FEDERAL COURT OF AUSTRALIA Lunoe v Westpac Banking Corp [1999] FCA 1001 No question of principle Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 cited CTN Cash & Carry Limited v Gallaher Limited (1994) 4 All ER 714 cited Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Limited (NZ) (1992) 29 NSWLR 260 cited Golby v Commonwealth Bank of Australia (1996) 72 FCR 134 cited News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 cited SOREN YDE LUNOE AND SONYA GABRIELLE LUNOE v WESTPAC BANKING CORPORATION NG 857 OF 1996 HELY J 27 JULY 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 857 OF 1996 BETWEEN: SOREN YDE LUNOE AND SONYA GABRIELLE LUNOE Applicants AND: WESTPAC BANKING CORPORATION Respondent JUDGE: HELY J DATE OF ORDER: 27 JULY 1999 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application is dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 857 OF 1996 BETWEEN: SOREN YDE LUNOE AND SONYA GABRIELLE LUNOE Applicants AND: WESTPAC BANKING CORPORATION Respondent JUDGE: HELY J DATE: 27 JULY 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Although Sonya Gabrielle Lunoe is named as an applicant in these proceedings, she did not appear at the hearing, nor was she represented. I was informed that Ms Lunoe was made bankrupt in about November 1996, and that her trustee in bankruptcy had elected not to pursue this action on behalf of her estate. Accordingly, the hearing of the action proceeded as if Soren Yde Lunoe ("the applicant") was the sole applicant. 2 At the time with which this litigation is concerned the applicant was a shareholder in, and a director of, Sorens Pty Ltd ("the company"). He personally guaranteed certain of the liabilities of the company. 3 The company traded from about 1971 until 10 March 1995, when an administrator was appointed. On 6 June 1995, the company was placed into liquidation. As a result of the insolvency of the company, the liability of the applicant to those of the company's creditors whose debts he had guaranteed crystallised. 4 The business of the company consisted of the retail sale of maternity clothing under the business name "The Growing Concern", the retail sale of women's clothing in the larger size ranges under the business name "Supersizes", and property development, principally the construction of three home units at 8-10 Almora Street, Balmoral. 5 For many years the respondent ("Westpac") was the company's banker. On 1 April 1985 the company gave an equitable charge (hereafter referred to interchangeably as "the charge" or "the debenture") in favour of Westpac to secure repayment of "all monies" owing by the company from time to time. The charge was a fixed charge as to certain assets – principally real estate - and a floating charge as regards all other assets of the company. The monies thereby secured were repayable on demand. 6 By letter dated 3 December 1991 Westpac confirmed the facilities which it had extended to the company. They included a bill line facility of $900,000 subsisting during Westpac's pleasure, an overdraft facility with a limit of $200,000 and a term loan facility of $300,000. The term loan facility was repayable on demand, and subject to that, by instalments of $5,000 per month over a period of about 8 years. 7 Amongst the assets of the company was a 10 percent shareholding in Pasta House Manufacturing Pty Ltd ("Pasta House"). The scrip for those shares was held by Rural & Industries Bank Limited of Western Australia ("R & I Bank"). R & I Bank financially assisted in the original acquisition by the company of the Pasta House shares. In the middle of 1992 the business of Pasta House was liquidated, and the company expected to receive a dividend and return of capital in the liquidation ("the Pasta House proceeds"), anticipated to be of the order of $600,000. 8 Perpetual Finance Corporation Ltd, a trading subsidiary of the R & I Bank (and included by me in the designation "R & I Bank") had funded the development of the Almora Street property. R & I Bank held a mortgage over the three units which comprised that development. As at 11 August 1992 the sum payable to R & I Bank was of the order of $4,000,000, consisting of outstanding principal of $3,500,000, and accrued interest of $500,000. The principal was due for payment on 11 August 1991. The company was in default in terms of its arrangement with R & I Bank, and on 11 August 1992, a notice under s 57(2)(b) of the Real Property Act 1900 was given to the company by R & I Bank. 9 In the last quarter of 1992, there were negotiations between the company and R & I Bank as to the terms on which R & I Bank would consider granting an extension of its facility. R & I Bank indicated a willingness to consider the grant of a six month extension of the facility provided the debt was reduced to $3,000,000. It was anticipated that the $1,000,000 reduction in the amount outstanding would come, as to $300,000 from part of the distribution from Pasta House, and as to the balance from the sale of Unit 3 Almora Street (expected to be $725,000). Unit 3 was in fact sold for $740,000 pursuant to a contract exchanged on 17 September 1992. No concluded agreement was reached for any extension of the R & I facility, or for the payment to R & I of all or part of the Pasta House proceeds, although from time to time in his evidence Mr Lunoe asserted that he had broken his promise to R & I Bank (eg T 273) in that regard. 10 The company maintained its accounts at the Westpac branch located at 39 Martin Place, Sydney. An internal memorandum from the Branch (5211) dated 27 October 1992 to the Manager Commercial Lending includes the following: "We fully acknowledge that this connection is now in need of urgent decisive action and intensive care to ensure protection of the Bank's asset. To fully achieve this, the Bank needs to allocate more time to manage the group. In view of fact branch is closing 29/1/93 and amalgamating with 60 Martin Place it may be appropriate to place account before the specialised Loans Management Unit, following our full report of 30/11/92." The memorandum also recommended that a request for an increase in the company's overdraft limit by $150,000, and proposed increases in certain other facilities, be declined. 11 The memorandum recorded a belief on the part of the Martin Place branch that at least part of the Pasta House proceeds would be directed to Westpac. However: "We now find that Soren's interest – approx $600 is to be disbursed as follows: - $300 Debt reduction in Balmoral Development funding with R & I Bank. - Remainder is to be used in business as working capital namely, pay supply creditors to attain purchase discount." The recommendation that the account be transferred to the Loans Management Unit ("LMU") was approved, and the memorandum was endorsed with a notation that the disbursement of the Pasta House proceeds needed to be settled quickly, and a check made as to whether those funds were bypassing Westpac in favour of R & I Bank. It was implicit in the endorsement that Westpac's security position in relation to the Pasta House proceeds should be checked. 12 On 2 November 1992 Westpac advised the company that its accounts had been transferred to the control of Mr Peter Surtees, Manager LMU. The reason given for this transfer was the poor trading position of the company. The function of the LMU was to supervise and manage loans or facilities which Westpac perceived to be troublesome or difficult. It was not simply a recovery section, as there were occasions on which the customer was "managed through their troubled times", and then returned to the normal banking system. 13 On 3 November 1992 a meeting took place between Mr Lunoe and Mr Surtees at which the disposition of the Pasta House proceeds was discussed. Mr Lunoe indicated that he had promised some of the funds to R & I Bank, and that he needed the rest for working capital. Mr Surtees responded that the proceeds should come to Westpac rather than to the R & I Bank, and that he would like to see the proceeds come to Westpac in permanent debt reduction (T p 167). He said that if an acceptable commercial proposal was put up, Westpac would consider giving an advance equal to 50 percent of the proceeds (T p 168). Mr Lunoe knew at this time that as Westpac had not issued a demand under the charge, it had no power to direct where the proceeds of the Pasta House shares should go. Mr Surtees appears to have been independently conscious of the same problem, because his diary note of 4 November 1992 (9009) records that: "We may need to fix our floating charge in respect of the shares." 14 On 4 November 1992 Westpac wrote to the company (9012) by way of confirmation of the matters discussed on 3 November. The letter contained the following in relation to Pasta House: "1. Pasta House The shares in Pasta House are an asset of the company. The company has charged all of its assets to the Bank as security. The funds from the sale of the shares must come to the Bank and in normal circumstances would be used for debt reduction. However, we acknowledge your concerns for the working capital needs of the company and will bear this in mind as we consider the Bank's position." The letter also stated that Westpac required the overdraft to be operated below the limit. The Bank had been flexible in the past, and for the present at least, that flexibility would continue within reason. The limit was $200,000, and should the Bank's attitude change, the company might be required to operate below the limit at a moment's notice. 15 On 6 November 1992, at Mr Lunoe's request, there was a discussion between Mr Surtees and Mr Roach of the R & I Bank (9016). During the course of that discussion Mr Surtees indicated his concern that as Westpac had a first debenture, he believed that the Pasta House proceeds should accrue to Westpac, and that if $300,000 was paid to R & I Bank it may jeopardise the company's future by leaving it short of working capital. 16 On 23 November 1992 the applicant, on behalf of the company, wrote to Westpac (5268): "Please make an hour available for me to discuss distribution of the Pasta Hse Settlement as W.A. [R & I Bank] would like your determination. Whilst it would be desirable to effect a reduction in debt on the property loan [a reference to the R & I Bank's loan on Almora Street], it would probably be more productive to have an increase in working capital available to the Growing Concern, with better buying power as a consequence! The delays in repayment from Pasta Hse has caused some deterioration to our standing with our suppliers, it would be good to do a few repairs in that regard!" 17 There is a file note made by Mr Roach on 26 November 1992 (9045) of a conversation which he had with Mr Lunoe that morning. The points discussed are recorded. The diary note includes the following: "Westpac have still not given him [Mr Lunoe] a definitive decision on what they are going to do. He is meeting with Peter Surtees tomorrow and is hopeful that the matter will be resolved. Westpac wish him to pay all the funds into the account and they will then decide what to do with them. Soren is not prepared to do this until he has a written agreement from Westpac that they will allow the $300,000 to be withdrawn and placed in credit of our account." The note also includes the following: "Westpac appear to be in some sort of bind as to what they do with the account. They appear reluctant to Issue Demand but are trying to cajole Sorens into giving them a voluntary reduction from the Pasta House proceeds. Sorens appears to be well briefed on the legal stance (ie that Westpac need to issue demand before they can act under the securities covered by their debenture) but is also mindful that negotiation is the best to bring it to some harmonious conclusion. He is also very adamant that he made the commitment to reduce our debt by $300,000 and is keen to stand by that commitment." 18 On 27 November 1992 a meeting took place between Messrs Lunoe and Surtees. It is that meeting which is at the forefront of the applicant's case in these proceedings. According to Mr Lunoe: Ÿ Mr Surtees requested the meeting. Ÿ Mr Surtees required Mr Lunoe to sign irrevocable orders addressed to the liquidator of Pasta House directing payment of the Pasta House proceeds to Westpac. Ÿ Mr Lunoe refused to sign the authorities because he had promised to pay $250,000 of the proceeds to the R & I Bank. Ÿ Mr Surtees said that if Mr Lunoe signed the authorities, the amount which would have gone to R & I Bank would go in reduction of Westpac's borrowings, and Westpac would allow at least half of the funds for working capital. Ÿ Mr Surtees threatened the appointment of Price Waterhouse as receivers the next day unless Mr Lunoe promised to sign the authorities. Ÿ Mr Surtees asserted that the Bank "has the power and the might – you have no choice but to sign – how do you think you are going to fight the Bank? – from a tent on Balmoral Beach?" Ÿ Mr Lunoe capitulated in the face of these threats and promised to sign the authorities as soon as his wife returned to the office. Mr Lunoe's evidence is that he felt threatened and overpowered. 19 Mr Surtees: Ÿ Accepts that he took the authorities to the meeting and asked Mr Lunoe to sign them. Ÿ Says that he told Mr Lunoe that if he would not sign the authorities he would need to engage the Bank's solicitor to persuade the Pasta House liquidator as to the Bank's right to receive the funds – this would increase costs and cause delays. Ÿ Denies that he threatened the appointment of a receiver or otherwise threatened Mr Lunoe. Ÿ Denies that he said that the Bank would allow the company to retain at least half of the proceeds as working capital. Ÿ Asserts that he told Mr Lunoe that if Mr Lunoe put an acceptable proposal to the Bank, the Bank would be prepared to consider allowing the company to retain up to half of the funds received from the sale of the Pasta House shares. 20 As subsequent events may throw some light upon the competing versions of what occurred at this meeting, it is convenient to defer resolution of this factual conflict until completion of the narrative. However, some concessions made by Mr Lunoe in the course of cross-examination as to the position at this time should be recorded. They include: Ÿ He was aware of the need for issue of a demand before Westpac's debenture crystallised (T p 132). Ÿ He believed that, absent a demand, Westpac had no power to direct where the Pasta House proceeds should go (T p 207). Ÿ He preferred to negotiate with Westpac rather than to take the legal point as to whether Westpac was entitled to the Pasta House proceeds (T p 133, 169). Ÿ Mr Surtees told him that if he could put up an acceptable proposal to the Bank, Westpac would be prepared to consider allowing the company to retain up to half of the funds received from the sale of the Pasta House shares (T p 180). Ÿ He knew that he was taking a risk that Westpac might not find the company's proposal to be acceptable (T p 170). 21 On 27 November 1992 Westpac wrote to the company referring to the discussions earlier that day and confirming that Westpac requires at least half of the funds to be received from the liquidation of Pasta House to be applied in permanent reduction of the company's debts. The letter stated (9047): "The Bank is prepared to consider allowing the company to retain, for the purpose of paying trade creditors, up to half of the aforesaid proceeds subject to you putting an acceptable proposal before the Bank. … As discussed, if your proposal is not acceptable it is conceivable that the Bank may not allow any of the funds to be retained by you." Mr Lunoe accepted (T p 183 and T p 184) that these statements were made by Mr Surtees at the meeting. It was "quite clear" to Mr Lunoe (T p 184) that if the proposal was not acceptable to Westpac, the company might not be allowed any of the funds. 22 On 1 December 1992 a meeting took place between Mr Lunoe, Mr Surtees and Mr Roach. At that meeting there was a discussion of the competing positions of R & I Bank and Westpac in relation to the Pasta House shares. Westpac maintained its position that the proceeds from the sale of the shares must come to it. However, during the course of this meeting it was indicated that Westpac might be prepared to reduce its priority over the R & I Bank by the amount that it received from the Pasta House distribution. Apparently, Mr Roach was happy with an arrangement to that effect. 23 On 2 December 1992 the company wrote to Westpac (9069). In that letter Mr Lunoe stated that he was pleasantly surprised at the reaction by Mr Roach at the meeting on 1 December. Mr Roach's attitude may well result in a neater loan structure, and a longer term for the loans to run. The letter contained the following statement in relation to the Pasta House proceeds: "Will Westpac be able to temporarily increase our O/D facility by $250,000 in the event that we instruct John McCormack [liquidator of Pasta House] as per the Irrevocable Order handed to me for signature on Monday morning? I have at this stage signed and sealed them, and left them with Sonya [his wife] awaiting your reply. The review of the overall debt levels to Westpac can then proceed as you have planned prior to the payout date." Mr Lunoe agreed (T p 187) that this request for a temporary increase in the overdraft facility was part of his strategy of attempting to negotiate a deal with Westpac about the Pasta House proceeds. At T p 187 the following appears in Mr Lunoe's cross-examination: "You made a deliberate choice, I suggest to you, that you preferred to adopt this approach on seeing whether you could persuade Mr Surtees to co-operate and give you more money rather than going to Court or having Mr Begg [Mr Lunoe's solicitor] write a legal letter, complaining about the proceeds going to Westpac, correct? --- Yes." 24 On 3 December 1992 Westpac responded to the company's letter of 2 December (9072). The response included the following: "When we met last Friday morning [ie on 27 November 1992], we discussed the rationale behind the Irrevocable Authority to be forwarded to John McCormack. My letter of 27 November sets out the Bank's views and intentions with regard to the funds to come from Pasta House. I do not wish to negotiate with respect to the irrevocable order. If you won't co-operate with respect to the order, I will have to instruct the Bank's solicitors to advise McCormack formally of the Bank's rights. McCormack will then seek his own legal opinion. All of this will be costly both in terms of fees paid and time spent. The Irrevocable Order cuts through all legalities and provides McCormack with the comfort he seeks. … It is in the best interests of your company to dispatch the Irrevocable Order to John McCormack without delay. When asked about the last paragraph of that letter (quoted immediately above) in cross-examination, Mr Lunoe said (T p 190): "You read that? --- Yes, I did. You agreed with that? --- Yes." 25 On 7 December 1992 Mr Lunoe wrote to Westpac (9079). The letter stated: "Please find enclosed signed forms for J McCormack, as arranged this morning. I look forward to hear of his hopefully speedy progress, and your determination regarding an increase in current facility levels between now and pay-out date. Best regards." Mr Lunoe consulted the company's solicitor, Mr Begg, around about 27 November 1992. However, Mr Lunoe says he did not consult Mr Begg in relation to the Irrevocable Authorities, because he understood their effect without the necessity of obtaining legal advice. The Authority in question bore a date 1 December 1992, but was not dispatched until 7 December 1992. I asked Mr Lunoe whether there was any particular reason for that, to which his response was: "Just stalling." He was unable in cross-examination, to say what his purpose in stalling was (T p 355). 26 On 8 December 1992 Westpac wrote to the company confirming its desire to have an investigative accountant look over the company's operations (9080). The letter included the following statement: "The Bank needs the report of an independent, unbiased, unemotional expert to assist it to determine an appropriate response to your recent request. Until that report is received your request cannot be further progressed." It is apparent that the "recent request" referred to is that for an increase in the overdraft facility by $250,000 made in the letter of 2 December 1992 which Westpac "declined for the present", in its response of 3 December 1992. At this time Mr Lunoe hoped and expected that the R & I Bank would refinance Westpac's debt, but in its letter of 8 December 1992 Westpac cautioned against simply waiting until R & I Bank made a decision. 27 In an internal memorandum of 9 December 1992 (9086) Mr Surtees noted Mr Lunoe's objection to the appointment of Duesbury's to undertake an investigation into the company on the grounds that he did not have the time to co-operate adequately with such an investigation, and there was a real possibility that R & I Bank would pay Westpac out in any event. The memorandum recorded that Mr Lunoe was aware that Westpac would not assist further, even on a temporary basis, until the investigation is complete, and then only if it indicates some hope for the future. The memorandum recommends that no further assistance be given for the present, and that the Bank should retain the Pasta House proceeds unless an investigative accountant recommends otherwise. 28 On 10 December 1992 Mr Lunoe had a conversation with Mr Roach. The substance of that conversation is recorded in a diary note made by Mr Roach on 10 December 1992, the accuracy of which is accepted by Mr Lunoe. That note includes the following (9089): "1. He has succumbed to pressure from Westpac and signed the Irrevocable Order for the Liquidator of Pasta House to direct all proceeds to Westpac. At this stage he has no undertaking from Westpac if they were to readvance any of the funds to him. He now expects the funds will flow prior to Christmas. 2. … 3. He will also forward me a copy of the letter he received from Westpac which caused him to sign the Irrevocable Order. I will contact Surtees tomorrow to ascertain where Westpac is at and what their stance with releasing the funds back to [the company] will be." 29 During the course of his evidence Mr Lunoe advanced a number of inconsistent propositions as to the arrangement which he claimed to have made with Mr Surtees in relation to the proceeds of the Pasta House shares. His evidence ranged over the following propositions: - There was to be no permanent reduction in Westpac's debt. $517,000 was to be credited to the company's overdraft account, such that the company could thereafter continue to draw cheques on that account up to the overdraft limit (T p 238, 242). - Mr Surtees' position was that he wanted the Pasta House proceeds to come to Westpac in permanent debt reduction (T p 167) but Mr Surtees had promised that half of the proceeds would come to the company (T p134). - Mr Surtees implied that the company would be able to access half of the Pasta House proceeds (T p 177). - Mr Surtees said "I will allow you up to one half of the Pasta House proceeds for working capital, if you sign these papers" (T p 178). - Mr Surtees made it clear that no part of the funds would be made available unless the company put up a proposal for the provision of those funds which was acceptable to Westpac (T p 180). 30 A consideration of the contemporaneous documents makes it plain, in my opinion, that prior to the execution of the Irrevocable Authorities, Mr Lunoe was told by Mr Surtees, and Mr Lunoe appreciated, that: - Westpac required at least one half of the proceeds of the Pasta House shares to be applied in permanent reduction of Westpac's debt. - Westpac would be prepared to consider advancing up to one half of the proceeds to the company for use as working capital, subject to the company putting an acceptable proposal before the Bank which would involve establishing its future viability. - Absent an acceptable proposal, the whole of the funds would be retained by Westpac in reduction of the company's indebtedness to the Bank. 31 That conclusion is consistent with Mr Lunoe's evidence at T p 170: "… I understood that the position of the company was very difficult. I needed working capital and I found it – I thought once the money comes, we will sort it out and everything will be fine. But of course the risk you were taking was that – and you knew that was the risk you were taking – was that the Bank didn't find the proposal when it ultimately came acceptable. That is true, is it not? --- Yes, it is true." 32 On 10 December 1992 Mr Lunoe wrote to Westpac (9090) enclosing profit and loss and balance sheets to the end of November 1992. The letter included the following: "I hope that you received the notices to J McCormack couriered to you as requested. I understand the very strong desire the Bank has for debt reduction. … I wish you, your family, and your staff a happy Christmas and a prosperous 1993. Best regards. Soren Lunoe" 33 On 11 December 1992 a conversation took place between Mr Roach and Mr Surtees, as recorded in a file note of Mr Roach (9093). It includes the following: "1 … 2 They [Westpac] are going to insist on a minimum reduction of $300,000 in their facilities and will consider releasing a further $300,000 back to Sorens providing he agrees to an investigating accountant doing a full report on his operation and Westpac being convinced that it has a future. 3 I enquired if Westpac would reduce their priority from us by $300,000 if they reduced their facilities. He advised he hadn't considered this but didn't see any problem with this approach. 4 I advised Surtees that we had the share script for Pasta House and would probably not release this to him unless they formally reduced their priority from us by at least $300,000. 34 On 14 December 1992 Moores, chartered accountants, informed Westpac that they had been approached by Mr Lunoe to act as investigative accountants. 35 On 16 December 1992 the R & I Bank wrote to Mr Lunoe (9099), with a copy to Westpac, referring to advice from Mr Lunoe that he had given an Irrevocable Order to the liquidator of Pasta House to pay any proceeds due to the company from its shareholding to Westpac. The letter continued: "You previously lodged the Pasta House share scrip with us and advised us our debt would be reduced by $300,000 from the Pasta House distribution. We have considered the matter and advise that we won't release the Pasta House share scrip to Westpac unless they reduce the amount of priority we have given them over your house and Turon Gates by the amount of the Pasta House distribution." 36 On 16 December 1992 Westpac wrote to Mr Lunoe repeating advice received from the liquidator of Pasta House that, due to a name change of Pasta House, the liquidator required that the Irrevocable Orders recently executed by the company be amended so as to reflect that change. Fresh Irrevocable Orders were enclosed with a request that they be executed and returned as soon as possible. 37 On 17 December 1992 a telephone conversation took place between Mr Roach and Mr Lunoe in relation to Mr Roach's letter to Mr Lunoe of 16 December 1992. Mr Roach's file note (9102) of that conversation reads: "He doesn't have a problem with the approach. He is aware that if it goes thru he will have to negotiate with us for working capital." The note records an acceptance by Mr Lunoe that Westpac should reduce the amount of their priority over R & I Bank to the extent of the Pasta House distribution, and that if further working capital was required from Westpac, Westpac would be unlikely to agree to its provision unless R & I Bank agreed to defer its priority to the extent of any additional working capital. 38 On about 18 December 1992 the company applied to Westpac for the establishment of a documentary letter of credit in the sum of $38,000. By letter dated 22 December 1992 Westpac informed the company: "The company is currently trading at a substantial loss. The financials we are given are apparently inaccurate. The Bank has requested you agree to the appointment of an investigative accountant and you have declined. Against this background your current request is unwelcome and unfortunately must be declined." 39 On 5 January 1993 the company returned the signed Irrevocable Orders, the execution of which Westpac had requested on 16 December 1992. 40 On 19 January 1993 Mr Roach prepared a file note (9117) of a conversation which he had with Mr Lunoe that afternoon. That file note includes the following: "2 Pasta House. He has signed a final release and anticipates $517,000 being distributed to Westpac this week. There will be a further $40,000 to be distributed to him some time in the future." The file note also records a conversation between Messrs Roach and Surtees: "2 I have spoken with Peter Surtees who has confirmed to me that at this stage the $517,000 plus any other funds received will be placed in reduction of Sorens' total facilities. They will only consider releasing half of the proceeds received back to Sorens and then only do this if they are convinced he has a viable organisation and has made satisfactory arrangements with all his creditors. This gives us quasi control over the release of any funds back to Sorens, Westpac would want to know we were happy with the arrangements made before they agreed to release them. Surtees has acknowledged that in practise this is what would happen. The main point for us at present is that the $517,000 is going to Westpac and they will retain it which advantages our position. 3 Investigating Accountant's Report. As a precondition of Westpac considering re-advancing any funds to Sorens they require an Investigating Accountant's report to be completed. He has engaged the firm called Moores to do this and their report is due daily." 41 An internal Westpac history sheet of 19 January 1993 (9118) prepared by Mr Surtees contains the following: "We previously told Lunoe that we wanted at least 50% of any distribution in permanent debt reduction and that subject to him satisfying us on viability we would consider releasing up to 50% to him for working capital. At this time we are yet to be satisfied on viability. In the circumstances we should utilise the funds to: 1 reduce TLN to $50 [000] (NB: present reduction arrangement to continue) 2 clear O/D $200 [000] but on the basis that we may reinstate if viability is established 3 reduce BAL permanently by balance." 42 By letter dated 22 January 1993 (9124) the liquidator of Pasta House forwarded $517,521 to Westpac by way of interim distribution against a total expected gross distribution of $674,574. Westpac received that sum on 27 January 1993. The company's overdraft then stood at $219,730.47. On 28 January 1993 Westpac wrote to the company advising of the receipt and: "Funds have been utilised to cancel your overdraft limit ($200,000) reduce your term loan ($227,521) and the balance ($90,000) is held and will be utilised to reduce your Commercial Bill line at next rollover. In the meantime our letter of 27 November 1992 remains pertinent." Mr Lunoe said in evidence that as soon as he received Westpac's letter of 28 January he telephoned Mr Surtees and said: "Mr Surtees, what is going on? You've cancelled the overdraft and reduced an eight and a half year term loan, what am I to expect here? I was in total shock." (T p237) His basic position was that he was too shocked to complain. There is no contemporaneous written complaint, or record by Westpac of a complaint having been made in relation to the cancellation of the overdraft, or the repayment of the term loan. 43 In the meantime, R & I Bank wrote to Westpac on 26 January 1993 reserving its right to claim the proceeds of the Pasta House shares notwithstanding the later authority which the company issued in Westpac's favour. The letter continued: "However, we are prepared to let our claim rest, providing the total funds received from the liquidation of Pasta House Manufacturing Co Pty Ltd are placed in reduction of your debts to Sorens Pty Limited and not released back to Sorens Pty Ltd (in full or part) without our prior written consent." 44 Westpac's internal history sheet of 29 January 1993 (5342) records that Mr Lunoe and his wife are either not communicating with Westpac or are deliberately trying to get access to at least some of the funds from Pasta House – contrary to what Mr Surtees had earlier told Mr Lunoe in Westpac's letter of 27 November 1992. Apparently Mrs Lunoe advised Westpac on 28 January that she had issued $60,000-$70,000 worth of cheques which she could not cover and which she wanted paid. Mr Surtees is recorded as having told her that he would consider the position but it was unlikely that he would cover the company to that extent. 45 On 2 February 1993 Moores submitted their report to Westpac. It was also sent to R & I Bank. The report (Exhibit B) asserts that the company is currently poised on a knife edge between success and failure. It records that prior to the receipt of the Pasta House shares settlement, the company had a $200,000 overdraft limit. It recommends that this limit be increased such that the overdraft would peak in June and October 1993 at $1.2 million and reduce to $800,000 by December 1993. Trade and other creditors amount to $1,031,000, of which $732,000 relates to stock purchases and $299,600 for other creditors including rentals and overheads. The situation with those creditors is described as critical in that $295,386 related to stock purchases prior to November 1992 and a further $250,940 of November deliveries had yet to be paid. 46 On 3 February 1993 Mr Roach has a file note of a conversation with Mr Surtees (9139) with respect to R & I Bank's letter of 26 January 1993. During the course of that conversation Mr Surtees said that Westpac was considering the finance application from the company but doubted if they would be receptive to it. The finance application referred to is the report from Mr Mulkearns of Moores indicating the nature of the overdraft accommodation which the company required. The file note continues: "3 In the interim he was keen to formalise arrangements with me and volunteered that the best way to do this would be for them to reduce their priority." This is a curious notation, because the matter of the competing priorities of Westpac and R & I Bank had already been addressed and resolved. 47 On 9 February 1993 Westpac wrote to the company (5347). The letter contained the following: "As you are aware, I am far from happy with the conduct of the company's account over the past 10 days. For obvious reasons I am reluctant to return your cheques but if you continue with your 'help yourself' attitude you will leave me no choice but to do just that." 48 On 10 February 1993 R & I Bank forwarded to Westpac a document by which Westpac's priority was reduced from $1,435,000 to $918,000. Also on 10 February 1993 Westpac wrote to R & I Bank in response to its letter of 26 January 1993 confirming that the Pasta House proceeds have been placed in reduction of the company's debt. R & I Bank was also advised that without in any way acknowledging the validity of its claim to those funds, Westpac would not materially increase its exposure to the Sorens group without first notifying R & I Bank. 49 Exhibit J is an undated file note prepared by Mr Roach of the conversation which he had with Mr Sorens, some time after 2 February 1993 and probably prior to 10 February 1993. The file note records that the proposals as detailed in the submission from Moores of 2 February 1993 had no attraction to R & I Bank and the Bank was waiting on Westpac's formal response to its request not to release any further funds to the company. The file note has a handwritten endorsement, apparently made by Mr Roach, as follows: "Surtees phoned (after follow up from me). The response to my letter of 26 January 1993 is in train. He would like us to request them to reduce the priority to $918,000. He wants us to make the request rather than them offer to do it as he believes if they do then they may compromise their position with Soren." 50 On 12 February 1993 Angus Begg, solicitor, wrote to Mr Surtees (5351). Mr Begg was the solicitor for the company. His letter asserted that the mortgage debenture was security for the overdraft, and as the overdraft account has now been paid in full, the security should be released. He indicated that it was his instructions that the company was making arrangements to pay to Westpac the balance of the amount due to it, which would enable discharge of the securities held by Westpac over 27 Almora Street, and the Turon Gates property. Although Mr Lunoe saw this letter before it was sent, and although Mr Begg obviously knew of the manner in which the Pasta House proceeds had been dispersed, the letter does not contain any complaint of any impropriety on the part of Westpac in applying the funds in the way in which it did. Mr Lunoe's explanation is that whilst he certainly did have a complaint about that matter: "I was in no position to fight or argue with the Bank. They held all the securities I had and cash is king." (T p 234.) 51 On 12 February 1993 Westpac responded to Mr Begg's letter. The letter advised that the mortgage debenture was security for all of the company's liabilities, not just its overdraft. Nonetheless, Westpac indicated a willingness to discharge its mortgage debenture subject to the consent of the guarantors. 52 An internal memo prepared by Mr Surtees on 15 February 1993 records the following (9159): "received the long awaited 'report' from Moores Chartered Accountants. This falls well short of what we would expect from an 'investigative accountant' and in effect tells us nothing more than we already knew and seeks further assistance of $1.3 million." 53 The memorandum then proceeds to discuss the report. It points out that the additional funds are required to clear outstanding creditors and to open new stores. The rationale behind the opening of further stores is summarised. The conclusion in relation to the report is: "The proposal is not a banking proposition and we have conveyed this to principals. They accept (unhappily) the Bank's decision." Mr Surtees recommended that Westpac confirm his decision not to provide further facilities of $1.3 million. 54 It was Mr Lunoe's position that Westpac rejected this report without reading it beyond the first page (T p 228). That was denied by Mr Surtees (T p 363) who said that he read the report from start to finish, he discussed it with his colleagues and came to the view, as did they, that it was not a proposal that the Bank wished to entertain. The proposal was submitted to R & I Bank which was not interested in pursuing it. It was later submitted to the National Australia Bank which declined to take it up. I accept Mr Surtees' evidence that he genuinely considered the report but recommended against acceptance of it because he did not consider that it was in Westpac's interests to proceed in the manner recommended by the report. 55 On 19 February 1993 the company wrote to Mr Surtees. The point of the letter is not altogether clear but it ends in this way: "I wish you every success in your endeavours, to make your organisation a profitable one, it is a shame indeed that we as people could not work out solutions that suited both organisations after so many years of working together." By the time this letter was sent, Mr Lunoe knew that Westpac was not going to proceed with the Mulkearns' proposal. Mr Surtees apparently understood the company's letter of 19 February 1993 as alluding to that matter because, in his response of 25 February 1993 (9167) he said: "You can rest assured Soren that your proposal was given every consideration but we could not be convinced on all of the above issues and we were therefore unable to assist. As I said to you on the phone, I hope you are successful in your endeavours and that you are able to overcome your present difficulties." 56 On 17 March 1993 the company wrote to Mr Begg enclosing Westpac's letters of 27 November 1992, 3 December 1992 and 28 January 1993. Mr Lunoe states his understanding that a cheque was sent to Westpac on about 20 January 1993 from Melbourne, which raised a question as to the date on which the cheque was cashed. It was a bank cheque and Mr Lunoe's complaint was that it had not been credited to the company's account on the day it was presented. Mr Lunoe requested that documentary evidence be sought as to the date of clearance of the cheque, and request for interest where due. No other complaint is made by Mr Lunoe in this letter to Mr Begg. A Westpac history sheet of 17 March 1993 (9180) records a telephone complaint from Mr Lunoe about the Bank's utilisation of funds received from the liquidator of Pasta House. Two complaints were expressed: First, failure on the part of the Bank to provide any interest relief during the period 27 January 1993 to 19 February 1993 when $90,000 was held by Westpac pending reduction of the bill facility from $900,000 to $810,000. Second, a complaint about the Bank not repaying the term loan in full. Westpac wrote to Mr Lunoe on 18 March 1993 (9182) refunding some interest, but asserting that the Bank's actions in dealing with the Pasta House proceeds are not negotiable. The funds will remain where they have been directed and no repayments off the term loan will be refunded. 57 On 31 March 1993 Mr McCormack forwarded a further $34,101, the second interim distribution of the Pasta House proceeds, to Westpac. 58 On 30 April 1993 the company entered into an agreement with SableRose Pty Limited ("SableRose"), a company under the control of Mr Mulkearns, under which SableRose agreed to lend to the company $100,000. Between 26 March 1993 and 30 March 1994 SableRose advanced a total sum of $650,000 to the company on which interest of $55,724 accrued, but was not paid. 59 The company continued its banking relationship with Westpac until the appointment of an administrator in 1995. Although no formal overdraft arrangements were in place during that period, from time to time the company's account was overdrawn. On 28 May 1993, for example, Westpac wrote to the company in relation to dishonoured cheques, again stating that the Bank required the account to be conducted in credit. An internal memo of Westpac on 28 May 1993 referred to the growing band of creditors who were becoming nervous (9209) and: "It seems only a matter of time before this business fails." 60 On 12 November 1993 R & I Bank demanded payment of the sum of $2,521,220. On 12 November 1993 National Australia Bank, as earlier indicated, formally advised the company that it had been unable to obtain approval for the provision of financing to the company. The $2.5 million due to R & I Bank was after crediting the proceeds of sale of Units 1 and 3 at 8-10 Almora Street, and 118 Cathedral Street, Woolloomooloo, totalling $1,895,000. An additional $950,000 was expected from the sale of Unit 2, which would leave the debt remaining to R & I Bank at about $1.5 million. In a letter to R & I Bank of 17 November 1993 Mr Lunoe proposed that R & I Bank accept a write-off of about $650,000 of its debt if liquidation was to be avoided. Mr Lunoe expressed disappointment that he had been unable to propose or achieve a better solution for all concerned. 61 In early 1994 the company retained the services of Carruthers Miller & Associates, retail management consultants. They expressed the view that the retailing operations of the group after absorbing head office expenses are not viable. They recommended the closure of non-viable stores. They expressed the view around about 21 March 1994 (Exhibit E) that the conduct of the business for some time has been financially irresponsible. Mr Lunoe did not agree with much of what Carruthers Miller & Associates had to say, and eventually dismissed them. 62 On 24 January 1994 R & I Bank wrote to the company indicating a proposed restructure of facilities currently provided to the company including the provision of an additional $300,000 working capital facility. That facility in fact became available to the company in April 1994. 63 In a memorandum dated 8 March 1994 from Mr Lunoe to Mr Mulkearns (9319) the following appears: "Westpac Bank are reluctant to continually have to hear that 'We will have another emergency today and can we please overdraw again'. They have been extremely patient till now …" For example, in July 1994 the company's overdraft with Westpac reached $95,000 for which there were no formal arrangements. 64 The company sustained a net operating loss for the year ended 30 June 1994 of $250,921 (9365). Between July and September 1994 it sustained trading losses of $106,000 (9385). In October 1994 Mr Lunoe sought the advice of Arthur Anderson in relation to the financial position of the company, ultimately a member of that firm was appointed administrator of the company by R & I Bank on 10 March 1995. 65 After the appointment of the administrator Westpac began to take steps in relation to Mr Lunoe's personal properties at 27 Almora Street, Balmoral, and Turon Gates, in order to satisfy the amount outstanding to Westpac. On 29 March 1995 Mr Lunoe wrote to Westpac stating that he wished to formally advise the Bank of his allegations arising out of a meeting between himself and Mr Surtees in about October 1992. The allegations included contentions that: - Mr Lunoe was forced at that meeting to agree to sign instructions to the liquidator of Pasta House under Mr Surtees' threat to appoint Price Waterhouse as receivers within 24 hours. - Mr Lunoe signed the letters only under severe pressure and duress from Mr Surtees. - Mr Lunoe was not given the opportunity to seek independent legal advice before being forced to comply with the above instruction. This is the first occasion on which there is any recorded complaint having been made by Mr Lunoe in relation to the matters the subject of these proceedings. The applicant's case 66 At the hearing the applicant abandoned the cause of action which alleged a breach of contract (Amended Statement of Claim pars 24-26). The applicant also abandoned the representation alleged in par 27(b) of the Amended Statement of Claim, and did not press the allegations contained in pars 31(f)-(h). 67 In broad terms, the applicant's case is that the company was induced by improper conduct on the part of Westpac on 27 November 1992, to agree on 7 December 1992 and again on 5 January 1993 to the application of the Pasta House proceeds in reduction of the company's debt to Westpac. But for that diversion, $300,000 of the proceeds would have gone in favour of R & I Bank, and the balance would have been available to the company as working capital. Had the funds been available in that way: - the company would have been able to negotiate an extension of the R & I facility, and to retain Units 1 and 2 Almora Street, until the property market improved. The holding costs in the meantime would have been funded from rental from the properties, and from trading profits. - The company's working capital would have been improved by about $250,000. That liquidity would have enabled payment of its suppliers on time such that discounts for prompt payment could have been obtained, and the expansion envisaged by the Mulkearns' report successfully undertaken. - The company would have been able to pay its debts, and the applicant would not have been called upon under his guarantees. 68 The applicant's case on causation assumes that had the company refused to sign the Authorities directing the proceeds of sale of the Pasta House shares to Westpac, that Westpac either could not, or would not, have demanded repayment of the monies then outstanding ($1.4 million approximately), or that in some way that the Westpac debt would have been refinanced by an institution prepared to stay its hand. This assumption was not grounded in any specific evidence from Mr Surtees to that effect, although he did say that if Mr Lunoe was not prepared to sign the Authorities, then Westpac would have approached the liquidator of Pasta House with a view to persuading him of Westpac's entitlement under its charge. There was a certain tension in the way in which the applicant put its case. On the one hand it suggested that in 1992 Westpac, because of its own financial difficulties, was seeking to put pressure on customers to repay their loans. For example, at T p 405 it was suggested to Mr Surtees that he was lying when he said that it was not Westpac's objective to simply go out and recall loan after loan. On the other hand, Mr Surtees said that Westpac's difficulties would have been compounded had it embarked upon a wholesale calling in of its debts (T p 398) by calling up good quality loans (T p 405). The applicant relied upon this evidence for the opposite proposition that Westpac would not have called up the company's loan, notwithstanding its entitlement to do so on demand, because of the public opprobrium which it would suffer if it conducted itself in that way. Accepting the general policy as enunciated by Mr Surtees, it by no means follows that Westpac would not have been prepared to demand repayment of the company's facilities if the company refused to co-operate in the execution of the Irrevocable Authorities, as Mr Surtees regarded the advances which had been made to the company as exhibiting signs of problems, rather than good quality advances. However, it will be necessary to return to the issue of causation in more detail later in these reasons. Illegitimate and unconscionable pressure 69 The principal thrust of the applicant's case as argued was that the company was induced by reason of illegitimate and unconscionable pressure on the part of Westpac to execute the Irrevocable Authorities addressed to the liquidator of Pasta House. Although the Amended Statement of Claim is more broadly cast (see pars 27(a), 29 and 34) the only matters relied upon by the applicant's counsel in his submissions (T p 689) as constituting illegitimate and unconscionable pressure were the threat allegedly made on 27 November 1992 to appoint receivers of the company immediately unless Mr Lunoe promised to sign the Irrevocable Authorities, coupled with the assertion that if Mr Lunoe was to fight the Bank on the point, he would be fighting it from a tent on Balmoral Beach. 70 The making of these threats was denied by Mr Surtees. There is no trace in the records of the company, nor in the records of Westpac, nor in the records of R & I Bank which have been produced in evidence of the making of either of these threats. The first written record of their having been made is Mr Lunoe's letter to Westpac sent on 29 March 1995 after the collapse of the company and when his private property was under threat. 71 I have to say that I prefer the evidence of Mr Surtees to that of Mr Lunoe on the issue of whether these threats were made. Mr Surtees was, in my assessment, the more impressive of the two witnesses. The major attack which was made on the credibility of Mr Surtees was based upon Mr Roach's handwritten notation upon Exhibit J (see par 49 above). It was put that this notation demonstrates a willingness on the part of Mr Surtees to engage in conduct which was deceptive of Mr Lunoe. I have already indicated that I have some difficulty with this file note, as the matter of the reduction in Westpac's priority by the amount of the proposed Pasta House distribution had already been addressed by the two banks, and accepted by Mr Lunoe. In any event, I do not view the file note in the sinister light for which the applicant contends. It simply conveys that as the R & I Bank is the beneficiary of the reduction in Westpac's priority, it is the R & I Bank which should be seen as pursuing that goal. Westpac should not be seen in the eyes of customers as volunteering something which was for the benefit of R & I Bank. 72 Mr Lunoe's evidence was unsatisfactory in some respects. I instance the evidence earlier referred to in par 29 above with respect to the making available by Westpac of up to one half of the proceeds of sale of the Pasta House shares as working capital. To that may be added Mr Lunoe's desire to create the impression in his affidavit that it was Mr Surtees who demanded the meeting of 27 November 1992, whereas Mr Lunoe had requested that there be a meeting to discuss the matter of the distribution of the proceeds of the Pasta House shares in his letter of 23 November 1992 (contrast T p 173/27 with T p174/25). Mr Lunoe denies that Mr Surtees' letter of 27 November 1992 is a substantially accurate record of the meeting of that date (T p 181/3), but then concedes at T p 184 that each of the points made in that letter were discussed at the meeting. The terms of the letter of 2 December 1992, and the request for an overdraft of $250,000 as well as Mr Lunoe's contention that he was "just stalling" in not returning the first set of Irrevocable Orders until 7 December 1992 is inconsistent with his evidence that he had promised to sign the Authorities on 27 November 1992, and felt bound by that promise (T p 269/1). His evidence that he was "too shocked" to complain of the application of the Pasta House proceeds in the manner notified in Westpac's letter of 28 January 1993 was, to my mind, hollow and unconvincing. 73 Mr Lunoe may well believe that the failure of his company can be traced back to Westpac's insistence that the proceeds of sale of the Pasta House shares be paid to it, rather than to R & I Bank, and that matters may have turned out differently had at least half of the proceeds been retained by the company as working capital. This belief may well have conditioned Mr Lunoe's approach to the matter, such that he has come to believe that he would not have executed the Irrevocable Orders had he not succumbed to illegitimate pressure exerted by Westpac. But the case which he seeks to make in this respect, apart altogether from my conclusion that the evidence of Mr Surtees is more reliable than that of Mr Lunoe, is against the probabilities of the matter. I say that for these reasons: - The pressure was allegedly applied on 27 November 1992 in return for a mere promise to execute the Irrevocable Authorities, without any record being made by Mr Surtees of the fact of that promise, or any reference being made to it in Mr Surtees' letter of 27 November 1992. Whilst I think it likely that Mr Lunoe did indicate on this occasion a willingness to execute the authorities, if Mr Surtees' objective was to secure a promise of execution by the application of pressure, he is likely to have made a record of his success in extracting that promise against the contingency that Mr Lunoe might seek to resile from it. - The Authorities were not returned to Westpac until 7 December 1992, more than a week later. In the meantime, Mr Lunoe had access to legal advice, and in fact consulted the company's solicitor around 27 November 1992. - On 16 December 1992 Westpac requested re-execution of the Authorities. The company complied with that request, without demur, on 5 January 1993. - Mr Lunoe was happy that R & I Bank had agreed to drop its claim to the proceeds of the shares on the basis that Westpac would reduce its priority over the R & I Bank by the amount of the proceeds. That arrangement solved one of Mr Lunoe's problems, namely, that of keeping each of his banks happy. - Mr Lunoe's other problem was the need for working capital. Mr Surtees indicated at the meeting on 27 November 1992, and confirmed by his letter of that date, that subject to receipt of a satisfactory proposal, Westpac would consider allowing the company to retain up to half of the proceeds of the Pasta House shares, for the purpose of paying trade creditors. Mr Lunoe believed that he would be able to sort this matter out with Westpac, and if he succeeded in doing so, then the second of his problems was addressed. - The request for the overdraft facility of $250,000 on 2 December 1992 in return for forwarding of the Authorities which had already been executed is inconsistent with the proposition that their execution was procured by the application of illegitimate pressure. - The terms of the company's letter of 7 December 1992 (see par 25 above), (by which the Authorities were sent to Westpac) is not consistent with the claim which the applicant now makes. Nor is Mr Lunoe's letter of 10 December in which he expresses hope that the Authorities were duly received (see par 32 above). The same can be said of Mr Lunoe's letter of 19 February 1993 (see par 55 above). None of these letters would have been written in the terms in which they were, if Mr Lunoe then believed that he had been induced to execute the Irrevocable Orders by the application of illegitimate pressure. - Mr Roach's diary note of 10 December 1992 (see par 28 above) suggests that he was told by Mr Lunoe that it was Westpac's letter of 3 December 1992, (see par 24 above), rather than any improper conduct on the part of Westpac, which caused Mr Lunoe to make available the Irrevocable Orders to Westpac. - There is no recorded complaint prior to 1995 by Mr Lunoe of the manner in which the Pasta House proceeds were applied by Westpac on 28 January 1993, other than in minor respects unrelated to the claims made in these proceedings. - It is improbable that the company's solicitor, Mr Begg, would have written the letter of 12 February 1993 (see par 50 above) in the terms in which he did if he was aware of any complaint on Mr Lunoe's part that he executed the Irrevocable Authorities because Westpac applied illegitimate pressure. If Mr Lunoe then had such a complaint, it is improbable that he would not have raised it with Mr Begg. - The company's letter to Mr Begg of 17 March 1993 (see par 56 above), alludes to the minor complaints which Mr Lunoe had in relation to the application of the proceeds of the Pasta House shares, but not to any of the matters complained of in these proceedings. - Mr Lunoe requested a release of the mortgage debenture upon the basis that it was given to support the overdraft facility, which had been cancelled. 74 Finally, as I have already said, no complaint was made by Mr Lunoe of the improprieties of which he now complains until his letter of 29 March 1995. Mr Lunoe's counsel submitted that the absence of complaint in the particular letters to which I have referred, indicates no more than that Mr Lunoe conducted himself with dignity, and with good manners. The fact that he sought to make the best of the position in which he found himself does not contradict the case which he now seeks to set up. I can understand that in the real world, a businessman's focus is with the practical exigencies of the situation with which he is confronted. But I cannot accept that Mr Lunoe would have conducted himself in the period after 27 November 1992 in the manner which I have recounted, had he then believed that he had been induced by the application of illegitimate pressure on the part of Mr Surtees to take action which was detrimental to the interests of his company, for the purpose of promoting the interests of Westpac. 75 I do not doubt that Mr Surtees made it plain to Mr Lunoe that he thought that Westpac was entitled to the proceeds of the Pasta House shares and that he expected Mr Lunoe to execute the Authorities in question. I do not doubt that Mr Lunoe, as an astute businessman, would have been alive to the practical realities of the situation which were that he had little, if any, choice other than to go along with what Westpac wanted (provided he could also accommodate the wishes of R & I Bank) because Westpac could call up its facility and appoint a receiver if so minded, which would have put an end to the company. But cases such as Westpac Banking Corporation v Cockerill (1998) 152 ALR 267; CTN Cash & Carry Limited v Gallaher Limited (1994) 4 All E R 714 and Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Limited (NZ) (1992) 29 NSWLR 260, 296-297 demonstrate that commercial pressures of that type do not have the consequence that transactions entered into as a result are voidable. 76 The claim, insofar as it is based upon illegitimate and unconscionable pressure or duress therefore fails. Unconscionable retention of benefits 77 In the applicant's written outline of submissions it was put that this claim essentially rests on the same grounds as the claim based on illegitimate and unconscionable pressure. The cancellation of the overdraft, and the application of the proceeds of the Pasta House shares in reduction of the term loan and the bill facility was said to be unconscionable because this resulted from the application of illegitimate and unconscionable pressure. 78 This claim fails for the same reasons as the claim based on illegitimate and unconscionable pressure. Misleading and deceptive conduct 79 The applicant's case is that the company was induced to execute the Irrevocable Orders addressed to the liquidator of Pasta House by misleading and deceptive conduct on the part of Westpac. The misleading and deceptive conduct relied upon is false representations that: (a) Westpac was entitled to the proceeds of the dividend paid to the company arising out of the liquidation of Pasta House and the payment of dividends to the company. (b) Provided the company and the Lunoe family caused the respondent to receive the whole of the dividend and return of capital from the liquidation of Pasta House, Westpac would favourably consider any application by the company to advance to the company up to half of the proceeds from the dividend and return of capital for the purpose of allowing the company to continue to trade. (c) If the company was not agreeable to the respondent receiving the proceeds of the dividend from the liquidation of Pasta House, then the respondent was entitled to immediately appoint a receiver to each of the company's businesses. (d) The company and its shareholders had no alternative other than to pay the proceeds of the dividend and return of capital to Westpac. (Amended Statement of Claim, par 29) 80 The applicant submitted that Westpac was not entitled to the proceeds of the dividend with respect to the Pasta House shares because it had not made demand so as to crystallise its charge. But Mr Lunoe knew that Westpac had not made demand. He was aware of his legal rights, but he preferred to negotiate with Westpac rather than to insist upon his legal rights. He believed that Westpac had no power to direct the destination of the Pasta House proceeds, but nonetheless signed the Authorities in question. 81 Mr Lunoe did not regard Westpac as under any obligation to give him legal advice (T p 276/1) and he had ample opportunity to obtain his own legal advice if he wanted to (T p 275/25). Mr Surtees, in my view, genuinely believed that Westpac was entitled to the proceeds of the shares, although crystallisation of the charge might be required before Westpac could enforce that entitlement. He asserted that claim to Mr Lunoe. I do not think that Mr Lunoe relied upon any representations made by Westpac as to its entitlement to the proceeds of the Pasta House shares in coming to his decision to execute the Irrevocable Authorities. Rather, I think he made his own assessment as to whether the company's interests would best be served by executing the authorities, or by adopting some other course. 82 The applicant submitted that the company was induced to execute the Irrevocable Authorities by representation on the part of Westpac that it would give serious consideration to the company's working capital needs. I have already found that Mr Surtees told Mr Lunoe on 27 November 1992 that Westpac would consider making available up to one half of the Pasta House proceeds to the company to assist its working capital requirements, subject to receiving a satisfactory proposal from the company which demonstrated its future viability. The prospect of obtaining this benefit from Westpac is a factor which would have induced Mr Lunoe to sign the Authorities in question. It was submitted on behalf of the applicant that the statements made by Mr Surtees in this regard, repeated in his letter of 27 November 1992, were a mere pretence, and Westpac never seriously meant to honour the statements which it made in that regard. It was said that support for this conclusion can be derived from the failure on the part of Westpac to "respond meaningfully" to the recommendations made by Mr Mulkearns in the Moores' report. 83 In my view, no inference adverse to Westpac can be drawn from its response, or the manner of its response, to the Moores' report. Neither the R & I Bank nor the National Australia Bank were prepared to grant financial accommodation to the company on the basis of that report. Mr Surtees' evidence was that he and his colleagues gave genuine consideration to the report, but neither he nor his colleagues thought that it was in the interests of Westpac to make financial accommodation available to the company on the faith of that report. As earlier indicated, I accept the evidence of Mr Surtees on that point. 84 There is simply no foundation in the evidence for a conclusion that the oral and written statements made by Mr Surtees as to the basis on which, and the circumstances in which, Westpac would consider advancing to the company up to one half of the proceeds of the Pasta House distribution, were no more than a hollow pretence. Westpac's internal records confirm its preparedness to act in the manner indicated by Mr Surtees. The communications between Westpac and R & I Bank are to the like effect. So too are the communications between Westpac and the company. 85 Accordingly, the claim based upon the misleading and deceptive conduct fails. Breach of fiduciary duty 86 The only submissions put by the applicant on this issue are those contained in its written outline of submissions. There was no elaboration of the matters there put in argument. The relationship of banker and customer is not one of the accepted fiduciary relationships: Golby v Commonwealth Bank of Australia (1996) 72 FCR 134 at 136. That is not to say that there may not be circumstances in which the bank should be seen as undertaking to act in the interests of its customer, rather than in its own interests, so as to create a fiduciary relationship: see News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 538-541. 87 The applicant's submissions do not identify any matter which would give rise to a fiduciary relationship between Westpac and the company in the circumstances of the present case. The relationship, although of long standing, was essentially that of debtor and creditor with each of the participants acting in pursuit of its own interests. 88 The claim based upon breach of fiduciary duty therefore fails. Conclusion 89 Prior to the execution of the Irrevocable Orders, Mr Lunoe knew of the competing claims of R & I Bank and Westpac to the proceeds of the Pasta House distribution, and he knew that Westpac was not entitled to direct the destination of those proceeds unless it crystallised its security by the making of a demand. Mr Lunoe decided to negotiate rather than to rely upon what he conceived to be his legal rights. He had access to legal advice, but as he knew the position he did not need to have recourse to it. He knew that Mr Surtees wanted a permanent reduction in Westpac's debt to the extent of at least half of the proceeds of the Pasta House distribution, and that the availability to the company of up to one half of the proceeds as working capital was subject to a condition which had not been satisfied by the company at the point of execution of the Irrevocable Authorities. Nor had it been satisfied by the time the proceeds were received. Westpac and R & I Bank resolved their competing claims by reducing Westpac's priority over R & I Bank to the extent of the Pasta House distribution. Mr Lunoe, on 17 December 1992, told Mr Roach he did not have a problem with that approach. There was thus a voluntary acceptance on the part of Mr Lunoe and R & I Bank that Westpac should take the proceeds of the Pasta House distribution notwithstanding that all knew that Westpac had not made a demand under its equitable mortgage. The competition between the two banks as to the priority of their respective securities was thus avoided. The company was not induced to change its position on the basis of any wrongful conduct on the part of Westpac. Rather it made an assessment as to where its best interests lay and conducted itself accordingly. Westpac intended to honour its commitment in relation to the making available of up to one half of the proceeds of the Pasta House distribution as working capital, but the condition to which that commitment was subject was never satisfied. None of the causes of action relied upon is made out, and the application should be dismissed. Causation 90 In the light of the conclusion which I have reached, it is not necessary to consider this question. However, I should indicate my conclusion on this aspect of the matter, although I can do so somewhat more briefly than might have been the case if I had come to a different conclusion on the issue of liability. 91 The applicant has not satisfied me that the company's failure in 1995 was the result of its being deprived of working capital of the order of $250,000 on 28 January 1993. The company ultimately failed because its investment in the Almora Street development was disastrous, and because its trading operations were unprofitable. An injection of funds from Mr Mulkearns (or SableRose) of $650,000 in 1993 and the facility by the R & I Bank of $300,000 in 1994 were not sufficient to arrest the financial decline of the company. The proposition that had $250,000 (or $300,000) of working capital been available early in 1993, the financial collapse of the company almost two years later would have been avoided has no foundation other than in speculation. The applicant did not propound an alternative case that he was otherwise damaged by the deprivation of the working capital in question. 92 The company called a chartered accountant, Mr Trood, on the issue of causation. I rejected the paragraph in his affidavit which went to that issue because of the form in which it was couched, but gave leave to the applicant to adduce further evidence in admissible form from Mr Trood on that issue. The applicant did not seek to take advantage of that leave, and so far as the applicant's case is concerned, the matter rested there. 93 In his submissions, the applicant's counsel sought to derive comfort from the Mulkearns report, but was unable to explain how it assisted in demonstrating the causal link. 94 The respondent relied upon a report prepared by Mr John Banks of KPMG. In that report Mr Banks undertook a detailed financial analysis of the company's financial position. Mr Banks was asked to comment on an assumption that the company would have had "a better than even chance" of trading out of its financial position in late 1992 had one half of the proceeds from the sale of the company's interest in Pasta House been applied to the debt in respect of the Almora joint venture. Mr Banks' conclusion was that the use of the Pasta House proceeds had no bearing on the company's financial position and liquidity. At the time of receipt of the Pasta House proceeds, $517,121 on 27 January 1993 and $34,101 on 31 March 1993, the company was in serious financial difficulty. His report contains the following: "7.5 In summary, I do not consider that the company had a better than even chance of trading out of its financial position in 1992 had 50% of the Pasta House proceeds been applied to debt in respect of the Almora Joint Venture. My analysis of the Company's net asset deficiency in 1992 and 1993 (paragraph 6.11) clearly shows that the Company was in serious financial difficulty. The Company's total debts and liabilities were far in excess of its total tangible assets. When viewing the financial position of the Company it is necessary to look at the 'overall' debts and assets of the Company. Considering specific debt for specific projects in isolation, is inappropriate and ignores the overall position of the Company. 7.6 Clearly, debt is debt, whether it is owed to one party or several parties. The maximum saving the Company could have made with an alternate use of the Pasta House proceeds would have been a saving in interest expense, based on any variation in the interest rates that existed between Westpac and R & I Bank. In my opinion any saving in interest would not have been material to the operations of the Company and would not have increased the Company's prospects of trading out of its worsening financial position." 95 No evidence was called from R & I Bank as to what it would have done in any given set of circumstances. As indicated above at par 9, on 9 October 1992 R & I Bank indicated that it would be prepared to consider a six months extension of the facilities at an interest rate of 11 percent if the debt was reduced to $3 million by 30 November 1992. Assuming that $300,000 of the Pasta House proceeds had been paid to R & I Bank and assuming that the remaining two units had been let, there would still have been an annual shortfall of the order of $200,000 or thereabouts in the company's holding costs in relation to the Almora Street units which would have to be borne by the R & I Bank, or funded out of the company's trading operations. There was simply an assumption, rather than a demonstration, that this problem would in some way be solved and that the R & I Bank, had it received the $300,000, would have been prepared to agree to an extension of the facilities. Similarly, there was an assumption, rather than a demonstration that had the company retained the balance of the Pasta House proceeds that this would have arrested and reversed the decline in its financial performance. For a time emphasis was placed by the applicant on the proposition that increased liquidity would enable prompt payment of suppliers such that discounts for prompt payment could be obtained. But ultimately it was accepted that discounts foregone were not significant. 96 The evidence of Mr Banks is to the effect that the magnitude of the company's financial problems at the beginning of 1993 were such that the application of the Pasta House proceeds in the manner for which the applicant contends could not have materially relieved those problems. Whilst it was submitted that the views expressed by Mr Banks were wrong, there was no demonstration that this was so. Nor was there specific expert evidence to the contrary. In those circumstances, I am not satisfied that had $300,000 of the Pasta House proceeds been applied in January 1993 in reduction of the debt due to the R & I Bank, with the balance retained by the company as working capital, that the financial demise of the company would have been avoided. Nor am I satisfied that there was a realistic prospect that this might be so. 97 The application should be dismissed with costs. I certify that the preceding ninety-seven (97) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 27 July 1999 Counsel for the Applicant: M B Evans Solicitor for the Applicant: James A Hall Counsel for the Respondent: P J Dowdy Solicitor for the Respondent: Henry Davis York Date of Hearing: 21, 22, 23, 24, 25, 28, 29, 30 June 1999 1, 2 July 1999 Date of Judgment: 27 July 1999