the applicants in the present proceedings that this amount was wrongly credited to Mr Barry as the Bank had an obligation, contractual or fiduciary, to ensure that moneys emanating from the sale of the sub-divided lots should be used to repay the borrowings from the Bank on the joint account for development costs. The Canberra proceedings in this Court were ultimately settled. Under the settlement Mr Barry paid to the applicants the sum of $30,000. He agreed further to sell Lots 5 and 7 in D.P. 815245 and pay the nett proceeds of sale to the applicants. It seems that the two lots were ultimately transferred directly to the applicants. The correspondence between the Bank and the applicants suggests that they agreed between them that the applicants would discontinue the proceedings, paying the Bank's costs. The order made by Neaves J, however, was an order dismissing the application. No point is made that in these circumstances any issue estoppel arose from that settlement. Thereafter almost two years elapsed before the present proceedings were commenced in March of 1995. In them, the applicants are represented by a firm of solicitors other than the firm which represented them in the proceedings which were discontinued against the Bank in 1993. There is no point in speculating as to the delay in bringing the present proceedings, or the reasons why the present proceedings were commenced, when the earlier proceedings had been discontinued. THE CASE IN CONTRACT As already mentioned, the applicants put their case primarily in contract. It is alleged by the applicants in their amended statement of claim that it was an express term of the finance agreement between the applicants and Mr Barry on the one hand, and the Bank on the other, that the Bank's facility was to be cleared from the sale of lots in the sub-division. In the alternative, it is submitted that there was an implied term of the agreement that the Bank would only grant partial discharges to enable lots to be sold on the basis that the nett proceeds of sale of each lot would be applied in reduction of the advance. The breach alleged is the act of the Bank in permitting proceeds of sale to be banked other than to the credit of the joint bank account of the applicants and Mr Barry, while moneys were outstanding to the Bank on the joint facility. For the Bank it is submitted there was neither an express nor implied term as alleged by the applicants, that the reference in Bank correspondence etc to the loan being cleared from the sale of lots was not at all part of the contractual relations between the applicants and the Bank, but if it were that it was a stipulation or condition for the benefit of the Bank which the Bank itself could waive. In support of the proposition that the provision that repayment of the advance from the proceeds of the sale of lots was not a contractual obligation, the following matters are put. First, it is said that neither Mr Alston nor Mr Hall had authority to bind the Bank, at least so far as a facility in the magnitude of that granted in the present case was concerned. That may be conceded. However, clearly, both Mr Alston and Mr Hall could act as agents for the purpose of communicating to those in the Bank with authority the offer to take the financial accommodation put by the applicants. This is what happened when Mr Hall conveyed to his superiors the terms of the offer. As so conveyed, the terms of offer included the stipulation that repayment was to be made from the proceeds of sale of the sub-divided lots. Next it is said that the terms of the contract conflict with the agreement that was actually concluded between Mr Barry and the applicants, subsequent, it must be said, to the making of the contractual arrangements with the Bank. It is said that it is inconceivable that Mr Barry would have acquiesced in an agreement with the Bank which took a form different from that which he had agreed (in fact was to agree subsequently) with the applicants and was disadvantageous to him, leaving him with a prospect of waiting indefinitely for his money. Behind this submission is the question of whether and how Mr Barry participated in the formation of the contract with the Bank. It seems from the evidence adduced that Mr Barry left the entirety of the negotiations in respect of the facility with the applicants. No doubt he did so because the applicants were putting in security for finance which Mr Barry himself had been unable to arrange. Also, the arrangement Mr Barry negotiated with the applicants ensured that he was to be indemnified against any liability to the Bank by the applicants. This was not, however, a matter known to the Bank. I find that in these circumstances Mr Barry constituted the applicants his agent for the purposes of negotiating the contract with the Bank and, to the extent that the contract arranged was different from that negotiated between Mr Barry and the applicants or was disadvantageous to Mr Barry, the Bank has no standing to complain. On the evidence, it is not at all surprising that the arrangement made by the applicants with the Bank took the form it did. Clearly, all of the applicants and Mr Barry assumed that the sub-division would be completed within eight months, and that all of the amounts borrowed from the Bank (which sum was not the totality of the obligations which the applicants were undertaking) would be paid out of the sale proceeds. No doubt it is this which explains the reason for the form of contract. It might be mentioned that the Bank appears never to have seen the actual agreement between Mr Barry and the applicants until, at the earliest, around June or July 1992. Having regard to the terms of the internal memorandum of 12 March 1990 which forms the basis of the offer conveyed by Mr Hall to his superiors for acceptance, and in accordance with Mr Terrence Golby's evidence, I find that Mr Terrence Golby told Mr Hall that the arrangement was that all development costs outlaid were to be repaid from the sale proceeds. Mr Terrence Golby was clearly asked by Mr Hall for an estimate of these costs and put the figure at $470,000. Thus when Mr Hall referred to all development costs being repaid from initial sales and added the words "Viz 470,000 rounded up to 500,000" he was not saying that only $470,000 or for that matter $500,000 was to be repaid from initial sales, but that all development costs were to be so repaid and that these were estimated to be in the vicinity of $470,000 to $500,000. Then it is said that the provision that development costs were to be paid out of the sale proceeds was not really intended by the applicants to be part of the contractual relationship with the Bank. It is suggested that the reference to repayment was a mere casual (and not contractual) observation. With respect, this submission can not be accepted. If the matter depends upon subjective factors, I would find that both of the applicants intended the requirement that the proceeds of sale be used to discharge the facility to be a contractual term and not a casual `throw away' observation. Objectively, it was a critical matter for the applicants that the moneys being borrowed, moneys which it will be recalled were to be used for the benefit of Mr Barry, the owner of the sub-division, be repaid out of the proceeds of sale of the sub-division. It was not the Bank that required the development costs to be paid out of the proceeds of sale, although it would, no doubt, have been desirous of some such a stipulation binding the applicants. Had it been the Bank, one might more readily have inferred that the provision about repayment was a stipulation for the benefit of the Bank. But in the present case, both in the conversations with Mr Alston and in the conversations with Mr Hall, it was Mr Terrence Golby and not the Bank who raised the important matter of repayment, not as a casual matter but, as Mr Hall himself understood when he wrote the internal memorandum forming the basis of the offer, as a term of the offer itself. Thus when the Bank came to make its formal offer, which may be said to be an acceptance of the applicants' initial offer, the Bank included as a term the requirement that repayment be out of the proceeds of sale not, as might normally be the case as a stipulation for its own benefit, but as a contractual term operating for the benefit of all parties to the contract. Accordingly, the Bank breached its contract with the applicants when it acted, as it believed it rightfully could, in its own interest rather than in the interest of one of its customers by favouring one of them to the exclusion of the others. Inferentially, there were two advantages to the Bank in taking this course. First, it was faced with an aggressive solicitor in Mr Agnew and a rather less aggressive solicitor in Mr Ahern, so that the Bank could no doubt see advantages to itself in going along with the interests of Mr Barry rather than the interests of the applicants. Secondly, there is little doubt that in its dealings the Bank was very conscious of the advantages to it of the Barry connection with the firm of estate agents with which relatives of Mr Barry were involved. Although I would stop short of finding as a fact that this matter definitely influenced the Bank in siding with Mr Barry at the expense of the applicants, such an inference is clearly open on the facts. Then it is said that there is not to be found in the evidence an undertaking on the part of the Bank that the Bank would adopt a regime for repayment of the loans that would be to the benefit of the applicants and the detriment of Mr Barry. Such a direct term can not be found. Indeed, it would be absurd to suggest that such a term would have been agreed to by the Bank. But that is not to derogate from the conclusion that the Bank contracted with the applicants on the basis that the loan was to be repaid from the proceeds of sale of allotments and that it then acted in breach of that contract. Then it is said that in any event the applicants could not rely upon the contractual term with the Bank so as to establish a breach because the applicants had themselves been in breach of their contract with Mr Barry, that that breach had not been waived and in consequence that the Court should not permit the applicants to have the benefit of their breach of the contract with Mr Barry. Reference is made to the fact that under the agreement with Mr Barry, the applicants were required to complete the sub-division within an eight month period. They did not, and in the result it is said the applicants were in breach of that contract. It is said that nothing in the correspondence or other evidence to which reference has already been made constitutes a waiver of that breach so that Mr Barry was entitled to damages against the applicants. Thus the applicants were seeking to claim a benefit flowing from their own breach and this they could not do. No authority was cited for the application of such a rule in a circumstance such as the present. No doubt there will be circumstances where the Court will ensure that a plaintiff can not benefit from its own breach of contract. But no such principle is applicable here. The only relevant contract is the contract between the applicants (and Mr Barry on the one hand) and the Bank. It is hard to see why the fact that the applicants may have been in breach of their agreement with Mr Barry, an agreement entered into subsequently to the agreement with the Bank, albeit related to that agreement, should excuse the Bank from performing its bargain with the applicants. Thus, I find that although the applicants were subject to any waiver in breach of their agreement with Mr Barry in failing to complete the sub-division in the eight month period, that matter is irrelevant to the contract with the Bank. I do not therefore find it necessary to reach a conclusion as to whether the evidence before me sufficed to constitute a waiver of that breach. Certainly Mr Barry never took any proceedings against the applicants for breach and indeed settled proceedings against himself, not necessarily to his own benefit. Having found that the Bank was in breach of the contractual arrangements with the applicants, there arises then the question of the damages which the applicants have suffered. But for the settlement with Mr Barry this would have been simple. The damages would in essence be calculated by reference to what would have happened had the Bank performed its contract. In this event amounts totalling $145,963.16 would have been paid into the joint account on or by 16 December 1992. That account would, in the result, have been in credit, with the consequence that the Bank would have been owed no money thereafter in respect of the joint borrowing and the applicants would have been entitled to a discharge of their securities, so far as those securities related to the joint borrowing.
The settlement with Mr Barry is a complicating factor. For the Bank it is submitted that the consequence is that the applicants have not demonstrated a loss. The argument is that the damages claimed against the Bank must be equal in value to the claim which the applicants had against Mr Barry. The submission is fleshed out in written submissions as follows: "4. If the applicants' loss may be greater or less depending on their liability to Barry, it follows that the primary damages claimed against the first respondent must be equal to their claim against Barry. To explain this in more detail: (1) Barry contended, with considerably justification, that he had become entitled to a distribution. If he was correct and the first respondent credited the proceeds to him, it may have been in breach of the alleged term of the loan agreement; however, the payment to Barry would discharge the Golby's obligation to Barry. (2) On the same assumption, if the first respondent paid the proceeds to the Golby, they would have been in breach of their contract with Barry and would have been liable to account to him for everything they received, up to the limit of his entitlement. (3) Thus, the only payments to Barry that would occasion loss to the applicants would be payments over and above Barry's entitlement. In [sic] there were any such payments, the applicants could claim that amount of them from both the first respondent and Barry. The amount of each claim would, of course, be the same. (4) If Barry was incorrect in his claim and he had not become entitled to a distribution, then, as the Golby, Golby and Barry account had not been cleared, the first respondent would have been in breach of the alleged term of the loan agreement, and Barry would have been liable to account to the applicants for everything he received, up to the limit of their entitlement. Again, the applicants could claim that amount of any payments from both the first respondent and Barry, and again, the amount of each claim would necessarily be the same. 5. Once it is accepted that the Golby's primary claim for damages against the first respondent must be equal to their claim against Barry, it follows that any payment that extinguishes or diminishes the amount of their claim against Barry correspondingly extinguishes or diminishes any damages they have suffered as a result of the first respondent's payment to Barry. If they settled their claim against Barry for its true value, they have suffered no loss. To establish loss, they must show: (1) That they settled their claim against Barry for less than its true value; and, in that case (2) That they acted reasonably in doing so. (Obviously, they could not make a capricious settlement with Barry and then claim the balance from the first respondent.) The applicants have not shown these things. 6. Another, and perhaps simpler, way of making the same point is to consider the position if the first respondent had paid the disputed proceeds into a suspense account. It is accepted that, if it had done this, the applicants would have been left to dispute the matter with Barry and would have had no claim against the first respondent. The question that must be asked is, are they worse off as things have happened? The answer is, probably not. They probably would have been involved in litigation with Barry, either as applicants or respondents; they probably would have incurred much the same costs; assuming the settlement to have been considered and bona fide, they probably would have achieved more or less the same result. Of course, it is possible that they are worse off, in a way not immediately apparent. But if that is what they contend, they must show how and to what extent they are worse off, and they have not done so." The argument is based on a premise which experience shows to be false. While A may settle a claim against B for a monetary amount, it does not follow that the claim is equal in value to the monetary amount. Extrinsic factors intrude upon the relationship between the claim and the consideration. For example, a party may settle for any sum rather than litigate out of fear of litigation. While it is true that a bona fide compromise of litigation will be seen as having been made for full value, that is because an element of the compromise is to be found in the mutual releases. It is not because of an equivalence between the value of the claim and the monetary value of the consideration passing: cf Attorney-General v Kitchin [1941] 2 All ER 735. However, it is clear that the effect of the settlement must be taken into account in determining the damages to which the applicants are entitled. The $30,000 cash payment may readily be subtracted from the damages. But the two lots now held by the applicants must likewise be taken into account. Thus it must be a condition of relief that either the lots be sold and the balance, net of expenses, paid to the Bank or that the two lots be transferred to the Bank. Which course should be taken will be at the option of the Bank. MISLEADING CONDUCT AND NEGLIGENT MISREPRESENTATION The pleadings raised in the alternative a case against the Bank alleging that the Bank had made representations to the effect that clearance of the advances would come from the sale of the lots, and that in so doing it had engaged in conduct which was misleading and deceptive in breach of s52 of the Trade Practices Act because the representations made were untrue. Alternatively, the representations are said to have been negligently made, resulting in damage to the applicants. As counsel for the Bank pointed out, the difficulty for the applicants of a case so framed is that it must be shown that at the time the representations were made they were untrue whether the case is pleaded in negligence or under the Trade Practices Act. Even if it be correct to characterise the provision for repayment as being a representation of the Bank, there was no suggestion, other than that the Bank intended that the advances would be repaid out of the sale of the lots. For this reason the claim, whether in negligence or based on the Trade Practices Act, must fail. It is unnecessary to consider whether the provisions of s51A of the Trade Practices Act would improve the applicant's case by placing the onus upon the Bank. It would defy logic to hold that at the time the alleged representation was made, the Bank intended some other source of repayment of its advance to be used. The proceeds of sale were clearly intended by all parties to be the source from which the Bank was to be repaid. An alternative case based on representation is also sought to be made. It is submitted that the Bank represented in April and June 1992 that it, inter alia, would not attend future settlements unless authorities to release security documents were signed, inter alia, by the applicants. It is true that the Bank in correspondence said that. It is hard to see, however, that in so saying the Bank was making a representation intended to be acted upon by the applicants. In any event it is difficult to see why what was then said was untrue at the time it was said. Further, it is impossible to say that any relevant reliance led to damages suffered by the applicants. It remained always open for the applicants to enjoin the Bank from the course which the Bank adopted and this is an opportunity which the applicants themselves neglected to take. In my view the case as put, relying either upon negligent misrepresentation or upon misleading and deceptive conduct under the Trade Practices Act must fail. BREACH OF FIDUCIARY DUTY The final way in which the case was put was based upon breach of fiduciary duty. According to the amended statement of claim, it is alleged that the Bank owed a fiduciary duty to the applicants which it breached in the following respects: "(a)Failing to tell the Applicants: (i) what Barry's indebtedness to the Bank was; (ii) the value of Barry's security; (iii) whether it was more advantageous to the Bank that Barry's indebtedness to it discharged before that of the Applicants; (iv) whether Barry was paying the Bank a lower rate of interest on borrowings that [sic] the applicants; (v) that the Applicants should have independent advice as to whether or not to bank at the same bank as Barry; (b) Acting in such a way as to favour or which might tend to favour one of its customers and/or itself as against the interest of the Applicants." It must be accepted that there will be cases where a bank would owe a fiduciary duty to a customer. One example is Commonwealth Bank v Smith (1991) 102 ALR 453. It cannot be deduced from that case, however, that in every transaction which a bank enters into with a customer the bank will be a fiduciary. Although, as Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96 suggested, the categories of fiduciary relationship are not closed, the relationship of banker and customer is not one of the accepted fiduciary relationships. It is not a critical feature of a banker/customer relationship that the banker undertakes or agrees to act for or on behalf of or in the interests of its customer in the exercise of some power or discretion affecting the interests of the customer in a legal or practical sense. When a customer defaults in the repayment of a mortgage, a banker is entitled to exercise the powers in the mortgage for the banker's own interest, at least so long as the banker acts in good faith in exercising the power of sale. Absent therefore some special feature, such as the giving of advice in Smith, there is no reason to erect a fiduciary relationship between banker and customer when that relationship is essentially one founded in contract. Even if a fiduciary duty did exist between a banker and customer, that duty could hardly extend to obliging a bank to convey information about the affairs of one customer to another customer, or for that matter to any of the matters pleaded as involving a breach of fiduciary duty. Where funds are lent by a bank to three persons jointly, as in the present case, and absent any agreement between the bank and its customers to the contrary, the bank will be obliged to act on the instructions of all of the joint borrowers. The bank can not act merely on the instruction of one of them. It could not, for example, be suggested if a cheque account were opened by two parties that the bank could, in the absence of a specific instruction, accept a cheque signed by any one of them for payment: Ardern v Bank of New South Wales [1956] VLR 569 and see The Law Relating to Banker and Customer in Australia, G.A. Weaver and C.R. Craigie, 2nd ed, Law Book Co, 1990 at paras 5.290 and 5.410. What the Bank can not do, in the absence of a contract providing otherwise, is to prefer one customer to another by acting on the instructions of one when to do so will be contrary to the interests of the others. But that is a matter not dependent upon any fiduciary obligation. It arises from the contractual obligations, express or implied, between a banker and its customer. I would accordingly declare that the Bank, in appropriating settlement moneys from the sale of the Abington Park sub-division to the account of Mr Barry rather than to the joint account of the applicants and Mr Barry in reduction of the indebtedness on that account, was in breach of the contract entered into between the Bank and the applicants. The applicants will be entitled to set off the damages to which they are entitled against the Bank against the amounts which they owed the Bank. Having regard to the need to resolve the question whether the two lots received by the applicants from Mr Barry are to be sold or transferred to the Bank, I would stand the matter over to the first Friday in the new term and direct in the meantime that counsel for the applicants prepare draft short minutes of order and discuss the proposed orders with counsel for the Bank prior to the matter coming again before me so that orders may be made to give effect to these reasons. The Bank will pay the applicants costs. I certify that this and the preceding forty-six (46) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Hill.
Counsel and Solicitors S L Walmsley instructed by for Applicants: Blessington Judd Counsel and Solicitors D H Murr instructed by for Respondent: L E Taylor Dates of Hearing: 28 and 29 October 1996 Date Judgment Delivered: 24 December 1996
Attorney-General
Kitchin
(1984) 156 CLR 41
(1991) 102 ALR 453