Raging Thunder Pty Ltd v Bank of Western Australia Ltd
[2012] QSC 329
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- Unreported Judgment
- Raging Thunder Pty Ltd v Bank of Western Australia Ltd[2012] QSC 329
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Raging Thunder Pty Ltd v Bank of Western Australia Ltd[2012] QSC 329
Raging Thunder Pty Ltd v Bank of Western Australia Ltd[2012] QSC 329
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial Division | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 31 October 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 14 August 2012 |
JUDGE: | Applegarth J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – Summary judgment – where the defendant (“Bank West”) provided finance for the purchase of a wholly owned subsidiary (“FIH”) of the first plaintiff (“Raging Thunder”) – where Raging Thunder also provided vendor finance – where Bank West provided further loan facilities to FIH for the purpose of redeveloping a resort – where deed granted Bank West first ranking priority over securities granted in favour of Raging Thunder – where plaintiffs allege breach of implied terms in priority deed and breach of duty of care in the manner Bank West lent money to FIH – where Raging Thunder claims equitable compensation but does not adequately plead a basis for this – where Raging Thunder also alleges misleading or deceptive conduct – where Bank West contends that plaintiffs have no real prospect of success in establishing their claims – whether Bank West is entitled to summary judgment on all or part of the plaintiffs’ amended claim – whether, in the alternative, all or part of the amended statement of claim should be struck out CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where Raging Thunder, FIH and Bank West entered into a deed of priority – where Raging Thunder alleges certain terms are implied in the deed of priority – whether those terms meet the conditions for implication – whether Bank West should be granted summary judgment on this part of the amended claim BANKING AND FINANCE – BANKS – LIABILITIES OF BANKS – NEGLIGENCE – Duty of care – where plaintiffs allege that Bank West owed them a duty of care to exercise the care and skill of a reasonably competent and prudent banker in and about making loans to a party which was indebted to each of the plaintiffs – where Bank West contends that no such duty exists and applies for summary judgment – whether Bank West is entitled to summary judgment on this part of the amended claim – whether, in the alternative, certain paragraphs of the amended statement of claim should be struck out TRADE PRACTICES AND RELATED MATTERS – MISLEADING OR DECEPTIVE CONDUCT – Trade Practices Act 1974 (Cth) – where Raging Thunder pleads that loan documents and deed of priority represented that Bank West had reasonably effective safeguards and monitoring systems to ensure loans would be applied to complete planned development – where Bank West contends documents incapable of conveying such a representation – whether Bank West is entitled to summary judgment on this part of the amended claim – whether amended statement of claim adequately pleaded the circumstances that were alleged to constitute the misleading or deceptive conduct – whether certain paragraphs of the amended statement of claim should be struck out Trade Practices Act 1974 (Cth), s 82 Australian Securities and Investments Commission Act 2001 (Cth), s 12GF AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2010] 2 Qd R 101, cited Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, cited Bank of Western Australia Ltd v Phil Zhanming Luo & Anor [2010] NSWSC 733, cited Barclay v Penberthy (2012) 291 ALR 608; [2012] HCA 40, cited Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd [2009] 2 Qd R 202, cited BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, applied Butt v M’Donald (1896) 7 QLJ 68, cited Campomar Sociedad Limitada v Nike International Ltd (1999) 202 CLR 45, cited Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, cited Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, cited Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232, cited Farquhar v Bottom [1980] 2 NSWLR 380, cited General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, cited Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, applied Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126, cited Mirvac Queensland Pty Ltd v Horne [2009] QSC 269, cited Perre v Apand Pty Ltd (1999) 198 CLR 180, cited Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, cited Platinum United II Pty Ltd v Secured Mortgage Management Ltd (in liq) [2011] QCA 162, cited Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, cited Spencer v The Commonwealth (2010) 241 CLR 118, cited St George Bank Ltd v Wright [2009] QSC 337, cited Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80, cited Theseus Exploration NL v Foyster (1972) 126 CLR 507, cited Tomlin v Ford Credit Australia Ltd [2005] NSWSC 540, cited United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618, cited Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2003) 216 CLR 515, cited |
COUNSEL: | L F Kelly SC and M F Johnston for the applicant/defendant D A Savage SC and C A Wilkins for the respondents/plaintiffs |
SOLICITORS: | McCullough Robertson for the applicant/defendant Porter Davies for the respondents/plaintiffs |
[1] Fitzroy Island Holdings Pty Ltd (“FIH”) carried on a resort business on leased land. It was a wholly owned subsidiary of the first plaintiff (“Raging Thunder”) until Raging Thunder sold its shares in FIH to Hunt Island Group Pty Ltd (“HIG”) for $18M. The defendant (“Bank West”) financed $11.8M towards HIG’s purchase, and Raging Thunder provided vendor finance of $8M.
[2] Raging Thunder and Bank West agreed in a Deed of Priority that a charge and mortgage granted by FIH to Bank West would have first priority up to an amount of $11.8M over the securities granted in favour of Raging Thunder.
[3] In early 2007 Bank West offered further loan facilities to FIH to assist with the redevelopment of the resort on Fitzroy Island, subject to certain conditions which Bank West might waive. As a result of this letter of offer Bank West, Raging Thunder and FIH entered into the “Second Deed of Priority” which gave Bank West first ranking priority for certain amounts.
[4] Bank West financed amounts towards the redevelopment, and by 26 July 2007 Raging Thunder acknowledged that Bank West’s priority had increased to $37,288,000. The redevelopment proved to be a financial failure. Liquidators were appointed to FIH and Bank West exercised its power of sale as mortgagee. Bank West suffered major losses, and Raging Thunder was not paid the $8M owed to it by FIH.
[5] Another Raging Thunder subsidiary, the second plaintiff (“FI”), was not paid $3M owed to it by FIH under a Management Rights Deed.
[6] Raging Thunder sues Bank West for:
1.Breach of alleged implied terms of the Second Deed of Priority;
2.Negligence;
3.Misleading or deceptive conduct;
4.Breach of agreement and estoppel in respect of two apartments that were promised to it by FIH by way of interest.
It also claims “equitable compensation” but the basis for this claim is not pleaded. FI sues Bank West for negligence.
[7] Neither plaintiff raises any complaint about the manner in which Bank West exercised its power of sale. Instead, their main complaint relates to the manner in which Bank West lent money to FIH.
[8] Bank West applies for summary judgment, and in the alternative, for orders that the plaintiffs’ pleading be struck out. Its application is made on the assumption (without any admission) that the plaintiffs can prove at trial each of the material facts pleaded by them. Bank West submits that, as a matter of law, the plaintiffs have “no real prospect” of succeeding on each of their causes of action. Its argument is that when the plaintiffs’ case is reduced to its essential component, it is based on the premise that a mortgagee which has a first-ranking security owes legal obligations to a second-ranking mortgagee as to how it lends money to a borrower. The premise that Bank West had such duties, including a duty to a subsequent mortgagee to monitor how the borrower used money in a development, is said to be untenable in circumstances where:
(a)the bank did not agree with its customer, let alone with the subsequent mortgagee, to perform such duties;
(b)the subsequent mortgagee did not seek or obtain a promise that the bank would perform those duties;
(c)the bank retained a broad discretion as to how it would carry out its lending;
(d)the plaintiffs knew this, and also knew that the bank might waive conditions precedent on the making of advances.
[9] The application requires separate consideration of:
1.The implied terms alleged by Raging Thunder.
2.The duty of care alleged by the plaintiffs in support of their negligence claims.
3.The absence of a pleaded basis to claim relief by way of equitable compensation.
4.Raging Thunder’s misleading or deceptive conduct claim.
5.Raging Thunder’s claim about the two apartments.
[10] First I will address the principles governing an application for summary judgment based on questions of law and the facts about which there is no dispute for the purposes of the application.
Summary judgment principles
[11] Rule 293 of the Uniform Civil Procedure Rules 1999 (“UCPR”) empowers the Court to give summary judgment where:
(a)the plaintiff has no real prospect of succeeding on all or part of its claim; and
(b)there is no need for a trial of the claim or part of the claim.
[12] The words “no real prospect of success” speak for themselves; and the word “real” requires something other than a fanciful prospect of success.[1] Caution is required, even in a case in which the facts are assumed in the plaintiff’s favour on such an application, not to improperly deprive a party of an opportunity for a trial of its claim.
[13] The fact that extensive legal argument is necessary to demonstrate that a claim is so clearly untenable that it has “no real prospect of success” does not preclude the grant of summary judgment.[2] But it is not always the end of a matter that the success of a proceeding depends upon propositions of law apparently precluded by existing authority. As French CJ and Gummow J observed in Spencer v The Commonwealth:
“Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law.” [3]
Where, however, the success of a proceeding is critically dependent upon a proposition of law which contradicts binding authority, a court hearing an application may justifiably conclude that the proceeding has “no real prospect of success”.
[14] If that demanding criterion in the first limb of r 293(2) is satisfied, then in a matter in which the facts are not in contention, the second limb also may be satisfied. There may be no need for a trial because, even assuming in the plaintiff’s favour that it will prove the facts pleaded by it, its claim will fail as a matter of law. If the claim is precluded as a matter of law, a trial may not be needed, and will be productive of unnecessary costs.
[15] In some cases, the extent and complexity of questions of law may warrant a trial of those issues. [4] In other cases, where the facts are not in dispute and the rights of the parties turn upon questions of law, the Court may give summary judgment even where the point of law is difficult.[5]
[16] The matters of law raised by Bank West were fully argued by the parties in initial, supplementary and responsive written submissions and in oral submissions.
Factual Background
[17] Fitzroy Island is off the coast of Cairns. Until 21 November 2006, FIH, which is not a party to these proceedings, was a wholly-owned subsidiary of Raging Thunder. Until about December 2006, FIH carried on a resort business on leased land on Fitzroy Island.
[18] On 4 October 2006 a share sale agreement was entered into by which Raging Thunder sold its shares in FIH to HIG for $18M. The share sale agreement provided, among other things, for:
(a)a deposit of $100,000;
(b)an “initial instalment” of $9.9M;
(c)the balance of the purchase price ($8M) to be paid 30 days after the later of:
(i)registration of the first sublease in respect of a tourist accommodation apartment on the leased land;
(ii)the issuing of a certificate of classification in respect of the first tourist accommodation apartment building to be constructed on the leased land; or
(iii)14 January 2008;
(d)the transfer of two apartments to Raging Thunder upon the completion of the development of tourist accommodation apartments on the land by way of fixed interest payment in respect of the vendor finance for the balance of the purchase price.
[19] FIH agreed to guarantee payment of the balance purchase price, and to a grant of mortgage over the land in support of its obligations under the guarantee. The mortgage was to be second in priority, behind HIG’s financier. FIH’s liability under the guarantee and the mortgage was to be limited to the balance of purchase price, interest on the balance purchase price (being the two apartments) and interest and costs incurred by HIG in relation to the enforcement of any of the securities.
[20] FIH borrowed approximately $11.8M from Bank West to fund HIG’s purchase of shares in FIH from Raging Thunder.
[21] At the time of the share sale agreement there were various development permits authorising redevelopment of the resort.
[22] On 21 November 2006:
(a)HIG paid Raging Thunder the “initial instalment” of $9.9M;
(b)Raging Thunder transferred its shares in FIH to HIG;
(c)FIH executed the guarantee and the mortgage;
(d)FIH executed a document by which it charged its assets and undertaking in favour of Bank West to secure payment to it of any and all amounts it might at any time owe Bank West for any reason;
(e)HIG, other entities and individuals associated with it executed guarantees in favour of Bank West by which they guaranteed FIH’s obligations to Bank West;
(f)Raging Thunder and Bank West entered into a deed titled “Deed of Priority” (“the First Deed of Priority”) by which they agreed, among other things, that the charge and mortgage executed by FIH in favour of Bank West would have priority over the mortgage executed by FIH in favour of Raging Thunder up to an amount of $11.8M plus “any interest accrued or accruing on that amount (whether or not capitalised) and costs”.
[23] The mortgage given in favour of Bank West and the mortgage given in favour of Raging Thunder were registered on 27 and 29 November 2006 respectively over FIH’s interest as lessee under a Perpetual Lease and a Water Lease.
[24] In late November 2006 FIH (or HIG) engaged a contractor to carry out building works on the leased land. Preliminary works commenced in about December 2006.
The Letter of Offer
[25] By a letter dated 10 January 2007 (“the Letter of Offer”) Bank West offered to provide further loan facilities to FIH. The facilities included:
(a)continuation of the existing facility with a facility limit of $11.8M until 15 December 2007;
(b)a new commercial advance facility to “assist with the construction of the Central Plaza Facility, Fitzroy Island” with a facility limit of $8.39M until 15 December 2007;
(c)a new commercial advance facility to “assist with the GST costs associated with the construction of the Central Plaza Facility” with a facility limit of $250,000 until 15 December 2007.
[26] Part 4 of the Facility Terms which were attached to the Letter of Offer contained nine conditions precedent. It commenced:
“All the conditions precedent set out below must be completed to our satisfaction or waived by us before we will provide any of the Facilities to you or provide the first Drawing or any subsequent Drawing to you.”
I shall not set out the conditions precedent in full. Condition precedent 4 provided for an agreement between Raging Thunder and a builder acceptable to Bank West for the building works, with such agreement to be a fixed price and time contract which required practical completion to occur by 30 November 2007.
[27] Condition precedent 5 required the agreement to give Bank West “the right to step in and step out” in relation to the “development” and for the building agreement to be a tripartite one between Raging Thunder, the builder and Bank West. It also addressed certain circumstances under which the building contract might be terminated.
[28] Condition precedent 7 required a report addressed to Bank West from one of its “approved panel quantity surveyors” at FIH’s expense confirming in accordance with Bank West standard instructions a number of matters in relation to the contract, including the cost of building works and the time required to complete them. Condition precedent 8 required a report addressed to Bank West from the approved panel quantity surveyor confirming progress claims in various respects.
[29] The general conditions of the Facility Terms included an obligation on FIH to “not undertake any material development or acquisition without [Bank West’s] prior written consent” (cl 6.7). Clause 6.13 addressed certain building works undertakings, including ensuring that FIH’s obligations under the contract for building works were not varied without Bank West’s consent and an obligation to ensure that practical completion of the building works to the satisfaction of Bank West’s appointed quantity surveyor occurred by 30 November 2007. The “Building Works” referred to in the Letter of Offer refer to building works for the Central Plaza Facility.
[30] FIH accepted the offer made by Bank West in the Letter of Offer in around late January 2007.
The Second Deed of Priority
[31] On or about 9 March 2007 Raging Thunder, Bank West and FIH entered into another Deed of Priority (“the Second Deed of Priority”). It supplanted the First Deed of Priority. It relevantly provides:
(a)in clause 2.1 that:
“To the extent that the First Security and the Second Security create or evidence a Security Interest over the same property of the Chargor, the parties agree that they rank in the following order or priority, and all money received by either Chargee, or a Receiver on enforcement of any Security must be applied in this order:
(a)first priority to the First Security for the First Chargee’s Secured Money, up to the First Priority Amount;
(b)second priority to the Second Security for the Second Chargee’s Secured Money, up to the Second Priority Amount;
(c)third priority to the First Security for the balance (if any) of the First Chargee’s Secured Money; and
(d)fourth priority to the Second Security for the balance (if any) of the Second Chargee’s Secured Money.”;
(b)that the “First Security” comprised, inter alia, the charge and mortgage executed by FIH in favour of Bank West on or about 21 November 2006;
(c)that the “Second Security” comprised, inter alia, the mortgage executed by FIH in favour of Raging Thunder on or about 21 November 2006;
(d)that the “First Chargee” was Bank West;
(e)that the “Second Chargee” was Raging Thunder;
(f)that the “Chargor” was FIH;
(g)that the “First Priority Amount” meant:
“[$20.44 million] to be advanced by the First Chargee to the Chargor in accordance with the letter of offer dated 10 January 2007 (copy annexed) plus any interest accrued or accruing on that amount (whether or not capitalized), bank fees and costs together with any amount the First Chargee may choose to pay or advance to the Chargor in excess of that amount which the First Chargee considers, in its sole discretion, is necessary to pay or advance to complete the Chargor’s development of the day visitor facilities, the ‘North Beach’ development or renovation of the backpacker facilities on Fitzroy Island, Queensland in substantial accordance with the development approvals and rights held by the Chargor as at 29 November 2006.” (emphasis added); and
(h)that the “Second Priority Amount” meant $8 million.
[32] Clause 2.2 provides that the Order of Priority set out in cl 2.1 applies despite anything that, but for cl 2.2, would affect that Order or Priority, including:
“(e)any change in the amount of any Secured Money including by the making of repayments and further advances;
(f) the grant by a Chargee or any other person of any time, waiver or indulgence or concession;
...
(i) the failure by a Chargee to give notice to the other Chargee or the Chargor of any default by any person; or
(j) any laches, acquiescence, delay, act, omission or mistake on the part of or suffered by a Chargee or any other person in relation to:
(a)this document;
(b)any Security;
(c)any other Security Interest; or
(d)any other document or agreement.” (emphasis added)
[33] The Letter of Offer was attached to the Second Deed of Priority.
Subsequent events
[34] In the period between the Second Deed of Priority and 21 April 2009 Bank West lent FIH more than $50M in addition to the loan (or loans) it had made to FIH on or about 21 November 2006. According to paragraph 50 of the amended statement of claim, between March 2007 and March 2009:
(a)FIH tried to develop the leased land into a five star tourist resort instead of a three star tourist resort;
(b)it renovated eight beach cabins which were located in an erosion-prone area, whereas the approved designs and plans required them to be demolished;
(c)it renovated a restaurant and bar when the approved designs and plans required them to be demolished;
(d)in various other respects the development did not comply with what was required by the approved designs and plans;
(e)the renovation of the Central Plaza Facility was not completed;
(f)47 apartments were constructed but only 14 of them complied with the approved designs and plans;
(g)the Central Plaza Facility was made some 30 per cent larger than permitted by the approved designs and plans, and was renovated and constructed so as to be radically different from the design which was the subject of the approved designs and plans;
(h)FIH did not apply to the Cairns City Council or any other regulatory authority for permission to develop the leased land in a fashion which departed from the approved designs and plans.
[35] Bank West appointed receivers and managers to the assets and undertaking of FIH on 21 April 2009. FIH commenced to be wound up on 30 July 2009. No dividend was paid to any creditor in the winding up and no dividend will be paid to any creditor.
[36] In or about February 2010 Bank West, as mortgagee exercising its power of sale, sold FIH’s interests in the lease with the exception of certain subleases and improvements constructed on the leased land for approximately $7.9M. The sale was completed in mid-March 2010.
FIH’s obligation to pay $3M to the second plaintiff
[37] Before the share sale agreement, and on 19 July 2006, FIH and FI executed a Management Rights Deed with respect to the Fitzroy Island Resort, which was subsequently varied by deed on 6 November 2006. The Management Rights Deed, as varied, provided to the effect that if FIH and FI did not enter into a management agreement by 1 May 2007, then FI relinquished its existing and proposed management rights and FIH would pay $3M (plus GST) to FI in consideration of relinquishing those rights.
[38] FI and FIH did not enter into a new management agreement and FI did not receive the $3M (plus GST) from FIH.
The implied terms alleged by Raging Thunder
[39] In its original statement of claim Raging Thunder alleged that certain terms were implied in the Second Deed of Priority. In its defence and in solicitors’ correspondence, Bank West contended that the pleaded implied terms were flawed, as a matter of law, and that the pleading of them was defective. After an application for summary judgment and, in the alternative, an application to strike out the statement of claim were brought, and shortly before the original hearing date, the plaintiffs foreshadowed an amended statement of claim. The amended statement of claim filed on 27 April 2012 altered some parts of paragraph 44 which pleaded the implied terms. The amendments are underlined for ease of reference. I have marked in bold parts of the pleading to which Bank West directs attention and which seek to impose an obligation on Bank West to “exercise reasonable care” in various respects:
“44.The Second Deed of Priority also contained the following implied terms:
(a)In and about making loans to FIH, the defendant would exercise the care and skill of a reasonably competent and prudent banker (or, alternatively, would act in good faith and not recklessly).
(b)In and about making loans to FIH, the defendant would exercise reasonable care to protect (or, alternatively, would act in good faith and not recklessly so as to endanger):
(i)its own interests as the first ranking mortgagee; and
(ii)the interests of the first plaintiff as the second ranking mortgagee (save for where the first plaintiff’s interests were in conflict with the interests of the defendant).
(c)In and about making the loans to FIH referred to in the Letter of Offer, the defendant would exercise reasonable care to ensure (or, alternatively, would not act recklessly fail to ensure without first ensuring) that the conditions precedent described in the Letter of Offer (which the defendant did not waive) had been met by FIH.
(d)In and about making the loans to FIH referred to in the Letter of Offer, the defendant would exercise reasonable care in waiving (or, alternatively would act in good faith, fairly and reasonably in waiving) any of the conditions precedent described in the Letter of Offer.
(e)In giving any consent to FIH under clause 6.7 of the Letter of Offer to allow FIH to undertake material development the defendant would exercise reasonable care (or, alternatively would act in good faith, fairly and reasonably).
(f)In and about making loans to FIH, the defendant would exercise reasonable care (or, alternatively would act in good faith and not recklessly) to ensure FIH had redeveloped the Central Plaza Facility by 30 November 2007.
(g)In and about making loans to FIH, the defendant would exercise reasonable care (or, alternatively, would act in good faith and not recklessly) to ensure development works carried out by FIH complied with plans and specifications approved by the relevant authorities.”
[40] Raging Thunder pleads:
“45.In the circumstances pleaded in paragraphs 14 to 43 above, and having regard to the purpose and object of the Second Deed of Priority, each term pleaded in the preceding paragraph was implied in the Second Deed of Priority as it:
(a)was reasonable and equitable;
(b)was necessary to give business efficacy to the Second Deed of Priority;
(c)was so obvious as to go without saying;
(d)was capable of clear expression; and
(e)did not contradict any express term of the Second Deed of Priority.”
The five matters referred to in subparagraphs (a) to (e) are the conditions (which may overlap) that must be satisfied for a term to be implied.[6] As was said in BP Refinery (Westernport) Pty Ltd v Shire of Hastings by Lords Wilberforce and Morris:
“If, in order to make an agreement work, or, conversely, in order to avoid an unworkable situation, it is necessary to imply a term; if moreover implication of that term corresponds with the evident intention of the parties underlying the agreement, the law not only can but must imply the term.”[7]
[41] Bank West submits that Raging Thunder has no real prospect of establishing any of the alleged implied terms since, even assuming all of the material facts alleged in its favour, it has no real prospect that it can establish the five necessary conditions to imply them.
[42] Raging Thunder relies upon the matters pleaded in paragraphs 14 to 43 of its amended statement of claim, and these may be summarised as follows:
(a)matters in relation to the resort and the approvals and plans that existed as at 4 October 2006 in relation to its redevelopment (paragraph 14);
(b)the share sale agreement and payment of the deposit under it (paragraphs 15 to 19);
(c)the matters that occurred on or about 21 November 2006, including the payment to Raging Thunder of the initial instalment of $9.9M, the transfer of shares and the execution of guarantees and mortgages, and the registration of the mortgages on 27 and 29 November 2006 (paragraphs 20 to 22);
(d)the fact that before Bank West lent the $11.8M to FIH it obtained a copy of and read the Management Rights Deed entered into between FI and FIH on 19 July 2006, a deed varying it dated 6 November 2006, the share sale agreement, a deed varying it, the approved designs and plans and a report dated 5 October 2005 prepared by quantity surveyors and construction cost managers (paragraph 23);
(e)the undertaking of certain building works in late 2006 (paragraphs 24 and 25);
(f)the Letter of Offer and some of its terms (paragraphs 26 to 36);
(g)the Second Deed of Priority, some of its terms and the fact that the Letter of Offer was attached to the Second Deed of Priority (paragraphs 37 to 43).
The purpose and object of the Second Deed of Priority, and whether it is efficacious or workable without the implied terms
[43] As noted, Raging Thunder pleads the implied terms on the basis of these matters and having regard to “the purpose and object of the Second Deed of Priority”. The alleged “purpose and object of the Second Deed of Priority” is not pleaded by Raging Thunder and this, of itself, is a reason to strike out this part of its pleading. Reference to the document itself, and cl 2.1 of it which I have earlier quoted, indicate that the agreement was about the order or priority between Bank West and Raging Thunder in respect of money received by either of them on the enforcement of any security. Other parts of the deed addressed matters such as enforcing the securities. There is nothing in the terms of the Second Deed of Priority to suggest that its purpose or object was to constrain Bank West in the manner in which it lent money to FIH. Indeed, cl 2.2, to which I have earlier referred, provides that the order or priority is not affected by matters such as the making of further advances, the granting of any waiver, indulgence or concession or any act, omission or mistake on the part of Bank West in relation to any security or any other document or agreement.
[44] It might be said that the purpose or object of the Second Deed of Priority was to provide that Bank West’s priority was only in respect of money advanced that fell within the “First Priority Amount” and that it did not have priority in respect of money advanced for other purposes. So much may be accepted.
[45] Raging Thunder submits that the purpose and object of the Second Deed of Priority was to enable Bank West to lend (limited with respect to priority due to the second mortgagee) to FIH particular sums for construction work pursuant to the conditions contained in the Letter of Offer, and for the purpose of the particular construction work that was in contemplation. It points to the conditions precedent in the Letter of Offer to say that the work was to be done by an approved builder for a specific fixed price to be completed by a fixed date in accordance with approved plans. It submits that this purpose would be defeated if Bank West were free to lend to FIH in a way that radically departed from the Letter of Offer and for purposes other than the specified purpose. Obligations of the kind pleaded by way of implied terms are said to be necessary “to keep intact the purpose and object of the Second Deed of Priority”, and that the Second Deed of Priority would not be effective to facilitate lending by Bank West to FIH pursuant to the Letter of Offer if Bank West were able to lend any sum to FIH in a way which recklessly or negligently departed from what was provided for in the Letter of Offer. The Second Deed of Priority is said to be unworkable without the implied obligations.
[46] Bank West responds by submitting that Raging Thunder’s submissions misstate the “purpose and object” of the Second Deed of Priority. Its purpose, like any similar deed of priority, is said to be “to provide for priority of security in relation to stated amounts for a stated purpose, not to provide as to how and in what manner a bank will exercise its discretion in lending the relevant money.”
[47] To the extent that the purpose and object of the Second Deed of Priority is to be determined by reference to the Letter of Offer which was attached to it, it is important to recall that the purpose of the new commercial advance referred to in the Letter of Offer was cast in general terms, namely to “assist with the construction costs of the Central Plaza Facility, Fitzroy Island”, and that the conditions precedent relating to building contracts and the like were conditions which had to be completed to Bank West’s satisfaction or which could be waived by it.
[48] In addition to the amount of $20,440,000 specified in item 5 of the schedule to the Deed of Priority, the “First Priority Amount” includes any amount Bank West might choose to advance to FIH in excess of that amount which Bank West “considers, in its sole discretion, is necessary to pay or advance” to complete the development of the day visitor facilities, the North Beach development or renovation of the backpacker facilities on Fitzroy Island in substantial accordance with the development approvals and rights held by FIH as at 29 November 2006.
[49] If Bank West advanced money for a different purpose then it would not have priority in respect of the amounts so advanced. If, however, it did advance sums that fell within the definition of “First Priority Amount” then it had priority. I am not concerned with an issue about whether Bank West enjoyed priority in relation to all of the amounts advanced by it. The proceeding is not one about priorities and whether all of the money advanced by Bank West fell within the definition of “First Priority Amount”. The present issue is whether in advancing the money that it did, Bank West was constrained by the implied terms of the Second Deed of Priority which Raging Thunder alleges.
[50] The Second Deed of Priority governed priorities and gave Bank West a certain priority for sums advanced for stated purposes. It did not preclude Bank West making loans to FIH for other purposes.
[51] For a term to be implied it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it.[8] The implied terms contended for by Raging Thunder are not necessary to make the Second Deed of Priority work, or to avoid an unworkable situation. In the absence of those implied terms, the Second Deed of Priority is efficacious to rank the order of priority so that money received on enforcement of any security is applied in accordance with that priority.
[52] Raging Thunder submits that “the very purpose of the Second Deed of Priority was to enable Bank West to lend to FIH pursuant to the Letter of Offer on the basis of certain agreed priorities between mortgagees.” This purpose may be advanced without the implied terms for which Raging Thunder contends.
Are the implied terms “so obvious that they go without saying”?
[53] Raging Thunder submits that the implied terms are “so obvious that they go without saying”, and that they do no more than require Bank West to lend to FIH in the way provided for in the Letter of Offer. However, the Deed of Priority did not restrain Bank West from lending to FIH for purposes other than those stated in the Second Deed of Priority and the Letter of Offer. Instead, if Bank West did so, it would not enjoy first priority. Again it is necessary to recall that the second amount contemplated in the “First Priority Amount” gave Bank West a wide discretion in determining what was necessary to complete the specified developments in substantial accordance with development approvals and rights held by FIH. To the extent that the Letter of Offer constrained Bank West, as already noted, the purpose of the additional advance of $8,390,000 was to assist with the construction costs of the Central Plaza Facility and Bank West might waive all of the conditions precedent.
[54] Raging Thunder submits that if it had asked Bank West at the time of entering into the Second Deed of Priority whether Bank West would see to it that:
“(a)loans to FIH were made in accordance with the Letter of Offer;
(b)its own financial interests (and the financial interests of Raging Thunder, to the extent they coincided with and did not conflict with the interests of BankWest) were protected in the way it made loans to FIH;
(c)conditions precedent in the Letter of Offer were only waived where it was appropriate to do so;
(d)conditions precedent in the Letter of Offer (which were not waived) were satisfied;
(e)consent to FIH undertaking material development was only given where it was appropriate to do so;
(f)FIH redeveloped the Central Plaza Facility by 30 November 2007; and
(g)FIH caused development works to be carried out in accordance with plans and specifications approved by the relevant authorities;
the answer would, in each case, have been ‘of course’.”
I note in passing that these matters do not align with the alleged implied terms. To the extent they contain expressions such as “appropriate” they beg the question of by whose standard the appropriateness of waiving conditions precedent or consenting to development was to be judged. In any event, it is not at all obvious that Bank West would have agreed to these matters, and it certainly is not obvious that it would have agreed to the implied terms that are pleaded in paragraph 44 of the amended statement of claim.
[55] The terms contended for impose significant obligations on Bank West as to the manner of its lending and its monitoring development works on an island. If an officious bystander had asked Bank West at the time it entered the Second Deed of Priority whether it was intended that it should undertake the various obligations pleaded in paragraph 44 which required it to, amongst other things, exercise reasonable care in various respects, it would not have replied “of course” or responded to the effect that these matters were “so clear that we did not bother to say it”.[9] The implied terms are not so obvious that they go without saying. If the bank had been asked whether it accepted that it was subject to such obligations it almost certainly would have answered in the negative. It certainly would not have replied “of course”.
[56] The terms impose obligations upon the bank to protect the interests of a subsequent mortgagee. Its own customer had not negotiated such terms. It is not obvious that the bank would have agreed to such terms in favour of a subsequent lender. Having not promised to exercise the care and skill of a reasonably competent and prudent banker to its customer, the assumption by it of such an obligation to a subsequent mortgagee is not so obvious as to go without saying. The same applies to obligations that required it to exercise care in waiving conditions, exercising care to ensure that conditions were met and exercising reasonable care to ensure that development works were carried out in accordance with plans and specifications. The implied terms contended for by Bank West would constrain the manner in which Bank West made advances and constrain the discretion which it had, by virtue of the Letter of Offer, to waive conditions precedent. It would also constrain the discretion that it had in respect of making further advances to FIH for the purposes of the development.
[57] Raging Thunder does not advance any adequate reason as to why Bank West would be prepared to assume such obligations if requested. Raging Thunder was not paying Bank West to provide services for its protection.
[58] Bank West might decide to make advances, waive conditions or accept assurances about the progress of the development for reasons that seemed to it to be reasonable at the time, but which might not be assessed by a court many years later as being reasonable. Why would it wish to become involved in disputes, let alone litigation, with Raging Thunder about the reasonableness of its conduct? The express terms of the Second Deed of Priority and the Letter of Offer accorded it a wide discretion in relation to further advances and waiving conditions precedent. They did not subject the bank’s decisions in lending money to a requirement of reasonableness. Why should it be supposed that the bank would subject its conduct to restraints and retrospective review by assuming obligations of the kind pleaded?
[59] In summary, the Second Deed of Priority was an agreement between lenders about ranking priorities for security. It stated that Bank West would have a certain priority in relation to certain amounts that were advanced for a stated purpose. Bank West did not promise in the Second Deed of Priority how it would go about lending money for the stated purpose, or for any other purpose. Bank West is not alleged to have promised its own customer to go about its lending in the manner alleged by the implied terms. The implied terms impose ill-defined obligations upon Bank West towards a subsequent lender and constrain its discretion about the manner in which it lends money to FIH, including its power to waive conditions precedent. For reasons to be addressed, the implied terms are inconsistent with the terms of the Second Deed of Priority.
[60] It is untenable to suggest that, if asked by a bystander, Bank West would have said, “Of course those terms apply.” There is no real prospect that Raging Thunder can establish that the implied terms are “so obvious that they go without saying”.
Are the implied terms reasonable and equitable?
[61] A related issue is whether the implied terms are reasonable and equitable. For the reasons addressed above, the implied terms place obligations on Bank West not only to protect its own interests, but to protect the interests of a subsequent mortgagee, including an obligation to take reasonable care to ensure that the borrower completed the redevelopment by a stated date and in compliance with approved plans.
[62] Raging Thunder submits that a requirement on Bank West to do things to protect its own financial interest as mortgagee in making loans is reasonable, and that what “ought to be done is readily presumed.” I am unable to agree. One might readily accept that Bank West should be expected to protect its own interests. It is an entirely different matter to contend that it has an implied obligation to another party to protect its own financial interests. Next, a legal obligation to exercise reasonable care to protect its own interests (or to act in good faith and not recklessly so as to endanger its own interests) calls into question by what standard is such a matter to be judged. If Bank West is not to be taken to be the best judge of its own interests, how would its own interests be determined from time to time as it went about making loans to FIH? For example, the bank might consider that it is in its interests, and also in the interests of its customer, to advance further monies in the interests of completing a development. Its customer may plead with it to do so. An objective and retrospective assessment, however, may lead to the conclusion that the decision to lend further money was not in the bank’s interests. If the bank was under a legal obligation to a subsequent mortgagee about the manner in which it made lending decisions, with the result that it would expose itself to legal liability if it failed to observe the required standard in protecting its own interests, then the bank would have assumed a potential legal liability for no apparent reward.
[63] It is not reasonable or equitable to expect a bank to assume legal liability for a failure to protect its own interests. It would not be reasonable to impose the pleaded obligations on the bank in circumstances in which it was not requested to assume such obligations and where the Second Deed of Priority addressed the ranking of priorities, not the manner in which the bank would conduct its lending practices.
[64] An additional reason not to accept the implied terms is that it is not reasonable or equitable to require the bank to be subject to obligations cast in terms of indeterminate reference and having an uncertain operation.
[65] It might be said that terms such as “the care and skill of a reasonable competent and prudent banker”, “good faith”, “not recklessly” and “save for where the first plaintiff’s interests were in conflict with the interest of the defendant” are clearly expressed terms. If they are clearly expressed, they are uncertain in their practical operation. For example, in what circumstances might a bank in Bank West’s position come to the conclusion that Raging Thunder’s interests were in conflict with its interests, so as to relieve it of the obligation to protect its own interests and the interests of Raging Thunder?
[66] The scope for disputes over the practical application of such terms is an additional reason why their implication cannot be said to be reasonable or equitable.
Do the implied terms contradict the express terms of the Second Deed of Priority?
[67] Bank West submits that there is an inherent conflict between the Second Deed of Priority and the implied terms that are pleaded. The Second Deed of Priority served to protect Bank West and to accord it a wide discretion in relation to lending money to FIH. The implied terms contented for are said to contradict the wide discretion found in the definition of “First Priority Amount”. Terms that would require Bank West to exercise reasonable care to protect Raging Thunder are inconsistent with an agreement which affords Bank West a discretion of the kind found in the definition of the “First Priority Amount”. Although the discretion is cast in different terms to that discussed in Platinum United II Pty Ltd v Secured Mortgage Management Ltd (in liq),[10] the issue is a similar one. The entitlement to make further advances “in its sole discretion” permits Bank West to make a broad discretionary judgment about whether an advance is necessary to complete the development. A contract which confers such a wide discretion is inconsistent with an implied obligation to exercise reasonable care in making loans. The bank might consider “in its sole discretion” that it is necessary to pay or advance an amount to complete the relevant developments in substantial accordance with development approvals and rights. In formulating that view the bank may be pursuing its interests, as it is entitled to do. Its consideration may, however, be flawed due to a lack of information or a lack of care. The Second Deed of Priority contemplates that the bank might advance monies upon reaching the view that the further advances are necessary to complete the development. The implied terms contended for would not permit such an advance to be made in certain circumstances which fall within the terms of “First Priority Amount”. An implied term which constrained the bank from advancing monies in those circumstances would be inconsistent with the express terms of the Second Deed of Priority.
[68] Raging Thunder submits that the Second Deed of Priority did not allow Bank West to advance any sum of money for any purpose it chose on any condition it chose. So much may be accepted. Bank West does not contend otherwise. It accepts that if monies were advanced for a purpose other than that stated in the Second Deed of Priority it would not have priority in respect of those advances. The issue in the present proceedings is not whether Bank West lacked priority with respect to any of the funds advanced to FIH. It is a case about whether Bank West was subject to an implied term concerning the manner in which it made loans to FIH. The imposition of terms that require Bank West to exercise the care and skill of a reasonably competent and prudent banker in making loans to FIH is at odds with the language of the Second Deed of Priority which, in respect of the further amounts, enables the bank to advance amounts which it considers “in its sole discretion” to be necessary to pay or advance to complete the developments in substantial accordance with development approvals.
[69] The express terms of the Second Deed of Priority in granting such a broad discretion are inconsistent with a term which would require the bank to exercise reasonable care to ensure that works carried out by FIH complied with plans and specifications approved by the relevant authorities. Bank West might consider it necessary to advance funds and be assured that the funds were to be used to complete the development in substantial accordance with approvals. To require it to exercise reasonable care to ensure that development works are in fact carried out in accordance with plans and specifications would impose an obligation which is inconsistent with the terms of the Second Deed of Priority.
[70] The implied terms contended for in subparagraphs 44(c), (d) and (e) refer to the Letter of Offer. Subparagraph (c) imposes a requirement upon Bank West that it exercise reasonable care to ensure (or not act recklessly in failing to ensure) that the conditions precedent had been met. In circumstances in which Bank West was entitled, in accordance with the terms of the Letter of Offer, to waive any such conditions, such an implied term is inconsistent with the Second Deed of Priority which, in attaching the Letter of Offer, provided Bank West with the right to waive any such condition precedent.
[71] As noted, cl 2.2 of the Second Deed of Priority preserved Bank West’s priority in a number of circumstances, including the making of further advances, the granting of a waiver, indulgence or concession and by reason of any act, omission or mistake on its part in relation to its security interests or any other document or agreement. These provisions permit Bank West to waive conditions precedent on the loan and, indeed, other terms. The implied terms contended for are inconsistent with cl 2.2 of the Second Deed of Priority. An agreement which permitted the bank to make further advances, waive terms and make mistakes without any effect on the order of priority would be qualified, if not contradicted, by terms which constrain the making of advances, the waiver of terms and other aspects of lending.
[72] Requiring Bank West to exercise reasonable care in the various ways that the implied terms require it to act would not accord Bank West the same latitude which the Second Deed of Priority, in conjunction with the Letter of Offer, afforded it in the making of loans.
Conclusion – implied terms
[73] The five conditions that must be satisfied in order to imply a term may overlap. Bank West has established that Raging Thunder has no real prospect of establishing the implied terms pleaded in paragraph 44 of the amended statement of claim. The implied terms impose uncertain and potentially onerous obligations upon Bank West in relation to the manner in which it will exercise its discretion to loan money and supervise the application of funds. Such terms are not necessary to give business efficacy to an agreement whose purpose is to provide for the priority of securities. It would not be reasonable to impose such uncertain obligations upon Bank West as to the manner in which it lent money, including obligations to protect the interests of a second mortgagee, ensure compliance with conditions precedent and ensure that the redevelopment of the resort was in accordance with approved plans. It certainly is not obvious that if Bank West had been asked at the time it executed the Second Deed of Priority whether it accepted that it was subject to such obligations, it would have replied, “Of course”. The implied terms are not “so obvious that they go without saying”. They impose obligations of uncertain content on Bank West to protect itself and a subsequent mortgagee. That such implied terms are not so obvious that they go without saying is apparent from the terms of the Second Deed of Priority and the Letter of Offer which accorded Bank West a broad discretion concerning the making of further advances, and allowed it to waive terms and conditions precedent. The Second Deed of Priority works without such terms. Implying such terms is not necessary in order to give it business efficacy.
[74] Raging Thunder has no real prospect of establishing each of the five conditions required to prove the implied terms pleaded by it in paragraph 44.
The implied term to do all things as were necessary to enable Raging Thunder to have the benefit of the Second Deed of Priority
[75] Faced with a challenge to the implied terms which were pleaded to have been implied as a matter of fact, Raging Thunder amended its statement of claim to introduce paragraph 43A which reads:
“The Second Deed of Priority contained a term, implied by law, that the defendant would do all things as were necessary on its part to enable the first plaintiff to have the benefit of the Second Deed of Priority.”
This plea is based on the following statement of principle by Griffith CJ in Butt v M’Donald:
“It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on its part to enable the other party to have the benefit of a contract.”[11]
This statement has been approved in subsequent cases.[12] In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd, Mason J stated:
“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”[13]
[76] In Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd, McMurdo J (with whom Jerrard JA agreed) observed:
“Mason J thereby distinguished between acts according to whether they are necessary to the performance of a party’s fundamental obligations under the contract. There is a duty to co-operate in the doing of acts which are necessary to the performance of such obligations. But a duty to co-operate in the doing of acts which are not necessary to the performance of fundamental obligations has to be found in ‘the intention of the parties as manifested by the contract itself’, that is by a term implied in fact.
In the same way, the duty to do what is necessary to enable the other party to have the benefit of the contract is limited to acts which are necessary to the performance of obligations under the contract. To assess the scope of the duty in a particular case, it is first necessary to define the relevant obligations, and in particular, to define the circumstances in which the parties have agreed that a certain obligation must be performed. It is not a duty upon one party to act so as to enhance the commercial value to the other party of the contract.”[14] (emphasis added)
[77] The principle stated by Griffith CJ in Butt v M’Donald may apply to a benefit of the contract that was promised, whether the contractual benefit was fundamental or not.[15] I shall assume that it does.
[78] The implication of a term as a matter of law depends upon the demonstration of “necessity”. In that context, the New South Wales Court of Appeal has observed that “there cannot be a duty to co-operate in bringing about something which the contract does not require to happen.”[16] The Court emphasised that the implication of a term implied by law depends upon the demonstration of “necessity” and that it would be wrong to replace “necessity” with “desirability”. Their Honours continued:
“A contract may ‘contemplate’ many benefits for the respective parties, but each can only call on the other to provide, or co-operate in the providing of, benefits promised by that party. For example, in the absence of an express covenant, a landlord is not bound in contract to repair the demised premises.”[17]
[79] These principles require:
(a)the identification of “the benefit of the contract” that was promised by Bank West to Raging Thunder in order to ascertain the acts that are necessary to enable Raging Thunder to have that benefit;
(b)consideration of whether Bank West failed to do all things necessary on its part to enable Raging Thunder to have that benefit by reason of the facts pleaded in paragraphs 46 and 48 of the amended statement of claim.
[80] As to the benefit of the contract, this is not pleaded by Raging Thunder and that, of itself, would justify striking out paragraph 43A and other paragraphs which rely upon it on the grounds that the pleading has a tendency to prejudice or delay the fair trial of the proceeding.
[81] Raging Thunder submits that the benefit of the Second Deed of Priority for it was that, notwithstanding that the securities held by Bank West were first-ranking securities, once Bank West was paid the “First Priority Amount”, Raging Thunder was to recover up to $8M (the “Second Priority Amount”) under its securities, and to do so in priority to Bank West. It argues that Bank West was required to do “all such things as were necessary” on its part to enable Raging Thunder (when Raging Thunder was performing its obligation to permit Bank West to first recover the “First Priority Amount”) to have the benefit of being able to recover the “Second Priority Amount” of $8M.
[82] One might readily accept that the benefit of the Second Deed of Priority for Raging Thunder was that it would have priority in respect of the “Second Priority Amount” from any proceeds. However, Bank West did not promise that, in the event of realisation of the securities held by it or Raging Thunder, there would be sufficient proceeds to enable Raging Thunder to recover up to $8M. By the same token, Raging Thunder did not promise Bank West that it would be able to recover the “First Priority Amount”. Each party may have contemplated, hoped or expected that it would be able to recover the amount that was secured in its favour, and that in doing so it would recover in accordance with the priorities established by the Second Deed of Priority.
[83] Bank West promised Raging Thunder that any proceeds would be applied in the order stated in cl 2.1 of the Second Deed of Priority. However, it did not promise that there would be sufficient proceeds. Whether or not there would be depended on a variety of matters, including matters beyond the control of Bank West and Raging Thunder. To the extent that these matters were within the control of Bank West the Second Deed of Priority defined the “First Priority Amount”, but did not dictate the manner in which Bank West would make advances or monitor the loan. To obtain priority in respect of the “First Priority Amount” the amount of $20,440,000 had to be advanced by Bank West in accordance with the Letter of Offer. That letter specified that the new facility was for the purpose of assisting with the construction costs of the Central Plaza Facility, and it also permitted the bank to waive conditions precedent. The additional amount falling within the First Priority Amount did not need to be advanced in accordance with the Letter of Offer. It might be advanced if Bank West considered “in its sole discretion” it was necessary to complete the development in substantial accordance with the development approvals. Bank West was not required to exercise its discretion so as to ensure that Bank West might recover all or part of the $8M that was defined to be the Second Priority Amount. To take a simple example, Bank West might advance an additional $1M at its customer’s request in order to complete an approved development and enhance its value in circumstances in which it appreciated that the value of the completed resort was insufficient to repay the debt secured to it by way of the First Priority Amount, let alone any part of the $8M owed to Raging Thunder.
[84] The benefit that Bank West promised Raging Thunder in the Second Deed of Priority concerned the ranking of priorities. Raging Thunder might recover up to $8M under its securities and do so in priority to Bank West in respect of amounts that were not within the First Priority Amount. Bank West did not promise Raging Thunder that it would in fact recover the Second Priority Amount or any part of it.
[85] There is no allegation in these proceedings that Bank West failed to accord to Raging Thunder the priority which was promised by the Second Deed of Priority. It is not alleged that Bank West retained funds which fell outside of the First Priority Amount, thereby not enabling Raging Thunder to have the benefit of the priority to which it was entitled in respect of monies received on the enforcement of securities. Raging Thunder’s complaint is not that the proceeds of the securities were not applied in accordance with the priorities that were agreed. Its complaint is that in various ways Bank West breached the implied term pleaded in paragraph 43A. In particular, in paragraph 46 of the amended statement of claim Raging Thunder alleges that in making loans to FIH from time to time after the execution of the Second Deed of Priority up until in or about 2008, Bank West did not, before making those loans:
“(a)require condition precedent 4 of the Letter of Offer to be satisfied;
(b)require condition precedent 7 of the Letter of Offer to be satisfied;
(c)require condition precedent 8 of the Letter of Offer to be satisfied;
(d)take steps (or, alternatively, any reasonable steps) to monitor how funds it had lent to FIH for development and construction had been used by FIH;
(e)take steps (or, alternatively, any reasonable steps) to ensure that FIH would re-develop the Central Plaza Facility to practical completion by 30 November 2007; or
(f)take steps (or, alternatively, any reasonable steps) to ensure that development works carried out by FIH complied with plans and specifications approved by the relevant authorities ...”.
[86] Raging Thunder alleges in paragraph 48(a) that Bank West:
“(i)relied on inaccurate and unreliable information provided to it by FIH about off the plan sales of apartments which FIH had supposedly made; but
(ii)took no steps (or, alternatively, no reasonable steps) to verify whether that information was accurate or reliable; …”.
Raging Thunder then alleges in paragraph 48(b) that Bank West did not obtain any security, or any adequate security, over the interest of Isola Owners Pty Ltd as sub-lessee of certain common property for the apartments and was thus unable to appoint receivers and managers to, or sell in exercise of its powers as mortgagee, the interest of Isola Owners Pty Ltd.
[87] These alleged breaches of the implied term pleaded in paragraph 43A are not matters which deprived Raging Thunder of the benefit of what was promised to it in the Second Deed of Priority. The Deed of Priority operated in accordance with its terms. As matters transpired, there was insufficient proceeds to repay Bank West, let alone allow Raging Thunder to recover any amount in accordance with the priorities that were ordered by the Second Deed of Priority. The fact that Raging Thunder did not recover all or part of the $8M advanced by it by way of vendor finance does not mean that it was deprived of a benefit which it would have enjoyed if the Second Deed of Priority had been performed. There simply was insufficient proceeds of sale to allow Raging Thunder to recover. The fact that it did not recover was not as a result of a breach of the implied term which required Bank West to do all things as were necessary on its part to enable Raging Thunder to have the benefit of the priorities.
[88] Expressed differently, the Second Deed of Priority did not require Raging Thunder to be paid up to $8M. Raging Thunder may have contemplated that it would receive the Second Priority Amount if the securities were realised and Bank West was paid the First Priority Amount. Raging Thunder may have contemplated receiving such a benefit, but Bank West did not promise that it would conduct its lending to FIH in a manner that would enable Bank West to recover what was owed to it as a First Priority Amount, let alone ensure that Raging Thunder was able to recover the Second Priority Amount.
[89] In summary, the benefit contended for by Raging Thunder, but not pleaded by it, namely having the benefit of being able to recover the “Second Priority Amount” of $8M, was not a benefit that Bank West promised, or was required to provide in the performance of its obligations under the Second Deed of Priority. The benefit which Bank West in fact promised to provide Raging Thunder related to the priorities in which monies would be applied upon the enforcement of securities. Bank West did not fail to apply proceeds in accordance with those priorities. Insufficient funds were available to repay Bank West, let alone pay Raging Thunder. This was the result of the amount of proceeds and the amount that was owed to Bank West in respect of the First Priority Amount.
[90] The benefits to which Raging Thunder was entitled pursuant to the Second Deed of Priority did not extend to the manner in which Bank West made loans to FIH from time to time. In not requiring certain conditions precedent to be satisfied, and in otherwise acting as alleged in paragraphs 46 and 48 of the amended statement of claim, Bank West did not breach a term, implied by law, to do all things necessary on its part to enable Raging Thunder to have the benefit of the Second Deed of Priority. Raging Thunder has no prospect of establishing its case for breach of the implied term pleaded by it in paragraph 43A. There is no need for a trial in respect of the pleaded facts since Raging Thunder’s claim for breach of the implied term fails as a matter of law. Summary judgment will be given on this part of Raging Thunder’s claim.
[91] If I had not decided to grant summary judgment, I would have struck out parts of the amended statement of claim because of the failure to plead the relevant benefit and what Bank West was required to do to enable Raging Thunder to have that benefit.
The duty of care alleged by the plaintiffs in support of their negligence claims
[92] Both plaintiffs plead that Bank West owed it a duty to exercise the care and skill of a reasonably competent and prudent banker in and about making loans to FIH for the development of the resort on Fitzroy Island. In addition to contending that these causes of action in negligence have no prospect of success because no such duty was owed, Bank West complained about the form in which the plaintiffs pleaded this part of their case. As a result, the plaintiffs re-pleaded parts of their claim and say that the amendments adequately address criticisms previously made by Bank West of the original statement of claim. For example the amended statement of claim now pleads in paragraph 61B that the plaintiffs relied on Bank West to exercise the care and skill of a reasonably competent and prudent banker in making loans to FIH, and in paragraph 61G the plaintiffs allege that by entering into the Second Deed of Priority, Bank West “assumed a responsibility to each of the plaintiffs to make loans to FIH for the development of the resort on Fitzroy Island by exercising the care and skill of a reasonably competent and prudent banker”.
[93] Bank West submits that these amendments do not change its application for summary judgment as against the plaintiffs’ case in negligence – that is, even assuming everything in favour of the plaintiffs as pleaded. It submits that there is no real prospect of the plaintiffs succeeding. Bank West also contends that the plaintiffs’ negligence cases should be struck out and that the new paragraphs plead matters in the abstract and without sufficient material facts, such that the allegations lack any real substance and would require amendment. It maintains its position that various paragraphs of the original pleading, which have not been amended, are liable to be struck out.
[94] I leave to one side the fact that Raging Thunder has not separately pleaded an equitable duty, the material facts in support of such a duty and the respects in which the alleged equitable duty was breached so as to entitle it to equitable compensation. I shall return to this aspect.
[95] So far as a common law duty of care is concerned, Bank West places particular reliance on authorities dealing with duties of care owed by a bank to customers and guarantors with respect to lending. Substantial authority is advanced in support of the proposition that a bank does not ordinarily owe a duty of care to its customers, but a bank may be under a duty of care when it undertakes a role of providing advice beyond the mere provision of finance.[18] Bank West relies upon the fact that it did not owe FIH (as its customer) a duty of care, nor did it owe FIH a duty to protect FIH against FIH’s conduct in the management of its business, the management of its finances or the management of the redevelopment of the resort. It argues that it “cannot be said that Bank West owed the plaintiffs a duty of care, when no duty of care could be owed to FIH with whom the bank had a more proximate and direct relationship.” It argues that a form of derivative duty of care owed to the plaintiffs when no duty of care was owed to the person with whom the bank actually dealt with as a customer would be absurd.
[96] Reliance also is placed upon authority to the effect that a bank does not owe a duty of care to guarantors “to follow normal banking procedures, to make reasonable and prudent inquiries and to act as a reasonable and prudent financier”.[19]
[97] These cases about the absence of a duty of care owed by a lender to a customer or to a guarantor are highly persuasive, and Bank West submits that the same reasoning should be adopted by analogy with respect to the position between a first ranking mortgagee and a lower ranking mortgagee with respect to how money is lent to a borrower. The position of a guarantor is said to be materially the same as that of a lower ranking mortgagee in terms of their interests in how a financier lends money to a borrower.
[98] Bank West’s submissions address a number of the salient features identified by the High Court in determining whether a duty of care is owed to prevent pure economic loss. By reference to these features it submits that there is no real prospect that the plaintiffs can establish the duty of care pleaded in paragraph 62 of the amended statement of claim, even assuming every pleaded fact in their favour. Particular emphasis is placed upon the proposition that contract law declares the parties’ obligations, and that the Second Deed of Priority declared the obligations between Raging Thunder and Bank West. It argues that the parties to the Second Deed of Priority should be taken to have intended their relationship to be solely governed by the terms of that deed, and refer to Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd,[20] Tomlin v Ford Credit Australia Ltd[21] and other authorities in support of the submission that where parties are in a contractual, commercial relationship, their mutual obligations in tort should be no greater than those to be found expressly or by necessary implication in their contract. In particular, where the contract provides an uncontrolled discretion, “the law should be slow to remake their bargain by imposing a duty of care the effect of which would be to fetter that contractually uncontrolled discretion.”[22] Clause 2.2(j) of the Second Deed of Priority is said to tend strongly against the imposition of a duty of care.
[99] The fact that the plaintiffs are unable to identify one authority on point, or which can reasonably apply by analogy, is said by Bank West to speak volumes against the duty of care which is sought to be imposed.
[100] Bank West advances a compelling case in this regard. However, on its application for summary judgment, the issue is not whether the plaintiffs’ claim in negligence has poor prospects of success because, for example, they were not “vulnerable” (in the sense discussed in the authorities in this legal context) to economic loss by the conduct of Bank West in connection with the making of the loans, undertook the commercial risk of pursuing a business deal which did not have a certain outcome, wished Bank West to make the loans to FIH since such a course enhanced Raging Thunder’s prospects of being paid and might have better protected themselves from the risk of financial loss. The issue is whether the plaintiffs have no real prospect of success on the basis of the facts pleaded by them, which include allegations of vulnerability, reliance and assumption of responsibility.
[101] In addressing Bank West’s contention that there is no prospect that the alleged duty of care will be established, it is necessary to distinguish between the claim of Raging Thunder and the claim of FI. This is notwithstanding the fact that the plaintiffs’ pleading merges the two by relying upon the same pleaded facts in alleging that on and from 21 November 2006:
“the defendant owed the plaintiffs a duty to exercise the care and skill of a reasonably competent and prudent banker (or, alternatively to act in good faith and not recklessly) in and about its making loans to FIH for the development of the resort on Fitzroy Island”.[23] (emphasis added)
The need to distinguish between the two plaintiffs arises because only Raging Thunder was in a contractual relationship with Bank West. Bank West’s submission that contract law should operate so as to exclude duties of tort has a different application between the two plaintiffs, only one of which was in a contractual relationship.
[102] Bank West also argues that each plaintiff could and should have protected itself in contract or by some other means. But that is a different point.
[103] As to Bank West’s argument that the Second Deed of Priority declares the obligations between Raging Thunder and Bank West, care is required before concluding that the parties intended the contract to be a complete statement of their obligations. It is arguable that where a contract makes no provision in respect of certain obligations, the parties did not intend for the contract to govern that matter, leaving open the possibility of a duty of care. In that regard, if the Second Deed of Priority said nothing at all about the manner in which Bank West was to lend money and exercise its discretion in lending money to FIH, then it could be said that it dealt only with the matter of priority among the two secured creditors, and left open the possibility that Bank West owed a duty to Raging Thunder under the general law. It might be said that the Second Deed of Priority says something about the manner in which Bank West might lend money and, for the reasons previously given, contemplated that Bank West had a wide discretion, the power to waive conditions and by cl 2.2 would not be affected in its priority by reason of mistaken conduct. However, the point remains that Bank West has urged, successfully in connection with the implied terms issue, that the purpose of the Second Deed of Priority is to provide for priority of security in relation to stated amounts for a stated purpose, not to provide as to how and in what manner it would lend the relevant money. If the view is taken that the Second Deed of Priority is concerned essentially with the matter of priority, then it becomes difficult for Bank West to argue that the alleged duty of care ignores “the very purpose of a Deed of Priority which assigns risk and priority of security, and the alleged duty of care thereby cuts across the contractual relationship between Bank West and Raging Thunder.”[24] Arguably, the Second Deed of Priority does not assign the risk of Bank West acting carelessly in making loans. Arguably, it does not address whether Raging Thunder assumes such a risk, leaving open scope for the law of tort to impose a duty of care.
[104] Even if the Second Deed of Priority was not a complete charter of the obligations between Raging Thunder and Bank West, a significant factor against the recognition of a duty of care is the fact that the Second Deed of Priority was premised upon Bank West having a wide discretion concerning the manner in which it lent money to FIH, and neither Raging Thunder on its own behalf, or on behalf of its wholly owned subsidiary FI, negotiated terms that further constrained the manner in which Bank West lent money to FIH, let alone terms which required Bank West to exercise the care and skill of a reasonably competent and prudent banker in doing so.
[105] A factor which is relevant to the recognition of a duty of care is whether it was open to Raging Thunder to negotiate the terms of its relationship with Bank West, and whether the parties had an opportunity to bargain with respect to their exposure to careless lending practices by Bank West. In its original submissions Bank West contends that it was open to Raging Thunder to negotiate the terms of its relationship with Bank West and that it entered into the Second Deed of Priority on an informed and voluntary basis. It also submitted that the parties had an opportunity to bargain with respect to their security and exposure. However, these contentions are not accepted or admitted, and cannot be reconciled with the plaintiffs’ pleading of their vulnerability which is cast in the most general terms and is taken to be a matter of fact for the purpose of the present application.
[106] Bank West argues that the duty of care contended for would effectively negate the risk accepted and undertaken by lower ranking chargees and those entering commercial arrangements in the hope of a successful development, and shift that risk on to the bank. Loss suffered by a lower ranking chargee and, indeed, anyone else with a financial interest in the development such as FI, would be compensated in a case in which the first mortgagee failed to ensure that the developer made appropriate use of borrowed funds, failed to supervise builders to ensure that the development was completed on time and on budget and failed to ensure that the development was in accordance with approved designs. That such a reallocation of risk could be achieved by the recognition of a duty of care in circumstances in which commercial entities such as the plaintiffs do not reward the bank financially for assuming such a duty of care is a powerful reason to conclude that no such duty of care exists.
[107] Bank West advances various other submissions in relation to indeterminate liability, conflicting duties and interests giving rise to confusion in the law, the lack of proximity, particularly with respect to FI, disproportionate blameworthiness and the fact that the plaintiffs were sophisticated commercial entities who could protect themselves. Originally the plaintiffs did not plead that they relied upon Bank West as to how it made loans to FIH or that Bank West was aware of any such reliance. Bank West also relied upon the fact that the plaintiffs did not plead that it assumed any responsibility to make loans to FIH for the development by exercising reasonable care and skill. However, as noted, these matters now have been pleaded, albeit in broad and uninformative terms, in the amended statement of claim.
[108] The original pleading and the amended pleading also allege that the financial interests of the plaintiffs were vulnerable to injury by acts and omissions of Bank West in and about its making of loans to FIH for the development of the resort, and that from on or about 21 November 2006, Bank West knew, or ought reasonably to have known, of that vulnerability. Again, these matters are pleaded in the most general terms and, for reasons to be given, should be struck out as a matter of pleading. However, for the purpose of the application for summary judgment I am required to assume in the plaintiffs’ favour the facts that have been pleaded by them. In those circumstances Bank West cannot argue on the present application that the plaintiffs were not vulnerable to injury, as alleged, or that it did not know of their vulnerability.
[109] The general allegations of vulnerability, reliance and assumption of responsibility may be treated with some reservation unless and until they are properly pleaded, particularised and supported by evidence. However, they are the facts upon which the application for summary judgment is based. If those facts are established then the plaintiffs’ prospects of establishing a duty of care are enhanced, even if, for many other reasons, its prospects of establishing that duty of care are poor.
[110] The present application is not one which permits me to draw any conclusion as to whether the plaintiffs had an opportunity to bargain with respect to their exposure and the manner in which Bank West would act in and about making loans to FIH for the development of the resort on Fitzroy Island or for other purposes. In any event, there are difficulties associated with determining at a summary hearing a novel point relating to the alleged vulnerability of the plaintiffs, their capacity to protect themselves in contract, their alleged reliance and other issues that are relevant to the duty of care issue. As the majority judgment in Woolcock Street Investments Pty Ltd v CDG Pty Ltd states:
“The dangers of developing common law principle against an artificially constricted body of fact are self-evident. That is why, in some cases, even if the parties join in asking a court to determine a question separate from trial of the facts, it may be prudent for the court to decline to answer the question presented as being one which is inappropriate to answer.”[25]
[111] In the circumstances, I decline, at least at this stage, to grant Bank West summary judgment in respect of the plaintiffs’ claims in negligence. The plaintiffs should be required, for reasons to be discussed, to better plead allegations of vulnerability, reliance and assumption of responsibility. It may be that these allegations cannot be properly pleaded. For example, whether or not a plaintiff is vulnerable to the risk of injury from the defendant’s conduct is a critical issue in determining whether the defendant owed a duty of care to the plaintiffs in respect of pure economic loss. In determining whether the plaintiffs were vulnerable, an important consideration is whether a plaintiff could have protected itself against the risk of loss by protective action, particularly by contract.[26] Once the plaintiffs’ pleading in relation to allegations of vulnerability and other matters is in a proper form, and if the facts bearing upon those issues are agreed or proven, it might be possible for Bank West to renew its summary judgment application or to bring a further application to determine the duty of care issue. Presently, however, on the facts that I am required to assume for the purpose of the summary judgment application, I am unable to conclude that the plaintiffs have no real prospect of establishing the duty of care contended for and that there is no need for a trial.
Strike out application in relation to the causes of action in negligence
[112] I accept Bank West’s submission that paragraphs 60 and 61 of the amended statement of claim which plead that the plaintiffs were vulnerable to Bank West’s conduct in making the loans and that Bank West knew, or ought reasonably to have known, of the alleged vulnerability should be struck out. The allegation of vulnerability is of a most general, conclusionary kind. In order to properly plead such an allegation each plaintiff should plead all of the material facts it relies upon in support of the allegation that it was vulnerable. This is particularly necessary in a novel case, such as the present. The plaintiffs also should be required to plead the material facts that each relies upon in support of the allegation that the bank knew, or ought reasonably to have known, of such vulnerability. The employees of the bank who are alleged to have known of this vulnerability and the grounds upon which they are alleged to have known it should be pleaded or particularised. I do not accept, as the plaintiffs submit, that the facts from which the bank’s knowledge is to be inferred are pleaded in paragraphs 9 to 43 of the amended statement of claim. For example, the fact that before Bank West made the loans it obtained and read certain documents falls short of proving knowledge of vulnerability.
[113] Vulnerability does not exist simply because the plaintiff was likely to suffer loss if reasonable care was not taken. The fact that each plaintiff was at risk of not being paid if the development did not succeed cannot be equated with “vulnerability” in the sense that term is used in the authorities. The general allegation that the financial interests of the plaintiff were “vulnerable to injury” by acts and omissions of Bank West in making loans to FIH for the development should be struck out. Such a general allegation which is not supported by a pleading of the material facts upon which it is based has a tendency to prejudice the fair trial of the proceeding.
[114] The plaintiffs should plead the precise respects in which they are alleged to have been vulnerable, for example (if it be the case) that they had no means to protect themselves and had no choice other than to enter the agreement with the bank. Each plaintiff’s alleged vulnerability should be precisely pleaded, since it bears upon the issue of whether the bank knew, or ought to have known, of its vulnerability in this regard. I observe that although the capacity for a party to protect itself from damage by means of contractual obligations is often a decisive reason for rejecting the existence of a duty of care in tort in cases of pure economic loss,[27] it is not the only means by which a party may take steps to protect itself from a defendant’s conduct. As McHugh J observed in Perre v Apand Pty Ltd:
“The vulnerability of the plaintiff to harm from the defendant’s conduct is therefore ordinarily a prerequisite to imposing a duty. If the plaintiff has taken, or could have taken steps to protect itself from the defendant’s conduct and was not induced by the defendant’s conduct from taking such steps, there is no reason why the law should step in and impose a duty on the defendant to protect the plaintiff from the risk of pure economic loss.”[28]
[115] Accordingly, any new pleading of vulnerability should comprehensively address the facts, matters and circumstances relied upon in support of any allegation that the relevant plaintiff (either on its own behalf or on behalf of its wholly owned subsidiary) could not have taken steps to protect itself from Bank West’s alleged conduct. For example, the plaintiffs should plead why they were not able to protect themselves by monitoring whether or not the development was being constructed in accordance with approved plans. For these reasons, paragraphs 60 and 61 of the amended statement of claim will be struck out.
[116] Paragraph 61B of the amended statement of claim pleads the fact of reliance in general terms. It does not plead who on behalf of each plaintiff relied on Bank West to exercise the care and skill alleged and other material facts which are relevant. For example, it does not disclose whether such reliance arose because the relevant representatives of the plaintiffs read documents such as the Second Deed of Priority and the Letter of Offer or because they failed to do so. The pleading is so broad as to leave open the possibility that such reliance arose because of an express representation. If such a representation was made it would need to be pleaded. Paragraph 61B should be struck out because it has a tendency to prejudice or delay the fair trial of the proceedings.
[117] Paragraph 61G pleads that by entering into the Second Deed of Priority Bank West “assumed a responsibility to each of the plaintiffs to make loans to FIH for the development of a resort on Fitzroy Island by exercising the care and skill of a reasonably competent and prudent banker (or, alternatively, by acting in good faith and not recklessly).” In circumstances in which the Second Deed of Priority contains no such express promise and, for the reasons I have given, contains no implied term to that effect, the basis upon which Bank West is alleged to have assumed the pleaded responsibility by entering into the Second Deed of Priority is not disclosed. This paragraph is embarrassing and has a tendency to prejudice the fair trial of the proceedings. It should also be struck out.
[118] Paragraph 62 of the amended statement of claim pleads:
“In the premises pleaded in paragraphs 9 to 43 and 60 to 61G above, from on or about 21 November 2006 the defendant owed the plaintiffs a duty to exercise the care and skill of a reasonably competent and prudent banker (or, alternatively to act in good faith and not recklessly) in and about its making loans to FIH for the development of the resort on Fitzroy Island.”
This paragraph suggests that the same duty was owed to both plaintiffs by reason of the same facts. However, this cannot be right because, as the plaintiffs point out in their submissions, different considerations arise by reason of the fact that only Raging Thunder was in a contractual relationship with Bank West. In any event, the fair trial of the proceedings will be aided by a separate pleading of the facts, matters and circumstances relied upon in support of any duty of care alleged to be owed to the first plaintiff, and a separate pleading of the facts, matters and circumstances relied upon in support of any duty of care alleged to be owed to the second plaintiff. I intend to strike out paragraph 62 on the grounds that it does not properly and separately plead the basis upon which a separate duty of care was owed to each plaintiff.
[119] Bank West criticises paragraph 62 on the basis that it does not plead the content of the supposed duty of care, which is pleaded at a level of generality so as to leave Bank West guessing from the pleading as to the content and standard of the duty to act as a “reasonably competent and prudent banker”. There is considerable force in the submission and any new pleading will need to descend at some point to particularity concerning the content of the duty of care in the particular circumstances.
[120] Paragraph 63 pleads that Bank West breached the duty pleaded in paragraph 62 by reason of the matters pleaded in paragraphs 46 and 48. Paragraphs 46 and 48 relate to alleged breaches of the implied terms which I have found to be unsustainable. It will be necessary for the plaintiffs to recast their pleading substantially because of my decision in relation to Raging Thunder’s case based upon implied terms. It will be insufficient for each plaintiff to plead breach of the duty of care contended for it by simply repeating the contents of paragraphs 46 and 48. Paragraph 46 pleads, for example, that Bank West did not, before making certain loans, require conditions precedent 4, 7 and 8 to be satisfied. Other allegations relate to its alleged failure to take steps to monitor how funds it had lent had been used and failing to take steps to ensure that the development works were carried out by FIH in accordance with plans and specifications. As previously noted, paragraph 48 relates to, among other things, a failure to obtain security. It also pleads reliance upon inaccurate and unreliable information.
[121] It is not apparent from the present pleading why it would be a breach of the alleged duty to exercise the care and skill of a reasonably competent and prudent banker to not insist on certain conditions precedent being satisfied. For example, is it said that a banker who did not require such a condition to be satisfied was not exercising the care and skill of a reasonably competent and prudent banker? There may be good reasons as to why a bank in Bank West’s position might not require a condition precedent to be satisfied, waive that requirement and be satisfied by some other proposal.
[122] When regard is had to the allegations contained in paragraphs 46 and 48 of the present pleading, it becomes apparent that the plaintiffs must be clear about the practical content of the generally worded duty of care. For example, do they contend that a bank in Bank West’s position was required to itself monitor development works carried out on a remote island, so as to ensure that the development works were carried out in compliance with approved plans and specifications? Might it not rely upon others to ensure such a thing? For example, might it not rely upon other parties, their quantity surveyors, project managers and supervisors to ensure that development works were carried out in accordance with plans and so as to achieve the earliest practical completion? These examples are mentioned to highlight the substantial deficiency in the present pleading concerning allegations of breach. Each allegation of breach should be linked to the precise content of the duty of care in the relevant circumstances by specifying what the alleged duty of care required Bank West to do in those circumstances.
[123] Paragraph 67 of the amended statement of claim pleads that if Bank West did not breach its duty of care to the plaintiffs then a number of things would have happened. These include the fact that the leased land would have been developed in a certain way, the development would have been completed in early 2008, and that a certain amount of money would have been lent by Bank West. These various matters culminate in the allegation that FIH would have been able to sell its interest in the leased land and improvements and that the proceeds of sale would have been sufficient to discharge FIH’s indebtedness to Bank West and to each of the plaintiffs. The pleading of such a past hypothetical fact in such general terms is not objectionable. However, the fair trial of the proceeding will be much-advanced by requiring the plaintiffs to descend to a far greater degree of particularity. Implicit in the pleaded allegations are contentions that the development could and would have been constructed for a certain price and completed on time. It is suggestive of the proposition that Bank West is solely responsible for delays, cost overruns, changes to the development and the failure to ensure that the development was built in accordance with approved plans. The plaintiffs’ case on causation needs to be further illuminated by appropriate particulars and, in due course, by summaries of evidence which explain the matters which are pleaded in general terms in paragraph 67. Paragraph 67 gives the impression of wishful thinking and has the hallmarks of a speculative and ambitious plea that if only the bank had acted differently, the original development would have been delivered on time and on budget and resulted in a resort that could be sold for more than enough to pay out Bank West and the plaintiffs. That said, I am not inclined to strike out paragraph 67, notwithstanding its generality. It pleads material facts. It should be supplemented by detailed particulars and, if the matter proceeds to trial, there will need to be pre-trial directions about the evidence that the plaintiffs intend to lead to prove these matters.
Conclusion – negligence claims
[124] I decline to grant summary judgment in respect of the negligence claims, principally because I have been asked to assume in the plaintiffs’ favour the facts that have been pleaded by them. Even assuming those matters in the plaintiffs’ favour, each plaintiff’s negligence claim is novel and faces formidable obstacles. Bank West has advanced compelling arguments as to why it did not, as a matter of law, owe the duty of care pleaded to each of the plaintiffs.
[125] A number of paragraphs of the plaintiffs’ pleading of their negligence claims should be struck out. These are paragraphs 60, 61, 61B, 61G and 62.
The absence of a pleaded basis to claim relief by way of equitable compensation
[126] In the prayer for relief in the amended statement of claim and as an alternative to its claims for breach of contract and negligence, Raging Thunder claims “equitable compensation in the sum of $8M”. Bank West applied to strike out this claim for relief. The original statement of claim pleaded causes of action for breach of alleged implied terms, negligence and misleading or deceptive conduct. It did not plead the basis for equitable relief. Despite this, and notwithstanding having been given an opportunity to re-plead, the amended statement of claim did not separately plead an equitable duty, the basis for it and the respects in which it was breached.
[127] Upon the hearing of the application, and in response to Bank West’s submissions in relation to the claim in negligence, the plaintiffs submitted that “the cases indicate that the duty owed by a first mortgagee to a second mortgagee is an equitable duty rather than a duty in tort, albeit perhaps an equitable duty to exercise reasonable care to protect the financial interest of the second mortgagee.” It cited in support of that proposition authorities relating to the exercise of a power of sale. It is unnecessary to dwell upon these authorities. The threshold point is that a novel claim that a first mortgagee owes to a second mortgagee an equitable duty in respect of the manner in which it makes loans should be clearly pleaded. The current pleading does not plead the relevant equitable duty and its basis.
[128] The first plaintiff having been given an opportunity to re-plead in order to support its prayer for relief for equitable compensation, and having failed to do so, the prayer for relief should be struck out.
[129] The issue then arises as to whether the plaintiffs should be granted leave to plead such a novel claim for equitable compensation. I am reluctant to grant leave in circumstances in which the plaintiffs have not availed themselves of the opportunity to plead such a claim even after being placed on notice. Raging Thunder sought to sustain the prayer for relief, arguing that, on the present state of the authorities “it is uncertain whether the duty which Raging Thunder alleges Bank West owed to it exists it tort or in equity”. If it wished to advance a claim in equity then that claim should have been separately and clearly pleaded.
[130] If I had granted summary judgment to Bank West in respect of the negligence claims there would have been a further reason not to allow Raging Thunder to be granted leave to deliver a further pleading which seeks to advance its alternative claim for equitable compensation. However, in circumstances in which I am inclined to permit the plaintiffs to re-plead their claims in negligence, I will consider granting leave, on terms, for Raging Thunder to plead what it contends to be a duty owed in equity to it as a subsequent mortgagee.
[131] I was taken to some authorities in the course of argument which Raging Thunder relies upon by way of analogy. However, these were cases about the duties of a mortgagee to a mortgagor or to a subsequent mortgagee with respect to the sale of mortgaged property. Raging Thunder seeks to argue that although these cases deal with a mortgagee’s duty in different contexts to the present, they can be relied upon to support an argument that a first mortgagee owes a subsequent mortgagee an equitable duty in relation to its conduct of a loan. Such an argument faces substantial, if not insurmountable, obstacles.
[132] Raging Thunder submits:
“One needs also to be careful about deciding what duty is owed to a subsequent mortgagee by recourse to cases about a mortgagee’s duty (or lack of duty) to a guarantor. The law concerning the duties owed by a mortgagee to a subsequent mortgagee (other than in the context of an exercise by the first mortgagee of its power of sale) is in its early stages of development. A court at first instance should be ‘particularly astute not to risk stifling the development of the law by striking out or summarily determining actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie’.[29]”
I accept that I should not risk stifling the development of the law. However, Raging Thunder has not advanced a persuasive case as to why the law will develop to recognise a duty of the kind contended for by it. To submit, as Raging Thunder does, that the law in this area “is in its early stages of development” overlooks the fact that the law has had many opportunities in recent centuries to address the present issue. On many occasions over that time a subsequent mortgagee has been unable to recover all that it is owed because of the manner in which a mortgagee with priority over it has conducted its lending. If a first mortgagee owed a subsequent mortgagee a duty (either at common law or in equity) in such a situation, it is surprising that the point has not been tested and determined at some time in the past. The practical problem is not a new one, and if an equitable duty exists it is remarkable that it has not been discovered until now. As Bank West submits, that the plaintiffs have failed to identify one authority which recognises the existence of an equitable duty in a case such as the present speaks volumes against the recognition of such a duty.
[133] Moreover, if an equitable duty exists, it is unlikely to be a duty to exercise reasonable care. Raging Thunder relies upon Cuckmere Brick Co Ltd v Mutual Finance Ltd[30] as supportive of the proposition that a mortgagee owes a duty of care. Of course, that proposition related to the sale of a mortgaged property and did not concern whether a bank owes a duty to a lower ranking mortgagee as to how money is lent to a borrower. The Cuckmere approach has been rejected in this country.[31]
[134] To say in one context, namely the exercise of a power of sale, that a first mortgagee owes a second mortgagee an equitable obligation to act in good faith does not explain why in a different context, namely in making loans and administering them, a lender has a similar equitable obligation. If, notwithstanding the absence of authority supporting such an equitable duty in that context, a lender has such a duty, a duty to act in good faith should not be confused with a duty to act with reasonable care, or a duty to act with the care and skill of a reasonably competent and prudent banker.
[135] In various places in the present pleading the plaintiffs allege, as alternatives to a duty to exercise reasonable care, a duty not to act recklessly or a duty to act in good faith. These pleas add an additional tier of complexity, especially in connection with allegations of breach. For example, it is one thing to say that the bank did not act reasonably or did not exercise reasonable care in failing to detect the various respects in which the development was not constructed in accordance with approved plans. Some of these allegations are quite specific, for example that certain aspects of the sewerage system were not constructed in accordance with approved designs and plans. It is far more ambitious to contend that the failure to detect these and other non-compliances with designs and plans was reckless or not in good faith.
[136] If separate claims for breach of a common law duty of care and breach of an equitable duty of care are to be pleaded, then careful attention is required concerning the content of each duty. If either plaintiff wishes to contend that Bank West was subject to a common law duty to act in good faith then the basis for that claim should be clearly pleaded, along with the specific content of that duty in a particular context so as to permit any allegation of breach of that duty to be properly pleaded. Similarly, the content of any duty to exercise reasonable care at common law should be properly pleaded.
[137] If Raging Thunder seeks leave to advance a claim for breach of an equitable duty then the basis and content of that duty should be separately, clearly and comprehensively pleaded. If it attempts to plead that the equitable duty was a duty to exercise reasonable care, then there would be substantial reasons to refuse leave on the basis that the posited equitable duty should not be confused with a common law duty to exercise reasonable care.
[138] Given the history of the pleading and this application, I will require the plaintiffs to draft any proposed further amended statement of claim and provide a copy of it to the defendant’s solicitors before considering any grant of leave. I am not prepared to grant leave at this stage for the plaintiffs to deliver a further amended statement of claim in some uncertain form.
[139] Accordingly, I propose to strike out the first plaintiff’s prayer for relief for equitable compensation. If Raging Thunder seeks leave to file and serve a further amended statement of claim which advances a novel claim for breach of equitable duty it will need to first formulate its pleading and deliver the same to Bank West’s solicitors. Depending upon its content, the grant of leave may not be opposed. If, however, it is opposed I will hear the application on a date to be fixed.
Duties of good faith
[140] The fair trial of the proceeding will not be advanced by the sporadic pleading of duties to act “in good faith and not recklessly”, “in good faith, fairly and reasonably” or “in good faith” without reference to the source of the obligation, and the scope of its application. Is the obligation a contractual one that is implied as a matter of law? If so, does it apply only to the exercise of contractual powers and discretions? Does it constrain an entitlement to do something which a party may do in its “sole discretion” and for its own benefit? How did it constrain the bank from making loans to HIG for purposes outside those stated in the Second Deed of Priority and the Letter of Offer?
[141] If the parties are in a contractual relationship, on what basis could or should the general law supplement any contractual duty to act in good faith?
[142] If the parties are not in a contractual relationship why should the law of tort impose a duty to act in good faith of the kind that arises in the context of the parties’ obligation of fidelity to the bargain and fulfilment of the benefits that the parties have bargained to give or receive?
[143] If the duty of good faith is an equitable obligation, then what is its source and what is its content?
[144] If a duty of good faith is alleged to include an obligation to act reasonably, then how can that be reconciled with the terms of the contract, if any, which govern the parties’ obligations to each other? By whose standards and by reference to whose interests is reasonableness to be judged?
[145] These and many other questions arise about the legal basis for any obligation to act in good faith and its practical content in the context of the making of loans, their administration and the exercise of rights to waive conditions.
[146] The novelty of each plaintiff’s claim in tort and the as yet unpleaded claim of Raging Thunder for breach of an equitable duty highlights the need for precision in pleading any duty of good faith and any alleged breach of that duty.
[147] The current pleading’s allegations of duties of good faith have a tendency to prejudice the fair trial of the proceeding because of uncertainty about their source, the circumstances in which they apply and their practical content.
Raging Thunder’s misleading or deceptive conduct claim
[148] Raging Thunder claims “damages under s 82 of the Trade Practices Act 1974 (Cth) (or, alternatively, s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth)) in the sum of $8 million”.[32] It pleads in paragraph 72 of the amended statement of claim:
“By reason of the facts pleaded in paragraphs 26 to 43 and 47 above, the defendant represented, indicated or suggested to the first plaintiff that it had, or would have, reasonably effective safeguards and monitoring systems in place to ensure that:
(a)loans made by it to FIH for the refurbishment of the Central Plaza Facility would be applied so as to complete that refurbishment in accordance with the Approved Designs and Plans (the First Representation); and
(b)further loans made by it to FIH for other aspects of the development of the Leased Land would be applied so as to complete that development in accordance with the Approved Designs and Plans (the Second Representation).”
[149] It goes on to plead that in entering into the Second Deed of Priority it expected, and was reasonably entitled to expect, Bank West to disclose to it any facts or matters within its knowledge or which ought reasonably to have been within Bank West’s knowledge which:
(a)rendered the First Representation or the Second Representation untrue or unreliable;
(b)called for some qualification to be made to the First Representation or the Second Representation; or
(c)called for disclosure of the possibility that the First Representation or the Second Representation may be untrue, unreliable, or unlikely to be fulfilled.
It pleads that at no time before entering into the Second Deed of Priority did Bank West disclose any such fact or matter. The absence of such disclosure (described in paragraph 75 as “the Defendant’s Silence”) is alleged to have represented, indicated or suggested to Raging Thunder that:
(a)Bank West had reasonable grounds for making the First Representation and the Second Representation; and
(b)there were no facts or matters known by Bank West or of which it ought reasonably to have known, which:
(i)rendered the First Representation or the Second Representation untrue or unreliable;
(ii)called for some qualification to be made to the First Representation or the Second Representation; or
(iii)called for disclosure of the possibility that the First Representation or the Second Representation may be untrue, unreliable, or unlikely to be fulfilled.
[150] Paragraph 77 of the amended statement of claim alleges that the First Representation, the Second Representation and the Defendant’s Silence were misleading or deceptive or likely to mislead or deceive in that Bank West:
“(a)did not have in place such safeguards and monitoring systems; and
(b)had no reasonable grounds for representing that such safeguards and monitoring systems would be in place for the loans to be made by it to FIH.”
[151] The essential foundation of Raging Thunder’s claim for misleading or deceptive conduct is the allegation in paragraph 72, namely that the facts pleaded in paragraphs 26 to 43 and 47 conveyed to it that Bank West had, or would have, reasonably effective safeguards and monitoring systems in place to ensure the two matters stated in subparagraphs 72(a) and (b). Bank West submits that paragraphs 26 to 43 and 47 (which relate to the Letter of Offer, the Second Deed of Priority and the approved designs and plans) are not capable of conveying the alleged representations. There is no allegation of an oral representation. There is submitted to be nothing in the Letter of Offer or the Second Deed of Priority that expressly represented, or by inference is capable of representing, either the First Representation or the Second Representation. None of the documents refers to “effective safeguards and monitoring systems”. According to Bank West, because the “Defendant’s Silence” depends upon the First Representation and the Second Representation, the claim for misleading or deceptive conduct must fail. Because the alleged representations turn on the contents of documents, Bank West submits that there is no need for a trial about the facts that are alleged to be the basis for the representations.
[152] Whether the conduct of Bank West was misleading or deceptive is a question of fact to be determined in the light of the relevant surrounding facts and circumstances.[33] Raging Thunder submits that the question of whether the representations pleaded by it were conveyed and, as a result, Bank West engaged in misleading or deceptive conduct is a question which ought to be determined at a trial, rather than summarily. Bank West responds that the application turns on whether the terms of the Letter of Offer and the Second Deed of Priority are capable of “representing, indicating or suggesting” to the effect that Bank West would have in place “reasonably effective safeguards and monitoring systems to ensure” that money lent to FIH was applied to complete the development in accordance with the approved designs and plans. The Court is said to be in as good a position now to construe the relevant documents as it would be at any trial of the matter. The application for summary judgment does not require a determination of whether Bank West did or did not have in place the alleged safeguards or monitoring systems. It is confined to the narrow question of whether the relevant documents are capable of conveying the representations which Raging Thunder alleges.
[153] Raging Thunder points to the conditions precedent 4, 5, 7 and 8 of the Letter of Offer, cl 6.7 which prevented FIH from undertaking any material development without the prior written consent of Bank West and cl 6.13(c) which specified the consequences for FIH of Bank West’s appointed quantity surveyor identifying any actual or potential cost overrun in the works. It submits that the terms of the Second Deed of Priority, and the conditions precedent in terms of the Letter of Offer, indicated that Bank West would advance money on the terms of the Letter of Offer for the purpose of constructing the things the subject of the development approval. It submits that Bank West thereby indicated that it “would monitor the development works and would not make advances to satisfy progress claims if its quantity surveyor was not of the opinion that works had been carried out correctly.” This is said to carry with it the implied representation that Bank West “had a present intention to require the borrower to comply and had the future capacity to require the borrower to do so (or would advise if it did not intend to do so in the future).” These submissions do not align precisely with the pleading. An implied representation that Bank West would monitor the development works is quite different to an implied representation that it had, or would have, “reasonably effective safeguards and monitoring systems in place to ensure” various matters. Next, the case is not pleaded as one which conveyed an implied representation about Bank West’s intention at a particular time.
[154] The submissions of Raging Thunder do not come to terms with the fact that the Letter of Offer unambiguously stated that the conditions precedent could be waived by Bank West.
[155] Raging Thunder acknowledges that the Letter of Offer was only with respect to the Central Plaza Facility, and that the Second Deed of Priority referred, in the definition of “First Priority Amount”, to advances for further development works, namely the development of day visitor facilities, the North Beach development or renovation of the backpacker facilities in substantial accordance with development approvals and rights held by FIH as at 29 November 2006. Even so, it argues that as with the development works for the Central Plaza Facility, Bank West represented that it would not make advances for the further development works without having the same safeguards in place to ensure that the development works occurred only in substantial accordance with development approvals.
[156] According to Raging Thunder’s submissions, as a result of:
(a)being given the Letter of Offer, which contained detailed provisions designed to ensure that any development works conformed to approved plans, and which conditioned FIH’s being able to receive progressive loan advances on the basis that the development would conform with those plans; and
(b)the Second Deed of Priority specifying that the priority over $20.44M was for advances to FIH for development works which Bank West considered were “in substantial accordance with the development approvals and rights held by [FIH] as at 29 November 2006”,
Raging Thunder believed that Bank West had, or would have, the reasonably effective safeguards and monitoring systems “mentioned in those documents in place to ensure the money being advanced would improve the value of the land as security, with development works ... completed in accordance with the approved plans”. It submits that its belief cannot be described as extreme or fanciful, and that a more than arguable case exists that the conduct of Bank West was misleading or deceptive or likely to mislead or deceive.
[157] An immediate difficulty with Raging Thunder’s submission is that its case boils down to the contents of the Letter of Offer and the Second Deed of Priority and, contrary to Raging Thunder’s submissions, neither document mentioned safeguards and monitoring systems, let alone reasonably effective safeguards and monitoring systems that would ensure that loans were applied so as to complete works in accordance with approved designs and plans. Raging Thunder may have believed that Bank West had, or would have, “reasonably effective safeguards and monitoring systems” in that regard. Such a belief is not expressly pleaded. Perhaps it is implicit in its case. Its opposition to summary judgment was not supported by evidence that it had such a belief and the source of that belief. An issue then is whether any such belief was induced by the alleged representations, and that, in turn, depends upon whether the relevant documents were capable of conveying those representations and in fact did so.
[158] Raging Thunder’s case does not depend upon the documents containing any express statement that Bank West had or would have reasonably effective safeguards and monitoring systems in place to ensure the pleaded outcomes. Its case seemingly depends upon such a representation being conveyed by implication.
[159] In deciding whether the documents were capable of conveying such a representation to a party in Raging Thunder’s position, regard must be had to its circumstances. Those circumstances are not pleaded, and there is no pleading of to whom, on behalf of Raging Thunder, the representations were allegedly conveyed. Reference is made elsewhere in the pleading to the fact that Raging Thunder had in-house counsel and legal representatives. However, the pleading is silent about the person or persons to whom the representations were made on behalf of Raging Thunder. This is a relevant circumstance in making an assessment of the circumstances in which the alleged representations were conveyed. In other contexts, it has been recognised that an ordinary person reads between the lines, and that a layman has a capacity for implication that is greater than a lawyer.[34] Even so, paragraph 72 of the amended statement of claim does not plead the circumstances of Raging Thunder, or any other matter which is relevant to its sophistication, its possession of legal advice or the reading habits of any employee or agent who is alleged to have understood the documents as conveying the two alleged representations.
[160] The documents stated that the conditions precedent might be waived by Bank West. Clause 2.2(f) of the Second Deed of Priority permitted Bank West to waive other terms. As Raging Thunder concedes, the Letter of Offer was only with respect to certain works, and the further development works referred to in the Second Deed of Priority were not subject to the same conditions precedent. The fact that the purpose of further advances was for these works to be undertaken in substantial accordance with development approvals does not represent, indicate or even suggest that Bank West had safeguards and monitoring systems in place to ensure that further loans would be applied so as to complete the development in accordance with approved designs and plans, let alone that these safeguards and monitoring systems were “reasonably effective”.
[161] In those circumstances, it is doubtful whether any person in Raging Thunder’s position who read the Letter of Offer and the Second Deed of Priority would have understood as a result of reading them that Bank West was representing the matters alleged in paragraph 72 of the amended statement of claim.
[162] One would be required to ignore certain provisions of these documents, including Bank West’s entitlement to waive conditions precedent and other terms, and read into the documents words that were not there, in order to conclude that they conveyed the pleaded representations.
[163] Even assuming in Raging Thunder’s favour all of the facts pleaded in paragraphs 26 to 43 and 47 of the amended statement of claim, I am inclined to conclude that the relevant documents were incapable of conveying the alleged representations and that, as a result, Raging Thunder has no real prospect of establishing the critical allegation in paragraph 72 that Bank West made the alleged representations to it. I will defer ruling on Bank West’s application for summary judgment on this part of the claim because, for the reasons which follow, paragraphs 72 and 77 should be struck out.
[164] Paragraph 72 of the amended statement of claim fails to adequately plead the parts, if any, of the Letter of Offer and the Second Deed of Priority which are alleged to have conveyed the contentious representations. Paragraph 72 does not disclose how the documents could have been so interpreted:
(a)in the absence of saying anything about:
(i)Bank West’s safeguards and monitoring systems;
(ii)that they were reasonably effective; and
(iii)that they would “ensure” each of the matters pleaded in subparagraphs 72(a) and (b); and
(b)in the face of terms contained in those documents permitting Bank West to waive conditions precedent and other conditions.
[165] It is unsatisfactory to simply plead that all of the alleged facts and circumstances in paragraphs 26 to 43 and 47 of the amended statement of claim gave rise to each of the alleged representations. Paragraph 72 itself distinguishes between loans made for the refurbishment of the Central Plaza Facility and further loans to be made for other developments. If Raging Thunder’s case is that the same assurance was given in respect of loans made or to be made for these different purposes then the specific contents of any document in which this assurance was given should be isolated and identified in the pleading.
[166] Paragraph 77 pleads in a general fashion that Bank West did not have in place the pleaded “safeguards and monitoring systems” and that it had no reasonable grounds for representing that such safeguards and monitoring systems would be in place for the loans to be made by it to FIH. The fair trial of the proceedings is not assisted by the present pleading’s imprecision about the “safeguards and monitoring systems” that Raging Thunder alleges were represented, but which were not in place.
[167] In response to Bank West’s complaints in this regard about Raging Thunder’s pleading, Raging Thunder submits that the criticism of paragraph 77 is really that it is not adequately particularised, and that Raging Thunder will be able to give those particulars after disclosure is completed. I do not regard this as a satisfactory response.
[168] If Raging Thunder has a case in this regard it should be properly pleaded and particularised. Its failure and refusal to adequately plead the matters alleged in paragraph 77 suggests that this part of Raging Thunder’s case is speculative. Bank West should not be obliged to give disclosure, with its attendant costs and potential for disputes over the extent of disclosure, on the basis of an inadequately pleaded and particularised case as to the respects in which Bank West is alleged to have not had in place “such safeguards and monitoring systems” and did not have reasonable grounds for representing that it did. In the first instance, Raging Thunder should be required to plead with some precision the “reasonably effective safeguards and monitoring systems” which are the subject of paragraph 72, and then plead the respects in which Bank West failed to have such safeguards and monitoring systems in place. It should also plead the basis upon which it alleges that Bank West had no reasonable grounds for representing that such safeguards and monitoring systems would be in place. The absence of such material facts and particulars means that paragraph 77 in its current form has a tendency to prejudice or delay the fair trial of the proceedings due to its lack of particularity. I will order that it be struck out.
[169] In conclusion, I intend to strike out paragraphs 72 and 77 of the amended statement of claim. Subject to appropriate conditions on any grant of leave to Raging Thunder to re-plead, Raging Thunder will be granted leave to re-plead its misleading or deceptive conduct claims. Bank West’s application for summary judgment in respect of these claims will be adjourned and may be renewed after any further amended pleading is delivered.
Raging Thunder’s claim about the two apartments
[170] Raging Thunder pleads in paragraph 133 of the amended statement of claim that by reason of the facts and matters pleaded at paragraphs 107 to 132, it and Bank West varied the Second Deed of Priority by agreeing that Raging Thunder was to receive the benefits described in cl 8.1 of the Share Sale Agreement (as varied) – namely, the subleases for the two apartments – in priority to Bank West. Bank West submits that Raging Thunder has no realistic prospect of establishing this alleged agreement because, even assuming the pleaded facts in favour of Raging Thunder, there is no consideration for Bank West’s alleged promise to allow Raging Thunder to take the benefit of the two apartments in priority to Bank West.
[171] Raging Thunder submits that, against the background of the facts and circumstances that are alleged, including the allegations at paragraphs 124 to 128, Bank West promised to transfer the apartments to Raging Thunder if Raging Thunder met with it on a without prejudice basis, and that shortly afterwards Raging Thunder did so. Raging Thunder submits that by participating in the without prejudice meeting it provided adequate consideration for Bank West’s promise.
[172] Bank West submits that the alleged bargain is vague, illusory and so uncertain as to be enforceable.[35] Raging Thunder cites authorities in support of the proposition that promises to negotiate differences are not illusory.[36] I do not consider that Raging Thunder’s arguments concerning consideration can be said to have no real prospect of success.
[173] I decline Bank West’s alternative application to strike out paragraph 133. It is true that this part of the pleading does not plead the agreement in a conventional form in terms of offer and acceptance, consideration and other terms of the alleged agreement to vary. However, I consider that these matters are adequately pleaded and that Bank West is on notice of Raging Thunder’s point in relation to the issue of consideration.
[174] Raging Thunder pleads at paragraph 134 an alternative claim that Bank West was estopped from denying Raging Thunder’s entitlement to receive the benefit of the subleases for the two apartments in priority to Bank West. It relies on the matters pleaded in paragraphs 107 to 132 and also alleges that it relied on the representations made by Bank West that it was ceding its priority in respect of the two apartments, and that Raging Thunder acted to its detriment by:
(a)causing its wholly owned subsidiary, Fitzroy Island Ferries Pty Ltd (“FIF”), to continue to operate the ferry service between Cairns and Fitzroy Island from on or about 6 November 2008; and
(b)doing so when:
(i)that ferry service was running at a substantial loss; and
(ii)had it not been for Bank West’s representations with respect to the two apartments, it would otherwise have caused FIF to cease providing the ferry service in or about November 2008.
[175] Bank West complains that mere reliance on the alleged promise which resulted in Raging Thunder changing its position or suffering detriment is not sufficient to bring promissory estoppel into play, and that the alleged detriment is not something that could possibly flow from the promise. Although Bank West has substantial arguments about whether Raging Thunder will establish the alleged estoppel at trial, I decline to conclude that Raging Thunder has no real prospect of establishing the estoppel pleaded by it.
[176] Finally, Bank West complains that the relevant paragraphs fail to sufficiently plead the alleged representations, the alleged reliance and the alleged detriment (and its causal connection to the alleged representations). I consider that the amended statement of claim is adequately pleaded in this regard.
Conclusion
[177] Bank West is entitled to summary judgment on that part of Raging Thunder’s claim that relies upon the implied terms pleaded by it.
[178] Bank West has not persuaded me, at least at this stage, to grant summary judgment in its favour in respect of the plaintiffs’ claims in negligence, principally because on the basis of the pleaded facts which are assumed in the plaintiffs’ favour for the purpose of the application for summary judgment, including alleged vulnerability, reliance and an assumption of responsibility, I cannot be satisfied that the plaintiffs have no real prospect of establishing a common law duty of care. However, the duty of care pleaded is a novel one, unsupported by authority, and based upon allegations that have not been properly pleaded.
[179] The determination of whether Bank West owed a duty of care of the kind alleged to Raging Thunder, and also a duty of care of the kind alleged to FI, is not aided by general allegations of vulnerability and the like. A number of paragraphs of the plaintiffs’ pleading of their negligence claim should be struck out. These are paragraphs 60, 61, 61B, 61G and 62. I will adjourn Bank West’s application for summary judgment in respect of the negligence claims to await any new pleading. Depending upon its contents, the summary judgment application might be renewed. Otherwise the issue of a duty of care will need to be determined either as a separate question (if this is appropriate) or at a trial of all issues. I will hear the parties about the terms upon which I grant the plaintiffs leave to re-plead their negligence claims.
[180] The claim for equitable compensation by Raging Thunder will be struck out. If Raging Thunder seeks to file and serve a further amended statement of claim which advances a novel claim for breach of equitable duty, it will need to first formulate its pleading and deliver the same to Bank West’s solicitors. Depending upon its content, the grant of leave may not be opposed. If, however, it is opposed, I will hear the application on a date to be fixed.
[181] As to Raging Thunder’s claim for misleading or deceptive conduct, the circumstances pleaded in support of the alleged representations do not disclose a basis upon which it could be said that the two relevant documents conveyed the alleged representations. There is a very strong argument that the documents are incapable of conveying those representations, and that this part of the claim should be dealt with summarily. I have decided to strike out paragraphs 72 and 77 from this part of the pleading. Raging Thunder will be given leave, on suitable terms, to re-plead the relevant parts of the relevant documents that are alleged to have conveyed each of the representations, and to address how those documents can be said to have conveyed the alleged representations, as it were, by implication, and notwithstanding parts of the documents which are seemingly at odds with such representations being conveyed by them.
[182] I will adjourn Bank West’s application for summary judgment in respect of the claim for misleading or deceptive conduct in order to provide Raging Thunder with an opportunity to properly plead its case. However, on the basis of the present pleading, Bank West has a strong basis to contend that Raging Thunder has no real prospects of establishing the alleged representations and that summary judgment should be awarded against it in respect of its claim for misleading or deceptive conduct.
[183] Finally, I decline to enter summary judgment in respect of Raging Thunder’s claim relating to the two apartments. I also decline to strike out the allegations contained in this part of the amended statement of claim.
[184] I will hear the parties about the terms of orders to be made, including leave to re-plead and the question of costs. As to the question of costs, my present view is that Bank West has had substantial success and that costs should follow the event. These should include the costs reserved on 23 March 2012 when its original application was adjourned.
Footnotes
[1] Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232.
[2] General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129.
[3] (2010) 241 CLR 118 at 132 [25].
[4] Theseus Exploration NL v Foyster (1972) 126 CLR 507.
[5] Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd [2009] 2 Qd R 202 at 210 [26]; Mirvac Queensland Pty Ltd v Horne [2009] QSC 269 at [18]-[24] and see, for example, St George Bank Ltd v Wright [2009] QSC 337.
[6] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347.
[7] Supra at 283; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347.
[8] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (supra) at 283.
[9] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 66-67.
[10] [2011] QCA 162 at [5].
[11] (1896) 7 QLJ 68 at 70-71.
[12] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at 142.
[13] Supra at 607.
[14] [2006] QCA 126 at [50] – [51].
[15] See the extra-curial observations of Allsop P in “Good faith and Australian contract law: A practical issue and a question of theory and principle” (2011) 85 ALJ 341 at 349.
[16] Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124 (original emphasis).
[17] Ibid at 125 (emphasis added).
[18] The leading authorities are cited in Bank of Western Australia Ltd v Phil Zhanming Luo & Anor [2010] NSWSC 733 at [71] – [74].
[19] St George Bank Ltd v Wright (supra) at [60].
[20] [1986] AC 80.
[21] [2005] NSWSC 540 at [124].
[22] Ibid.
[23] Amended statement of claim para 62.
[24] Bank West’s primary submissions para 88 (emphasis added).
[25] (2003) 216 CLR 515 at 525 [7] (citation omitted).
[26] Perre v Apand Pty Ltd (1999) 198 CLR 180 at 226 [120]; Woolcock Street Investments v CDG Pty Ltd (supra) at 533 [31], 548-550 [80] – [86]; Barclay v Penberthy (2012) 291 ALR 608 at 620 [42], 629 [87], 650-651 [173] – [177]; [2012] HCA 40 at [42], [87], [173] – [177].
[27] Woolcock Street Investments Pty Ltd v CDG Pty Ltd (supra) at 552 [94].
[28] Supra at 225 [118].
[29] Citing Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373-4, referred to with approval by in ENT Pty Ltd v McVeigh (1996) 22 ACSR 84 at 92.
[30] [1971] Ch 949.
[31] Permanent Custodians Ltd v HEB Developments Pty Ltd [2010] NSWSC 540 at [34].
[32] The TPA claim relies on Item 6 of Schedule 7 of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth).
[33] Campomar Sociedad Limitada v Nike International Ltd (1999) 202 CLR 45 at 84-86 [99]-[104];
[34] Farquhar v Bottom [1980] 2 NSWLR 380.
[35] Citing Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 26-27.
[36] AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2010] 2 Qd R 101; United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618.