Firstmac Fiduciary Services Pty Limited & Anor v HSBC Bank of Australia Limited

Background Facts 4On 15 December 2006, HSBC Bank of Australia Limited (HSBC), Firstmac Fiduciary Services Pty Limited (the Buyer), and Firstmac Limited (Firstmac) entered into a Sale Deed. Pursuant to the Sale Deed HSBC agreed to sell its broker originated residential mortgage to the Buyer. 5Clause 3 of the Sale Deed contained the following provisions regarding Warranties given by HSBC to the Buyer and Firstmac: 3.1 Warranties (a) Subject to paragraph (b) and (c), HSBC warrants that each of the statements set out in schedule 5 (subject to this clause 3 and any disclosures made by HSBC in the Disclosure Letter) are true and accurate in all material respects at the date of the document (other than as indicated in schedule 5) and at the Completion Date... 3.2 Reliance on Warranties HSBC acknowledges that each of Firstmac and the Buyer have executed this document in reliance on the Warranties... 3.5 No further Warranties Except for the Warranties, HSBC gives no other express or implied representation or warranty to the Buyer or Firstmac... 3.6 Exclusion of implied obligations To the maximum extent permitted by law, every condition, warranty, term, provision, representation or undertaking (express, implied, written, oral, collateral, statutory or otherwise) except the Warranties, the Ancillary Documents and this document is excluded. 3.7 Waiver of statutory rights To the extent permitted by law, the Buyer and Firstmac each: (a) (no statutory claim on HSBC) agrees not to make, and releases any right it may have to make, against HSBC any claim based on Part 7.10 (including section 1014H) of the Corporations Act, Part 2 Division 2 (including sections 12DA or 12DB) of the Australian Securities and Investments Act 2001 (Cth), part IVA or V (including sections 51A, 52 or 53) of the Trade Practices Act 1974 (Cth), or on any corresponding provision of any State or Territory legislation, or on a similar provision under any applicable law, for any act or omission concerning the transactions contemplated by this document or for any statement or representation about any of those things other than the Warranties... 3.12 Notice of potential Claim As soon as possible after a party first becomes aware of anything which is or may be reasonably likely to give rise to a Claim under this clause 3, it must notify the other party in writing of that fact, together with all available details. 3.13 Opportunity for HSBC to remedy breach No Claim by the Buyer or Firstmac for breach of a non-compliance with any provision of this document (including any Warranty or any indemnity) is enforceable unless written notice of the Claim has been given by the Buyer or Firstmac to HSBC and HSBC has failed to remedy that breach of non-compliance within 30 Business Days of receipt of that notice. 3.14 Threshold for Claims The Buyer or Firstmac has no right to make any Claim under or in connection with this document in respect of the first $250,000 of Losses, Legal Liabilities, Claims or Taxes arising from any breach of any provision, Warranty or covenant, or for indemnity or for misrepresentation, negligent or not (Breach) which amount shall be borne solely by the Buyer and FirstMac and provided that the Buyer and FirstMac have first satisfied their obligations to meet the first $250,000 of Losses, Legal Liabilities, Claims or Taxes, the Buyer and FirstMac may make such claims in accordance with this clause but only as follows: (a) where the aggregate amount of those Claims exceeds $500,000 (in addition to the amount borne solely by the Buyer and Firstmac under this clause) HSBC is then liable for those claims regardless of quantum up to the relevant limit in clause 3.15; and (b) if Claims in the aggregate exceeding $500,000 have been validly made by the Buyer or Firstmac in accordance with paragraph (a), then each further group of Claims made by the Buyer or FirstMac must in the aggregate exceed $500,000 in which case HSBC is then liable for those Claims regardless of quantum up to the relevant limit in clause 3.15, except that if at the end of the period specified in clause 3.16 the Buyer has Claims which have an aggregate amount which is less than $500,000, the Buyer and Firstmac may make those Claims as at that date... 3.16 Time limits for bringing Claims The Buyer and Firstmac each has no right to recover any amount under any Claim for or in connection with a breach of Warranty and the liability of HSBC for any such Claim is absolutely barred, unless: (a) (notice of intention) within 5 years after the Completion Date, the Buyer or Firstmac gives to HSBC notice of the Claim specifying in detail the matter which gives rise to the Claim, the nature of the claim, the amount claimed, and how the amount is calculated; (b) (HSBC's failure to remedy) HSBC has failed to remedy the breach which is the subject matter of the Claim in accordance with clause 3.13; and (c) (legal proceedings) legal proceedings for the Claim have been properly issued and validly served upon HSBC within 3 months from the date on which the Buyer or FirstMac gives notice under paragraph (a) or the Claim is otherwise settled by mutual agreement between the parties. This clause 3.16 operates to the fullest extent permitted by law. 6The term "Claim" is defined in clause 1.1 of the Sale Deed as follows: Claim means a claim, action, proceeding or demand made against the person concerned, however it arises (whether on a representation, in tort, for negligence, under a statutory provision or under a contractual term implied by statute) and whether it is present or future, fixed or unascertained, actual or contingent. 7The term "Warranties" is said to mean the warranties of HSBC referred to in clause 3.1 and set out in schedule 5 and Warranty means any one of them. 8In clause 1.2, which contains rules of interpretation relevantly contains the following provision: Clause1.2: (r) (Warranty breaches). Any reference to a contravention of or to a breach of any of the Warranties (or warranties of Firstmac or the Buyer) includes any of the Warranties (or warranties of Firstmac or the Buyer) not being, true and correct. 9Schedule 5 to the Sale Deed contained the following warranties: 12. (Securities enforceable) Except as a result of any conduct, act or omission of a Debtor of which HSBC is not aware each Related Security is a valid and enforceable obligation of, and enforceable against, the relevant Debtor in accordance with its terms... 22. (Eligibility Criteria) each Purchased Mortgage Loan meets the Eligibility Criteria... 25. (no fraud or dishonesty) there is no fraud, dishonesty, negligence or material misrepresentation on the part of HSBC in connection with the sale of any Purchased Mortgage Loan. 10On 12 September 2011 a Mr Austin of Firstmac sent an email to a Mr Heunis of HSBC. The email purported to provide notice to HSBC of a claim said to be in breach of the Sale Deed. Two matters were identified as totalling losses of $654,830.13 which was said to arise from a failure to adhere to lending guidelines and a failure to take adequate security. The further $164,650.58 was claimed in respect of a loan secured by shares in a company. The email went on to indicate that what was claimed was $654,830.13 less the threshold of $250,000 per clause 3.14. 11Attached to the email was a schedule. The schedule gave greater specificity about the three matters in respect of which the claims were made. 12One loan identified was to a Pelagia Fasolas which was said to have been made in the sum of $164,650.58 contrary to correct lending procedures, and without proper security having been taken. 13A loan to Maximus Holdings Pty Limited was also identified in the amount of $225,364.84. Again it was said incorrect lending procedure including a forged signature on loan documentation occasioned the loss in that case. 14Finally a loan to a Lilyana Talevski of an amount of $429,465.29 was also identified as one in which incorrect lending procedures and/or inadequate security had been taken. 15Each of the calculations referred to above was as at 4 August 2011. 16On 13 September Mr Heunis replied to Mr Austin indicating that the matter would be considered and he would be back in contact promptly. 17On 30 November 2011 a Mr Chandler of HSBC sent a letter to a Ms Blyth of Firstmac and the directors of the Buyer indicating that HSBC saw no basis for the allegations made, and further it believed that it had not breached the Sale Deed. It denied any liability. 18The buyer in Firstmac commenced proceedings against HSBC in the District Court of New South Wales in matter No 2011/411305 on 22 December 2011. The summons sought the following relief:

1. An order that the Defendant pay to the Plaintiffs the amount of $404,830.13 being the amount due as at 8 December 2011 together with such other amounts as the Court adjudicates as owing by way of damages for breach by the Defendant of a Sale Deed dated 15 December 2006 (the Agreement) between the Defendant and the First and Second Plaintiffs.
2. Damages pursuant to section 82 of the Trade Practices Act 1974.
3. Further or in the alternative, an order under s 87 of the Trade Practices Act 1974 that the Defendant repurchase from the Plaintiffs the loan dated 6 December 2006 between the defendant and Ms Pelagia Fasolas.
4. Costs
5. Such other orders as the Court considers appropriate. 19The summons was sent to HSBC by letter dated 2 February 2012 which was received by it on 7 February 2012. 20The Buyer and Firstmac filed a statement of claim in the District Court proceedings on 21 March 2012. In that pleading allegations were made that each of the loans previously identified were not made in compliance with the relevant criteria. 21The pleadings specifically alleged a breach of warranties in clause 3.1 and schedule 5 of the Sale Deed. The losses which were claimed were said to have arisen by reason of the breach of those warranties. 22In addition it was alleged that the warranties constituted representations which were made in trade and commerce and were misleading and deceptive in that they were false, and comprise conduct engaged in contrary to section 52 of the Trade Practices Act (TPA) . It was alleged that the Buyer and Firstmac had relied upon the representations in entering into the Sale Deed. Again in the alternative the same damage was said to have arisen by reason of reliance upon the representations in the entry into the Sale Deed and damages were therefore claimed pursuant to section 82 of the TPA.

The Contentions of the Parties 23The defendant submits that, properly construed, clause 3.16 of the Sale Deed means that the Buyer and Firstmac have no right to recover any amount under any Claim "for or in connection with" a breach of Warranty, and by reason of that clause the liability of the defendant for any such claim is absolutely barred unless the three conditions in 3.16 (a), (b) and (c) are satisfied. 24HSBC accepts that the condition in (a) has been satisfied. In other words it accepts that the email of 12 September 2011 which was within 5 years of the completion date (that would be 18 December 2011) had the effect of providing the defendant with the requisite notice required under (a). 25HSBC also accepts that (b) has been satisfied. Because having denied liability HSBC, if it is otherwise in breach, has failed to remedy such. 26HSBC contends however that (c) has not been satisfied. This is because legal proceedings for the Claims in relation to each of the loans were to have been properly issued and validly served upon the defendant by 12 December 2011 being more than 3 months from the date on which notice was provided to HSBC. The summons was only issued on 22 December 2011 and was not validly served on HSBC until 7 February 2011 at the earliest. 27As a result of the above the Buyer and Firstmac have no right to recover and their claims are "absolutely barred". 28The Buyer and Firstmac at the outset of the hearing accepted, which is plainly correct, that the first question should be answered in the affirmative. In other words that by reason of clause 3.16 the contractual claims would be caught by the clause and accordingly should be struck out. 29However it is contended by the Buyer and Firstmac that clause 3.16 is ineffective to bar a claim pursuant to section 52 of the TPA as alleged in the statement of claim and damages under section 82. Insofar as clause 3.16 purports to impose pre-conditions on the bringing of such a claim, it is submitted that there is a long established principle that a cause of action that is enlivened by contravention of the TPA cannot be modified or excluded by contractual provision. Further that the TPA claim should be seen as quite separate and distinct from the breach of warranty and should not appropriately be seen as a claim brought "for or in connection with" a breach of warranty. 30HSBC submits a monetary or temporal limit can be imposed by contract on a statutory claim of this sort consistent with principle.

Legal Principles 31Insofar as one needs to interpret the Sale Deed there is no issue but that for the purpose of deciding what construction the contract bears, the court seeks to ascertain the objective intention of the parties. That is, the intention that a reasonable person with the knowledge of the words and actions of the parties communicated to each other would conclude that the parties had concerning the subject matter of the alleged contract. The purpose and object of the transaction is an appropriate matter to take into account on the question of construction, but again it needs to determined objectively: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 and 462. Unless the language used in the contract is ambiguous or susceptible of more than one meaning it is inappropriate to resort to evidence of surrounding circumstances in order to construe the contract: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352, Western Export Services v Jireh International Pty Ltd [2011] 86 ALJR 1. 32The validity of any clause such as 3.16 which has the effect of barring a claim raises two issues. First, and obviously, is the question of construction. The second is the question of whether it is permissible to agree on temporal or monetary limits in the context of a statutory remedy. 33Whilst one has to determine the intention of the parties, it is important to keep in mind what the High Court said in Darlington Futures Limited v Delco Australia Pty Ltd (1986) 161 CLR 500, where Mason, Wilson, Brennan, Deane and Dawson JJ noted at 510 - 511: (certainly in relation to exclusion clauses). These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig, the same principle applies to the construction of limitation clauses. As King C.J. noted in his judgment in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises. 34In Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1977) 139 CLR 231 Barwick CJ noted at 238 - 239: The relevant law as to the enforceability of a time limitation clause, in my opinion, is not in doubt and needs no detailed exploration. The decision in Suisse Atlantique Société d'Armement Maritime S.A. v. N. V. Rotterdamsche Kolen Centrale indicates, in my opinion, that whilst exemption clauses which, for present purposes, can be assumed to include a time limitation such as cl. 17, should be construed strictly, they are of course enforceable according to their terms unless their application according to those terms should lead to an absurdity or defeat the main object of the contract or, for some other reason, justify the cutting down of their scope. 35In Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2010] NSWCA 14 the Court of Appeal had to consider a clause in the following terms: ...No claim in respect to loss or damage of goods may be made unless a notice of claim is lodged in writing at the Registered office of the Carrier within seven (7) days after delivery was effected or would in the ordinary course of business have been effected. Further, the Carrier shall in any event be discharged from all liability whatsoever in connection with the goods unless suit is brought within three (3) months from their delivery or from the date on which in the ordinary course of business delivery would have been effected. The Court of Appeal noted that whether the clause applied was largely a question of fact. The construction of the clause was to be undertaken contra proferentum, and that there was nothing preventing Direct from relying upon the clause. The court comprising Allsop P, Giles J A and Handley AJA said at [17]: ...The reality is that the parties agreed that after 90 days no claim could be made for so-called "pallets owing". Such a clause bars the claim altogether: Smeaton Hanscombe & Co Ltd v Sassoon I Serty, Son & Co [1953] 1 WLR 1468 at 1472, and can be seen to have a substantive operation: destroying or extinguishing liability: B G Coote Exception Clauses (1964 Sweet & Maxwell) at 11 and 154-155; Atlantic Shipping & Trading Co Ltd v Louis Dreyfus & Co [1922] 2 AC 250 at 258 (Lord Dunedin), 259 and 261-262 (Lord Sumner); The 'Auditor' (1924) 18 Lloyd's List Law Rep 402 and 464 at 465. 36In Owners SP 62930 v Kell and Rigby Pty Ltd [2009] NSWSC 1342 McDougall J approved a clause in a contract that limited the temporal and monetary limits of liability. His Honour noted: [26] To my mind, looking at the matter objectively, what the parties sought to achieve was to specify precisely and exclusively, so far as the law allows, the monetary and temporal limits of any liability that George Floth might have with the developers under the contract between them. [27] To say that they did so in respect of all causes of action, apart from those that might arise under the Trade Practices Act , is, in my view, to give the contract, and in particular Part 4, an artificial and non-commercial construction. On the other hand, to construe it as George Floth submits seems to me to be, looking at it objectively, no more than an effectuation of the intent of the parties. [28] Nor do I think that the view that I have expressed requires some violence to the language of the clause as a whole. On the contrary, I think, the words "or otherwise" are wide enough in their ordinary meaning to pick up liability under statute, and nothing in what follows (either in cl 4.3 or in cl 4.5) cuts down the available width of those words. 37I followed McDougall J's approach in Lane Cove Council v Michael Davies & Associates [2012] NSWSC 727 at [72] and [73]. 38In my opinion a distinction clearly needs to be drawn between a contractual term purporting for example to bar a statutory remedy altogether and one that purports to impose a monetary or temporal limit on the extent of the remedy. 39There is authority that it is permissible by contract to fix a shorter period of time than provided by in the relevant Limitation Act: Limitation of Actions - the Laws of Australia, (3rd ed., 2011) by Professor Peter Handford, [5.10.490]. As is pointed out, parties may, in addition for example agree not to plead a limitation period at all. 40As Mason J points out in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 404 - 406, some statutory rights are capable of being extinguished by the person for whose benefit they have been conferred (404). It is necessary to characterise the legislation to perhaps detect whether the benefit conferred is personal or private, or whether it rests upon public policy or expediency (405). If provisions can be seen as procedural rather than substantive in nature, this would suggest they can be waived (406). 41The Full Federal Court in dealing with section 82 of the TPA, which provided that an action under the Act (section 82(2)) could be commenced within a period of three years, said that that provision should be regarded as procedural in character. Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 at 259.

The Construction of clause 3.16 42It seems to me that there can be little doubt that the claims made by the Buyer and Firstmac in the statement of claim constitute "Claims" for the purposes of clause 3.16 of the Sale Deed. 43As is obvious, the definition is broad. The claims brought by the Buyer and Firstmac for breach of contract and misleading or deceptive conduct in respect of each of the loans, it seems to me, would obviously fall within that definition. 44Clause 3.16 however requires that the "Claim" must be one which can be described as "for or in connection with a breach of Warranty". 45As I have already observed the contractual claim argument was fairly conceded at the beginning of the hearing. 46So far as the misleading and deceptive conduct is concerned (paras 10 to 12 inclusive of the statement of claim) there is a specific allegation that the source (and the only source) of the representations were the warranties which were false. This is explicitly alleged in paragraph 10. 47In the context of clause 3.16, the phrase "in connection with" is a phrase of extremely wide import. As the representations which are alleged give rise to a breach of the TPA by the very warranties themselves, I have no difficulty in finding that such a claim comfortably satisfies the notion contained in clause 3.16 and that those claims properly should be considered as being "in connection with a breach of warranty". 48My view as to the construction of clause 3.16 is fortified by clause 3.7. 49The parties clearly intended to preclude the Buyer and Firstmac from making a claim against HSBC for misleading and deceptive conduct under the TPA for any act or omission or for any statement or representation about any of those things other than the warranties. I think it is highly unlikely that the parties would have left open to the Buyer and Firstmac a claim against HSBC for misleading or deceptive conduct in relation to the warranties, but intend that such claims would not be caught by clause 3.16. 50It seems to me, on any view of it, the claims pleaded in the statement of claim clearly fall within the opening words of clause 3.16.

Is the TPA claim barred 51The next question is whether clause 3.16 bars or excludes the Buyers or Firstmac's right to claim and recover damages from HSBC pursuant to sections 52 and 82 of the TPA. 52Properly construed in my view, clause 3.16 does not bar or exclude a right to claim or recover pursuant to sections 52 and 82 of the TPA. What the clause does (in respect of which the parties agreed) is to impose a time limit in which such claims must be brought. In other words the Buyer or Firstmac has five years after 18 December 2006 being the completion date for the Sale Deed obviously to consider its position. This is a significant period on any view. 53The imposition of a temporal limit on liability to my mind does not amount to a contracting out of the TPA and is consistent with the authorities referred to above. It simply reflects objectively the parties intentions to require that such claim be made promptly, (that is within three months as identified in clause 3.16(c)). In other words the parties have agreed (and it seems to me they were perfectly entitled to do so) on procedural conditions attaching to the making of the claims. 54I see nothing wrong in principle with parties fixing a shorter time period than that which may be provided by a relevant statute. I see nothing in particular in the TPA that would preclude parties from modifying the operation of section 82 of the TPA as it was. (Verwayen 406) 55Accordingly I would answer the second question in the affirmative. 56I would direct the parties to prepare short minutes to reflect these reasons and arrange to have the matter relisted to resolve the question of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 September 2012