NOT FOR DISTRIBUTION FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 397 of 1992 GENERAL DIVISION ) BETWEEN: PETER WILLIAM METCALFE Applicant AND: NZI SECURITIES (AUSTRALIA) LIMITED and OTHERS Respondent SACKVILLE J. SYDNEY THURSDAY, 9 MARCH 1995 RULING ON EVIDENCE HIS HONOUR: I will deal briefly with the question of admissibility that has been raised. The issue arises on the reading of affidavits of Mr Shaw and of Mr Illman. Each of those affidavits is similar in form in the sense that each annexes a report to the affidavit addressing a particular question that each is asked to consider. Mr Hamilton objects to the reports being admitted into evidence. The question to which Mr Shaw and Mr Illman each directed attention is reproduced in identical terms in each of the reports. It is as follows: Upon the assumption that NZI CC had the obligation set forth in paragraphs 2(a) and 2(b) above, if a review bona fide for the purpose stipulated in the facility agreement had been carried out, would a reasonably prudent banker in the position of NZI CC have offered an extension of the repayment date and, if so, on what terms? The reference to paragraphs 2(a) and 2(b) in Mr Shaw's report is a reference to obligations under the Facility Agreement dated 3 April 1987 (the reference should in fact be to paragraphs 1(a) and 1(b)). Mr Shaw and Mr Illman have assumed that under the Facility Agreement NZI CC was obliged (a) in or about April 1990 to carry out a review of the finance facility with a view to extending the repayment date by a period of 12 months and to notify Ripoll accordingly; and (b) to carry out the review bona fide and for the purpose stipulated by the facility agreement and to inform Ripoll forthwith or within a reasonable time of the result of the review. These assumed obligations seem to derive from clause 5.08 of the Facility Agreement. It will be recalled that part of the applicant's case is that NZI Capital Corporation Ltd was contractually obliged to carry out the review contemplated by cl.5.08 bona fide and for the purpose stipulated by the Facility Agreement. The applicant contends that NZI Capital failed to carry out the review bona fide or at all and that, in consequence, damage was suffered by the applicants. In opening, Mr Hamilton indicated that one basis for assessing damages would be the loss of the chance that would otherwise have been available to the applicants, or to Ripoll in particular, to have the facility extended for a further period of at least one year. It is said that the loss of that opportunity caused very significant losses to be incurred by Ripoll in relation to the project that is the subject matter of these proceedings. Mr Hamilton points out, with some force I think, that the issue addressed in these reports is not, at least directly, the issue that must ultimately be resolved. Mr Hamilton points out that the question is not what a hypothetically reasonable banker, albeit one in the position of NZI Capital, would have done. Rather, the question is what NZI Capital itself would have done in the circumstances that prevailed in or about April 1990. Mr Hamilton contends that the reports address the wrong question and, accordingly, should not be admitted into evidence. He argues that the appropriate way of dealing with the issue is for the respondents to adduce evidence from a decision-maker within NZI Capital to state what the company would have decided, faced with the circumstances that prevailed in or about April 1990. It seems to me that the latter course is one way and perhaps the most obvious and direct way in which the issue can be addressed. Indeed, if it ultimately proves to be the case that no evidence is adduced from a decision-maker within NZI Capital and no explanation is given for the absence of any such evidence, it might be open to draw inferences against the respondents. I express no firm view on that question. Equally, however, I think that evidence as to what a reasonably prudent banker in the position of NZI Capital, would have done at the relevant time, faced with the circumstances confronting NZI Capital, is material relevant to a consideration of the chance that Ripoll would have obtained an extension of the facility from NZI Capital. In part I take this view because cl.5.08 itself may import an element of reasonableness into the obligations imposed upon NZI Capital in relation to its consideration of the extension of the facility. The obligation to consider whether the facility should be extended is pleaded as an obligation to carry out the review bona fide and for the purpose stipulated by the Facility Agreement. Both Mr Coles and Mr Hamilton, although they put the matter somewhat differently, appear to accept that an element of reasonableness forms part of the obligations of NZI Capital under cl.5.08. Mr Hamilton, for his part, would, I think, reject the proposition that NZI Capital had an absolute and unfettered discretion to decide whether or not to grant the extension. In that sense, therefore, the question of reasonableness is, I think, relevant to the issues that need to be resolved in these proceedings. In any event, the question of what a reasonably prudent banker in the position of NZI Capital would have done, seems to me to bear upon the likelihood that an extension of the facility would have been granted. As I have already indicated, this is not the only evidence that might be adduced and, on one view, it might have been expected that other evidence might have been relied on. Nonetheless, the question that arises is a hypothetical question. It could hardly be contended that NZI Capital would not, or might not have taken into account matters that would exercise the mind of a reasonably prudent banker. This is not to say that the matters a reasonably prudent banker would have considered are the only matters that NZI Capital might have been expected to take into account. Depending upon the evidence, there may be a whole range of other factors that might have been expected to be considered by NZI Capital in April 1990. It may be, depending upon the way in which the evidence develops, that those other matters will assume greater significance than the actions that might or might not have been taken by a reasonably prudent banker. Nonetheless, in my view, what a reasonably prudent banker might have been expected to do in the circumstances is a matter that is relevant to the issue that needs to be resolved. I do not think that the only means of approaching the question from an evidentiary point of view is to adduce evidence from a decision-maker within NZI Capital. For those reasons, I think that the material in Mr Shaw's report and in Mr Illman's report may be admitted assuming the only objection is relevance. I rule accordingly. I certify that this and the preceding 4 pages are a true copy of the Ruling on Evidence of the Honourable Justice Sackville. Associate: Dated: 13 March, 1995 Heard: Place: Sydney Decision: 9 March, 1995 Appearances: Mr J. Hamilton QC and Mr N. Francey, instructed by Blessington Judd, Solicitors, appeared for the applicant. Mr B. Coles QC with Mr D. Robinson and Mr M. Ashhurst, instructed by Holmes & Bevan, Solicitors, appeared for the respondents.