FEDERAL COURT OF AUSTRALIA

Astram Financial Services Pty Limited v Bank of Queensland Limited [2010] FCA 1493

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.    The present notice of appeal be struck out;

2.    Leave be granted to the appellants to file a further notice of appeal no later than 8 December 2010;

3.    Save for the filing of such further notice of appeal, the proceeding be stayed until such time as security in the sum of $50,000 in a form satisfactory to the registrar is provided by the appellants;

4.    the appellants pay the respondent’s costs of the notice of motion filed on 10 November 2010; and

5.    The matter be listed for further directions on 10 December at 9.30 am.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1    This appeal has been brought from orders made by a judge of the Court on 22  September 2010. By notice of motion filed on 10 November 2010, the respondent, Bank of Queensland Limited (the Bank), applied for orders that the proceeding be dismissed as incompetent, that the notice of appeal be struck out and, in the alternative, that the appellants provide security for the payment of the Bank’s costs in the appeal. The notice of motion also sought an order that the proceeding be stayed until such security as may be ordered has been provided.

2    When the proceeding was called on for hearing, counsel for the appellants applied for an adjournment of the hearing on the basis that it was proposed to file a supplementary notice of appeal and that the appellants wished to put on some further evidence concerning their financial position. When the matter was before me on 20 October 2010, I stood the appeal over to the next call over on 2 February 2011 and, in the meantime, gave the Bank leave to file any notice of motion relating to summary dismissal, strike out or security, and directed that any motion for extension of time be returnable for hearing before me today at 10:15 am.

3    The motion of 10 November 2010 was made returnable before me today and was filed in accordance with the Rules. No motion for any extension of time was filed on behalf of the appellants. However, without opposition, I ordered this morning that an extension of time be granted. The only question now is concerned with security for the costs of the appeal. The only explanation offered on behalf of the appellants for the need for an adjournment was that some part of their legal team had not had time to address either the question of amended grounds or the evidence that might be called in relation to the question of the appellants’ financial position.

4    I invited counsel for the appellants to proffer any terms upon which any such indulgence might be granted, but counsel had no instructions to offer any terms as to the payment of costs thrown away by an adjournment. In the circumstances I refused the application for an adjournment and heard argument from counsel for both parties on the question of security for costs. It appears to be common ground that the appellants would not be in a position to pay an order for costs of the appeal in the event that the appeal is unsuccessful and such an order were made. I have evidence before me, which was not challenged, that the costs of an appeal could be somewhere between $259,000 and $300,000.

5    Counsel for the appellants accepts that the notice of appeal, as presently formulated, has no prospects of success and that it is necessary to file either a supplementary notice of appeal or a completely new notice of appeal. That concession appears to me to be well founded. There is nothing in the notice of appeal that indicates a specific error on the part of the primary judge. When invited to indicate the nature of any amended grounds, counsel was unable to say anything other than that the ultimate conclusion reached by the primary judge was wrong. In order to put that contention in context it is necessary to say something about the proceeding at first instance and his Honour’s reasons.

6    The claim brought by the appellants is that they were misled by conduct of the Bank into entering into a franchise agreement described as an “owner managed branch agreement” or OMB agreement. The agreement was entered into between the Bank and the first appellant, Astram Financial Services Pty Limited (Astram). The second and third appellants, Mr and Mrs Ramsay, are directors and Mr Ramsay is the shareholder of Astram. Astram was originally established by Mr and Mrs Ramsay, together with two others, Mr and Mrs Astridge, as shareholders. The name of the company is derived from their surnames. By the time the arrangements with the Bank were finalised, all shares in Astram were held by Mr Ramsay.

7    The proposed franchise involved the establishment by the Bank of branches in New South Wales. It was a normal condition, as his Honour found, of approval of such arrangements that the intended branch manager be a principal shareholder of the franchisee and have adequate prior banking experience. Mr Ramsay did not satisfy the latter condition. However, Mr Astridge, his proposed partner, did. Mr Astridge had banking experience and was to be the branch manager of the branch to be established by Astram. The Bank agreed to entertain a proposal from Mr Ramsay and Mr and Mrs Astridge on that basis.

8    His Honour observed, at the outset of his reasons, that the Bank had an underlying expectation that, within a reasonable period of opening a franchise, Astram would be in a position to write new loan business amounting to $4 million per month. Achievement of that objective would provide a satisfactory return both to the Bank and to the franchisee. Mr Ramsay and Mr Astridge prepared and submitted a business plan for a proposed branch of the Bank at Campbelltown in which they predicted such an outcome. The Bank’s position, his Honour found, in relation to the proposed franchise arrangement, was set out in detail in a number of documents. Some of the documents were formal letters, some were contractual documents.

9    His Honour observed that the documents gave the appearance of having been drafted from a position of commercial and negotiating superiority on the part of the Bank. However, his Honour considered that they consistently emphasised that entry into a franchise agreement of the kind contemplated was to be based on business judgments made by the intending franchisee, and its principal or principals, and to not on assumptions engendered by any conduct of the Bank. His Honour concluded that the Bank, at the time of entry into the franchise agreement and earlier, expressly disclaimed any liability for the business fortunes of the franchise.

10    That is the ultimate conclusion about which the appellants complain. They say that notwithstanding the terms of written documents, they were misled by oral communications made to them by a Mr Allsop, an officer of the Bank, and other Bank officers. His Honour observed that franchisees and their principals were required to acknowledge and accept the relevant feature of the arrangement, namely that the Bank disclaimed any liability for the business fortunes, and agreed to absolve and indemnify the Bank from any responsibility for the business fortunes of the franchise after receipt of legal and accounting advice. Astram, Mr Astridge and Mr Ramsay, accepted those terms.

11    The Bank then accepted Astram’s proposal, based on the business plans submitted by Messrs Astridge and Ramsay. Some time later, but before the branch opened, Mr Ramsay and Mr Astridge decided not to continue in partnership. The Bank permitted Mr Ramsay to continue alone, provided he employed an experienced banker as branch manager while he sought another partner. He agreed to do so. Astram’s business commenced. His Honour characterised the appellants’ case, expressed in various ways, as being that the business failed because the Bank misrepresented the prospects for success of the business and the level of support that it would provide.

12    Specifically, Astram never achieved the targets stated in the business plan, including writing $4 million in loans per month. The appellants’ case was that the Bank assured them that such a target was achievable, and that the Bank knew of no reason why it would not be achieved. Mr Ramsay asserted that he relied on the Bank in that regard and would never have entered into the arrangements otherwise. At the heart of the appellant’s case, in the primary judge’s view, lay the premise that the written terms of the documents that recorded the various legal relationships between the Bank and the appellants should be subordinated to a finding that the Bank had promised Astram a successful business.

13    When the business failed, the cause of failure was to be found, the appellants claimed, in the non-fulfilment of the Bank’s assurances. They asserted that the Bank was responsible and not the appellants. As a result, they claimed, they should be relieved of all of their liabilities to the Bank, including pre-existing debts that the Bank had refinanced. His Honour considered that the central defect in the case, which was never satisfactorily addressed by the appellants, lay in the fact that the commitments that they each made were based on written statements, some of which were contractual, about the rights and obligations of the parties that were clear and relevantly unqualified.

14    In each case, the so-called assurances upon which the appellants claimed they relied were contradicted by the express written contractual terms that they signed, and by intermediate written statements of the Bank’s position. His Honour found that not only the contractual terms but also the intermediate written statements were accepted by Mr Ramsay on behalf of Astram and endorsed as understood by him. His Honour considered that the appellants’ case elevated the asserted contents of introductory discussions, of which there was no written record, to a position of overriding importance.

15    The appellants’ case reduced the significance of every inconsistent or contradictive written statement or contractual term effectively to one of no or insignificant weight or legal content. His Honour considered that there was no foundation in legal principle, statute or commercial practice for such an approach and that the appellants’ case was therefore bound to fail, as it did.

16    One specific document to which his Honour referred was a letter of 8 April 2005 sent by the Bank to Mr Ramsay and Mr Astridge as directors of Astram. The letter included a statement that the Bank does not give any assurances or make any representations in relation to the business structure, business plan or any other information provided by Astram or with regard to any assumptions on which that information was based.

17    That letter was signed by both Mr Ramsay and Mr Astridge and returned to the Bank as an acknowledgement that they had read and understood its contents. Counsel for the appellants could give no explanation as to how his Honour erred in concluding that that signed acknowledgement overrode other oral unrecorded statements made by officers of the Bank. His Honour formed the view that, at least in some instances, Mr Ramsay was not endeavouring to give evidence to the best of his recollection, and was satisfied that his professed inability to recollect some matters stems from an attempt to minimise the damage being done to the appellants’ case in his cross-examination.

18    His Honour considered that efforts to establish the proposition that Mr Ramsay had relied, to his detriment, upon misrepresentations made orally to him were entirely unsuccessful. His Honour found that no relevant representation upon which Mr Ramsay said he relied was either made at all, or was untrue or was made without reasonable grounds for making it. His Honour considered that Mr Ramsay had a practical obligation to make decisions based on his own inquiries and analysis. His Honour was satisfied that the evidence as a whole, including Mr Ramsay’s own evidence, satisfied him that he did not, in fact, rely upon the statements he identified but rather relied upon his own assessment. His Honour found that the responsibility for Mr Ramsay’s decision was his and his alone, particularly when he elected to buy the interests held by Mr and Mrs Astridge and proceed with the franchise alone, notwithstanding double the financial exposure.

19    His Honour also referred to the evidence given by Mrs Ramsay, who said that she accepted what her husband told her about the statements made to him and that she relied upon him when she committed herself to guarantees and mortgages which she signed. However, his Honour considered that it was clear from her evidence that she appreciated the nature and effect of the documents that she executed. His Honour considered that Mrs Ramsay’s case in the end fell to be decided by the same considerations as applied to Astram and Mr Ramsay. His Honour was satisfied that Mrs Ramsay was a willing participant in the arrangements that were made with the Bank and that she was under no relevant disability when she entered into those arrangements. His Honour was satisfied that she was an active participant in the decision-making process and, indeed that she exercised a significant right of veto.

20    His Honour was also equally satisfied that Mr and Mrs Ramsay both set out to persuade the Bank that Mr Ramsay was a suitable person to participate in the franchise, and to persuade the Bank that, between them, they had sufficient assets and financial standing to offer the Bank dependable security. His Honour said that they set out to persuade the Bank that Mr Ramsay should be accepted. They did so in part by providing unreliable and even false information. His Honour supported those ultimate conclusions by detailed analysis running to some 350 or more paragraphs covering in excess of 130 pages. His Honour rejected every aspect of the appellants’ claims. Had any particular aspect of the claims been made out, it might have been necessary to consider what relief would have been required as a result, if his Honour concluded that there was an insufficient basis for the statements made by Mr Allsop at the time that they were made.

21    In the light of those unequivocal and devastating findings so far as the appellants’ case is concerned, it would be incumbent upon the appellants, in resisting an application for security, in circumstances where it is common ground they could not meet an order for costs, to demonstrate some cogent ground of appeal that had some prospect of success. Rather, it is accepted that a great deal of work needs to be done in relation to the formulation of grounds of appeal. In those circumstances, I am satisfied that it is appropriate to order the appellants to provide some security for the costs of the appeal. I do not consider that it is appropriate at this stage to require them to provide security, in the first instance, anywhere near the total costs. Security can be ordered by way of tranches. I consider that it would be appropriate to order the appellants to provide security in the sum of $50,000 in a form satisfactory to the Registrar.

22    In the meantime, the present notice of appeal should be struck out, since the appellants accept that they do not wish to rely upon it. However, they should have leave to file an amended or supplementary or further notice of appeal as they see fit, identifying grounds that have some substance. The filing of the notice of appeal would not involve any further costs so far as the Bank is concerned. I propose to stay the further prosecution of the appeal, save for filing of an amended notice of appeal, until such time as the security, to which I have referred, has been furnished.

23    The appellants resisted the present application. In the circumstances, I consider that it is appropriate that they pay the Bank’s costs of the present application. I propose to stand the proceeding over to a suitable date after the appellants have had an opportunity to file an amended notice of appeal and provide security. I will then determine what further steps should be taken, if any, in relation to the conduct of the appeal.

Associate:

Dated:    17 December 2010