Narni Pty Ltd v National Australia Bank Limited [2001] VSCA 31

Narni Pty Ltd v National Australia Bank Limited [2001] VSCA 31 - VSCA 2001 case summary — Zoe

[24]

After citing authority on the nature of financial accommodation by way of bank overdraft, his Honour approached in two stages the question whether a term should be implied. The first was to ask whether, when the respondent first moved to dishonour the appellant's cheques, there was an "arrangement" between them whereby the former was bound to meet cheques for which the available funds, including the approved facility of $65,000, were insufficient. His Honour explained that he used the term "arrangement" "in deference to the terminology adopted by the Bank itself in its form of authority". This was a reference to the Notice of Authority to which I have referred in [12]; but I do not understand that the expression "arrangements" that it contains is used in contradistinction to a contract so far as it concerns any overdrawing of the account. There is, in my opinion, nothing in that document derogating from the conventional position that the relationship between the bank and its customer is to be regulated as a matter of contract, express or implied, as the above-cited passage from Paget expresses it. The judge ruled out any express term in favour of the appellant. A claim dependent on contract was therefore left to depend on the proper imposition of a contractual term by implication. So far as appears, however, the judge did not consider whether certain well-established prerequisites to the implication of a contractual term had been satisfied. In this his Honour may have been diverted or misled by the reference in the Notice of Authority to an "arrangement" so as to treat the question as requiring something less than an application of the law of contract. Whatever the reason, I am respectfully of opinion that his Honour misdirected himself: a consideration of the question soon reveals that in this case some of the prerequisites could not be met. The second stage at which the learned judge approached his task - whether the respondent was, as a matter of law, obliged to give reasonable notice determining "the arrangement" - therefore did not arise.

[38]

Counsel for the appellant conceded that the respondent had a right to decide whether or not to lend money by way of granting an overdraft facility; and to terminate or modify any such facility at will upon giving reasonable notice. He submitted, however, that the term formulated by the judge is in truth not inconsistent with that right, as was contended for the respondent, for it does not require the respondent to lend money. The submission was that the practical effect of the term is simply to require the respondent to give reasonable notice of its intention to terminate or modify the facility that had been granted; and that the vice in the respondent's conduct lay in the precipitate way in which the decision to dishonour cheques had been implemented without due notice. The submission does not, I think, properly recognise the effect of the term that the judge formulated. It is no doubt true that the respondent might at any time terminate the overdraft facility and make demand for the debt that would then become due and owing; and the term, as formulated, could not interfere with that. What the term purports to do, however, is to deprive the respondent of an undoubted right to set the limit of its advances to the appellant in terms of time and amount. There is, I consider, no justification for any presumption that the respondent agreed to that. The evidence is altogether to the contrary. Moreover, it is to be remembered that a bank was always obliged as a matter of common usage to decide promptly, upon due presentation of its customer's cheque for payment, whether or not to honour it by debiting the customer's account and correspondingly paying the collecting bank. The obligation now has statutory force by reason of s.67(1) of the Commonwealth Cheques Act 1986, which requires a "drawee institution", where a cheque is duly presented for payment, either to "pay or dishonour the cheque as soon as is reasonably practicable". If to honour the cheque would leave the drawer's account in debit beyond an agreed limit, a decision by the bank to dishonour is in effect a decision not to lend the drawer the requisite sum. An implied obligation on the part of the bank to defer such a decision until affording the customer the opportunity to obtain alternative accommodation would scarcely be compatible with practicality.[22]

[45]

It was common ground that the price obtained upon the sale of the business represented its fair value, calculated conventionally at a value per bed (in this case $15,000), reflecting the value of the appellant's licence to operate a nursing home with 70 beds. As the judge found, the value so assigned had regard to the expectation of income derivable from the exploitation of such a licence, thus including the capitalised value of future income of the business and representing the measure of loss flowing from the respondent's breach. His Honour therefore concluded (accepting the argument for the respondent and rejecting that for the appellant) that, upon the sale of the business, the appellant received its full value as the purchase price, which included the value of its future earnings, applied in reduction of the debt to its secured creditor; and that it had not been shown to have suffered further loss.[25] The appellant's claim for damages had been put forward in reliance on an analysis of its loss made by its chartered accountant, Mr D.A. Armstrong, that his Honour entirely rejected, finding it to be flawed in its approach and in matters of fact. The analysis had, in substance, attempted to forecast the appellant's future cash flow during the term of its lease, including options to renew, until January 2000 and beyond, and thus to calculate a measure of compensation for loss of income reasonably expected to be earned during the supposed lifetime of the business of some 11 or more years. I shall not refer further to the analysis save to say that it was naturally complicated and necessarily speculative. One of several criticisms of it relied on for the respondent, with which the judge agreed, was that it purported to assess the measure of damages at the date of the trial (and, I think, even beyond) and not at the time of what the judge had held to be the respondent's breach. Of that his Honour simply said that "[t]his is not one of those cases where assessment [at] date of judgment is appropriate." Moreover, the learned judge expressed his agreement with the opinion of the accountancy expert retained by the respondent that the appellant's business was probably likely to fail in any event.

[49]

I have no doubt that, in the circumstances revealed by the evidence, the judge was correct to decline to assess damages by reference to an attempted calculation of cash flow for many years into the future made ¯ at the earliest ¯ as at the date of the trial. Assessment at a time later than the date of the breach or accrual of the cause of action will be appropriate if, in the circumstances, events occurring after that date are relevant to a determination of what is fair compensation.[30] Events subsequent to breach may, of course, tend to indicate that a loss has been increased or reduced; and it is a corollary of the principle enunciated in Robinson v. Harman that an injured party is not, by an award of damages, to be placed in a superior position than that which would have been occupied had the contract been performed.[31] In the present case counsel for the respondent submitted that the manner of assessment contended for on behalf of the appellant was inconsistent with that principle, and therefore with Robinson v. Harman, and that accordingly there was good reason not to depart from the general rule that damages were assessable at the time the cause of action arose. Counsel for the appellant, on the other hand, claimed to embrace the general rule, but submitted that it can accommodate reference to occurrences subsequent to breach. Of course, the approach contended for on behalf of the respondent (and accepted by the judge) itself relies on taking account of events that occurred some months after the date of the supposed breach ¯ the sale of the business and distribution of the proceeds. It seems to have occurred to no-one, however, that this represented a departure from principle. It seems to me to have been permissible in any event on the ground that the sale of the business, and the consequences of it, were relevant and appropriate to be considered in a consideration of what was fair compensation to the appellant. So much seems to be conceded for the appellant: initially, Mr Armstrong's analysis wholly ignored the sale and its proceeds but, in a second calculation made during the trial, he did take some account of them.

[52]

It is clear to my mind that, although the judge did not in terms refer to the appellant's failing to sustain its onus insofar as it sought to prove its loss in reliance of Mr Armstrong's analysis, so much is implicit in his Honour's reasons. The exercise was essentially speculative: the learned judge obviously found it unconvincing and would not act on it. Quite apart from the matter of the date at which the analysis of loss was made his Honour found figures on which Mr Armstrong based his analysis to be unreliable. He had relied on information that had been provided to him from a variety of sources and he himself conceded in his report dated 15 July 1998 that he had "... not independently confirmed its reliability, accuracy or completeness. In particular, I have not carried out any form of an audit of the Financial Statements or any other financial information on which I have relied and therefore do not express any opinion on the reliability of those statements and that information". The learned judge found, as one of a catalogue of "justified criticisms" of the evidence relied on and the approach taken on behalf of the appellant, that "The profit and loss figures for the periods 1 July 1988 to 30 April 1989 and 22 June 1989 to 30 March 1990 do not provide a reliable basis for Mr Armstrong's analysis. Those for the former period were shown to be incomplete and inaccurate and those for the second period in which the agent managed the business are not truly comparable since he was not obliged to pay all creditors as at the date of appointment ". Small wonder, then, that his Honour entirely rejected the case put forward on behalf of the appellant for a method of assessment of damages. Mr Armstrong's report was shown to be ill-founded, as a matter of fact, to support any serious projection of future profits for a decade or more after the respondent's assumed breach, even on an assumption (not, as it happened, made good) that such an exercise was otherwise justified.

At a glance

Court

Decision date

Before

Source

Judgment (90 paragraphs)

Parties