| a ' "5 ,} wy = \ 2, 2 3 CATCHWORDS : ly} Contract - interpretation of agreement made in 1931 for amalgamation of the Savings Bank Department of the Government Savings Bank of New South Wales with the Commonwealth Savings Bank of Australia - whether the Commissioners of the Government Savings Bank entered the amalgamation agreement as agent and trustee for the State of New South Wales - whether the continuance of the rights and obligations of the Commonwealth Savings Bank and of the Commissioners or their successors should be interdependent with the continuance of the rights and obligations of the Commonwealth Savings Bank and the State of New Scuth Wales. Government Savings Bank Act 1906 (N.S.W) Government Savinas Amendment Act 1913 (N.S.W.) Commonwealth and State Ranks Agreement Ratification Act 1931 (N.S.W.) Goverrment Savings Bank (Amendment) Act (N.S.W.) 1931 - Rural Bank of New South Wales Act 1932 (N.S.W.) STATE BANK OF NEW SOUTH WALES v. COMMONWEALTH SAVINGS BANK OF RUSTRALIA _ 248 of 1984 iN THE FEDERAL COURT OF AUSTRALIA r: U NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISICN — "a No. G248- of 1984 wee ere Applicant COMMONWEALTH SAVINGS BANK OF AUSTRALIA Respondent COMMONWEALTH SAVINGS» BANK OF AUSTRALTA Cross-Claimant STATE BANK OF NEW SOUTH WALES First Cross-Respondent STATE OF NEW SOUTH WALES Second Cross-Respondent MINUTE _OF ORDER = ts Counsei for the State Bank bring in short minutes to give effect to the Court's reasons for judgment by framing appropriate questions and answers in = relation to he paragraphs of the defence and cross-claim referred to in chose-reasons.- Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF RUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G248 of 1984 ) GENERAL DIVISION ) STATE BANK OF NEW SOUTH WALES Applicant COMMONWEALTH SAVINGS BANK OF AUSTRALIA Respondent ~ COMMONWEALTH SAVINGS BANK OF AUSTRALTA Cross-Claimant STATE BANK OF NEW SOUTH WALES First Cross-Respondent STATE OF NEW SOUTH WALES Second Cross~-Respondent 12 JULY 1985 - - REASONS FOR- JUDGMENT: - - Te LOCKHART J. -- as. - On —Z3 April 1985 I delivered my reasons for judgment on "certain questions of fact and law raised by the pleadings. The "splitting of thé tase in this manner followed a direction of the Chief Justice of the High Court, before his Honour remitted the matter to this Court, that those questions be trieu before other questions in the case. I indicated in my reasons for judgment the answers which I proposed to give to the questions that were before me at that stage and then adjourned the matter to enable the parties to consider my 2. reasons for judgment and proposed answers. After 23 April 1965 three notices of motion were filed: first, by the State Bank -for an order that judgment be entered in its favour for the amount claimed in the statement cof claim, namely, $13,779,801.13 together with interest; second, by the State for an order striking out these paragraphs of the CSB's cross-claim which raised questions that I proposed to answer adversely to it; and third, by the CSB seeking the Court''s leave to amend its defence and cross-clain. Following a contested hearing I gave further reasons for judgment on 28 May 1985 when I accepted certain undertakings to the Court given by counsel for the CSB and made orders including an order that the CSB be at liberty to amend its defence and cross-claim and that it furnish in writing particulars of the allegations made in the amended paragraphs of the defence and cross-claim. I ordered that the questions of fact and law raised by paragraphs (1)(bl) and (b2), 16A, 19A and 19B of the defence and Peragraphs 28A, 288, 36A, 39A and 39B of the cross-claim _he tried before other questions of fact and law and that the heai:ing be fixed Tor 17 June 1985. In addition I ordered that the State Bank's motion --for_judgment and—the—State s-motion -to strike-out be adjourned to the ' Same date. The CSB amended its defence and cross-claim and furnished particulars of the new allegations. On 17 and 18 June 1985 I heard argument on the questions of fact and law raised by the new paragraphs of the defence and cross-claim. I embarked upon this course because it was in my ecpinion consonant with the terms and spirit of Yhe orders ef the Chief Justice of the High Court of & December 1983 which, as fi 3. have indicated, served to sever the trial of the issues in this matter. It is convenient to consider the further questions raised pursuant to the grant of leave to amend hy reference to the new paragraphs of the amended defence and cross-clain. Paragraphs 1(bl) and (b2) Paragraphs 1(bl) and (b2) of the defence (also paragraphs 28A and 28B of the cross-claim) allege: "1. In answer to pafagraph 6 of the Statement of Claim, the Respondent: (bl) says that the seid agreement was an agreement between the Respondent on the one hand and the State of New South Wales on the other and the Commissioners were a party thereto as agent and —— trustee for the State of New South Wates. ~ - -(b2) says that on entering- into the said agreement the Commissioners did s0 as agent and trustee for the State of New South Wales." The submissions of counsel for the CSB may be summarised as follows. - Although the Commissioners were authorised by the Government Savings Bank Act 1906 (N.S.W.) (Act No. 48 of 1906) to carry on their savings bank business they had no authority to dispose of the undertaking, assets or iilabilities of the business. Tne source of the power of the Commissioners to negotiate with the CSB for the transfer of their property and to enter into an agreement with respect tneretoa, which ultimately became the Agreement, was s. 3 of the Governmens 4, Savings Bank (Amendment) Act 1931 (N.S.W.) (Act No. 14 of 1931) which, so far as material, provided: "The Treasurer and the commissioners may enter into an arrangement with the Commonwealth Sank ofAustralia and/er the Commonwealth Savings Bank of Australia for amalgamation and for the transfer to the Commonwealth Bank of Australia or the Commonwealth Savings Bank of Australia as the case may be upon such terms and conditions as are agreed upon between the Treasurer, the commissioners, and the Commonwealth Bank of Australia and/or the Commonwealth Savings Bank of Australia, of the whole or any part of the assets, liabilities, and business of the bank. No such arrangement shall take effect until yatified by Parliament." The source of the transfer of the Commissioners' property to the CSB pursuant to the Agreement was, so it was submitted, not the Agreement itself, but the Commonwealth and State Banks Acreements Ratification Act 1931 (N.S.W.) (Act No. 62 of 1931) assented to on 10 December 1931 which ratified the Agreement (s._4)_and conferred aj] — requisite authorities to give full effect thereto (s. 5.. Clause 18 of the Agreement was an acknowledgement by the parties that the Agreement could have no operation and that there could be "no vesting of property without the benefit of enabling legislation. It was submitted, in the alternative, that the Commissioners held substantially all real and personal property whatsoever vested in them pursuant to either the Government Savings Bank Act 1906 or the Government Savinas Amendment Act 1912 (N.S.W.) (Act No. 13 of 1913) on behalf of the State or, if not substantially all the property, at 5. least the benefit of clause 11 of the Agreement: s. 19 ct the latt Act. Hence it was submitted that the a Commissioners entered into and became a party to the Agreement as agent and/or trustee for the State. Counsel for the CSB accepted for present purposes that 'he Commissioners were not an agency of the Crown in right of-the State. The High Court has rejected proposition: Shire of Bland on ,at Rural Bank of New South Wales v. I | ~ - least two occasions that The Council of the I (1947) 74 C.L.R. 408'at p. 417 and Rural Bank of New South Wales v. Haves (1951) 84 C.L-R.' 140 at p. 146. Counsel for the CSB foregoing matters the benefit of the submitted that in the light of the covenant by the CSB in clause 11 of the Agreement although in terms in, favour of the Commissioners, was in truth held by the Commissicners ubon trust for the State and that __the covenant by the Commissioners in clause ll_was_given by it_merely-.- as agent for the State. Counsel _ for the CSB submitted that the Commissioners had no power to deal in any way with the moneys received - by-them—pursuant to clause Pa authority to this —Act $1932 (N.S.W.) (Act No. 63 pursuant to clause 11 by the Bank Department before or after required to be paid to submitted that this was a4 + to operate, the under statute or any cther source; 11 until they effect which was the Rural of '1332) whereby CSB to the Commissioners or to the the commencement the Savings Bank Department: s, recognition that, Commissioners were merely a nomines received special statutory Bank of New South Wales any profits paid gd \ ural o* that Act were 12. It was until that Act commenced without power in other words, solely a trustee for the State. Counsel for the CSB further submitted that the State isa necessary party to this proceeding, a consequence that was said to flow from the fact that the Commissioners contracted either as agent for the State or as agent for the State and themselves combined. Counsel for the Commissioners argued that the necessary implication of the submission that the Commissioners contracted as agent or trustee for the State is that the CSB is therefore entitled to set-off against the State Bank whatever damages may be récoverable by the CSB from the State for breach of clause 17. In my opinion the terms of the Agreement themselves are inconsistent with the notion that the Commissioners entered into the Agreement as agent for the State or as agent for the State and the Commissioners. In my April reasons for judgment (at mp. 58-60) fT analysed the clauses of the Agreement and the distinct definition of benefits. and_-ohlications as between the three parties to the Agreement. I need not repeat what I said. I see no indication in the Agreement that the Commissioners contracted other than as a principal. Most of the obligations of the Commissioners are plainly personal to them as principals in their own right: see for example clauses 3, 4{e€), 7, 13, 14, 15, 22 ard in particular clause 12 whereby the Stace guaranteed to the CSB the Commissioners' performance of their obligations under clause il ¢t 7. bear half the losses sustained in the CS3's banking business in New South Wales. See also clause 9 whereby the Commissioners were entitled to borrow from the CSB, the borrowings to be secured by the issue of inscribed stock to be guaranteed by the State. The circumstances surrounding the execution of the Agreement likewise do not support the contention of counsel for the CSB. Again, I will not stay to repeat my findings of fact relating to those circumstances as canvassed in my April reasons for judgment. I agree that the Commissioners could not dispose of their undertaking without special statutory authority and that certain of their property was heid upon trust for the State, although it is far from clear which, if any of the property transferred under the Agreement was trust property: see Biand's Case (supra) and Hayes Case (supra). Section 3 of the Government Savinas Bank (Amendment) Act 1931 empowered the Commissioners to enter into an arrangement with the CSB _ for amalgamation and for the transfer_to it of the whole or any part - of the undertaking of the Commissioners on terms and conditions agreed _ upon between the Commissioners, the Treasurer of the State and the CSB Dut it expressly provided that no such arrangement was to take effect until ratified by the Parliament of the State. Tnis consideration points against the notion that the Commissioners contracted as agent. Plainly they had no authority to bind the State in any agreement with the CSB; they could not sven bind '"hemselives independently of the Treasurer of the State; and any agreement that emerged had no 8. operation without legislative approval. These considerations in my view also point against the correctness of the CSB's argument that the Commissioners and their successor, the State Bank, held the benefit of Clause 11 upon trust for the State. It follows that I reject the argument that the State should have been joined as a party to this proceeding. Nor can the argument succeed that the CSB is entitled to set-off against the State Bank any damages recoverable by the CSB from the State for breach of clause 17. I turn now to the second question that was argued before the Court arising from paragraph 16A of the amended defence (also Paragraph 36A of the cross-claim) which is in these terms: "16A. On the proper construction of the said agreement oy alternatively it was a further amplied term and condition of the said agreement that: (a) the continuance of the rights and obligations—thereunder—of_the—Respondent- - and the Commissioners or their successors inter se should be interdependent with-or collateral to and dependent upon the continuance of the rights and obligations thereunder of the Respondent and the State. Of Néw South Wales inter se; or (b) the performance by _the Respondent of its obligations thereunder should be dependent _ i - ---upon ~ the" performance by both the Commissioners and their successors and the State of New South Wales of their respective obligations thereunder." Counsel for the CSB submitted that paragraph 415A was consequential upon paracrapn i(bl) and 1(52) so that, if the - Commissioners entered into the Agreement as agent or trustee for the 3. tate and held the benefit thereof on behalf of or upon trust for the State, as a matter of construction of the Agreement cbligations of the State and the CSB inter se and those of the State Bank and the CSB inter se are interdependent; so that, for exampie, a breach by the State of its obligations to the CSB under clause i7 of the Agreement would have the result that the CSB be freed of its obligations to the State Bank under clause 11. Counsel submitted, in the alternative, that, even if the Commissioners did not contract as agent or trustee for the State or hold the benefit of the Agreement on behalf of the State, as a matter of construction of the Agreement the matters relied on by the CSB to support the argument of agency or trust to which I referred earlier also supported the construction of the Agreement as to interdependence or the obligations mentioned in the last paragraph. Counsel for the CSB argued, again in the alternative, that there was an implied term to the effect of paragraph 16A based on the same matters as those to which I have referred in relation to the agency or trust argument. Counsel submitted that the term should be implied on either of two bases. First, it was said that the term should be implied on the ground that if was required by the very nature of the Agreement itself, that without it the whole transaction between the parties would be futile ana ainefficacious. It was submitted that the implication of the term in paragraph 16A was supportable, not on the ground of business efficacy applicable to commercial contgacts, but as a legal incident of the Agreement which 10. demands of its very nature and subject matter obligations or the kind mentioned in paragraph 16A, obligations which are necessary terms, necessary in the sense that they are required by the relationship of the parties. Reliance was placed upon Lister v. Romford Ice & Coal Storace Co. Ltd. (1957) A.C. $55; Liverpool City Councin v. Irwin an (1977) A.C. 239 and Mears v. Safecar Security Ltd. (1982) 3 W.L-R. 366. Counsel for the CSE emphasised that in Codelfa Constructions Pty. Limited v. State Rail Authoritv of New South Wales (1982) 149 C.L.R. 337 Mason J. recognised (at p. 345), when speaking of implied terms, not only terms implied to give business efficacy to a contract, but terms of the kind mentioned in the cases to which I have just referred where the term is a legal incident of a particular class of contract. To support the implication of the term expressed in paragraph 16A counsel for the CSB relied upon the matters mentioned earlier in relation to agency or trust and the following matters:- Notwithstanding the signing of the Agreement and the divesting of the assets of the Commissioners that then took place, the Commissioners retained the power to carry cna savings bank business: Government Savings Bank Act 1906 ss. 36 to 44; . the Commonwealth chose the CSB as its agent for the purposes of the Commonwealth being involved in banking business and the State chese the Commissioners as 1ts agent for the same 11. purpose. Counsel for the CSB submitted, in the alternative, that the term mentioned in paragraph i16A should be implied on the ground of business efficacy and that the five conditions laid down by the Judicial Committee in B.P. Refinery (Westernport) Ptv. Limited v. Hastings Shire Council (1978) 52 A.L.d.R. 20 at pp. 26-27 and subsequently adopted by the High Court were satisfied. I referred to the relevan authorities and to the principles governing to the implication of terms to give business efficacy to a contract at pp. 62 and 63 of my April reasons for judgment so I need not repeat then. Counsel for the CSB relied on various matters including the following: . the principal purpose of the Agreement was to enable the CSB to be able to pay out all the old depositors of the Old Business Division of the Savings Bank Department' conducted by the Commissioners as soon as possible (clause 7(a)); . to give effect to that purpose and to have a deposit base the CSB needed the co-operation of depositors. The CSB would obtain the confidence of depositors from clause 17 of the Agreement because it was a clause quaranteeing no competition to the CSB, thus giving 16 an cpportunity to build upa deposit hase. The Agreement would not have worked commercialiy aif the Commissioners were immediately able to 12. set up a Savings Bank in opposition to the CS3. The prinary, if not the sole, reason for the Agreement was to loox after the interests of depositors. My earlier reasons delivered in April together with these reasons dispose of this branch of the CSB's case except as to the implied term argument. The first basis on which the CSB put its case for the implied term of interdependence (that 1s the interdependence of the obligations of the State and the CSB inter se on the one hand and those of the Commissioners and the CSB inter se on the other hand) was that the term is required by the nature of the Agreement, a ground of necessity. Notwithstanding the ingenuity of the pleader of paragraph 16A it is not easy to understand it or its implications. Paragraph 16A(a) is not limited to what have been cailed "indefinitely continuing" obligations -under clauses 11 and 17. Its language is apposite to encompass also the obligations of the parties of a short or medium term nature subsisting for specific periods only. _ I analysed the ,clauses of the Agreement in that respect in my April reasons (p. 35) and need not repeat what I said about them. It is impossible to find that the obligations of the parties which are expressed to subsist for specific pericd are interdependent in the sense contemplated by paragraph 16A'a). Ii they were, it would follow, for example, that the obligations of the Commissioners in clause 3(a) of the Agreement to issue to the CSB inscribed stock of the Rural Bank Department payable in 40 equal half-yearly payments, the farst tec be made cn 30 13. November 1936, would be discharged once the State failed to honour its obligation to the CSB under another clause of the Agreement such as clause 17. Also, it would mean that if the State failed to make the Payment due under clause 5 of the Agreement to the CSB then the CSB would be relieved of its obligation to pay half the profits of its savings bank business in New South Wales to the State Bank as required by clause 11. There are other examples, but the recitation of them would serve no useful purpose. If paragraph 16A(a) is read as being confined to clauses 11 and 17 then it must be noted at the outset that they contain their own provisions for duration of their respective obligations (see pp. 69 and 70 of my April reasons). In my view this circumstance alone disposes of the argument. These are but some of the problems that flow from the language of clause 16A(a) as pleaded. In any case, I see no justification for finding it necessary to imply terms such as that _contained in paragraphs 16A(a); that is,—'necessary"-in-the sense that * the term is required by the relationship of the parties, or the nature of the Agreement itself. The argument thatthe Agreement will be futile and inefficatious without it cannot be sustained. —— It is an unusual term and although novelty is no disqualification for implication it demonstrates the need for caution. The performance of the rights and cbiigations of the parties to the Agreement does not call for the implication of this term which is 14. essentially one for automatic termination or discharge of contractual obligations. In substance what I said about paragraph 16A(a) applies aiso to paragraph 16A(b). .The second gr bund on which it is sought to imply the paragraph 16A terms is on the ground of business efficacy. I considered the principles governing this basis of implication in my April reasons and need 'hot repeat them. The proposed terms fail to satisfy the five tests that must be passed before the terms can be implied. It seems to me to be impossible to support the implication of the terms on this basiis. | There is an vl attraction in the argument that derives from the assumption thal clauses ll and 17 mirror each other in the sense that it is wrong for the CSB to be obliged to continue payment of half the profits of its Savings Bank business in New South Wales to _the successors of the Commissioners if at the same time the State is , competing with it either itself or through a body established by it to carry on a rival business in New South Wales in breach of clause 17. In the end this analysi$ is unsound. Inevitably, as in April, I am led to the conclusion | that the two clauses cannot be treated as interdependent in the sense contended for by the CSB. There are other considerations which tend against the soundness of this argument. The Savings Bank business conducted by 15. the CSB in New South Wales may produce profits or losses. The possibility that one or other may occur is contemplated by clause 11 of the Agreement itself. It may be that if a loss were to be incurred the CSB may nevertheless wish to continue to carry on its Savings Bank business in New South Wales (perhaps only for a shcrt tame) and to share the losses equally with the State Bank notwithstanding that the State is competing with it in breach of clausé 17. The exercise by the Commonwealth of its banking powers could not of course be curtailed by the Agreement; nor does the Agreement purport to do so. Nor, for that matter, could the Agreement preclude the State from the future exercise by it of its powers in the field of State banking. The Commonwealth was at liberty to do precisely what it did, namely, to licence private banks to carry cn Savings Bank businesses in Australia. Since the 1950's the private savings banks have captured much of the savings bank business throughout Australia including New South Wales. In the result the Savings Bank business of the - CSB, although large and lucrative, has nevertheless been diminished by the banking activities of the private savings banks, with the consequence that the 'State Bank's snare of the profits " payable under clause 11 has also been reduced. These considerations cemonstrate the danger of endeavouring to approach the questions in this case with abstract notic i) u is) ' reasonableness as between tne parties withouc regard to the long history of the matter and the very terms of the Agreement itself which were hammered out by skilful necotiators on all sides cver many months 16. in 1930 and 1931 reflecting the varied business and political considerations then involved. The CSB has pleaded (in paragraphs 22A of the defence and 42A of the cross-claim) that the State Bank has wrongfully induced the breaches by the State of its obligations under clause 17. If this allegation succeeds at the trial then the CSB may be able to set-off its damages against the amount claimed by the State Bank. I say "may" because the question remains to be considered. Paragraphs 19A and 19B Paragraphs 195A and 19B of the amended defence (also 39A and 39B of the cross-claim) are pleaded in the following terms: "19A. Upon the termination or rescission of the eaghts—and—ebiigations---under -the-seaid- agreement of the Respondent and the State of New South Wales inter se the Respondent ceased to be bound by the - continuing obligations thereunder to the Applicant as successor of the Commissioners. ISB. The State of New South Wales has ceased to perform its obligations under the said agreement by reason of the matters referred to in paragraph 18 whereupon the Respondent ceased to he bound by its obligations thereunder to the Applicant as successor of the Commissioners." It was common ground that if the CSB succeeded on 1ts earlier arguments, it would necessarily succeed in relation to these paragraphs, assuming the other matters of fact alleged in raragrashs 19A and 198 are established. 17. Questions 1, 2, 3 and 9 Counsel for the CSE submitted that, in the light of the further material and argument concerning the further questions which I am now considering, questions i, 2, 3 and 9 answered by me in my April reasons for judgment should be reconsidered. In view of my findings with respect to the earlier questions, questions l, 2, 3 and 9 do not require reconsideration. I propose to direct counsel for the State Bank to bring in short minutes to give effect to these reasons by framing appropriate questions and answers in relation to the paragraphs of the defence and cross-claim to which I have referred. | certity that this and the 16 Preceding pages are a true copy of the Reasons for Judgment herein of his Honour / ee GQ ~ IN Associate Dated [2 Tely 199s~