(c) The claims against the bank
69 The allegations against the bank in the proposed statement of claim extend beyond the allegations about the bank's representations said to be made in October 2001, and their falsity and the subsequent conduct of the bank in February 2002 which were made in earlier versions of the statement of claim. Those allegations are broadly described in [12], [17] and [18] above. The bank is prepared to confront those earlier allegations.
70 Following the allegations of breach of fiduciary duty and of unconscionable conduct on the part of the accountants, it is alleged in par 66E of the proposed statement of claim that the bank knew of the potential for the accountants to secure the substantial success fee if the Finance Offer were accepted. Paragraph 66F alleges that the bank was also aware that the accountants were 'keen to conclude' the Finance Offer between the Gartner Family Group and the bank because the accountants were motivated by their interest in securing further business opportunities with the bank and maintaining their relationship with the bank. It is further alleged in par 66G that the bank knew that the accountants enjoyed a special relationship of confidence with the Gartner Group of Companies as alleged in par 64E of the proposed statement of claim. Fourthly, it is alleged in par 66H that the bank knew that there was a shortfall in the funding required for the construction of the proposed winery, when the Finance Offer was accepted, so that the Gartner Family Group would require further funding to complete its construction. The final allegation of knowledge of primary facts alleged against the bank is in par 66I of the proposed statement of claim. It is that the bank knew that only some members of the Gartner Family Group would 'derive any benefit' from granting the mortgages and securities and guarantees to support the finance provided under the Finance Offer, and that it knew of the inability of the Gartner Family Group (through the first applicant) through inexperience to objectively assess the risks involved in entering into the Finance Offer. The consequence of that knowledge is asserted in par 66J. It is that the bank 'knew or had reason to know' the accountants advice to the Gartner Family Group was motivated by the potential success fee and their desire to secure longer term personal benefits through an ongoing relationship with the bank, and of the risks to the Gartner Family Group of accepting the Finance Offer and understanding the financing restructuring which followed. Paragraph 66J is expressed as being based upon the matters alleged in pars 66E to 66I. It does not contain independent primary factual allegations about the state of knowledge of the bank procured directly from another person or persons.
71 Paragraph 66K alleges that the bank entered into the Finance Offer, including accepting the various guarantees and security instruments, and including permitting the payment from the funds available of the fees of the accountants, with notice of the matters pleaded in pars 66E to 66J.
72 Paragraph 66L contains the final sting in the proposed statement of claim against the bank. It alleges that, by reason of the allegations in pars 66E to 66K, the bank also engaged in unconscionable conduct and participated in the accountants' breaches of fiduciary duty, in particular by accepting and in seeking to enforce the guarantees and other security instruments; it is further claimed that, in those circumstances, the Gartner Family Group were entitled to rescind the guarantees and the various security instruments.
73 I have given careful consideration to whether the allegations of primary knowledge on the part of the bank (pars 66E to 66I) enable the threshold of an arguable case to be stepped over. The bank's alleged knowledge does not, in my view, enable that step to be taken. In Amadio, at 462 Mason J said:
'It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-ŕ-viz another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.'
I do not consider it arguable that the bank, even assuming it had the knowledge alleged against it in pars 66E to 66J, took unfair or unconscientious advantage of an opportunity created by possessing knowledge of the pleaded special disadvantage of the Gartner Family Group.
74 In the first place, it is my view that the allegations in par 66J are not arguable as flowing from the knowledge alleged in pars 66E to 66I. It is not uncommon, particularly in recent years where complex financial proposals are presented to lending institutions by financial or professional advisers such as the accountants on behalf of their clients, that the professional advisers will be undertaking that work for a success fee. Success fees are commonplace. Nor is it uncommon that the financial or professional advisers should have had past dealings with the proposed lending institution, and should be desirous of an ongoing mutually beneficial relationship. Nor is it uncommon that the nature and complexity of many transactions means that the client is heavily reliant upon the professional expertise of their advisers, and that the client may lack the degree of commercial or financial sophistication to fully comprehend the nuances of the proposal put forward on its behalf. None of those matters of themselves, whether taken together or individually, could arguably lead to the conclusion without more that the lending institution would therefore know or have reason to know that in fact (as the gravamen of par 66J alleges) the professional advisers were pushing the client into the lending transaction for the benefit of the professional advisers and against the interests of the client. The additional feature of the allegations (par 66H) is that the bank knew that the finance offered through the Finance Offer was not sufficient to meet fully the funding requirements of the Gartner Family Group and of Gartner Wines to fully construct the proposed winery. I do not consider that additional allegation is one capable of demonstrating that the bank thereby learnt, or had reason to know, that the accountants were pushing the Gartner Family Group into accepting the Finance Offer in breach of the accountant's fiduciary obligations and motivated by the accountants own interests at the expense of the interests of the Gartner Family Group. The fact that the Finance Offer put forward by the bank was for less than the amount sought on behalf of the Gartner Family Group would no doubt drive the Gartner Family Group to consult further with the accountants. It does not provide an arguable basis for asserting that, when the Finance Offer then came to be accepted, the bank had the knowledge alleged in par 66J on the bases alleged in pars 66E to 66I.
75 In addition, in my judgment, the alleged conduct of the bank absent the particular knowledge alleged in par 66J, cannot be seen to involve it in taking unfair or unconscientious advantage of any special disadvantage of the Gartner Family Group.
76 The bank was entitled to look after its own commercial interests. Senior counsel for the applicants would not gainsay that proposition. Assuming it was aware of the matters alleged in pars 66E to 66I, its conduct in putting forward and then entering into the Finance Offer, including accepting the guarantees and the security instruments, could not be unconscionable. Its knowledge was gained in the pleaded context of the Gartner Family Group being advised over some months by the accountants. The bank's conduct involved assessing the Finance Submission and responding to it. But in assessing the Finance Submission, it was entitled to do so looked at from its own interests. It is no doubt the case that its own interests include considering whether the putative borrower will be able to pay interest on monies advanced and ultimately to repay the sum advanced, as well as considering the quality of the security offered to support the proposed borrowing. But consideration of such matters is to secure its own interests. The allegations are not, in my view, capable of supporting the step of placing the bank in the circumstances that its entry into the Finance Offer, and its acceptance of the supporting guarantees and other security instruments, exposed it to the charge of unconscionability as discussed by the High Court in Berbatis.
77 It is not arguable, on the allegations, that the bank unfairly or unconscionably exploited the alleged inability or restricted ability of the Gartner Family Group (through the first applicant) to attend to its own interests.
78 Senior counsel for the applicants referred to, and relied upon, both limbs of the well known passage in the judgment of Lord Selbourne LC in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252 to support the claim against the bank. Those principles, expressed as applying to dealings with trust property, extend to the involvement of third parties in misconduct by fiduciaries who were not trustees: Consul Development Pty Ltd v DPC Etates Pty Ltd (1975) 132 CLR 373. I accept it is arguable that they extend to third parties who are not directly agents of the trustees or fiduciaries: see e.g. Selangor United Rubber Estates Ltd v Cradock No.3) [1968] 2 All ER 1073; Rowlandson v National Westminster Bank Ltd [1978] 1 WLR 798. I also accept that it is arguable that the two limbs of Barnes v Addy may not contain an exhaustive statement of the circumstances in which a third party may become accountable as a trustee or as an accomplice to a fiduciary: see the discussion in Jacobs' Law of Trusts in Australia (6ed, 1997, Butterworths) at 332 [1334].
79 The real stumbling block to the proposed statement of claim presenting an arguable claim against the bank is, however, the need to allege a sufficient level of knowledge on the part of the bank to make it arguably complicit (using that word only in a general sense) in the alleged breach by the accountants of their fiduciary duties or to make it arguably guilty of unconscionable conduct. Senior counsel for the Gartner Family Group referred to the five categories of knowledge described by Gibson J in Baden Delvaux v Societe Generale pour Favoriser le Développment du Commerce et de l'Industrie en France SA (1992) 4 All ER 161, described by the learned authors of Jacobs, op cit at [1335], 333 as 'the zenith of complexity', and to Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, in which the Privy Council at 382 described the second limb of Barnes v Addy as a form of accessory liability. The Privy Council at 389 said:
' … in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most party dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.'
Later, at 390, it was said:
'Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person.'
80 In this matter, for the reasons I have given, I do not consider it arguable that in the circumstances alleged, including what is alleged to have been known by the bank, its conduct in entering into the financing transaction including the taking of the guarantees and the security documents, the bank could be said to have offended the normally accepted standards of honest conduct. The critical step in the proposed statement of claim is that from the state of knowledge alleged in par 66E to 66I to the consequential state of knowledge alleged in par 66K. As I have noted, par 66K does not allege an independent state of knowledge, but one which is said to have resulted from other information. I have concluded that the taking of that critical step is not arguable on the basis alleged.
81 I do not consider that the claim of unconscionable conduct against the bank is sufficiently arguable to permit those allegations to be included in the proposed statement of claim. If they were in an existing statement of claim, I would strike them out. In essence, the allegation is that the bank was, by its knowledge, complicit in the unconscionable conduct of the accountants. The Finance Submission was put forward to the bank by the accountants on behalf of, and with the approval of, the Gartner Family Group. It was considered by the bank. The bank responded. It presented the Finance Offer for consideration. It is not alleged that its consideration of the Finance Submission, or its proposal contained in the Finance Offer, themselves amounted to unconscionable conduct on the part of the bank. The Finance Offer included the bank's requirements for the grant of the guarantees and other security instruments by the Gartner Family Group.
82 The contentions on behalf of the Gartner Family Group sought to add that the unconscionable conduct was not merely in accepting the guarantees and other security instruments, but in seeking to enforce them. But their enforcement, if they were validly entered into without unconscionable conduct on the part of the bank, could not in any view amount to unconscionable conduct. It would simply be enforcing valid commercial instruments. The focus must be upon the circumstances in which those commercial instruments came to be executed.
83 I also do not consider that the allegations against the bank are capable of providing an arguable case that the bank participated in the accountant's alleged breaches of fiduciary duty. In my view, to get to that point, it would be necessary to allege (and ultimately to establish) that the bank knew or at least had reason to know that the accountants owed a fiduciary duty to the Gartner Family Group, and that the Gartner Family Group entered or may have entered into the Finance Offer, and that it gave or may have given the guarantees and other security instruments in support of the borrowing by reason of the breach by the accountants of that duty. Critical to such a claim being maintainable is the capacity to maintain the allegation in par 66J of the proposed statement of claim. For reasons I have already given, I do not consider those allegations are capable of being maintained or sustained on the basis on which they are put forward.
84 Consequently, I do not propose to allow the applicants to file and serve the proposed statement of claim to the extent to which it includes pars 66E to 66L. I do not therefore need to address the other grounds upon which the bank opposed the leave sought to file and serve the proposed statement of claim. I will also not permit this application to be amended by the addition of the proposed par 8A, in which it was sought to claim a declaration that the bank had participated in, and is liable with the accountants, for the accountant's alleged breaches of fiduciary duties.