Commonwealth Bank of Australia v Finding [1999] QCA 273 [2001] 1 Qd R 168

IN THE COURT OF APPEAL 99.273 SUPREME COURT OF QUEENSLAND Appeal No. 4500 of 1998 Brisbane [Finding & Anor v CBA] BETWEEN: DAVID JOHN FINDING and JEAN EDNA FINDING (Defendants) Appellants AND: COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 (Plaintiff) Respondent Davies JA Pincus JA Derrington J Judgment delivered 23 July 1999 Judgment of the Court APPEAL DISMISSED WITH COSTS CATCHWORDS: EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - banker/customer relationship - whether a fiduciary duty owed by bank to its customer - whether some other special duty on part of bank should be recognised EQUITY - GENERAL PRINCIPLES - UNDUE INFLUENCE AND DURESS - OTHER PRESUMPTIONS OF UNDUE INFLUENCE - absence of independent advice - whether bank should have advised wife to seek independent advice before she joined husband in taking out mortgage with bank TRADE AND COMMERCE - TRADE PRACTICES AND RELATED -- 1 of 12 -- MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - character and attributes of conduct - silence and concealment - whether failure by bank to disclose to customer valuation of property, prior to granting mortgage over it, misleading or deceptive conduct CONVEYANCING - INSTRUMENTS GENERALLY - OTHER CASES - alteration to mortgage after execution without consent - whether rule in Pigot's Case applicable, so that mortgage rendered void Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Garcia v National Australia Bank Ltd (1998) 72 ALJR 1243; (1998) 194 CLR 395 Golby v Commonwealth Bank of Australia (1996) 72 FCR 134 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) &46-054 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 Pigot=s Case (1614) 11 Co Rep 26b, 77 ER 1177. Truebit Pty Ltd v Westpac Banking Corporation, Federal Court of Australia, NG 456 of 1996, 27 November 1997 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 Yerkey v Jones (1939) 63 CLR 649 Trade Practices Act 1974 (Cth), s 52 Counsel: Mr J E Gallagher QC with him Mr A P Crawford for the appellants Mr P R Dutney QC and Mrs D A Mullins SC for the respondent Solicitors: James Byrne & Rudz for the appellants Ryrie A Bridges for the respondent Hearing Date: 17 May 1999 -- 2 of 12 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 4500 of 1998 Brisbane Before Davies JA Pincus JA Derrington J [Finding & Anor v CBA] BETWEEN: DAVID JOHN FINDING and JEAN EDNA FINDING (Defendants) Appellants AND: COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 (Plaintiff) Respondent REASONS FOR JUDGMENT - THE COURT Judgment delivered 23 July 1999 Introduction 1 In August 1988 the appellants purchased the Pinkenba Hotel from the respondent, which sold the hotel as mortgagee exercising power of sale. The respondent also financed the purchase. This appeal, brought from a judgment of the Chief Justice, concerns the nature of the relationship between the appellant customers and the respondent bank and, in the particular circumstances of this case, whether this relationship imposed on the respondent certain duties which it failed adequately to discharge. Factual Background 2 The appellants, Mr and Mrs Finding, have been involved in the operation of commercial -- 3 of 12 -- 3 enterprises for over 40 years. According to Mr Finding, most of these enterprises were purchased "with a view to improving the acquired assets and selling at a capital profit as soon as possible". The appellants became customers of the respondent in 1958 and the respondent has over the years acceded to a number of applications from the appellants for finance, associated both with their acquisition of businesses and with the purchase of other assets, such as their home. The respondent has also, on other occasions, declined to lend money to the appellants. On some of those occasions the appellants relied on other money lenders to obtain finance. 3 In July 1988 Mr Finding saw an advertisement for a forthcoming auction of the Pinkenba Hotel. The registered proprietor of the hotel at this time was Parchment Investments Pty Ltd. Parchment Investments and the hotel lessee Tyros Investments Pty Ltd had been placed into receivership by the respondent on 29 January 1988. The advertised sale was one by the respondent, exercising its power of sale as mortgagee. After seeing the advertisement, Mr Finding had discussions with Mr McGrath, then the manager of the respondent=s Clayfield branch, with agents of the auctioneers, Strophairs, with the then manager of the hotel and with representatives of the Licensing Commission. By a letter dated 25 July 1988, the appellants made an offer to the receivers to purchase the hotel for $1.4 million. This letter was not sent directly to the receivers of the hotel, but was forwarded to Mr McGrath, with a request that it be passed on to the receivers only if the respondent agreed to finance the purchase. The bank approved the provision of finance in principle on 27 July 1988, and the offer was then forwarded by the respondent to the receivers. A contract for the purchase of the hotel at the price of $1.375 million was entered into on 19 August 1988, formal confirmation of approval of finance was provided to the appellants on 22 August 1988, and the contract was completed on 13 September 1988. Security for the loan consisted of a registered mortgage over the hotel, a bill of sale over plant, stock, fittings and -- 4 of 12 -- 4 furniture, and an unregistered mortgage over the appellants' home. The mortgage over the home was subsequently registered, having been lodged for registration on 21 September 1990. 4 It is not contested that, by the time the appellants made their offer to buy the hotel and applied for finance, Mr Finding had ascertained that the hotel was in receivership, that the mortgagee was the respondent, and that the hotel was trading at a loss and not able to service its borrowings. It is also common ground that the respondent was well-informed on all these matters. Internal memoranda expressed concern about recent trading figures and about the ability of any applicant for finance to demonstrate a capacity to repay the loan, based on those figures. In addition, the respondent held a valuation for the hotel of $960,000, an amount considerably less than the contract sum paid by the appellants. The respondent did not disclose this valuation to the appellants. Proceedings Below 5 The appellants, after their purchase of the hotel, ran into financial difficulties, causing a dramatic increase in their debt to the respondent and a failure to discharge their mortgage obligations. The respondent brought proceedings for recovery of possession of the appellants= mortgaged home and the repayment of outstanding debt. It was not disputed that, prima facie, the respondent was entitled to possession of the appellants= home and money due to it, amounting to approximately $4 million. 6 The appellants resisted the claims of the respondent on a number of grounds, including breach of contract, breach of fiduciary duty, unconscionability, and misleading or deceptive conduct on the part of the respondent. Banker/Customer Relationship 7 A central argument for the appellants is that the relationship between the appellants and the -- 5 of 12 -- 5 respondent gave rise to a duty on the part of the respondent either to disclose all relevant information known to it about the hotel transaction, in particular the valuation and the concerns it held about servicing of a loan based on available trading figures, or, at least, to insist that the appellants obtain independent advice before proceeding with the transaction. 8 The two major factors said to give rise to such a duty on the part of the respondent were that the appellants were long-standing customers of the respondent, and the fact that the respondent was both mortgagee exercising power of sale and financier of the purchaser. Other matters relied upon were that the respondent did not ask the appellants for a valuation; that the respondent failed to consistently observe its own internal procedures; that the appellants placed their trust in the respondent; that the respondent was effectively reducing its exposure to risk by shifting it from a prior customer to the appellants; that the respondent knew of the poor trading performance of the hotel; and that at the time of the transaction the appellants had $1 million on deposit with the respondent. Senior counsel for the appellants, Mr Gallagher QC, conceded that his clients could not rely on anything said by the respondent as giving rise to or supporting the duty argued for. 9 Based on these factors it was argued that either a fiduciary duty or some lesser "special" duty arose. The law does not recognise the relationship of banker and customer as one of the accepted categories of fiduciary relationship. Of course, this does not mean that there will not be circumstances where such a relationship will arise. Referring to the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96, Hill J in Golby v Commonwealth Bank of Australia (1996) 72 FCR 134 stated, in our opinion correctly, that: "It is not a critical feature of a banker/customer relationship that the banker undertakes or agrees to act for or on behalf of or in the interests of its customer in the exercise of some power or discretion affecting the interests of the customer in a legal or practical sense . . . Absent therefore some special feature, such as the giving of advice in Smith, there is no -- 6 of 12 -- 6 reason to erect a fiduciary relationship between banker and customer when that relationship is essentially one founded in contract". (136) See also Potts v Westpac Banking Corporation [1993] 1 Qd R 135 at 138. In Commonwealth Bank of Australia v Smith (1991) 102 ALR 453, referred to by Hill J in the extract just quoted, the respondent customers of the appellant bank relied on advice provided by one of its managers to purchase a hotel leasehold. The owners of the leasehold were also customers of the bank. The Full Federal Court upheld the view that the relationship between the bank and the respondent customers was fiduciary in nature. This relationship arose because the bank, through its manager, had brought the parties together; the manager, on behalf of the bank, assumed the role of financial adviser; and the respondent customers placed complete faith in their adviser. 10 The circumstances of the present case are very different from those in Smith. The appellants approached the bank for finance, having already determined to make an offer for the hotel. The respondent at no time assumed the role of financial adviser; in fact, it expressly disavowed such a role, agreeing to finance the purchase of the hotel on the condition that it did not accept that the business would trade satisfactorily in the future, with any such assessment being a matter entirely for the appellants. Consistently with this condition, the appellants at no time placed complete faith in Mr McGrath. In evidence below, Mr Finding made it clear that he settled on an offer of $1.4 million based on his own experience and on information he had himself acquired, obtaining no assistance from any party in arriving at that price. 11 In Truebit Pty Ltd v Westpac Banking Corporation (Federal Court of Australia, NG 456 of 1996, 27 November 1997) the applicants borrowed money from Westpac to finance the purchase of a shopping centre. The shopping centre was sold by Westpac exercising its power of sale as mortgagee. Branson J held that no fiduciary relationship arose between the applicants and -- 7 of 12 -- 7 the bank. The applicants had never sought financial advice from the bank, and the bank at no stage created an expectation that it would provide such advice. As to the dual role played by the bank, that of financier and vendor, a factor said to support the finding of a duty in the present case, her Honour said that: "[T]here is a commercial, and possibly conceptual, unreality surrounding the contention that Westpac was entitled to consider the applicants' application for finance both in the applicants= interest and in Westpac=s own interest as the proposed lender to the applicants, but not in Westpac=s interest as the mortgagee/lender exercising through a receiver the power of sale in respect of [the shopping centre]". In our opinion, none of the factors relied on by the appellants, and in particular the two most strongly relied upon - a relationship of long standing with the respondent and the dual role played by the respondent in the transaction - provide a sufficient basis on which to find a fiduciary relationship between the appellants and the respondent. 12 In the absence of a general fiduciary duty, the appellants contend that nonetheless a special duty on the part of the respondent should be recognised. The jurisprudential basis for such a duty is said to be found in a "graduated liability scheme", articulated in an essay by Finn J (as his Honour now is), "Good Faith and Non-disclosure", in PD Finn (ed) Essays on Torts, Law Book Company, Sydney, 1989 and discussed in Cockburn and Wiseman, Disclosure Obligations in Business Relationships, Federation Press, Sydney, 1996 at 9-11. Cockburn and Wiseman suggest that this scheme "imposes graduated disclosure responsibilities as one moves from arms length relationships between independent persons, to relationships of 'reliance' or of 'assumed responsibility', to fiduciary relationships"; quoting Finn J they say: "[D]isclosure obligations are determined by the 'reasonable expectations' of the parties in a particular relationship, so that liability for non-disclosure 'progresses from a strict liability role in relationships of close dependence, through a "neighbourhood" responsibility in reliance and assumed responsibility relationships, to a markedly circumscribed accountability where the relationship is essentially one of independent parties' ". (10) (emphasis added) -- 8 of 12 -- 8 One of the disadvantages of this doctrine, as it seems to us, is that, heaping Pelion upon Ossa, it produces an additional layer of uncertainty in an area of the law whose essential defect is unpredictability of operation; it is still quite unclear what is the basic concept, if any there be, by which one can identify a fiduciary relationship: see McPherson JA, "Fiduciaries: Who Are They?" (1998) 72 ALJ 288. And two thirds of a century of analysis have left the scope of the "neighbourhood" rule in its original field, that of negligence, quite obscure, outside the case of direct physical damage; one wonders whether use of this vague notion in a new area would be an advance. 13 No special duty of the kind contended for by the appellants could, in any event, be made out. There is no evidence that the appellants relied on the advice of the respondent in relation to the transaction. There is no evidence that the appellants held any expectation that the respondent would disclose the valuation, or any other information. Nor is there any evidence that the respondent assumed the role of adviser to the appellants. In the scheme discussed above, the parties here are nearer to that part of the continuum characterised by independence and circumscribed accountability than that characterised by a "neighbourhood" responsibility. 14 In the absence of a fiduciary duty, or other special duty, owed by the respondent to the appellants, the contention that the respondent was obliged to disclose the valuation it held, or its concerns about trading figures and servicing of the loan, must be rejected. Similarly, there is no basis for holding that the respondent was under an obligation to suggest that Mr Finding, a customer with significant resources and substantial and long-standing experience in commercial matters, should seek independent advice. 15 There is also little merit in the argument that Mrs Finding should have been invited to seek independent advice. The circumstances of this case do not reflect a breach of the principle of -- 9 of 12 -- 9 unconscionability established in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; in particular, Mrs Finding was not in a position of special disadvantage. Nor does the principle established by Yerkey v Jones (1939) 63 CLR 649 and affirmed in Garcia v National Australia Bank Ltd (1998) 194 CLR 395 assist the appellants. Mrs Finding, a woman with some business experience, was a direct beneficiary of the loan, aware that she would benefit if the venture was a success and bear some of the loss if it was a failure. 16 In the absence of a duty on the part of the respondent to disclose the hotel valuation held by it, or its concerns about the hotel=s trading figures, it is unnecessary to consider arguments about whether the appellants would have relied on such information even if it had been disclosed. But it is desirable to mention that the finding by the learned trial judge against the appellants, on this point, seems difficult to displace. Misleading or Deceptive Conduct 17 The other major argument advanced on behalf of the appellants was that the respondent engaged in misleading or deceptive conduct by failing to disclose the hotel valuation. The Chief Justice held that his Honour=s factual conclusions excluding the existence of a fiduciary duty also excluded any basis for a finding of misleading or deceptive conduct. The appellants argue that the failure to establish such a duty does not rule out the possibility that misleading or deceptive conduct occurred. 18 In certain circumstances, silence may constitute misleading or deceptive conduct: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83; Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477. It is less clear when a duty to disclose relevant facts will arise. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Black CJ stated: -- 10 of 12 -- 10 "Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive . . . the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed". (32) Gummow J in Demagogue endorsed the following statement of principle made by French J in Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) &46-054 at 53,195: "If in a particular case silence would, as a matter of fact, constitute misleading or deceptive conduct, sec. 52 by virtue of its prohibition of such conduct imposes its own statutory duty to make disclosure . . . However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist". (41) (See also Warner v Elders Rural Finance Ltd (1993) 113 ALR 517; Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88.) It should be noted that French J's dictum does not support the view that a finding of a reasonable expectation of disclosure determines the case against the party said to have a duty to disclose. Leaving aside the special position of the party subject to a fiduciary or analogous duty, one would ordinarily expect a case in which non-disclosure is held to be unlawful under s 52 Trade Practices Act 1974 (Cth) or its State counterparts to be akin to one in which the general law principle that non-disclosure may falsify what is disclosed would apply; see Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563. The advantages of claiming under the statute rather than under the law of deceit include, in such cases, that there need be no dishonesty proved (cf John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656) and, probably, that the degree of departure from the whole truth required by the statute is less than would be necessary under the general law. But, as it appears to us, statements which do not include a matter the representee would have expected, whether reasonably or not, to be -- 11 of 12 -- 11 disclosed, are not necessarily misleading or deceptive on that account; to hold otherwise would set the barrier too low. There is a gap between behaviour which is thought to be unreasonable and that which is unlawful. There was nothing here which was disclosed by the respondent which was made into a misleading or deceptive statement by non-disclosure of the valuation. Other Matters 19 The appellants, in their written submissions, contest the finding of the Chief Justice that no case of unconscionability was made out. At the appeal hearing Mr Gallagher conceded, correctly in our view, that an argument based on unconscionability had no prospect of success. 20 A final issue raised in the appellants= written outline of submissions, not put in oral argument but not abandoned, is the effect of an alteration made to the memorandum of transfer and bill of mortgage by an employee or agent of the respondent. This alteration, made after the appellants= execution of the mortgage and without their consent, added a land tax charge to the list of encumbrances to which the title was subject. The appellants argue that this alteration rendered the mortgage void, relying on the rule in Pigot=s Case (1614) 11 Co Rep 26b, 77 ER 1177. The Chief Justice held, applying s 37 of the Land Tax Act 1915, that the bill of mortgage was always subject to the land tax, whether or not it was noted in the transfer and bill of mortgage. Accepting as we do the correctness of this view, we conclude that the addition of which the appellants complain left the documents in question unaltered in their legal effect and this point also fails. Conclusion 21 The appeal is dismissed with costs. -- 12 of 12 --