Australian and New Zealand Banking Group Limited v Aldrick Family Company Pty Limited & Ors

Australian and New Zealand Banking Group Limited v Aldrick Family Company Pty Limited & Ors - [2010] NSWSC 1000 - NSWSC 2010 case summary — Zoe

CATCHWORDS : Banker and customer - ANZ seeks to recover the moneys owing from the defendants pursuant to agreements, guarantees and/or mortgages of land given by the defendants - ANZ also seeks orders for possession of various mortgaged properties - Defendants seek relief from their obligation to pay ANZ because of a claim for damages and various other relief claimed including breach of a duty or contractual term of confidentiality, unconscionability, unconscionable or misleading or deceptive conduct under the Trade Practices Act 1974 (Cth), and the Contracts Review Act 1980 (NSW) - ANZ discloses confidential information of customer to competitor seeking to have customer placed into liquidation - ANZ does not dispute that, in substance, ANZ employee conveyed to competitor that ANZ had concerns about group's present financial condition and that ANZ was contemplating enforcing its security - Customer contends that the disclosure was a breach of the common law duty of confidentiality/secrecy owed by ANZ as a banker to its customer, a breach of a statutory duty not to disclose confidential information to third parties, a breach of an implied contractual term to the same or similar effect contained in each of the relevant agreements, guarantees and mortgages, and otherwise was negligent - Causation - Basic legal principle that plaintiff must prove its loss or damage was caused by the defendant's breach, whether the plaintiff grounds its case in contract, tort or statute - Causation a question of fact - Want of proper claimants - "Prudential principle", said to be derived from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, denies to members of a company (a fortiori persons with more remote interests) the right to recover for themselves damages for wrongs done to the company, or damages reflective of damages suffered by the company. - Deeds - ANZ requires customers to enter into deed waving customers' rights in respect of the confidential information as a condition for ANZ advancing funds permitting customer to have access to legal advice in the ensuing litigation leading to winding up of customer group - Whether deed enforceable - Whether ANZ's conduct in requiring entry into the deed constituted unconscionable conduct in contravention of s 12 CC of Australian Securities and Investments Commission Act 2001 (Cth) - Whether s 12CC applies to present case - Whether defendants can claim relief under Contracts Review Act 1980 (NSW) in relation to deed - Whether defendants within exclusion contained in s 6(2) of that Act - Misleading or Deceptive conduct - Whether representations in question shown to be misleading or deceptive or likely to mislead or deceive at the time they were made - Whether relevant defendants demonstrated requisite reliance on alleged misleading and deceptive representations - Granting of relief under remedial provisions of Trade Practices Act 1974 (Cth) - Basal proposition that relief must be appropriate to any cause of action established

[6]

Abram v Bank of New Zealand (1996) ATPR 41-470 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635 Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 Bennett v Minister for Community Welfare (1992) 176 CLR 408 Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 Buckeridge v Mercantile Credits Ltd 147 (1981) CLR 654 C A Henschke & Co v Rosemount Estates Pty Ltd (2000) ATPR (Digest) 46- 199 Cameron v Qantas Airways Ltd (1994) 55 FCR 147 Canon Australia Pty Ltd v Patton (2007) 244 ALR 759 Cedric Constructions Pty Ltd v Elders Finance and Investment Co Ltd (1988) ATPR 40-879 Chappel v Hart (1998) 195 CLR 232 City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 Collins v Parker (Lee J, 11 May 1984) Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Coombs v Bahama Palm Trading Pty Ltd (1991) ASC 56-097 Cummings v Lewis (1993) ATPR (Digest) 46-103 David Ballard v Multiplex Limited (2008) 68 ACSR 208 CASES CITED : Ellison v Vukicevic (1986) 7 NSWLR 104 Ford v Perpetual Trustees, Allsop P and Young JA, Sackville AJA Harris v Milfull (2002) 43 ACSR 542 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1998) 39 FCR 546 Holman v Deol [1979] 1 NSWLR 640 Hurley v McDonald's Australia Ltd (2000) 22 ATPR 41-741 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 Jones v Dunkel (1959) 101 CLR 298 King Mortgages v Satchithanantham; Cash King v Satchithanantham [2006] NSWSC 1303 Kowalczuk v Accom Finance Pty Ltd (2009) 252 ALR 55 Lander v Trigger [1999] NSWSC 1253 Lonrho PLC v Fayed (No. 5) [1993] 1 WLR 1489 McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2001] FCA 1056; (2002) 122 FCR 110 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 Qantas Airways Ltd v Cameron (1996) 66 FCR 246 Shire of Gingin v Coomb [2009] WASCA 92 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Thomas v D'Arcy [2005] 1 Qd R 666 TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 Tsolakkis Nominees Pty Ltd v National Australia Bank Ltd (Unreported, Court of Appeal of the Supreme Court of Victoria, 4 June 1998) (1998) BC 9802334) Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388

[78]

22 From about March 2005, SSMA and APM were involved in a series of disputes in relation to the Stage 2/3 Contract which ultimately led to the winding up of SSMA by a company associated with Mr Robinson, TS Recoveries. The history of these disputes is usefully summarised in the judgment of Barrett J in TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1410 at [4] to [89]. 23 On 18 June 2006, Mrs Brighton and Mr Brighton defaulted under the Sixth Agreement. 24 On 30 July 2006, SSMA defaulted under the First Agreement, AFC defaulted under the Second Agreement and the Third Agreement and Brighton Associates defaulted under the Fourth Agreement. 25 On or about 1 September 2006, ANZ's file relating to the loans was transferred to Mark Hancock of ANZ's lending services division to consider an "exit strategy". That is, about this time, ANZ had decided not to make any further loans to companies within SSMG and wanted all existing facilities repaid. 26 On 11 September 2006, Waterway Constructions assigned a debt owing by SSMA to it (in the amount of $198,414.70) to TS Recoveries. 27 On 12 September 2006, TS Recoveries served a creditor's statutory demand on SSMA in respect of this debt. 28 On 25 September 2006, Mr Robinson rang Mr Hancock and had a conversation during which Mr Hancock mentioned to Mr Robinson that SSMA was an "exit account" and that ANZ was at that moment considering "the best way to enforce our security". 29 On 28 September 2006 (before the expiry of the creditor's statutory demand), TS Recoveries filed an Originating Process in the Supreme Court of New South Wales seeking orders that SSMA be wound up on the grounds of insolvency (proceedings no 5092 of 2006) (First Winding Up Proceeding). On 3 October 2006, SSMA filed an Originating Process seeking to set aside the statutory demand. 30 On 4 October 2006, Brighton Associates defaulted under the Fifth Agreement. 31 On 5 October 2006, Mr Robinson swore an affidavit in the First Winding Up Proceeding, in which he deposed to the comments allegedly made by Mr Hancock during the conversation known as the disclosure and annexed a file note said to have been made by Mr Robinson immediately following that conversation. 32 In a letter from SSMA to ANZ dated 13 October 2006, SSMA made a number of allegations regarding the Disclosure and requested a response from ANZ. 33 ANZ does not dispute that, in substance, Mr Hancock conveyed to Mr Robinson that ANZ had concerns about SSMG's then present financial condition and that ANZ was contemplating enforcing its security - as was the truth. 34 On 17 October 2006, a directions hearing in the First Winding Up Proceeding was scheduled. The matter was stood over to 2pm on 18 October 2006. 35 On the same date, Mrs Brighton sought to instruct an experienced solicitor, Mr Peter Harkin of Collin Biggers and Paisley, solicitors, to assist SSMA in the First Winding Up Proceeding. 36 Collin Biggers and Paisley required SSMA to deposit $50,000 in to their trust account on account of legal costs before they would act for SSMA in the First Winding Up Proceeding. 37 Mrs Brighton requested ANZ to advance a further $50,000 to SSMA to fund the legal costs. 38 Critically, on 18 October 2006, ANZ's solicitors, Kemp Strang, prepared a deed in relation to the requested further advance and certain other matters. This draft deed was provided to Mrs Brighton and Mr Harkin, and amendments to the draft Deed were negotiated and agreed. 39 On 19 October 2006, SSMA, Brighton Associates, SSMQ, Manufacturing, SSMI, Mrs Brighton and Mr Brighton executed the deed and provided it to ANZ, who then provided the requested funding to SSMA. The hearing of the First Winding Up Proceeding was adjourned to 30 October 2006. 40 Pursuant to the deed:

[83]

iii. the parties to the Deed agreed that the Deed may be pleaded as a bar to any proceedings between the parties in relation to the subject matter of the Deed other than in respect of a breach of any provision of the Deed (clause 4.12). 41 On 1 November 2006, the First Winding Up Proceeding was dismissed by consent, subject to a number of undertakings by SSMA including an undertaking that it would no longer trade. 42 On 9 November 2006, Engwirda assigned a debt owing by SSMA to it (in the amount of $233,277.25) to TS Recoveries. 43 On 13 November 2006, TS Recoveries served a creditor's statutory demand on SSMA in respect of this debt. 44 On 15 November 2006 (before the expiry of the creditor's statutory demand), TS Recoveries filed an Originating Process seeking that SSMA be wound up (proceedings no 5834 of 2006) (Second Winding Up Proceeding). 45 SSMA admitted insolvency but alleged the Second Winding Up Proceeding was an abuse of process. This contention was rejected and on 7 December 2007, Barrett J made orders in the Second Winding Up Proceeding that a liquidator be appointed to SSMA. Ruling as to expert evidence 46 During the hearing the plaintiff contended that the proposed expert material sought to be adduced before the Court by the defendants was not relevant to a fact in issue. 47 The plaintiff's alternative submission was that the report by Mr Lonergan which has as its focus economic loss suffered by a group of companies, should be the subject of discretionary exclusion pursuant to section 135 as being misleading or confusing or by reason of the fact that its admission would cause or result in an undue waste of time. 48 The approach taken by the Court was to permit the evidence but only on the voire dire. The parties were to be permitted in final address to put forward submissions as to whether or not, and if so in what regard, the material would be permitted into evidence or rejected. 49 It is fair to say that the plaintiffs' approach put the following propositions:

[129]

iii. Where a corporation suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the corporation caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. 77 A useful summary of the relevant principles is provided by McDougall J in David Ballard v Multiplex Limited (2008) 68 ACSR 208 at [32]-[41]. 78 The defendants' response to the want of proper claimant contention was that they were claiming under sections 82 and 87 of the Trade Practices Act, which refer to a person who has suffered damage [s 87 also refers to a person who is likely to suffer damage but I do not think that changes the analysis]. It was said that this could be any person and thus the proper claimant contention was not of substance. 79 In this area, I accept the plaintiff's submission that there is nothing in s 82 that overrides the Prudential principle. As the plaintiff contended, the Prudential principle assists in identifying which entity has suffered loss and damage [and therefore must be considered when applying sections 82 and 87]. The plaintiff correctly drew implicit support from Harris v Milfull (2002) 43 ACSR 542, a decision of the Full Federal Court of Australia, which involved consideration of the Prudential principle in the context of deciding a claim under the Trade Practices Act [thus showing that the Prudential principle is not displaced in this context]. Examining the precise particulars of loss 80 It is appropriate to travel through each of the heads of loss particularised in paragraph 29. 81 In relation to the claim for wages by Mrs and Mr Brighton including superannuation referred to in paragraphs 29(a) and (b), the defendants conceded that there were difficulties with these claims in light of the relevant principle. Furthermore, as the plaintiff contended, these claims for wages are claims held against the relevant employer. If there is some causal relationship between the actions of ANZ and the inability of the relevant corporation to pay creditors (including the wages) that is not a loss separate and distinct from that suffered by the corporation. In any event, in evidence Mrs Brighton could not tell the Court which entity within SSMG allegedly owed these amounts to Mrs Brighton and Mr Brighton [T120.28]. Furthermore, Mrs Brighton said that, so far as the administrative work was concerned, her time was charged to Brighton Associates, which did not form part of SSMG [this appeared to constitute a concession because the defendants entire case was based on loss and damage caused to SSMG].

[130]

82 In relation to the claims for creditors' and outstanding consultants' fees and legal fees referred to in paragraphs 29(c), (d), (e) and (f), it may be as a matter of theory that the Prudential principle, as explained in the cases, would not prevent recovery of the payments actually made by Mrs Brighton pursuant to binding obligations to creditors. If this was the case, the relevant SSMG corporation would not have suffered loss because although legally obliged to pay creditors it would not have done so [relevantly however there is no evidence of what creditors have been paid by any SSMG corporations in liquidation or otherwise]. The question of whether this type of claim falls within the exception recognised by Lord Millett in Johnson at 67 or that recognised by McPherson JA in Thomas at [16] need not be examined, as there is no evidence of any payment to creditors by Mrs Brighton. Indeed, Mrs Brighton admitted that she had not paid the relevant creditors [T120.36-47]. Thus I cannot accept the defendants' contention that such promised payments which have not actually been made can be characterised as a legitimate loss suffered by Mrs Brighton. 83 In relation to the lost investments referred to in paragraph 29(g), the defendants' counsel abandoned the claims made in sub-points (ii), (iii), (iv), and (v). It was further conceded that there were probably difficulties with the remainder of subparagraph (g). In any case, Mrs Brighton conceded that all the assets (except for the Dubai office) mentioned were in fact owned by Brighton Associates as trustee for the Brighton Family Trust. That is, the assets were not owned (legally or beneficially) by any member of SSMG. Furthermore, all these assets had been sold and applied in reduction of debts owed by SSMG. The alleged office in Dubai was in fact that of a company, Super Yacht Marinas International, which did not form part of SSMG. Accordingly, none of the matters referred to in 29(g) were truly losses of SSMG [again this point appeared to be significant because the defendants' case was premised on loss and damage to SSMG]. 84 In relation to paragraph 29(g)(vii), being the claim for loss of reputation and credibility in the industry of Mrs Brighton, the plaintiff pointed out that a claim for loss of reputation or credibility can usually only be vindicated only through an action for defamation, relying on Lonrho PLC v Fayed (No. 5) [1993] 1 WLR 1489 and McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409. However, the plaintiff conceded that as indicated by Evans LJ at 1509 in Lonrho there is "the need to distinguish between loss of reputation in the defamation sense and loss of reputation which is synonymous with a loss of customer goodwill resulting in a loss of business which can therefore be measured in money terms". ANZ did not dispute the latter could be subject of an award for damages but submitted, correctly in my view, that the claim is that of the relevant SSMG corporation through which the business was transacted, rather than Mrs and Mr Brighton. Critically however, even if Mrs Brighton could claim for loss of reputation or credibility, the position would still be that such loss was not caused by the bank, and that such a claim would be barred by the deed. 85 In relation to the claimed loss of contracts and profits mentioned in subparagraph 29(h), such contracts and profits belonged to the relevant SSMG company [T125.10-24]. Thus they cannot properly be characterised as losses suffered by Mrs and Mr Brighton. Furthermore, Mrs Brighton conceded that the alleged Queensland Muddy Bay contract was no contract at all. Additionally, Mrs Brighton admitted that the intellectual property in relation to SSMG and its method of doing business as a whole was vested in Brighton Associates, which does not form part of SSMG. 86 More generally, the defendants/cross-claimants have failed to prove that the disclosure caused any company within SSMG to lose any economic opportunity. To take but one example, Mrs Brighton in her 2 October 2009 Affidavit at [315(b)] points to a project which she refers to as the "Port of Airlie 250 berth (involved from early stages) approximately $3.5 million", under the heading "Queensland contracts lost because of the liquidation of the Group". But the Court has before it the evidence of Mr Warwick Bible in his statement of 18 June 2010 - which was read without any challenge - to the effect that it was highly unlikely that a company within SSMG, whether in 2006 or later, would have been awarded a contract in relation to that project. 87 As has been made clear, the claims by Mrs and Mr Brighton, which seek as they do recovery of damages occasioned to SSMG, are inconsistent with the above outlined principles. Even if one were to assume the existence of an independent duty owed to Mrs and Mr Brighton, they have not shown that they suffered a loss separate and distinct from that suffered by the relevant corporations. The relevant losses (if any) were suffered by the relevant SSMG entity; the loss to shareholders was merely "reflective" of losses sustained by the corporation. Put another way, if the corporations had agitated a cause of action successfully, the relevant loss could have been made good by replenishment of the corporation's assets through action against ANZ. 88 For the reasons given above, I conclude that all of the claims for damages advanced by Mr and Mrs Brighton [as particularised in paragraph 29 of the Commercial List Cross Claim Statement] are simply not available to them. However, this does not dispose with the entire case since the defendants seek relief other than such damages. Accordingly, it is necessary to proceed to the next major issue of contention. The plaintiff's so-called deed contention 89 At the beginning of the hearing the plaintiff abandoned a mooted notion to have the deed question be heard first, before the rest of the proceedings. However, that issue remains central to the entire case.

[150]

(2) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of financial services to another person (the service recipient), the Court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the person is a corporation - the requirements of any applicable industry code (see subsection (11)); and (h) the requirements of any other industry code (see subsection (11)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the financial services with the service recipient; and (ja) whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (k) the extent to which the supplier and the service recipient acted in good faith. … (4) A person is not taken for the purposes of this section to engage in unconscionable conduct in connection with: (a) the supply or possible supply of financial services to another person; or (b) the acquisition or possible acquisition of financial services from another person; merely because the person institutes legal proceedings in relation to that supply, possible supply, acquisition or possible acquisition or refers a dispute or claim in relation to that supply, possible supply, acquisition or possible acquisition to arbitration.

[153]

(6) Subject to subsection (8), a reference in this section to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is or would be for the purpose of trade or commerce. …. (11) In this section: … listed public company has the same meaning as it has in the Income Tax Assessment Act 1997. Does s 12CC apply? 99 I note at the outset that s 12CC will prima facie apply because ANZ in advancing the $50, 000, was supplying "financial services": [See the combined effect of ss 12BAA(1) and (7)(k) (definition of a financial product includes a credit facility), ss 12BAB(1) and (7)(a) (financial services includes a dealing in a financial product, which includes applying for or acquiring a financial product) and regulation 2B of the Australian Securities and Investments Commission Regulations 2001 (which expands the meaning of a credit facility for the purposes of s 12BAA(7)(k) to include a provision of credit, which includes any form of financial accommodation)]. 100 I further note that s 51AC of the TPA may also apply, but this will not change the analysis since the two sections are substantively identical. As to this point, see generally Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at [30] wherein it was noted that s 12CC was intended to operate as a "mirror" provision to s 51AC. I will thus refer to s 12CC but this can be taken as also referring to s 51AC. 101 It is uncontroversial that in executing the transaction that resulted in the deed, ANZ was a corporation, acting in trade or commerce. It is also uncontroversial that the relevant services were provided to a person other than a listed public company [since all of the SSMG entities were proprietary companies]. 102 In applying s 12CC, the question arises whether ANZ was acting "in connection with the supply of financial services". Subsection (6) requires that the reference to the supply of financial services be read as a reference to the supply of financial services to a person whose acquisition of the financial services "is … for the purpose of trade or commerce". Thus for ss 12CC to apply, the relevant persons [namely, SSMA, to whom the funds were advanced] must have acquired the services "for the purposes of trade of commence".

[156]

105 It has been judicially noted that the clear purpose of s 51AC is to protect small business in their dealings with "big business": Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2001] FCA 1056 at [259], approved on appeal: (2002) 122 FCR 110 at [116]. This point applies equally to s 12 CC, since it was intended to operate as the "mirror" provision of s 51AC and thus authority on s 51AC assists in the interpretation of s 12CC: see National Exchange at [30]. 106 In the present case, the transaction in question was entered into by the non-ANZ parties in order to fund legal representation to resist winding up proceedings against SSMA [the relevant funds being advanced by ANZ to SSMA as consideration for entry into the deed]. Applying Kowalczuk at [188] - extracted above - the relevant question is whether this further activity, namely resisting winding up proceedings, was of a trading or commercial character. It is true that applying the High Court's comments in Concrete Constructions (extracted above), some doubt arises as to whether the relevant activity was of a trading or commercial character. 107 This reflects that resisting winding up proceedings is not an activity that prima facie has a core trading or commercial character, and instead is an activity which corporations may incidentally engage in the course of carrying on other trading or commercial activity. However, it must be remembered that those comments were made in the different context of s 52 and the different phrase there concerned. Thus the discussion in Concrete Constructions is not directly on point. 108 Further, in my view the fact that the SSMA sought to fund legal representation in order to resist winding up proceedings initiated by a commercial rival [with whom there was an ongoing commercial dispute], assists the argument that the transaction was entered into in order to further activity of a commercial character. Moreover and importantly, the phrase "for the purpose of trade or commerce" must be interpreted in a way that furthers s 51AC and s 12CC's clear purpose of protecting small businesses in their commercial transactions. In all of the circumstances, I conclude the deed transaction was entered for the purpose of trade or commerce, meaning s 12CC and s 51AC will apply. 109 In addition to the above analysis, I note that although it was not admitted on the pleadings, ANZ in its submissions assumed s 12CC and s 51AC applied to the deed transaction [arguing that there had been no contravention of the sections]. It is thus appropriate to now proceed on the basis that s 12CC applies. Assuming s 12CC applies, what is the meaning of unconscionability under the section? 110 In Canon Australia Pty Ltd v Patton (2007) 244 ALR 759, the Court of Appeal discussed the concept of unconscionable conduct that appears in s 51AC of the TPA. Campbell JA observed at [39] that relief might be available "in circumstances that do not involve unconscionability within the meaning of the unwritten law of the states and territories". A similar point was made by the Full Court of the Federal Court in Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 140 [30].

[217]

Q. So you can't recall? A. No. [at T187, 189] 133 It was Mr Brighton's evidence that Mr Harkin had clearly harassed him into signing the deed but he had so signed because he knew that by signing the deed he was assisting his wife who was actually begging him to do that. 134 Otherwise than this I formed the clear impression that his recollections were so bad that the Court could not accept his evidence save where it was corroborated by contemporaneous written material or by the evidence of others whose recollections could be accepted as correct. Considering the various factors contained in s 12CC (2) in order to determine whether ANZ's conduct was unconscionable S 12CC 2(a) The relative strengths of the bargaining positions of the supplier and the service recipient 135 Both Mrs and Mr Brighton were legally advised. 136 In relation to Mrs Brighton, the advice provided by Mr Harkin is evidenced in an internal file note dated 18 October 2006, authored by him (Exhibit P3, page 23). There is also a letter of advice dated 20 October 2006, but this is strictly not relevant to the present inquiry as it post-dates the execution of the deed. The file note of 18 October records that Mr Harkin advised Mrs Brighton she could not accept ANZ's offer of funding and reserve her right to actions against the Bank [Mr Harkin further advised that in his view this option was potentially too costly given the relevant financial circumstances she faced]. On this basis I reject the defendants' submission that there was no opportunity for Mrs or Mr Brighton to obtain proper advice because the advance of the loan funds was a pre-requisite to obtaining legal advice from Mr Harkin. 137 I reject the defendants' submission that the advice of Mr Harkin can be impugned for want of independence because he was improperly motivated by the incentive for the $50, 000 to be advanced, and therefore for the defendants to enter the deed. The evidence before the Court simply does not support such a contention. 138 In relation to Mr Brighton, in cross-examination it emerged that he had become thoroughly distressed in his conversations with Mr Harkin. Essentially it was Mr Brighton's clear view that Mr Harkin had harassed him, and Mr Brighton testified that after a telephone conversation on the afternoon of 18 October 2006 they were no longer on speaking terms: T191.03-10. Mr Brighton deposed that he repeatedly stated on the telephone to Mr Harkin words to the effect of: "I don't fully understand what is going on. I have tried to interpret the meanings but without absolute success". Ultimately, however, several factors point against a finding that Mr Brighton suffered from reduced bargaining power in relation to ANZ. Specifically:

[223]

"…This instance of a Jones v Dunkel inference ( Jones v Dunkel (1959) 101 CLR 298), also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." ( Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing). 141 Notwithstanding the fact that the so-called rule now under discussion must always be very carefully monitored I am of the view that it was important for the defendants to call Mr Harkin, or to have explained his absence from the witness box. He was the one person who dealt with both Mr and Mrs Brighton through the period during which the deed was entered into. He would likely have been an important witness and I do not accept that the failure to call him may be explained by suggesting that there was no reason to call him by reason of the contemporaneous documents before the Court. 142 ANZ has thus succeeded in establishing that Mrs and Mr Brighton were competently advised by Mr Harkin. However, it does not necessarily follow that, as ANZ contended, the parties should automatically be considered of equal bargaining power. The clear picture that emerges from the evidence is that the commercial imperative for SSMG to fight the winding up proceedings resulted in Mrs and Mr Brighton having reduced bargaining power, in that they felt that the only commercially viable option was to accept the offer of funding and the deed. Notwithstanding this, I reject the contention that ANZ can be blamed for bringing about the situation of reduced bargaining power. As the analysis in relation to the so-called causation issue shows, it was the concerted campaign of Mr Robinson, and not the disclosure by ANZ, that ultimately placed SSMG in the perilous position it faced. S 12CC 2(b) Whether as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier 143 The relevant inquiry here is essentially whether the conditions imposed by ANZ - in the form of the release contained in the deed - were disproportionate to the consideration that it offered in the form of an advance of $50, 0000 to SSMA, in all the circumstances. 144 Here the defendants drew on the fact that ANZ did not require any further security for the advance but instead required entry into the deed as consideration. However, in my view this was not to the point since the bank had a fixed and floating charge over all the assets and undertakings of the relevant entities. Even if this be wrong, the defendants did not take the Court to evidence of further equity being available to the bank (a contention put forward by their counsel): T274.5. 145 The risk borne by ANZ in entering the deed transaction must be borne in mind. ANZ was advancing funds to assist even though it was essentially very reluctant to provide further funds to SSMG: see T77.35-79.08. ANZ had already transferred the SMMA loan account to its portfolio management department due to existing defaults, and had sent Mrs Brighton a letter dated 1 September 2006 to this effect. Plainly, ANZ was taking a risk that it would not be able to recover the further advance, a risk which indeed materialised. Additionally, in entering the deed ANZ wanted confirmation of the continuing efficacy of its securities - an end secured by the Deed which also necessarily involved a surrender (as a part of the bargain) from any action which may be relied upon to impugn those securities.

[226]

151 As outlined above, Mr Brighton had a serous inability to recall the events in relation to the deed. In that circumstance, some reliance must be placed on the evidence of the contemporaneous letter Mr Brighton sent to Mr Harkin in which Mr Brighton asserted he had a "fundamental understanding" of the Deed. Ultimately, it has not been shown that Mr Brighton was unable to understand the deed. S 12CC 2(d) Whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient by the supplier? 152 The focus in this part of the case is on any conduct of ANZ and its agents towards SSMG and its agents that constituted undue influence or pressure, or unfair tactics. 153 Thus the fact that Mr Brighton felt pressure to sign the deed from either his wife, Mrs Brighton, or from his solicitor Mr Harkin, his solicitor, is not relevant. 154 It must be borne in mind that the urgency with which the funds were required and the deed was entered into, which the defendants drew on, was not the making of ANZ. In truth, such urgency came about because SSMA was required to appear in Court on 17 and 18 October 2006, and the solicitors whom Mrs Brighton sought to engage to assist, made it clear that they would not act in the matter or retain counsel unless $50,000. 155 It may be possible to allege that ANZ did not create but nonetheless impermissibly took advantage of the time-pressured circumstances in which the defendants found themselves. However, in my view no such finding is possible in the all of the circumstances. As outlined above, Mrs and Mr Brighton both received competent legal advice and understood the transaction documents, and the consideration obtained by ANZ cannot be regarded as not reasonably necessary for the protection of its legitimate interests. S 12CC (2)(e) The amount for which, and the circumstances under, the service recipient could have acquired equivalent services 156 It seems relevant that given the financial situation of SSMG it was unlikely to have obtained equivalent funding from another supplier, with whom it did not have the ongoing relationship and bargaining power resulting from the disclosure that it had with ANZ. S 12CC 2(j) The extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the financial services with the service recipient 157 It is true that as the defendants contended, ANZ was not willing to advance the loan funds unless the deed was entered into. However, ANZ was in other significant ways willing to negotiate the terms of the deed [indeed at least two drafts of the deed were prepared]. Specifically, ANZ:

[235]

167 In relation to Mr Brighton, on his own account he had a substantial involvement in the SSMG group over a number of years, including in the period covering the execution of the deed. He had taken a leave of absence of some 14 months in around 2004 in order to work with the SSMG. He intended to join the SSMG in a full time role in 2006. Mr Brighton also had a 50% shareholding in Brighton Associates, which in turn owned 100% of SSMA. When regard is had to these factors, the correct conclusion as a matter of substance is that Mr Brighton entered the deed either in the course of, or for the purpose of, the trade, business or profession he was carrying on, or proposed to carry on, through SSMG. Thus he is also not entitled to relief under the CRA. 168 In the event that the above be incorrect, and the CRA has application, it would be necessary to consider whether the deed is an unjust contract under s 7(1), having regard to the matters in s 9(1) and (2). Due to the conclusions above reached it is strictly unnecessary to express an opinion on this question. However, were it so necessary, I would conclude that the deed was not an unjust contract, principally because of the reasons outlined above in relation to unconscionability under sections 12CC and 51AC. A relevant analogy 169 There is a limit to analogies in this area, but an example where relief was refused (in not entirely dissimilar circumstances) is useful and supports the conclusion reached in part of the case. In a case which would have been thought to be a far more suitable vehicle for statutory intervention, the Court of Appeal in Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 refused a claim for relief. Karam dealt with a claim where a company borrowed money from the bank, and the bank had taken certain guarantees and mortgages over the personal assets of the directors of the borrower company. The company ran into financial difficulties, and the directors requested further financial accommodation at a time when the company was in a perilous financial condition. Unknown to the directors, the bank had doubts about the enforceability of the original securities. To shore up its security position, the bank made the provision of further accommodation dependent on the directors executing additional documents including an acknowledgement. The acknowledgement was to the effect that the directors, having received independent legal advice and financial advice, acknowledged that the relevant guarantees and mortgages which had previously been granted (and in respect of which the bank had doubts) were always intended to secure payment of all liabilities of the company to the bank: (2005) 64 NSWLR 149 at [37] and [83]].

[237]

171 The trial judge had held that the original security transactions were unconscionable and that the acknowledgement should be set aside on grounds including, inter alia, economic duress and unconscionability. 172 The Court of Appeal held that in the circumstances of that case, the directors had not made out any economic duress or unconscionability claims. Accordingly, the security was enforceable by the bank. 173 Importantly, for present purposes, the Court of Appeal made the following points. 174 First, in relation to the concept of unconscionable conduct, the focus is on the unconscientious conduct of the stronger party, and the conduct will be treated as unconscionable only where the weaker party by reason of some condition or circumstance is placed at a special disadvantage vis a vis another and unfair or unconscientious advantage is taken of the opportunity thereby created [at 46]. 175 Secondly, the fact that one party is in financial difficulties, of which the other party is aware, will be relevant but not sufficient to establish unconscionable conduct on the part of the stronger party. Something more is required and may be sought in the terms of the particular transaction. However, even unusual terms will not necessarily demonstrate taking unconscientious advantage of the situation of the weaker party. The greater the financial risk, the greater the justification for increased security [at 68]. 176 Thirdly, the situation arose because the transaction in question involved the grant of an indulgence or a new right on condition that an existing dispute was settled [at 67]. 177 Fourthly, the directors understood the nature and effect of the action they were taking and took it because they understood it was necessary in order to obtain further financial accommodation, essential to the continued operation of the company [at 92]. 178 Fifthly, the perilous financial circumstances of the company were not the bank's doing so there was no basis for saying that the bank, in the legal sense, subjected the directors to pressure. Rather, it was the directors who were seeking that the bank provide additional credit, without which the company would have to cease trading. The bank was under no obligation to extend the credit facilities already granted, nor to do so without securing its own position [at 95]. 179 Sixthly, the finding by the trial judge that illegitimate economic pressure was imposed by the bank was not supportable [at 96]. A finding of unconscionable conduct could not be found absent a finding that the victims suffered from a "special disability" or "special disadvantage" in the sense identified in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. 180 Seventhly, the trial judge erred in treating the parlous financial state of the business as itself a form of illegitimate pressure and failed to recognise the fact that the directors had received financial and legal advice, provided by persons who had relevant experience and having the relevant materials available to them and having the time they required to consider the material [at 123]. 181 These observations in Karam supports the finding in the present case that no unconscionability occurred in the obtaining of the Deed in the present case for the following reasons:

[286]

iii. Additionally, it does not appear to be pleaded that any of the remaining defendants have suffered loss or damage as a result of the disclosure [rather, the pleading appears to be confined to damages suffered by Mrs and Mr Brighton and other SSMG entities]. Furthermore, the plaintiff conducted its case on the basis that only Mrs and Mr Brighton pressed a claim for damages and this did not seem to be disputed by the defendants. 202 It follows that the remaining defendants cannot succeed on any of the contentions put forward in this part of the case, and it is unnecessary to treat with them in further detail. On the pleadings, damages are the only part of the relief claimed that could potentially be available in this area of the case, since the remaining relief is claimed under the remedial provisions of the TPA which are not engaged in this area of the case (there being no allegation of a contravention of the TPA in this area). The claim based on misleading or deceptive conduct 203 The argument in this area proceeded with reference to the TPA provisions and accordingly I will proceed on that basis, although I note that equivalent provisions in the ASIC Act, relating to financial services, may apply. 204 There are two overarching reasons why this claim must fail. 205 Firstly, it simply has not been established that the representations in question were misleading or deceptive, or likely to mislead or deceive, at the time they were made. It is well established that where a misrepresentation is relied on in support of a claim under s 52 the relevant time for testing the character of the representation complained of is at the date of the making of the misrepresentation and not with the benefit of hindsight [Cedric Constructions Pty Ltd v Elders Finance and Investment Co Ltd (1988) ATPR 40-879 at 49, 539; C A Henschke & Co v Rosemount Estates Pty Ltd (2000) ATPR (Digest) 46- 199]. In determining whether a person had reasonable grounds for a representation, it is necessary to judge the matter as at the date of the representations [Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513; City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 at [83] per Mason P].

[289]

Evidence of reasonable grounds may be established by evidence other than that of the persons who are alleged to have made particular representations as to a future matter. Indeed, as in so many other areas, a Court may find the overall probabilities to which the circumstances of a given case give rise, the background to it and the conduct of parties prior to conversations taking place as providing better guides to whether or not they had particular states of mind or whether particular factors existed which would establish evidence of something such as reasonable grounds. 208 In the circumstances of the present case, it is clear that the manifest intention of ANZ at the time of entry into the relevant transactions was to pay regard to obligations of confidence. This is clear from the contractual documentation and from the nature of the banker-customer relationship. All the evidence tendered points in the same direction. ANZ regarded the confidentiality obligations, which are an ordinary incident of the banker-customer relationship, as important and incorporated such obligations in the contractual documentation it had with its customers. Irrespective of whether there was a subsequent breach of these obligations, there is no basis (let alone a reasonable basis) to contend that at the time representations were said to be conveyed concerning this matter that those representations were in any way misleading or deceptive. This is a complete answer to this part of the remaining defendants' case. 209 The second overarching reason why the misleading and deceptive conduct claim must fail is that the remaining defendants have wholly failed to demonstrate the requisite reliance on the alleged misleading or deceptive representations. As Lockhart J noted in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No. 1) (1998) 39 FCR 546 at 558-559, recovery under section 52 is founded by the applicant's factual reliance on the misleading or deceptive conduct of the respondent. 210 Under cross-examination, Mrs Bowen conceded that when signing the guarantee she had not turned her mind to how the bank may or may not behave in the future as in respect of confidentiality: T211.13ff. Mrs Aldrick (who is infirm) was not cross-examined on the understanding that the defendants did not submit that she was not confronted with the same type of questions that were asked of Mrs Bowen: T212.27 211 It is true that both Mrs Brighton and Mrs Bowen deposed that they signed the relevant guarantees in the belief and expectation that ANZ would uphold relevant confidentiality obligations, and would not have signed without this belief. However, self-serving evidence of this type has limited weight and the duty of the Court is to have regard to whether or not a witness asserting reliance would have turned their mind to the alleged contravening conduct in embarking upon a particular course of action. Such evidence is somewhat analogous to the cautions given as to subjective evidence of reliance on a warning in negligence cases, as to which see Chappel v Hart (1998) 195 CLR 232 at 246 and 272, and Shire of Gingin v Coomb [2009] WASCA 92 at [79]-[80]. 212 It is apparent from the above that the remaining defendants have failed in relation to the claim based on misleading or deceptive conduct. The claims based on unconscionability 213 I turn first to the claim that the disclosure itself constituted unconscionable conduct in contravention of ss 51AB or 51AC of the TPA. It is important to remember that the disclosure occurred after the entry into the agreements, guarantees and mortgages: cf Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 per Brennan J at 675. Thus the disclosure cannot be said to have induced or otherwise affected those transactions. Accordingly, even if it were established that the disclosure contravened the relevant statutory standard, that finding could not support the relief sought by the remaining defendants. That relief is essentially that the ANZ be permanently restrained from enforcing the relevant agreements, guarantees and mortgages, and various orders pursuant to s 87 of the TPA which would have the effect that ANZ could not rely on the relevant agreements. [As outlined above, my understanding was that the claim for damages under s 82 of the TPA was not made by any of the remaining defendants]. Ultimately, the conclusion in this area reflects the elementary proposition that relief must be appropriate to any cause of action established. 214 There is a further reason why the defendants are not entitled to the relief sought. Under section 87 the discretion to make orders applies where "the Court finds that a person … has suffered … loss or damage by conduct of another person that was engaged in contravention" of certain provisions. The relevant case law establishes that the word "by" expresses usual notions of causation: see the discussion in Abram v Bank of New Zealand (1996) ATPR 41-470 at 41782-41783. As explained above, the conclusion is that the disclosure did not cause the loss or damage complained of by the remaining defendants. Thus even if it was established that the disclosure contravened ss 51AB or 51AC, the defendants would not be entitled to relief under s 87. Section 80, which would apply to the injunctive relief sought, does not contain the same limitation but in my view, as outlined above, the relief must be appropriate to the cause of action established, and thus I would refuse the proposed injunctive relief. 215 I turn next to the claim that the disclosure and ANZ's conduct in respect of it makes it unconscionable for ANZ to enforce the relevant agreements. In my view the defendants have failed to establish this claim, (I note that the defendants never articulated how and on what basis it was unconscionable for ANZ to enforce the rights in question).

At a glance

Court

Decision date

Before

Source

Judgment (294 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (29)

Cited By (4)