IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G381 of 1994 ) GENERAL DIVISION ) BETWEEN: ALLSTATE LIFE INSURANCE CO. & OTHERS Applicant AND AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & OTHERS Respondent CORAM: Beaumont J. DATE: 22 March 1995 REASONS FOR JUDGMENT (No. 9) (On application to amend statement of claim) The applicants have sought leave to further amend their statement of claim in the terms of the document, which I had marked "1" for identification, which is entitled "Second Further Amended Statement of Claim" and which was filed in Court on 20 March 1995. There is opposition to the application in several respects, but I heard argument today on one aspect only and it is convenient to deal with it separately. The particular matter is a claim made at pp.102- 103 of the proposed pleading under the heading "Estoppel". The allegations in question are contained in paras.173-177 inclusive. In the course of argument in the matter the applicants foreshadowed a further amendment to para.174 and that further proposed amendment has been noted in the document MFI "1". In addition, in the course of argument the applicants have foreshadowed further amendments to other parts of their pleading, which parts they say are related to the allegations made in the present connection. The amendment proposed to be made to para.174 picks up para.74(e) of the proposed pleading. It is there alleged that in the premises each of the initial participant banks, in particular by the conduct alleged in paras.31-34, 37-40, 43, 51, 53 and 55-57 has aided, abetted, counselled or procured the contravention of s.52 of the Act by Linter Textiles, or alternatively were, directly or indirectly, knowingly concerned in, or a party to, the contravention. In MFI "68" further amendments were proposed and are now annexed. At the conclusion of MFI "1" it is stated that the applicants claim the relief specified in the further amended application. Reference should be made to MFI "1" in one particular respect for present purposes. As has been noted, by para.177 of MFI "1", it is claimed that the initial participant banks are estopped from asserting that any indebtedness of Linter Textiles or the subsidiaries, consisting of a liability under any of the unlawful guarantees, comprises "Senior Indebtedness". By a proposed amendment to the application, annexed to the affidavit of John Frederick Warburton, the applicant's solicitor sworn 14 March 1995 and MFI "1A", notice was given of proposed amendment of the application. MFI "1A" is now annexed to these reasons. The application to amend the pleading by adding the allegations under the heading, "Estoppel" are opposed. The reasons for that opposition are set out in the document MFI "67", being a submission made on behalf of Citibank. It is noted that there is no express representation alleged against the initial participant banks and it is said that within the principles of estoppel by silence discussed in the authorities there can only be estoppel by silence where the relationship between the parties is such that it is reasonable to expect that the person who has remained silent would disclose the relevant facts (see Pacol Ltd. v Trade Lines Ltd (The "Henrik Sif") [1982] 1 Lloyds Rep 456. at 465, per Webster J; Trenovden v Martin [1934] SASR 340 at 344; China Ocean Shipping v P.S. Chelleram [1990] 28 NSWLR 355, at p.385 per Kirby P.; The Commonwealth of Australia v Verwayen (1990) 170 CLR 394, at pp.444-445, per Deane J.). It is further submitted on behalf of Citibank that the proposed pleading does not allege any business or other relevant relationship between potential bond holders and the banks or that there was any relevant contact between those parties. On behalf of the applicants it is contended that, at the arguable level at least, a cause of action has been alleged of the kind discussed by Dixon J in Grundt v Great Boulder Proprietary Gold Mines Limited (1938) 59 CLR 641 at 674. His Honour there said: "The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations. This is, of course, a very general statement. But it is the basis of the rules governing estoppel. Those rules work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another." The other authority relied upon by the applicants is North British Insurance Company v Lloyd [1854] 10 ER 523. In my opinion that case is of no significant assistance in the present context. The discussion there depended upon particular circumstances in which concealment may vitiate a guarantee. However, it does appear that the applicants are correct in their submission that the principles of law or equity, which govern the creation of the cause of action alleged, are relevantly stated by Sir Owen Dixon in Grundt. It is true that in Verwayen, Deane J, especially at pp.443-445, discussed the matter in more recent times but I do not think that his Honour intended to depart from anything said by Dixon J in Grundt. Indeed, the passage in the judgment of Deane J in Verwayen at the bottom of p. 444 appears to be a paraphrase of what was said by Dixon J in Grundt at p.676. It is true, as was emphasised on behalf of the applicants, that the present application is to be approached on the footing that it is sufficient for them to demonstrate a merely arguable case and that is a much lower threshold than they will face at the trial itself. But, the law is settled beyond reasonable argument that at law or in equity an estoppel can only arise if the conduct of the party allegedly estopped is itself of the character required. It is in this respect that the real question arises for decision on the present application. Alternatively, whether one has regard to Dixon J's formulation at p.674 or p.676 in Grundt or Deane J's expression of the test at p.444 in Verwayen there will be no estoppel as a matter beyond reasonable argument unless it can be demonstrated that the party charged has caused the other party to adopt a particular course of action. By way of illustration, if it were pleaded that the plan or proposal to deceive debenture holders, which is alleged against Linter Textiles, was a plan to which the initial participant banks were parties, in the sense of persons participating in a joint enterprise in that regard, that allegation would not be liable to be struck out on the ground of opposition now advanced. However, I would not read the pleading in its relevant aspects in this way. On the contrary, and I make no criticism in this respect because the allegation would be a grave one, the pleader appears to have taken considerable care not to make that allegation. A very different case emerges if one tracks the allegations through the pleading. In para.20 of MFI "1" it is alleged that the Linter Group proposed to the initial participant banks that they should, prior to the issue of the debentures, release the guarantees. In para.20A as now proposed in MFI "68" it is said that those banks agreed with Linter Textiles to participate in the release and re-instatement proposal and to arm Linter Textiles with the releases and proposal. In para.32, as amended by MFI "68", it is said that in accordance with the release and re-instatement proposal and in accordance with the agreements referred to in the proposed para. 20A, each of the banks released the subsidiaries. Then in para.33A, as proposed in MFI "68", it is said that the releases were granted by the initial participant banks and that put Linter Textiles in a position to make the representations. Alternatively, it is said in para.33A, that the initial participant banks put Linter Textiles in a position where it was prepared to make the representations or to have the capacity to make the representations. Again, it is said in the alternative in para. 33A, that by the releases the initial participant banks armed Linter Textiles with that which was required to make the representations or arm them with what Linter Textiles believed was required to make the representations. Although it is alleged in para.51 of MFI "1" that each of the initial participant banks knew that the representations were misleading, inaccurate and untrue and although it is alleged in para.55 that each of the initial participant banks knew or ought to have known that persons contemplating purchase of the debentures would rely on the representations and that if they had been warned of the true position they would not have purchased, and although it is alleged in para 57 that each of the initial participant banks stood to gain financially from the issue of the debentures, it is not pleaded in MFI "1" or MFI "68" that the initial participant banks were a party to a scheme of deception in the sense I have described. On the contrary, that charge is made against Linter Textiles, but is not made against the initial participant banks. Rather it is said that the initial participant banks had, or ought to have had, a certain knowledge that they stood to gain financially and that they agreed with the release and reinstatement proposal and subsequently implemented it. As a matter beyond reasonable argument, it cannot be said that, within the meaning of the authorities, the initial participant banks caused the applicants to embark upon a particular course of conduct. In short, the allegations made in MFI "1" in paras.173-177 incorporating for this purpose the amendments foreshadowed in MFI "68", do not disclose a reasonable cause of action and for that reason I would not propose to allow that amendment. I hereby certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of his Honour Justice Beaumont. Associate Date: 22 March 1995