fd RESTRICTED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALTA ) QUEENSLAND DISTRICT REGISTRY ) QLD G101 of 1984 GENERAL DIVISION ) BETWEEN : GLANDORE PTY. LTD. First Applicant AND: DAVID HENRY LETTCH Second Applicant AND: ALMA MARGARET LEITCH Third Applicant AND: GARY DAVID LEITCH Fourth Applicant AND: ELDERS FINANCE & INVESTMENT CO.,LTD. Respondent SPENDER J. 12 JUNE, 1986. REASONS FOR JUDGMENT This is an application by Glandore Pty. Limited ("Glandore") and others, principally under s.52 of the Trade Practices Act 1974. The gravamen of the application 1s that < "a "Glandore was induced by representations as to ongoing financial accommodation to embark on certain ventures and, when the ongoing financial accommodation was not provided, contrary to promises that had been made, it suffered considerable loss. In February 1982, the respondent ("Elders") advanced to Glandore $1.5m upon terms and conditions contained in a loan facility document which was dated 2 February 1982. The advance was secured by certain securities. The case for the applicants 1s as follows: during negotiations leading to that advance and in order to induce Glandore to enter into that facility and to provide the securities. one Alistair Twigg, who was then the Corporate Lending Executive of the respondent, represented that the lending policy of the respondent would allow it to advance to Glandore funds totalling 60% of the nett value of the security offered by the applicants and that the respondent was prepared to make further advances to the first applicant under the loan facility as and when requested by the first applicant so that the total sums advanced amounted to not more than 60% of the nett value of the securities. It was the assurance of continuing financial accommodation which induced Glandore to enter into the loan facility and to provide security, which it said was of a nett value of $3.7m. At some time after February 1982, the respondent changed its lending policy in that it ceased to make loans for purposes which included rural purposes or, alternatively, tried actively to reduce the extent to which it made loans for purposes which included rural purposes. The advance to the first applicant in February 1982 was a loan for purposes which included rural purposes, but the respondent did not advise the applicants of that change in policy until September 1983. In September 1982 one David Barnett, the then Queensland Manager for the respondent, confirmed the representations that had heen made some time earlier by Twigg concerning the security ratio for lending purposes, and the provision of ongoing financial accommodation that had been made by Twigg. Between November 1982 and February 1983, Glandore requested from Elders a further advance of $.5m pursuant to the loan facility and one John McCluskey, a Corporate Lending Executive employed by the respondent, represented that the respondent would advance that amount to it, and failed to advise the first applicant, Glandore, of the change in Elders' lending policy. As a consequence of the representations, Glandore did not attempt to obtain finance from an alternative financier to enable 1t to discharge its financial obligations ta _ the respondent and to others, which it would otherwise have done. It is not in dispute that by a letter dated 8 March 1983 the respondent refused to advance the §.5m to the first applicant. The applicants claim that the representations by Twigg, Barnett and McCluskey constituted misleading and deceptive conduct within s,52 of the Trade Practices Act 1974 or, alternatively, there was an oral agreement between Glandore and Elders (by McCluskey) in February 1983, pursuant to which the respondent agreed to advance the sum of 5$§.5m to the first applicant and that the respondent, in breach of that agreement, wrongly refused to advance the $.5m.. In the further alternative, the respondent is said to have owed a duty of care to the applicants to correctly and honestly advise them concerning its lending policy and its preparedness to make further advances to the first applicant including its intentions in respect of the request in November 1982 for the further advance of §.5m and that, in breach of that duty of care, the respondent negligently advised the applicants that the further advance would be made and failed to advise any of the applicants of the change in the lending policy of the respondent and failed to advise them that the respondent was no longer prepared to make further advances to the first applicant as and when requested. These failures to advise were such, 1t was sald, as not to permit sufficient time for Glandore to find alternative sources of finance. The damage alleged as a result of the misleading and deceptive conduct and/or breach of contract and/or neqligence is considerable. It 1s claimed that Glandore was forced to make expenditure which otherwise it would not have made. It was forced to curtail its trading activities and thereby incurred losses. Receivers and managers were appointed by the respondent to take control of the assets and undertaking of Glandore and the receivers and managers threatened and took steps to sell the property of the applicants. The loss and damage included losses attributed to the forced disposal of cattle in an endeavour to secure funds, of the order of $800,000; a loss attributed to the inability to fund the cultivation of a sorghum crop, of $120,000; as a result of the need to secure alternative finance, an amount of the order of $60,000 as penal interest paid to the respondent; . in respect of professional charges for the receivers and managers which Elders had appointed, of the order of $100,000: legal fees associated with the release of the securities held by Elders of the order of $50,000; costs associated with the exercise of powers of sale; brokerage fees above the normal or customary charges associated with re-financing; additional interest of the order of $90,000 in respect of the refinanced funds; COST OF VALUERS OF $11,000 in preparation for the exercise of the power of sale 3; and the additional costs associated with the construction of a hospital at Gympie caused by the forced settlement with the builder of the order of $80,000, making a total of the order of $1.3nm. The 1ssue of liability, 1n respect of the three bases pleaded, 1S essentially a factual assessment of what was said and the effect of what was said in the various discussions and written communications. The trial of this application occupied 10 days. In the resolution of the issues raised by the pleadings, there are five crucial events or periods. The first concerns the negotiations between Mr. David Leitch on the one hand, the principal shareholder and the Managing Director of Glandore, and Mr. Alistair Twigq. The second relates to what occurred between Mr. David Leitch and Mr. David Barnett, the then Queensland Manager of the respondent, on 22 September 1982. The third concerns the dealings between Mr. John McCluskey and Mr. Gary Leitch, another shareholder and director of Glandore, between November 1982 until early February 1983 including the dealings involving one Marsland "in respect of the building of a hospital at Gympie. The fourth crucial event concerns what occurred at a meeting on 8 February 1983 at the office of the respondent, involving both Mr. David Leitch and Mr. Gary Leitch as well as Mr. Anderson and Mr. McCluskey on behalf of the respondent, and finally, the events after that meeting of 8 February 1983. The principal witnesses for Glandore were Mr. David Leitch and his son, Gary. Mr. David Leitch is an accountant by qualification. He qualified in about 1950 and. since that time, has been engaged ina number of extensive business ventures, principally in the Gympie, Kingaroy, and Goondiwindi districts. Glandore was formed in 1959. It then purchased the Glandore Private Hospital in Nash Street, Gympie, which it still owns. It later funded the acquisition by Glen Pacific Pty. Ltd. of the Glen Pacific Private Hospital on Main Beach on the Gold Coast, which operated until that private hospital was demolished. In August 1976, Glandore purchased the grazing property named "Oonavale", which is a 21,500 acre grazing property at Goondiwindi. Since the acquisition of "Oonavale", Glandore has spent considerable funds in developing it. The property is involved in sheep, cattle, stud stock and grain. Also relevant to these proceedings is a company, Gude Pty.Ltd. ("Gude"). At the end of 1981, David Leitch held 34% of the shares of Gude, one Rosenfeld held 34%, one Pullinger held 17%, anda nominee of F.A.I. held 15%. Gude purchased and operated a nursing home at Ashfield in Sydney which has since been sold and later it acquired the Longueville Private Hospital in Sydney, which 1t still owns. In about April 1982, Mr. David Leitch acquired a third interest ina property in Western Australia known as Theda Station which, from 11 January 1982, Gude leased at a token rent, and which Gude purchased in June 1983 from the partnership of which Mr. Leitch was a member. Gary Leitch had responsibility for managing the hospital activities of Glandore, while David Leitch managed the rural activities and financial matters. Mr. David Leitch holds 70% of the shares of Glandore, his wife 10%, and four of his six children including his son. Gary, each have 5%. The directors are Mr. David Leitch, his wife Mrs. Alma Leitch, (the third applicant), and Mr. Gary Leitch. "Oonavale" 1s registered inthe name of Mr. David Leitch, Mrs. Alma Leitch, and Mr. Gary Leitch. Glandore operates the property "Oonavale"", owns the land on which the Glandore Private Hospital (the old hospital) is situated, and also owns and operates the new Glandore Hospital which 1s a_ private hospital in Channon Street, Gympie. The old hospital had been an old house converted to a hospital and in about 1981 some land in Channon Street, Gympie was acquired on which a new hospital has since been built. In late 1981 interest rates were low, the prime rate being about 11%. Mr. David Leitch, at that time was looking to re-finance Glandore. There was no particular shortage of funds available at that time. His reasons for seeking to re-finance Glandore included some liabilities, which included about $400,000 owing to V.L. Credits Pty.Ltd., which was the balance of an amount which had been horrowed by Glandore a few years before which was due to be repaid in part in December 1981, with the balance in June 1982, or the whole in June 1982. There was a second liability owed to V.L. FPuinance Pty.Ltd., as a result of a guarantee given by Glandore for the purchase by the partnership of Theda Station. That liability to V.L. Finance Pty.Ltd. was the only pressing liability facing Glandore. Glandore also had in contemplation the construction of a new hospital on the Channon Street land. The estimated cost of construction was about $700,000 and it was in contemplation that 1t would commence about mid-1982, although there had been no fixed decision in that regard. Glandore also wanted further funds for working capital of the order of $300,000. There was a drought in progress and, if that continued. more money would be needed for operating expenses and Mr. David Leitch wanted ta be in a position to take up opportunities as they arose. At that time, according to Mr. David Leitch, "Oonavale" had a bare value of $3.3m with stock and plant about $lm. the old hospital in Nash Street, Gympie, was returning about $300,000 per year nett profit, and the estimate of its value was $750,000, and the vacant land at Channon Street had been purchased for just under $100,000. Towards the end of 1981 Mr. David Leitch approached finance brokers in Sydney named Solomons Coultar & Company Pty.Limited. They prepared a document which was a proposal for finance which was forwarded by them to various financiers, of which Elders was one. As a result, contact was made between Mr. David Leitch and Mr. Alistair Twigg, who was then an employee of the respondent and, eventually, a meeting was arranged in December 1981. At the first meeting between Mr. Twigg and Mr. David Leitch there was discussion concerning the application which lasted about half an hour. Since the nature of the arrangement between Glandore and Elders is a crucial question concerning what was represented, 1t will be necessary to deal in some detail with that meeting. The discussion concerned the nature of the relationship Glandore wanted with Elders, the amount and terms of the loan, iancluding the interest rate and the security ratios on which Elders operated. During the discussion, the proposal by Solomon Coulters was gone through item by item. That application sought $1.5m. The purpose of borrowing was identified as:- "To enable: a. anew medical/surgical hospital (40 beds including 4 intensive care beds) to be constructed at 78-82 Channon Street, Gympie, Queensland; $750.000 b. the payout of certain borrowings/debts over a mixed grazing/crop growing rural property known as "Qonavale" and situated at Goondiwindi, Queensland; $560,000 v4 10. c. the payout of borrowings relating to an existing surgical hospital (29 beds) situated at Nash Street, Gympie, Queensland. It is noted that this hospital 1s very close to the proposed new hospital. $103,000 d. General requirements § 65,000 $1,500,000" The term of loan sought was described in these terms: "To 30th June, 1986 with staged drawdowns overa period of six to eight months. It 41s envisaged that $750,000 be drawndown immediately and the remaining $750,000 to coincide with the payment of construction costs of the new hospital which is estimated to take six to eight months to build." A short time later there was a second meeting at which Twigg indicated what Elders was prepared todo, and on what basis. A memorandum dated 18 January 1982 was prepared for the Board Credit Committee Meeting of Elders which recited that Glandore was seeking a secured loan facility of $1.5m for a period of three years and six months, - "to enable a new medical/surgical hospital to be constructed at Gympie and to enable Glandore to pay out certain borrowings over both properties." In about January 1982, Mr. David Leitch was told by Mr. Twigg that the application had been approved by the board in ll. Melbourne and that a letter of offer to Glandore was being prepared and Mr. Twigg was arranging to obtain the necessary valuations. L.J. Hooker Limited then valued ""Ooonavale" at $2.6m, as at 1 February 1982, and the two Gympie Hospitals at $400,000 aggregated. Mr. Leitch said the value of the plant and equipment was in excess of $400,000. A letter of offer dated 2 February 1982 from Elders to Glandore was sent. On receipt, there were a number of terms with which Mr. David Leitch disagreed. They included a provision for a Bill of Sale and for a Stock Mortgage. After discussions between Mr. Twiag and Mr. Leitch, a number of aspects in the facility letter of 2 February were deleted, and the offer was accepted on 8 February 1982. Notwithstanding the terms of the Solomon Coulters proposal, the loan facility letter did not specify any particular purpose for which the funds were to be used. On 1 March, in the office of the solicitors for Elders, a first mortgage was given over the private hospital and the site of the proposed new hospital, and over the leasehold and freehold land comprising "Oonavale". A floating charge was given over the assets of Glandore, excluding the livestock, and personal guarantees were given by Mr. Leitch and his wife. On settlement of the loan, an amount of $1.2m was drawn down. Of that sum, the solicitors for V.L. Finance Pty.Ltd. and V.L. Credits Pty.Ltd. were paid a total of approximately $860,000 for release of mortgages, and the A.N.Z. Bank at Goondiwindi on behalf of the 12. account of Glandore was paid approximately $103,000. Elders' solicitors' costs including some amounts for land tax was $10,200. Glandore's solicitors' costs and outlays were about $4,000, Glandore directed that $100,000 be paid to Glen Pacific Pty.Ltd., the company which had in the past run the Glen Pacific Hospital when it was a hospital, in part repayment of a loan by Glen Pacific to Glandore, and $120,000 was credited to Glandore's account at the A.N.Z. Bank at Gympie. The result was that about $3,000 was paid to Glandore. Little of the funds lent was therefore then available for the construction of the hospital. The amount paid to V.L. Finance, which was about $384,000 was entered into the books of Glandore as an advance from Glandore to Gude. The balance of $300,000 of the $1.5m facility was drawn down in two instalments. It was drawn down by the end of June 1982. Of that sum about $120,000 was made as a further advance to Gude and the balance was used for general working capital. The loans to Gude were unsecured and fixed no term. While David Leitch contends that provision was made for interest, Gary Leitch in his evidence contradicted this. As to the meetings between Twigg and David Leitch, there is a large area of agreement as to what was discussed. There are significant differences, however, and for reasons which will later appear, I prefer the account of Mr. Twigg as to what was 13. said. Mr. Twigg made proper concessions as to difficulties in his recollection, and made no attempt to overstate it. Mr. Twigg, now a practising barrister, was in late 1981 employed by Elders as Corporate Finance Executive. He had no authority to approve loans. Twigg said that, early on, David Leitch indicated he was not interested in a one-off loan: that what he was interested in was a continuing relationship. Twigg told Leitch that, whilst he did not see any difficulties, he would have to consult David Barnett, the then Queensland Manager about that. At the second meeting, Twigg told David Leitch that he had spoken to Barnett and that he also could not see any difficulties with a continuing relationship, "provided there were no hiccups in the first facility". He asked Leitch 1f he was "fair dinkum", "if he intended we went through this whole rigmarole of making the application to the board and we got it approved, would he take the money?" According to Twigg, Leitch did not give an unequivocal "yes", but indicated the need for mutual trust. Twigg explained that Elders Finance in Brisbane would prepare a paper for submission to the board, which sat in Melbourne. If they agreed, a facility letter would be prepared in Brisbane for signature by Leitch. In the course of discussion, Leitch indicated he did not at that stage want a revolving credit facility. The interest rate was AMBA plus 2%. AMBA was the rate published for the Australian Merchant Bank Association. Leitch said he wanted AMBA 14. plus 1% or plus 1.5%, to which Twigg replied that he doubted that it would get through the board with less than AMBA plus 2%, at least for the first facility. The board might be prepared to come into AMBA plus 1.5% in the future, but that "1s something we would have to wait and see about". Twigg said in evidence, and I accept:- "I told him that any other facilities, apart from the one that we were negotiating about or the one we were preparing the board paper for then would have to be applied for in the same way that he was applying for this one... In other words, we would have to put in an application to the board in Melbourne for its separate consideration. They would have to approve of any further advances." Twigg said that the purposes in the application from Solomon Coulters were gone through. According to David Leitch, Twigg told him that there would be no objection to a continuing access to funds, subject to two provisos; the first that the total advances would never exceed 50% of their securities and, secondly, that there was no breach by Glandore of the arrangements. Twigg denied that there was a basis to that effect, or that he said that Elders were not prepared to put the continuing basis in the facility letter. As to security ratios, Twigg said he told that Leitch that "at present Elders sought 50%", but that in some instances Elders had advanced possibly up to 65% in special cases. is. On 27 November 1974, at the instance of the applicants on interlocutory proceedings in this matter, Mr. Twigg swore an affidavit, which in part said Glandore was looking for more than a once-only advance and that what it sought was the establishment of a relationship with a merchant bank with whom it could have a continuing financial relationship, and he told David Leitch "that Barnett had said that any further advances would still have to be applied for and approved by the Board." Twiag denied a suggestion that "Mr. Leitch made it clear that, whilst the purposes set out in the Solomon Coulter application were the purposes then in mind, the loan was to be a general purpose loan," and denied a suggestion that "he (Twigg) did not indicate to him (Leitch) that further advances would have to be approved by the Board". In my opinion the evidence establishes neither of the representations alleged to have been made by Mr. Twigg. I find that the relationship contemplated by both Glandore and Elders was not one where Elders was prepared to make further advances "as and when requested by the first applicant". In my opinion, at the highest for the applicants it was recognised by both parties that there was a conditional expression of opinion as to the likely outcome of further applications for funds. Any such application would be judged against the performance of the initial facility, but would have to be processed in the normal way and submitted to the Board for the Roard's approval, again in the ordinary way. 16. This view is consistent with Twiag's account and the inherent commercial probabilities. It is corroborated in my opinion by a number of factors, which includes the direct evidence of both David Leitch and Gary Leitch. Each admitted in the course of his evidence that he knew that, in respect of any further advances to be made to the applicants, Head Office approval was necessary. The applicants, for interlocutory purposes, obtained and used an affidavit by Mr. Twigg, which became Exhibit 178 in these proceedings, which deposes to the nature of the relationship between Elders and Glandore consistent with the evidence on the hearing of Mr. Twigg. A very telling factor was the evidence of Mr. David Leitch and the conduct by companies that he controlled, at a time before the application was made in November 1982 for further funds from Elders. By letter of 31 August 1982, Montant Corporation Pty. Limited sought from F.A.I. Insurance Ltd. a loan of $1.2m. This application was made on behalf of Glen Pacific Pty. Ltd., the co-borrower being Glandore Pty.Ltd., with the interest rate of 17.75% for a term of 2 years. Also, before the application to Elders, the evidence suggests that Glandore Pty.Ltd. was seeking loans from the A.N.Z. Bank at various of its branches. In October 1982, Glandore sought $200,000 from the A.N.Z. Bank in Nambour and, in that application, which was to fund a progress building payment on the new hospital, Mr. Gary Leitch said:- "Funding of the new hospital construction was to have come from repayment of a loan by an associated company (Gude Pty.Ltd.). 17. Gude Pty.Ltd. has made an application for funds to repay Glandore Pty. Ltd. to the Australian Bank Ltd, The application has been with them for almost three months and they still have not made a decision." That letter of 3 October 1982 indicated that the rate of interest being paid to Elders was 17%. In the evidence of Gary Leitch, reference was also made to approaches in October 1982 by Glandore to the Goondiwindi Branch of the A.N.Z. Bank and the Gympie Branch of the A.N.Z. Bank seeking an extension of financial accommodation. When Mr. David Leitch was cross-examined as to the application by Glandore for finance from other sources prior to any request for further funds from Elders, he performed very poorly as a witness. At this stage of his evidence he was garrulous, blustering, and deeply unconvincing. The conduct of Glandore and the state of mind of Gary and David Leitch prior to November 1982, in my view, is quite inconsistent with what is pleaded to be the relationship that came into being as a result of discussions between David Leitch and Twigg late in 1981 and early in 1982. As to the alleged affirmation by Barnett on 22 September 1982 of the arrangements said to have been entered into between David Leitch on Glandore's behalf and Mr. Twigg on behalf of Elders, Barnett had little memory of conversations or events, but he was adamant that he did not say "there will be no problem 18. about a further advance" nor did he say "if you want the funds, come and see us when you know what you want and it will be alright". In respect of that question, he said:- "T cannot recall whether I said 'when he knows what he wants come and see us' or not but I would not have said it would be all right." He denied saying "Just ask us for the money when you want it". I am satisfied that the loan to Glandore was classified by Elders as a property construction loan and was not classified as arural loan. I accept the tenor of the evidence of Mr. Barnett as to the conversations that occurred on 22 Seotember 1982 and, in my opinion, the representations alleged in paragraph 14 of the Amended Statement of Claim numbered (a) and (c) are not Tade out. The pleadings raise a question of change in lending policy by Elders which was said not to have been communicated to Glandore. Internal Elders documents of September 1981 deal with the question of rural advance policies and there 15 a mention in the evidence in an internal letter of 2 July 1982 in relation to rural lending policy involving A.M.L. Finance. In that short minute there is an observation "Elders Finance does not view favourably rural lending propositions and that the rural lending policy of the continued Elders Finance/A.M.L. Finance operation will therefore be different". Also, interim revised guidelines in respect of real estate lending was circulated at 15 February 1983, the purport of which was significantly to restrict the 19. number of new approvals given to the real estate class of business. The minute notes "Until further notice, construction finance was to be the most affected". As to re-financing of property, the minute noted "These will be considered but only on the following basis," and certain guidelines are set out, amongst other things, "restricted to metropolitan areas of capital cities only". In relation to rural properties, the minute says that, "Unless requested by Elders Pastoral, we will not be considering new proposals to finance the acquisition of rural properties. Such proposals should not be actively sought." Glandore never received a statement of reasons for the refusal to advance the ¢$.5m, but Mr. David Leitch in his evidence says that on 28 April 1983 he was told at a meeting by Mr. Anderson, the then State Manager, that the application for further finance had been refused "because of the misuse of the funds on the first advance". The evidence in my view establishes that the Glandore loan which was described as the "Shining Star of the Brisbane Office" was regarded as a construction finance loan and that there was no change in lending policy relevant to Glandore as pleaded in the Amended Statement of Claim. While it appears that the purpose for which the original advance was made is not defined in the facility offer letter of 2 February 1981, Mr. David Leitch was asked in chief of his discussions concerning the Solomon Coulter proposal with Twigg:- 20. "Tell me, as best you can, what was said about the purpose of the loan? A. He said 'Do you want the money for a new hospital and pay out certain bills?' And I said yes and any purposes that the company wants to use it for." This passage impliedly affirms that the funds were wanted for the new hospital, amongst other purposes. In cross-examination, he was asked whether Twigg asked him "Do you want the money for a new hospital and pay out certain bills?" to which he said "No", and later, when pressed, he said that if that question was asked then he would have said he wanted the money for the hospital and other bills generally. Later, on being further pressed, he expressed doubts as to whether that question was asked of him by Twigg. He had the day before unequivocally said that that was asked. The application by Glandore to Gude of part of the funds originally advanced was, in my view, the primary reason that further funds were not advanced by Elders to Glandore. Ina sense the difficulties in respect of financing the hospital were of David Leitch's own making. A Mr. Bannon was called on behalf of the applicants in respect of sources of finance. I found him an impressive witness. His evidence was directed to what prospects of success at the various periods Glandore would have had of securing alternative finance. One passage of his evidence bears quite directly on the reason that the application for further finance was refused. He was asked:- as 21. "If you, as a prospective financier, had discovered that a sum in the region of $500,000 out of this loan facility of $1.5M had been siphoned off by way of a loan - unsecured, no fixed term, no agreed rate of interest, to some company in which the applicant had only a 48% interest, you would begin to look down your nose, would you not, at the applicant?" A. Yes, indeed. Q. You would probably show him the door, would you not? A. Yes, I would." In my opinion that is what in fact occurred in this case and was the reason that the application for further funds to the extent of $.5m was refused by Elders. The approaches by David Leitch and companies in his control to a number of other sources for finance seem to me to he quite inconsistent with the claim by him that there was an arrangement whereby a continuing source of funds was quaranteed to Glandore by Elders simply for the asking. A firm decision was made in May 1982 to go ahead with the hospital project. An architect, Mr. Smith, drew up plans and a company, Hardies System Built Pty.Ltd., quoted a price which was a fixed price contract for $711,500 with the provision of $108,500 for equipment to be leased. After discussion between the various parties, a building contract was drawn up which was submitted to Elders for approval. There had been an earlier indication by Elders that they wanted to see the building contract. On 18 June 1982 the contract was signed at the offices of Elders and the execution of the building contract for the new 22. hospital was witnessed by Mr. Barnett, who was then the Queensland State Manager for Elders. The contract bears date 1 July 1982 but was in fact signed in Elders' offices on 18 June. Mr. Twigg left Elders about 21 July 1982. In July to September 1982 and later, Glandore's liquidity was deteriorating. The hospital in Gympie returned a profit from $200,000/$300,000 per year but, as against that, a wheat crop which was expected to gross $400,000 only grossed from $100,000/$120,000, and the contracting business by which Glandore's machinery was utilised was not active because of the drought conditions. As aresult, the building programme on "Oonavale" was accelerated and concluded. The first progress payment in respect of the construction of the new hospital in August 1982 was withdrawn and then the next progress payment for approximately $140,000 was paid by Gude in reduction of Gude's indebtedness to Glandore a few weeks after 30 September 1982. The deteriorating liquidity position of Glandore was illustrated by the inability to meet the second and third progress payments in respect of the hospital, and exacerbated by the inability of Gude to re-finance its enterprises so as to repay some or all of its loan to Glandore. Against the background of attempts to obtain finance from various branches of the A.N.Z. Bank and also through Montant Corporation Pty. Ltd., in early November 1982 Glandore decided to request an additional advance from Elders of §.5m and that request was made by letter dated 25 November 1982. After a number 23. of contacts between Gary Leitch and Mr. John McCluskey (to which some detailed reference must necessarily be made), on 28 February 1983 Mr. Gary Leitch was told that the application had been refused and by a letter dated 8 March 1983, written notification of the refusal of the advance of $.5m was conveyed to Glandore. Gary Leitch made diary notes. His account in evidence differs in some significant respects froma diary note that he made after being told by Mr. John McCluskey of the rejection of the application for §.5m, Contrary to his initial claims that this note was made in May or June of 1983, I accept from the internal evidence of the note that it was made on or about 2 March 1983. As to the misleading and deceptive conduct alleged against the respondent based on what was said by McCluskey or, on the alternative submission, that there was an agreement between the applicant and Elders through McCluskey in February 1983, the applicants' case 1s that McCluskey represented that Elders would advance the $.5m to Glandore or, contractually, that Elders (by McCluskey) agreed with Glandore to advance to it the $.5m. During that period, there were numerous conversations both in person and over the phone between Gary Leitch and McCluskey. According to Gary Leitch, in early November he told McCluskey that David Leitch had had a conversation with David Barnett and that "we had an agreement with Elders that they would lend up to 50% of our valuation" and that, at that time, he asked McCluskey if Glandore would have any problems with respect toa 24. further advance, to which, according to Gary Leitch, McCluskey said that he did not think there would be any further problems. During the course of a lunch at a restaurant on 24 November 1982, Leitch gave McCluskey a general explanation about the funds advanced to Gude. By that time McCluskey had asked Gary Leitch to put something in writing but that had not then been done. On 26 November, Gary Leitch handed to McCluskey a letter, dated 25 November, from Glandore in which it was said:- "It is proposed to increase this company's mortgage borrowings from Elders Finance & Investment Company Ltd. by $500,000 to total $2m. Security provided for the additional borrowings will be:- (a) Floating charge over the plant at "Oonavale" or (b) a mortgage insurance with a Company nominated by Elders Finance & Investment Co. Limited on the extra $500,000." One of the reasons advanced for the increased borrowings was that monies advanced by Glandore to Gude in the sum of $450,000 "have not been refunded on schedule". I note that this request for further funds was accompanied by an offer to provide further security. That seems to be inconsistent with the primary assertion of the applicants that the arrangement between Glandore and Elders was that Glandore had an entitlement to have an advance of funds up to a stated percentage of valuation on an "as requested basis". 25. The letter was handed to McCluskey on 26 November and Gary Leitch says that, on that occasion, McCluskey told him that he had had a discussion with David Barnett, who had requested McCluskey to get all the information that was available about Gude Pty.Ltd. According to Leitch, McCluskey told him on that occasion that "the extra facility for $500,000 would take the total facility to $2m and because of that fact 1t would have to go to Melbourne for formal approval" Leitch said he "asked McCluskey if there would be any problem and he said no, there would not be any problem". On 30 November 1982, a further letter was handed to McCluskey by Leitch. This letter supplied details of the shareholding of Gude Pty.Ltd. and other information that had been requested. Amongst other things, 1t says:- "It has become apparent that moneys lent to Gude Pty.Ltd. will not be refunded in the near future. Completion of construction of the hospital then becomes a matter for Glandore Pty. Ltd. to arrange as best it can. Glandore Pty. Ltd. treats the loan to Gude Pty.Ltd. as a potential bad debt. The company 1S prepared to give a charge over the plant at "Oonavale" and mortgage insurance for the top $500,000. This, combined with the value of work done on the new hospital significantly increases the asset coverage of the loan. I look forward to your early advices." At that time McCluskey was asked how long it would take for him to process the application and Leitch was told by McCluskey that it would take a couple of weeks. Leitch states that a few weeks later he asked how soon it would be before the ro 26. funds were received and was advised that "the funds would be available immediately upon approval". Between then and 24 December there were numerous calls by Leitch to McCluskey, the tenor of which was that McCluskey told Leitch that everything "was 0.K.", "was going fine", "there were no problems", and other comments to that effect. On 22 December Leitch asserts that McCluskey was asked by him, "John, is there any question about us getting the money or not getting the money" and, according to Leitch, "He told me on that occasion there was no question about it; it was a matter of time, that I should relax and not worry". On 24 December, according to Gary Leitch, McCluskey told him that everything was "0.K. with the restructuring of the loan", but at that time there was a request by Elders for the top 20% of the $2m to be insured under a mortgage insurance policy. That prompted an enquiry as to who should provide the mortgage insurance and, according to Leitch, on 29 December, McCluskey told him that N.G.I.C.A. was the company nominated by Elders to carry the insurance. It seems to me that the request for mortgage insurance in respect of the $500,000 which was requested by McCluskey on 29 December is strong evidence that there had been no commitment earlier given by McCluskey concerning the advance. If the position had been as Gary Leitch alleges, which was that prior to that time, McCluskey advised him that the advance would be made and it was simply a matter of processing, one would have expected 27. some questioning by Gary Leitch of McCluskey when the further requirement of mortgage insurance was raised on 29 December. Yet that was not done. On 30 December, Gary Leitch again spoke to McCluskey to enquire whether the formal approval had been received and, according to Gary Leitch, he was advised that it had not but that McCluskey did not expect any problems. According to Leitch, "he assured me that everything would be 0.K. and everything was 0.K." The evidence of Gary Leitch was that on 24 December, McCluskey told him that everything was "0.K." The effect of his evidence was that, after this period, Elders through McCluskey indicated that the advance had been approved but required merely processing and paper work. I do not accept that this was the position as at the end of December, 1982. On 2 March 1983, Gary Leitch prepared a diary note concerning the application by Glandore. He headed it "DIARY NOTE RE ELDERS'S APPLICATION MORTGAGE INCREASE". After referring in detail to the occasions when he spoke with McCluskey in December 1982, he noted:- "At these meetings McCluskey was confident but non-committal." In evidence he says that this statement was not the truth. He said he did not give these meetings enough consideration, that he did not give the document's preparation the care and attention that he should have given it and says that, in the preparation of the diary note, he was "careless with the truth." 28. Further, Gary Leitch claimed that on 11 January when he spoke with McCluskey, he asked him when the funds would be released, to which McCluskey advised that "the release of the funds had been virtually approved". When Gary Leitch complained that the builders were seriously pressing and that there was a chance that they may not recommence construction if they did not recelve some money, or at least get some concrete advice, McCluskey agreed to speak with Hardies to advise them of the situation. According to Gary Leitch, McCluskey told Mr. Masland for Hardies that Glandore had made an application for certain funds to pay outstanding progress certificates to Hardies and "he told Masland that the advance had been approved, that everything was O.K., but he needed 7-10 days ta, you know, complete the procedures, tie up the loose ends or something in that nature, and Hardies would get their money." This evidence asserts unequivocally that Masland was told that the advance had been approved. Mr. Masland gave evidence and in chief his evidence was substantially to that effect. In cross-examination, however, when it was put to him that McCluskey's words were to the effect that "I am expecting the loan to be approved and the funds will be available within 10 days after the approval", Mr. Masland said "I would not deny that because I've got very little recollection of the actual words." McCluskey's account was that he told 29. Masland that Glandore had made an application for a further facility from Elders Finance, "that it would most probably get the recommendation of our Queensland Office to go to Melbourne for approval, and that after approval it would be some 10 to 14 days after approval from Melbourne before you could expect to have funds." In my opinion there was no statement by McCluskey to the effect that on 11 January the loan had been approved. My conclusion is strongly fortified by a letter of 14 January 1983 written by Mr. McCluskey to Glandore for the attention of Mr. G. Leitch, and the response by Glandore. The letter of 14 January 1983 says in part:- "We confirm it is our desire that a Key Man Insurance policy on the life of Mr. D. Leitch be taken out immediately and that this policy will have Elders Finance & Investment Co. Limited denoted as joint insured. Furthermore, this policy will be assigned to Elders Finance & Investment Co. Limited. We believe that following an assessment of the insurance held on the "Oonavale" pastoral property and a perusal of the valuations, that this property 1s under-insured to an amount of $300,000 and we would be pleased if you were to attend to further insurance being taken out to this amount. We would hope that these matters could be attended to as expeditiously as possible so that arrangements for the review of the facility can be quickly attended to." Mr. Gary Leitch says that he told his father of the assurance by McCluskey on 11 January that the loan had been approved and of the communication of that approval to Mr. 30. Masland. This occurred before 18 January 1983. Yet on 18 January 1983, Mr. Gary Leitch signed a letter which D.H. Leitch had drafted, which commenced:- "I have your letter of 14 instant, which is your first written acknowledgment of my Company's letters of 25th and 30th November, 1982." After saying that "arrangements to increase the insurance on 'Oonavale' property as requested" have been made, and that "My company would be prepared to discuss Key Man Insurance on the life of D.H. Leitch as one of the conditions for an increase in the facility as requested in my letters of 25 and 30 November 1982", the letter later asks:- "Please advise as a matter of extreme urgency:- 1) Will your company increase the facility to $2,000,000.00? 2) If so, under what terms and conditions?" I cannot accept that, if there was a statement by McCluskey on 11 January that the loan had been appraved, mention of that fact would not have heen referred to 1n the letter of 18 January 1983. Moreover, I cannot accept that there would have been apparent eagerness by Glandore to address the requirements of Elders concerning insurance on "Oonavale" property and Key Man Insurance if, in fact, the advance had at that time been approved, as 1s the applicants' case. On 12 January 1983, Gary Leitch wrote a letter to the Manager of the A.N.Z. Bank at Goondiwindi indicating that the 31. Sale of cattle was expected to contribute to the income of Glandore beginning June, 1983. Gary Leitch says that the question of further insurance for ""Oonavale" and Key Man Insurance had not been mentioned before receipt of the letter of 14 January 1983. He claims that in a telephone conversation shortly thereafter he complained to McCluskey about it being a bit late in the day to be discussing further arrangements for a review of the facility. It 1s a curious thing that no such complaint ever appears in the contemporaneous correspondence. Gary Leitch says that, at a time after 18 January 1983, McCluskey told him that "it was in Melbourne's hands at that stage". Again, 1t seems to me, the requirement for further insurance on "Qonavale" and Key Man Insurance requested by Elders in the letter of 14 January 1983 1s quite inconsistent with there being at that time an approval by Elders of the advance as requested. As to the events of 8 February 1983, Gary Leitch's account is that McCluskey said that he had spoken to Melbourne, that they were happy to advance the funds, that he was awaiting written confirmation, that Glandore had already moved to increase the insurance cover on "Oonavale"" andthe only items left to discuss was Key Man Insurance. According to Gary Leitch, David 32. Leitch suggested that it would be more appropriate for Gary Leitch and Marcus Leitch to be the subjects of Key Man Insurance and that McCluskey and Anderson both agreed that Hiders would be quite happy with that proposal, and then David Leitch said Glandore would like, if Elders preferred, for Elders to pay the payments directly to Hardies. There was discussion as to medical examinations of Gary Leitch and Marcus Leitch for Key Man Insurance, at the conclusion of which discussion, Gary Leitch says that his father turned to McCluskey and said, "0O.K., John. That's got that fixed up. Right?" McCluskey said "Yes, David, that's right," and there was then a conversation between his father and Anderson that Gary Leitch did not hear. On Gary Leitch's account 1t cannot in my view be concluded that there was then a representation by McCluskey that Elders had agreed to advance the $.5m. The medical examinations for insurance purposes of Gary and Marcus Leitch had not at that time occurred and, an fact, did not take place. If one accepts that the requirements for insurance on "Oonavale" and Key Man Insurance were necessary pre-conditions to Elders' advance of $.5m, at least one of those pre-conditions was not satisfied. Gary Leitch's account differs from his father's in some respects. David Leitch says that the question of Key Man Insurance was discussed at that meeting and that he suggested that Elders would be better insuring Marcus and Gary because they were the lynch pins of the organisation. He said that Mr. Anderson and . 33. Mr. McCluskey were agreeable to that and gave an immediate affirmative response. He says that he asked them when he was going to get the money. He said to John McCluskey, "Is this money definitely approved?" McCluskey said "Yes". He said that he then turned to Anderson and said, "David, is that right?" Anderson said "Yes". Iam satisfied that there was no commitment given on 8 February 1983. This is the evidence both of Anderson and of McCluskey. That view is fortified again by the circumstance that on 22 February 1983 Mr. Gary Leitch wrote to Elders. The letter said in part:- "Purther to my letter of 18 January and our discussion with Mr. Anderson and Mr. D. Leitch on 8 February, I advise that medical checks are being obtained on Mr. M.H. Leitch and myself as a preliminary to arranging key man insurance on our lives. To date no written confirmation that your company 1s considering an increase in my company's facility has been received. Could I please have an early reply on this matter as the delay is causing confusions and delays in the building schedule of the hospital." Mr. David Leitch's evidence is that he does not think he saw that letter before 1t was sent or afterwards. Mr. Gary Leitch's evidence is that the second paragraph to which I have referred was drafted by his father and that the first sentence of that paragraph was meant to be sarcastic. I reject the explanation. The terms of the letter, inmy view, clearly indicate that the tenor of the meeting of 8 February was not as Mr. Gary Leitch and Mr. David Leitch assert. 34. Mr. Gary Leitch conceded that at all times in his dealings with McCluskey, he knew that any further advance from Elders depended upon the issue of a written approval from the Company's head office in Melbourne. According to Mr. Gary Leitch, after the letter of 22 February had been received by Elders, he spoke to Mr. McCluskey about it and McCluskey told him that it really was in Melbourne's hands at that stage, that his superiors were coming from Melbourne on 24 and 25 February and that, when they came up, he would see them and would get the approval then. This again seems to have provoked no comment from Gary Leitch. It is inconsistent with approval having earlier been given. On 28 February, McCluskey communicated that Elders were not prepared to increase the facility to $2m and a letter to that effect dated 8 March 1983 was subsequently sent by Elders to Glandore. Mr. Gary Leitch describes the period of the dealings with McCluskey as a period during which "they had kept us on the hook for quite a period of time". Against the background of the knowledge by both David and Gary Leitch that the approval of Melbourne was necessary for any advance by Elders to Glandore, and inthe light of the continuing requests for further requirements to be met in respect of the advance that had been applied for, the statement by Gary Leitch that the funds had been virtually approved does not reflect aview by him that the loan had been approved. The 35. 'absence in correspondence of any assertion that Glandore had been informed of the approval of the advance is, in my opinion, very telling evidence that what was communicated by McCluskey to Gary Leitch was his confidence that eventually the sought-for advance would be approved, but it did not amount at any time to a representation that the advance had been approved by Elders. Ido not accept, as Gary Leitch claims, that McCluskey told him that, when the application was forwarded to Melbourne with McCluskey's recommendation, "it would be automatically accepted". In my view, then, none of the bases alleged in the Amended Statement of Claim has been established. I find that at no stage was there any arrangement between Glandore and Elders that Glandore would be able to have money advanced to it on an "as requested basis" up to 50% of the valuation of its assets. The question of whether the conversations between McCluskey and Gary Leitch permissibly led to the view by Glandore that the approval of the application for $.5m was a mere formality 1s a different question. The submission that those conversations had that consequence and, correspondingly, constituted misleading and deceptive conduct in contravention of 5.52 of the Trade Practices Act has an initial, but superficial, attraction. My attention has been drawn to Box v. Midland Bank Ltd. C1979] 2 Lloyd's Rep. 183. It was sought to be argued that 36. the relationship between McCluskey and Gary Leitch was of the kind held to ground liability for negligent misstatement in that case. However, on closer analysis, that is not the situation here and I conclude that nothing McCluskey said or did was such as to lead Gary Leitch or David Leitch at any time to the view, er permit them reasonably to entertain the view, that Elders had approved the loan. The most telling evidence of that is the absence of any such claim in the contemporaneous correspondence and the conduct of Gary and David Leitch at that time in the various meetings. As 1s implicit in the observations earlier made ina number of important respects, the evidence of both David Leitch and Gary Leitch 1s wanting, and in a large measure I reject the applicants' version about what occurred during the crucial periods of this application. There was a very real motive for Glandore to assert what 1t did. Mr. David Leitch 1s an able and successful businessman but, in late 1982, was facing severe financial pressures. These included the drought affecting ""Oonavale" and its contracting opportunities, other climatic conditions affecting crops, the difficulties encountered with the construction of the hospital and delay in relation to that project, the inability of Gude to repay the moneys which had been advanced on an unsecured basis to it, the difficulties occasioned by Rosenfeld in relation to the Longueville Hospital, and the pressures on him in respect of the Western Australian enterprises on which he was embarked. In the face of these difficulties, he was desperately trying to preserve his position. To that end, he was not averse, in my view, to resorting to stratagem to buy time 37. and to put one source of his difficulty against another. The allegation by Glandore that Elders in effect reneged on a promise to provide further financial accommodation is echoed in a similar allegation made against the A.N.Z. Bank. Whatever be the position of the A.N.Z. Bank and its representation to Glandore, I am satisfied that there was no such representations made as alleged by Elders to Glandore. In the ordinary course, notwithstanding my view on the question of liability, I would proceed to an assessment of damages. In this case, however, that course 1s not appropriate. The question of damages 1s not simply a matter of assessment but involves very real questions of causation. If, contrary to my finding, the situation between Elders and Glandore was that from at least February, 1982, there was guaranteed an automatic access by Glandore to Elders' funds up to 50% of the assets of Glandore, the question of any exploration for a source of further funds from other financiers during the whole of 1982 takes on a different complexion from the position which would obtain uf there was no such relationship, but the question of Elders liability to advance funds to Glandore arose simply as the result of the discussions between Gary Leitch and McCluskey and the representations made by McCluskey during December 1982 to February 1983. As asserted by Gary Leitch in his. evidence, approval was said to have been granted by McCluskey at least as at 24 December 1982, which promise was broken by the telephone communication of 28 February 1983, followed by the written rejection of the application for finance on 8 March 1983. On this scenario, there is a period of approximately two months 38. during which Glandore would have believed that it would he receiving $.5m, and that therefore it was unnecessary to pursue other sources of funds. In short, not only are there very real questions as to the appropriate amounts for the various heads of damage, including an ambitious claim for cattle loss, there would be also anterior questions which depend on inconsistent conclusions as to when representations resulting in liability by Bliders to Glandore occurred. Since on no basis am I satisfied that Elders is liable to Glandore, the order that I make is that there be judgment for the respondent with costs to be taxed. I cortify that thig ancl the 37T preceding tts es Date 3 reasons for ' Nhe hye nip ae et, tlenour how Spender "XT ay Assoc' ee Daud » 1G8u