JUDGMENT No. Zloly 87] CATCHWORDS TRADE PRACTICES ACT - Misleading or deceptive conduct - False or misleading representations as to conditions of contract. CONTRACT - Breach of contract - Unilateral mistake - Failure ta show mistaken belief. EQUITY - Breach of fiduciary duty - failure to establish fiduciary duty. Trade Practices Act: ss. 52 and 53(g). SAPPHIRE INVESTMENTS PTY. LIMITED, ALFRED SAUER, LINDA ELIZABETH SAUER v. BURNS PHILP TRUSTEE COMPANY LIMITED, ESTATE MORTGAGE FINANCIAL SERVICES LIMITED ESTATE MORTGAGE MANAGERS LIMITED iCHARD LEW, REUBEN LEW G212 of 1987 Lockhart J. 16 December 1987 Sydney IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION 16 December 1987 LOCKHART J. BETWEEN ) ) No. G212 of 1987 SAPPHIRE INVESTMENTS PTY. LIMITED, ALFRED SAUER, LINDA ELIZABETH SAUER Applicants BURNS PHILP TRUSTEE COMPANY LIMITED First Respondent ESTATE MORTGAGE FINANCIAL SERVICES LIMITED Second Respondent ESTATE MORTGAGE MANAGERS LIMITED Third Respondent RICHARD LEW Fourth Respondent REUBEN LEW Fifth Respondent REASONS FOR JUDGMENT This case concerns the financing of the construction of a retirement village at Merimbula, New South Wales, known as the "Valley High Resort Village" Investments Pty. Limited ("Sapphire") ("Valley High"). In 1981 and 1982 Sapphire purchased land at Merimbula. Towards the end of 1984 Sapphire decided to use the land for the 2. purpose of constructing Valley High. The shareholders and directors of Sapphire are Alfred Sauer and his wife, Linda Elizabeth Sauer. Mrs. Sauer had little to do with Valley High. The controlling force behind it was Mr. Sauer. Valley High was an ambitious project and required extensive borrowings. Sapphire was funded initially by Esanda Limited; but in late March 1985 Sapphire approached other financiers for a substantial loan to pay out Esanda and fund the development of the project. The Estate Mortgage Group was approached on behalf of Sapphire. It is an organisation based in Melbourne carrying on business as mortgage managers, brokers and finance consultants. Richard Jacob Lew of Camberwell, Victoria, the fourth respondent, is a director of Estate Mortgage Finance Services Limited and Estate Mortgage Managers Limited (the second and third respondents) and the officer of those companies primarily involved in the discussions with Sapphire relating to the financing of Valley High. I shall, for convenience, refer to the Estate Mortgage companies, including the second and third respondents, both collectively and singly as "Estate Mortgage" especially as no distinction was drawn by the parties between any of the companies in the Estate Mortgage Group. Burns Philp Trustee Company Limited, the first respondent (to which I shall refer as "Burns Philp"), acted as trustee of certain property trusts established and managed by the Estate Mortgage Group. Burns Philp advanced money in its capacity as trustee to Sapphire upon certain securities. 3. The applicants assert that, during conversations in 1985 and 1986 between Mr. Sauer and others on behalf of Sapphire on the one hand and Mr. Lew and others on behalf of Estate Mortgage and Burns Philp on the other hand, relating to the possible financing of Valley High, representations were made by Estate Mortgage and Burns Philp. Those representations in summary form are:- (a) that Burns Philp or Estate Mortgage would provide all the finance required to construct, market and manage Valley High; and (b) that Estate Mortgage would provide or assist in establishing any further lines of credit required by _ Sapphire to construct, market and manage Valley High in the event that Burns Philp did not do so, The representations were expressed in different ways in the pleadings and in argument and were alleged to have been made at various times and to support somewhat diverse causes of action; but in essence their content is as I have summarised them. The case of Burns Philp and Estate Mortgage 1s that no such representations were made; but that, if they are held by the Court to have been made, they were not promissory in nature. They say further that, if any such representations are held to have been made, they relate to the intent of the respondents in respect of future events, an intent which has not been established as being false at the time or times at which the representations are alleged to have been made; that the applicants did not rely upon the representations and were at all 4. material times separately and independently advised by professional people, both lawyers and financiers, in whom they reposed their trust to the exclusion of anything materially said or done by the respondents; and that in any event nothing said or done by the respondents caused the applicants any loss or damage. The respondents also assert that they are entitled to rely upon the express terms of agreements between Sapphire and the respondents of 8 July 1986, whereby in consideration of further advances of money totalling $3,500,000, the applicants expressly acknowledged that, notwithstanding any representation to the contrary, Burns Philp was under no obligation to fund any stage of the project beyond stage 1 (there were many stages proposed). The respondents assert that the applicants are estopped by their conduct from maintaining their claim in the present proceedings. Burns Philp asserts also that, to the extent that any representations may have been made by Estate Mortgage to the applicants, they were not made with the authority, actual or ostensible, of Burns Philp. The causes of action asserted by the applicants against Estate Mortgage and Burns Philp are as follows: - breach of an alleged contract by Estate Mortgage and/or Burns Philp with Sapphire to provide 100% of the finance required to fund Valley High; - breach by Burns Philp of a profit sharing agreement of 8 July 1986; 5. - breaches of ss. 52 and 53(g) of the Trade Practices Act 1974 ("the Trade Practices Act") by both Estate Mortgage and Burns Philp; - breach of fiduciary obligations owed by Burns Philp to Sapphire; - unilateral mistake of the applicants arising from the conduct of the respondents. Causes of action are alleged against Richard Lew, the fourth respondent, and Reuben Lew, Richard Lew's father, the fifth respondent, namely, that each of them was involved in the contraventions by Estate Mortgage and Burns Philp within the meaning of s. 75B of the Trade Practices Act. It 1s also alleged that each of the respondents other than Burns Philp knowingly participated in the alleged breach of fiduciary duty by Burns Philp. It was conceded in the final submissions of counsel for the applicants that no case had been established against Mr. Reuben Lew. Hence his involvement in the case need not be considered further except on the question of costs. The same counsel appeared and the same solicitors acted for Estate Mortgage and the Messrs. Lew. Burns Philp was separately represented by solicitors and counsel throughout the proceedings. Burns Philp cross-claimed against the applicants alleging default under the security documents executed by them, seeking judgment for possession of the land mortgaged to 1t by the applicants and leave to issue writs of possession, and claiming judgment for the moneys owing to it by the applicants. Extensive evidence was given at the trial by affidavit and viva voce. Also, large numbers of exhibits were tendered and admitted into evidence. The witnesses for the applicants were as follows:- - Mr. Alfred Sauer; - Mrs. Linda Sauer; - Mr. N.E. Brice, a director of International Taxation Services Pty. Limited and its associated companies which at all material times acted as taxation consultant to Sapphire; - Mr. M.F. Ivery, the principal of a firm of finance brokers of Melbourne known as Finance Professionals Pty. Limited; - Mr. P.H. Edmonds, the principal of Philip H. Edmonds Pty. Limited, registered real estate agents, valuers and accountants; - Mr. A. Green, a solicitor and company director. The witnesses for Estate Mortgage were Mr. Richard Lew and Mr. D.M. Freeman, solicitor for Estate Mortgage and for the Messrs. Lew. The witnesses called by Burns Philp were as follows:- - Mr. B. Lacey, the National Manager, Corporate Trusts of Burns Philp; - Mr. J. Thomas, the manager, Legal Administration, of Burns Philp; - Miss. A. Varga, a corporate trust officer employed by Burns Philp; and - Mr. G.H. Couston, the solicitor for Burns Philp. Much of the evidence was not in dispute; but on many critical matters there is a conflict, sometimes sharp, between certain of the witnesses. The case turns almost entirely on questions of fact and to a considerable degree on the credibility or reliability of witnesses. Findings of Fact In late March 1985 Estate Mortgage was approached by Mr. Ivery, finance broker for Sapphire, for a loan of about $2,000,000 for the purpose of applying $950,000 of that sum to pay out the existing debt of Sapphire to Esanda and the balance towards the construction of Valley High. On 15 April 1985 there was a meeting in Melbourne attended by Mr. Sauer, Mr. Brice, Mr. Ivery and Mr. Lew at which Mr. Ivery said that Sapphire wanted to borrow up to $lm to clear its existing liabilities and to provide working capital to enable Valley High to be established. Sapphire would then require a "building facility" up to a further $1,000,000 to be drawn progressively as the project neared completion in stages. Mr. Sauer said that a development approval had ' 8. been obtained and work had commenced. Mr. Lew said that Estate Mortgage lent through the Estate Mortgage trusts of which Burns Philp was the trustee and Estate Mortgage the manager. As a matter of policy Estate Mortgage did not like to fund vacant land. Its business was to fund development projects. He said that Estate Mortgage would need to know what Sapphire intended to do with the development and it would need updated valuations if Estate Mortgage was to proceed. At a second meeting in Melbourne on 29 April 1985 attended by Messrs. Ivery, Sauer and Lew, Mr. Ivery said that what Sapphire would like to do is to put "in place" the finance for the land only on the basis that Sapphire would refinance when the building development commenced. Mr. Lew said he was not interested in providing bridging finance over vacant land. It was necessary to establish that the project was viable as a whole before Estate Mortgage was prepared to become involved at all. If satisfied, the development could then proceed stage by stage with Estate Mortgage giving finance to Sapphire to hold the land and to cover the preliminary costs to be followed by a conditional approval for development funds. At the meeting there was discussion about various documents and Mr. Lew said that certain figures of $950,000 and $2,500,000 mentioned in them did not seem correct to him. He said that Sapphire should allow $1,200,000 to fund it through 1ts approval stage and that it would be more likely that Sapphire would need something closer to $5,000,000 for the development. He said that it would be necessary for accurate and conservative cashflows to be prepared and that Mr. Brice should do that for him. Mr. Sauer said he had sacked Mr. Brice as he was incompetent. Mr. Ivery said that the total development cost 9. according to the provisional feasibility study was about $13,000,000 and that Sapphire would need to borrow that figure. Mr. Lew said that it was not necessary to fund the total cost, that if it was a viable project, it should fund itself partly from sales and that a properly presented cash flow would tell Sapphire how much it needed to borrow. At that meeting Mr. Lew had before him Mr. Ivery's application for finance dated 22 March 1985, his projected cash flow which had been to Estate Mortgage on 1 April 1985 and a letter from Mr. Ivery of 19 April 1985 together with enclosures. Mr. Lew had not at that stage arranged for the inspection or valuation of the properties which were to be mortgaged by Sapphire as security if loans were made. Mr. Lew had taken no steps to investigate the proposal. The first step taken by Mr. Lew to investigate the proposal was his appointment of McCann Valuations to value the relevant properties for mortgage purposes. That appointment was made by letter from Estate Mortgage to McCann Valuations of 1 May 1985. Mr. Lew did not say anything at the meeting of 29 April which committed or could reasonably be understood as committing Estate Mortgage or Burns Philp (even assuming his authority to bind Burns Philp) to provide funds of $5,000,000. Nor did Mr. Lew say that Estate Mortgage or Burns Philp would finance the whole project or provide $5m. At that stage Valley High had not even obtained a development approval, the application for which was not made until 13 August 1985 when a letter was sent by Alan P. Corke Pty. Limited on behalf of Sapphire to the Bega Valley Shire Council. The approval was granted by that council on 1 October 1985. Mr. Corke of Alan P. Corke Pty. Limited 1s an architect who was Known to Mr. Lew. There is a conflict of evidence as to whether Sapphire appointed Mr. Corke as certifying architect for Valley High 10. or was required to do so by Mr. Lew and as to the precise nature of his (Mr. Corke's) role. I find that Mr. Corke was appointed by Sapphire on its own initiative and was not induced or required to appoint him by any of the respondents. Mr. Sauer swore he believed on 29 April 1985 that $5,000,000 would be provided by Estate Mortgage. I do not accept that Mr. Sauer held that belief at that time. Indeed, 1t 1s plain from a letter written by Mr. Sauer in his own handwriting to his accountant, Mr. Brice, dated 10 May 1985, that he believed at that time that he was "still nowhere with Estate Mortgage". He realised then that all that had then occurred were preliminary discussions with Estate Mortgage which was taking steps to have the property inspected by a valuer for security purposes. No doubt Mr. Sauer hoped that Estate Mortgage would provide the $5,000,000, but there was nothing said by Mr. Lew or anybody else on behalf of Estate Mortgage or Burns Philp which could give rise to any such belief. Later in cross-examination Mr. Sauer conceded that any good lender would first wish to investigate a proposition before lending money and that he was uncertain on 10 May 1985 whether Estate Mortgage would lend any money, also that he had no firm commitment from Estate Mortgage at that time. Mr. Sauer knew on 10 May that there was no firm commitment of any kind from Estate Mortgage, and that 1t was still investigating Sapphire's proposal. [In the meantime Mr. Sauer was seeking other persons or companies who might be interested in financing the project. On 15 May 1985 the initial financier of the project, Esanda Limited, served on Sapphire a notice saying in effect that the property the subject of securities held by Esanda would be auctioned if within one month no firm commitment was put to Esanda by Sapphire. ll. The next meeting of relevance was held on 24 May 1985 at which Mr. Lew and Mr. Sauer were present. Mr. Edmonds and Mrs. Sauer may have been present; but I am not satisfied that they were, though nothing turns on this. Mr. Lew said something to the effect that Estate Mortgage should be able to issue a letter of commitment regarding the $1,200,000 on the following Monday but that the letter would have to be conditional upon a number of matters including obtaining building approval, detailed costing of all stages and that Estate Mortgage would need to see Sapphire's "sales' costs" and ""sales' programmes" showing "prices and frequency". Mr. Sauer said that Sapphire could do this in three months, but Mr. Lew said that it was not possible to do this in such a short time and that in his experience six months would be a more realistic time to allow. He said there would be no penalty if Sapphire did the necessary work earlier and that Estate Mortgages would advance Sapphire $1,200,000. Mr. Lew also said that Estate Mortgage would not be able to commit itself in relation to the funding of the first stage of construction. 24 May was a Friday. On the following Monday, 27 May, Mr. Lew sent two letters to Mr. Sauer, one of which made an offer to Sapphire to provide an advance to a limit of $1,200,000 or 55% of valuation of the relevant security whichever is the lesser on certain terms and conditions, the facility to be held available for six months. The other letter was entitled "Letter of conditional offer of development finance" and 1t related to a proposed loan advance of 65% of valuation of the relevant security for a term of three years. The conditions of the offer included provisions relating to: 12. - obtaining development, zoning and building approvals; ~ the trustee's (Burns Philp) valuer having perused the approvals and approved them; - a suitable building contract being entered into; - a suitable project management team being "put in place"; - "satisfactory contractual arrangements" being entered into with "a professional marketing organisation for the marketing of the units"; - "all the legal requirements with regard to the prospectuses and/or trust deeds, if any," being satisfactorily attended to; and - the final letter of commitment from Estate Mortgage being formally accepted with respect to the offer. The common seal of Sapphire was affixed to each of the two letters of 27 May and opposite the common seal appeared the signatures of Mr. and Mrs. Sauer. By the end of May 1985 the only agreement between the parties was that evidenced by the two letters of 27 May 1985. Those letters committed Estate Mortgage to hold available a finance facility in the sum of $1,200,000 for six months; and there was no agreement as to the provision of any development funds, only an offer subject to 13. conditions certain of which I have already summarised. Neither Burns Philp nor Estate Mortgage had made any representation to Sapphire or anybody else that they or either of them would provide all the finance required to construct, market and manage Valley High. No representations had been made by the end of May 1985, and certainly there had been no agreement, that Estate Mortgage would provide or assist in establishing any further lines of credit required by Sapphire to construct, market and manage Valley High in the event that Burns Philp did not do so. What had happened by 30 May 1985 was that there was an agreement between Estate Mortgage and Sapphire whereunder Estate Mortgage would lend $1,200,000 to Sapphire to pay out the existing debt to Esanda. By then Esanda was pressing for repayment of its debt having issued notices under s. 57(2)(b) of the Real Property Act 1900 (N.S.W.). Consequently Mr. Sauer sought finance from other sources. Sapphire did receive finance tn the sum and on the terms which I have just mentioned from Estate Mortgage. Even if there had been any representations made by Estate Mortgage or Burns Philp at that time (which there were not), no case has been established of reliance upon any of those representations by Sapphire, nor of any loss or damage that may have been suffered by it. Quite the contrary, Estate Mortgage assisted Sapphire in getting it out of its difficulties with Esanda. I said earlier that I am satisfied that Sapphire's appointment of Mr. Corke as the architect for the project was essentially of his own initiative. Mr. Corke did not give evidence in the case, and I am not satisfied that he made the statements attributed to him in evidence by Mr. Sauer. Nor am I satisfied that, even if he did so, he had the authority of any of the respondents to make the statements on behalf of them or any of them. 14. In or about June or July 1985 there was a luncheon in Melbourne attended by Mr. Richard Lew and Mr. and Mrs. Sauer at the Southern Cross Hotel. At that luncheon Mr. Sauer said that he had "a brilliant idea", namely, to construct "a European type of health spa" at the village and not merely a retirement village. Mr. Lew said that he did not know if it "will work" in Australia as it had never been tried here before to his knowledge and he did not have any feasibility study on such a project. He said that he did not think that Estate Mortgage would consider it in conjunction with Valley High. Mr. Sauer was enthusiastic about the proposal to build the health spa and about its prospects of success and said that he was going overseas to collect more information about it. Mr. Lew queried the wisdom of his travelling overseas at that time when he was about to develop Valley High. Mr. Sauer said he had already booked the air tickets and that he and his wife were also going to visit his wife's family abroad. Mr. Lew again said that there was a lot of work to be done to "get the project up and running". Mr. Sauer said that there were many months of hard work ahead, but that 1t would be the last opportunity for his wife and himself to take a holiday. He then asked Mr. Lew 1f he thought that a health spa would be a suitable investment for the Estate Mortgage property trust. Mr. Lew's reply was: "No. Our property trust does not have that sort of property in its portfolio. You might be able to interest our unit holders to come in, but that is not the sort of investment that our public property trust would take on." I reject Mr. Sauer's evidence about what occurred at that luncheon, in particular his assertion that Mr. Lew said that Estate Mortgage: 15. "would be proud to finance the whole project" and that it was "a condition of finance that it provide the funds for the whole project to its ultimate conclusion because it would make an ideal project for inclusion in one of Estate Mortgage's property investment trusts. I expect that you will have money left over from the initial funding of $1,200,000 and I would therefore suggest that you both take a trip abroad to study retirement villages and health resorts and establish contacts." I also reject Mr. Sauer's evidence that Mr. Lew said words to the effect that "the $5,000,000 which Mal Ivery has proposed should be Plenty for the construction facility". I reject Mr. Sauer's evidence that Mr. Lew said "Your house would never be required because the valuation would cover adequately the $5,000,000 which you, require". There are many inconsistencies between the evidence of Mr. Sauer on these matters and the contemporaneous documents and the probabilities. It 1s sufficient to refer to two of them. "Mr. Ivery proposed that there be $2,000,000 for the construction facility, not $5,000,000. Also the letter of 27 May 1985 titled "Letter of Conditional Offer Development Finance" which had been signed by Mr. and Mrs. Sauer and executed under the common seal of Sapphire contained a number of conditions for the provision of finance by Estate Mortgage. On no construction of the letter could any of its terms or conditions be read consistently with Mr. Sauer's assertion that Mr. Lew said at the luncheon that Estate Mortgage would "provide the funds for the whole project to its ultimate conclusion because it would make an ideal project for inclusion in one of Estate Mortgage's property investment trusts". Coming so soon after the writing of that letter and its execution by Mr. and Mrs. Sauer and Sapphire, as the 16. luncheon did, without any suggestion that there was any relevant conversation in the meantime between Mr. Sauer and Mr. Lew, Mr. Sauer's evidence must be viewed with considerable caution. Mrs. Sauer gave evidence of this discussion during lunch at the Southern Cross Hotel and it 1s plain from her evidence that she regarded it merely as a social occasion. On 9 August 1985 Burns Philp lent $1,200,000 to Sapphire. By mortgage dated 9 August 1985 between Sapphiree and Burns Philp, as trustee of the Estate Mortgage Trust, Sapphire mortgaged the land at Merimbula to Burns Philp as security for a loan of $1,200,000 by Burns Philp to Sapphire repayable on 9 February 1986. By deed of quarantee entered into on the same date between Sapphire, Burns Philp and Mr. Sauer, Mr. and Mrs. Sauer indemnified Burns Philp against all losses and costs which it may incur by reason of any breach, negligence or non-performance by Sapphire of the terms of the mortgage or any variation therefor. By deed of the same date between Sapphire and Burns Philp, Sapphire charged all its assets to Burns Philp to securee all monies then or thereafter lent by Burns Philp to Sapphire. It was on 9 or 13 August 1985 that Mr. Corke made application to Bega Valley Shire Council for development approval for the project. On 17 August 1985 Mr. and Mrs. Sauer travelled overseas and returned on 22 September 1985. On 1 October 1985 the Bega Valley Shire Council issued the development approval for the Village Project. After Mr. and Mrs. Sauer returned from Europe Mr. Sauer spoke to Mr. Lew more than once before the official launch of the village project on 7 December 1985. Nothing which occurred during this period constitutes the making of any representation of the kind on which reliance 1s or 17. could be placed by the applicants during that period. Indeed, on 29 December 1985 Mr. Sauer wrote to Mr. Brice, his accountant, and said inter alla: ",.. Mal Ivery advises that in line with original submissions for a $5m Facility, the outstanding commission is $38,000. As I see it, we have no $5 million Facility nor are we likely to draw anything like this amount, so where does this figure come from? I agree, that the 1 percent 1s payable on money drawn, but not on a Submission. Please advise." This extract shows that on 29 December 1985 Mr. Sauer did not believe that there was a $5,000,000 facility available to him from Estate Mortgage or Burns Philp. Indeed, it tends to show that at that time Mr. Sauer had no intention of drawing on any such facility even if available. Mr. Sauer swore in his affidavit of 23 June 1987 that before he left for Europe he visited Mr. Lew in Melbourne and had a discussion with him in which Mr. Lew said words to the effect: "Technically it is not possible for us to document an overall finance package because the project as planned by Mr. Cork and approved by the local Council and us has 14 stages over at least a five year period. The facility will be expanded when required to take care of all possible financial requirements." The application to the Bega Valley Shire Council was not submitted until 9 August 1985 and was not approved until 1 October 1985, facts inconsistent with this evidence of Mr. Sauer. 18. There was a conversation between Mr. Sauer and Mr. Lew in the Melbourne office of Estate Mortgage on 28 October 1985 in which they discussed a number of matters including Mr. Sauer''s plan to hold an "official launch" of the village project in November or December 1985 and the production of an advertising brochure. Mr. Sauer stated that he planned to produce a colour advertising brochure and asked whether Sapphire could use the name of Estate Mortgage and Burns Philp to "lend credibility" to the project in the marketplace. Mr. Lew said that he would attend to the official launch and he agreed that Mr. Carl Davis, the Chairman of Estate Mortgage, may be able to give a special speech to promote the village project. The discussions that took place between officers of Estate Mortgage and Mr. Sauer after Mr. Sauer's return from Europe and before the opening of the village project on 7 December 1985 did not constitute representations which could be considered to be either a promise or contract to advance moneys to Sapphire. The conversations took place in the context of the occasion of the opening of the project with warm and hospitable remarks being made by everybody concerned. Nothing was said or done that could found or support the causes of action pleaded. At the official launch of the project on 7 December 1985 Mr. Carl Davis, Chairman of Estate Mortgage, told the persons present that Estate Mortgage was "proud to back the project". In December 1985 there was an exchange of letters between Mr. Sauer and Mr. Davis which reflected the enthusiasm of each man for the Village Project, but nothing of any promisory nature or even approaching the representation on which reliance is placed can be spelled or even squeezed out of the events of that time. 19. During December 1985 and January 1986 correspondence passed between Sapphire and Estate Mortgage relating to various matters including estimates of costs prepared by Mr. Corke for stage 1 of Valley High. It is plain from this material that Mr. Sauer did not believe that there had been any firm commitment by Estate Mortgage or Burns Philp for any "ongoing financing of the project". It 1S obvious that the matter was still open in his mind. Negotiations ensued between Sapphire and Estate Mortgage and their respective solicitors for the making of a further advance of $450,000 to Sapphire which culminated in the advance on or about 14 February 1986 of a further sum of $450,000 making the total sum then advanced of $1,650,000. By variation of mortgage dated 14 February 1986 between Sapphire and Burns Philp, the existing mortgage was varied by increasing the loan by $450,000 to $1,650,000 to enable Sapphire to pay for some construction costs of Valley High. The repayment date of the said sum of $1,650,000 was extended to 31 March 1989. By deed of guarantee entered into on 14 February 1986 between Sapphire, Mr. and Mrs. Sauer and Burns Philp, Mr. and Mrs. Sauer indemnified Burns Philp against all losses and costs which might be sustained by it or for which 1t might become liable by reason of any breach, negligence or non-performance by Sapphire of the terms of the mortgage as varied. The execution of those documents had been preceded on 22 January 1986 by a letter from Estate Mortgage to Sapphire, Estate Mortgage writing on behalf of Burns Philp, offering development funds for the project to a limit of $2,730,000 or 65% of the security value of the project, whichever was the lesser. 20. The next event relied upon by Sapphire as constituting a representation relates to a meeting held on 29 April 1986 in Sydney. Before then Mr. Lew had been requesting "cash flows" in order to assess the funds that would be needed to finance construction of the project, but they had not been provided. See, for example, the letter of 23 April 1986 from Mr. Lew to Mr. Sauer in which Mr. Lew said, amongst other things, until a "cash flow" was received Estate Mortgage could not ascertain whether there were any "difficulties with the lending ratio". In telephone conversations with Mr. Sauer during the week or so before 29 April 1986 Mr. Lew raised the possibility of granting a 25% profit share in the project to Estate Mortgage or Burns Philp. Mr. Lew also requested at that time that Mr. and Mrs. Sauer's private home be added as security. Mr. Sauer discussed Mr. Lew's proposition at a meeting with Sapphire's solicitors on 29 April 1986. Present were Mr. and Mrs. Sauer, Mr. A. Green of Freehill Hollingdale & Page (the solicitors for Sapphire), Mr. Brice of International Taxation Services, Mr. Freeman (solicitor for Estate Mortgage) and Mr. Lew. The meeting took place at the office of Estate Mortgage in Elizabeth Street, Sydney. It 1s unnecessary to recite all the matters discussed at the meeting, but it is clear that the persons present understood that Estate Mortgage would give no guarantee that any advances would be made above the maximum lending level available to Burns Philp as trustee under the Estate Mortgage trust investments, namely, 65% of the security value of the project. Otherwise it would have been in breach of 1ts obligations under the trust deed as everybody present knew. Mr. Green's own note of the meeting reads: , 21. "Estate Mortgage would give no guarantees that Payments would be made above the 65/65 lending level. Similarly, the trustee was unable to give any such guarantee as it was in breach of the trust deed. The whole of their funding would be on a cost to complete basis and as soon as the funding levels were reached whereby there was insufficient funds available in the facility to complete the project, funding would stop." There was no firm commitment of any kind given by Mr. Lew at the meeting upon which Mr. Sauer believed that he was entitled to act or that any person present could have so believed. There passed at this time, as indeed there had before and did pass thereafter, correspondence between the parties upon which particular reliance has been placed in this case by the applicants, namely, a letter from Mr. Sauer to Mr. Lew of 12 May 1986, a letter of 15 May 1986 from Mr. Lew to Mr. Sauer, a facsimile letter sent by Mr. Sauer to Mr. Lew on 15 May, and a letter from Estate Mortgage to Burns Philp of 13 June 1986. Isolated snippets may be pounced upon to give some support to the applicants' case, but these letters must be read in the context of all relevant events. Viewed sensibly in this way there was nothing written and no conduct by Estate Mortgage or Burns Philp upon which Sapphire relied or could reasonably have relied as constituting representations of the kind asserted 1n this case. Some explanation is necessary of the concept of "100% finance". The notion of "100% finance" or "100% construction finance On a cost to complete basis" means that the lender shall advance 100% of the construction cost provided that the trustee's lending ratios of 65% loan to value are not exceeded. An example makes the point clear and, indeed, it was one given by Mr. Lew 1n evidence. Where land 1s 22. purchased for $100,000 and the expected construction cost is $500,000 and at the end of the day the value of the project is expected to be $1,000,000, a lender can lend 100% of the construction cost, namely, $500,000 provided that the lending ratio of 65% loan to value is not exceeded; i.e. provided the cost of the land and buildings ($600,000) does not exceed 65% of the value at the end of the project ($1,000,000) then 100% of the finance for construction costs can be provided. With an end value of $1,000,000 the total funds advanced, including cost of land, would be $600,000 or 60% of the end value. This was the common understanding of the expression "cost to complete" basis by all persons involved in this matter including Mr. Sauer. Hence the correspondence between the parties, in particular Mr. Sauer's letter of 12 May 1986 and Mr. Lew's letter of 15 May 1986, must be read in this light. Events after 15 May 1986 occurred at a time when the solicitors for the parties were exchanging drafts of security documents which led to the execution of the relevent documents on 8 July 1986. Sapphire was then obtaining advice from its solicitors in relation to complex commercial transactions which culminated in the documents of 8 July. Indeed, by 3 June 1986 senior counsel had been instructed on behalf of Mr. Sauer to advise in relation to the relevant documents. Senior counsel spoke direct to the solicitor for Estate Mortgage by telephoning him from Merimbula airport on 3 June 1986 in the presence only of Mr. Sauer relating to the form of the security documents that were contemplated and other matters. Mr. Sauer and, therefore, Sapphire relied at all material times in June 1986 upon the advice of Sapphire's solicitors and senior counsel. What Mr. Sauer was told by Estate Mortgage was simply part of the ebb 23. and flow of negotiations, not intended to have any contractual force or to be representations of the kind that could be acted upon by businessmen in these circumstances. It was always envisaged that there would be formal documentation executed by the parties to deal with further advances by Estate Mortgage and Burns Philp. All that preceded the execution of the documents was to this end as 1t generally is in commercial negotiations of this kind. By variation of mortgage executed on 8 July 1986 by Sapphire and Burns Philp the mortgage was further varied by increasing the loan to $3,500,000 to pay for further construction costs of Valley High. By deed of the same date between Sapphire and Burns Philp, Sapphire charged the "B" class units in the proposed Bega Valley Retirement Trust which was formed pursuant to a trust deed executed by Sapphire as manager and Burns Philp Trustee Company (Canberra) Limited, a company related to Burns Philp, as trustee. By deed of guarantee of the same date between Mr. and Mrs. Sauer and Sapphire on the one hand and Burns Philp on the other, Mr. and Mrs. Sauer indemnified Burns Philp against all losses and costs which might be sustained by it or for which it might become liable by reason of any breach, negligence or non~-performance by Sapphire of the terms of the mortgage as varied. By further mortgage, also entered into on 8 July 1986, between Mr. and Mrs. Sauer and Burns Philp, Mr. and Mrs. Sauer mortgaged their home to Burns Philp to secure repayment by Sapphire of advances under the mortgage as varied. A further agreement was made in writing on the same date between Sapphire and Burns Philp ("the financial assistance agreement"). Recital F stated that Burns Philp had agreed to advance 24. money to Sapphire for the purpose of purchasing the land at Merimbula and for the construction of Valley High pursuant to the mortgage and that Sapphire had agreed to pay Burns Philp a fee "for assisting and providing financial advice and financial assistance" upon the terms and conditions contained in the agreement. Sapphire agreed by clause 2 to pay certain monies to Burns Philp "1n consideration of financial services provided to the company by Burns Philp". The expression "financial services" is not defined by the agreement but in my view it means, in the circumstances of this case, the raising by Burns Philp of the loan from $1,600,000 to $3,500,000. Sapphire asserts that Burns Philp breached its obligation under the profit sharing agreement and refused to provide financial advice and financial assistance with respect to Valley High or, alternatively, that 1f it did provide Sapphire with the requisite financial advice and financial assistance, it failed to do so with reasonable care and skill. It is plain that Mr. Sauer regarded the security documents executed on 8 July 1986 as an interim measure so that he could gain enough time to pay out Burns Philp and Estate Mortgage as soon as possible and that he wished to obtain further finance from other financiers. Sapphire's Valley High project was plainly in difficulties at this time and the relations between Sapphire on the one hand and Estate Mortgage and Burns Philp on the other was more than strained; it had reached the stage of hostility. The events relied upon by the applicants in this case to support their case under the various heads on which it has been put cover many conversations, letters and other documents. It 1s impossible to refer to each of them. I have paid careful regard to 25. them and have referred only to those upon which particular reliance was placed by the applicants or which are critical. This is a case where Mr. Sauer conceived a most ambitious project for a retirement village and later a wider form of resort. Though he has ability in the conception and development of some business projects, it is plain that he was out of his depth in this matter and beyond his sphere of expertise. It all became too much for him. I think in the main he has convinced himself, because of the severe impact upon him, his wife and their financer and those of Sapphire, that he was wrongly treated by Estate Mortgage and Burns Philp and that they should pay to him the price for what he perceives to be alleged wrongdoing. In my view Mr. Sauer has in his own mind taken matters out of context, magnified small incidents into large events and generally created in his mind a matrix of facts from which he seeks to establish liability on the part of Burns Philp or Estate Mortgage under one branch of the law or another: causes of-action as diverse as s. 52 of the Trade Practices Act and breach of fiduciary obligation and mistake. None of the matters relied on by Mr. Sauer as constituting the causes of action have been established. It is obvious that at certain times Estate Mortgage became enthusiastic about the village project, especially about the time of the opening of the project in December 1985. I also suspect that Mr. Lew did on occasions talk rather plausibly to Mr. Sauer and lead him to believe that Estate Mortgage was pleased with the prospect of financing Valley High. But 1t is a case of much discussion and the exchange of many letters between the parties all in circumstances where everyone realised that the solicitors were to embody the arrangements in formal legal documents and that those documents and those documents only 26. would be the matmerial upon which reliance could be placed by anybody. Preliminary discussions were not intended to have any contractual effect, nor is it correct to glean from them representations of the kind to which the consumer protection provisions of the Trade Practices Act are directed. There was no fiduciary obligation owed by Burns Philp to the applicants or any of them, and, even if there were, there was no breach of any such obligation. Nor do I discern any unconscionable conduct on the part of any of the respondents to the proceedings. The business dealings were rigorous at times on the part of Sapphire, Estate Mortgage and Burns Philp; but that 1s business and there 1s no substance in any contention that Estate Mortgage or Burns Philp acted otherwise than in accordance with the law. My findings of fact involve accepting generally the evidence of Mr. Lew and other witnesses called on behalf of the respondents. Where their evidence conflicts with the evidence of Mr. and Mrs. Sauer or the evidence of the witnesses called on behalf of the applicants I prefer the evidence of Mr. Lew and the witnesses called on behalf of the respondents. I observed all the witnesses carefully in the witness box and assessed their evidence in the light of the documentary evidence, in particular contemporaneous documents, and the probabilities of the case. The causes of action alleged by the applicants give rise to interesting questions of law. In view of my findings of fact it is unnecessary to consider any of these questions including the proper construction and application of s. 51A of the Trade Practices Act and 27. the guestion whether it has retroactive effect. That section was inserted by Act No. 17 of 1986 which commenced on 1 June 1986. Nor is 1t necessary to deal with the submission of counsel for the respondents that each of the alleged representations involved future conduct or representations as to future events and that because they did not come to pass they do not necessarily constitute misleading or deceptive conduct. In so far as the case for the applicants 1s put on the basis of a breach of contract, in particular, breaches of the provisions of the profit sharing agreement of 8 July 1986 and breach of contract by Estate Mortgage and Burns Philp to "provide 100% finance", I have said sufficient to indicate that nothing that was said or done constitutes a breach of any contractual obligation. Further, the terms of the documents executed on 8 July 1986 are inconsistent with reliance being placed by the applicants upon the alleged representations: see, for example, the Deed of Variation of mortgage, clauses 9(b), 11 and 13 and the financial assistance agreement, clause 4. Each of these documents was settled by solicitors and the subject of advice by Senior Counsel. It would require the strongest case before this Court would be prepared to hold that there could be superimposed upon the obligations set out in these documents another set of obligations to finance 100% of the development cost or to finance the remaining thirteen stages of a multi-stage development or to lend monies over and above the lending ratios imposed on Burns Philp, each of which 1s inconsistent with the express terms of the instruments. The evidence falls far short of this standard. It 1s not necessary in the circumstances for me to 28. make any findings on the estoppel alleged by the respondents to have arisen against the applicants. So far as the case for the applicants is based upon mistake by them, which appears to be an assertion of unilateral mistake, I am satisfied that the applicants did not make any relevant mistake. There was no mistaken belief by the applicants that Burns Philp or Estate Mortgage or either of them would provide all the finance required for the construction, marketing and management of Valley High. My findings of fact are inconsistent with the existence of any such belief. Nor do the provisions of the Profit Sharing Agreement in all the circumstances give rise to any fiduciary obligation on the part of Burns Philp to Sapphire to prefer Sapphire's interest to any other interests, and, even 1f I were wrong in this conclusion, I am satisfied that Burns Philp did not prefer its own interests and those of Estate Mortgage to the interests of Sapphire. Burns Philp did not act without proper regard to its obligations to Sapphire under the profit sharing agreement; nor did 1t act only in accordance with its own interests as lender and mortgagee and the interests of the other respondents. It is not necessary for me to analyse the cause cf action based on alleged breach of fiduciary duty by Burns Philp because on no view of the facts could the case be supported. As to this cause of action see Consul Development Pty. Limited v. D.P.C. Estates Pty. Limited (1975) 132 C.L.R. 373 especially per Gibbs J. at 397; Selangor United Rubber Estates Limited v. Craddock (No. 3) [1968] 1 W.L.R. 1555 especially per Ungoed-Thomas J. at 1591; Phillip Phipps v. Boardman [1967] 2 A.C. 4: Taylor v. Johnson (1983) 151 C.L.R. 431; 29. Commercial Bank of Australia Limited v. Amadio (1983) 151 C.L.R. 447; Jacob's Law of Trusts 5th Ed. para. 1338; Baden Delvaux & Lacquit v. Societe General (1983) B.C.L.C. 320 (Gibson J.) affirmed 1985 B.C.L.C. (C.A.) especially per Gibson J. at 407. Even if my findings of fact were in favour of Sapphire it would be necessary for the applicants to establish identifiable loss or damage which they have suffered or may suffer by reason of any of the breaches of duty or contraventions of statute alleged by them. Sapphire received an initial advance of $1,200,000 from Burns Philp which was increased by $450,000 on 14 February 1986 and increased again on 8 July 1986 by a further $1,850,000 taking the total advanced to $3,500,000. I am not satisfied that even if the project had proceeded to its finality it would have produced any profit at all. Indeed, the history of the matter 1s rather to the contrary. Sapphire was to be "sold up" by Esanda before the respondents became involved in financing the project. Notwithstanding the passage of a lot of time, the expenditure of considerable sums of money by Sapphire and the raising of funds from the corporate respondents Sapphire still delayed the project for a period which resulted in extensive holding charges. The evidence does not paint a picture of an efficiently managed project at all, rather the contrary. There is no reasonable basis on the evidence for inferring that any profit would have been made by Sapphire from the investment in the long term. So far as the history of and Mr. Sauer's involvement with the project is concerned, the advance of any further monies would not have been likely to result in profit. 30. Burns Philp deserves separate consideration from Estate Mortgage. The assertion that Burns Philp represented or promised that it would fully fund the Village Project is in my opinion in direct conflict with the terms of the documents, in particular those executed on 8 July 1986. See in particular the deed of variation of mortgage of that date (clauses 11 and 13) and the financial assistance agreement of that date between Burns Philp and Sapphire, clause 4 of which provides: "The parties hereto do hereby acknowledge that pursuant to the mortgage, Burns Philp 1s not obliged to finance the construction of all of the stages of the retirement village however this Agreement shall remain in force and effect until the termination date." Further, no employee or officer of Burns Philp made any statements or engaged in any conduct that could conceivably constitute a representation or promise of the kind alleged. Nor am I satisfied that Burns Philp conferred on Estate Mortgage any actual authority to make any representation or promise on its behalf to fully fund the project. Nor is this a case where it could be said that Estate Mortgage had ostensible authority to make representations or promises on behalf of Burns Philp of the kind alleged. Sapphire and Mr. and Mrs. Sauer knew that at all material times Burns Philp was a trustee and that its power to lend was subject to limitations, in particular the limitation that any monies lent should not exceed 65% of the value of the security unless the amount of the excess was the subject of a contract of insurance. The evidence 1s overwhelming that Burns Philp could and would never lend more than 65% of the value of 1ts security. From the first meeting in April 1985 when Mr. Lew made 1t plain that Burns Philp was bound by these limitations, Mr. Sauer knew of them. 31. The trust deed itself spelt the limitations out and that trust deed was inspected by Mr. Ivery. Mr. Sauer was made aware of the limitations on Burns Philp's power to lend at all material times. Even 1f the correct analysis of the evidence were that Mr. Lew made representations to the applicants that monies would be lent to Sapphire in excess of Burns Philp's lending ratio (representations or promises which in my view were not made), they could not be said to be made on behalf of Burns Philp. Nor was Mr. Corke an agent of Burns Philp to make any relevant representation or promise on its behalf. As to the financial assistance agreement, it did not, upon 1ts proper construction, impose any future obligation on Burns Philp to advance monies. By the time that agreement came to be executed Burns Philp had advanced monies up to the 65% limit. Clause 2 of this agreement provided that "in consideration of financial services provided to" Sapphire by Burns Philp, Sapphire shall, amongst other things, pay as a fee to Burns Philp 25% of the operating profit of Sapphire in each accounting period. This was in recognition of the financial services that had already been provided to Sapphire by Burns Philp, namely, the provision of monies on security on three occasions culminating in the final advance of 8 July 1986 raising the monies lent to $3,500,000. Even if the financial assistance agreement could be construed in the sense that Burns Philp had a future obligation (i.e. after the execution of the agreement) to provide financial services, advice and assistance to Sapphire, I am not satisfied that those services were not provided. Mr. Lew gave evidence, which I accept, that he gave 33. In its cross claim against the applicants Burns Philp relies on the various security and other documents executed from time to time by the applicants and to the monies advanced by Burns Philp to Sapphire. It is plain that Sapphire has defaulted in its obligations to Burns Philp with respect as to payment of interest under the mortgage dated 9 August 1985 as subsequently varied and that Mr. and Mrs. Sauer have also defaulted in their obligations to Burns Philp under the mortgage entered into on 8 July 1986. By notices dated 19 June 1987 and issued pursuant to section 57(2)(b) of the Real Property Act 1900 of New South Wales and served on the applicants, Burns Philp demanded payment of the amounts of interests due and payable by them; they have failed to comply with the notices. Burns Philp claims judgment for possession of the land the mortgaged to it by the applicants being the land on which Valley High was to be erected and has been in fact partially erected and the home of Mr. and Mrs. Sauer. Burns Philp also seeks leave to issue writs of possession pursuant to Order 37 rule 7 of this Court's Rules or otherwise. It also claims judgment against each of the applicants for $4,741,982.34 together with interest accruing at the rate of $2,857.76 per day from 7 August 1987, being the date following the date of service of the section 57(2)(b) demand upon Mr. and Mrs. Sauer, a later date than the date of s@érvice of the equivalent demand upon Sapphire. Burns Philp has chosen the later date in the case of each applicant rather than split up the various dates and confuse the calculation of interest. There is no dispute about the calculations of interest. It matters not whether the monetary claim by Burns Philp of the 7 August 1987 is for interest or mesne profits as the result would be the same on the facts of this case. Burns Philp also seeks costs on an indemnity basis. + tere 34. On 26 August 1987 I made an order by consent of the parties that the matter of assessment of damages, if any, claimed by the applicants and related relief shall be heard separately from the other issues of the trial subject to certain provisoes which it is not necessary to state. In view of my findings the question of damages does not arise, The application of Sapphire and Mr. and Mrs. Sauer should be dismissed with costs. Burns Philp succeeds on 1ts cross claim against the applicants. I will not make any formal orders today but stand the matter over for a short time so that the parties may consider my reasons for judgment. I direct Burns Philp to bring in short minutes to give effect to my reasons for judgment. I certify that this and the preceding thirty-three (33) pages are a true copy of the reasons for judgment of the Honourable = Mr. Justice Lockhart. Associate LAC Date: 16 December 1987 Counsel for Applicants: Solicitors for the Applicants: Counsel for First Respondent: 35. Solicitors for First Respondent: Counsel for Second, Third, Fourth and Fifth Respondents: Solicitors for Second, Third, Fourth and Fifth Respondents: Dates of Hearing: Date of Judgment: Mr. J. Hamilton Q.C. Mr. P.M. Biscoe Messrs. B.M. Salmon Layton & Co. Mr. R.P. Meagher Q.C. Mr. B.M. James Messrs. Bell Cadogan Couston & Gengos Mr. J. Trew Q.C. Mr. J.C. Kelly Mr. G. McNally Messrs. Abadee, Dresdner & Freeman 24 - 28, 31 August 1987 2 - 4, 11 September 1987 16 December 1987