ALLSOP CJ:
1 The appellant, the Commonwealth Bank of Australia (the Bank), appeals from orders made by the primary judge for the payment of $636,796.47 in damages to the first and second respondents, plus costs. The order was made under s 82 of the Trade Practices Act 1974 (Cth) (the Act) consequent upon a conclusion that the Bank had engaged in conduct that was, in all the circumstances, unconscionable contrary to ss 51AB and 51AC of the Act. See Kojic v Commonwealth Bank of Australia [2016] FCA 368; 113 ACSR 220.
2 For the reasons that follow I would allow the appeal, set aside the orders against the Bank and in their place order that the application against the Bank be dismissed with costs.
3 The events directly in question took place in the first half of November 2009. They concerned the participation by Mrs Marija Kojic and her husband, Mr Dragutin Kojic, to the extent of $436,161.97, in a land development venture with the corporate vehicle of a person well known to them, Mr Smelisha Blanusa.
4 The Kojics first met Mr Blanusa in about 1980. In the years following, the Kojics had invested in property development ventures with Mr Blanusa. They had, by 2009, a close relationship. Mrs Kojic was the principal actor on behalf of herself and her husband in the events in question and as described below. To the knowledge of the Bank, she had experience as a property developer with her husband.
5 In October 2008, Southern Construction Services Pty Ltd (SCS), a corporate vehicle of Mr Blanusa and a business associate, Mr Smith, agreed to buy land at Old Reynella for $850,000; a deposit of $25,000 was paid. Settlement was initially scheduled for late March 2009. The property was purchased for the purpose of commercial development by subdivision into 14 individual housing allotments.
6 By the middle of 2009, settlement had not taken place. At this time, Mr Blanusa sought a suite of banking facilities with the Bank. The Bank's credit analysis in mid-June 2009 recounted that SCS had been operating for about eight years. It had commenced doing residential building construction, but had in the preceding 12-18 months diversified into more specialised commercial construction. Mr Blanusa, Mr Smith and SCS had banked principally with another bank (BankSA), though they had some business with the Bank. They desired to consolidate their borrowings. The approach to the Bank was to refinance the BankSA indebtedness ($920,000 personal and $500,000 business) and assist with the purchase of several properties (for $850,000 and $400,000).
7 The assessment of the relevant officer, Mr Steven Barnden (who was the relationship manager for SCS and Mr Blanusa and related parties) of the proposal was that the "servicing position [was] considered acceptable"; "[c]lients are in a comfortable financial position and have built up a sound equity base, which provides a strong security backstop and capacity to clear/reduce debts from sale of assets should it be required". There was a reference to the "account conduct [not having been] what we would prefer to see", but a recognition that "clients have been upfront with causes of this and explanations appear reasonable".
8 The refinancing took place in July 2009.
9 It is unnecessary to examine the financial position of Mr Blanusa and SCS in minute detail. The Bank was sufficiently comfortable with what they saw to provide overall facilities to the various parties of $2,796,297. This included facilities for persons related to Mr Blanusa and SCS, including a Mr Cotton, who had agreed with Mr Blanusa to take a 10% interest in the Old Reynella development for $90,000. This was formalised in a deed of assignment dated 30 June 2009.
10 Relevantly, on or about 22 July 2009, the Bank approved a loan to SCS for $480,000 to purchase the Old Reynella property. The security for this was a first registered mortgage over the property, a first registered charge over SCS's assets and undertakings, and a guarantee by Mr Blanusa for, and limited to, $480,000. Other borrowings (of $500,000) of SCS were also approved on that date and were secured on SCS's assets, other land and a personal guarantee of Mr Blanusa. The mortgage over the Old Reynella property secured not only the $480,000 loan, but also all indebtedness present and future of SCS to the Bank.
11 During the period from August to November 2009, there were further delays in settlement. The primary judge found at [26] of his reasons that Mr Blanusa and SCS had great trouble in finding the resources to pay the balance of the purchase price (of $436,161.97) (after taking account of the Bank's loan of $480,000) even with Mr Cotton's $90,000 contribution (which was paid in September).
12 At this point it is to be noted that the second respondent to the proceeding (the third respondent on the appeal), the conveyancer Mr McDonald, knew of Mr Blanusa's and SCS's difficulties in raising the balance of the purchase price. Mr McDonald was the conveyancer for SCS. The primary judge found (and there is no appeal from the finding) that Mr McDonald in due course also acted for the Kojics, through acting for Mrs Kojic.
13 By about October 2009, Mr Blanusa had told the Kojics about his plans for the Old Reynella property. He told them about Mr Cotton's 10% interest and that the Bank could finance only about 50% of the purchase price.
14 On 9 November, the vendors gave an ultimatum for settlement on 13 November. On the following day, Mr Blanusa showed Mrs Kojic the plans for the subdivision and asked her whether she and her husband would be interested in purchasing a half interest in the property. After Mrs Kojic spoke to her husband, who was working in Darwin, on 10 November, she told Mr Blanusa that they would provide 50% of the funds for a "50% interest in the property". She knew from earlier conversations that there was some urgency in meeting the settlement date required by the vendors and that it was soon approaching. In this conversation on 10 November, Mrs Kojic told Mr Blanusa that she would speak to Mr McDonald to find out how much she needed to pay for a half interest, and that she would speak to Mr Coombe (who was the Kojics' relationship manager at the Bank) to let him know of their decision to invest and to alert him to the need to arrange payment. During the conversation there was no discussion of the borrowings by SCS to finance the purchase, or of the nature of the security required by the Bank, although she knew that the bank could only finance 50% of the purchase. (Mrs Kojic, with her experience, however, could not have reasonably assumed other than that the Bank was lending half the purchase price on the security of at least a mortgage over the subject property.)
15 Mrs Kojic then called Mr Coombe on that day, 10 November. She told him that she and her husband had decided to invest in the property with Mr Blanusa in exchange for joint ownership of the property. She told him that Mr Blanusa was borrowing part of the purchase price from the Bank, that he could only get 50% of the purchase price from the Bank and that the Kojics would be buying the other 50%. She told him that they would shortly require a significant sum to purchase their half share. It is to be noted that the Kojics had banked with the Bank for many years and Mr Coombe had been their relationship manager since 2002. He and the Bank knew that they were dealing with people experienced in property development and that this investment with Mr Blanusa was another property development venture with him. Mr Coombe was not asked by Mrs Kojic to look into the proposal or to give any advice to her or them; he was being alerted to the transaction because a cheque would be soon required. The Kojics had available cash to fund the payment of over $400,000.
16 On that same day, 10 November, Mrs Kojic rang Mr McDonald, the conveyancer. She told him that she and her husband were purchasing a half interest in the property and requested copies of all settlement statements. She asked him about the amount she would need to provide. Mr McDonald then faxed the proposed settlement statements to Mrs Kojic.
17 On the following day, Mr Blanusa spoke to Mr McDonald and told him of the Kojics' involvement. Mr McDonald agreed to make enquiries with the Bank about the Kojics being placed on the title as co-owners. (It is to be recalled that settlement was but days away, which was either 13 November or the (yet again) rescheduled date of 17 November.) Mr Blanusa explained the equity split to Mr McDonald.
18 On the following day, Mr McDonald spoke to Mr Barnden who advised Mr McDonald that if the Kojics were to go on the title, the Bank would require changes to the security structure (being mortgages of their interest in the land and personal guarantees from them) which would not be possible by 17 November (if for no other reason than that the bank would need to examine their financial position).
19 Mr Barnden was aware that the Kojics were, and had been for some time, customers of the Bank. He knew (through Mr McDonald) they were proposing to take a half share in the property and that Mr Coombe was their relationship manager (just as Mr Coombe knew that Mr Barnden was Mr Blanusa's relationship manager). Mr Barnden, however, did not speak to Mr Coombe. There was no call for him to do so. In the light of the communication with Mr McDonald that the Kojics could not be placed on the title, he assumed (correctly) that the purchase was to go ahead in its current form. He passed the file to the Bank's settlements team. This ended his participation in the transaction. He did not concern himself with the balance of the settlement sum and assumed that whatever had been previously arranged was to go ahead.
20 On the same day, 12 November, Mr McDonald reported to Mr Blanusa that it would not be possible for the Kojics to be placed on the title by the settlement date. Mr Blanusa was not surprised and said he would speak to Mrs Kojic about it.
21 Mr Blanusa then spoke to Mrs Kojic and told her of the inability to put her on the title in time. (Given the tightness of time, it would seem reasonable to assume that Mr Blanusa's lack of surprise would have been shared by Mrs Kojic.) Mr Blanusa's evidence, which the primary judge accepted, indicated a conversation between him and Mrs Kojic at this time which was not strained, but one in which he told her of the Bank's unwillingness to alter the documents, made a joke about her being "ripped off" and in which they agreed to proceed with the settlement (now five days away). There was no discussion of the Bank mortgage in this conversation. Mrs Kojic remarked to Mr Blanusa that, despite the inability to be then placed on the title, the Bank (through Mr Coombe) knew that the property was to be half owned by the Kojics. The arrangement between them remained. The Kojics would provide half the purchase price and take a half interest in the property.
22 At this point, it is worth noting that as between the purchasers there could be no doubt that SCS would hold its nominal 90% interest on resulting or constructive trust for the Kojics as to 50%, holding only 40% beneficially for itself.
23 This conversation was important for the primary judge and is important for the Kojics on the appeal. The primary judge said (at [136] of his reasons) that Mr Blanusa "should have pointed out, but did not…, the extent to which the borrowings of the Blanusa interests were secured by the mortgage. He was aware of it. As an experienced property investor he should have understood its significance". At [137] of his reasons, the primary judge said that Mr Blanusa "gravely misled" Mrs Kojic by not telling her that the other borrowings of SCS secured by the mortgage left "no residual equity" in the property; though the judge accepted that Mr Blanusa may not have appreciated this. I will deal with the found ignorance of Mrs Kojic of the all-moneys nature of the Bank's mortgage in due course. But it is appropriate to say at this point, from the perspective of the Bank, that it would be entirely reasonable for the Bank to assume that experienced property developers (as the Bank knew the Kojics and Mr Blanusa to be) were well able to inform themselves about the nature and essential detail of critical aspects of the relevant arrangements. Why, it may be asked rhetorically, would not the Bank assume that Mr Blanusa and Mrs Kojic had discussed the nature of the Bank's intended first registered mortgage, the fact of which Mrs Kojic was aware on 12 November?
24 On that day (12 November) or possibly the day after, Mrs Kojic called Mr McDonald and discussed the settlement statements. She said that she was not prepared to pay any of the default interest shown in the statements. In this conversation, Mr McDonald also told her of the Bank's inability to put her on the title in time if the settlement date was to be held. Mrs Kojic replied that this was acceptable as they could be put on the title in due course. After she said that, Mr McDonald told Mrs Kojic that the Bank's mortgage was over the whole of the property. The primary judge accepted that this was said: see [142] of the reasons - but found that he did not tell Mrs Kojic that the all-moneys nature of the mortgage meant that it covered other borrowings of the Blanusa interests apart from the $480,000 Bank loan for the 50% of the purchase.
25 Mr McDonald sent a settlement statement dated 13 November to Mrs Kojic on 16 November when she was in Darwin. Accompanying this statement was a note which recorded that $480,000 was the loan amount from the Bank. This may have been the first time Mrs Kojic knew the precise figure of the lending, but she already knew of its approximate amount from the discussion with Mr Blanusa, and she knew that it was secured over the whole of the property by a first registered mortgage. The sheet also identified the amount of the Kojics' financial responsibility on the purchase: $436,161.97. In a brief conversation on 16 November, Mr McDonald reassured Mrs Kojic about the default interest payments not making up part of their share.
26 Mrs Kojic then called Mr Coombe and gave him instructions for the transfer of money to be made available for the bank cheque and to make the bank cheque available to Mr McDonald. Mr Coombe spoke with a Ms Aikman in the Bank to arrange for a cheque which he said was for a settlement being arranged for a client of Mr Barnden.
27 Settlement took place on 17 November 2009.
28 In February or March 2010, Mrs Kojic contacted a conveyancer (not Mr McDonald) to have her name put on the title and was informed that this would involve stamp duty of $50,000 to $60,000. She did not pursue the matter.
29 In late March 2011, the Bank moved to exercise its rights as mortgagee over the property. In April 2011 it took possession of the property and shortly thereafter sold the property for $975,000 (settlement taking place on 4 July 2011).
30 The financial history of SCS and the development of the Old Reynella property after 17 November 2009 were not the subject of investigation in the hearing.
31 The conclusion that the primary judge reached on the unconscionability of the Bank's conduct rested on the aggregation of the knowledge of Mr Coombe and Mr Barnden. I agree with Edelman J that his Honour erred in aggregating the knowledge in this way.
32 Lest it be thought, however, that the Bank has escaped criticism by the application of some technical rule, it is appropriate to explain why I disagree with the primary judge's conclusion as to unconscionability, even if (contrary to principle) the Bank is to be fixed or attributed with a composite or aggregation of what Messrs Coombe and Barnden knew. I will come to the meaning of unconscionability and the proper approach to the evaluation of conduct as to whether it is unconscionable in the statutory sense shortly. Suffice it to say at this point, the task requires a careful weighing of all attendant circumstances.
33 Turning to the knowledge of Mr Coombe first, it is critical to appreciate the context in which he received knowledge. He and the Bank was, and were, not asked for a facility by the Kojics. They had available cash to put into the commercial venture in which they had decided to participate. Mr Coombe was told of their participation (a half interest in the property to be developed) in the context of being asked to arrange for a bank cheque. He was not asked for advice; there was no occasion for him to think that advice was required; his customers were business people who were engaging in a commercial transaction of the kind which was familiar to them; he did not assume any responsibility to attend to the Kojics' interests in the transaction.
34 Mr Coombe knew what he was told in the conversation in [15] above, and the short conversation on the day before settlement: [26] above. He knew that Mr Blanusa and SCS were customers of the Bank and that Mr Barnden was their relationship manager. But Mr Coombe and Mr Barnden did not speak during the transaction. Mr Coombe assumed that the Kojics' payment would result in a 50% equity in the property. Mr Coombe was aware that the Bank was to finance half the purchase price but not that such was secured by a first mortgage securing other borrowings of the Blanusa interests.
35 Mr Barnden knew of all aspects of the transaction from the perspective of his customer SCS. As to the Kojics, he knew what is set out at [19] above.
36 The approach of the primary judge to the finding of unconscionability of the Bank is to be found in [183] to [190] of his reasons, as follows:
[183] The position therefore is that the CBA knew, at the time of the settlement that:
(1) its client, the Kojics, was making the Kojic payment to enable the settlement to proceed, but in the belief that their payment was as between themselves and SCS for one half interest in the property which SCS had available to it to provide;
(2) even though the Kojics knew that they would not be recorded at the time of settlement as the part registered owners, they did not understand that the CBA's first mortgage would secure not only the amount the CBA was advancing towards the settlement, but additional borrowings of the Blanusa interests from the CBA, so that in essence there was no residual equity in the property;
(3) the Kojic payment was therefore effectively an unsecured loan to the Blanusa interests.
[184] I also conclude that, if the Kojics had known the real practical nature and effect of their payment, they would not have made the Kojic payment. There was little cross-examination of Kojic to explore whether she would have made such an advance in the circumstances. No doubt, she would have denied that. But in any event, she would not have done so without inquiry about Blanusa's capacity to repay, and the only information she had (as exposed in the evidence) was that Blanusa had trouble paying for the balance of the purchase price.
[185] It follows that, as Coombe recognised by his evidence about what he would have done if he had understood the nature of the Kojic payment, the CBA was in a position where its interest (in the settlement proceeding and the proposed mortgage being registered) conflicted with that of its client. The submission of the CBA recognises that the rights of SCS were in play, but its submission as a corollary that the CBA may have been in breach of its contract with SCS if it declined to advance its $480,000 is specious. It would have advanced the funds if SCS could otherwise settle. SCS could not otherwise have settled. The settlement would not have proceeded, because SCS had no resources (other than the Kojic payment) to enable it to do so.
[186] I do not think it is necessary to address separately all the causes of action pleaded against the CBA. I do not regard any particular cause of action, if established, as generating an entitlement to relief which, in any practical sense, would be materially different from that granted under other available causes of action. I address the issue of contribution later in these reasons.
[187] I do not therefore propose to address the competing contentions about whether, in the circumstances, the CBA was or became subject to a resulting or constructive trust by reason of the settlement in respect of the proceeds of sale of the property, or the existence or extent of any fiduciary or common law duty owed to the Kojics, or whether the CBA conduct gave rise to misleading and deceptive conduct which caused the Kojics' loss, or was in breach of its contract with the Kojics.
[188] In my view, the CBA's conduct because of the knowledge it had was unconscionable, as that expression is used in ss 51AB and 51AC of the TPA as relevantly in force in 2009. Those provisions are now in ss 21 and 22 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth). Nor is it necessary to debate whether those provisions, or ss 12CB and 12CC of the ASIC Act apply. The provisions are relevantly the same.
[189] In Radio Rentals, Finn J said:
Central to the purpose of the doctrine of unconscionability is to relieve against taking "an unconscientious advantage": Amadio at 462; or "exploitation" or "victimisation" of another: O'Connor v Hart at 1024; Bridgewater v Leahy at [75]-[76]; Louth v Diprose at 638. In short, it is to relieve against an abuse of power possessed by one party over the other by virtue of the other's position of special advantage.
[190] In my view, it was contrary to good conscience for the CBA to take part in the settlement of the property and to accept the Kojic payment when it knew that the Kojic payment, as a payment by one of its clients, was intended by the Kojics to secure a half interest in the property (by arrangement with SCS) but would not do so because of the terms of its proposed registered mortgage. Even at a lower level, reflecting Coombe's appropriate response, it was contrary to good conscience for the CBA to take part in the settlement of the property under which the Kojic payment was made, because it was a payment by a client of the CBA to the clear detriment of the client and to the clear benefit of the CBA when the client did not understand that that was the case.
37 Central to the primary judge's conclusion of unconscionability was the finding (or were the findings) in [183(2)]. The appellant attacked that finding or those findings. For reasons that follow, that attack is successful. The success of that attack undermines (as senior counsel for the Kojics accepted on the appeal) the conclusion of unconscionability in [188], founded as it was on the knowledge of the Bank. The successful attack on [183(2)] also undermines the conclusions reached at [190].
38 The relevance of the Bank mortgage is expressed differently by the primary judge in different parts of his reasons. First, there is on occasion reference to it being over the whole interest in the property, not just over the one half interest of SCS and Cotton. Secondly, there is reference (and critically so in [183(2)]) to the amount secured being more than the $480,000 advanced for this particular purchase and including additional borrowings of the Blanusa interests from the Bank. Thirdly, there is reference to it in statements that the wider group of borrowings, so secured, meant that there was "no residual equity in the property [for the Kojics]": see [183(2)]; and, thus, that the Kojic payment was "effectively an unsecured loan to the Blanusa interests."
39 Some comments should be made about these matters. The first matter (that the mortgage was over the whole property, not just SCS's and Mr Cotton's half interest) was known to the Kojics. Mr McDonald told Mrs Kojic this on 12 November. The second matter was true; the extent of the borrowing secured is examined below. The third matter should be approached with due caution. It is one thing to say that at the time of settlement the total amounts secured by the mortgage exceeded the purchase price of the land; it is quite another to say that meant that the Kojics' interest in the land (by the resulting or constructive trust against SCS) was valueless or that there was no residual equity. One would need to understand the value of other securities for all the borrowing and perhaps consider the operation of the doctrine of marshalling. Further, what his Honour meant by "residual equity" must be examined. The words "so that" in [183(2)] indicate that it is a conclusion based on the sum of the borrowings and the apparent value of the land represented by its price of $850,000. What the phrase "residual equity" is not to be taken to mean is the equity or prospective equity in the land should the land development venture be successful. It is not a phrase to be equated with a notion that the Kojics' interest was valueless presently and prospectively. This is plain from how the case was pleaded and run.
40 The complaint of the Kojics in their pleading did not contain any assertion that it was the fact or the Bank knew it was the fact that the Kojics were hazarding their money on a valueless venture. Paragraphs 39 to 42 of the further amended statement of claim identified the nature of the conduct of the Bank that was impugned. This conduct included complaints that the "Arrangement", being that the applicants would purchase a half interest in the property for paying half the purchase price, was inconsistent with the Bank's security that would use the whole of the property to secure all existing and future debts of SCS. No case was made that it was the fact or the Bank knew it to be the fact that the venture was worthless or likely to be worthless to the Kojics.
41 Turning directly to the attack on [183(2)]. There was no evidence that either or both Messrs Coombe or Barnden knew that the Kojics did not understand the reach of the Bank's mortgage. It can be accepted that neither told Mrs Kojic of its reach; but that is not to say they knew she was ignorant of it. She was not an unadvised or incompetent person with any apparent vulnerability or disability, special or other. She was an experienced property developer, who knew Mr Blanusa well and was involving herself in a transaction in which there was a professional conveyancer. Mr Coombe knew that she had not sought advice from him and thus the Bank; Mrs Kojic had only sought to give instructions as to payment. Through Mr Barnden, the Bank knew that Mr McDonald had inquired in relation to the matter on Mrs Kojic's behalf and that Mr McDonald was dealing in the matter in a way that could reasonably suggest to Mr Barnden that Mrs Kojic had the advantage of a professional conveyancer. The Bank was entitled to assume (it certainly should not be found to know the contrary) that either Mr Blanusa or Mr McDonald informed the Kojics of the terms of the mortgage or that the Kojics would have enquired about such matters and been given proper answers.
42 There was no basis to find that the Bank knew (whether one adds knowledge together or not) that the Kojics were unaware of the borrowings secured by the mortgage.
43 As to the question of residual equity, to draw such a conclusion one would need to examine the borrowings secured by the mortgage and the other securities that secured those same borrowings.
44 The clause in the mortgage was to the effect that SCS's debts (present and future) were secured by the property. The evidence revealed that the other loans to SCS in June/July were an approved overdraft of $500,000 and a corporate charge card of $25,000, as well as the $480,000 loan on the purchase. These borrowings were secured not only by the subject mortgage over the property but also by a charge of SCS over its undertaking and assets, certain guarantees and several mortgages over properties owned by "the principal" (being impliedly Mr Blanusa or the Blanusa interests). Other facilities were variously secured. But on 17 July 2009, Mr Barnden noted in relation to SCS's facilities:
Valuations already completed and updated valuations included in Security position.
Earlier in the same document it was stated that:
Valuations are now all held and have been updated into CCL. All proposed facilities are either on, or better than, SOM.
45 There was no evidence as to the meaning of the acronym "SOM" but the inference plainly is that the Bank was satisfied with its security position.
46 The above entries can be read with the slightly earlier entries at [7] above.
47 Without an investigation of valuations and a cross-referenced analysis of all security (which was not done at the time and which his Honour did not purport to do) a conclusion as to a lack of residual equity is not meaningful. It is a conclusion taken from an examination only of the mortgage and SCS's present debts, without regard to other securities. Mr Barnden was not cross-examined about his knowledge of any deficiency in equity.
48 In my view, the finding against the Bank in [183(2)] cannot be supported. That necessarily undermines the conclusion in [183(3)] that the Kojics were effectively making an unsecured loan. That latter conclusion was not the subject of specific attack; but with respect, it is manifestly wrong. First, there could be no dispute as to the existence of a resulting or constructive trust as against SCS. Secondly, it cannot be shown that at the time of the lending there was no equity in the property if one takes account of all the securities. Thirdly, there was no pleading and no case made that the loan and the security were valueless, especially in the context of the anticipated development of the property. It cannot be concluded that this was an unsecured loan or, more relevantly, that the Bank knew that.
49 Mr Robertson SC accepted that if the appeal was successful on ground 2 (as to [183(2)]), there was no basis to the finding of unconscionability.
50 Nevertheless, the expression of the reasoning in [190] and the remarks in [185] require some comment. First, the mortgage did not prevent the obtaining by the Kojics of a half interest in the property. They did obtain such an interest. Secondly, it was not a payment that was to the "clear detriment of the client" from what could be seen by the Bank. As far as the Bank could see, professional property developers made a decision to invest in a development with a long time business colleague, in circumstances where, for the reasons expressed above, it was not open to conclude that there was no residual equity in the property. Of course, if the Bank had known that the money the Kojics were investing was being placed into a doomed and valueless investment and would inure only to the Bank's advantage, a powerful case would be made for unconscionable conduct. The facts are not, however, that.
51 Some emphasis was put on an answer Mr Coombe gave to some questions of the primary judge, as referred to in [185]. But that evidence must be seen in context. These answers were given in hindsight - the hindsight of the failure of SCS. At Tpp 183, l.36 - 184, l.8, the following exchange took place between the primary judge and Mr Coombe at the end of Mr Coombe's cross-examination:
Mr Coombe, I just want to ask you one thing with the wisdom of hindsight. It's a terrible thing, hindsight. You now know, I think, that what happened to this $436,000 was that it was not applied to acquire any interest in this property. You know that, don't you?---I'm aware of that, your Honour.
If you had known that at the time you got this instruction, would you have done something about it?---I would not have drawn the cheque if I had known that, your Honour.
Yes. That's what I thought you would say. And let us assume that, in fact, the proposal was that the Kojics were to buy a half interest in this property and that was worth about $436,000 and the other half interest for Mr Blanusa was to come from borrowings from the bank to be secured by mortgage and the mortgage was not limited to the Blanusa's half or the interest on the Blanusa's half, but extended to cover Blanusa's other borrowings, would you have done anything about it then?---If I was aware there were borrowings against the property, yes, I would have done so, your Honour.
52 In [185] the primary judge referred to the Bank's position of conflict. With respect the comment is liable to mislead. The Bank held no fiduciary position; it had not been asked to give advice; it was a lender to one of the developers. There was no occasion to introduce notions of conflict of interest and duty, or of duty and duty.
53 This success of ground 2 of the appeal concerning [183(2)], the success of ground 1 as disclosed in the reasons of Edelman J and the concession by counsel that success on either ground fatally undermines the conclusion as to unconscionability. Nevertheless, because of the seriousness of a finding of unconscionable conduct to a financial institution, it is appropriate to deal with the question of unconscionability on the basis of the aggregated minds of the Bank officers, contrary to the conclusion of Edelman J.
54 The appellant approached the appeal in the written submissions by putting the proposition (though in oral address senior counsel drew back from the proposition) that unconscionable conduct required a "high degree of moral obloquy". Reference was made to the reasons of Gageler J in Paciocco v ANZ Banking Group Ltd [2016] HCA 28; 333 ALR 569 at [188], Attorney-General of NSW v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at [121] (Spigelman CJ), Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at [43] (Tamberlin, Finn and Conti JJ), and Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291] (Allsop P, Bathurst CJ and Campbell JA agreeing).
55 In Paciocco v ANZ Banking Group Ltd [2015] FCAFC 50; 236 FCR 199, with the agreement of Besanko J (at 289 [371]) and Middleton J (at 295 [398]), at 265-276 [259]-[306] I sought to explain the approach to deciding upon "unconscionable conduct" as an evaluative statutory standard, and at 281-283 [325]-[347] I explained why there was no unconscionable conduct in that case. The aim of the former explanation was to identify the danger that lies in replacing a word chosen by Parliament ("unconscionable") with a synonym ("moral obloquy" or "moral obliquity"). In the High Court, Keane J dealt with the question of statutory unconscionability (at [292]-[294]). French CJ (at [2]) and Kiefel J (at [70]) agreed with Keane J. At [292], Keane J set out my concluding paragraph (at [347]). From the reasons, it can be taken that that conclusion, drawn as it was by applying the method or approach earlier set out, was taken as correct. There is nothing in Keane J's reasons on unconscionability that throws any doubt upon the approach I took to evaluating whether there had been unconscionable conduct in the statutory sense.
56 In Paciocco 236 FCR at 265-266 [259]-[262], I discussed the proper place of a phrase such as "moral obloquy", at 266-268 [263]-[269] I referred to the values and norms that were recognised in the statute that bore upon the question (there the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) ss 12CA and 12CB), at 268-271 [270]-[284] I referred to the place of norms and values in Equity and commercial law, and at 272-274 [285]-[295] I referred to the guidance in the statute itself as to values that bore upon the question. It is critically important to appreciate the proper judicial technique in reaching the evaluation. It is not a search for some synonymous definition or rule, rather it is the use of the technique of Equity that involves a careful examination of all attendant circumstances against the statutory norm. The approach was described in Jenyns v Public Curator (Qld) [1953] HCA 2; 90 CLR 113 at 119 where Lord Stowell's generalisation in The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567 was quoted:
A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.
(Emphasis added.)
57 The following can be said about the approach to the evaluative judgment in question (see Paciocco 236 FCR at 274-276 [296]-[299] and [304]-[306]):
[296] ….. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
[297] ….. It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement.
[298] The normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]; Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64] and Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 139-140, esp [30].
[299] These considerations may involve behaviour that is best evaluated relationally in a transaction; they may involve conduct that can be evaluated against normative or ethical standards, apart from any particular transaction: see, for instance, National Exchange.
…
[304] In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.
[305] The task is not limited to finding "moral obloquy"; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.
[306] As Deane J said in Muschinski v Dodds 160 CLR at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in Subdiv C and ss 12CB and 12CC or the other statutes with which this case is concerned should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.
58 Over time, as the standard is applied, the courts will develop principles and legally relevant considerations that will give comfortable form to fact situations. Just as the courts in New South Wales over thirty six years have given structure and content to the Contracts Review Act 1980 (NSW) (a statute which utilises a standard or norm of fairness) without a loss of contractual and commercial stability, so the courts will work through the notion of a business conscience. This is not something foreign to the judicial process; it is a task at the very heart of the judicial process. Professor Stone referred to standards such as unconscionability as legal standards of indeterminate reference: see Stone J, The Province and Function of Law (Harvard University Press, 1950) at 185-186 [22], where "judgment cannot turn on logical formulations and deductions, but must include a decision as to what justice requires in the context of the instant case"; and see Jenyns 90 CLR at 118-119. The problem of indeterminacy is dealt with, however, by close attention to the statute and the values derived from it, as well as from the general law, Equity in particular, to undertake the evaluative judgment.
59 Some contrast may be seen with a standard or norm that carries within its textual expression a reference or framework for logical analysis. For instance, a provision that proscribes misleading or deceptive conduct has within its terms a framework of meaning that is, to a degree, self-referential. It is a norm or standard, but one that carries within its expression meaningful criteria for application. A provision that proscribes unconscionable conduct is directed to a standard or norm of right behaviour that is less precise. Its assessment requires a body of values against which to make the evaluative judgment of what is right or conscionable in the circumstances, and how far the departure from such should be to warrant the characterisation of unconscionable. The formation of that judgment requires guidance from considerations not part of the direct reference of the immediate language that expresses the standard - but which are the relevant values to bring to bear on the evaluative judgment. Thus, the standard or norm of unconscionability is more diffuse than the standard or norm embodied in a phrase such as misleading or deceptive, but the former takes its stability from the informing values of the statute and the law, Equity in particular. For instance, in Kakavas v Crown Melbourne Limited [2013] HCA 25; 250 CLR 392, the Court at 439-440 [161], in speaking of an arm's length commercial transaction and the operation of the equitable doctrine within s51AA of the Trade Practices Act, said that a predatory state of mind was required given that the (equitable) principle was concerned with victimisation or exploitation. More directly, the statute (here in s 51AC) sets out considerations that may bear, in any given case, on the evaluation.
60 Using that approach here, the facts, as I have set them out, bespeak an entire absence of predation, of trickery, of any lack of honesty, of sharp practice, of vulnerability, of known mistake, of weakness, of a lack of good faith, of disability, or of any of the considerations in s 51AC(3). No behaviour of any bank officer bespoke any lack of business conscience or ethics. Even if one could combine the knowledge of Mr Coombe and Mr Barnden, there was no basis to conclude that the Bank acted inappropriately or unfairly in any way whatsoever. There was no basis for even this aggregated mind to think that in some fashion Mrs Kojic, as an experienced businesswoman, was in a position such that for the Bank to lend this money on a standard form of security was somehow acting unconscionably, or even unfairly.
61 The primary judge did not consider it necessary to decide whether the statutory norm of unconscionable conduct came from the Trade Practices Act or the ASIC Act. The provisions are substantially identical. In the end the appellant submitted that the ASIC Act was the correct statute to apply, but it did not submit that such made any difference to the outcome.
62 I have read the reasons of Edelman J in relation to aggregation and attribution. Subject to the following comments I agree generally with his Honour's reasons.
63 The question of aggregation will generally arise in a particular statutory context or in the context of a particular substantive rule. In Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 the statutory context was the phrase "his actual fault or privity" in the test for the breaking of the limitation of liability for shipowners under s 502 of the Merchant Shipping Act 1894 (UK). The use of the "mind or will" of the company was utilised beyond this particular statutory context: see H L Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 at 172; Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170-174, 179-181, 186-187 and 190-191. Nevertheless, the statutory context or the context of the relevant substantive rule will be critical, as the Privy Council pointed out in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-512. It is unnecessary to discuss the effect on Meridian of Bilta (UK) Ltd (in liquidation) v Nazir [2015] UKSC 23; [2016] AC 1.
64 In the context of the legislation here, s 84 of the Trade Practices Act provides a framework for the establishment of the state of mind of a company that was intended to extend, not limit, the liability of corporations: Trade Practices Commission v Tubemakers of Australia Ltd [1983] FCA 99; 76 FLR 455 at 475. I would not necessarily see s 84 as limiting the application of any relevant general law principle concerning aggregation or attribution of knowledge.
65 I agree with Edelman J that the central question against which the analysis takes place is whether or not the conduct of the Bank was unconscionable. That enquiry may, and generally will, require understanding what the Bank knew as a corporation. I agree with the analysis of Edelman J of Krakowski v Eurolynx Properties Limited [1995] HCA 68; 183 CLR 563 and with his criticisms of the relevant parts of the reasons of the Western Australian Court of Appeal in Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; 44 WAR 1.
66 Depending upon the relevant statutory context or substantive rule, it may be that separate information held by an officer or agent may be aggregated with information held by another if there is a duty and opportunity to communicate it to the other: Re Chisum Services Pty Ltd (1982) 7 ACLR 641 at 649-650; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 161-62; and Australian Competition and Consumer Commission v Radio Rentals Ltd [2005] FCA 1133; 146 FCR 292 at 327 [182]. The relevance and legitimacy of any such approach may well depend upon the statutory context or the relevant substantive rule. In any event, here, neither Mr Coombe nor Mr Barnden was under a duty to inform the other, or anyone else, of what he knew.
67 Here, in the circumstances of this case, there is no relevant principle of law that leads to aggregation. Further, to the extent that it cannot be put that either bank officer behaved in a way deserving of any criticism, it would be a startling proposition that the Bank itself acted unconscionably.
68 The orders that I would make are:
- Appeal allowed.
- Orders 1 and 3 made by the Court on 2 May 2016 be set aside and in lieu thereof order that the application against the first respondent be dismissed with costs.
- The first and second respondents pay the costs of the appellant of the appeal.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.