Supreme Court New South Wales Medium Neutral Citation: Gardiner v National Australia Bank Ltd; National Australia Bank Ltd v Gardiner [2023] NSWSC 45 Hearing dates: 18 - 20, 24 - 26 October 2022, last submissions 28 October 2022 Date of orders: 8 February 2023 Decision date: 08 February 2023 Jurisdiction: Equity - Commercial List Before: Rees J Decision: Summons dismissed with costs; judgment for cross claimant in amount of $12,775,622, with orders for possession. Catchwords: BANKING – customer operates petrol stations – customer financially strained – customer referred to bank's specialist unit to 'turnaround' stressed business customers – specialist unit works with customer for two years – bank presses customer to sell investment properties and paydown debt – customer seeks to expand and obtain additional finance – bank prevails – customer ultimately wound up by ATO and deregistered – bank writes off $3m owed – proceedings commenced 10 years later by guarantors for $56m in damages – time-barred claim of deregistered company brought by others – claims under legislation which did not then exist – claims inconsistent with surviving contemporaneous records – claims devoid of evidence in key areas – bank prompted by claim to file cross-claim to enforce remaining security – bank entitled to judgment. NATIONAL CREDIT CODE – "carried over instrument" – Consumer Credit Code – mortgages – meaning of "related guarantee" – guarantee must be related to credit contract: see [88]-[93]. LIMITATION OF ACTIONS - time for commencement of proceedings – Limitation Act 1969 (NSW) – deceit and contract claims – confirmation under s54 – any confirmation was after expiry –fraudulent concealment under s55 – not established – claims time barred. CODE OF BANKING PRACTICE – 'small business' – customer was not a small business – alleged breach of obligation not imposed until after relevant events – breaches not established. CORPORATIONS – application for reinstatement –not "just" to resurrect a company when its claims time barred and without merit. Legislation Cited: Consumer Credit (New South Wales) Act 1995 (NSW), s 5 Contracts Review Act 1980 (NSW), ss 7(1), 16(a), 16(b) Evidence Act 1995 (NSW), s 63 Limitation Act 1969 (NSW), ss 54(1), 55(1)(b), 14(1), 14(1)(b) Australian Securities and Investments Commission Act 2001 (Cth), ss 12GF(2), 12GM(1) Australian Constitution, s 109 Corporations Act 2001 (Cth), s 601AD(2), 601AH(2), 601AH(3) Judiciary Act 1903 (Cth), s 79(1) National Consumer Credit Protection Act 2009 (Cth), sch 1 National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) sch 1 item 3(1), s 4 Trade Practices Act 1974 (Cth), s 87 Consumer Credit (Queensland) Act 1994 (Qld) Code of Banking Practice cls 2.2, 25.1, 25.2, 28.9 Consumer Credit Code, ss 5, 6, 8(1), 8(2), 9 National Credit Code, ss 76, 80 Uniform Civil Procedure Rules 2005 (NSW), r 5.3 Cases Cited: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232; [2000] NSWSC 316 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 Australian Executor Trustees (SA) Ltd v Kerr (2021) 151 ACSR 204; [2021] NSWCA 5 Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 Ballard v Multiplex [2012] NSWSC 426 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 Carr v Miller [2018] NSWSC 1424 Chalker v Clark [2008] VSCA 92 Chappel v Hart (1998) 195 CLR 232; 156 ALR 517; [1998] HCA 55 Dinh v Commonwealth Bank of Australia [2021] WASCA 127 Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 Dorfler v ANZ Banking Group Ltd (1991) 103 ALR 699 Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307 Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 Gould v Johnson (1702) 2 Salk 422; 91 ER 367 Hudson v National Australia Bank Limited [2022] FCA 1222 In the matter of Austral Bronze Pty Limited (No 2) [2020] NSWSC 1633 Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8 Magill v Magill [2006] HCA 51; 226 CLR 551 Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd [2001] FCA 1620; (2001) 114 FCR 108 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 Neal v Ambulance Service (NSW) [2008] NSWCA 346 Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249 Payne v Parker [1976] 1 NSWLR 191 Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301 Re European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 Reilly v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1502 Rizeq v Western Australia [2017] HCA 23; (2017) 262 CLR 1 Rosenberg v Percival (2001) 205 CLR 434; 178 ALR 577; [2001] HCA 18 Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 Shannon v Permanent Custodians Ltd [2020] WASCA 198 Sims v Commonwealth of Australia [2022] NSWCA 194 Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Watson v Foxman (1995) 49 NSWLR 315 Category: Principal judgment Parties: Bradford Gardiner (First Plaintiff/Cross-Defendant) Stacey Gardiner (Second Plaintiff/Cross-Defendant) Newport Resources (NSW) Pty Ltd as trustee of the Gardiner Family Trust (Third Plaintiff) National Australia Bank (Defendant/Cross-Claimant) Representation: Counsel: Mr PE King / Ms EJ Rusiti (Plaintiffs/Cross-Defendants) Mr JC Giles SC / Ms H Mann (Defendant/Cross-Claimant) Solicitors: Baker Love Lawyers (Plaintiffs/Cross-Defendants) Norton Rose Fulbright Australia (Defendant/Cross-Claimant) File Number(s): 2019/386958 INDEX INDEX JUDGMENT WITNESSES Jones v Dunkel FACTS Eleebana mortgage Hawks Nest property Gardiner Petroleum Rothbury property Initial concerns Blueys Beach property First Market Rate Facility Merewether property Overdraft Facility Pre-lending Review Second Market Rate Facility and the Guarantee CONTRACTS REVIEW ACT CLAIM NATIONAL CREDIT CODE CLAIM RETURNING TO THE FACTS SBS Categorisation Seeking refinance Strategy 1: assess options and improve cashflow SBS meets with Gardiner Appointing an investigating accountant McGrathNicol's first report Meeting with McGrathNicol Second meeting with SBS Refinance? A new bank manager Third meeting with SBS Strategy 2: sell remaining investment properties and repatriate to branch Fourth meeting with SBS McGrathNicol's second report Fifth meeting with SBS Strategy 3: financial support and asset sales Strategy 4: recovery McGrathNicol's third report McGrathNicol monitoring Liquidator appointed to Gardiner Petroleum ASIC ACT CLAIMS Time bar The representations Redacted McGrathNicol reports Causation and loss DECEIT Time bars Elements CODE OF BANKING PRACTICE Time bars "small business" Breach of the Code NEWPORT RESOURCES AND REINSTATEMENT CROSS CLAIM ORDERS JUDGMENT 1. HER HONOUR: Brad and Stacey Gardiner and the trustee of their family trust, Newport Resources (NSW) Pty Ltd, sue National Australia Bank Ltd seeking compensation and ancillary orders in respect of misleading and deceptive conduct and unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), together with relief under the Contracts Review Act 1980 (NSW), the Code of Banking Practice and the National Credit Code. 2. The bank had provided finance to the former trustee of the Gardiner Family Trust, Gardiner Petroleum Pty Ltd, which operated service stations in the Newcastle area. Whilst Mr Gardiner was keen to expand the network of service stations, business cashflow was insufficient to service the company's existing obligations to pay interest and repay principal. The company also struggled to pay for fuel from cashflow, as a result of which the company's overdraft limit was frequently exceeded. The bank began to press Gardiner Petroleum to pay down debt, including by the sale of Mr and Mrs Gardiner's investment properties. Mr Gardiner strenuously resisted this and instead sought to establish new service station sites funded by increased bank finance. Something of a 'battle of wills' followed. Mr Gardiner expected the bank to continue to fund his business regardless of the bank's concerns. 3. In 2009, Gardiner Petroleum's facilities became subject to the supervision of the bank's team responsible for business customers facing financial difficulties, Strategic Business Services (SBS). At the outset, SBS appointed an investigating accountant, McGrathNicol, which identified a significant shortfall in the bank's security and recommended that the bank provide further financial support to Gardiner Petroleum to enable the business to continue to address problems identified with the business and reduce debt. For two years, SBS pursued a 'turnaround' strategy, endeavouring to bring Gardiner Petroleum's accounts into order before repatriating the customer back to the branch. Whilst initially the 'turnaround' strategies resulted in improvements in Gardiner Petroleum's operation and brought the accounts within terms, these improvements were short lived. In 2011, the bank moved to an 'enforcement' strategy, pressing the customer to sell remaining service stations and 'exit' the business. Ultimately in 2012, a liquidator was appointed to Gardiner Petroleum on the application of the Deputy Commissioner of Taxation (ATO). 4. A decade after these events, the plaintiffs commenced these proceedings. In short, the plaintiffs contend that Gardiner Petroleum lost its business as a consequence of SBS's conduct and, further, that Mr and Mrs Gardiner were misled into selling their investment properties and service stations in order to reduce Gardiner Petroleum's debts. Damages of $58 million were sought, albeit reduced somewhat by closing submissions to $20 million. In addition, Mr and Mrs Gardiner sought a declaration that they were not bound by a guarantee given in respect of Gardiner Petroleum (the Guarantee), together with a discharge of the mortgage over their family home in Eleebana (the Eleebana mortgage), to the extent that the mortgage secured Gardiner Petroleum's indebtedness. Unsurprisingly, the plaintiffs' claims were largely time barred. 5. The bank had earlier cancelled the facilities provided to Gardiner Petroleum in 2015 and, in 2017, wrote-off the remaining indebtedness of $3,354,905. The bank did not then enforce the Eleebana mortgage. On being sued, the bank filed a cross-claim seeking to enforce the Guarantee and the Eleebana mortgage. For the reasons which follow, the plaintiffs' claim fails and the bank is entitled to succeed on its cross-claim. 6. In short, these proceedings have been a complete 'own goal'. Sadly for the Gardiners, their claim was poorly pleaded, incoherently presented, at odds with surviving contemporaneous records and devoid of evidentiary support on key matters. Whilst the claim was replete with difficulties issues, no effort was made to grapple with these complexities beyond making ambit (and often scandalous) allegations said to be supported by authorities which, on examination, were irrelevant. The burden this method of advocacy places on the Court should not be ignored. 7. More significantly, I am very troubled that a family, who has no doubt suffered greatly as a consequence of the failure of their business, has had further suffering inflicted by the manner in which their claim was formulated and pressed, and for which they have presumably outlaid funds which they could ill afford. WITNESSES 1. The plaintiffs relied on the evidence of Mr and Mrs Gardiner together with their daughters Eloise Harrison, Jacqueline Johnson and Josephine Cramp, son-in-law Michael Cramp, former business development manager Kerrie Cornall, former bookkeeper and external accountant Joyce Dawson and expert accountant Nicholas Gaudion. 2. Mrs Gardiner and her daughters were not required for cross-examination and nor, with great respect to them, was their evidence relevant to the plaintiffs' case. Whilst I would have been interested to hear from Mrs Gardiner as to the circumstances in which the Eleebana mortgage and the Guarantee were entered into, and why these contracts were said to be 'unjust', her affidavit was silent as to these matters. Nor was Mr Gaudion required for cross-examination. Again, his reports were largely irrelevant to the issues in the case or went beyond leave granted to adduce expert evidence. 3. Mr Gardiner was cross examined. He was a pleasant fellow. However, Mr Gardiner's evidence had an air of unreality. In particular, Mr Gardiner said that if he knew that the bank was considering how to realise its security in order to minimise its losses, he would have set about to achieve a result which resulted in him retaining the properties which the bank was pressing him to sell. It was not entirely clear how Mr Gardiner thought he could resist the bank's requests to pay down debt and yet retain the investment properties, over which the bank had first registered mortgages. 4. Mr Gardiner proved a poor historian, which was perhaps unsurprising given that these proceedings were commenced a decade after the events in question. For example, Mr Gardiner denied that he was told by the bank that he needed to reduce debt; the business records indicate otherwise. Likewise, Mr Gardiner denied that the bank had complained that he could not continue to breach the limits of an overdraft facility. That was clearly incorrect. Overall, Mr Gardiner's recollection of his dealings with the bank cast an unduly optimistic light on the financial prospects of Gardiner Petroleum and omitted the seriousness of the company's situation. Indeed, the bank's contemporaneous records note significant difficulties in persuading Mr Gardiner of the seriousness of the situation at the time. 5. Mr Gardiner became increasingly reluctant to answer questions which he perceived did not advance his case. He was evasive on occasion, for example, about having given an undertaking to sell two properties. Mr Gardiner gave several self-serving speeches and was, on occasion, argumentative. Some of Mr Gardiner's answers appeared to be directed to what he thought would advance his case and I was not entirely comfortable relying on the accuracy of these answers. I have approached his evidence with caution. 6. Ms Cornall was also cross examined. Ms Cornall was straightforward and her evidence was uncontroversial. Mr Cramp was cross examined. As Mr and Mrs Gardiner's son-in-law, Mr Cramp's evidence had a partisan quality. Nothing turned on his evidence. 7. Ms Dawson had been required for cross-examination but medical evidence indicated that she was not fit to appear in Court. The defendant did not oppose Ms Dawson's affidavit being read under section 63 of the Evidence Act 1995 (NSW), but noted the medical evidence indicated that Ms Dawson suffered from early Alzheimer's disease, which "significantly increases the difficulties she faces when answering questions and recalling information." In any event, Ms Dawson's evidence was of a general nature; the contemporaneous documents provide much greater detail. 8. The defendant relied on the evidence of the plaintiffs' former banker at Lake Macquarie Business Banking Centre, Patrick Harris, former Executive in the SBS section of the bank, Prenesan Acharrie, Associate Director of SBS, Beth Stacker, chartered accountants and partners of McGrathNicol, Murray Smith and Sean Wiles, and the defendant's solicitor, Laura Johns. All but Ms Johns were required for cross-examination. No questions of credit arose. In particular, Mr Acharrie was an impressive, calm and knowledgeable witness. Mr Smith was an experienced and fair witness. Mr Wiles made appropriate concessions. Jones v Dunkel 1. The plaintiffs submitted that the Court should draw an adverse inference in respect of the defendant's failure to call John Vasseleu, the Impaired Asset Manager who had the conduct of the Gardiners' file at SBS: Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8 per Windeyer J. I agree that Mr Vasseleu is a person who it would be natural for the bank to call; he may be regarded as "in the camp" of the bank or "a witness likely to be friendly to the interests of the other party": Payne v Parker [1976] 1 NSWLR 191 at 201-202 per Glass JA; Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343 per Kirby P with Mahoney and Clarke JJA agreeing. 2. However, if the failure to call a witness is explained, the inference cannot be drawn. In Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24, it was sufficient explanation that the plaintiff no longer spoke to the missing witness: at [118], [137] per Bathurst CJ, Beazley P and Macfarlan JA. It may be the case that the witness would not be expected to co-operate by way of prior consultation or providing a proof of evidence, and a party is not obliged to call a witness 'blind' in order to avoid the inference being drawn against them: Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437 at 449-450 per Mahoney JA. 3. Mr Vasseleu left the bank in April 2018. The bank's solicitor, Ms Johns, spoke to Mr Vasseleu on several occasions and sent a number of letters and emails asking him to give evidence in these proceedings. Mr Vasseleu told Ms Johns that he had a number of chronic health conditions and was concerned about the impact that being a witness might have on his health. It is apparent from Mr Vasseleu's emails that one of his children had a significant health condition and it was "a stressful time for our family at the moment." In light of this, the bank withdrew its request for a sworn statement from Mr Vasseleu but requested further details of his health issues and the reasons why he did not wish to give evidence. The bank arranged for independent legal advice for Mr Vasseleu and followed him up several times. Ultimately, after several months and follow up emails, Ms Johns swore an affidavit describing her efforts to gain the assistance of Mr Vasseleu. 4. The bank has gone to some lengths to encourage Mr Vasseleu to give evidence or, failing that, to provide a document explaining why he cannot do so. Mr Vasseleu is obviously unwilling to assist the bank by appearing as a witness, to provide additional details as to why he does not wish to give evidence, or to avail himself of the independent solicitor arranged by the bank. In light of Ms Johns' evidence and the accompanying correspondence, I consider that the bank's failure to call Mr Vasseleu has been explained and thus it is not appropriate to draw a Jones v Dunkel inference. The bank is not obliged to subpoena Mr Vasseleu and call him 'blind' in order to avoid the inference being drawn against it. In these circumstances, I am not prepared to draw the inference. 5. It is also convenient to here deal with criticisms made of Mr Vasseleu. Mr Gardiner was highly critical. Mr Cramp also made some adverse observations. Mr Gardiner said he had various discussions with Mr Harris regarding Mr Vasseleu's "rudeness" and "lack of empathy". Mr Harris recalled Mr Gardiner saying that he did not like Mr Vasseleu, did not get on with him and did not find him approachable. Although Mr Harris and Mr Acharrie spoke highly of Mr Vasseleu and his professionalism, it is apparent from the contemporaneous records that Mr Vasseleu became frustrated on occasion in his efforts to persuade Mr Gardiner to take the steps considered necessary to reduce the bank's predicted losses in respect of the Gardiner Petroleum facilities. Ultimately, how these gentlemen got along is not particularly relevant to the plaintiffs' claim. 6. The plaintiffs also submitted that a Jones v Dunkel inference should be drawn in respect of the evidence of Roger Coddington, the former bank manager for the Gardiners who referred the Gardiner Petroleum account to SBS. Mr Coddington provided an affidavit but the bank chose not to call him. I will infer that his evidence would not have assisted the bank. That said, failure to call a witness does not detract from findings of fact otherwise established by the evidence: Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [634]. The bank's contemporaneous records detail what Mr Coddington said and did at the time and he is hardly a central character. 7. The plaintiffs also sought a Jones v Dunkel inference in respect of various other bank officers, being John Crosdale, Craig Collie and Peter Perriman. As far as the contemporaneous records reveal, each of these gentlemen played a very small role in the events which unfolded. It is not necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490. Given the relative unimportance of these witnesses, I am not prepared to draw a Jones v Dunkel inference in respect of the bank's failure to call them. FACTS 1. Mr Gardiner has a Bachelor of Commerce degree and worked for BP for 14 years, becoming a regional manager. Mrs Gardiner is a qualified hairdresser. Eleebana mortgage 1. In 1986, Mr and Mrs Gardiner purchased vacant land in Eleebana on Lake Macquarie to the south of Newcastle. In 1987, they granted a mortgage over the property to the bank, when borrowing $45,000 to build a house. It is this mortgage which Mr and Mrs Gardiner now seek to have discharged and which the bank seeks to enforce by the cross-claim. It will be immediately noted that the mortgage was executed 32 years before the commencement of these proceedings. Beyond what is here stated, nothing is known of the circumstances in which the mortgage was entered into. 2. The Eleebana mortgage is an 'all moneys' mortgage. The 'moneys hereby secured' by the mortgage is defined and includes "moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety": clause 34. 3. In 1992, Mr Gardiner began to operate his own service station business by buying the Caltex service station franchise in Toronto through his company, Gardiner's Pty Ltd. The bank provided funding for the business, secured by the mortgage over the Eleebana property. Noteworthy, from the very commencement of the service station business, the Eleebana property was used as security for business borrowings. Mr Gardiner later 'exited' the Toronto service station, owing Caltex some $132,000. Hawks Nest property 1. In 1995, Gardiner's Pty Ltd purchased a property in Hawks Nest for $225,000, as trustee for the Anchorage Trust. Mr and Mrs Gardiner's self-managed superannuation fund, Gardiner's Superannuation Fund, owned 95% of the shares in the trust. A mortgage was granted to RAMS Home Loans to secure part of the purchase price, with the balance provided by Mr and Mrs Gardiner's self-managed superannuation fund. The involvement of the superannuation fund becomes relevant in due course, as the plaintiffs point to the sale of this property, at the insistence of the bank, as a breach of the Code of Banking Practice, to which I will return at [358]. 2. In 1997, Mr Gardiner began to operate a second Caltex service station in Warners Bay. In April 1997, Mr and Mrs Gardiner and Gardiner's Pty Ltd provided a guarantee to the bank, limited to $200,000, in respect of Gardiner's Pty Ltd. Their solicitor certified that he had given them independent legal advice in respect of the guarantee. Mr Gardiner later sold the Warners Bay service station as unprofitable: see [103]. 3. In May 1997, the Gardiners refinanced their Hawks Nest property with the bank. Mr Gardiner said the borrowing and security over the Hawks Nest property was transferred to the bank as additional security for business borrowings. Gardiner Petroleum 1. In 1998, Gardiner Petroleum was incorporated; Mr Gardiner was the sole director and shareholder. Gardiner Petroleum was appointed trustee of the Gardiner Family Trust. (The bank referred to Gardiner Petroleum, Gardiner's Pty Ltd and, later, Gardiner Investments (NSW) Pty Ltd as the Gardiner Group or the Group.) 2. After this, Gardiner Petroleum was the entity which entered into leases and franchise agreements to operate subsequent Caltex service stations. The bank advanced various facilities to Gardiner Petroleum including an overdraft, a market rate facility and equipment leases. The bank registered a fixed and floating charge over Gardiner Petroleum. Clause 29 of the debenture provided: 29 Consultants 29.1 Appointment In addition to all other Rights of the Bank, if the Bank reasonably believes the Mortgagor has breached or is in danger of breaching a provision of this Deed the Bank may at its sole discretion from time to time engage accountancy, financial, management or other consultants to examine the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed and to make reports to the Bank. 29.2 Further Assurances The Mortgagor shall do, make, sign and execute all papers, documents and authorities necessary for the purposes set out in Clause 29.1 29.3 Agent of the Mortgagor with Duty to Report to Bank Any consultant appointed under Clause 29.1 is and is to be treated for all purposes as the agent of the Mortgagor but is to be free to communicate all information received by the consultant to the Bank and is to be obliged to report to the Bank on any matters affecting the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed as frequently as the Bank requires. (The bank later appointed McGrathNicol as investigating accountant pursuant to this power.) 1. In 1998, Gardiner Petroleum took on a third Caltex service station in Belmont. In August 1998, Mr and Mrs Gardiner and Gardiner's Pty Ltd gave the first of many guarantees to the bank in respect of Gardiner Petroleum, limited to $140,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee. 2. In 1999, Gardiner Petroleum commenced trading at a fourth Caltex service station in Belmont North. In March 1999, Mr and Mrs Gardiner gave a further guarantee to the bank in respect of Gardiner Petroleum, now limited to $298,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee. 3. In 2000, Gardiner Petroleum also began to operate the shop at BP Thornton. In October 2000, Mr and Mrs Gardiner and Gardiner's Pty Ltd gave a further guarantee to the bank in respect of Gardiner Petroleum, now limited to $343,010. In November 2000, the guaranteed amount was increased to $461,947. Their solicitor certified that he had given them independent legal advice in respect of both guarantees. 4. In 2001, the amount of the guarantee in respect of Gardiner Petroleum was increased to $565,132. Mr and Mrs Gardiner's solicitor certified that he had given them independent legal advice in respect of the guarantee. 5. In 2002, the guaranteed amount was increased to $551,843 and then $648,820. Mr and Mrs Gardiner's solicitor certified that he had given them independent legal advice in respect of both guarantees. 6. In May 2003, the guaranteed amount was increased to $776,489 and then, in November 2003, to $859,218. Mr and Mrs Gardiner's solicitor certified that he had given them independent legal advice in respect of both guarantees. Rothbury property 1. In February 2004, Mr and Mrs Gardiner purchased a property in Rothbury for $265,000. A mortgage was granted to St George Bank. Mr and Mrs Gardiner borrowed additional funds from St George to construct a house on the property. Perhaps noteworthy, the Gardiners then used different banks for Gardiner Petroleum's borrowing and their borrowings for investment properties. 2. In February 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Morisset. Gardiner Petroleum entered into a lease of the site, on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company's market rate facility was increased to $828,000 to cover stock and working capital requirements of the new Morisset site. The guarantee was increased to $1,090,525. Mr and Mrs Gardiner each signed a declaration acknowledging that they had received independent legal advice regarding the guarantee before signing it. 3. In August 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Beresfield. Again, Gardiner Petroleum entered into a lease of the site on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company's market rate facility was increased to $1.154 million to cover stock and working capital requirements of the new Beresfield site. In August 2004, the guarantee was increased to $1,527,369. Mr and Mrs Gardiner each executed a legal advice certificate in respect of the guarantee. 4. In 2005, Gardiner Petroleum's market rate facility was increased to $1.604 million to cover increased stock, turnover and repayment of beneficiary loans. The guarantee given to the bank in respect of Gardiner Petroleum was increased twice, to $2,092,974 and then to $2,397,103. On both occasions, Mr and Mrs Gardiner signed a Legal Advice Waiver, acknowledging that the bank had recommended that they obtain legal and financial advice but they were content to execute the documents without it. 5. In November 2005, Mrs Gardiner purchased a hairdressing salon using a new company, Gardiner Investments (NSW) Pty Ltd. In January 2006, Gardiner Investments executed a debenture in favour of the bank to secure a facility for $35,000. Initial concerns 1. In August 2006, Gardiner Petroleum's market rate facility was increased to $1.747 million to cover the increased cost of fuel and to assist with continued growth in sales at Beresfield and Morisset. Mr Coddington was then Gardiner Petroleum's business banking manager. On 28 August 2006, Mr Coddington recorded concern at the bank's exposure and the manner in which the business was being operated. Group drawings and directors' wages for the 12 months ended 6 June 2006 were some $690,000 and "not sustainable at this level". Mr Coddington made a note to negotiate maximum drawings and wages at $252,000, in line with consolidated cashflow. The quarterly reporting covenant was to be extended to require detailed reporting on any negative actual to budget variance greater than 5% in income or expenditure lines. 2. Mr Coddington also noted that the clients were looking for the bank to support them in a further expansion program at Rutherford and Raymond Terrace, "Any further submission will require external (short form) valuations of both residential real estate securities presently held by the Bank in support of Group facilities. This is the maximum level of our exposure to the Group on present – future operations are required to be within approved arrangements." 3. In August 2007, Gardiner Petroleum's market rate facility was increased to $2.046 million, to be reduced at $21,350 per month. The funds were utilised to regularise the overdraft facility from an excess position and also to consolidate a small loan. The guarantee in respect of Gardiner Petroleum was increased to $2,767,949. Blueys Beach property 1. In September 2007, Mr and Mrs Gardiner purchased a property at Blueys Beach for $672,500, subject to a mortgage granted to St George Bank. Again, the Gardiners continued to use different banks for their business and investment property borrowings. 2. Likely at about this time, Ms Cornall gave a presentation to the bank in respect of Gardiner Petroleum's proposal to expand into two new sites. According to Ms Cornall, the bank officers said that they were impressed by the achievements and growth of the company and said "We need time to attend to the matters raised and will come back to you. We understand the points you have raised." At the end of the meeting, either Mr Coddington or his colleague, Mark Sherwood, said they would have to submit a formal request "but they didn't feel that it was going to be an issue". 3. According to Mr Gardiner, Mr Coddington said, "I shed tears of joy when it was revealed that you were over-selling your fuel expectations". Mr Gardiner also said that Mr Coddington told him that, as the business grew, Eleebana could be released from the bank's security. As he and Mr Coddington walked down the stairs after the presentation, Mr Coddington said "Well, let's get on and build this business … Let's get your family home out of the bank security listings". I will return to whether these comments were likely to have been made at [54]. 4. In January 2008, the bank prepared a "Client Evaluation" in respect of an application for funding of some $550,000 to establish a second Beresfield North Caltex service station. Gardiner Petroleum had entered into a lease of the Beresfield North site, on which the lessor had constructed a new service station. The lease contained an option to purchase the site after one year for $2.994 million. According to the bank memorandum, "I do not know that [Mr Gardiner] will have the capacity to exercise purchase o[p]tion – unless he sells "sites" to fund equity contribution. Prior [Senior Business Banking Manager] was involved in discussion with Gardiner. … At that time we advised clients, that to support additional outlet expansion, we would be seeking an independent review to be completed on the Group's operations." 5. The Gardiners also sought $700,000 to refinance the Rothbury property. A further $1.35 million was sought to purchase a property in Merewether "pending the sale of their existing Eleebana property … NB Undertaking to be sought for sale of Eleebana [property] within 6 months of settlement of Merewether purchase." 6. The memorandum detailed the facilities then in place for the Gardiners, with total business lending of $4,393,950. Gardiner Petroleum was noted to be the largest multiple Caltex franchisee in Newcastle and the Hunter Valley and employed approximately 80 staff. In addition, Mr Gardiner had advised that he was looking for two additional lease sites at Doyalson and Raymond Terrace, each of which would require finance of $700,000. The memorandum noted: No commitment has been given to fund such operation and [Gardiner] will be put on notice. It may well be that we will be looking for Eleebana having sold and possible undertakings to meet the market with the sale of Hawks Nest to consider funding in the future. 1. The memorandum described discussions with Mr Gardiner in respect of the Hawks Nest property. Gardiner's Pty Ltd owned the prime waterfront residential property, which was used for holiday lettings. Whilst the Gardiners had planned to demolish the existing building and construct a luxury home to continue to use for holiday lettings: They are mindful that they cannot [extend] themselves to both the ongoing expansion of the Service Station business and retain this property, nor justify the cost of servicing such constr[u]ction – given in effect minimal letting return for outlay. They have chosen instead to look to relocate to Merewether [and] sell their existing Eleebana property … they will execute an undertaking to meet the market an[d] sell Eleebana within 6 mths on settlement of Merewether and are mindful of costs to retain. 100% net proceeds from the sale of Eleebana to be applied to debt reduction for the Merewether purcha[s]e. 1. The memorandum noted that Mr Gardiner had expressed a preference for an orderly sale of the Hawks Nest property in spring or summer of 2008. The bank officer noted that Mr Gardiner had offered up the sale of the property on a number of occasions previously, "He appeared genuine in my discussions with him yesterday (23/01/2008) – however does not wish to fire sell the property." 2. The "Client Evaluation" was likely prepared after Ms Cornall's presentation, when Mr Coddington is said to have represented that the bank would "build the business" and "get [Eleebana] out of the bank security listings". The comments recalled by Mr Gardiner do not accord with Mr Coddington's circumspect file note, which I prefer. It is also unlikely that the bank represented that it would remove Eleebana from the bank's securities when Mr and Mrs Gardiner were then proposing to sell the Eleebana property and make the Merewether property their family home. Rather, the bank was "looking for Eleebana having sold and possible undertakings to meet the market" before providing further funding. In any event, Mr Coddington's remarks as recalled by Mr Gardiner were hardly an unqualified promise by the bank to fund Gardiner Petroleum into the future or to discharge the Eleebana mortgage. First Market Rate Facility 1. On 8 February 2008, the bank offered Gardiner Petroleum a market rate facility with a limit of $2,430,600 (the First Market Rate Facility). The facility was to expire on 31 August 2015, and to be repaid at $26,500 per month. As will be seen, the company struggled to make the principal repayments. 2. The facility was to be secured by a fixed and floating charge over the assets of Gardiner Petroleum and Gardiner's Pty Ltd, mortgages over leases of the Caltex service station sites, a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner's Pty Ltd limited to $3,165,958, and mortgages over the Eleebana, Hawks Nest, Rothbury and Merewether properties. The First Market Rate Facility included reporting covenants, obliging Gardiner Petroleum to provide annual accounts, interim accounts within 45 days of the close of each quarter and statutory payments certificates. 3. The letter of offer was accepted by Mr and Mrs Gardiner. In addition, Mr and Mrs Gardiner executed two FlexiPlus Mortgage Facilities Agreements in the amount of $1.35 million (for the Merewether property) and $700,000 (for the Rothbury property). Each mortgage provided that the securities to be taken by the bank were registered mortgages over the Eleebana, Rothbury, Merewether and Hawks Nest properties together with a guarantee given by Gardiner Petroleum and Gardiner's Pty Ltd for the amount of each facility and fixed and floating charges over the assets of Gardiner Petroleum and Gardiner's Pty Ltd. 4. The mortgage facilities did not have set expiry dates. However, the bank was entitled to cancel the facilities at any time, obliging the borrower (Mr and Mrs Gardiner) to repay any money owing under the facility immediately: clause 4, FlexiPlus Mortgage Facility Agreement Terms and Conditions. The mortgage facility for $700,000 advanced in respect of the Rothbury property was not repaid and now forms part of the bank's cross-claim. 5. In addition, on 26 February 2008, Mr and Mrs Gardiner signed letters to the bank, undertaking to meet the market and sell the Eleebana and Hawks Nest properties within 12 months of settlement of the purchase of the Merewether property, with full net sale proceeds to be applied to debt reduction with the bank. As will be seen, neither property was sold within the required timeframe. Merewether property 1. On 28 February 2008, Mr and Mrs Gardiner purchased the Merewether property for $1.29 million. Mr and Mrs Gardiner borrowed the whole of the purchase price and stamp duty from the bank. Mr Gardiner said that, when buying this property, he relied on a pre-lending report obtained from PPB Recovery Forensics Advisory (PPB). In fact, the bank did not send an engagement letter for a "Pre Lending Review" to PPB until April 2008 and the report was not obtained until August 2008: see [66]. 2. On 27 June 2008, the Gardiner Petroleum guarantee was increased to $3,265,000. Mr and Mrs Gardiner each gave a certificate to the bank confirming that the guarantee had been explained to them. They do not appear to have executed either a certificate counter-signed by their solicitor confirming that they had been given independent legal advice or a certificate waiving legal advice. Overdraft Facility 1. In July 2008, Mr Coddington prepared a Short Form Credit Memorandum in support of an increase in Gardiner Petroleum's overdraft from $600,000 to $1 million. The increase would provide for "present account irregularity" to assist with working capital requirements for the Group's six service stations. The bank was still waiting on the Pre Lending Review from PPB to support an increase in the overdraft. Mr Coddington observed: Present excesses had been approved on the understanding that they would be short term nature, however, due to increasing cost of fuel stocks in +- mid June it became apparent that formal increase would be required to regularise and provide for day to day working capital … Both the flexiplus mortgages $700K & $1.35M are to reduce from the sale of Eleebana (+- $900K) & Hawks Nest Properties +- $1.2M) within the next 6 mths (>$100K). 1. An additional $159,000 was needed to pay-out the St George mortgage on the Rothbury property than the bank had previously understood. The client was incurring substantial accounting costs to PPB and its own accountants, Lawler Partners, to complete the pre-lending review. In all, unbudgeted cash items totalled $570,000. Further, "We are on notice of a further funding request … to assist in their future expansion plans, sites at Raymond Terrace and Berkeley Vale, submission request expected in the short term." 2. On 16 July 2008, the bank offered to provide Gardiner Petroleum with an overdraft facility of $1 million (the Overdraft Facility), to be secured by the same charges and mortgages as the First Market Rate Facility and a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner's Pty Ltd of $3,403,918. The overdraft was to include a financial covenant as follows: (emphasis in original) Interest cover Minimum interest cover of 2.00 times as measured for the 12 month period ending on 30/12/2007 and thereafter quarterly for Gardiner Petroleum Pty Ltd ATF The Gardiner Family Trust. 1. Again, the Overdraft Facility did not contain an expiry date. However, the bank was entitled to cancel the facility at any time, where cancellation made the loan immediately repayable: clause 2(a), Specific Conditions; clause 4.1(c), General Conditions. Pre-lending Review 1. On 1 August 2008, PPB provided its pre-lending review to the bank. The review concluded that the Gardiners were meeting their current commitments "albeit with some strain". Further, "Introducing a cap on director's personal spending until actual trading of new sites is well established, would serve to protect the directors from potential shortfall of meeting budgets, in the event consumers experience a downturn in spending power, arising from the current volatile economic climate." If assets were sold on a going concern basis, there appeared to be sufficient assets to repay bank facilities but, in the event of a forced closure basis, a shortfall of some $788,000 had been identified. PPB further observed: We note there is an apparent cashflow strain. A review of creditors … reveals there are some payment arrangements in place … Directors spending pattern over the 2007 and 2008 years has contributed to the cashflow strain. Cash management control should be reviewed by the NAB regularly, to monitor capacity to fulfill all financial obligations are met within trading terms as new sites are added to the Group. 1. On 11 August 2008, Mr Coddington and Mr Gardiner met and went through PPB's report. Mr Gardiner was then obtaining costings for construction of a house at Merewether, with costs coming in much higher than initially projected. Mr Coddington's note records that he indicated "we would not be in a position to consider without the sales of Hawks Nest/Eleebana and the budget numbers of the business hitting projections – some thing which they are not at present. … he is aware no funding has been approved …" Mr Coddington's note further records: Eleebana - still not sold ... Will need to seek extension in respect the "6 mths selling undertaking" with approval authority in next submission ... Hawks Nest not sold – still does not expect to sell until spring selling season – aware needs to sell to progress Merewether. 1. Discussion turned to Mr Gardiner's level of drawings. Mr Gardiner stated that he and his wife were drawing about $60,000 each only but were also funding the Merewether home loan via the company. The whole family had also gone on an overseas study tour costing $104,000, which was described as a "one off". Discussion turned to funding for a proposed service station at Raymond Terrace. Mr Coddington's note records: [Gardiner] is aware that funding has not been approved – not committed. … Asked as to his Plan B – states Nil. (I suggest that he would be able to offer under sublease arrangement if NAB not able to assist). … NOTE NO COMMITMENTS GIVEN. Mr Gardiner agreed in cross-examination, "I didn't have a plan B." 1. Overall, however, the bank appears to have been reassured by PPB's pre-lending review. On 4 September 2008, the bank prepared a credit submission to fund a new service station in Raymond Terrace and to refinance the remaining St George facility on the Blueys Beach property. The credit submission noted that PPB's pre-lending review "did not highlight any glaring deficiencies of the business, in fact, from the writers' view it is such that it provides the Bank with sufficient additional comfort for us to continue to support the Gardiner Group further with their expansion program – subject to ongoing forecasts/trading result budgets being reasonably well met." A new market rate facility of $1 million was sought to fund stock for the new Raymond Terrace site. The facility was sought as interest only for the first 12 months, to allow the recently established Beresfield North and Raymond Terrace sites to perform. On expiry, the bank would then assess whether the facility would continue as interest only or move to a principal and interest reduction program. 2. On 24 September 2008, the bank approved the credit submission but reduced the business overdraft limit from $1 million to $800,000. A bank executive advised: Customer is to be advised that the Bank will not consider any funding for the Berkley Vale site or the Beresfield North freehold property with a period of consolidation now considered essential. The intent was not to convey that the Bank would never fund anything further for this customer. Although, further funding for business growth will be difficult to support unless all the existing businesses achieve their projected profits and sale of the 2 resi properties (debt reduction c$2M) is achieved within time frame of undertakings. … any further working capital requests will need to be supported with interim trading results and updated CFB. Second Market Rate Facility and the Guarantee 1. On 24 September 2008, a business letter of offer was issued to Gardiner Petroleum for a market rate facility of $1 million (the Second Market Rate Facility). Unlike the First Market Rate Facility, the facility was to expire in six months, on 31 March 2009. Gardiner Petroleum was obliged to repay the Second Market Rate Facility on that date: clause 4.1(d) and clause 23 ('final repayment date' and 'facility term'). 2. The Second Market Rate Facility was to be secured in the same manner as the earlier facilities. In particular, the facility was secured by a Guarantee and Indemnity given by Mr and Mrs Gardiner and Gardiner's Pty Ltd for $4,248,002 and supported by the registered mortgages over the Eleebana, Hawks Nest, Rothbury, Merewether and Blueys Beach properties, fixed and floating charges over Gardiner Petroleum and Gardiner's Pty Ltd, together with mortgages over the service station leases. The facility was also subject to the interest cover and reporting covenants. 3. Mr and Mrs Gardiner and Gardiner's Pty Ltd executed a Guarantee and Indemnity to the bank in respect of Gardiner Petroleum limited to $4,248,002 plus interest (including default and compound interest), bank fees, costs, charges and expenses accrued in relation to amounts within the limit (the Guarantee). 4. Mr and Mrs Gardiner each signed a certificate acknowledging that the Guarantee had been explained to them and they were unwilling or unable to take legal advice but nonetheless were amenable to executing the document. It is this guarantee which Mr and Mrs Gardiner now challenge. 5. Mr and Mrs Gardiner also executed a further FlexiPlus Mortgage Facility Agreement in the amount of $530,000, apparently to fund the additional St George refinance on the Blueys Beach property. The mortgage facility was, again, secured by registered mortgages over the Rothbury, Merewether, Blueys Beach and Eleebana properties, together with a guarantee given by Gardiner's Pty Ltd for $2,668,158 supported by fixed and floating charges over the assets of Gardiner's Pty Ltd and Gardiner Petroleum Pty Ltd and a registered mortgage over the Hawks Nest property. Mr and Mrs Gardiner executed a mortgage over the Blueys Beach property in favour of the bank. Gardiner Petroleum and Gardiner's Pty Ltd also gave a guarantee to the bank in respect of Mr and Mrs Gardiner, limited to $2,668,158. The bank registered a fixed and floating charge over Gardiner Petroleum. CONTRACTS REVIEW ACT CLAIM 1. It is convenient at this juncture to consider the plaintiffs' claims under the Contracts Review Act in respect of the Eleebana mortgage and the Guarantee. Ordinarily, such claims must be brought within two years of the date on which a contract is made: section 16(a). However, as the bank now seeks to enforce both contracts by the cross-claim, the time for making an application for relief continues during the pendency of the cross-claim: section 16(c). 2. The Court may grant relief under the Act where a contract was "unjust in the circumstances relating to the contract at the time it was made": section 7(1)(a). The plaintiffs' pleading, however, tended to focus on circumstances post-dating execution of the Eleebana mortgage and the Guarantee, in particular, the bank's actions once Gardiner Petroleum's accounts were referred to SBS in 2009. The plaintiffs alleged that the contracts gave the SBS authority "to conceal and implement the Bank's exit strategy [and to] transfer … its financial risk to the Plaintiffs by its undisclosed response to the [GFC] … in selling assets of its customers". There was said to be a lack of proportionality in the contract provisions which permitted the bank "to foist upon the Plaintiffs external financial risks faced by the Defendant … arising from the global financial challenge of 2008 to 2010." The plaintiffs also relied on the bank's subsequent enforcement action and demands for payment in 2015. In addition, Mrs Gardiner was said to lack financial education and independence. Further, the provisions of the contract were not the subject of legal advice. 3. I am bound by the terms of the statute and will consider the circumstances relating to the contract at the time it was made. As to reliance on Mrs Gardiner's lack of financial education, little is known about Mrs Gardiner, other than she ran a hairdressing salon and managed staff at Gardiner Petroleum. I cannot safely conclude that she was financially naïve or uninformed. 4. As to the Eleebana mortgage, Mrs Gardiner did not give evidence as to the circumstances at the time the mortgage was executed, nor as to why it is now said the mortgage should be set aside. Mr Gardiner's evidence on the circumstances in which the Eleebana mortgage was granted was brief: see [24]. 5. As I understood it, no complaint was made as to the circumstances in which the Eleebana mortgage was granted in 1987. Rather, the complaint was that the Eleebana mortgage came to secure the borrowings of Gardiner Petroleum under the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility and the Guarantee. Each of the First Market Rate Facility, the Overdraft Facility and the Second Market Rate Facility expressly provided that the facility was secured inter alia by the Eleebana mortgage. Whilst the Guarantee made no specific reference to the Eleebana mortgage, the terms of the Guarantee entitled the bank to "resort to the Securities", being all security which the bank held from Mr and Mrs Gardiner over any of their property or assets, including a mortgage: clause 12(a), clause 29 ("Securities" and "Security"). Further, as already noted, the Eleebana mortgage is an 'all moneys' mortgage: see [25]. 6. It is unclear why it was unjust for the bank to be given security over the Eleebana property to secure the business borrowings of Gardiner Petroleum. As earlier described, the Eleebana property was used to secure business loans since 1992, when Mr Gardiner first began operating a service station through Gardiner's Pty Ltd: see [26]. Mr and Mrs Gardiner were the beneficiaries of the Gardiner Family Trust and stood to benefit from Gardiner Petroleum's business, including by drawings and using Gardiner Petroleum revenue to make mortgage payments on investment properties in their name: see [68], [124], [138], [140], [145], [157]. It is unclear why it was unjust for the bank to secure the borrowings of Gardiner Petroleum against their assets in these circumstances. 7. As to the Guarantee, neither Mr nor Mrs Gardiner gave evidence as to the circumstances in which the Guarantee was granted. The Guarantee replaced an earlier guarantee – which was not challenged – and which itself was one in a long series of guarantees Mr and Mrs Gardiner gave in support of Gardiner Petroleum's borrowings. The Guarantee was the sixteenth guarantee. 8. True it is that there was no independent legal advice given to Mr and Mrs Gardiner at the time. But as I have earlier described, Mr and Mrs Gardiner had signed many guarantees in respect of the borrowings of Gardiner Petroleum and, before that, Gardiner's Pty Ltd. According to Ms Stacker, from August 1998 until September 2008, Mr and Mrs Gardiner provided 15 guarantees to secure debts owed to the bank by Gardiner Petroleum, increasing in amount from $140,000 to, now, $4,246,002. For six of these guarantees, Mr and Mrs Gardiner obtained legal advice and provided legal advice certificates to the bank. For the remaining guarantees, Mr and Mrs Gardiner waived their rights to obtain legal advice and signed advice waivers. (No records of either a legal advice certificate or advice waiver were located for guarantees given on 27 May 2003 or 6 September 2007). 9. The bank's policy did not require guarantors to obtain independent legal advice where the guarantor had received such advice in respect of a guarantee in the last five years. By my count, Mr and Mrs Gardiner received independent legal advice in respect of a Guarantee and Indemnity three times in that period, being in November 2003, February 2004 and August 2004: see [37], [39] and [40]. Other than the amount of the limit on Mr and Mrs Gardiner's liability, the guarantees were in substantially or wholly the same form. The plaintiffs did not suggest that they did not understand the Guarantee. 10. Where Mr and Mrs Gardiner received the benefit of the lending the subject of the Guarantee through Gardiner Petroleum, whether by Gardiner Petroleum meeting their expenses or through their beneficial interest as beneficiaries of the Gardiner Family Trust, there was no unjustness in the circumstances. The Contracts Review Act claims fail. NATIONAL CREDIT CODE CLAIM 1. It is also convenient at this juncture to consider the plaintiffs' claims under the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)), in respect of the Eleebana mortgage. As I understood it, the plaintiffs did not challenge the enforceability of the Eleebana mortgage when initially executed but only insofar as it became security for the Guarantee. 2. The plaintiffs submitted that the National Credit Code applied where finance was provided to Mr and Mrs Gardiner in respect of their family home under the 1987 mortgage. The Eleebana mortgage secured obligations under a credit contract or a related guarantee and the mortgagors were natural persons: section 7. The Guarantee was 'related' to the mortgage and the Code was also said to apply by reason of sections 4 and 8. Although the Guarantee pre-dated the Code, it was said to be nonetheless engaged when additional credit was extended after 2010 and a notice of demand was served in 2015. The Court has a wide discretion to grant relief under the Code: Shannon v Permanent Custodians Ltd [2020] WASCA 198 at [331], [345] per Quinlan CJ and Tottle J. 3. The first matter to consider is whether the National Credit Code applies at all, where the Code did not commence until after both the Eleebana mortgage and the Guarantee were executed. The National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) provides that the National Credit Code does not apply to contracts made before commencement unless it is a "carried over instrument": Item 3(1), Schedule 1. A 'carried over instrument' is a contract to which the Consumer Credit Code, as defined in the Consumer Credit (New South Wales) Act 1995 (NSW), applied: section 4, National Consumer Credit Protection (Transitional and Consequential Provisions) Act. 4. The transactions to which the Consumer Credit Code applied are broadly the same as the National Credit Code. Sections 5 and 6 of the Consumer Credit Code (being the appendix to the Consumer Credit (Queensland) Act 1994 (Qld), as applied by section 5 of the Consumer Credit (New South Wales) Act 1995 (NSW)) provided: (emphasis added) Meaning of "credit contract" 5. For the purposes of this Code, a "credit contract" is a contract under which credit is or may be provided, being the provision of credit to which this Code applies. Provision of credit to which this Code applies 6.(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into … — (a) the debtor is a natural person … or a strata corporation …; and (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes … 1. The Consumer Credit Code then specifies "Provision of credit to which this Code does not apply", in section 7, before turning to particular forms of credit to which the Code does apply. Section 8 of the Consumer Credit Code provided: Mortgages to which this Code applies 8.(1) This Code applies to a mortgage if— (a) it secures obligations under a credit contract or a related guarantee; and (b) the mortgagor is a natural person or a strata corporation. (2) If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee. … 1. Whilst "related guarantee" is not defined and does not appear to have been judicially considered, the Code applies to a mortgage if it secures obligations "under a credit contract or a related guarantee". The close proximity of "related guarantee" to "credit contract" indicates that the guarantee must be related to the "credit contract" rather than simply related to the mortgage. To construe "related guarantee" more broadly would have the consequence that the protections conferred by the Consumer Credit Code would extend beyond the evident statutory purpose of regulating credit provided to natural persons for personal, domestic or household purposes. 2. Further, section 9 of the Consumer Credit Code provided: Guarantees to which this Code applies 9.(1) This Code applies to a guarantee if— (a) it guarantees obligations under a credit contract; and (b) the guarantor is a natural person or a strata corporation. (2) If any such guarantee also guarantees other obligations, this Code applies to the guarantee to the extent only that it guarantees obligations under the credit contract. … 1. Where a guarantee concerns obligations other than under a "credit contract", the Consumer Credit Code does not apply. If "related guarantee" in section 8(1)(a) was construed in the manner for which the plaintiffs contend, it would have the curious result that a guarantee to which the Code does not apply by dint of section 9 would be a guarantee to which the Code does apply by dint of section 8(1)(a). This confirms a construction of "related guarantee" as a guarantee related to the "credit contract" rather than simply related to the mortgage. 2. It may be accepted that, when the Eleebana mortgage was executed in 1987, the underlying loan agreement was a "credit contract" to which the Consumer Credit Code applied: the debtors were natural persons (Mr and Mrs Gardiner) and the credit was provided for personal, domestic or household purposes, being the construction of their home. Likewise, the Eleebana mortgage was then a mortgage to which the Consumer Credit Code applied, as it secured obligations under a "credit contract" and the mortgagors were natural persons. 3. The same cannot be said for the Eleebana mortgage when it came to secure Gardiner Petroleum's obligations under the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility or the Guarantee. None of these contracts were "credit contracts" within the meaning of the Consumer Credit Code as the debtor was not a natural person, but Gardiner Petroleum. Nor was the credit provided for personal, domestic or household purposes but to fund the business operations of Gardiner Petroleum's network of service stations. Likewise, the Consumer Credit Code did not apply to the Guarantee where Mr and Mrs Gardiner were not guaranteeing obligations under a "credit contract". 4. Insofar as the Eleebana mortgage came to secure the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility or the Guarantee, it was not a mortgage to which the Consumer Credit Code applied as the mortgage was not securing obligations under a "credit contract or a related guarantee", where "related guarantee" means a guarantee related to the "credit contract", not simply related to the mortgage. To the extent that the Eleebana mortgage secured other obligations – being those of Gardiner Petroleum – section 8(2) provided that the Code did not apply. 5. As such, the National Credit Code did not apply to the Eleebana mortgage or the Guarantee. If I am wrong about this, then I am not satisfied that "in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed … the contract, mortgage or guarantee was unjust" such that the transaction ought be re-opened: section 76, National Credit Code. Essentially for the same reasons as in respect of the Contract Review Act claims, the plaintiffs have not established that the Eleebana mortgage or the Guarantee was unjust in the circumstances at the time the contracts were entered into or changed. 6. The bank further submitted that the claims under the National Credit Code were out of time. Section 80 of the National Credit Code provides that an application may not be brought more than two years after the "credit contract" is "rescinded or discharged or otherwise comes to an end". The bank cancelled Gardiner Petroleum's facilities in 2014: see [288]. To this, the plaintiffs submitted that section 80 did not apply where the bank maintained that the plaintiffs remained customers of the bank and they were still in receipt of statements of account. It is not necessary to decide this question where the National Credit Code does not apply, but the bank's submission has considerable force. The National Credit Code claim fails. RETURNING TO THE FACTS 1. In December 2008, three months after execution of the Guarantee and provision of the Second Market Rate Facility, Gardiner Petroleum requested further funding of $500,000 in order to sustain the growth then being experienced at the Raymond Terrace and Beresfield North sites. 2. On 28 January 2009, Mr Gardiner emailed Mr Coddington regarding exceedance of the overdraft limit. Mr Coddington noted that the overdraft balance was $917, 204 against a limit of $800,000. Whilst Mr Coddington noted the pressure on the overdraft due to fuel sale volumes, "we do look for the limit to be respected." The file was made "close monitoring" by the bank, following a breach of covenants in the September 2008 quarter and a delay in providing final accounts for the 2008 financial year. 3. On 3 February 2009, Mr Coddington reported to bank colleagues that he had placed a call to Mr Gardiner that morning given the overdrawn overdraft facility, "with what appears rising fuel costs I expect that we will need to look to provide some assistance … The PPB report read relatively well of business model and his management – gave us comfort then … There is still cash drain due to unsold residential property … Just a heads up at this stage". 4. On 23 February 2009, the Portfolio Review Group of the bank completed a review of the Gardiner Group and provided their conclusions to Mr Coddington. The file review noted that the bank had a weak secondary exit position, with mortgages over four of seven leasehold sites. The file was regarded as high risk, to remain under close monitoring until a period of sustained performance to budget was demonstrated. Further, the bank needed to discuss whether the customer had considered de-leveraging by selling leaseholds, injecting equity or finding an equity partner to improve cashflow and reduce risk in the current economic climate. Further, as the last credit approval required the sale of Eleebana and Hawks Nest by March 2009, an update was sought. Finally: The customer is considered highly leveraged and our current exit positions remain we[a]k. Hence, there is little margin for further deterioration in performance otherwise we have going concern issues. Position should be monitored closely via excesses/account conducts and creditor positions regularly for early signs of cash flow stress. Should further decline in performance be noted, early referral to SBS should be discussed with [Delegated Credit Authority]. 1. On 24 February 2009, Mr Coddington updated his colleagues on Gardiner Petroleum. Mr Coddington noted that the loss-making Warners Bay site was closed at the end of February 2009. Neither the Eleebana nor Hawks Nest properties had sold. The Beresfield North site was now break-even and the Raymond Terrace site was improving. Mrs Gardiner's hairdressing salon had been sold. Mr Coddington expressed the view that the present loan structure had "very aggressive amortisation". 2. For here on, the Overdraft Facility was routinely exceeded. Mr Coddington obtained updated cashflow projections from Gardiner Petroleum, on which he reported to his colleagues on 25 March 2009: The bleed of cash from core activity has to stop and house sales needed to reduce group debt loads. Selling off sites is not seen as something that Gardiner would warm to - so he needs to determine if he wants surplus residential real estate or an emerging business. I still suggest profitable but it may be that we need to consider facility restructure to ease servicing burden. … to cut Caltex "off / turn back fuel drawings" and require them to go "COD" will bust the business. 1. In advance of a meeting between Mr Coddington and the Portfolio Review Group, Mr Coddington was provided with some high level points following a review of the financial information provided by Mr Coddington. The Portfolio Review Group noted that Gardiner Petroleum conducted a high volume/low margin business where long-term profitability appeared to depend on achieving sufficient critical mass, "yet Gardiner Petroleum appears to be growing beyond financial means/insufficient equity support (over expansion with no buffer to absorb "external shocks")." Capital constraints appeared not to have been factored into the business model, which proceeded on the basis that operating cashflow would be sufficient, combined with continuing bank support. The bank was now in a quasi-equity position based on gearing levels, with the potential risk of loss in a "worse case" scenario. A number of suggestions were made as to how to address these problems, however, there was a need to stabilise business cashflow and reduce debt, noting the risk of "forced sale recovery … should Caltex payments be turned off." 2. On 31 March 2009, the Second Market Rate Facility expired. Mr Coddington sent an internal memorandum to a senior colleague at the Lake Macquarie Business Banking Centre, John Crosdale, seeking advice or instruction, having "identified more than short term cash strain within this business". Mr Coddington considered that the aggressive amortisation program was unachievable. 'In principle' support was sought to extend the facility across the Gardiner Group to 30 September 2009, increase the overdraft limit to $1 million, suspend the principal reductions of $26,500 a month until 30 September 2009, require monthly reporting within 15 days of month's end and extend the requirement to sell two residential properties by six months "with firm commitment to sell". Further, "we consider our continued support warranted as … still reflects as profitable enterprise." 3. On 7 April 2009, Mr Coddington sought comments from a senior credit partner at the Lake Macquarie Business Banking Centre, Stephen Bottom. Mr Coddington advised that he was managing the account on a daily basis and was in regular contact with Mr Gardiner, who was "aware of our stance $1M max within O/D, that funding for any formal increase in facilities has not been approved/committed and that the firm remains with our credit area for consideration." 4. On 15 April 2009, Mr Coddington submitted a Lending Increase Memorandum, proposing to increase the overdraft to $1 million until 31 May 2009 to regularise "present long dated excess on the working account" and ongoing working capital needs until determination of the bank's ongoing support or assistance to the Gardiner Group. SBS Categorisation 1. On 16 April 2009, Mr Coddington referred the Gardiner Petroleum facilities to SBS. On the same day, the bank approved the increase in the overdraft to $1 million until 31 May 2009 and extended the Group's existing facilities until that date. By then, the bank's total lending to Gardiner Petroleum stood at $8,543,331, while securities were valued at only $4,330,082. 2. Mr Coddington advised SBS that he could not support the company's recent request for further funding given immediate past profit performance and conduct of the account. The company's request required greater overview of operations to enable the bank to gain sufficient comfort to support the Group. Further: Continued cash strain from non core business activities of the Group's Service Station operations impacting negatively on cashflow – I now don't believe increasing fuel sales volumes are the underlying reason for present cash deficiency. 1. Mr Crosdale supported the categorisation of the account, noting that the "position with this group is less than ideal … Clearly the Group's cashflow has been under considerable strain for some time and it appears there was little chance they would be able to regularise the long dated irregular account from that source." 2. On 20 April 2009, Mr Coddington met with Mr and Mrs Gardiner and explained that the Guarantee extended to provide for the increase in the overdraft facility. According to Mr Coddington's note, both Mr and Mrs Gardiner "are aware and accepted reasoning and acknowledged in interview position. Both again placed on notice of requirement for $1M limit to be respected and that further review in conjunction with SBS will now be required – facility expiry stands now at 31/5/09". 3. The Gardiner Group was categorised on 21 April 2009 given emerging liquidity difficulties, a covenant breach, and an irregular account. (The plaintiffs' expert, Mr Gaudion, acknowledged that there were periods prior to March 2009 when the Interest Cover Ratio was below 2.0.) The file was to be managed by Mr Vasseleu. Mr Vasseleu reported to Mr Acharrie, who reported to Joseph Taylor, the head of SBS. It is apparent from the contemporaneous documents that Mr Vasseleu routinely sought approval from Mr Acharrie in respect of the Gardiner file, for example, approving extension of facilities or excesses on the overdraft limit. On occasion, Mr Acharrie consulted with Mr Taylor, for example, when deciding whether to use PPB as the investigating accountant or a 'fresh pair of eyes': see [128]. Mr Acharrie said, at a minimum, joint approvals and overviews were required on all files. 4. Mr Acharrie explained that SBS had two divisions: the retention/turnaround division and the recovery/collections division. Mr Acharrie ran the retention/turnaround division and Mr Vasseleu worked for him. Mr Acharrie said that most of his managers, including Mr Vasseleu, spoke to him about a way to get the customer obligations back in order so that the file could be repatriated to the 'front line'. If the person in charge of the file believed there was a pathway to repatriation, then that would have been the guiding principle in managing the file. SBS staff closely monitored files to get the customer on a footing that was in line with the bank's parameters of comfort. Further, Mr Acharrie explained: The fact that it was domiciled within my team meant that they felt that they could actually convince the customer to work with us and bring the LVRs to … within a comfortable level and then we repatriate it back to the frontline, and largely during that time, a lot of customers would go and sell down assets and get to a more comfortable LVR and then be repatriated to the frontline. 1. While, according to SBS's computer file, the Gardiner file is marked as a recovery file, Mr Acharrie did not agree that the file had been placed in the recovery section at the outset, "That didn't happen. The fact that it was in John Vasseleu's team management and in my team meant that at the outset it was not placed into recovery." A likely explanation for the Gardiner file being marked as "recovery" is that, as Ms Stacker explained, SBS's computer file was updated. For example, whilst Ms Stacker's name appears on SBS's computer file as the Impaired Asset Manager, she did not take on this role until February 2020. Presumably, when the Gardiner file became a "recovery file" in 2011, SBS's computer file was updated accordingly. Either way, it is plain from Mr Acharrie's evidence and the efforts of Mr Vasseleu, to which I will now turn, that the bank in fact treated the Gardiner Petroleum file as a "turnaround" file on categorisation. 2. According to the bank's records, a meeting with Mr Vasseleu and Mr Gardiner was arranged urgently at the request of bank manager Mr Perriman, as the client had indicated to the Business Banking Centre that the $1 million overdraft facility approved by on 16 April 2009 was insufficient to fund an increase in volume sales of fuel and was likely to be exceeded in the short term. According to the bank's note, prior to the meeting with SBS both Mr Perriman and Mr Coddington 'pre-positioned' Mr Gardiner on the bank's concern regarding the business' continuing appetite for debt to fund its growth strategy and the limitations on the bank to further assist against the inadequate capital and security base of the Group. Mr Perriman and Mr Coddington endeavoured to encourage the Group to explore alternate options to fund the business through sourcing equity or the sale of sites to consolidate their position. 3. According to Mr Gardiner, Mr Coddington called him to say that someone from Sydney wanted to come up and meet him. When Mr Gardiner asked for what purpose, Mr Coddington said "This guy has greater authority to approve things than we do locally, to assist with the management of cashflow and debtor repayments, extend lease payment terms and holidays on principal repayments." Mr Gardiner said he understood that Mr Vasseleu's function was to assist in approving overdraft limit increases which he needed because of the faster than anticipated "organic" growth of the business. 4. Mr Gardiner's evidence that he was told that Mr Vasseleu needed to meet with him in order to approve an increase in funding is unlikely where the bank's contemporaneous notes record that Mr Coddington had met with Mr and Mrs Gardiner on 20 April 2009 and conveyed the bank's concerns (see [112]) and where Mr Perriman and Mr Coddington had 'pre-positioned' Mr Gardiner as to the bank's limited appetite for further funding (see [116]). Seeking refinance 1. Mr Gardiner agreed that, before the meeting with SBS, he approached the Commonwealth Bank, ANZ and Westpac regarding the possibility of refinance. Mr Gardiner had a number of contacts at these banks, who he knew socially. Mr Gardiner believed these contacts were in a position within these banks "to give me some advice on the future growth expansions of the company, not specifically to refinance the existing debt of the company, but to provide finance moving forward … it was a broad conversation like that." No formal application was made, "It was just conversations". 2. Again, I consider that Mr Gardiner's recollection as to why he enquired about finance from alternate banks is framed in unduly optimistic terms. More likely, Mr Gardiner apprehended – as he had been told by Mr Coddington and Mr Perriman – that the bank was reluctant to extend further finance and wanted Mr Gardiner to seek equity or sell assets. Mr Gardiner's enquiries of other banks is consistent with Mr Gardiner having understood that the bank was not prepared to continue to accede to Mr Gardiner's funding requests and wished to reduce its exposure to Gardiner Petroleum. In any event, nothing came of Mr Gardiner's enquiries of the Commonwealth Bank, ANZ or Westpac. Strategy 1: assess options and improve cashflow 1. Before leaving to meet with Mr Gardiner, Mr Vasseleu informed Mr Acharrie of the results of his preliminary review of the file, in particular, the bank may wish to consider instructing an investigating accountant, where revenues had failed to achieve projections assessed by PPB and cashflow was currently under considerable stress. Mr Vasseleu considered a key issue to be that the business was undercapitalised and, to date, had been wholly reliant on debt funding to fund business expansion strategies. Mr Vasseleu considered that the Group needed to look at urgent options to inject equity into the business. Mr Vasseleu's initial thoughts were recorded in SBS's computer file as "Strategy 1". SBS meets with Gardiner 1. On 27 April 2009, representatives of SBS met with Mr and Mrs Gardiner together with Mr Coddington and Mr Perriman. Mr Vasseleu's note of the meeting records: (emphasis added) At the meeting Brad Gardiner provided … further plans to establish another site at Berkeley Vale towards the end of the year. … Brad conveyed that he did not have options available to source equity and/or to extend payments terms with Caltex. In any event he was reluctant to find an equity partner and relinquish control at this stage of the business' growth cycle. He also appeared of the view that given he believed the businesses were profitable and on his track record, the Bank would continue to provide funding of his business and its expansion plan. Brad further advised that an internal review of the staffing overhead of the business had been undertaken and the group had implemented immediate reduction of wages overhead of approximately $200k pa through recent termination of full and part-time staff. He did not convey any further options to internally address the cash stress on the business. 1. Mr Gardiner agreed in cross-examination, that the prospect of finding an equity partner at that time "seemed ridiculous to me especially at a time where we were on a growth curve. Introducing another person into the business in the form of equity just didn't make sense to me but I wasn't discounting it, but it was just forced on me to consider". 2. According to Mr Vasseleu's note of the meeting, he and Mr Perriman advised that there were limitations to the level of debt funding support that could be provided given the Group's limited capital and security base relative to its debts and ongoing and increasing funding requirements. The bank considered that the business needed to focus on consolidation and to consider the sale of sites and/or to seek substantial equity injection to fund its growth and mitigate the bank's concerns of the risk associated with the current business model. "Also advised that there was a need to generate and retain sufficient profits in the business to improve its internal funding capacity noting that currently there are 3 Gardiner families reliant on profits generated by the business for their personal outgoings and loan commitments placing demand on any surplus generated by the business." 3. According to Mr Vasseleu's note, "It became clearly evident that the group … did not recognise the financial limitations of their current capital base." As such, the Gardiners were advised that the bank may need to engage an investigating accountant to review the business and for the bank to consider its options and determine if it could and would be prepared to make facilities available. After much discussion, Mr Gardiner advised that he would be prepared to allow this review and asked that PPB undertake the review, given its past involvement. Mr Gardiner advised that the business had an urgent additional funding need and was informed that there was no commitment by the bank to provide further funding and, until a decision was made by the bank, Mr Gardiner needed to explore all options through extension of creditor terms or sourcing additional funding and to work within the existing overdraft limit, which had only just been increased by $200,000 on 16 April 2009. 4. Mr Gardiner showed Mr Vasseleu around Gardiner Petroleum's sites. Mr Gardiner's son-in-law, Mr Cramp, was the manager of the Raymond Terrace site and attended the meeting, which went for 15 or 20 minutes. He recalls Mr Vasseleu saying that the company needed to have a health check to move forward, where Mr Gardiner was then seeking finance for two further sites. (Mr Smith of McGrathNicol said that the expression "health check" was used in the industry and by the bank.) Mr Vasseleu also said that the bank needed this as the company was relying on funding to be forthcoming from the bank to supply working capital for the operation of the new sites. 5. According to Mr Gardiner, Mr Vasseleu also said that the global financial crisis (GFC) had affected the bank's loan-to-value ratios and Mr Gardiner's business needed to comply, "Your loan-to-value ratio needs to be lower to comply with post-GFC policy within the Bank. I haven't seen your file, but I believe you have a lot of assets. You must be prepared to sell some. We've all be affected by the GFC." Mr Gardiner also said the bank needed to have its accountant do a health check on the business and suggested that Mr Gardiner introduce an equity partner into the business "because the bank feels that it is your partner and we don't want to be an equity partner, we just want to be bankers." Mr Vasseleu said that Mr Gardiner needed to cooperate with the bank as it was losing patience, adding "I forced people to sell their assets at a fraction of their worth." Mr Vasseleu also said that Mr Gardiner had houses that were not income-producing. I will return to whether the representations described by Mr Gardiner were, in fact, made at [305]. Appointing an investigating accountant 1. The following day, Mr Vasseleu reported to Mr Acharrie on the meeting. They considered appointing PPB to conduct a review given its past involvement and to reduce costs but, after consultation with Mr Taylor, decided to appoint McGrathNicol, being "a fresh set of eyes". It will be recalled that, under the terms of the bank's fixed and floating charge over Gardiner Petroleum, the bank was entitled, at its sole discretion, to engage accountants to examine the business and affairs of Gardiner Petroleum if the bank reasonably believed that the company had breached, or was in danger of breaching, its obligations: see [31]. The plaintiffs do not suggest that the bank was not entitled to appoint an investigating accountant in the circumstances. 2. SBS also reviewed the work undertaken by the Portfolio Review Team, noting the significant cash requirements of the business given that Caltex required immediate payment for fuel and shop restocking on a cash on delivery basis. With increasing fuel volumes, Gardiner Petroleum was now required to pay for stocks pending sale. Given the depressed state of the local real estate market, sale of the Eleebana or Hawks Nest properties in the short term, at a price the customer was prepared to accept, appeared doubtful. As to the bank's options: … group needs to source alternate funding from either asset sales, equity injections and/or extension of supplier payment terms. Further agree that the Bank could be looking at crystallising a substantial loss if it was to immediately withdraw support given the marginal secondary exit option. Need to assess our options fully before making a determination on strategy. Accordingly, the appointment of an IA [investigating accountant] to assess funding requirements of group and exposure risk is considered appropriate to enable determination on any continuing support to the group and/or alternate options to mitigate risk and potential for loss. 1. On 5 May 2009, the bank appointed McGrathNicol and provided a copy of the letter of instruction to Mr Gardiner. Amongst the tasks assigned to McGrathNicol were: (emphasis added) 17. Provide an assessment of the Bank's security and ultimate realisation on both a going concern and forced sale basis; 18. Review and comment on strategies proposed by the Group to reduce debt from asset sales and/or equity raisings; 19. Identify and comment upon the alternatives open to NAB in the management of its ongoing relationship with the Group and explain your recommended strategy; … You should provide a draft copy of your report excluding your assessment of the security and recommendations to NAB which should be delivered under cover of an addendum to the report to the Group and ask them to confirm its factual accuracy in writing prior to issuing in final form. Please specifically in the addendum to the report provide your recommendations on level of funding both immediate and medium term structure timeframe for payback and key milestones if supported. 1. Mr Gardiner said he was forced to sign the engagement letter to McGrathNicol under threat of bank enforcement action. I do not understand this as Mr Gardiner did not sign the letter. In any event, Gardiner Petroleum was obliged to sign and execute all papers, documents and authorities necessary for the purposes of the bank appointing an accountant under the terms of the debenture: see [31]. 2. Mr Gardiner collected a copy of the engagement letter from Mr Coddington and arranged to meet with McGrathNicol. According to SBS's notes, until McGrathNicol completed its preliminary report, any overdraft excess requests for fuel payments were to be assessed on an individual basis by SBS. A longer term strategy would be determined on receipt of McGrathNicol's report and before expiry of facilities on 31 May 2009. McGrathNicol's first report 1. The bank's assignment was allocated to partner Murray Smith and senior manager Sean Wiles of the restructuring team at McGrathNicol. Both are chartered accountants. It was suggested to Mr Wiles that McGrathNicol's report was prepared with an end in mind to reflect faithfully what the bank had told him it intended to do, to which Mr Wiles said, "I take … objection to that. I was undertaking alongside Mr Smith an independent business review of the business of Gardiner Petroleum." 2. Mr Wiles prepared the report under the supervision of Mr Smith. Mr Wiles had many meetings and calls with Mr Gardiner to obtain information and business records. Mr Wiles also spoke with the bookkeeper, Ms Dawson, and, later, Gardiner Petroleum's external accountant, Michael Randall from Lawler Partners. Mr Wiles said that Mr Gardiner was generally receptive to the matters being discussed and was cooperative in providing Mr Wiles with the records he requested. Mr Wiles read the report which had been prepared by PPB. 3. On 25 May 2009, McGrathNicol provided a draft report to Mr Gardiner. Of the 35-page report, two pages were redacted. One of these pages was entitled "Options for the Bank", while the other was entitled "Bank security review – high level only". The title was included but the accompanying text was not. Mr Smith said the portions to be redacted were identified in the letter of instruction. Mr Smith did not agree that he spoke to the bank, Mr Vasseleu or Mr Acharrie to decide which parts should be redacted. Mr Wiles said he took his instructions in this regard from Mr Smith. On 26 May 2009, Mr Gardiner sent a letter to McGrathNicol confirming that the draft report was factually accurate. 4. The redacted portions of the McGrathNicol report advised that the bank would experience a potential shortfall of $1.3 million to $3.1 million if it enforced its security. As to the options available to the bank, the redacted portion stated: The options available to the Bank are: Provide additional funding to the Group (to meet its commitments and fund the Group's expansion); Reduce funding to the Group or facilitate a going concern or forced sale exit; or Continue to support the Group at existing debt levels (to allow the Group to consolidate the existing business model). 1. While the business' existing operations and capital structures would not support additional debt funding, McGrathNicol advised "unless the Bank is prepared to accept potential returns significantly below its current exposure to the Group, it would appear that a going concern or forced sale exit is also not a feasible option in the short to medium term." Further, whilst the bank may well wish to reduce funding levels, "in order to sustain existing operations and preserve going concern values, this requires planning over the short to medium term in conjunction with an injection of additional equity funding and a reduction in the Group's operating overheads". That is, the bank was advised not to enforce its security, as it would lead to a significant shortfall for the bank. Rather, the bank was advised to continue to support the Group while seeking to effect improvements in the business operations and a gradual reduction in debt levels. 2. McGrathNicol advised the bank to consider maintaining the overdraft facility at its existing temporary limit, with various conditions including new equity or the sale of personal assets, reduced operating costs and limits on new commitments including new sites. Whilst Gardiner Petroleum had signed head leases for two new sites at Beresfield and Berkeley Vale, both were unfunded and it was suggested that the Group should focus on achieving forecast sales and profit levels at existing sites, rather than adding new sites. Sale of the Hawks Nest property was suggested; the Gardiners should also consider whether to sell other personal assets. Further, Mr and Mrs Gardiner were paid a combined salary of $300,000 and directly benefited from further payments made by the Group for non-group property mortgages. These were significant cash outflows which needed to be addressed to ensure that the Group maintained sufficient cash to sustain its operations. (The second redacted page contained an analysis of Gardiner Petroleum's accounts, which supported this advice.) 3. On 27 May 2009, SBS recommended extension of Gardiner Petroleum's limits expiring on 31 May 2009 to 30 June 2009 pending determination of the bank's strategy options. The bank arranged a meeting with McGrathNicol and asked Mr Wiles to consider and present strategy options to facilitate the following: 1. substantial redn of personal and business debt from property asset sales with timelines 2. material reduction of head office overheads including capping of personal drawings/wages paid to the directors and other family members 3. satisfactory servicing of the existing debt levels pending completion of property sales 4. determination as to whether the residual debt level after completion of the property asset sales (full proceeds to be applied to debt) is substainable and can be repaid over a commercially acceptable term 5. assisting the group in securing equity funding investor(s) to maintain the businesses and fund future growth 1. On 29 May 2009, the bank met with McGrathNicol, which then arranged a meeting with Mr Gardiner to 'pre-position him' as to the bank's expectations, being: 1. reduction of Head Office overheads 2. sale of property to reduce personal debt significantly to cut out the significant level of drawings from the business to service these personal debts 3. reduction and capping of Brad & Stacey's personal drawings of $300k pa and drawings to pay taxes payable by the trust; and 4. overall consolidation of the business. Meeting with McGrathNicol 1. On 2 June 2009, Mr Gardiner, Ms Dawson and Ms Cornall attended a meeting with McGrathNicol and were taken through the first report. Whilst pages in the McGrathNicol report were redacted, Mr Smith said this did not mean that the information was not discussed. Nor was it fair to say that Mr Smith did not want the Gardiners to know that, if the bank accepted one of McGrathNicol's options to exit the borrowing, then the bank would realise its security. 2. According to Mr Gardiner, Mr Smith told him, "You must sell all of your houses to help the Bank with the post-GFC Banking Practice". Mr Smith and Mr Wiles both denied this. Neither knew what was being referred to as the "post-GFC Banking Practice". Second meeting with SBS 1. After the meeting with McGrathNicol, Mr Vasseleu and Mr Acharrie met with Mr Gardiner, Ms Dawson and Ms Cornall. According to SBS' note of the meeting, Mr Vasseleu outlined the key points in McGrathNicol's report: the business was highly capitalised; net debt to equity was high; the cashflow report showed no sustainability in servicing debt; overheads were significantly high; drawings were high; the overdraft facility had grown over time and debt reduction was not visible. Given the current economic climate, where business growth was difficult, and looking at the bank's current position "we needed to work together to reduce debt preferably within [a] few months". 2. According to SBS's note, Mr Gardiner said that he understood the current position and was willing to work with the bank. Cashflow was said to have improved since the McGrathNicol report. Mr Gardiner's two properties had been on the market for nine months. One property had been listed for $1.3 million but was now for sale for $950,000 and he was serious to sell. Mr Gardiner asked what else did the bank need him to do? Mr Vasseleu advised that, with the current position, "the bank needed to see more than 2 properties sold, we needed to see substantial improvement of cashflow going forward in interim". Further, the business needed a realistic and achievable business plan. The bank recommended that Mr Gardiner consult with external accountants who could advise on such a matter. In addition, drawings needed to be reduced immediately. Mr Vasseleu added, "We are from Strategic Business Services not collections and we work [in] partnership with the customer … we give customers the control in running their business and for that we expect the customer to deliver and commit." Mr Acharrie added, "We are here to sustain our relationship and work together to achieve what [is] realistic and achievable." Mr Vasseleu advised that the facilities had expired in May 2009 but had been renewed until the end of June. 3. A further bank note of the same meeting records that Mr Gardiner was informed that the bank was only prepared to work with the business if an acceptable programme for the sale of the Group's investment properties, excluding the family home, was put in place to reduce debt to a sustainable level against existing cashflows. The bank was not prepared to increase funding to accommodate servicing of debt and expansion of the business. The business must focus on reducing overall costs including servicing of personal and investment debt. The timelines to be allowed to sell investment properties depended on cashflow being able to support debt whilst the assets sale program was progressed. 4. Mr Acharrie also said that, while the redacted portions of McGrathNicol's report suggested that the bank may experience a shortfall of up to $3.1 million, it was normal practice to communicate this information to the customer in meetings or discussions. 5. Ms Cornall said the subject matter of the meeting was essentially to 'bring home' the findings of the McGrathNicol report. Mr Vasseleu said that the investment properties needed to be sold in order to keep Gardiner Petroleum in existence. Ms Cornall asked Mr Vasseleu how many of the properties needed to be sold, and Mr Vasseleu replied, "All of them except the family home". Ms Cornall said the main 'take home' message from the meeting was that the investment properties needed to be sold in order to keep the business going. 6. Ms Dawson said she was surprised by the change of tone and attitude that she observed from Mr Vasseleu at the meeting that day, when compared with Mr Gardiner's previous good relationship with Mr Coddington and the bank. Ms Dawson recalled that the meeting did not involve a discussion but rather that Mr Vasseleu dictated to Mr Gardiner what had to occur going forward, that is, to keep trading, Mr Gardiner would have to sell off any investment properties that he had. 7. To the best of Ms Dawson's recollection, Gardiner Petroleum's cashflow position was good in the period leading up to May 2009. Some accounts were paid a little late, but she did not consider that delays in paying smaller suppliers from time to time was anything out of the ordinary. Ms Dawson was not aware of any suppliers refusing to supply Gardiner Petroleum or refusing credit. To some extent, Ms Dawson's evidence does accord with the contemporaneous documents, where the suppliers of goods to the service station shops appear to have continued to do business with Gardiner Petroleum long after their invoices ceased to be paid on time. It does appear, as Ms Dawson described it, that Mr Gardiner had good relationships with the company's suppliers. That said, it also appears that Ms Dawson's assessment of the financial health of the business was not particularly penetrating or insightful. 8. According to Mr Gardiner, Mr Vasseleu said, "Do you want to save your business? You need to sell off your investment properties. How quickly can you do that? I will have to seek authority to allow the businesses to keep trading whilst we discuss the sale of the houses." Mr Vasseleu then left the meeting for about ten minutes and, on his return, said "I have convinced my boss who has reluctantly agreed that you can continue to trade on. You must go home and immediately list all of the houses for sale and send evidence of the listings to the bank." 9. Mr Gardiner said he was forced to reluctantly agree to sell his investment properties but was led to believe that this would enable him to retain his business. Mr Vasseleu demanded the sale of the investment properties in order for the relationship to continue; for the business' banking to be moved back to Newcastle, it would be a requirement that the investment properties were sold. Mr Gardiner said he remembered the meeting very well and it was a very stressful time in his life. I will return to whether the representations described by Mr Gardiner were, in fact, made at [305]. Refinance? 1. Mr Gardiner accepted that it was then plain to him that the relationship with the bank had changed. "The meeting was such a shock that in conversation [in] the car home the prospect of talking to other banks was … heightened. I think that's a logical conclusion to draw. … We discussed amongst other things to reinvigorate approaches to … those other banks." 2. After the meeting with Mr Vasseleu, Ms Cornall attended several meetings with the Commonwealth Bank and provided that bank with documents as requested. Ms Cornall said the upshot was that the Commonwealth Bank declined to refinance Gardiner Petroleum. Ms Cornall did not recall Gardiner Petroleum approaching any other institution for refinance. 3. In contrast, Mr Gardiner said he did not go back to the Commonwealth Bank, ANZ or Westpac to explore refinance. His explanation was difficult to believe: … I had to work with this man. So, as soon as you have something lobbed on you in your life like that, you try to work with the person first rather than running off and, and spending a whole lot of time and money on some kite flying exercise with a new bank, you're better off to deal with what you've got in front of you. If Mr Vasseleu was going to be the person that I was to work with, … I was determined to understand where he was coming from, and to work with him. I believed in the bank until this time. I had a 20 year relationship with the bank. Until this man walked in the door and came before my eyes, I thought the relationship with the bank was very strong … they had helped me build my business from nothing. 1. Mr Gardiner considered it was astute not to approach another lender for refinance but to concentrate on the task at hand, "so, I wasn't running off and … panicking. I wanted to just consolidate with SBS, do the job and then return to Newcastle and … the lengthy relationship could then become more lengthy. Mr Gardiner said he chose not to pursue any discussions with other banks as he didn't want discussions with any prospective bank to 'get back' to the bank "because I trusted NAB and I was doing what Mr Vasseleu had told me to do". Where all the bank managers appeared to know each other, "I don't want my existing relationship with NAB to be soiled in any way whilst we got through this difficult process with this difficult man." Nor did Mr Gardiner want to start a relationship with a new bank under the cloud of being managed by SBS. An incoming financier would need to value the company's properties which he was in the process of listing for sale; "to an incoming bank, I viewed that as a red light". 2. I prefer Ms Cornall's evidence to that of Mr Gardiner. That is, after the first meeting with SBS, Mr Gardiner endeavoured to refinance the Group's facilities with the Commonwealth Bank but was unsuccessful. The contemporaneous records also support Ms Cornall's evidence: see [330]. I do not accept that Mr Gardiner did not explore refinance out of some sense of loyalty to the bank or a sense of obligation to "work with this man" rather than "running off". A new bank manager 1. In June 2009, Mr Harris took over the Gardiner file from Mr Coddington. Mr Harris said the file was under the management of SBS "in joint approval with myself", albeit Mr Harris deferred to Mr Vasseleu on all major decisions. Mr Harris learned that the bank strategy was, if possible, to support the business of Gardiner Petroleum in getting back on track by improving cashflow, including by reducing debt levels by the sale of non-income producing properties and reducing costs, including wages and mortgage expenses related to the non-income producing properties, in accordance with commitments made by Gardiner Petroleum and the Gardiners to the bank. Mr Harris understood that three properties in holiday areas were non-income producing. Mr Harris was also then aware that Gardiner Petroleum's payments under its equipment leases with the bank were in arrears. 2. On 19 June 2009, Gardiner Petroleum's external accountants, Lawler Partners, provided the bank with projections for the 2010 financial year. These were analysed by bank officers, who concluded that cashflow forecasts indicated that the Group would be able to operate within its existing overdraft limit of $1 million. The bank awaited an asset sale strategy and timelines, following which a meeting would be arranged to agree on the asset sale strategy and ongoing monitoring of actual results to budget. On 3 July 2009, Mr Gardiner provided the bank with an Asset Realisation Schedule in respect of the Merewether, Blueys Beach, Hawks Nest and Rothbury properties. The four properties were then listed for sale but economic times were said to work against a quick sale of the Blueys Beach and Hawks Nest properties, being in holiday areas. 3. On 16 July 2009, Mr Harris met with Mr Gardiner and Ms Cornall to discuss the results for May 2009. According to Mr Harris' note: - Brad advised that as a result of the extremely tight management of cashflow, business had suffered in the short-term a position he would not like to see in the medium to long-term. He advised that they have, due to lack of available cash, kept less fuel stocks on sites this has resulted fuel "stock-outs" which are almost unavoidable given the cash limits they are working within. "Stock-outs are occurring weekly (averaging 2 -3 times per week). Brad does not want this pattern to continue as sites will get a reputation for being out of fuel which shall drive customers permanently away. - Past due creditors equate to approx $100K, this has reduced … again position is difficult with some suppliers stopping supply or COD. Brad advised in the medium term the business needs additional working capital assistance to efficiently run and stock the business. … They are looking for additional working capital. 1. At the time, Mr Harris said that Gardiner Petroleum was regularly close to or over its overdraft limit. This resulted in 'stock outs', where fuel was not being supplied to the service station. It also resulted in excess requests from Gardiner Petroleum, being a request for the bank to honour a payment which would otherwise exceed the limit of the overdraft. These requests continued throughout Mr Harris' involvement with Gardiner Petroleum and became progressively more common. 2. In August 2009, Gardiner Petroleum's financial results for the 2009 financial year were analysed by the bank as indicating improvements in cashflow. The bank noted "continued focus on all areas of the business and building on the strategies implemented … are to be maintained. That is, Gardiner Petroleum's business had improved and the bank continued to monitor the performance of the business. 3. On 24 September 2009, Gardiner Petroleum's equipment leasing expired. A residual payment of $126,500 was due. The Asset Finance division of the bank was not willing to refinance the residual, while SBS sought a 12 month extension. On 28 September 2009, Mr Harris advised SBS that Asset Finance was not prepared to refinance the lease residual and, as such, the bank needed to consider a further facility. SBS recommended the extension of the expired limits to 31 October 2009, until a submission as to the appropriate strategy was finalised. SBS noted that all accounts were then operating within limits. 4. On 7 October 2009, an officer from the bank's Asset Finance team advised Mr Harris that she was instructed to arrange collection of all arrears. Mr Harris replied that he was currently preparing a submissions in conjunction with SBS to have the debt restructured under a market rate facility. He expected that this would be finalised in coming weeks, when the lease would be cleared in full. That is, Mr Harris and Mr Vasseleu were working to provide additional financial support to Gardiner Petroleum, where other divisions of the bank were no longer prepared to do so. Third meeting with SBS 1. On 9 October 2009, Mr Vasseleu and Mr Harris met with Mr Gardiner, Ms Dawson and Ms Cornall at Gardiner Petroleum's office. Mr Gardiner said he wanted the meeting to try to introduce some common sense before it was too late but, unfortunately, "I was just met with intimidation by Mr Vasseleu." All Mr Vasseleu wanted to talk to Mr Gardiner about was the sale of the investment properties, "He wasn't interested in much else". 2. As occurred often in Mr Gardiner's evidence, there was an element of truth and a dash of exaggeration, mixed with an inaccurate reconstruction. I did not consider this to be dishonest per se but explicable by the passage of time together with a long-standing sense of grievance. The bank's contemporaneous note gives a more accurate account of what happened. 3. According to the bank's notes, the bank officers advised that they were prepared to recommend renewal of the facilities until 31 December 2009 and an additional market rate facility to cover the expired lease residual, McGrathNicol's fees and the expired Gardiner Investments' facility of $45,000, "however it was reinforced that we expect some proactive action in selling property to reduce debt to more serviceable levels in line with cash flow. In our discussions we indicated we would recommend that at least one property (but preferably 2) either Merewether or [Rothbury] be sold by 31/12/09 and the 2 other holiday area properties by 28/2/10. However we also stressed that Nab would not be prepared to increase working capital funding and that if cash flow becomes stressed then the asset sale deadlines will be brought forward". 4. In November 2009, Gardiner Petroleum breached its financial reporting covenant. The bank extended the deadline to 15 December 2009. Mr Gardiner said that on one occasion Ms Dawson fell ill and he apologised to the bank manager, "It wasn't a problem. It was never seen to be a problem." In fact, Gardiner Petroleum routinely failed to comply with its reporting covenants: see [191]–[196], [224], [233], [238], [244]. 5. In January 2010, the bank analysed the results for the September 2009 quarter provided by Lawler Partners. In summary, there was evidence of improving trends but none of the properties listed for sale had been sold. The bank arranged a meeting with Mr Gardiner on his return from holidays "to ramp up urgency to complete property sales and then report to SBS with their further recommendations to move the matter forward." 6. In February 2010, the bank analysed the results for the December 2009 quarter. Contracts had been exchanged on the Blueys Beach property for $655,000, with the contract to settle on 15 March 2010. SBS's strategy was then to focus on encouraging the Group to proactively sell all residential investment properties, excluding the Eleebana residence, to significantly reduce debt servicing commitments. Further: (emphasis added) It is acknowledged however that the timelines for sale of the remaining properties cannot be set with strict timelines given the state of the market in the northern region and we will need to be flexible in our completion expectations provided the business is maintaining an acceptable sustainable trading/cash flow position and generating further capacity to increase level of debt amortisation on the business's core debt. In this regard we would be looking for at least another sale of most likely Merewether and/or [Rothbury] to be exchanged in next 3 months say by 31/5/10 and preferably both by 30/6/10. We do not consider at this stage that we need to include these as "drop dead dates" to trigger an event of default and recommend that the foregoing be subject to ongoing review as monthly reports are provided by the [Business Banking Centre] and we are satisfied that the group remains a committed seller of the properties. Provided we can complete sales/settlement of [Rothbury] and Merewether within the next 5/6 months and with continuing improvement in the performance of the business and ramp up of amortisations on the core business debt as cash flow currently servicing personal/investment debt is freed up from property sales, repatriation of the file may be possible by 30/9/10. That is, SBS then hoped to return the customer to the branch. Strategy 2: sell remaining investment properties and repatriate to branch 1. According to SBS's notes, SBS moved from Strategy No 1 to Strategy No 2 in February 2010, noting that "since categorisation the group is displaying a sound improvement in cashflow, trading and balance sheet management." The strategy was premised on the sale of remaining residential investment properties which, together with improved cashflow management, may resolve the position. SBS approved the extension of facilities to 28 February 2010. That is, the bank's initial strategy had been effective in achieving positive improvements in Gardiner Petroleum's business and the operation of its bank facilities such that repatriating the account to the branch remained in view. 2. On 25 February 2010, the bank extended the expiry date of the facilities to 30 April 2010. A new market rate facility of $240,000 was advanced to cover the residual lease payment, McGrathNicol's fees and the Gardiner Investments facility: see [42]. That is, the bank continued to provide additional financial support to the Group as part of its turnaround strategy. 3. On 23 March 2010, the sale of the Blueys Beach property was completed. The bank received $637,097.56 from the purchaser, which was disbursed in reduction of a number of facilities, particularly equipment leasing. Whilst the plaintiffs complained about this allocation of proceeds, the rationale is recorded in the SMS notes, "In the foregoing strategy the group's lease servicing commitment would reduce from $34,787.20 pm to $21,652.46 pm being cash flow benefit of $13,134.74 pm ($157,616.88 pa)". That is, expensive finance was repaid. In any event, the bank had a contractual power of allocation: clause 20.1(c), mortgage memorandum. 4. Gardiner Petroleum continued to regularly exceed its $1 million overdraft account. Mr Harris sought approval from SBS for account excesses, which were approved, albeit Mr Vasseleu expressed concern that excesses were becoming more regular. On 12 April 2010, SBS's notes record a discussion with Mr Vasseleu given concern that the bank was "seeing some cash stress reappearing with recent excess requests". The bank was concerned that Mr Gardiner "still doesn't appreciate the urgency of his position and his need to deleverage his debt servicing position." The bank agreed to meet with the Gardiners and reinforce its expectations, noting that limits were due to expire on 30 April 2010. 5. On 29 April 2010, Ms Cornall advised Mr Harris that the overdraft account would again be exceeded. Mr Vasseleu advised that SBS would not support the additional $50,000 requested and required clearance of the current excess of $72,000 by close of business on 3 May 2010. Mr Harris was asked to inform the customer of the bank's position "and put them on notice that we require them to bring the management of their cashflow into line with their available limits immediately and expedite sale of property in line with our strategy requirement to deleverage their position to a fully sustainable level or [the bank] will be considering its position and preparedness to continue to provide the facilities." On 3 and 4 May 2010, several payments made by Gardiner Petroleum from the overdraft account were dishonoured. 6. Mr Gardiner said that the business was now stumbling with Mr Vasseleu being the controller of the finance for the business. Mr Gardiner blamed the trajectory of Gardiner Petroleum on SBS. He said that, after SBS took over, the business was heading into a downward spiral. Instead of addressing the problem of necessary working capital, Mr Vasseleu exacerbated the problem. 7. Mr Gardiner said he did not then seek refinance with any other bank as it was patently obvious that an incoming bank would not have an appetite for a business that was being managed by SBS. I do not accept Mr Gardiner's evidence in this regard but prefer that of Ms Cornall, corroborated by references in the contemporaneous records which indicate that Mr Gardiner was trying to obtain finance from, at least, the Commonwealth Bank but was unsuccessful: see [330]. Fourth meeting with SBS 1. On 5 May 2010, Mr Vasseleu met with Mr and Mrs Gardiner, Ms Dawson and Ms Cornall. Perhaps unexpectedly, Mr Vasseleu's note records that the Gardiners sought additional funding support from the bank. Mr Vasseleu noted that property sales had stalled and the "group do not appear to be committed sellers". Gardiner Petroleum had two service stations which were due to commence by 30 June 2010 and funding was needed to start up or the company would be in breach of head leases. Caltex was now aware of the Group's stretched cash position and had indicated that it may be prepared to assist. Mr Vasseleu's file note records: (emphasis added) Group consider that they have taken significant steps in reducing overheads/financial commitments since completion of the IA review last year. They are reluctant to divest of any further assets to deleverage their position. Further they cannot understand Bank's refusal to continue to provide further funding support to start up further sites as they considered was in place with the [Business Banking Centre] prior to referral of the file to SBS. It was reinforced to the group that Nab cannot work with them if they are unwilling to deleverage their position to a level sustainable from their existing cash flows and curtail their continuing growth strategies funded purely by debt. As again that Nab is not prepared to consider any further funding particularly of new sites. As a consequence of the foregoing presenting issues group advised that SBS would be recommending that McGrath Nicol carry out a further review to provide Nab with advice on its options before any decision is made as to continued availability of facilities and at what level of accommodation and/or its alternate options including possibility of receivership. Group instructed to seek urgent assistance from its external advisers (Lawlers) to identify all options to raise equity, quickly dispose of assets including one or more of the service station sites and deleverage their position quickly to a sustainable level. Group also instructed to obtain specialist practitioner advice urgently on the solvency of the business. Group has potential insolvency issues in the short term caused by their stubborn resistance to proactively selling non-core property assets to deleverage their debt servicing position in line with McGrathNicol's IA recommendations. Pending completion of McGrath Nicol's further IA review we may need to consider funding the group for short term excess up to max say $100k to ensure that the business continues to receive fuel deliveries. Would recommend however that the group's facilities which expired on 30/4/10 remain expired until we assess our further strategy actions once the IA report is finalised ... 1. Mr Gardiner said he recalled the conversation with Mr Harris regarding obtaining a second report from McGrathNicol. According to Mr Gardiner, Mr Harris said that the second report would pave the way to lifting restrictions and returning the business banking back to Newcastle, to which Mr Gardiner said, "I am so happy I feel like crying. This has been a terrible ordeal." Again, Mr Gardiner's evidence is inconsistent with the contemporaneous record and circumstances. 2. Rather, Mr Gardiner appears to have been extremely reluctant at the time to sell any further assets but considered that the bank should provide further funding to expand Gardiner Petroleum's network of service stations by the addition of two further sites. Mr Gardiner agreed that he just expected the bank to provide the extra money which he considered he needed for the business, "as we all had a joint interest in the ongoing running of the business, I thought." The bank and Mr Gardiner had entirely different strategies; the bank was not obliged to advance further funds to support the customer's strategy. 3. On 11 May 2010, the bank sent a further letter of instruction to McGrathNicol, copied to Mr Gardiner, requesting a further business review on Gardiner Petroleum and Gardiner Investments. Again, McGrathNicol was asked, amongst other things, to review and comment on the bank's security position and the alternatives open to the bank. McGrathNicol was also asked to comment upon the alternatives open to the bank in managing its ongoing relationship with the Group. 4. On 13 May 2010, Mr Gardiner advised Mr Harris that he had accepted an offer of $990,000 for the Merewether property. Further, Caltex had found a buyer for the Belmont site, with the sale to be completed within 30 days. The Gardiners were also in the process of handing back the Thornton shop to the landlord. Mr Vasseleu replied, expressing concern that the Merewether property was valued at $1.29 million, "we have concerns that Brad may now be fire selling assets on [the] basis that [the bank] told him so when our advice last week was to immediately engage his external accountant and/or another specialist advisor to assist him to work through identifying assets to be sold and a strategy to address his position. Can you please cover off on this issue when you meet with him." On 14 May 2010, McGrathNicol met with the Gardiners. On 15 May 2010, Mr Gardiner advised Mr Harris that contracts had been exchanged for the Merewether property for $1.005 million. McGrathNicol's second report 1. On 26 May 2010, McGrathNicol provided its second report. Large portions of the report were redacted. On 31 May 2010, Mr Gardiner confirmed the factual accuracy of McGrathNicol's second report, which was issued in final form to the bank. 2. In the unredacted report, McGrathNicol expressed the view that, if the bank enforced its security, there was some likelihood that a going concern sale could be achieved. A forced sale would likely be value destructive and result in a significant shortfall to the bank. 3. McGrathNicol assessed various possibilities for debt reduction, including the sale of service stations. Whilst the Morisset and Beresfield sites would likely attract the higher offers, the sale of either or both of these service stations would significantly reduce the level of ongoing maintainable earnings and, indirectly, the level of sustainable debt. Further: On existing debt levels, and including the sale of the above residential properties, the stand-alone sale of the site operations would not generate sufficient proceeds to adequately recapitalise the business (with the potential exception of Morisset). In addition, the sale of either Morisset or Beresfield would mean a material reduction in the Group's operational scale and change to its overall business model. The problem identified by McGrathNicol was that sale of the more profitable service stations would have the consequence that the remaining service stations would not generate enough profit to meet the company's obligations. 1. Gardiner Petroleum continued to exceed its overdraft limit. On 1 June 2010, Mr Vasseleu provided his review of McGrathNicol's second report to Mr Harris, noting the recommendations for an early sale of all non-core property assets, with Mr Gardiner to seek additional equity funding or joint venture funding for the new sites or, preferably, to exit those commitments. In addition, McGrathNicol recommended the consolidation of trading at the four remaining service stations and reorganising head office "which has a structure and cost that is excessive relative to the needs of the business." It was possible that some $3.45 million would be obtained from the sale of these assets, together with an inheritance which Mr Gardiner had received, to reduce debt levels. The remaining debt would be secured by the family home and the remaining four service station leaseholds "which only have material value in a going concern sale scenario. Our downside risk however is how we manage Brad's expectations and curtail his continuing strategy to seek and establish new sites funded by debt which will cause cash stress on our security and it is likely that he will seek to obtain funding from outside lenders." 2. Mr Vasseleu recognised that enforcing the bank's security would have a material detrimental impact on the value of the security. Mr Vasseleu noted that it may be necessary to release some short term funding for creditors, "However, given Brad's past track record I would prefer to keep him motivated to manage his cashflow within the existing [overdraft] limit and complete the other property sales and the Belmont sale ASAP in lieu of taking the pressure off with additional funding immediately." 3. On 16 June 2010, sale of the Merewether property was completed. The bank applied $987,530.81 to repayment of the mortgage facility, with $35,000 placed on term deposit in anticipation of McGrathNicol's fees for its second report. Other facilities were extended to 30 June 2010. A meeting was also arranged with Mr Gardiner to go through McGrathNicol's second report and to reinforce the bank's requirements on expediting further property sales to reduce debt to sustainable levels. Fifth meeting with SBS 1. On 21 June 2010, Mr Vasseleu, McGrathNicol, Mr and Mrs Gardiner and Ms Cornall participated in a teleconference "to discuss the Banking relationship moving forward" following McGrathNicol's second report. The bank was made aware that the sale of the Belmont site had already been completed and was concerned that it "should have controlled the disbursement of these funds". In cross-examination, Mr Gardiner said that he credited the money to the trading account as that was the logical thing to do where they needed working capital. However, it must have been galling for the bank to hear that the proceeds of a long-awaited asset sale were applied as Mr Gardiner thought fit rather than to pay down bank debt. 2. According to the bank's note, the Gardiners were encouraged to continue the debt reduction program by asset sales and to reduce head office costs. Discussion turned to the proposed two new sites at Wyee Road and Berkeley Vale. Notwithstanding the bank's efforts to encourage Mr Gardiner to sell assets, Mr Gardiner persisted in his efforts to obtain additional funding to open new service sites. Mr Gardiner advised that he had been able to secure favourable terms and could effectively open the sites with little capital outlay. According to Mr Harris' note of the meeting: The position was not acceptable to the Bank as again they would seek to establish sites on debt with no equity and insufficient working capital to fund growth. Gardiner's had not explored any partnering arrangements and it appeared Caltex was not interested in taking on the head leases … Bank has requested Gardiners obtain legal advice on the possible ramifications and options that are available, further they need to seek advice from Accountants business advisory service. A strategy needs to be determined to exit these liabilities … 1. According to SBS's note of the meeting: It was apparent that Brad has now come to realisation that his lack of planning in committing to these additional sites could lead to an overall failure of his businesses. He stated that he is endeavouring to come up with solutions however ... Brad had also not obtained formal advice or assistance from his solicitor and/or external accountant to assist him in extricating himself from these lease obligations. It was impressed on Brad that he needed to seek appropriate specialist input to assist him on the foregoing. In the discussions Murray Smith also encouraged Brad to engage the assistance of Caltex ... Brad conveyed reluctance to find a new operator who would compete directly with his Beresford sites with concern on the impact this would have on the viability of these sites. Our response to Brad was that if he cannot come up with a solution that fully mitigates risk of the landlords on the 2 new sites taking action against him particularly as they continue to incur costs to develop these sites then his overall business and NAB's exposure is at significant risk. 1. The bank agreed to extend the existing facilities to 31 July 2010 subject to being provided with various financial reports. On 25 June 2010, Gardiner Petroleum breached its reporting covenant. On 1 July 2010, Ms Dawson updated Mr Vasseleu on her efforts to comply with the reporting requirements and requested additional time, "I think you know that we have asked Brad to divest himself of 'holiday homes', in an attempt to save his core business. We are all on the same page … even Brad, if reluctantly, he is now of the same opinion." 2. On 28 June 2010, Mr Gardiner advised the bank that a rescission notice had been served on the developer for the Wyee Road site, as a sunset clause had expired in December 2009. Mr Gardiner's solicitor was confident that this was enough to exit the agreement without penalty. Mr Gardiner had also sought a further legal opinion in respect of exiting the Berkeley Vale site. On 30 June 2010, Mr Gardiner confirmed that Gardiner Petroleum was released from its commitment in respect of the Wyee Road site. 3. Mr Gardiner said he did not seek finance from anyone else for the Wyee Road and Berkeley Vale sites, "Look, there may have been some discussions with the Commonwealth Bank just … as an act of hope to … see whether there was any possibility", but he considered that it was not going to proceed due to SBS's involvement with his business, poor trading figures and dishonoured payments. 4. On 7 July 2010, Mr Gardiner emailed Mr Harris advising that he had someone interested in taking up the head lease at Berkeley Vale. Mr Vasseleu asked Mr Harris to "stay on top of them in regard to progressing the property sales and providing the information due", noting that in light of the positive development with the two new sites, he was prepared to allow Ms Dawson additional time to provide the information and, if everything appeared on track, the bank could look at extending the limits expiring on 31 July 2010 for three months with a view to completing the sale of the Rothbury and Hawks Nest properties before the end of the year. 5. On 13 July 2010, Mr Gardiner updated Mr Harris on the progress of sale of the Rothbury and Hawks Nest properties and efforts to exit the Berkeley Vale site. Ms Dawson sought a further extension of time to provide the financial reports, which the bank granted. 6. On 23 July 2010, Mr Harris updated SBS in respect of information which had been provided and that which remained outstanding. The Gardiners had exited the proposed two new sites but had yet to sell the Rothbury and Hawks Nest properties, having reduced the price of both. Conduct of the facilities remained within approved limits and extension of the facilities was sought until 30 August 2010 to provide time for the financial information to be received and analysed and to confirm exit from the proposed new sites. 7. On 17 August 2010, Lawler Partners provided the results for the June 2010 quarter. The forecast projected a cash shortfall of $557,632, with the overdraft expected to be consistently in excess of the $1 million limit. At its peak, the overdraft was forecast to reach debt of $1.33 million by 30 April 2011. Mr Harris raised the matter with Mr Gardiner, who made an adjustment to creditors which improved the forecast. Mr Harris believed the adjustment needed further discussion "as it would not appear feasible to improve creditor's days at this point in time". The financial report also indicated that the interest cover ratio covenant had been breached. In any event, a submission was made to extend the facilities until 31 October 2010. SBS recommended the extension as "we appear to be making progress here". The facilities were extended. 8. On 28 September 2010, Mr Harris met with Mr and Mrs Gardiner, Ms Dawson and Ms Cornall to review the financial forecasts. "Brad Gardiner advised that the business was a lot easier to manage with 4 sites instead of 6, [they] are far more focussed on costs and controls and now have the time to critically review all practices and staff. He advised that they were making better money on a small turnover and far less stressed". The facilities were extended to 30 November 2010. 9. On 21 December 2010, Mr Gardiner emailed Mr Harris seeking some financial accommodation for Christmas trading. At the same time, Mr Vasseleu sought an update from Mr Harris where facilities had expired, "Critical issue is we need to put some further pressure on them to sell the 2 investment properties during the summer selling period or we could hit a wall on cashflow Feb/March. Alternatively we may need to pressure them on selling further sites or alternatively the family home to get the debt position down to a sustainable/repayable level". Mr Harris forwarded Mr Gardiner's request for financial accommodation over the Christmas trading period noting that he supported such a request "for a lack of an alternative". 10. On 5 January 2011, Mr Vasseleu enquired of Mr Harris whether Gardiner Petroleum had been trading within limits, "If the foregoing is deteriorating we will need to consider ramping up the pressure to get them committing to other asset sales … if there is still nothing happening in the short term on Hawks Nest and [Rothbury]. Mr Vasseleu recommended acceding to Mr Gardiner's recent request but also noted that further discussions would need to take place about "more urgently progressing the rolling deleveraging strategy from asset sales". 11. On 7 January 2011, Mr Gardiner reported that Caltex intended to buy the Raymond Terrace service station, and there had been some interest in the Rothbury property. On 10 January 2011 Mr Gardiner advised that the overdraft would be exceeded but, with the impending sale of the Raymond Terrace service station, he hoped to eliminate between $1.5 million and $2 million in debt. Mr Gardiner assured the bank that he and his wife were endeavouring to sell their residential investment properties. Mr Harris replied that he would recommend that the bank support the excess and noted that the prospect of providing the level of debt reduction was welcome news. SBS supported payment of the excess on the overdraft limit, "Given that a stop of supply will immediately impact materially on the value of our leasehold service station we really have no option but to pay the excess at least until we get some comfort around the negotiations with Caltex". 12. On 28 January 2011, the Gardiners sought further financial accommodation from the bank given Australia Day trading. Mr Vasseleu observed that the cash position was becoming more strained and there was now a higher level of urgency for the Group to sell the service station at Raymond Terrace. If that sale did not achieve a sustainable debt position for the remaining business, the bank would need to pressure for the sale of other sites, if not all sites, given that sale of the property security had stalled, reportedly due to the continuing depressed state of the property market in the area. 13. On 9 February 2011, Mr Gardiner advised Mr Harris that Caltex had offered $750,000 for the Raymond Terrace service station together with a payout of lease finance plus stock. The Gardiners were expecting $1.5 million plus stock and were pushing for $1 million for goodwill. They had also received an offer for $650,000 on the Hawks Nest property, which they were seriously considering accepting. Mr and Mrs Gardiner were also seriously considering a full exit and selling their more profitable sites at Beresfield, Beresfield North and Morisset. Whilst the bank account balances were then within limits, Mr Harris anticipated a substantial drawing in the short term, which would put the working account in excess. Strategy 3: financial support and asset sales 1. 'Strategy 3' was recorded in SMS by Mr Vasseleu in February 2011. Mr Vasseleu was prepared to increase the overdraft by another $100,000 but expected that "a more aggressive sale programme is pursued by the group to sell assets either to achieve a substa[i]nable debt position in the short term or sale of all assets and full repayment of all debt". 2. On 14 February 2011, Mr Gardiner advised Mr Harris that Caltex had offered $900,000 for the Raymond Terrace service station whilst the Gardiners had counter offered $1.05 million. On 15 February 2011, Mr Gardiner advised that contract had been signed for the sale of the Hawks Nest property, with exchange within 10 days. In addition, Mr Gardiner advised Mr Harris that he was meeting with the United Group, which was exploring options to expand in the Newcastle area. Mr Gardiner wanted to test the market rather than just rely on Caltex. 3. The company was then in excess of its overdraft limit of $1.1 million. The excess was approved by SBS, to be restored to the approved overdraft limit by 22 February 2011. On 18 February 2011, Mr Vasseleu asked Mr Harris, to follow up evidence of the exchange of contracts on the Hawks Nest property "and impress on Brad that he needs to be cognisant that [they] may not be prepared to continue to pay excess drawings and he must be realistic in his expectations on the selling price for his sites particularly the one in negotiation and not put the negotiations at risk that Caltex walks away from their offer. In regard to testing the market this should have occurred some time ago and concurrently with the negotiations with Caltex and not at this late stage." Mr Harris reported that he had conveyed SBS's concerns to Mr Gardiner. 4. On 24 February 2011, Mr Vasseleu held a telephone conference with Mr Gardiner, Ms Dawson and Mr Harris to discuss strategy in light of recent excesses and the potential sale of Hawks Nest and the Raymond Terrace service station. SBS's file note records: IAM [Impaired Asset Manager, Mr Vasseleu] asked if following sales if creditors would be in order. Answer received not definitive but BBM [Business Banking Manager, Mr Harris] advised customer having trouble with creditors. No answer provided by customers. We anticipate that they will require release of some funds to satisfy creditors. In this regard we would insist on collecting funds of say circa $1.3m on the Raymond Terrace sale and allow them to retain circa $200k from the stock and equipment proceeds to satisfy unsecured creditors. IAM advised customer that a remedy to the cash stress needs to be found. NAB cannot keep extending and pushing limits up for excesses between now and the sale as has been done in the past. Action must be taken between now and prospective sale of 2 assets. Furthermore, significant time will be required for Caltex to complete [due diligence] to effect sale; IAM needs to see sustainability of business in the next 2-3 months. IAM advised them that they must be realistic with the price asking for Raymond Terrace given their tenuous position and not to place the whole business at risk by holding out for best price and risk Caltex walking away from their offer Interim accounts provided for 6 months to 31/12/2010 show deteriorating sales and profitability trends. … 1. Mr Vasseleu pressed the Gardiners to sell the Raymond Terrace service station and advised that they needed to consider selling the other sites to get some value out of those sites if the business model with three remaining sites was likely to still be under cash stress. Mr Gardiner acknowledged and agreed that he was seriously considering a full exit. Mr Gardiner advised that the overdraft would be exceeded the next day and Mr Vasseleu supported an increase in the overdraft limit to $1.2 million (being more than he had initially recommended) on the basis that the Raymond Terrace service station and Hawks Nest were sold by no later than 31 March 2011. Mr Gardiner also needed to continue to actively market the Rothbury property for sale as the asset was currently a "cash hole". 2. On 25 February 2011, Mr Gardiner advised Mr Harris that he has decided to accept Caltex's offer of $900,000 and also requested an extra $50,000 for the overdraft so that the sites did not run out of fuel. Mr Gardiner thanked Mr Harris and Mr Vasseleu "for a fair hearing yesterday" and thanked Mr Vasseleu for not making Mr and Mrs Gardiner "front up" to the Sydney office. Mr Vasseleu sought approval from Mr Acharrie of an increase in the overdraft of $250,000 to maintain the business "hopefully to get both proposed sale transactions away and preserve the asset values." 3. On 1 March 2011, Mr Harris advised the Gardiners that the bank had increased the overdraft limit to $1.25 million, to expire on 30 April 2011. All Group facilities had been extended to the same date. This was subject to being provided with evidence of the unconditional exchange of contracts for the Hawks Nest and Raymond Terrace properties by 31 March 2011, minimum debt pay down of $1.925 million within 42 days of exchange and a fee of $10,000. The bank also removed the interest covenant given Gardiner Petroleum's consistent breaches. 4. On 8 March 2011, Mr Vasseleu asked a bank officer to follow up Mr Gardiner on his acceptance of the Hawks Nest and Raymond Terrace offers as Mr Harris was on leave, "My concerns with him consistently is that if he thinks the pressure is off he will 'take the foot off the pedal' and think that the cashflow position is recoverable." A letter was obtained from the Gardiners' solicitor, confirming that contracts had been exchanged for the Hawks Nest property on 7 March 2011 for $650,000, with settlement due to take place on 11 April 2011. The bank increased the overdraft facility to $1.25 million and extended all facilities to 30 April 2011. 5. On 10 March 2011, Mr Gardiner requested that the bank increase the overdraft limit to $1.3 million so that the company could operate without stock outs. The sale of the Raymond Terrace service station to Caltex was "now with legal for finalisation". Mr Gardiner expressed appreciation for the increase in the overdraft limit to $1.25 million and said he "fully respect[ed] the difficulty the bank has with this account and the stress it has caused" but suggested that "it would be a tragic situation to have come so far in the last 2.5 years and done so much to have it all fall over at the end. The bank and ourselves have done some good work, and the family appreciates and fully understands the risk the bank takes in standing by our company." Mr Gardiner also advised, shortly afterwards, that Caltex had approved the deal and was forwarding heads of agreement. 6. In fact, the overdraft account was exceeded to $1,416,915. Mr Vasseleu approved the excess so as not to jeopardise sale of the petrol station to Caltex by affecting their ability to trade and maintain themselves as a going concern. However, a meeting was to take place with the customer to advise that the position was unacceptable. 7. On 17 March 2011, Mr Vasseleu met with Mr Gardiner, who was advised to confer with Lawler Partners regarding a business model to assess the profitability and sustainability of retaining one, two or three service stations. It was further suggested that Mr Gardiner obtain a business partner or sell personal property if he wished to maintain the businesses. Mr Vasseleu offered for the bank to sell the Rothbury property, which was declined by the customer. Mr Vasseleu enforced that any ideas he had were merely suggestions and it was up to Mr Gardiner to implement any strategies and make final decisions regarding his asset sales. Mr Vasseleu's note of the meeting was to similar effect: … budgets submitted by the group's internal accountant late … contained … incorrect assumption that Nab would release substantial component of Raymond Terrace proceeds for working capital. IAM reconfirmed with Mr Gardner (strongly) that all proceeds will be collected by Nab and applied to permanent debt red[uctio]n. IAM also instructed Mr Gardiner that there was high level of urgency on completing the Raymond Terrace sale given cash stress still evident notwithstanding recent OD increase and that it would appear that the sale of Hawkes Nest and Raymond Terrace on their own will not stabilise the position and more sales of property or sites appeared necessary in short time to permanently stabilise position or effect full repayment. … Mr Gardiner informed that Nab will not be prepared to increase its current exposure at this time and he must manage his position on micro (day to day) basis. Also impressed that he and his wife as directors need to also seek independent insolvency practitioner advice ... After the meeting, Mr Gardiner confirmed that he had engaged Lawler Partners to undertake the work which had been discussed. 1. On 19 March 2011, Mr Gardiner advised that United Group had offered $1.1 million for the Raymond Terrace service station and were excited by Mr Gardiner's suggestion that they buy all sites for $8 million. Mr Harris advised that United Group would need to move quickly if it was to proceed. 2. On 22 March 2011, Mr Gardiner advised Mr Harris that the overdraft limit was soon to be exceeded, "I'm not insinuating it's a bank problem, I'm aware the account should have the capacity to deal with this, I'm just communicating, it's very distressing on you and I acknowledge that." Mr Vasseleu authorised the excess conditional on clearance by 25 March 2011. 3. On 29 March 2011, Mr Harris informed Mr Vasseleu that the overdraft account had not been restored to its limit by 25 March 2011 and a further increase in the overdraft had been advised by the customer. SBS advised that it would approve the excess "as we have no choice but you will need to advise Brad that there position is no longer tenable. NAB will not continue to support continual excess position keeping in mind that these excesses are occurring on the back of a $250,000 increase." Mr Gardiner would have to take one less load of fuel during the week which would eventuate in a 'stock out' but would restore the overdraft limit. Mr Harris was asked to advise Mr Gardiner that, while it was imperative to get the sale of the Raymond Terrace service station over the line, "we are not prepared to drop any more money in to assist." SBS advised that it was uncomfortable allowing the balance to continue to creep higher and higher. 4. On 4 April 2011, the bank advised the customer that it would only allow payments for fuel or payments to the bank; the overdraft then stood at $1,437,278 against a limit of $1.25 million. The bank prepared a submission to approve a temporary increase in the overdraft limit in order to enable the service stations to continue to have fuel pending the sale to Caltex. On 6 April 2011, Mr Gardiner provided the bank with a heads of agreement with Caltex, for proposed completion on 29 April 2011. The consideration was $900,000 plus the amount required to pay out equipment leases with the bank, being approximately $420,000. 5. On 11 April 2011, Mr Gardiner called Mr Harris and provided an update on the sale of the Raymond Terrace service station. Mr Harris advised that the position must now be stabilised and any further excess was not welcome. The overdraft limit must be respected, with the sale of assets continuing to provide debt reduction to the point where a sustainable business model was evident. Lawler Partners' projections still showed negative cashflow after the sale of the Raymond Terrace service station. The need to sell the Rothbury property and other service station sites remained paramount. Mr Gardiner agreed and advised he was doing all things possible to sell remaining assets. 6. On 12 April 2011, sale of the Hawks Nest property was completed. The bank received $629,535.51, which was applied to debt reduction. Over Easter, Mr Gardiner again sought approval of exceedance of the overdraft, which was approved. Mr Vasseleu sought an update on the sale of the Raymond Terrace service station, in particular, to ensure that the bank was not told after it had settled. If this occurred, "we will immediately take action and enforce NAB's position." This position was conveyed to Mr Gardiner. Mr Gardiner and his wife were then at a Caltex conference in China. 7. On 28 April 2011, the bank dishonoured all but fuel payments. On 30 April 2011, Mr Gardiner asked for further assistance from the bank, "I urge the Bank to bear with me until we can get the sale of Raymond Terrace through". Mr Gardiner advised that they had lowered the price of the Rothbury property "yet again". Mr Vasseleu approved the excess, "We really do not have a choice". However, Mr Vasseleu proposed to insist on the sale of one or all of the remaining service stations, consistent with Lawler Partners' advice that, even with the sale of the Raymond Terrace service station, the residual debt was not sustainable without the sale of Morisset and Rothbury property, which had been on the market for some time without interest. The monthly loan repayment to the market rate facility was deferred to enable the customer's account to have sufficient funds. 8. On 4 May 2011, the bank dishonoured all drawings except direct drawings from Caltex, where the overdraft then stood at some $1.27 million. Mr Harris was asked to arrange a meeting with Mr and Mrs Gardiner in Sydney and to pre-position the customers that the bank's requirements had gone beyond the point of working on a deleveraged position sustainable by the remaining sites. The bank now required full repayment of its total indebtedness in the short term. 9. Mr Gardiner was so advised but asked the bank to reconsider further site sales until the effect of the Raymond Terrace sale could be seen in the accounts. Mr Gardiner stated, "At the beginning of this management exercise we were asked to sell the four houses, well we've sold three and on top of that two further service stations with Raymond Terrace to come. No one can say I've been unreactive to the bank's demands, in fact I've agreed to anything the bank has asked for. We think it is totally unreasonable to suggest the sale of the family home." Mr Vasseleu responded without prejudice: … For full transparency of Nab's current position Nab advises that the unsatisfactory conduct of your accounts for some time has been unacceptable and, if not for the pending sale of Raymond Terrace, Nab would have returned fuel drawings and considered its rights under its security. Nab also places you on notice that it may consider dishonouring excess drawings presented to your accounts prior to the Raymond Terrace settlement and considering its rights under its security if the unsatisfactory conduct of your accounts continues. Nab has worked with you for some time towards a turnaround of your business. Despite your efforts to date the current business model, even allowing for the pending sale of Raymond Terrace, appears unsustainable. Please be fully aware and on notice that Nab requires the full proceeds of this sale in permanent debt reduction and Nab will not agree to release any funds from the sale for working purposes. Nab considers that any funds released would only achieve short term cover up of your continuing working capital/cashflow deficiencies which were highlighted in the McGrath Nicol reports. To date you have yet to demonstrate that this deficiency in cash flow will improve to the extent of a sustainable model based on trends to date post the Raymond Terrace settlement. … in the event that you fail to operate your accounts in a fully satisfactory manner and/or fail to repay your total indebtedness by 31/8/2011 and/or any events of default occur under your facilities Nab will have no alternative but to consider exercising its rights under its security … 1. The overdraft continued to be exceeded. On 20 May 2011, Mr Vasseleu approved an excess of $50,000 until 31 May 2011. Mr Vasseleu was then reluctant to dishonour fuel drawings as it could place at risk the sale of the Raymond Terrace service station. Gardiner Petroleum was now also in breach of its reporting covenant; the deadline was extended to 15 June 2011. On 21 May 2011, Mr Gardiner advised that a buyer had been found for the Rothbury property at $775,000, with settlement in 90 days. 2. On 25 May 2011, Mr Vasseleu met with Mr Gardiner and others, advising that the bank could not continue to support excess positions, where the business earnings were not sufficient to service interest and, even following the sale of the Raymond Terrace service station and the Rothbury property, serviceability was not evident. Since the account had been categorised, approximately $1 million had been "dropped into the business, with no turnaround evident." At categorisation, the aim of the process was to remove non-core asset drains, especially non-income producing assets, and to assess whether there was a sustainable model with remaining service stations. The going concern market value of the remaining three service stations did not carry current debt and the customer was teetering on the brink of insolvency. SBS had lost confidence in cashflow management of the business; micro-management of cashflow was essential for survivability. Either Lawler Partners had to advise Mr Gardiner on a sustainable model going forward or "full exit" was the other option. 3. The overdraft limit continued to be exceeded. On 2 June 2011, Mr Harris advised Mr Gardiner that the bank would, reluctantly, cover the excess for the last time with no further excess to be tolerated even if for fuel payments. On 17 June 2011, sale of the Raymond Terrace service station was completed. The overdraft limit was temporarily extended to meet payment of staff wages and then, on receipt of the proceeds of sale, reduced to $450,000 and extended to 30 June 2011 to allow time to formalise a strategy and plan going forward. Strategy 4: recovery 1. In June 2011, the bank moved to 'Strategy 4', when the file was categorised as 'recovery' as opposed to 'turnaround'. On 22 June 2011, Mr Vasseleu and Mr Harris had a telephone conference with Mr Gardiner. Mr Vasseleu advised that Gardiner Petroleum's accounts continued to remain irregular and the bank could not continue to micro-manage the account. The bank could not continue to approve excesses on the working account to fund the business' cashflow deficiency where, on 17 June 2011, the account stood at $1.56 million. The bank now required full debt repayment and the meeting was to discuss how to achieve this and maximise the return for the bank. 2. Given this, the bank now intended to crystalise the debt and provide $100,000 working capital in a credit only account. Loan repayments would be further deferred but McGrathNicol would be appointed to conduct a review on the business. Mr Gardiner was expected to maintain fuel payments within limit constraints. Any future excesses would not be supported as the business model did not support the debt position. Non-core assets and some core assets had been sold but, according to forecasts provided to the bank, cashflow would remain negative to the end of the year. "The Bank will now exit relationship." While this could be achieved through a voluntary administration or receivership, neither was ideal where the bank had brick and mortar security valued at $2.4 million against debt of $4.2 million. The preferred strategy was managed sales and refinance through cooperation from Mr Gardiner. Mr Vasseleu advised that goodwill needed to be preserved to maximise returns, where the bank was in a potential substantial loss position. 3. That is, for over two years, the bank pressed for the reduction of debt while permitting excesses on the overdraft to allow the business to continue to operate. When the bank concluded that these efforts were no longer viable, it clearly informed Mr Gardiner about this change. The bank made no secret of the gap between the debt owed and the value of the security. The bank made plain that it wished to realise its security on a going concern basis in order to maximise sale proceeds. McGrathNicol's third report 1. On 22 June 2011, the bank retained McGrathNicol to conduct an independent business review, including to review and assess the alternative asset realisation options. The bank advised that it would be relying on the review to determine whether it was prepared to enter into a formal deed or arrangement with the Group for the orderly voluntary sale of the business and personal assets as an alternative to a formal appointment under the bank's security. A copy of the letter was provided to Mr Gardiner. 2. On 24 June 2011, contracts were exchanged on the Rothbury property, with settlement in 90 days. Mr Gardiner asked to suspend the mortgage payment to save cash. 3. On 28 June 2011, McGrathNicol provided the bank with some preliminary views in respect of the Group's cash forecasts, considering that the current overdraft limit of $440,000 should be sufficient to meet trading commitments whilst it negotiated an extension to its payment plan with the ATO and McGrathNicol finalised its review. 4. Gardiner Petroleum did not comply with its reporting covenants and, on 12 July 2011, the bank wrote to the company advising that it had extended the date for provision of the information until 31 August 2011. 5. On 14 July 2011, McGrathNicol provided a draft of its third report and, on 18 July 2011 reported to the bank on its recent call with Mr Gardiner and Lawler Partners to set up ongoing fortnightly monitoring. McGrathNicol suggested that the next step was to "maintain momentum" with the bank putting its requirements in writing in the form of a forbearance letter or deed. 6. On 20 July 2011, the bank reviewed McGrathNicol's report, noting that the Group continued to have trade and statutory creditor pressure, with a significant increase in aged creditors in 90 days. This was a direct result of the Group's attempt to maintain the overdraft limit by stretching terms with non-Caltex trade creditors and the ATO. The Group seemed to be facing increased cashflow pressures. The overdraft balance had again been fluctuating over the limit. A managed sale process was considered the best option to sell assets to a limited market of potential buyers without announcing a distressed seller, thereby maintaining maximum realisation potential. McGrathNicol advised: This option is entirely reliant on bank support and continuance of facilities and overdraft support in conjunction with forbearance from any enforcement action by the Bank to be incorporated into a deed along with strict covenants and timelines to be met by customer in lieu of default of their facilities. 1. The remaining three petrol stations were thought to be worth some $2.3 million, whilst the sale of Eleebana and Rothbury would achieve only $100,000 to $200,000 after payout of the mortgage facilities. A managed sale process would result in a shortfall of some $650,000 to the bank. A forced exit sale scenario would realise between $200,000 and $1 million from the sale of the three service stations, resulting in a significantly higher loss for the bank. As such, a managed sales process was recommended. McGrathNicol monitoring 1. On 1 August 2011, the bank asked McGrathNicol to undertake weekly monitoring "to ensure that Brad is kept on his toes". On 2 August 2011, the overdraft limit was exceeded. Mr Harris advised that "the Bank shall on this, and only this, occasion honour payment of drawings over the facility limit. Any future drawings in excess of limits shall not be honoured." 2. On 4 August 2011, McGrathNicol provided the first monitoring report for the three weeks ended 22 July 2011, noting that Mr Gardiner "has made little progress on selling his remaining sites, and continues to struggle to manage his cashflows and working capital (as evidenced by the breach of the overdraft limits and payment plan with the ATO). This reinforces the need for continued weekly monitoring of the Group, its cashflows and Brad's progress with interested parties, and also the Bank setting strict forbearance terms that clearly defined the timetable for sales." The first monitoring report noted that "the Group is still progressing sales, but in a slow and reluctant manner …". Lawler Partners had again recommended that Mr Gardiner meet with a member of its insolvency practice and a meeting had been tentatively scheduled for 8 August 2011. 3. On 9 August 2011, SBS's notes record that the customer would require further lending of up to $100,000 to support their cashflow shortfall whilst attempting to sell the business assets on a going concern basis. McGrathNicol was to assess additional working capital funding required. 4. On 18 August 2011, McGrathNicol provided its second monitoring report. Fuel 'stock outs' are now becoming a regular issue at all sites. McGrathNicol suggested it may be worth considering some added flexibility in the Group's overdraft "whilst ensuring that Brad doesn't lose momentum on the site sales side". The monitoring report noted that management had become more active in its pursuit of site sales, with interested parties for two sites recently identified. Creditors now stood at $1 million due to outstanding GST, previously misreported by management. A payment plan had been agreed in respect of unpaid payroll tax. 5. On 29 August 2011, McGrathNicol provided an update following conversations with Mr Gardiner. A potential purchaser for Beresfield North service station had been found, while Caltex had shown interest in the Morisset service station. "More recently, Brad appears to be making some progress to realising these assets as going concern businesses. It remains unclear whether sales will be sufficiently progressed by 30 September to meet the terms of the proposed forbearance arrangements". McGrathNicol also noted that the incidence of fuel 'stock outs' had been increasing over the past two weeks, which was beginning to impact customers. McGrathNicol considered that it may be necessary to provide additional overdraft funding to maintain trading and goodwill while Mr Gardiner continued to facilitate a going concern sale. 6. On 2 September 2011, McGrathNicol provided its monitoring update, noting the increased frequency in fuel 'stock outs'. However, given the lack of supporting data and the uncertainty surrounding the position of the ATO, McGrathNicol did not recommend making more funds immediately available, although increased funding may be appropriate once "we have more clarity on the Group's tax position." 7. On 7 September 2011, McGrathNicol provided an update following a discussion with Mr Gardiner. A low offer had been received for the Beresfield North service station, where the interested purchaser "appears to have recognised Brad's financial difficulties and is seeking to 'capitalise' on this through a low offer." There had been no progress on the Morisset service station and Mr Gardiner maintained he had not received any interest to purchase Beresfield service station. McGrathNicol expressed concern that, "he may be trying to hold this site, as it should be the most attractive." McGrathNicol was analysing data provided by Mr Gardiner to assess what additional funding might be needed to store fuel inventories, "it may require a wider injection of working capital than Brad's estimate of $150,000." Settlement of the sale of the Rothbury property may present an opportunity to provide additional funding as, by then, the ATO would likely have responded to the Group's request for a payment plan "which will provide additional certainty around the Group's ability to continue trading until going concern sales are achieved." 8. On 14 September 2011, McGrathNicol were unable to provide a monitoring report given the lack of financial information supplied by Mr Gardiner and Ms Dawson. There was little progress on the sale of the remaining three service stations. Mr Gardiner continued to request a $150,000 increase in working capital, which he maintained would allow him to restock each of the sites for all types of fuel. As this represented a 33% increase in the overdraft limit, McGrathNicol considered the increase in the bank's exposure was not acceptable. Rather, McGrathNicol suggested an increase of $100,000 once sale of the Rothbury property was completed, subject to the ATO accepting a payment plan and a forbearance deed being executed. 9. On 20 September 2011, sale of the Rothbury property was completed. The bank received $740,531 at settlement. This was applied to clear lease arrears and pay out two facilities, with the balance placed on term deposit. The term deposit was later released by the bank as needed to meet cashflow needs assessed and recommended by McGrathNicol whilst the Group pursued sale of its service stations. 10. On 23 September 2011, McGrathNicol provided an update, in the absence of figures from the customer. The value of the three service stations was now thought to be reduced to $1.9 million given reduced fuel sales and increased fuel 'stock outs'. However, a "significantly lower and almost nil" value may be obtained on a forced sale basis. 11. On 27 September 2011, McGrathNicol provided an updated report, noting that the Group was expected to breach its overdraft limit. Mr Vasseleu contacted Mr Harris and advised he was supportive of a partial release of funds from the term deposit to cover the excess position and to enable Gardiner Petroleum to "get through the long weekend". This was arranged. Mr Harris was asked to reinforce to Mr Gardiner that "he should not assume that NAB will prepay further funds from [the term deposit] if McGrathNicol considers the level of fuel purchases committed to is in excess of their requirements to maintain the business." Mr Harris was also asked to arrange for Mr and Mrs Gardiner to attend a telephone conference after the long weekend to communicate a proposal "putting in place some urgency to sell all assets and pay back NAB on an agreed settlement amount" of some $3.7 million, with interest suspended provided that the bank was repaid within an agreed timeline. This was conditional on the Group formalising an arrangement with the ATO as, if the ATO acted to wind up the Group, the bank "will be looking at a substantial loss in an insolvency recovery scenario." 12. On 29 September 2011, McGrathNicol advised that Mr Gardiner had received an offer to purchase Beresfield North and Morisset for $2.52 million including goodwill, equipment, fuel and stock. The offer had only been made verbally and was subject to finance. The offers were in excess of McGrathNicol's estimated realisations for the sites. A response from the ATO was still awaited. On 4 October 2011, Mr Gardiner requested a further accommodation of $30,000 above the overdraft limit. McGrathNicol requested updated daily cashflow forecasts. 13. On 5 October 2011, the lessor of the Morisset service station served a notice of breach on Mr Gardiner where Gardiner Petroleum did not have fuel available for sale at all times during usual trading hours, and where Gardiner Petroleum was in arrears in payment of outgoings. Mr Vasseleu and Mr Harris also met with Mr Gardiner. Mr Vasseleu reinforced the bank's precarious security position should an application to wind up the company be made, leading to a subsequent loss for the bank. Due to crystallisation of debt, the current overdraft account would no longer operate. A new credit only facility would be opened for working capital purposes. 14. On 7 October 2011, McGrathNicol provided an update for the bank following its conversations with Mr Gardiner. As to the notice of breach in respect of the Morisset service station, Mr Gardiner's solicitors had advised that it would be difficult for the landlord to take possession. The bank's teleconference with Mr Gardiner "appears to have reinforced about the importance of pursuing sales for all sides in the short term." On 21 October 2011, Gardiner Petroleum's solicitor responded to the lessor of the Morisset service station, noting that outgoings had been paid and observing that the terms of the lease had been complied with. Any action to terminate the lease would be met with an action in the Supreme Court. 15. On 17 October 2011, McGrathNicol provided an update, with little progress on the sale of the remaining service stations. "Brad also advised us that he has begun to approach another lender about refinancing the NAB debt in full (after the sale of one or more of the sites). We indicated to him that the NAB would likely be open to a refinance, however, he needed to be realistic given the current debt to asset value levels and uncertainty around the ATO payment plan. Brad acknowledged that his alternative finance contacts had also raised these as potential roadblocks to a refinancing." Whilst Mr Gardiner continued to maintain that $150,000 was needed to prevent 'stock outs' altogether, McGrathNicol did not recommend that the bank advanced further money to the Group to address 'stock outs' until the ATO's position was known. 16. On 20 October 2011, McGrathNicol provided a further update, noting little progress with the sale of the remaining service stations. Whilst Mr Gardiner was not presenting the sale to interested parties as urgent as part of his negotiating strategy to maximise the sale price, McGrathNicol had suggested to him that, where the interested parties were aware of the 'stock out' issue, "this may not be successful in driving a better going concern sale price but just cause the process to drag on without a deadline." 17. On 21 October 2011, McGrathNicol provided an update to the bank noting little progress on the sale of the service stations. The offer for the Morisset site had recently reduced, apparently by the removal of conditions attached to the earlier higher offer and due to fuel 'stock outs'. Whilst Mr Gardiner was being careful to minimise any sense of being a "distressed seller" in order to maximise sale price, increasing fuel 'stock outs' and the reduced offer on the Morisset site indicated "this strategy may be difficult to sustain without the risk that continuing operational issues will materially impact negotiations and lead to lower rather than higher offers". 18. Mr Gardiner continued to request additional working capital of $80,000. McGrathNicol suggested that an additional $40,000 may help alleviate the 'stock out' issue somewhat, "although the limited effectiveness of the $70,000 already provided indicates that it will not entirely address the problem." Again, McGrathNicol suggested that the bank await the ATO's response before advancing further funds. Where Mr Gardiner was relying on his personal tax refund to meet the September BAS payment, "this reinforces the Group's tenuous cash position … If he is unable to achieve site sales before the December BAS payment (due 28 February), there is [a] clear risk that the Group will default on any agreed payment plan with the ATO". 19. On 31 October 2011, McGrathNicol updated the bank, advising that the offer for the Morisset service station had been increased and Caltex had also made an indicative offer. On 4 November 2011, McGrathNicol provided an update, advising that Gardiner Petroleum needed to go into excess on its overdraft to meet fuel payments and wages. McGrathNicol suggested the overdraft excess should be allowed. Mr Gardiner intended to accept an offer for the Morisset service station and was preparing a sale contract. Little progress had been made on selling the Beresfield and Beresfield North sites. Mr Gardiner continued to explore the possibility of refinancing the bank's debt after the sale of the Morisset service station, advising "the potential new Lender may require a paydown of the outstanding ATO debt before it would consider providing new finance." McGrathNicol had informed Mr Gardiner that the bank would be unlikely to allow priority payments to the ATO unless there was certainty of a full refinancing; although the bank was likely to be open to a refinance, sales of all sites presented a more realistic option for Mr Gardiner to reduce his debt. 20. On 7 November 2011, McGrathNicol recommended advancing additional funds to the business to support the Morisset sale, with the bank's position to be reassessed after the sale completed. On 8 November 2011, SBS approved the excess. 21. On 10 November 2011, Mr Vasseleu and Mr Harris met with Mr Gardiner and his three daughters. Mr Gardiner advised that he had agreed to sell the Morisset service station for $1.25 million, including goodwill, plant and equipment and stock. Contracts were yet to be exchanged. Mr Vasseleu agreed to release $50,000 from the proceeds of sale for working capital. Mr Gardiner advised that he planned to refinance the residual debt of $2.5 million and had been in contact with a "big 4 bank". Mr Vasseleu advised that, following settlement of the Morisset sale, the bank's debt would be some $2.75 million. The bank would be willing to "take [a] haircut" of $250,000 and offer to pay a settlement amount of $2.5 million. There would be no further accommodation or further lending to the Group as it was not sustainable. Mr Gardiner was advised that he had to be prepared that a refinance would not be approved and to approach the current situation by pursuing the sale of all assets along with a possible refinance. On providing a file note of the meeting to Mr Vasseleu, an SBS staff member noted, "We have said the same thing so many times before it's all become a blur." 22. On 15 November 2011, McGrathNicol provided an update, advising that despite the additional funds recently made available, the Group would breach its facility limit. The bank was advised to approve the excess, to support the business through the sale of the Morisset site. Mr Gardiner had advised that he continued to meet with a potential new lender to refinance the balance of the bank's debt after the sale of Morisset. On 22 November 2011, Gardiner Petroleum exceeded its facility limit. Mr Vasseleu authorised the excess. 23. On 24 November 2011, McGrathNicol updated the bank, advising of delays in exchanging contracts for the Morisset site. Further, the ATO wished to wait until after settlement of the sale before formally responding to the proposed repayment plan. Gardiner Petroleum breached its facilities again, and McGrathNicol recommended that the bank temporarily extend the overdraft limit to support the business through the sale of the Morisset site. Mr Vasseleu approved the excess. Mr Vasseleu also advised Mr Acharrie that, by paying short term excesses until the Morisset sale was finalised, approximately $1.25 million in sales proceeds would be generated which would be lost in a voluntary administration or receivership scenario. Consequently, Mr Vasseleu was holding off sending the file to enforcement and raising a provision of $500,000 that had been forecast for the month. At this point, McGrathNicol was still supporting the strategy of covering excesses "and to only drip feed the [term deposit] funds held to ensure Gardiner stays focussed on the end outcome." 24. On 5 December 2011, McGrathNicol warned the bank of another facility breach and recommended that the bank approve the excess until the Morisset sale was effected. On 7 December 2011, the bank authorised $40,000 to be released from the term deposit, with the customer to be advised that once the remaining $8,000 of the term deposit was expended, no further excesses would be authorised. 25. On 13 December 2011, the bank dishonoured a funds transfer of some $26,000. However, the payment was processed later that evening. Mr Vasseleu cancelled the Group's online facility. Mr Gardiner was informed that, going forward, he would have to manually process all payments. The account was then $45,000 in excess and clearance was uncertain. McGrathNicol provided a report on available options later that evening, recommending the bank refrain from taking action but to continue to support the business in a limited manner over the Christmas period with a view to completing the sale of all three service stations by 31 January 2012. The potential return to the bank of a going concern sale continued to be substantially above the likely returns under voluntary administration or receivership. Preparation of receivership documents should be made in the event that enforcement became unavoidable. 26. On 3 January 2012, SBS informed McGrathNicol that it was "not looking pretty this week" with the account in excess and payroll yet to be processed, "we were informed this morning [wages] were going to be $25k. When we asked to see what the make-up of this was, it has miraculously reduced to $19k". The SBS officer also expressed concern that Mr and Mrs Gardiner were now paying their weekly wage into a Commonwealth Bank account, "It seems that CBA is now their primary daily transactional Banker". 27. On 10 January 2012, McGrathNicol reported that the business continued to deteriorate, operating in excess of the $450,000 overdraft limit and the permitted temporary excess up to $500,000. The Gardiners proposed to retain Lawler Partners to advise on asset sales; the bank was asked to underwrite Lawler Partners' fees. McGrathNicol saw merit in this and maintaining a temporary overdraft limit of $500,000, to allow the company to actively and urgently seek a going concern buyer for its remaining sites during this three week period. 28. Mr Vasseleu supported this approach, advising Mr Acharrie that if Lawler Partners could not assist the Group to achieve an acceptable outcome by 31 January 2012, he would not support any further extension of the strategy absent definite documented prospect of an imminent sale of one or all of the remaining service stations. The overdraft facility then stood at $514,000. Mr Vasseleu asked that the customer be informed that the facility be reduced to its approved limit by 12 January 2012. Further, the bank was not prepared to approve further excesses for wage drawings, "particularly given that the majority of these payments are to family." 29. On 13 January 2012, McGrathNicol provided a "potential sales matrix" prepared by Lawler Partners and advised "Brad continues to experience extreme difficulties remaining within his facility limit." The ATO had not received its weekly payment since 2 December 2011. 30. The Asset Finance department of the bank sought an update on the Gardiner Petroleum file, given arrears. On 31 January 2012, Mr Vasseleu advised that McGrathNicol was continuing to monitor and report on efforts to sell the remaining three sites on a going concern basis, although the cash position was "becoming more terminal". McGrathNicol continued to recommend that it was in the bank's best interest to allow the Group some additional time to sell the sites rather than enforce the bank's position, which would result in the significant loss of some $3 million. 31. On 6 February 2012, McGrathNicol reported that pressure was mounting on the business and its immediate trading position remained uncertain. Low offers had been received from interested purchasers for the remaining service stations. The likely returns to the bank from going concern sales still exceeded that expected in an insolvency scenario. Given this, McGrathNicol recommended that the bank continue to support the business whilst the current discussions played out, likely within the next week. On 17 February 2012, McGrathNicol provided the bank with estimated realisations in an insolvency scenario, being between $170,000 and $530,000. 32. On 7 February 2012, the ATO issued a director penalty notice to Mr Gardiner in respect of PAYG withholding amounts of some $115,000. On 22 February 2012, McGrathNicol reported that Mr Gardiner had advised that he did not intend to formally respond to the ATO but wished to focus on achieving a sale of the Morisset service station and then attempting to refinance the business's remaining debt. As part of that process "Brad may seek Bank approval to pay down … the outstanding ATO debt." Mr Vasseleu responded that Mr Gardiner's position on the director penalty notice was "typical of his past actions that he fails to grasp the seriousness of his position. By this time you would also think that Brad clearly understands that NAB will not be agreeing to release any funds to the ATO from sale proceeds on any site. Further, the prospects of him getting someone to refinance the rest of the debt is probably zero." Caltex was, however, considering the purchase of the Morisset service station and Mr Vasseleu reminded Mr Acharrie that proceeding to enforcement would "crystalise a significantly higher loss if it falls over before the sites are sold." 33. On 23 February 2012, Mr Gardiner confirmed that Caltex had agreed to purchase the Morisset service station for $900,000, with due diligence to take a minimum of four weeks. Mr Gardiner was also meeting with other financiers regarding a refinance of the residual facility on 23 February 2012. 34. On 28 February 2012, the overdraft limit was again exceeded and Mr Vasseleu instructed that a fuel payment be dishonoured in order to bring the account balance below $500,000. In advance of a teleconference with Mr Gardiner and Lawler Partners at McGrathNicol's office that afternoon, Mr Vasseleu sought approval from Mr Acharrie of a strategy to move the file to enforcement and raise a provision of around $2 million, provided that the sale to Caltex went through, or up to $2.9 million if it fell over. Mr Vasseleu proposed to offer Mr Gardiner a settlement figure of around $3.5 or $3.6 million, being some $500,000 "under the current Black ink … excluding Feb accrued int[erest]" as an incentive to expedite the sale of the Morisset service station and the sale of the other two remaining sites. If Mr Gardiner was able to sell the two remaining sites, then the bank could expect to recover some $2.6 or $2.7 million including the Eleebana property, although the bank was "very much dependent on Brad Gardiner's buy in and proactive action to get the sales away urgently." 35. At the telephone conference with Mr Gardiner later that day, Mr Vasseleu advised that no funds from asset sales would be disbursed to the ATO. Mr Vasseleu confirmed that refinance was conditional on the ATO being paid out; Mr Gardiner advised that he had "been discussing re-finance with 2 Banks for 3 years". The bank offered to accept $3.5 million in settlement. On 29 February 2012, the bank approved a temporary increase in the overdraft to $510,000. 36. Creditors began commencing legal proceedings in February and March 2012. On 8 March 2012, McGrathNicol advised that Mr Gardiner had yet to determine his response to a statement of claim issued by a contractor; time frames were given for the process to lead to a winding up. Caltex was "running out of patience with the business' cashflow difficulties", including dishonoured payments for fuel. 37. On 8 March 2012, Caltex provided a written offer for the Morisset service station for $900,000. Mr Gardiner entered into a payment plan with the contractor and ATO but did not contest a statement of claim filed by the workers compensation insurer as the debt was owed and he was unable to fund any legal action to defend the claim. On 13 April 2012, McGrathNicol continued to recommend that, despite the deteriorating position and a lack of progress with the sale of sites, the bank ought not enforce its security but should maintain the overdraft account at $510,000, where potential realisations available under a going concern sale were significantly higher than those available in an enforcement scenario. 38. On 20 May 2012, McGrathNicol reported on the progress of service station site sales, noting that Mr Gardiner had met with a new potential financier recently, "Brad believes they may consider refinancing the business despite the outstanding ATO debt. We remain of the view that a successful refinance is highly unlikely." A number of creditors had now begun taking action to collect outstanding debts. A statutory demand had been issued. Total creditors as at 30 March 2012 stood at $1.14 million, of which $300,000 was owed to Caltex, some $500,000 was owed to the ATO and some $70,000 owed to other statutory bodies. McGrathNicol recommended that the bank continue to maintain the overdraft account at $510,000. Whilst a sale was becoming more unlikely as the business continued to deteriorate, potential realisation on a going concern sale remained significantly higher than in an enforcement scenario. 39. Mr Vasseleu replied that a further discussion was unlikely to achieve anything further given the outcomes from previous teleconferences. Mr Vasseleu proposed to keep the pressure on to finalise the sale of the Morisset service station before making a decision as to whether to "bring the whole thing to an end". The bank was also pushing forward to seek possession of the Eleebana property to "keep them all focussed on the urgency of the position." 40. On 14 May 2012, McGrathNicol advised that the business remained under extreme trading pressure with all sites now consistently out of fuel. The ATO had served a notice requiring 15% of all monies received to be remitted to the ATO. Nonetheless, McGrathNicol maintained its advice not to enforce the bank's security. On 15 May 2012, the ATO served a statutory demand seeking payment of $458,343.47. On 29 May 2012, McGrathNicol reported that Mr Gardiner was still pursuing the refinance of debt remaining after the sale of the Morisset service station. On 30 May 2012, the lessor of the Beresfield site sent a letter of demand in respect of unpaid overheads. 41. On 12 June 2012, the bank received a draft agreement with Caltex to acquire the Morisset site, with the price to be adjusted for all outstanding monies owed to Caltex. McGrathNicol recommended acceptance of the proposal in order to facilitate a quick sale of the site. On 15 June 2012, McGrathNicol advised that, after allowing for payment of Caltex's outstanding debt, some $633,000 would be available to the bank from the sale of the Morisset service station. In addition, Mr Gardiner had received notice from the Beresfield North landlord that, due to unpaid overheads and rent of some $40,000, he would be locked out of the site. Mr Gardiner was in the process of moving items from the site before the landlord took possession, "Given this action, and the threatened lockout by the Beresfield landlord, it appears unlikely that Brad will be able to achieve a sale of these two sites." 42. Mr Vasseleu approved Caltex's required adjustment to the sale price and updated Mr Acharrie as to the increase in the bank's provision. Mr Vasseleu noted that demands had been issued in respect of the Eleebana property but he expected that the Gardiners would "hopefully" bankrupt themselves once the Morisset service station settled and the other sites likely failed in the short term. Mr Vasseleu advised that the bank had not been pushing the possession action for the Eleebana property "as we have been massaging the sale of the sites to maintain Gardiner's cooperation. However once Morisset hopefully settles the action for possession will have to ramp up." Mr Acharrie said that "convincing" the customers was probably a better word than "massaging" but, in any event, if the customer sold their own property as opposed to the property being sold through a mortgagee in possession process, it resulted in a better outcome for the customer. 43. On 19 June 2012, McGrathNicol advised the bank on its options regarding the leased equipment at the Beresfield and Beresfield North sites, advising that overall the bank's debt was secured over assets that were site specific and potentially difficult to remove or low value. There was no benefit in instructing McGrathNicol to be involved. Further "Brad continues to explore a potential refinance of the remaining sites. He believes the refinance may be successful if the Bank further reduces its repayment requirements. … we suggested to Brad that … he should formalise a proposal and provide it to the Bank for its consideration." 44. On 11 July 2012, the Local Court at Belmont issued a writ for levy of property to the sheriff in respect of an unpaid judgment debt owed to Thompsons Pies (Newcastle) Pty Ltd. The sheriff informed Gardiner Petroleum that they were authorised to seize property up to $37,821.40. On 13 July 2012, the bank agreed to allow Caltex to deduct outstanding rent and outgoings from the purchase price. On 16 July 2012, sale of the Morisset service station completed. The bank received $600,951.39. 45. On 25 July 2012, McGrathNicol advised that the landlord at Beresfield North would not agree to an assignment of the lease and thus Mr Gardiner would not be able to negotiate a sale of the site. It was recommended that the bank accept an offer of $15,000 from the landlord to release its fixed charge over all assets on the site, which was above McGrathNicol's estimate of the realisable value of the assets. Mr Gardiner said he was continuing to develop a refinancing proposal that he intended to put to the bank. McGrathNicol continued to encourage Mr Gardiner to pursue a sale of the Beresfield site "however, he has advised that there is little interest given the lack of fuel." The bank accepted the landlord's offer from the Beresfield North site of $15,000 for fuel dispensers and pumps. 46. On 3 August 2012, McGrathNicol advised that, given the number of creditors taking action against the business, further material realisations from business assets were now very difficult to achieve. McGrathNicol did not believe that a sale of the Beresfield site was likely whilst Mr Gardiner remained in control of the business, nor was it in the bank's interest to enforce its security over the remaining site given the poor trading conditions, the uncertainty with the lease, the likely low return to the bank and the potential additional costs incurred. McGrathNicol recommended that the bank serve a demand on Mr Gardiner to commence the process to take possession of his house. Whilst Mr Gardiner had advised that he was developing a proposal to put to the bank, "we have doubts that it will be forthcoming any time soon". 47. On 7 August 2012, McGrathNicol advised that Mr Gardiner had now engaged with an insolvency practitioner about his personal and the company's financial position given the number of creditors pursuing him and was attempting to arrange a quick sale of the Beresfield service station to the purchaser of Beresfield North. McGrathNicol advised that, while they did not have great hopes regarding the sale, it was worth pursuing if the bank could get any return. 48. On 27 August 2012, the bank received a proposed contract to purchase the Beresfield service station for $275,000, which McGrathNicol advised would result in net proceeds of $182,500 after deductions for outstanding rent, outgoings, legal fees. Nonetheless, McGrathNicol recommended acceptance of the offer. On 28 August 2012, the bank received net proceeds of $147,600.94 in respect of both Beresfield sites. McGrathNicol rendered its last invoice on 4 September 2012, bringing its total invoiced amount to $258,274.02. Liquidator appointed to Gardiner Petroleum 1. On 12 September 2012, orders were made for Gardiner Petroleum to be wound up, on the application of the ATO. 2. On 14 September 2012, the bank prepared a Bad Debt Report, noting that the balance of facilities for Mr and Mrs Gardiner and Gardiner Petroleum totalled $3,354,905. The only remaining security was the Eleebana property. A bad debt provision of $2,783,296 was raised. The report summarised the bank's efforts to achieve going concern asset sales in order to avoid the risk of crystalising a substantial loss if the bank had immediately withdrawn support. Going forward, it was expected that the ATO or one of the Group's creditors would seek to bankrupt Mr and Mrs Gardiner. As there was no equity in the family home, the bank expected a bankruptcy trustee to disclaim the home. In that event, the bank would be required to seek orders for possession. The family home had been valued at $680,000, with estimated realisable value assessed at $615,000. 3. The report concluded with "key lessons learned", being that primary exit serviceability was based on untested forecasts without the mitigant of a strong secondary exit position. Ms Stacker explained that primary exit serviceability was revenue used to service the debt whilst secondary exit referred to the security that underpinned the loans. Mr Acharrie explained that "untested" means that the forecasts were not subject to an audit, "they were just taken at face value from the person that wrote the deal." The report noted that each new service station was 100% debt funded and reliant on the director's portfolio of residential investment properties as equity in lieu of cash equity contributions. It was essential that the business model had the appropriate mix of cash and debt funding to be viable, particularly where there was a weak secondary exit position as was evident for this group. No further action was recommended in a Lending Standards Review Report. 4. On 29 October 2012, the bank issued a Notice of Cancellation to Mr and Mrs Gardiner in respect of the remaining mortgage facility, with an amount then owing of $742,187.58. On 8 November 2012, the bank issued a default notice to Mr and Mrs Gardiner seeking payment of $743,524.43, failing which the bank would seek to repossess the Eleebana property. On 11 April 2014, the bank gave Gardiner Petroleum notice of cancellation of its facilities, with a total amount owing of $3,644,600.79. Further notices of default, demand and cancellation were issued to Gardiner Petroleum, Gardiner's Pty Ltd and Mr and Mr Gardiner thereafter. The last demand was issued by the bank to Mr and Mrs Gardiner on 6 November 2015 in the sum of $4,818,041.05. According to SMS notes, none of the bank's demands generated a response from Mr or Mrs Gardiner. The bank received no further monies from Gardiner Petroleum or the guarantors. 5. On 29 January 2015, the liquidation of Gardiner Petroleum was completed. The company was deregistered on 10 April 2015. 6. On 30 July 2017, the bank undertook some searches to locate Mr and Mrs Gardiner and found that Mr Gardiner was "currently a lending relationship manager at St George Bank" and it was fair to assume that both were still living at the Eleebana property. An updated valuation for the Eleebana property was obtained, being $920,000. Efforts were made to contact Mr Gardiner by phone, "Mr Gardiner has denied knowledge of [mortgage] debt and requested full statements and information." On 22 December 2017, SMS requested an increase in the bank's provision by $650,000, presumably writing off the balance of the bad debt. There the matter lay for almost three years. In December 2019, these proceedings were commenced by Mr and Mrs Gardiner. 7. The remaining causes of action to be considered are in contract (alleged breaches of the Code of Banking Practice), tort (deceit) and misleading and deceptive conduct or unconscionable conduct contrary to the ASIC Act. The critical events said to support each cause of action occurred when SBS became involved in April 2009. As this was more than a decade before these proceedings were commenced, it is convenient when examining each of these claims to first review applicable time bars. ASIC ACT CLAIMS 1. The plaintiffs complain that, until March 2009, the bank represented that the plaintiffs were valued customers and high net worth individuals and, further, that the financial services supplied by the bank were suitable for the plaintiffs' purposes. On this basis, the plaintiffs brought all of their banking business to the bank. However, following a request by Mr Coddington to show the Group's sites to Mr Vasseleu "to pave the way of the family business for the future", Mr Vasseleu represented that it was necessary for the bank to conduct a 'health check' of the plaintiffs' assets, notwithstanding the recent review by PPB. The plaintiffs reluctantly agreed. 2. Further, in June 2009, Mr Vasseleu is said to have made further representations on behalf of the bank that, post the GFC, the plaintiffs' LVR had changed with the result that the bank required, and was entitled to require, the plaintiffs to sell down all residential properties other than the family home to reduce borrowings. The bank's future goodwill towards the plaintiffs and further financial support was dependent on the sale of these assets. Once the plaintiffs reduced their LVR, the bank would re-transfer management and supervision of the plaintiffs' account back to the local business unit so that normal trading conditions may resume and the plaintiffs' business would grow again after the head office intervention. 3. There was said to be no basis for these representations, which were said to be misleading and deceptive contrary to section 12DA of the ASIC Act. Had the plaintiffs known the true position, they would have taken steps to seek alternate debt or equity finance. By providing the plaintiffs with only redacted copies of McGrathNicol's reports, the bank denied the plaintiffs the opportunity to do so. The bank's conduct was also said to be unconscionable contrary to section 12CB of the ASIC Act, where, at the time, the plaintiffs were said to not be in default. The sale of the plaintiffs' assets and the destruction of their growing and successful business was not reasonably necessary for the protection of the bank's legitimate interests and made the plaintiffs' financial position worse. Time bar 1. An action for damages suffered as a consequence of misleading and deceptive conduct or unconscionable conduct must be commenced within six years after the day on which the cause of action accrues: section 12GF(2), ASIC Act. The cause of action accrues when loss or damage is sustained as a consequence of the contravening conduct: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 (Mason CJ, Dawson, Gaudron and McHugh JJ), at 536 (Brennan J) and at 539 (Deane J). 2. Ascertaining when loss or damage was sustained in this case is no easy matter where the plaintiffs failed to adduce any admissible evidence on the subject. However, as I understood it, the loss or damage arose when the plaintiffs' assets were sold as a consequence of the bank's representations. The first sale was Blueys Beach, completed on 23 March 2010 (see [172]), being more than nine years before commencement of the proceedings. The last assets were sold in August 2012, being the Beresfield and North Beresfield service stations (see [284]). This was more than seven years before commencement of the proceedings. Whether the assets were sold at an undervalue is not known. Assuming that the circumstances of the sale at the bank's insistence caused loss, such loss was sustained more than six years before commencement of the proceedings. 3. Gardiner Petroleum went into liquidation in September 2012, more than seven years before the commencement of these proceedings. To the extent that the plaintiffs suffered loss as a consequence of the failure of Gardiner Petroleum's business, any such loss was sustained more than six years before the commencement of these proceedings. The claims under the ASIC Act are time barred. 4. The plaintiffs also sought relief under section 12GM(1) and (7) of the ASIC Act. While section 12GM(5) provides that an application under section 12GM(2) must be made within six years after the day on which the cause of action arose, no limitation period is specified for applications under sub-sections 12GM(1) and (7). As such, the plaintiffs contended that their application was not time barred. 5. As explained by O'Bryan J in Reilly v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1502, while section 12GM(1) is not subject to an express limitation period, the Court's power to grant relief under the sub-section is expressly dependent on there being a proceeding instituted under Division 2 of Part 2 of the ASIC Act. In that way, the Court's power to grant relief under section 12GM(1) is subject to any limitation period that applies to the other relief that is sought. If that other relief is a claim for damages under section 12GF(1), the six year limitation period in section 12GF(2) will apply in respect of relief sought under section 12GM(1): at [90]-[92], citing Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 at 545–6 in respect of the statutory predecessor, section 87 of the Trade Practices Act 1974 (Cth) ("Although s 87 contains no time limitation, the proceeding on which the power to grant relief under s 87 depends will be barred if it is instituted outside the time, if any, limited for instituting that proceeding"); Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd [2001] FCA 1620; (2001) 114 FCR 108 at [53] and [55] (Wilcox, French and Drummond JJ); Dorfler v ANZ Banking Group Ltd (1991) 103 ALR 699 at 702 (Spender J), Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307, [309]–[312] (Rares J) and Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249 at [369] (Gordon J). 6. As such, the Court's power to grant relief under section 12GM(1) is subject to any limitation period that applies to the other relief sought by the plaintiffs. Where that other relief is a claim for damages under section 12GF(1), the six year limitation period in section 12GF(2) applies in respect of relief sought under section 12GM(1). Thus, the claim under section 12GF is time barred and therefore cannot support a claim under section 12GM(1). 7. As I understood it, the plaintiffs also sought to rely on section 54 and 55 of the Limitation Act 1969 (NSW) as suspending the limitation period under the ASIC Act. Ordinarily, Commonwealth legislation prevails over State legislation in the event of inconsistency: section 109, the Constitution. In some cases, a State court exercising federal jurisdiction (as this Court is when determining the claims under the ASIC Act) may apply State law. The position is governed by section 79(1) of the Judiciary Act 1903 (Cth), which provides: (emphasis added) 79 State or Territory laws to govern where applicable (1) The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable. 1. As Kiefel CJ explained in Rizeq v Western Australia [2017] HCA 23; (2017) 262 CLR 1 at [16]: Section 79 fills the gap created by any absence of Commonwealth laws which provide a court with powers necessary for the hearing and determination of a matter and the presence of State laws of this kind which cannot operate of their own force in federal jurisdiction. It operates by "picking up" State laws and applying them as Commonwealth law. 1. The examples given in s 79(1) of laws relating to procedure and evidence have been held to apply to statutes of limitations: at [21]-[22]. As the majority (Bell, Gageler, Keane, Nettle and Gordon JJ) explained in Rizeq at [103]: Within the limits of State legislative capacity, State laws apply in federal jurisdiction as valid State laws unless and to the extent that they are rendered invalid by reason of inconsistency with Commonwealth laws. What State laws relevantly cannot do within the limits of State legislative capacity is govern the exercise by a court of federal jurisdiction. A State law can determine neither the powers that a court has in the exercise of federal jurisdiction nor how or in what circumstances those powers are to be exercised. A State law cannot in that sense "bind" a court in the exercise of federal jurisdiction, and that is the sense in which that word is used in s 79 of the Judiciary Act. 1. Here, the Limitation Act is not "picked up" by section 79 of the Judiciary Act as the laws of the Commonwealth – section 12GF(2) of the ASIC Act – has "otherwise provided". No gap exists by any absence of Commonwealth laws which requires this Court to "pick up" State law in order to have the power necessary to hear and determine the applications under the ASIC Act. As such, the ASIC Act claims are time barred. The representations 1. If I am wrong about this then, as I understand it, the plaintiffs contended that Gardiner Petroleum's business was, in fact, in a good state. As the bank had issued no default notices, Gardiner Petroleum was not in default. The plaintiffs were 'tricked' by the bank into cooperating in the sale of their assets by the promise that, once some of the assets were sold, Gardiner Petroleum could continue to trade and prosper. If the bank had shared the unredacted McGrathNicol reports with the Gardiners, then they would have been aware of what the bank had in mind. Had the Gardiners known that the bank's plan 'all along' was to require the Gardiners to sell all of their assets, then the Gardiners would have ceased to cooperate. 2. When determining whether conduct is misleading or deceptive, the Court needs to ask itself whether the impugned conduct, viewed as a whole, had a sufficient tendency to lead a person exposed to the conduct into error: Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 at [98] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [39] per French CJ, Crennan, Bell and Keane JJ; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [25] per French CJ. Conduct is only likely to mislead or deceive if there is a real or not remote chance or possibility of it doing so: see Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87. Where alleged misleading or deceptive conduct is constituted by spoken words, "it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances": in Watson v Foxman (1995) 49 NSWLR 315 at 318-9 per McLelland CJ in Eq. 3. I understand that Mr Vasseleu is said to have made the representations at the first meeting with Mr Gardiner on 27 April 2009 (see [122]-[127]) and the second meeting on 2 June 2009 (see [143]-[150]). As to the representations said to have been made at the first meeting, I accept that Mr Vasseleu represented that the bank wished to appoint an investigating accountant to review Gardiner Petroleum's position; Mr Vasseleu may have described this as a 'health check'. I do not accept, however, that Mr Vasseleu represented that the GFC had affected the bank's LVR ratio and that Gardiner Petroleum had to comply with a lower LVR ratio as part of the bank's post-GFC policy. 4. Mr Harris said he had never heard or seen any statements to the effect that there was a "post-GFC policy" within the bank. I accept his evidence. Mr Harris understood that the bank "grew its credit book throughout the GFC and didn't retract. Whilst other banks may have, National Australia Bank didn't." 5. To Mr Wiles' recollection, the GFC did not feature in discussions regarding the Group, whether in his conversations with Mr Gardiner or with the bank. Further, Mr Wiles said the GFC was not a factor relevant to his analysis of the business of Gardiner Petroleum or the Group. While the prevailing economic conditions were relevant, it was the Group's financial position in the context of those conditions that was his focus; see also [141]. I accept his evidence. 6. The bank's contemporaneous records make no reference to a post-GFC policy nor, for that matter, to the GFC. The only reference to the GFC is in the Bad Debt Report prepared in 2012, after the bank had completed its enforcement, when noting that the GFC had affected the value of the investment properties. 7. As to the representations said to have been made by Mr Vasseleu at the second meeting, the bank's contemporaneous notes of the meeting are comprehensive and likely to be the most accurate, when compared to the recollections of Mr Gardiner, Ms Cornall and Ms Dawson given a decade later. Overall, I prefer the bank's record of the meeting to the evidence of Mr Gardiner. Where Mr Gardiner and Ms Cornall attended more than one meeting with SBS, their recollection does appear to have amalgamated what was said at more than one meeting. Further, Mr Gardiner's recollection is inaccurate; whilst Mr Vasseleu clearly pressed Mr Gardiner to sell more than two properties, there is no contemporaneous record suggesting that the bank was then considering requiring Gardiner Petroleum to stop trading. Indeed, the bank's position was quite the reverse: McGrathNicol had just advised the bank to continue to financially support the business so that, in the long run, the bank would minimise its loss. I consider Mr Gardiner's description of Mr Vasseleu suggesting that he had managed to convince his boss to reluctantly agree for Gardiner Petroleum to continue trading to be inherently unlikely in these circumstances. 8. Again, I do not accept that Mr Vasseleu told Mr Gardiner at the second meeting that Gardiner Petroleum's LVR had changed as a consequence of the GFC such that Mr and Mrs Gardiner had to sell all investment properties to reduce borrowings. Whilst it is true that Mr Vasseleu pressed Mr Gardiner at this meeting to sell, at least, two investment properties, this was unrelated to the GFC and related to the poor financial performance of Gardiner Petroleum and the bank's increasing concern about operation of the company's facilities. I accept that Mr Vasseleu represented that, if the investment properties were sold and the company's debts were reduced, then operation of the account would return to the branch. In fact, that is what Mr Vasseleu then had in mind. 9. The suggestion that Gardiner Petroleum came to the attention of SBS for no particular reason, or as a consequence of the GFC, must be rejected where the bank's contemporaneous records clearly document mounting concern by Mr Coddington with the operation of Gardiner Petroleum's facilities, prompting him to obtain a pre-lending review from PPB in August 2008. Whilst PPB's review appears to have alleviated Mr Coddington's concerns, this was short lived. The bank's Portfolio Review Group then reviewed the account in February 2009, advising that the file was considered high risk; the bank was assessed as having a weak security position. Mr Coddington referred the file to SBS in April 2009 after months of well-documented concern and consideration. The bank pressed the customer to sell assets and pay down debt given these concerns, not because of the GFC or any change in the bank's policy made as a consequence of the GFC. 10. Nor is it correct to say that Gardiner Petroleum was not in default simply because no default notice was issued. Rather, the company failed to repay the Second Market Rate Facility on expiry, routinely exceeded the limits of the Overdraft Facility, breached the interest cover and reporting covenants, and failed to make principal repayments on the First Market Rate Facility. The bank was entitled to require repayment of the Second Market Rate Facility in March 2009, when it expired, and to issue default notices in relation to the breach of covenants or non-payment of principal. Redacted McGrathNicol reports 1. As to the suggested misleading and deceptive conduct by redaction of the McGrathNicol reports, Mr Gardiner accepted that he received and read the McGrathNicol engagement letter, which made clear that parts of the report would not be provided to Gardiner Petroleum. It also made clear reference to various matters that the report was to address, including assessment of the bank's security and ultimate realisation on both going concern and forced sale basis and alternatives open to the bank. It is plain from the bank's first letter of instruction that the bank was interested to know how best to reduce the amount owed by the Group. 2. When McGrathNicol's first redacted report is viewed together with the bank's letter of instruction, it is fairly obvious that the redacted portions address the bank's request for advice on its security position and the likely outcome if the security was realised on a going concern or forced sale basis. Having read the letter of instruction, Mr Gardiner would have been unsurprised to see these portions were redacted, as the bank had requested McGrathNicol to provide this advice to the bank only. The topic of the redacted portions – and thus what the bank was thinking about – would have been fairly obvious. 3. Nor did the redactions in the McGrathNicol report disclose an 'exit strategy' as suggested by the plaintiffs, but rather a strategy of continuing to support Gardiner Petroleum, including with additional funding. McGrathNicol cautioned against any quick exit, which would likely result in the bank sustaining significant losses on the account. Nor did the bank "exit" the relationship at that time, but continued to lend money, and in greater amounts, to Gardiner Petroleum. 4. Further, the fact that portions of the McGrathNicol report were redacted did not necessarily mean that the information was not discussed, either with McGrathNicol or with SBS: see [141], [143]. The contemporaneous records indicate that the substance of McGrathNicol's views on these subjects were discussed with the customer. 5. The same can be said for McGrathNicol's second report, although I understand the plaintiffs' complaint is focussed on the first report. The engagement letter was copied to Mr Gardiner and made plain that McGrathNicol's advice to the bank about the security and preferrable actions would not be provided to Gardiner Petroleum. A draft report was again provided to Mr Gardiner, with redaction of the 'bank only' parts. The subject of those parts, at a level of generality, was also apparent. 6. Misleading and deceptive conduct was not made out on the facts, as recorded in the contemporaneous records. The bank was consistently clear that it considered that Gardiner Petroleum and Mr and Mrs Gardiner ought to reduce debt, increase working capital and take steps to improve cashflow. Mr Vasseleu encouraged the plaintiffs to reduce their business costs and sell their properties. He also recommended that they seek additional funding other than from the bank. This was with the object of deleveraging Gardiner Petroleum. There was no undisclosed 'exit strategy'. The redactions in the McGrathNicol reports did not disclose such a strategy. 7. To the extent Mr Vasseleu represented that the bank would continue to support Gardiner Petroleum, it did so for the next two years. The Overdraft Facility was increased to $1,000,000 on the same day that SBS became responsible for the account. This was at the risk of the bank, where there was no commensurate increase in security. This limit was exceeded regularly, increased in March 2011 to $1,250,000, and continued to be regularly exceeded. Over two years with SBS, the bank advanced a further $1 million in working capital to Gardiner Petroleum, yet the business' ability to pay creditors deteriorated. The bank did not take enforcement action but increased and extended the facilities available to Gardiner Petroleum and Mr and Mrs Gardiner, with the contemporaneously recorded objective of improving the prospects of repayment in circumstances where Gardiner Petroleum and Mr and Mrs Gardiner were over-extended. 8. Obviously enough, it was in the bank's interest to sell down the assets of Mr and Mrs Gardiner, Gardiner Petroleum and Gardiner's Pty Ltd on a going concern basis. But so too was it in the interests of Mr and Mrs Gardiner to assist the bank in achieving the best prices for their assets, thereby achieving the largest reduction in the debts of Gardiner Petroleum and a commensurate reduction in their liabilities to the bank under the Guarantee. There was no secret about the fact that this strategy was being pursued in order to maximise sales proceeds and debt reduction. 9. As to unconscionable conduct, what is required is such a departure from accepted commercial conduct as to properly be stigmatised as "unconscionable": Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [92] (Gageler J); also at [14] (Kiefel CJ and Bell J); Hudson v National Australia Bank Limited [2022] FCA 1222 at [314]-[318] (Markovic J). For the same reasons, there was no such departure in this case. The bank did press Mr and Mrs Gardiner to sell investment properties to pay down debt. In the circumstances, that was sensible. The bank was entitled to sell the investment properties and service stations itself but it was in the interests of both the customer and the bank that the properties were sold by Mr and Mrs Gardiner, in order to maximise sale proceeds and thus reduce the monies owed to the bank as much as possible. Causation and loss 1. If I am wrong about this, and the representations were in fact made and constituted misleading and deceptive conduct or unconscionable conduct, then the plaintiffs have not established that the conduct was causative of loss or damage. As pleaded, loss and damage was said to have been caused by the plaintiffs' ignorance of the bank's plans to sell them up, depriving them of the opportunity to refinance and prosper. 2. Mr Gardiner said he only had access to the unredacted version of McGrathNicol's first report in 2020, during discovery in these proceedings. If he had had the unredacted report at the time, Mr Gardiner said his position would have changed. If Mr Gardiner had been aware that there would be a shortfall of $3.1 million if the bank enforced its security, "That would've been a red light to me that the bank was considering other options other than helping me. … This would have flagged with me a further motive that I [did not know] about". Had he been alerted to these matters, Mr Gardiner said: I would've sought legal advice. Further, I would not have agreed to the proposed selling of my investment property assets in fear that there was something happening behind me that I wasn't aware of. I would've consulted with my accountants, and I would've … sought to introduce a strategy that did not involve selling my investment properties, rather selling one of my high value service stations which probably would've been a more favourable outcome. 1. Mr Gardiner said that if he had been aware that the bank was anticipating a going concern exit, "everything would have changed in my mind. … I wouldn't have agreed to the bank's demands to sell my investment properties had I known that I was going to be entering into a going concern sale of my service stations. … I was building my network, not selling my network. … A going concern sale would have alerted me that I was entering into some sort of going concern sell down and I was the liquidator." Rather than sell his investment properties, Mr Gardiner said he would have arranged a further strategy that would possible have involved the sale of at least one of his high value sites, thereby potentially eradicating the entire debt or close to it. He would also have sought alternate banking arrangements. 2. Generally, hindsight evidence as to what one would have done is given little weight: Australian Executor Trustees (SA) Ltd v Kerr (2021) 151 ACSR 204; [2021] NSWCA 5 at [284] to [290] per Gleeson JA (Leeming JJA and Emmett AJA agreeing), citing Chappel v Hart (1998) 195 CLR 232; 156 ALR 517; [1998] HCA 55 at [65]; Rosenberg v Percival (2001) 205 CLR 434; 178 ALR 577; [2001] HCA 18 at [16] (Gleeson CJ). More reliable is evidence of the conduct of the party at the relevant time, contemporaneous evidence as to how the party felt about certain matters, the evidence of others in a position to assess the plaintiff's conduct and motivations and other matters that may have influenced the plaintiff: Neal v Ambulance Service (NSW) [2008] NSWCA 346 at [40] (Basten JA with Tobias JJA and Handley AJA agreeing). 3. As earlier mentioned, the subject of the redacted portion of the McGrathNicol reports was fairly obvious from the bank's letters of instruction and the headings of the redacted portions. It was fairly obvious that the redacted portions addressed the bank's request for advice on its security position and the likely outcome if the security was realised on a going concern or forced sale basis. The first report was also provided to Mr Gardiner at a time when Gardiner Petroleum's file had been transferred to SBS and Mr Gardiner had already met with Mr Coddington, Mr Vasseleu and others in respect of the bank's concerns. Overall, Mr Gardiner likely well understood that the bank was then considering its options, including whether to enforce its security at that time. 4. Whilst Mr Gardiner said he would have consulted with an accountant who specialised in business restructuring and turnaround, the bank suggested that Mr Gardiner do just that on many occasions. Mr Gardiner did not seek advice from his accountant, Lawler Partners, for at least two years: see [144], [177], [181], [189], [190], [214], [238], [263], [283]. In these circumstances, Mr Gardiner's evidence that he would have sought this advice much earlier had he seen the unredacted McGrathNicol reports is difficult to accept, and I do not accept it. 5. Mr Gardiner did seek alternative finance, before and after the first meeting with SBS: see [119], [153]-[155]. Mr Gardiner was continuing to talk to the Commonwealth Bank in June 2010: see [193]. The bank's notes record that, in October and November 2011, Mr Gardiner advised that he had approached another lender about refinancing the bank's debt in full and the bank advised that it was open to a refinance: see [251], [255], [257], [258]. In January 2012, an analyst at SBS, Andrew Wibawa, expressed concern that Mr and Mrs Gardiner "also now pay themselves into their CBA accounts" each week, "Not sure what the position is on that side but it seems that CBA is now their primary daily transactional Banker." In February 2012, Mr Gardiner informed the bank that he was meeting with other financiers regarding a refinance: see [269]. He also advised that he had "been discussing re-finance with two Banks for 3 years": at [271]. In May, June and July 2012, Mr Gardiner advised McGrathNicol that he had met with a potential new financier: see [274], [279], [281]. The fact that Mr Gardiner endeavoured but failed to refinance Gardiner Petroleum at the time suggests that, even if Mr Gardiner had been fully informed of the bank's suggested 'exit strategy', he would not have been able to refinance the company in any event. 6. While Mr Gardiner now says that, were it not for the redactions in the first McGrathNicol report in 2009, he would have moved to sell one of his high value service stations in 2009 instead of waiting until the situation deteriorated in 2011, the contemporaneous evidence suggests otherwise. At no time was Mr Gardiner receptive to the bank's repeated suggestions to sell assets. Mr Gardiner was reluctant to sell the investment properties or service stations without repeated, sustained and increasing pressure from the bank to do so. 7. A further problem faced by Mr Gardiner's suggestion that he would have simply sold a high value service station to meet the bank's demands is that this option was examined at the time and founded wanting. McGrathNicol's second report considered this option and concluded that the remaining service stations would not generate enough profit to enable the remaining service stations to survive: see [184]. Whilst this advice was redacted and, thus, not available to Mr Gardiner at the time, the bank encouraged Mr Gardiner to obtain advice from Lawler Partners on this subject and, so far as the evidence reveals, Lawler Partners gave Mr Gardiner the same advice: see [214], [221], [225]. The plaintiffs made no attempt to explain why McGrathNicol's analysis was wrong, nor to adduce the evidence from Lawler Partners on the same subject. So far as I could tell, the figures just did not 'add up'. 8. There is no evidence that Gardiner Petroleum would be profitable in the future, had the bank not taken the steps it did. By 2009, the position of the Gardiner Petroleum business was difficult. Gardiner Petroleum had an expired equipment lease of $120,000 and an expired Second Market Rate Facility of $1 million. Gardiner Petroleum's cashflow as at 2009 and 2010 was such that it was not in a position to continue operating at all without further funding, which the bank (and the Commonwealth Bank) was not prepared to provide. Gardiner Petroleum had payment arrangements with some of its creditors, including the ATO. Working capital continued to be Gardiner's Petroleum ongoing and unresolved problem. There is no evidence on which to conclude that, even if any of the alleged conduct was established, Gardiner Petroleum had a chance of operating as a profitable business. 9. As pleaded and pursued at trial, the loss and damage of Mr and Mrs Gardiner – as opposed to loss and damage which may have been sustained by Gardiner Petroleum – was undelineated and unclear. Also unclear was the ability of Newport Resources to pursue a claim for damages on behalf of a deregistered Gardiner Petroleum, to which I will return at [365]. Nor was there any evidence to support any loss or damage, in particular, of the quantum tabulated in the plaintiffs' opening or closing submissions. 10. As ultimately put, the plaintiffs submitted that, if the bank had been more forthcoming or had given Mr Gardiner the unredacted McGrathNicol report and advised that it was thinking of selling him up, Mr Gardiner would have sold a high value service station and thereby retained the investment properties. The bank would have then been owed some $8 million, which would have been repaid on a refinance. Unfortunately, however, the value of the properties appeared insufficient for this purpose. Presumably, the incoming financier would have taken security over the plaintiffs' remaining residential and commercial properties such that identifying any loss proved elusive. DECEIT 1. The plaintiffs contended that the bank made false representations, deceiving the plaintiffs into selling their assets when it was not necessary to do so. Had the plaintiffs known the bank's true position, they would have taken a different course, seeking alternative debt or equity finance. It is said that the bank deceived the plaintiffs by representing that the bank's strategy was to work with the plaintiffs to save the service station business. By redacting the McGrathNicol reports, the bank concealed its true plan. In fact, the bank intended to liquidate all assets of the plaintiffs and their business, but failed to disclose this strategy. The bank adopted "fictional calculations" in the McGrathNicol reports. By relying on the bank's representations, the plaintiffs are said to have lost the whole of their residential and business assets. Time bars 1. A cause of action founded on tort is not maintainable if brought at the expiration of six years from when the cause of action first accrues, being when loss or damage is sustained: Limitation Act 1969 (NSW), s 14(1)(b), Wardley v Western Australia. However, the plaintiffs relied on section 54 of the Limitation Act 1969 (NSW), contending that the bank confirmed their cause of action by pleading a set-off as part of its Cross-claim. Further, the plaintiffs alleged that they first discovered the bank's 'financial exit strategy' after inspection of the documents discovered by the bank in April 2021. At no stage during the pendency of the credit facilities with the bank prior to the commencement of the proceedings did the bank or McGrathNicol disclose to the plaintiffs the bank's 'financial exit strategy'. As such, it was suggested that section 55 of the Limitation Act 1969 (NSW) had the effect that the limitation period in relation to their allegations did not start running until then. 2. As to section 54, confirmation is effective only if it happens before the expiry of the limitation period: section 54(1). Confirmation after expiry of the limitation period does not revive it: Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 565 (Wilson J). As earlier analysed at [296]-[297], any loss was sustained more than six years before commencement of these proceedings in December 2019. The bank filed its Commercial List Response in March 2020 and a cross-claim in April 2020. Assuming for the moment that either pleading confirmed the plaintiffs' cause of action in deceit, any such confirmation was made after the limitation period had expired. 3. As to section 55, the deceit claim was added to the plaintiffs' pleading on 5 August 2022 by the Further Amended Commercial List Statement. By the Amended Commercial List Reply filed on 5 August 2022, the plaintiffs contended that their cause of action was fraudulently concealed within the meaning of section 55. As I understand the plaintiffs' pleading, reliance was placed on section 55(1)(b) of the Limitation Act, which provides: 55 Fraud and deceit (1) Subject to subsection (3) where— … (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment. 1. The first problem is that I have found that there was no 'financial exit strategy' as alleged. The second problem is that it is unclear how provision of the redacted McGrathNicol report to Mr Gardiner amounts to fraudulent concealment where the plaintiffs knew that they were not being provided with certain sections of the McGrathNicol report. Further, as noted at [316]-[318], when the redacted report was viewed against the bank's letter of instruction, it was fairly obvious that the redacted portions of the report addressed the bank's request for advice on its security position and the likely outcome if the security was realised on a going concern or forced sale basis. I am not satisfied that the redaction was "fraudulent" within the meaning of the section. 2. Further, a plaintiff seeking to rely on section 55 must not only prove when they actually discovered the fraud but must also show that they could not have discovered the fraud without taking unreasonable or exceptional measures. That is, the plaintiff bears the onus of proving that they could not reasonably have discovered the fraudulent concealment of the cause of action earlier than they did: Ballard v Multiplex [2012] NSWSC 426 at [104]-[107] per McDougall J; cited with apparent approval in Sims v Commonwealth of Australia [2022] NSWCA 194 at [83] (Bell CJ). 3. The bank submitted that there was nothing preventing the plaintiffs, acting with reasonable diligence, from discovering in 2009 or at any time since what they say they have discovered only recently. If they had genuine concerns about the bank's conduct, there were no obstacles to them obtaining legal and accounting advice. There was also nothing preventing the plaintiffs from requesting unredacted copies of the McGrathNicol report from the bank. 4. There is much force in this argument where it was perfectly apparent from the redacted McGrathNicol reports provided to Mr Gardiner in 2009 and 2010 that portions had been redacted such that the bank may be acting in accordance with advice undisclosed to Mr Gardiner. If the plaintiffs thought that the bank may not have acted in accordance with the law, including by actioning advice which had not been disclosed to them, a simple step would have been for the plaintiffs to request a copy of the unredacted reports. There is no evidence of such a request, which I can consider would have been a reasonable and unexceptional measure. 5. Whether the bank would have acceded to such a request is, of course, not known. If the bank had refused to provide the unredacted reports on request, necessitating, for example, an application for preliminary discovery under rule 5.3 of the Uniform Civil Procedure Rules 2005 (NSW), then it may well be that the plaintiffs would be able to maintain that they could not have discovered the fraud earlier than they did without taking unreasonable or exceptional measures. But that is not the case here, where the plaintiffs did not take the simple step of asking for the unredacted reports. As such, I do not consider that the plaintiffs have satisfied the requirements of section 55. The tortious claim of deceit is time barred. Elements 1. If I am wrong about this, the tort of deceit has five elements: first, the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage caused by reliance on the false representation: Magill v Magill [2006] HCA 51; 226 CLR 551 at [114] per Gummow, Kirby and Crennan JJ. As their Honours there emphasised, "the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation": at [114]. 2. As McDougall J observed in Carr v Miller [2018] NSWSC 1424, an allegation of deceit is serious and the Court must take the gravity of the allegation into account in deciding whether it is satisfied on the balance of probabilities that the allegation has been made good; there must be a feeling of actual satisfaction that the deceitful conduct took place and that the elements of deceit have been made out: at [93]-[94]. 3. None of these elements were established. To the extent any representations about the bank's strategy and intentions were made to the plaintiffs, they were made openly and the bank adopted the strategy that it said it was adopting, being to encourage Gardiner Petroleum to reduce its debt and to manage its cash flow. As earlier observed, the redaction of portions of the McGrathNicol reports did not result in a false representation. It was apparent from the bank's letter of instruction and the headings of the redacted portions what the bank wanted advice about and, thus, what the bank was thinking about. Nor did the redacted portions record the suggested "exit" strategy. 4. More important than McGrathNicol's advice and presentation of options was the strategy which the bank decided to pursue. The bank's contemporaneous records evidence consistent, clear communication with the Gardiners about what the bank wanted to achieve, what the bank wanted them to do and why. Further, for reasons earlier stated, the plaintiffs have not established causation or loss. CODE OF BANKING PRACTICE 1. The bank is said to have failed to comply with the Code of Banking Practice when requiring Mr and Mrs Gardiner to refinance the properties then mortgaged to St George with the bank, without informing them that the bank proposed to use the additional equity as part of its 'post-GFC' intervention and for the bank's benefit. Further, Mr Vasseleu required the plaintiffs to sell their assets urgently and without delay, thereby resulting in sales proceeds less than might otherwise be achieved. The bank required the plaintiffs and Gardiner Petroleum to pay for McGrathNicol's "expensive accounting reports" and withdrew the bank's financial facilities without adequate notice "contrary to … promises". The bank was said to have influenced the outcome of McGrathNicol's reports and caused sections of the reports which did not support its plans to be redacted. Some of the pleading is scandalous and unsupported by any evidence and will not be repeated here. Ultimately it is said that the plaintiffs thereby suffered loss and damage, being all of the residential investments and business. Time bars 1. This is a claim for breach of contract. The limitation period is six years from accrual of the cause of action, being when the contract was breached: section 14(1) Limitation Act 1969; Gould v Johnson (1702) 2 Salk 422; 91 ER 367. The alleged breaches of contract date from 2008 to May 2010. Clearly, these proceedings are out of time. To the extent that the plaintiffs relied on sections 54 or 55 of the Limitation Act to extend the limitation period, I have concluded that these sections do not apply in the circumstances of this case: see [338]-[344]. "small business" 1. If I am wrong about this, the question is whether the Code of Banking Practice applied in the circumstances of the case, where the Code sets standards of good banking practice for the bank to follow when dealing with individual and small business customers and their guarantors: clause 1.1, Code of Banking Practice (May 2004). 'Small business' is, relevantly, a business which employs less than 20 full time or equivalent employees: Part F 'Application and Definitions', 'small business' and 'you and your'. 2. Mr Gardiner said that, as at April 2009, Gardiner Petroleum had six permanent full-time employees. In addition, casual employees ran the service stations. He calculated the number of full-time equivalent employees to cover these service station shifts as an additional seven employees, bringing the total to 13 full time or equivalent employees. Mr Gardiner said April 2009 was a time at which the business "had more employees than at any other time." 3. Mr Gardiner's calculation seems odd where six service stations were then operating 24 hours a day, seven days a week and the seventh service station was open 16 hours a day, seven days a week. In his last affidavit, Mr Gardiner deposed that the 'total weekly hours worked by part time employees' of Gardiner Petroleum was at least 980 hours. This alone would have amounted to the equivalent of 24.5 full time employees. 4. Also at odds with Mr Gardiner's evidence, a Client Evaluation prepared by the bank in January 2008 recorded that Gardiner Petroleum employed approximately 80 staff, four of whom were employed in key senior management positions looking after the day-to-day operations of the site. However, Mr Gardiner said this was not an accurate statement; the company had 50 staff, being six full-time staff and another 44 casual staff who assisted in operating the service stations. I do note, however, that in his resume, Mr Gardiner describes himself as the managing director and founder of the largest Caltex multi-site business in Australia, with an annual turnover of $80 million "and I employed 100 employees". 5. I also note that, in January 2012, Direct Credit Report records at least 38 people to whom wages were being paid. Presumably, the company's employees were much reduced by this time. The Bad Debt Report completed on 14 September 2012 reported that, at its peak, the company employed approximately 60 people. 6. The bank submitted that, even on the assumption of only one employee present at a service station at a time, there was a 168-hour working week per service station. Taking a full-time employee at 40 hours a week (38 is probably accurate), that is four full time employees (rounding down) per 24 hour day per service station per week, or 24 employees (again rounding down) per week across the six service stations that operated 24 hours a day plus about another three at the service station that operated 16 hours a day. On any view, despite Mr Gardiner's evidence, that was in excess of 20 full time or equivalent employees. 7. The bank's calculations make more sense to me, particularly when viewed with the contemporaneous records, which suggest that Mr Gardiner has under-stated the number of full-time employees of the company at the time of the suggested contractual breaches. Any obligations imposed under the Code of Banking Practice did not apply vis a vis Gardiner Petroleum and its guarantors, Mr and Mrs Gardiner. Breach of the Code 1. If I am wrong about this, the Code of Banking Practice was incorporated into the relevant contracts by the bank's General Conditions, for example, clause 20 of the General Conditions to the Second Market Rate Facility. The plaintiffs contend that the bank was in breach of its obligation to act fairly and reasonably towards Gardiner Petroleum in a consistent and ethical manner. The bank was obliged to act prudently with diligence, care and skill. The bank was obliged to work with the plaintiffs if they experienced financial difficulties and not to cause them to draw on their superannuation. The latter obligation arose under the Code of Banking Practice adopted in 2013, and I will consider whether this obligation applied at [362]. 2. The alleged breaches of the provisions of the Code of Banking Practice have not been established. Clause 2.2 required the bank to act fairly and reasonably in a consistent and ethical manner where, "In doing so we will consider your conduct, our conduct and the contract between us". This obligation requires no more than conduct in good faith: Dinh v Commonwealth Bank of Australia [2021] WASCA 127 at [135]-[139]. I do not consider that the bank breached this obligation. Rather, Mr and Mrs Gardiner did not perform their undertakings given in 2008 to sell properties to reduce debt. Gardiner Petroleum could not comply with the terms of its facilities and sought more finance. The bank afforded Gardiner Petroleum and the plaintiffs repeated opportunities and indulgences. 3. Clause 25.1 required the bank to exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessment methods and in forming its opinion as to the customer's ability to repay. It does not require the bank to be satisfied that the customer has the ability to repay a facility before offering it: Dinh v CBA at [178]-[180]. The bank may take due care and decide that, although it is possible that the borrower may not be able to repay the loan, it will offer the loan in any event: Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 at [163]-[164] (McLeish JA, Whelan JA and Garde AJA agreeing); Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 at [26] (Meagher JA, Macfarlan and White JJA agreeing). The bank did not act in breach of this obligation, particularly where the plaintiffs' complaint is that more money, not less, should have been lent. 4. Clause 25.2 requires the bank to help its customer overcome the customer's financial difficulties with any credit facility the customer has with the bank. I consider that the bank discharged this obligation. The bank supported Gardiner Petroleum through waivers of breaches, allowed excesses on its overdraft facility and extended time for repayment of facilities which Gardiner Petroleum could not otherwise repay when due. The bank did so despite increasing concern as to the risk of losses and exasperation at Mr Gardiner's failure to understand the position his business was in, and to sell assets to reduce debt and improve cashflow. 5. Clause 28.9 was only added as an amendment to the Code in 2013. Clause 28.9 prohibits the bank from requiring customers to apply for early release of their superannuation benefits to repay their credit facility and obliges the bank to recommend that the customers seek independent advice on the option of applying for such release. The plaintiffs rely on this clause in respect of the Hawks Nest property, which was owned by Gardiner's Pty Ltd as trustee of the Anchorage Trust. The trustee of Mr and Mrs Gardiner's self-managed superannuation fund owned 95% of the units in the Anchorage Trust. That is, the Hawks Nest property was not property of the superannuation fund; the units in the unit trust were. 6. In any event, assuming for the moment that clause 28.9 applied to the sale of the Hawks Nest property, that property was sold on 12 April 2011, before clause 28.9 became part of the Code of Banking Practice. The contractual obligation imposed by clause 28.9 did not have retrospective effect. As such, the bank's efforts to encourage Mr and Mrs Gardiner to sell that property are not a breach of contract. The claims for breach of the Code of Banking Practice fail. NEWPORT RESOURCES AND REINSTATEMENT 1. The third plaintiff was Newport Resources, which was appointed as trustee of the Gardiner Family Trust on 28 November 2019, seven years after Gardiner Petroleum automatically ceased to be trustee on the appointment of a liquidator. 2. Newport Resources was joined to the proceedings in February 2022. The bank responded to the joinder by maintaining that Newport Resources had no right or power to sue in these proceedings as the deed by which it was appointed trustee of the Gardiner Family Trust did not vest any trust property in the company. Gardiner Petroleum was the proper plaintiff but any chose in action vested in ASIC on deregistration: section 601AD(2), Corporations Act 2001 (Cth). 3. The plaintiffs then added a further prayer for relief in the Further Amended Summons, seeking an order to the extent necessary to reinstate the registration of Gardiner Petroleum pursuant to section 601AH(2) of the Corporations Act and to add the company as a plaintiff to the proceedings. No mention was made of this matter by the plaintiffs during the hearing. I am tempted to treat it as not pressed, particularly where ASIC would need to be notified of any application to reinstate a company and there is no evidence that it had been so notified: Regulatory Guide 83 - Reinstatement of Companies(ASIC Guide) at RG 83.42. 4. I will resist that temptation. Section 601AD of the Corporations Act provides that, on deregistration, a company ceases to exist; all property that the company held on trust immediately before deregistration vests in the Commonwealth while other property vests in ASIC. 5. Subsection 601AH(2) of the Corporations Act provides that the Court may make an order that ASIC reinstate the registration of a company if an application for reinstatement is made by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. As Gleeson JA explained in Re European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 at [17]-[18], the expression "aggrieved person" is of wide import and should be construed liberally and includes a person who has been damaged in the legal sense. As Brereton J observed in Re Regional Planners Developments Co Pty Ltd (2015) 110 ACSR 457, a person is aggrieved by the deregistration of a company if they are thereby precluded from suing the company and it may be just for the company's registration to be reinstated for the purpose of enabling the applicant to pursue its remedies: at [11]. Similarly, in Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301 at [103], Gillard J observed: … in my view, it follows, once the Court comes to the view that the first and third plaintiffs are persons aggrieved by the deregistration, in that there is a valuable right which each wishes to establish in a court or tribunal, that in the circumstances it would be just that the company's registration be reinstated. 1. The plaintiffs are "aggrieved" in the relevant sense where Gardiner Petroleum may have valuable rights against the bank which it cannot pursue given its deregistration. 2. The second matter to consider is whether it is "just" that the company's registration be reinstated. His Honour Austin J succinctly explained this requirement in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232; [2000] NSWSC 316 at [27]: The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved, whether, if the order were made, good use could be made of it, and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. 1. It is not "just" to resurrect a company which will then be devoid of proper governance and it is for this reason that applicants seeking reinstatement of companies often seek the appointment of a liquidator in conjunction with reinstatement: see, for example, CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd (2006) 201 FLR 296 at [9] per Barrett J. The plaintiffs did not address what should be done to govern the company in the event of reinstatement. No liquidator was proffered. 2. The bigger problem is that I have found that any claim by Gardiner Petroleum against the bank is time barred and without merit. Of course, the Court can make ancillary orders on reinstatement of a company to validate anything done during the period of deregistration or "any other order it considers appropriate": section 601AH(3), Corporations Act 2001. As I noted in In the matter of Austral Bronze Pty Limited (No 2) [2020] NSWSC 1633, ancillary orders may be made to suspend the limitation period in respect of claims against the company but perhaps not to avoid limitation periods which may apply to a claim to be brought by the company: at [77]-[78]. 3. For example, in Chalker v Clark [2008] VSCA 92, the applicant sought to reinstate a company so that he could endeavour to persuade a liquidator appointed to the company to assign the company's chose in action to him to pursue. The proposed proceedings which the applicant wished to bring on behalf of the company were clearly statute barred. The Court considered that it would not be "just" to reinstate a company as a device to escape a limitation period with the benefit of an ancillary order: at [37] per Osborn AJA, at [45] per Maxwell P. The Court was also mindful as to whether the ancillary orders sought are futile or sought in aid of an unmeritorious claim. 4. As I have concluded that the causes of action sought to be pursued by the present plaintiffs are time barred and without merit, I do not consider it "just" to reinstate Gardiner Petroleum in the event that the plaintiffs in fact moved on those prayers for relief. Nor is it necessary to determine whether Newport Resources is a proper plaintiff where no claim has been established in any event. The bank's submissions, however, had considerable force. CROSS CLAIM 1. Mr and Mrs Gardiner admitted that they were liable to the bank in relation to the outstanding facility advanced to them personally and that the amount was secured by the Eleebana mortgage. This amount related to $700,000 advanced by the bank in 2008 to refinance the Rothbury property: see [50] and [58]. The monies owing under the Eleebana mortgage may be established by a Dobbs certificate: clause 1. At the hearing, the bank tendered a certificate evidencing that $1,336,430.40 was secured by the mortgage. 2. The plaintiffs have not established a basis to resist enforcement of the Guarantee. Under the Guarantee, Mr and Mrs Gardiner undertook to pay "all the amounts which the customer [Gardiner Petroleum] owes NAB" up to the limit of $4,248,002, together with any amounts falling outside that limit which represent interest and fees accrued in relation to amounts within that limit and owing by the customer to the bank. A Dobbs certificate established that the monies owed by Mr and Mrs Gardiner to the bank pursuant to the Guarantee of the debt of Gardiner Petroleum was $11,439,192.69. 3. Ms Stacker explained that, since the last demand issued by the bank to Mr and Mrs Gardiner on 6 November 2015, interest continued to accrue on the amount outstanding under the Overdraft Facility in accordance with clause 6 at 9.02% per annum. Interest continued to accrue on the amounts owing under the First Market Rate Facility in accordance with clause 6 at 3.64% per annum. Interest continued to accrue on the amount owing under the Second Market Rate Facility in accordance with clause 6 at 5.56% per annum. In short, in the seven years which had passed since the last demand until the conclusion of the hearing, the amount owing had doubled. 4. The Second Market Rate Facility listed the Guarantee in its list of "Securities" and stated that the Guarantee was supported by the Eleebana mortgage. The Eleebana mortgage is an 'all moneys' mortgage. The 'money hereby secured' is defined and includes "moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety". This includes monies owing under the Guarantee. The monies owing have been established by the Dobbs certificate, as permitted under cl.22.1 of the Guarantee. 5. In the result, the bank is entitled to the relief claimed by the cross-claim. ORDERS 1. The plaintiffs also sought equitable relief, to which the bank objected in the absence of any clear pleading; it was not necessary to resolve that debate where no entitlement to equitable relief was apparent. For these reasons, I make the following orders: 1. Dismiss the Further Amended Summons. 2. Judgment for the defendant against the first and second plaintiffs in the amount of $12,775,622 as at 18 October 2022. 3. Grant liberty to the defendant within seven days to provide an updated Dobbs certificate as at the date of this judgment, so that the judgment debt in Order 2 may be updated accordingly. 4. Order that the first and second plaintiffs give the defendant possession of all the land comprised in Certificate of Title Folio Identifier 690/736691 and known as 8 Wollundry Close, Eleebana in the State of New South Wales (Eleebana property). 5. Grant leave to issue a writ of possession in respect of the Eleebana property. 6. Order the plaintiffs to pay the defendant's costs of the proceedings. 7. In the event that any party seeks a variation to Order 6: 1. Direct the party seeking the variation to provide any affidavits and submissions (limited to three pages) in support of the variation within 14 days. 2. Direct any other party to provide any affidavits and submissions (limited to three pages) in response within a further 14 days. 3. Such application to be determined on the papers. 1. Grant liberty to the parties within 14 days to advise any errors or omissions. ********** Amendments 20 February 2023 - Minor typographical amendments. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 February 2023