Reported Decision : (2000) 50 NSWLR 587 New South Wales Supreme Court CITATION : State Bank of NSW v Kit Cheng Chia & Peng Tin Chia; Peng Tin Chia v Kenneth John Rennie & Anor [2000] NSWSC 552 FILE NUMBER(S) : SC 50215/97; 50021/98 HEARING DATE(S) : 6, 7, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 23, 24, 27, 28, 29, 30, 31/3/00 JUDGMENT DATE : 29 June 2000 PARTIES : 50215/97 State Bank of New South Wales v Kit Chen Chia & Peng Tin Chia 50021/98 Peng Tin Chia v Kenneth John Rennie & Anor JUDGMENT OF : Einstein J JC Campbell QC, JE Thomson (Plaintiff) COUNSEL : RW Evans (First Defendant) RD Wilson (Second Defendant) Minter Ellison (Plaintiff) SOLICITORS : McKell's Solicitors (First Defendant) LMG Solicitors & Attorneys (Second Defendant) CATCHWORDS : Equity - Husband and wife - Wife as guarantor for husband's debts - Claim to set aside guarantee - Equity in Garcia v National Australia Bank - Necessity for wife to gain adequate understanding of transaction - Misunderstanding of wife must be material to liability - Whether creditor must show that they had reasonable grounds for believing that wife did have adequate understanding - Knowledge of solicitor of creditor amounting to reasonable grounds is to be imputed to creditor. - Equity - Receivers - Whether privately appointed receiver is a fiduciary - Duties of privately appointed receivers - Whether receiver has a duty to disclose all matters to mortgagor - Whether receiver has a duty to pursue the best price - Whether receiver's sale may be upheld when there is a relationship between receiver, mortgagor and purchaser. - Equity - Mortgagees - Duties of mortgagees effecting a power of sale - Interference by mortgagee in performance of receiver's duties - Whether mortgagee is then subject to the same set of duties of receiver. - Equity - Receiver and mortgagee - Whether duties of receiver and mortgagee extend to guarantor of the mortgagor's debt. - Contract - Banker and Customer - Clause modelled on clause in Dobbs v National Bank of Australasia - Conclusive effect of 'Dobbs Clause' - Ability of Bank to rely on conclusive effect - Exception in the case of 'manifest error' - What constitutes a 'manifest error - Whether necessary for 'statement' or 'certificate' to be issued. - Trade Practices - Misleading and deceptive Conduct - Whether liability may attach to a representation to negotiate - Whether representation to negotiate is too vague or uncertain - Meaning of 'negotiation' - Whether a representation to negotiate inherently includes a representation to negotiate in good faith - Requirements of a negotiation in good faith. - Trade Practices - Misleading and deceptive conduct - When silence can be misleading - Whether acting inconsistently with an invitation not accepted or rejected is misleading and deceptive conduct. - Trade Practices - Unconscionable conduct within the meaning of the unwritten law - Whether breach by receiver is unconscionable conduct within the meaning of the unwritten law. - Practice and Procedure - Award of interest - Principles on which interest to be awarded prior to the date for judgment. - Practice and Procedure - Award of interest - Whether claim for interest merged in the judgment - Circumstances in which interest after the date of judgment may be awarded at rates other than the prescribed rate. - Commercial Arbitration Act 1984 Evidence Act 1995 LEGISLATION CITED : Fair Trading Act 1987 Real Property Act 1900 Supreme Court Act 1970 Trade Practices Act 1974 (Cth) Adamse v Broadway Credit Union Ltd (1999) NSW Conv R 55-976, Aiton v Transfield (unreported, 1 October 1999, Supreme Court of NSW, per Einstein J) Akins v National Australia Bank (1994) 34 NSWLR 155 American Express v Hurley [1985] 3 All ER Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 ANZ Banking Group Ltd v Carnegie (unreported, 16 June 1997, Supreme Court of Victoria, per Crockett J) Armstrong v Commonwealth Bank of Australia (unreported, 17 June 1999, New South Wales Supreme Court, per Hamilton J), Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 Bank of Credit & Commerce v Aboody [1989] 1 QB 923 Bank of Victoria v Mueller [1925] VLR 642. Barclays Bank plc v Thomson (1996) 146 NLJ 1778 Barclays Bank v Boulter [1999] 1 WLR 1919 Barclays Bank v O'Brien [1994] 1 AC 180 Barns v Queensland National Bank Ltd (1906) 3 CLR 925 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 Boziuk v City of Edmonton [1977] 1 Alta LR (2d) 371 Brick and Pipe Industries Ltd v Occidental Life Nominees [1992] 2 VR 279 Brickenden v London Loan and Savings Co [1934] 3 DLR 465 Briginshaw v Briginshaw (1938) 60 CLR 336 Cape v Redarb Pty Ltd (1992) 8 ACSR 67 Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1 Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 Commercial and General Acceptance Ltd v Nixon (1983) 152 CLR 491 Commercial Bank of Australia v Amadio (1982) 151 CLR 447 Commonwealth Bank of Australia v Khouri (Unreported, 4 November 1998, Supreme Court of Victoria, per Harper J) Commonwealth Bank of Australia v Milder Elfman Szmerling Krycer Pty Ltd (unreported, 18 February 1998, Supreme Court of Victoria, per Hansen J) Courtney & Fairburn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 Cranfield Pty Ltd v Commonwealth Bank of Australia (unreported, 20 November 1998, Supreme Court of Victoria, per Mandie J). Cuckmere Brick Co v Mutual Finance Ltd [1971] 1 Ch 949 Davies v Australia and New Zealand Banking Group Ltd (unreported, 5 August 1999, Federal Court of Australia, Heerey J) Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643 Downsview Ltd v First City Corporation Ltd [1993] AC 295 Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 Dynamic Lifter Pty Ltd v Incitec Ltd (1994) 30 IPR 198 Economic Life Assurance Society v Usbourne [1902] AC 147 Elizabeth Bay Developments Pty Ltdv Boral Building Services Pty Ltd (1995) 36 NSWLR 709 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192 Ex parte Fewings (1883) 25 Ch D 338 Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 Farrow Mortgage Services Pty Ltd (in Liq) v Victor Tunevitsch Pty Ltd (1998) 8 Tas R 65 Foakes v Beer (1884) 9 App Cas 605 Forsyth v Blundell (1973) 129 CLR 477 G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251 Garcia v National Australia Bank (1998) 194 CLR 395 Gaskell v Gosling [1886] 1 QB 669 General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786 Gomba Holdings Ltd v Minorities Finance Ltd [1988] 1 WLR 1231 Gosling v Gaskell [1897] AC 575 Gould v Vagellas (1985) 157 CLR 215 Gould v Vaggelas (1985) 157 CLR 215 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW Conv R 55-731 CASES CITED : Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hillas & Co Ltd v Arcos Ltd [1932] All ER 494 Hilton Hotels of Australia Pty Ltd v Sunrise Resources (Australia) Pty Ltd (Unreported 18 February 2000, NSWSC per Hodgson CJ in Eq) Hooper Bailey Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 Hospitals Contribution Fund of Australia Pty Ltd v Switzerland Australia Health Fund (1987) 78 ALR 483 Jenkins v National Australia Bank (1999) ANZ ConvR 544 Jeogla v Australia New Zealand Banking Group Ltd (1999) 150 FLR 359 Johnson v Buttress (1936) 56 CLR 113 Kennedy v De Trafford [1897] AC 180 Kimberly NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 Knight v Lawrence [1993] BCLC 215 Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404 Lishman v Christie (1887) 19 QBD 333 LLMD of Michigan v Marine Midland Realty Credit 789 F Supp 657 (1992) Long Leys Co Pty Ltd v Silkdale Pty Ltd (1992) NSW ConvR 59, 476 at 5, 482 Sheller JA Macgowan, Macgowan v Murray [1891] 1 Ch 105 Magadi Soda Co Ltd (1925) 41 TLR 297 Maguire v Makaronis (1997) 188 CLR 449 McDonald v Scorbie [1980] Qd R 477 Medforth v Blake [1999] 3 WLR 922 Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 Mercantile Credits Ltd v McDowell (1980) 2 NSWLR 101; National Australia Bank Pty Ltd v Sampson (unreported, 9 September 1991, Supreme Court of NSW) National Australia Bank v Garcia (1996) 39 NSWLR 577 Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Peat Marwick Ltd v Consumers Gas Co (1980) 29 OR (2d) 336 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 Peters v Commonwealth Bank of Australia (1992) NSW Conv R 55-629 at 59-580 per Brownie J Pinnel's Case (1602) 5 Co Rep 117A; 77 ER 237 Promenade Investments Pty Ltd v NSW (1992) 26 NSWLR 203 Qorum v Younger (1994) NSW ConvR 55738 RA Price Securities Ltd v Henderson [1989] 2 NZLR 257 Radin v Commonwealth Bank of Australia (Unreported, 23 October 1998, Federal Court of Australia, per Lindgren J). Rhone Poulec Agrochime v IUM Chemical Services Pty Ltd (1986) 68 ALR 77 Ridgway v Wharton (1857) 6 HLC 238; 10 ER 1287 Robinson Printing Company Ltd v Chic Ltd [1905] 2 Ch 123 Ruby v Marsh (1975) 132 CLR 642 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Scott v Avery (1856) 5 HLC 811; 10 ER 1121 Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284, Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 State Bank of New South Wales v Vecchio (Unreported, 10 November 1998, New South Wales Supreme Court, per Kirby J) State Bank of NSW v Vincent (Unreported, 7 April 1995 per Giles J), Stoyanovich v National Westminster Finance (1984) 3 BPR 9310 Sutton v AJ Thompson Pty Ltd (1987) 72 ALR 223 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 The Commonwealth v Verwayen (1990) 170 CLR 394 Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd (Unreported, 17 May 1999, Supreme Court of Western Australia, per Master Bredmeyer) Walden Properties Ltd v Beaver Properties Ltd [1973] 2 NSWLR 815 Walford v Miles [1992] 2 AC 128 Walley v Western Australia (1996) 137 ALR 561 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Warbutron v Whiteley (1989) NSW ConvR 55-453 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Wilkinson v ASB Bank Ltd [1998] NZLR 674 Yerkey v Jones (1939) 63 CLR 649 DECISION : Parties to bring in short minutes. TABLE OF CONTENTS Page Paragraph THE DISPUTE 1 1 DR CHIA'S FACILITY 3 7 DIVISION OF THE CASE 6 18 THE BANK'S CAUSES OF ACTION 7 21 Debt against Dr Chia 7 Principal and accrued interest to date Special rate of interest on judgment debt Indemnity costs Debt against Mrs Chia 8 Principal and accrued interest to date Special rate of interest on judgment debt Indemnity costs Estoppel arising from 1991 Consents Estoppel arising from acknowledgment of 11 March 1993 Possession of Strathfield land, against Mrs Chia Possession of Campbelltown land, against Dr & Mrs Chia MRS CHIA'S CASE 9 22 (i) As to the Strathfield mortgage 10 (ii) As to the Campbelltown mortgage 12 The particular documents in focus on Mrs Chia's case 13 25 Mrs. Chia's evidence in chief 14 26 Initial acquisition of Strathfield property 19 50 THE FIRST PERIOD OF TIME 20 56 The Strathfield mortgage - document 1A 20 57 Evidence given by Mr Harkness 20 59 Evidence given by Ms Sandeman 24 71 The Campbelltown mortgage - document 5 27 80 Evidence given by Ms Mijatovich 27 80 Evidence given by Mr Iuliano 33 101 The Assessment of Witnesses relevant to Mrs Chia's Case 51 139 Mrs Chia 51 139 Dr Chia 53 143 Mr Harkness 56 157 Ms Sandeman 56 158 Ms Mijatovich 56 159 Mr Iuliano 56 160 Principles Applicable to Mrs Chia's Defence 57 161 Onus of Proof 63 170 Importance of Materiality 65 177 The question for the Court 67 180 Did Mrs Chia's have an adequate understanding of the nature and purport of the transactions 68 183 Was Mrs Chia a Volunteer 76 213 Did the Bank Know Mrs Chia and Dr Chia were married 77 215 Did the Bank have reasonable grounds on which to to believe that Mrs Chia adequately understood the transaction 77 216 (i) The Strathfield mortgage 77 218 (ii) The Campbelltown mortgage 80 227 Findings 84 236 DR CHIA'S CASE 84 238 Dr Chia's defence 84 238 Debt against Dr Chia 85 241 Dobbs clause 86 243 Efficacy of the Dobbs 88 250 Manifest error 90 253 (i) alleged errors of calculations in the affidavit of Mr Moulds 90 254 (ii) alleged overcharging of interest 90 255 (iii)'Rebate' or 'Refunds' of interest 92 258 (iv) alleged multiple accounts, undefined transfers and deductions 92 259 (v) range of different bank officers with different skills dealing with the account 93 260 Effect of the Dobbs clause 93 261 Dr Chia's cross-claim 93 262 The allegations made in the cross-claim against the Bank 94 263 (i) The alleged negotiations 94 264 (ii) The alleged representations 94 265 (iii) The alleged reliance and inducement 94 266 (iv) The section 51A allegation 95 267 (v) The section 52 allegations 95 268 (vi) Reliance and breach of obligation to negotiate in good faith allegation 95 272 (vii) The alleged unconscionable conduct 96 277 (vii) The fiduciary obligation counts 97 279 (ix) Claim for Excess Interest Charges 97 281 The allegations made in the cross-claim against Mr Rennie 98 282 (i) The alleged Receivers duties 98 282 (ii) The fiduciary obligation counts 98 283 (iii) The wilful default and neglect counts 99 292 (iv) Further claims in respect of alleged unconscionable conduct relating to valuations 100 295 Claims made against Mr Rennie in relation to the management of the business 101 302 (i) The alleged breaches of duty 101 302 (ii) The claim for an account 102 307 The consequential claims 102 308 THE SECOND PERIOD OF TIME 102 310 Structure adopted for the evidence with regard to the second period of time 103 312 Evidence given by Mr Hanly 104 317 13 February 1997 106 323 25 February 1997 106 324 26 February 1997 107 328 5 March 1997 108 329 6 March 1997 108 330 7 March 1997 111 335 9 March 1997 112 336 21 March 1997 113 340 27 March 1997 113 342 1 April 1997 115 350 2 April 1997 116 351 4 April 1997 117 354 11 April 1997 118 357 14 April 1997 119 360 17 April 1997 120 365 21 April 1997 121 369 22 April 1997 122 372 23 April 1997 123 375 24 April 1997 124 377 25 April 1997 - 5 May 1997 124 378 28 April 1997 124 379 29 April 1997 125 381 1 May 1997 126 383 2 May 1997 128 386 5 May 1997 131 396 6 May 1997 137 405 Claims arising from the second period of time - Representational Case 140 417 (i) Representation that the Bank would enter into a process of negotiation 140 418 (ii) Representation that the Bank would negotiate with Dr Chia after the completion of the tender process 145 431 (iii) Representation that the Bank would inform Dr Chia when the tender process was complete and the best price offered 148 438 THE THIRD PERIOD OF TIME 150 444 Evidence given by Mr Fuller 150 446 Evidence given by Mr Ryan 155 470 Evidence given by Mr Rennie 158 485 Evidence given by Mr Warbanoff 189 581 Meeting of 17 April 1997 189 584 Meeting of 1 May 1997 (Messrs Rennie, Warbanoff and Resnick) 189 585 Evidence given by Mr Soulos 200 598 Evidence given by Mr Williams 203 620 Evidence given by Mr Resnick 206 628 Evidence given by Mr Fermanis 213 663 Evidence given by Mr Glover 222 693 Evidence given by Mr Elliott 237 745 Evidence given by Mr Long 240 765 Evidence given by Mr Low 246 788 Evidence given by Mr Moody 247 794 Evidence given by Ms Clements 250 806 Evidence given by Mr Moulds 250 807 Evidence given by Mr Gavan 250 809 Evidence given by Mr Avery 250 810 Evidence given by Mr Malafiej 252 815 Evidence given by Mr Mills 252 817 Evidence given by Mr Allenby 253 821 The Assessment of Witnesses relevant to Dr. Chia's case 253 823 Mr Hanly 253 823 Mr Fuller 253 824 Mr Ryan 254 825 Mr Rennie 255 827 Mr Soulos 255 828 Mr Resnick 255 829 Mr Fermanis 256 830 Mr Glover 257 832 Mr Elliott 257 833 Mr Long 257 834 Mr Moody 257 835 Ms Clements 257 836 Mr Gavan 257 837 Mr Moulds 261 860 Mr Avery 261 861 Mr Malafiej 261 862 Mr Mills 262 863 Mr Allenby 262 864 Claims for breach of Receiver's duty 262 865 Obligations of a receiver appointed out of court 262 866 Relationship Between Receiver and Mortgagee 269 880 Application of principles of the facts 271 887 (i) Failure to inform Dr Chia of intended sale 272 890 (ii) Failure to postpone sale to allow Dr Chia to make a higher offer 273 893 (iii) Unconscious preference for Hoyts bid 275 898 Conclusion against Receiver and Bank for breach of duty 279 907 Dr Chia's claim against the Bank for unconscionable conduct 279 908 Claim by Mrs Chia against the Receiver and Bank 280 910 Conclusion in Dr Chia's case 281 913 Claim for special rate of interest 281 916 The two sets of proceedings 284 926 Orders 285 927 Appendix A follows page 285 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - COMMERCIAL LIST EINSTEIN J Thursday 29 June 2000 50215/97 - STATE BANK OF NEW SOUTH WALES LIMITED v KIT CHENG CHIA AND PENG TIN CHIA 50021/98 - PENG TIN CHIA v KENNETH JOHN RENNIE JUDGMENT The Dispute 1 The plaintiff ["the Bank"] claims repayment from the second defendant ["Dr Chia"] as borrower of moneys due by him under a commercial bill facility, the term of which has now expired, together with interest, fees and other moneys said to be due to the Bank. 2 The Bank claims repayment from the first defendant, Dr Chia's wife ["Mrs Chia"], as surety, of moneys said to be owing to it by Dr Chia, together with interest, fees and other moneys said to be due to the Bank. 3 The Bank also claims possession of a property at 19 Barker Street Strathfield ["the Strathfield property"] in respect of which Mrs Chia is the registered proprietor. This property was mortgaged by Mrs Chia to the Bank on 6 December 1989 [dealing number Y 775521] and secured moneys owing, or to become owing to the Bank by Dr Chia. 4 The Bank also claims possession of a property at 1 Bellinger Road, Campbelltown ["the Campbelltown property"] in respect of which Dr and Mrs Chia as joint tenants are the registered proprietors. This property was mortgaged to the Bank on 15 July 1991 [dealing number E 240880] and secured moneys owing, or to become owing, to the Bank by Dr Chia. 5 From approximately December 1987 Dr Chia had become involved in the tender process concerning the Mt Druitt Cinema complex consisting of four screens which was a New South Wales government project. The substantial facilities granted by the Bank to Dr Chia commencing in late 1989 were utilised in relation to the construction of the Astro Cinema ["the Astro", or "the Cinema"]. From time to time additional advances to that provided for by the initial facility were provided to accommodate cost over-runs. As events unfolded, debt servicing shortcomings became the order of the day and the project experienced a number of difficulties. These included the later impact of competition from Hoyts which by September 1996 had constructed and was operating an eight cinema complex at the nearby Westfield Market Town Centre. Other difficulties had arisen by the use of business profits to rebuild the Strathfield residence in respect of which Mrs Chia was at all material times the registered proprietor. In early 1995 the Bank appointed a receiver to the Astro and its undertaking including the freehold. The registered proprietor of the freehold of the Cinema was Dr Chia. 6 These proceedings include not only issues raised by Mrs Chia as to whether or not the security documents she had signed are enforceable against her but also a number of issues raised by Dr Chia relating to the receivership and to the dealings by the Receivers and by the Bank in and relating to the ultimate sale of the Cinema, its undertaking and freehold, to a major customer of the Bank, namely Hoyts Cinemas Ltd. ("Hoyts"). Dr Chia focuses upon the negotiations leading to this transaction. The negotiations involved Dr Chia, by himself or his solicitors or financial consultants, dealing with the Bank in an endeavour to compromise all outstanding indebtedness to the Bank by a settlement which would release all securities. The negotiations involved the Receiver's endeavours to obtain expressions of interest and firm tenders for the acquisition of the Cinema and related assets. These endeavours extended to dealings with a number of outside parties and included the Receiver's awareness of the ongoing related negotiations between the Bank and Dr Chia's representatives. A particular question arises in relation to an attempt by the Bank's senior relationship manager with responsibility for Hoyts, to directly approach the Receiver seeking, in the Receiver's view, to influence the Receiver's deliberations, to try to push the price down and to do so by making plain to the Receiver that the Bank did not want "to be jerked around" and by emphasising the Bank's substantial ongoing relationship with Hoyts. A number of other matters are also treated with in the extensive cross-claim pleaded by Dr Chia against both the Bank as first defendant and the Receiver, Mr Rennie of Ernst & Young, as the second defendant. It is convenient to immediately detail the facilities granted by the Bank to Dr Chia. Dr Chia's facilities 7 On 28 November 1989 the Bank agreed to grant Dr Chia a commercial bill facility of $3.9 million, to convert (within one year, or on completion of construction of the Cinema whichever is earlier) to a fixed rate term loan for three years at a fixed interest rate, determined at time of drawdown, of cost of funds plus 2.15%. Drawings under that facility were used in part to pay out an existing mortgage, to purchase equipment (including second-hand equipment obtained from the USA for the fitout of the Cinema) and to pay the builder for construction. 8 Notwithstanding the requirement in the original letter of offer to convert the bill line to a fixed rate term loan, a bill facility continued in place. By the beginning of 1991 it had become clear that the Cinema would cost more to complete than had been first envisaged, and would open later than was first envisaged. On 11 January 1991 (which was before construction of the Cinema was completed), the Bank offered Dr Chia a new loan facility. The limit of the commercial bill facility was increased to $4.525M on 14 January 1991 and to $5,025,000 on 17 April 1991 That facility expired on 31 July 1991. Under the arrangements of January and April 1991, there was no requirement that the loan convert to a term loan on completion of construction. The terms on which the new commercial bill facility was offered included terms about what was to happen on completion on the project, so it was clearly envisaged that the bill line so granted would continue beyond construction of the Cinema. The requirement that there had been, under the original letter of offer, to convert the bill line to a fixed rate loan on completion of construction, was replaced by the new contractual arrangements of January 1991 and April 1991. 9 As early as February 25 1991, Dr Chia was aware that the Bank might require him to sell other property to reduce the debt, if the takings of the Cinema were not adequate in the first 3 months of opening. On March 1 1991 Dr Chia offered "to liquidate some of my properties to reduce some of my debt". On 21 May 1991 the Bank wrote to Dr Chia calling a meeting to discuss ( inter alia) whether it would extend or call up the facility. The Bank said that if there was an extension, it would be on condition that there be a debt reduction program. 10 The amount of the bills actually written under the facility agreed to on 17 April 1991 was $5,025,000 by 1 August 1991. $4,785,000 of bills were repayable on 29 August 1991, and $240,000 on 30 August 1991. 11 On 30 August 1991 the Bank offered Dr Chia a commercial bill facility of $1.025M for 12 months, and a fixed interest rate term loan of $4M for 12 months at an indicative rate of 10.35% plus fixed margin of 1.5%. That facility was not drawn down until 17 January 1992 (for the $4M fixed interest rate loan) and 21 January 1992 (for the bill facility). Between the end of August 1991, and the drawdowns in January 1992, the amount owing under the old commercial bill line debt was debited to Dr Chia's overdraft account, at reference rate plus 6% (which is the usual rate of the Bank for accounts in default). Dr Chia asked the Bank to reduce the interest that had been charged when the money had been debited to his overdraft account. The Bank wrote to him saying that the reason for the interest rate was that the facilities were in default. After drawdown of the new facilities the Bank agreed to, and gave, a reduction of 2.65%, and also a rebating of certain debt administration fees. 12 The proceeds of the sale of the inner city units were used to reduce the amount that was owing on the bill line, when the bills fell due for payment. This was in accordance with the contractual arrangements. 13 Account No. 241076-16 was opened on 17 January 1992 to enable the drawdown of the $4M term loan to take place. It was closed on 23 March 1993 when that facility was refinanced. 14 Account No. 241076-16 was opened on 17 January 1992 to enable the drawdown of the $4 million term loan to take place. It was closed on 23 March 1993 when that facility was refinanced. 15 The $4 million term loan was not repaid at the end of its 12 months term (17 January 1993). On 2 February 1993 the Bank offered Dr Chia a commercial bill facility of $4 million for three years and an overdraft of $600,000 repayable on demand. This offer was accepted on 26 February 1993. The first bill was drawn under the new facility on 23 March 1993. Interest was charged on the amount that had not been repaid on 17 January 1993 at a default rate until 23 March 1993. 16 The facility offered on 2 February 1993 and accepted on 26 February 1993 is the last contractual arrangement concerning bills between the Bank and Dr Chia. The bills written under that facility were not met at the expiry of the facility, and Dr Chia has been in default ever since. The last arrangement concerning an overdraft was arrived at on 15 September 1995, when the Bank agreed to extend the availability of the overdraft until 16 October 1995. 17 On 6 March 1996 the Bank wrote to Dr Chia saying that the commercial bill facility would, on its expiry later that month, be retired to his current account at an interest rate of 14.25%. The Bank wrote warning of its intention to make demand on Dr Chia on 9 May 1996. Demand was actually made on Dr Chia on 31 May 1996. Demand was made on Mrs Chia on 26 August 1996. Notices under s 56(2) (b) Real Property Act were served on 14 October 1996. Mr Rennie was appointed receiver of the land and business of the Astro Cinema on 7 February 1997. Mr Rennie accepted an offer to purchase the Cinema on 5 May 1997. That sale was completed, but the proceeds did not repay the entire debt. Further notices under s 57 (2) (b) were served on 11 June 1997. A summary of the Bank's securities has conveniently been tabulated by the Bank as follows: Mortgaged property Mortgagor Date security taken Fate 203 Eagleview Road, Minto Ontin Pty Ltd 6 December 1989 Building destroyed by fire June 1991. Insurance proceeds paid to Bank soon after January 1992. Contracts exchanged for sale prior to 28 November 1995. 47/6 Oxford Street, Darlinghurst Dr Chia 6 December 1989 Placed on market July 1991. Sold in course of 1992, and proceeds paid to Bank. 19 Barker Road, Strathfield Mrs Chia 6 December 1989 82/30 Jones Street, Ultimo Dr Chia 6 December 1989 [as for 47/6 Oxford St] 162/30 Jones Street, Ultimo Dr Chia 6 December 1989 [as for 47/6 Oxford St] Astro Cinema, Mt Druitt realty Dr Chia 6 December 1989 Sold by receiver May 1997 Astro Cinema, Mt Druitt business assets Dr Chia 15 July 1991 Sold by receiver May 1997 1 Bellinger Road, Campbelltown Dr and Mrs Chia 15 July 1991 Division of the Case 18 There are three periods of time in respect of which the facts become particularly critical. The various claims arising from the facts as disclosed by the evidence may be referred to and treated with by applying this tripartite division to the facts. The first covers the periods of time when the security documents and other acknowledgments and letters offering facilities were signed. The evidence here relates to the Bank's claim against Mrs Chia and to Mrs Chia's defence to that claim. 19 The second covers the negotiations which extended between 7 February 1997, being the date of the appointment Mr Rennie, and 5pm on 5 May 1997, when the Bank accepted the offer from Hoyts of $2.3 million for the acquisition of the Astro Cinema assets. 20 The third, forming a subset of the second, concerns the precise dealings between Mr Rennie as receiver of the one part and Hoyts in particular of the other part, in respect of the sale of the Cinema assets. In effect the whole of Mr Rennie's dealings in and about and relating to the Cinema assets and dealings with all interested parties are in focus as part of the context in which the Bank came to accept the Hoyts offer. The second and third periods of time relate to Dr Chia's claim against the Bank and the Receiver and relate to nothing else. The Bank's causes of action 21 The Bank's causes of action are reasonably straightforward and the case presents as essentially one in which Mrs Chia and Dr Chia put forward the above described defences and Dr Chia's cross-claim in answer to the Bank's claims. A short summary of the Bank's causes of action [taken from pages 4-7 of the Bank's outline submissions] is in the following terms: "Debt against Dr Chia Principal and accrued interest to date The debt of Dr Chia is secured by (inter alia) the mortgage he gave over the Astro Cinema (B71), and the Campbelltown property (B 256). (The personal covenants in the Astro mortgage survive even though the security has been sold.) The covenants to pay are in clauses (a) 2 and 4 of the Schedule. Each incorporates the Memorandum [clause (a) 5 of the Schedule]. See also Memorandum definition of 'moneys hereby secured' (B 80). The moneys are to be repaid upon demand (memorandum cl 3.1 B 83). The amount of the debt (including any accrued interest) can be proved by a certificate of an employee of the Bank. [Memorandum Clause 5.1.12 - PX 1/80] That amount is $2,879,807.47 as at 29 February 2000, with interest accruing at the rate of $1,189.59 per day. Special rate of interest on judgment debt The Bank seeks that the Court should 'otherwise order', under s 95 Supreme Court Act , so that a rate of interest different to the statutory rate applies. Dr Chia has agreed that interest on the Bank debt, and on any judgment, is at the rate applicable by the Bank to accounts of like type. [Memorandum definition of 'interest rate' - PX 1/80] Such contractual provisions provide an appropriate basis for the Court to 'otherwise Order' under s 95. [Mercantile Credits Ltd v McDowell (1980) 2 NSWLR 101; Gould v Vagellas (1985) 157 CLR 215 at 273, 276] Indemnity costs Dr Chia has agreed to pay the costs of the Bank on a solicitor and client basis arising out of any default, or out of the Bank exercising or enforcing its rights. [Memorandum paragraph (b) of definition of 'secured moneys', - PX 1/81] While the Court has a discretion about whether to order costs on the basis of a full indemnity, the proper exercise of the discretion requires that the Court order reflect the contractual right. [Fisher & Lightwood's Law of Mortgage, Australian edition, paragraph 40.2] Debt against Mrs Chia Principal and accrued interest to date As for Dr Chia, save that Mrs Chia's covenants to pay arise under the Campbelltown mortgage and the Strathfield mortgage (B 61). The covenant to pay in the Strathfield mortgage is in the mortgage Schedule cl 2, 4 and 5 (B 62) and in Annexure A to that mortgage (B 63). Mrs Chia admits on the pleadings that she is in default under the Campbelltown mortgage. [Amended defence, paragraph 9] It necessarily must follow that she is also in default under the Strathfield mortgage. Special rate of interest on judgment debt As for Dr Chia Indemnity costs As for Dr Chia Estoppel arising from 1991 Consents Mrs Chia executed the 1991 Consents on or about 30 August 1991. They are at B 316 ff. They were executed at a time when the previous Banking arrangements of Dr Chia had expired, and as part of the basis on which the Bank granted fresh facilities to Dr Chia. The Consents expressly listed the Strathfield property as one of the securities (B 321). They expressly required 3 other security properties to be sold (B 326, cl 40). It was only after the 1991 Consents had been received by the Bank that drawdown of the new facilities occurred. The estoppel is an estoppel by representation (arising from Mrs Chia's express representation that the new facilities were to be secured by the Strathfield mortgage), a conventional estoppel [ Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175; Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404. There is no problem about there being a conventional estoppel concerning assumptions as to the existence of private rights - Hilton Hotels of Australia Pty Limited v Sunrise Resources (Australia) Pty Limited Hodgson CJ in Eq 18 February 2000 unreported at p 29-30; The Commonwealth v Verwayen (1990) 170 CLR 394] (where both parties went into the transaction of extending the new facilities on the conventional basis that the new facilities were secured by the Strathfield mortgage), and an estoppel which fits within the general theory of estoppel advanced in Verwayen. Estoppel arising from acknowledgment of 11 March 1993 The acknowledgment of March 1993 is at B 484. Mrs Chia executed it at a time when the Banking facilities of Dr Chia had expired once more, and as part of the basis on which the Bank granted fresh facilities to Dr Chia. The Acknowledgment expressly acknowledges that the advances are secured over the Strathfield property and the Campbelltown property, and that it is on that basis that the Bank is extending the facilities. The Acknowledgment was sent to the Bank by an independent solicitor (B 483). It was only after the 1993 acknowledgment had been received that the Bank implemented the new facilities. The estoppel is an estoppel by representation, a conventional estoppel, and an estoppel which fits within Verwayen . Possession of Strathfield land, against Mrs Chia This follows from the granting of the mortgage, and the admitted existence of default. Non-payment of the debt on the due day is an Event of Default [Memorandum clause 18.1.1 - PX 1/96-97], which entitles the Bank to enter and take possession [Memorandum clause 18.2 - PX 1/98]. Possession of Campbelltown land, against Dr and Mrs Chia This follows from the granting of the mortgage, and the admitted (in the case of Mrs Chia) and established (in the case of Dr and Mrs Chia) default." Mrs Chia's Case 22 The substantial defence of Mrs Chia, who concedes having executed both mortgages and a number of other documents to be referred to below which over a number of years had acknowledged or referred to sundry borrowings by Dr Chia, concerns her allegations that: (i) As to the Strathfield mortgage: A (a) She was ignorant of the contents of the mortgage, the terms of which were incorporated by reference. (b) She not seen the mortgage document prior to its production by Dr Chia for execution by her. (c) She was not afforded any opportunity to negotiate for, reject or make any alteration to the terms of the mortgage. (d) She was afforded no reasonable opportunity to obtain proper independent legal and/or financial advice as to the terms of mortgage. (e) None of the provisions of the mortgage and their legal and practical effect were adequately explained by any person to her. [Particulars of these allegations are that Mrs Chia was required by Dr Chia to attend at the home of Mr Harkness, Dr Chia's solicitor; that Mrs Chia was given no opportunity to read the mortgage document before being required to sign it; that Mrs Chia was not provided with a copy of the mortgage document before signing it or afterwards; that the Bank at or about the time of execution by Mrs Chia of the mortgage, knew or ought to have known, that Mrs Chia was acting under the mistaken belief that the other securities taken by the Bank were more than sufficient to cover any borrowings by Dr Chia. However the Bank is said to have refrained from alerting Mrs Chia to any such mistaken belief] [Amended defence of first defendant paragraphs 3(a)-(e)] B That by reason of the matters referred to in A, the mortgage and its terms and conditions were unjust in the circumstances relating to it at the time was made. [Amended defence of first defendant paragraph 4] C Further or in the alternative, that by reason of the matters referred to in A or any one or more of them, Mrs Chia was in a position of special disadvantage at or about the time of the execution of the mortgage, which position of special disadvantage was known, or ought to have been known by the Bank; in the premises it is said to be unfair and unconscientious for the Bank to rely upon mortgage. [Amended defence of first defendant paragraph 5] D (a) that the Bank required Dr Chia to procure Mrs Chia's signature to the mortgage. (b) that Dr Chia did not explain the meaning or effect of the mortgage to Mrs Chia. (c) that Dr Chia represented to Mrs Chia that the Strathfield property was not at risk as there was sufficient security provided by other properties owned by Dr Chia with which to meet the moneys borrower from the Bank. [Particulars of these allegations are that the representation was partly express and partly implied; to the extent express, the representation is said to have been oral being a conversation between Dr Chia and Mrs Chia in the presence of Mr Harkness, at or about the time of signing the mortgage document. The effect of the conversation is said to have been that the Bank required a mortgage over Mrs Chia's property as part of the Bank's requirements, but that there was sufficient security in other properties being provided by Dr Chia. Further particulars are that to the extent that the representation was partly implied, it arose from the following matters: (a) The Bank had engaged Dr Chia as its agent for the purposes of procuring the mortgage for Mrs Chia. (b) The Bank not explain to Mrs Chia any of the terms and conditions of mortgage. (c) The Bank made no contact with Mrs Chia regarding the giving of a mortgage in respect to the borrowings of Dr Chia from the Bank. (d) Mrs Chia was not given any opportunity to read the mortgage before signing the mortgage. (e) The mortgage was signed at the home of Mr Harkness, at night, and in those circumstances Mrs Chia was under pressure to sign the document. (f) No proper explanation was given to Mrs Chia as to the purpose and the effect of giving a mortgage in the circumstances ] (d) at the time of making the representation, Dr Chia well knew, or ought reasonably to have known, that: (i) Mrs Chia relied on him to explain properly and fully the true effect of the mortgage. (ii) Mrs Chia would or might act on the representation. (iii) while acting on the representation Mrs Chia would or might suffer loss and damage. (e) Dr Chia made the representation to induce Mrs Chia to enter into the mortgage. (f) in the circumstances the Bank is bound by the representations made by Dr Chia to Mrs Chia, and by the failure of Dr Chia to explain the mortgage properly or at all to Mrs Chia. (g) in the premises Mrs Chia is entitled to have the mortgage set aside. [amended defence of first defendant paragraph 6] E Mrs Chia further alleges that any monies due to the Bank under the Strathfield mortgage "are impeached by [Dr Chia's] entitlement to receive such amounts by reason of [Dr Chia's] amended cross claim". (ii) As to the Campbelltown mortgage: The mortgage ought to be set aside for the same reasons as given in paragraphs 3 (a) and (e) of the defence, namely, that Mrs. Chia was ignorant of the contents of the mortgages, the terms of which were incorporated by reference and also that none of the provisions of the mortgage and their legal and practical effect were adequately explained by any person to her. 23 In answer to the Bank's reliance on an 'acknowledgment and consent of third party/guarantor or covenantor' dated 11 March 1993 signed by Mrs Chia, she says that she was instructed to do so by the Bank without obtaining independent advice as to the nature and effect of the acknowledgment. [Amended defence, paragraph 10]. 24 In answer to the Bank's claim that she is estopped from denying the validity and efficacy of the Strathfield and Campbelltown mortgages or her liability thereunder, Mrs Chia asserts that "any monies due to the Bank under the mortgage [sic] are impeached by [Dr Chia's] entitlement to receive such amounts by reason of [his] cross claim." [Amended defence, paragraph 11]. The particular documents in focus on Mrs Chia's case 25 It is convenient to identify immediately a number of particular documents referred to by Mrs Chia in her affidavits and in her evidence. I propose to give the documents an identification number for the purpose of the judgment. The documents are as follows: [Document 1A] The Strathfield mortgage dated 6 December 1989. This is to be found at PX 1/61-64. [Document 1B] Memorandum Dealing No. X 2082 incorporated by reference into the Strathfield mortgage. This is to be found at PX 1/79. [Document 1C] The solicitor's certificate dated 6 October 1989 signed by Mr Harkness. This is to be found at PX 1/69 & 70. [Document 2] Acknowledgment that "I/We have read and clearly understand and accept the above Loan Details and the Terms and Conditions numbered 1 to 36", dated 14 January 1991. Mrs Chia has signed over the typed words "Signature of Provider of Security". This is to be found at PX 1/155-159. [Document 3] Acknowledgment that "I/We have read and clearly understand and accept the above Loan Details and the Terms and Conditions numbered 1 to 37" , dated 17 April 1991. Mrs Chia has signed over the typed words "Signature of Provider of Security". This is to be found at PX 1/177-183 and 187-193. [Document 4] Acknowledgment and consent of mortgagor or guarantor dated 1 July 1991. This is to be found at PX 1/236 [Document 5] The Campbelltown mortgage dated 5 July 1991. This is to be found at PX 1/256 [Document 6] The Trader's Bill of sale dated 15 July 1991 This is to be found at PX 1/258-275 [Document 7] Acknowledgment that "I/We have read and clearly understand and accept the above Loan Details and the attached Terms and Conditions from 1 to 41", signed on or after 30 August 1981. Mrs Chia has signed over the typed words "Signature of Provider of Security". This is to be found at PX 1/316-329 [Document 8] Solicitors certificate dated 5 December 1991. This is to be found at PX 1/333 [Document 9] Acknowledgment and Consent of Third Party/Guarantor or Covenantor dated 11 March 1993. This is to be found at PX 2/484 [ Document 10] Acknowledgment and Consent of Third Party/Guarantor or Covenantor, dated 11 March 1993. Mrs Chia has signed as secretary alongside the common seal of Ontin Pty Ltd. This is to be found at PX 2/487 Mrs Chia's evidence in chief 26 Mrs Chia gave evidence on affidavit and in the witness box in chief. The convenient course is to commence by detailing her evidence in chief. 27 In her affidavit of 18 December 1997 Mrs Chia deposed that she was born in Singapore in 1947; that she married Dr Chia in 1973 in Singapore; that they came to Australia together in 1976; that apart from working as a certificated general nurse she had no other qualifications; that she had assisted her husband in his practice as a general medical practitioner in his surgery in Campbelltown from time to time since 1977; that she and her husband live with their son at the Strathfield house premises; that the Strathfield premises were purchased by her in 1985 and the funds needed were borrowed; that she recalled the purchase price was approximately $180,000; that in or about 1987, the funds used to purchase the Strathfield premises and in respect to which there was a mortgage given over that property, were paid out and discharged from the sale proceeds of certain properties which Dr Chia sold at Leumeah and Georges Hall. 28 She further deposed that in about December 1989 she had signed a document entitled "mortgage" in respect to the Strathfield property at the home of her husband's solicitor, Mr Ken Harkness. She deposed that at no stage, either at the time of signing the mortgage or before hand, were any of the terms and conditions of the mortgage explained to her. She recalled being asked by Dr Chia to attend at the home of Mr Harkness where the document was placed in front of her and she was told by Dr Chia to sign the document. She deposed that at no stage did she receive the document into her possession, nor did any officer of the Bank ever speak to her regarding the mortgage or in respect to any borrowings by Dr Chia from the Bank. 29 She deposed that at the time of signing the Strathfield mortgage document, she did not know the extent of borrowings by Dr Chia from the Bank. Further that at no stage had she ever attended the Bank's offices. 30 She deposed that the time she signed the mortgage, Dr Chia had said to her words to the effect "I am putting up other properties as security which are more than sufficient to cover the borrowings". 31 Her evidence was that had she been told before signing the mortgage document of the extent of the borrowings as set out in the plaintiffs summons, and/or that the home at Strathfield could be called upon to meet any of the sums borrowed for the purposes of building a Cinema, she would not have signed the mortgage. 32 Her evidence was that at no time did she retain Mr Harkness as her solicitor, either in relation to the matter the subject of these proceedings or otherwise. 33 She deposed that she did not give any consent to any further borrowings by Dr Chia in or about February 1993 and that at no time was she informed by any officer of the Bank of the contents of the Letter of Offer, nor did she see any such Letter of Offer. Neither the terms of the Letter of Offer nor any of matters to which she was purportedly consenting were disclosed to her. 34 In her later affidavit of 3 February 2000 Mrs Chia deposed that she recalled in about July 1991, Dr Chia asking her to go with him to execute the documents over the Campbelltown property; that in her recollection that mortgage was prepared by the Bank's solicitor and was executed by her in the Bank's offices before a female solicitor; that she believes she signed the mortgage in the presence of Dr Chia and the solicitor; that prior to execution she was not given the opportunity by the Bank to obtain independent legal advice and that she was not given any advice as to the nature and effect of executing the mortgage. She further deposed that in respect of any documentation signed by her, "I was not aware of the legal implications of any 'all monies clause' whereby the Strathfield property could be at risk and secured the full amount of my husband's borrowings from time to time with [the Bank]". 35 Mrs Chia further deposed that she had recently perused the original letter of offer of $3.9 million and gave evidence that at no time did Dr Chia or the Bank's representatives explain to her that the Strathfield property would secure those total borrowings. 36 In giving evidence in chief Mrs Chia was shown document 1A and gave evidence that prior to signing that document, no one had explained to her what it meant and that as far as her understanding as to what it meant was concerned, it meant "I have to sign a document that my husband asked me to so they can borrow some money" [transcript at Page 13]. 37 Mrs Chia was then shown document 1C and the schedule forming part of the document and gave evidence that she had signed against the common seal of Ontin Pty Ltd on December 29 at the solicitor's house. She denied that Mr Harkness had asked her the questions set out in paragraph 4 on PX 1/69. Mr Harkness at that point on his solicitor's certificate had certified that: "I asked the parties whether he/she has: (a) compared his/her obligations and responsibilities to the Bank with those of any person named in the document(s); and (b) considered the consequences to him/her should there be any default in those obligations and responsibilities; and the answer was 'yes'". 38 Mrs Chia was then shown the memorandum No X 208233, document 1B. She had never seen that document nor one like it before [Transcript at Page 13]. 39 Mrs Chia was then shown document 2 and gave evidence that there was no discussion with anyone at the time she signed that document [Transcript pages 13 and 14]. 40 Mrs Chia was then shown a letter from the Bank addressed to Dr Chia of 11 January 1991 [PX 1/151]. She had not seen that letter. As to the document, all she knows is that her husband had asked her to sign it. 41 She was asked as follows: Q. Did you have any beliefs in what it meant, signing that document? A. He said that it was to borrow money from the Bank. Q. Did you have any beliefs as to how it affected your obligations to the Bank? I am asking you now, prior to signing it whether you had any understanding or belief as to how it affected your obligations? A. No. [Transcript at Page 16]. 42 Mrs Chia was then shown document 3 and gave evidence that just before she had signed it, her husband asked her to sign it. He had not discussed any of the terms in the document with her. Mrs Chia's evidence was the she did not have an understanding as to how it might have affected her obligations to the Bank. [Transcript pages 16 and 17]. 43 Mrs Chia was shown another copy of document 3 [to be found at PX 1/194]. Her evidence was that there was no discussion before she signed it and that she did not have any understanding as to how it might affect her obligations to the Bank. The same evidence was given in relation to a further copy of the same document [to be found at PX 1/202]. 44 She was then shown document 4 and gave evidence that she did not have any discussion before she signed it and that she had no understanding before she signed it as to how it might affect her obligations to the Bank. [Transcript at Page 18] 45 She was then shown document 5, the Campbelltown mortgage. She could not recall any discussion with any one about that mortgage document before she signed it and gave evidence that she had no understanding as to the effect of signing the document in relation to her obligations to the Bank. She did not have any understanding that by signing this document she was mortgaging the Campbelltown property which she and her husband together owned. [Transcript Page 18] 46 Mrs Chia was then shown document 7 and gave evidence that her husband had asked her to sign it, that she had no discussion with him or anyone else before she signed it and that she had no understanding as to how it might have affected her obligations to the Bank. [Transcript Page 19] 47 Mrs Chia was then shown document 8. Her evidence was that she did not know Mr Iuliano personally but could recall signing documents before him and in front of him as a witness. This occurred in Campbelltown. She could only recall where the document was signed but not the date on which it was signed. The document was signed at the Marsdens' office. She could not recall what documents or types of documents were signed in front of Mr Iuliano on that occasion. She was shown subparagraph 4(e) from Mr Iuliano's certificate in which he had certified: "I asked the parties whether he/she has: (a) compared his/her obligations and responsibilities to the Bank with those of any person named in the document(s); and (b) considered the consequences to him/her should there be any default in those obligations and responsibilities. and the answer was 'yes'". 48 She could not recall those questions having been asked. [Transcript Page 20] 49 She was then shown document 9 and could not recall any discussion with any one before she signed it. She did not have any understanding as to how the signing of that document might affect her obligations to the Bank before she signed the document. [Transcript Page 21] Initial acquisition of Strathfield property 50 In June 1985 Mrs Chia became the registered proprietor of the Strathfield property. She executed a mortgage over this property to Westpac on 9 July 1985 as security for advances to Ontin Pty Ltd. The only role of this company was to be trustee of the Chia Family Trust. On 11 December 1987 Mrs Chia executed a second mortgage over the Strathfield property again to Westpac, but this time as security for advances to Dr Chia. Both mortgages were discharged on 9 November 1988. 51 In relation to the first of the Westpac mortgages Mrs Chia gave evidence in chief that "In or about 1987, the funds use [sic] to purchase the said Strathfield premises, and in respect of which there was a mortgage given over the said property, were paid out and discharged from the sale proceeds of certain properties my husband sold at Leumeah and Georges Hall." [Affidavit 18 December 1987 paragraph 6] 52 Mrs Chia gave the following evidence in cross-examination: Q. "And indeed you had always understood from the time that the Strathfield property was first purchased that there was a mortgage given over the Strathfield property, didn't you? A. "I thought it was paid out" [Transcript page 32] 53 Mrs Chia gave evidence that she understood that the mortgage to Westpac lasted while ever there was money owing to Westpac. [Transcript page 44 lines 20-25] 54 Mrs Chia gave evidence that she understood at the time that the first mortgage was given to Westpac, that Westpac was going to lend some money [Transcript page 34 line 50-53]; that the Strathfield house was in her name [Transcript page 35 lines 10-15]; that she was being asked to sign because the Strathfield house was in her name and so she had to sign [Transcript page 34 lines 15-20]; that the Bank wanted the mortgage to be sure that just in case something went wrong with Dr Chia's health or practice, it could be sure of getting its money back [Transcript page 35 lines 45-50]; that the way in which the Bank wanted to be sure that it could get its money back would be that they 'had the house to call on so that they could be sure of getting the money back' [Transcript page 35 line 50-transcript page 36 line 4]; that if there was no mortgage, the Bank would not lend money [Transcript page 46 lines 15-26]; that 'the money to pay the house is from our income so it would be both of us paying off the house' [Transcript page 47 line 57-transcript page 48 line 1]; and that the Bank would want to get back the money it lent. [Transcript page 48 lines 30-35] 55 Mrs Chia's evidence was that she remembered nothing at all about signing the second mortgage to Westpac. [Transcript page 36 line 40-37 line 6] The first period of time 56 The first period of time has already been covered to an extent in the detailed outline given above. The Strathfield mortgage-document 1A 57 There is no issue but that Dr Chia had embarked upon a project sponsored by the New South Wales government to build a cinema complex at Mt Druitt. In negotiations with the Bank he had offered the Strathfield property along with the three other properties owned by him as collateral security. 58 There is no issue but that although Dr Chia made frequent visits and telephone calls to the Bank's officers and received regular correspondence, Mrs Chia was never introduced to the Bank, never visited the Bank and the Bank never communicated in any way with her directly. Evidence given by Mr Harkness 59 Mr Harkness, a solicitor, gave evidence of an occasion in December 1989 when Dr and Mrs Chia attended at his home at Rockdale for the purpose of signing certain loan papers associated with the development by Dr Chia of a proposed suburban cinema. His evidence in his statement was that the meeting took at least half an hour. He did not recall advising Mrs Chia in respect of her obtaining independent advice. He did recall discussing the mortgage with Mrs Chia and explaining in words to the effect "If project [sic] does not succeed and the loan is not repaid then your home at Strathfield could be sold by the Bank to pay the loan". He recalled Mrs Chia saying words to the effect "Well, that's the way it is". He recalled Dr Chia being present the whole time. In his statement he gave evidence that Mrs Chia did not express to him any reluctance to sign the papers and appeared to have confidence in her husband's business judgment. He had not made any notes of the conversation. He believed that before signing the certificate headed "Certificate of Witness", he would certainly have ensured that its contents were accurate and that he would have specifically asked Dr and Mrs Chia the questions referred to. 60 Mr Harkness's Certificate appears at PX 1/69-70. His evidence was that he had read the Certificate before he signed it. He accepted that the Certificate did not in the schedule, refer to Dr or Mrs Chia separately. The request to him to have the subject document executed was constituted by the letter from the Bank's solicitors of 4 December 1989 [exhibit PX 1/59]. His letter back to the Bank's solicitors was dated 8 December 1989 [exhibit PX 1/104]. 61 A statutory declaration signed before Mr Harkness [which appears at exhibit PX 1/76] includes a paragraph in Mr Harkness's handwriting, reading 'My wife is the registered proprietor of 19 Barker Road, Strathfield". At the same time as these words were written it is likely that Mr Harkness deleted the reference in the third line -- the declaration had incorrectly attributed to Dr Chia, the registered proprietorship of the Strathfield property. 62 Mr Harkness gave evidence that Dr Chia was the person requiring the loan and that he understood he was acting for Dr Chia to assist him to facilitate the loan. He did not regard Mrs Chia as being his client. Notwithstanding this fact, his evidence was that this did not mean that he was indifferent to her interests. Mr Harkness was asked and answered as follows: Q. "Well, you regarded her did you, in terms of your giving her advice, as some form of third party who was not your client? A. "It was probably more that I would have wanted to be satisfied that as I was witnessing a document that she was signing, that she understood the character of it. I-yes. Q. "When you say that you regarded Dr Chia as your client, is that intended to indicate that you regarded yourself as having a duty of care to him as your client? A. "Certainly I had a duty of care to Dr Chia as my client. Q . "Did you regard yourself as having a duty of care to Mrs Chia, although she, you didn't consider, was your client? A. "I think I would more view that I would want to be satisfied that a person whose signature I was witnessing understood the character of the document that they were signing. Whether that is as a sense of duty to Mrs Chia, probably more out of sense of propriety in itself" [Transcript page 706-707] 63 Mr Harkness was fairly sure that Dr and Mrs Chia had had their son with them on this occasion. 64 A number of months prior to the execution of the subject documents, Mr Harkness had met Mrs Chia on a social occasion at the home of Dr and Mrs Chia. This was a dinner invitation. Mr Harkness was asked in relation to the dinner occasion, whether he remembered Mrs Chia as being softly spoken. His evidence was that he did not recall her being especially softly spoken, but that she certainly was not a loud person. 65 On the occasion of the execution of the subject documents, Mr Harkness did not recall Dr Chia being in any rush to get away. 66 Mr Harkness admitted that in some instances his recollection of what had occurred was not good. 67 He was cross-examined by Mr Evans appearing for Mrs Chia, in relation to paragraph 3 of his statement, in which paragraph he had recalled saying to Mrs Chia "If project [sic] does not succeed and the loan is not repaid then your home at Strathfield could be sold by the Bank to pay the loan". Mr Harkness was asked and answered as follows: Q. "It would be difficult for you now to say you remember saying to Mrs Chia what you have said in paragraph three, wouldn't it? A. "No, I have a very specific recollection of that. Q. "And why do you have such a specific recollection? A. "Because it is important….. Q. "Well, it would have been a reflection on you if you hadn't said something like that to her, is that what you are saying? A. "I think if I had allowed myself to witness someone's signature to a mortgage without being satisfied that they understood the character of the document, that, yes, that would be a reflection against me" 68 Under cross-examination Mr Harkness was asked whether Dr Chia had told him on the occasion in question, what the loan was for. His answer was "probably yes". [Transcript page 713] 69 It was difficult for Mr Harkness to recall when it had been that Dr Chia discussed the fact of the loan being for a cinema complex. He would have expected that he would have known that in advance of 6 December. The extent to which that was or was not discussed on 6 December, was a matter he could not recall. [Transcript page 713-714] 70 At the time he believed that he had had a knowledge of what the subject project was. It was to fund a cinema development at Mt Druitt. Dr Chia would have told him that. Mr Harkness was asked and answered as follows: Q. "Do you recall whether or not he told you that at the time that he and his wife were at your home at Rockdale, or earlier? A. "No I can't, I can't recall that. As I said, I would expect it would be early. I expect that having got to that stage of documentation I would have had some idea already of what the loan was about. Q. "Is it correct or incorrect that so far as what you have said in your 7 March 2000 statement is concerned, it is conceivable that Mrs Chia didn't have the faintest idea of what you meant when you said, 'if the project does not succeed'? You do not seem to suggest that you defined what you meant by it to her, or that it was necessarily ever discussed with her in your presence. I am not suggesting that she didn't know. I am just suggesting that it is not impossible from your own recollection, that that could have been the case? A. "It strikes me as unlikely, but I suppose based on my recollection and the limits of that recollection, I could not say that it is necessarily impossible"…. Q. "You can't definitely say that you used the word 'project' that appears in paragraph three, can you? A. "No" [Transcript page 714] Q. "You wouldn't have any recollection of reading the terms of the certificate, or asking the questions contained in the certificate, would you? A. "No actual recollection, no Q. "You would like to think you did, that's the effect of your statement? A. "No, I'm quite sure I did Q. "But you have no actual recollection of doing it? A. "It is difficult to say whether I have an actual recollection, or a vague recollection stirred up by the document. I couldn't, with confidence, say that I had an actual recollection." [Transcript page 716] Q. "Are you or are you not able to positively deny that on this occasion Dr Chia said to Mrs Chia words to the effect, 'I am putting up other properties as security, which are more than sufficient to cover the borrowings'? A. "No, I can't positively deny that that was said, although I wouldn't have expected that it was said". [Transcript page 717] Evidence given by Ms Sandeman 71 Ms Sandeman is a solicitor who in 1989 was employed by Messrs Abbott Tout Russell Kennedy ["Abbott Tout"]. In this capacity she received instructions from the Bank to prepare security documentation for certain facilities provided by the Bank to Dr Chia. 72 Ms Sandeman gave evidence that by the letter dated 4 December 1989, Abbott Tout forwarded to K M Harkness and Co. various securities and other documents. They sought return of the executed documents together with replies to requisitions on title. 73 On her evidence she received a letter from Mr Harkness dated 8 December 1989. 74 Although the letter from Abbott Tout of 4 December 1989 did not refer to a "Certificate of Witness" as an enclosure, Ms Sandeman gave evidence that she believed that she had prepared the Certificate of Witness at about the same time as the "Authority to Complete", "Direction to Pay" and a Statutory Declaration, all of which were referred to in the letter of 4 December 1989. 75 Her evidence was that on or about 4 December 1989, Abbott Tout received a letter from Mr Harkness directing settlement monies to be paid to certain persons. 76 Her evidence with respect to the Statutory Declaration [PX 1/76] was : Q. "Was this the case; when you sent that out, and indeed at the time you prepared it, you were under the belief that ...Strathfield was a property owned by [Dr Chia], or was it just a mistake? A. "As I prepared the mortgage, or it appears I prepared the mortgage in the name of Mrs Chia Q. "It was just a mistake A. "I believe it must have been a mistake at the time" [Transcript page 859] 77 Cross-examined in relation to the Certificate which Mr Harkness had signed [PX 1/69-70] and in particular in relation to the description of "parties" in the Schedule of Documents, Ms Sandeman gave the following evidence: Q. "There were in fact three mortgages, weren't there? A. "There were Q. "Let me suggest that looking at that schedule, it would only appear that there were two? That is to any reader of the document A. "Yes, there were two mortgages to Chia Q. "There were three all together, two to Chia A. "Yes Q. "One to Dr Chia with three properties, and one to Mrs Chia with one property A. "Yes Q. "And a single property mortgage to Ontin Pty Ltd, or from Ontin Pty Ltd A. "Correct Q. "If someone looked at the schedule of documents entry on page 2 of the letter, page 70 of the book, the uninitiated reader would see that there was one mortgage between Chia and the State Bank of New South Wales, and one from Ontin to the State Bank of New South Wales A. "It is not clear that it is the two mortgages to Chia Q. "If for example it read 'State Bank of New South Wales to Dr Chia mortgage', and beneath that 'State Bank of New South Wales to Mrs Chia mortgage', that would have been more accurate A. "It would have been clearer" Q. "Can you say when you got back whether you noticed that; that it only referred to Chia and not Dr and Mrs Chia, and only one mortgage? A. "I can't say whether I noticed that at the time or not. It was clear that the three mortgages were appropriately executed" [Transcript pages 860-861] 78 It appears from the evidence given by Ms Sandeman as to the Certificate, that she presumed that the Certificate had been with the security documents, it being the firm's practice to send to the Bank, mortgage documents for their safe custody. She recalled her firm's normal practice being to give the documents to the Bank which included the mortgage documents and the supporting documents. The Certificate would be, she believed, one of the supporting documents, which would normally be included in the documentation returned to the Bank. 79 Ms Sandeman was asked and answered as follows: Q. "The evidence is that the certificate at page 69, at the time of swearing the affidavit [of Mr Low sworn on 3 June 1999-paragraph 18 on page 5]... had only recently become available through retrieval of a file from Abbott Tout... The document was not found in the Bank's security packet, where one would have expected it to be. Is it possible that it stayed-again perhaps due to some oversight-on the Abbott Tout file, rather than being sent to the Bank, is that the case? Could that be the case? A. "If that is the case, then it was something that must have been overlooked. Normally the documents went back to the Bank Q. "You can't recall anyone contacting you from the Bank saying, 'Look, we have not got the certificate. It is essential that we see the certificate, do you have it', or anything of that kind? A. "I don't believe anyone phoned me regarding this matter until more recent months..." [Transcript page 862] The Campbelltown mortgage-document 5 Evidence given by Ms Mijatovich 80 Ms Mijatovich worked as a solicitor for Messrs Nicholas Winkler and Turner ["Nicholas Winkler"] from about 1991 to late 1994. She gave evidence that although she could not specifically recall Dr or Mrs Chia, she did recall the transaction and from handwriting and annotations in the file of Nicholas Winkler produced to her, she could identify that she had some involvement with the conduct of the file and recalled that Nicholas Winkler were acting on behalf of the Bank. 81 Her evidence was that Nicholas Winkler received instructions dated 19 June 1991 from the Bank to prepare a number of documents including a mortgage over the Campbelltown property. She was able to say from the file that the mortgage over the property and other documents required by the Bank were prepared at the Sydney offices of Nicholas Winkler and mailed to the Blacktown office where she worked. Her evidence was that she was required to arrange for execution of the documents. 82 She identified her signature as a witness to the signatures of Dr and Mrs Chia on the mortgage of 15 July and on the "acknowledgment and consent of mortgagor or guarantor", dated 1 July 1991. She identified her signature as witness to Dr Chia's signature on the "authority to draw cheques" dated 1 July 1991. She identified her signature as witness to the signature of Mr Avery on the power of attorney dated 1 July 1991. Each of the documents referred to as dated 1 July 1991, were documents which she believed had been executed in her presence by Dr and Mrs Chia and by Mr Avery on 1 July 1991. There was no record on the file of the documents having been sent to Dr or Mrs Chia or their solicitors at an earlier date. Based on this fact, she believed that the mortgage dated 15 July 1991 had also been executed in her presence. On her evidence, it was a practice for mortgages to be dated when they were executed on behalf of the Bank, which occurred with the mortgage, on 15 July 1991. 83 On the evidence of Ms Mijatovich, she had never signed as witness to any document which had not been signed in her presence. She was aware of the penalties which attach to such conduct by solicitors. As regards the mortgage, it was her usual practice to advise mortgagors of the effect and operation of the mortgage they were signing and she believed she would have given that advice in this case. She had no reason to believe that she departed from her usual practice in this case. 84 As to the photocopy of the mortgage executed by Dr and Mrs Chia to be found in the file, where the witness's attestation is left blank, she gave evidence that it was not uncommon for her to witness the execution of documents but to complete the witness's attestation later. She could recall that in this case she deliberately refrained from immediately attesting as witness, because of the concerns Dr Chia expressed to the Bank. 85 With reference to copies of three pages of handwritten diary notes stapled together and bearing date 1 July 1991, she was able to identify the handwriting as hers. From those diary notes she gave evidence that she believed: (a) That Dr and Mrs Chia attended on her on 1 July 1991 to sign the mortgage and other documents and that Mr Avery also attended to sign a power of attorney, although she was not certain as to whether he was present at the same time as Dr and Mrs Chia. The parties informed her that none of them had seen the documents previously and that they needed time to go through them. (b) The parties signed the documents but Dr Chia indicated that he was doing so "under protest". Dr Chia indicated that he needed the Bank to release the funds the next day because he had to pay sub-contractors. She could not exactly recall what Dr Chia was protesting about. (c) She contacted the Mt Druitt branch of the Bank to advise them that Dr Chia was only signing under protest. She then telephoned Mr Nott from the Bank's regional office. She believed that Dr Chia spoke to Mr Nott and told him he was signing the documents under protest, because he needed the money by the next day. Her evidence was that she then spoke to Mr Nott and that he had said words to the following effect: "This is the type of matter that we expect to take recovery proceedings in a short while. We need to be 100 percent happy and then we can release the money" (d) That she discussed with Dr Chia getting his solicitors to explain the documents to him, but she did not know at that time who his solicitors were. (e) That she had a discussion with a partner of Nicholas Winkler about what she should do in the circumstances. He informed her that the Chias should get a certificate from their own solicitor. 86 On 2 July 1991 she had a telephone conversation with Mr Avery who told her that Dr Chia's solicitors were Marsdens at Campbelltown who would call her that day about the documents. He told her not to send the documents until she was advised to do so by Marsdens. 87 By reference to the three pages of her diary notes dated 3 July 1991, she gave evidence that on that day she spoke to a Mr Percival of Marsdens for Dr Chia and discussed arrangements for delivery of the documents to Marsden's offices at Ingleburn. She then arranged for an employee of Nicholas Winkler to make the delivery. She then telephoned Marsdens and informed them that the delivery would be at about 2:00pm. She then telephoned the Bank and informed them that the documents were being delivered to Marsdens' Ingleburn office. On her evidence, the documents were actually delivered directly to Marsdens' Campbelltown office. On her evidence Marsdens were informed of the delivery at about 1:30pm. 88 By reference to two pages of her handwritten diary notes dated 3 July 1991, she recalled that at 3:30pm on that day she spoke with Mr Iuliano of Marsdens, during which call he informed her the Bill of Sale had been signed and that he had witnessed it. She then had a subsequent telephone conversation with Mr Iuliano to the following effect: "Ms Mijatovich You are required to complete a certificate of witness in respect of all the documents which have been signed, including the mortgage and the Bill of Sale of the business Mr Iuliano I will do that. I have explained all the documents to my clients including the mortgage" 89 Ms Mijatovich referred to a copy of the letter of 15 July 1991 from Marsdens to Nicholas Winkler recording various executed documents returned by Marsdens. Her evidence was that amongst those documents, was an undated certificate signed by Mr Iuliano. This is the certificate which has already been referred to. 90 Ms Mijatovich also referred to a handwritten diary note of hers dated 18 July 1991. This note recorded that on that day she noted that the Traders Bill of Sale and Certificate of Witness, returned by Marsdens, had not been dated. 91 Ms Mijatovich also identified a further handwritten diary note of her own dated 18 July 1991. Her evidence was that she believed that the note recorded a telephone conversation which she had with Mr Iuliano on 18 July 1991 [she referred to her letter of 18 July 1991]. From her diary note she believed that: (a) Mr Iuliano informed her that all the documents he witnessed had been signed on 3 July 1991 (b) She requested Mr Iuliano to provide a letter signed by him and his clients, renouncing any protest in respect of the documents executed on 1 July 1991 (c) Mr Iuliano asked her to note that although he had explained all the documents to his clients , he did not have them re-execute the documents and for that reason he had deleted those documents from the certificate of witness. [Her diary note reads: "3/7/91 docs signed. ….and note remarks…….explained all although you did not witness the signature……crossed all off certit. of witness"] 92 Her evidence was that settlement of the matter occurred in September 1991 and that she believed she had attested the mortgage document sometime before then. 93 In giving oral evidence in chief, she was referred to her memory of a general protest and asked what was the nature of the protest. Her evidence was that Dr Chia had said "I protest, I want to sign the documents but I protest. I am going to sign them. I need the money tomorrow to pay people". [Transcript page 832] 94 Ms Mijatovich was closely cross-examined on each of the documents listed at PX 1/235. 95 As to the mortgage, her evidence was that she witnessed the signatures of Dr and Mrs Chia. As to the registered memorandum X 208233, her evidence was that she could not specifically recall having had the memorandum but thinks that she would have had it and thinks that it was normal to have it. She could not recall whether it was executed or signed by any party.[Transcript page 834] 96 The direction to pay had her signature on it. It was signed by Dr Chia in her presence. He may have signed on 1 July in which case she would have seen him sign it. She may not have witnessed it by physically putting her signature on it, until sometime later. [Transcript page 835] 97 It was not necessarily her practice to physically put her signature on documents sometime after she had witnessed them. This did happen sometimes particularly if she was pressed for time. Her evidence was that in this case she deliberately didn't do it. This was because when the documents were signed, or even after they were signed, she thought Dr Chia may have made another comment or reiterated a protestation so that she would have said, "I am not going to witness these physically" or "I'm not going to rely on these. I'm going to either see you again" or "I am going to send them or talk to my boss", or whatever, because I wasn't happy at that time. She was asked and answered as follows: Q. "You weren't prepared, so to speak, to sign off on them? A. "No, I wasn't Q. "Is this the case that, unlike your normal practice, you required him to sign in front of you but you didn't sign as the witness? A. "No" [Transcript page 835] 98 Her evidence was: "What I think I did is that once the documents were explained by another firm of solicitors and we had some correspondence with those other solicitors, I went back and then signed the documents when effectively we were satisfied that they were read, re-explained and we could rely on them. I then went back and signed them, for various reasons which we could probably get to. Q. "This was because of the protest you have referred to by Dr Chia A. "Yes Q. "Having got them back from the other solicitors you felt, so to speak, safe to get back into the water and sign them? A. "After the correspondence was had with the solicitors. Not simply after we got the documents back, no. Q. "Dr. Chia signed it in your presence apparently on 1 July but you didn't sign as a witness on that occasion, is that what you what telling us? A. "No-I mean, yes, that is what I am saying to you" [Transcript page 836] 99 As to the notice by which the Bank strongly recommends that the recipient of the documents take the documents to a solicitor and request that the document's nature and effect be explained to the recipient, which appears at PX 1/248, Ms Mijatovich accepted that it had been signed by Dr Chia and could not recall whether there was a similar document directed to Mrs Chia but expected that there would have been. [Transcript page 837] The document reads inter alia: "The Bank seeks to be fair and reasonable in its dealing with you and would like to be assured that: (a) you have signed the document (s) voluntarily; (b) you understand its / their nature and effect; and (c) you have: (i) compared your obligations and responsibilities to the Bank with those of any other person named in the document (s); and (ii) considered the consequences to you should there be any default in those obligations and responsibilities" 100 As to this document, Ms Mijatovich was asked and answered as follows: Q. "And subparagraph B, it wants to be assured that the person it is directed to understands the nature and effect of any documents that were required to be signed? A. "Yes Q. "What was your practice - would you hand such a notice to a customer or would you read it to them or ask them to read it to themselves or didn't you have a practice? A. "My practice was I would read the documents to them, tell them exactly what it said and ask them, Are you signing this voluntarily? Silly as it may sound, I would always ask them that Q. "You would read the whole part of it? A. "I would explain in my own words the first part of it, that the Bank has given this document, requires you to sign it and [is] seeking to be fair. I would explain that in my own words. Then I would definitely say that this is what it says, you have signed the document, then I would go to them, they will say yes. I then read the next point B and I would read C Q. "What would you read in B - the whole of it, the whole of B? A. "B, 'you understand its nature and effect?' Q. "Would you be wanting to make sure that they understood the nature and effect of the document? A. "Yes, I would ask them. I probably, throughout the time that I would spend with them, I would ask them several times after I have explained something whether they had any questions and, you know, if their questions had anything to do with the conveyance itself, they would feel comfortable then to ask questions but, yeah, I would." [Transcript page 837-838] Evidence given by Mr Iuliano 101 During the course of the hearing the Bank procured and sought to rely on a statement made by Mr Iuliano on 13 March 2000. Much of the statement was objected to and treated with by leave given to adduce oral evidence in chief. In consequence certain sections of the statement were no longer pressed. 102 In his statement Mr Iuliano recalled meeting Dr and Mrs Chia in 1991 at his office in Campbelltown but had no recollection of the date of the meeting and no diary note or other contemporaneous note which would assist him to determine the date. He recalled both Dr and Mrs Chia sitting in front of him at his desk in his office. 103 Paragraph 5 of the statement was in the following terms: "I do not recall the exact terms of the explanation that I provided. I do recall that on a number of occasions du ring the explanation Dr Chia raised his hand waving it in a dismissive fashion towards his wife who was sitting beside him and said words to the effect of: 'she understands' . [emphasis added] 104 Paragraphs 9 and 10 of the statement read as follows: 9 I have no recollection of when I appended my signature to the Certificate of Witness. I may have appended my signature to that certificate shortly after I finished the conference with Dr and Mrs Chia. I believe I probably would have... 10 I was aware in 1991 that in appending my signature to the Certificate of Witness I was asserting that, inter alia, the documents were signed and dated before me. That is what paragraph (a) of the certificate says. It is my clear recollection that the documents which are crossed out and adjacent to which I have [appended] my initial, were documents which were not signed before me and were documents which had already been signed at the time at which I gave the explanation which I gave to Dr and Mrs Chia. I am also able to say that the fact that they were not signed in front of me is the reason why I have put a line through the reference to them in the bottom left-hand corner of the certificate and the reason why I have appended my initial in the way that I have. I am not able to say whether those documents which I have crossed out and adjacent to which I have appended my initial, were dated at the time that I gave that explanation." 105 Mr Iuliano had commenced working at Marsdens in the summer of 1988 as a clerk whilst completing his university course. He was admitted as a solicitor on 19 December 1990. He was later called to the bar. 106 His practising certificate came into force on 1 January 1990 and from that date until just prior to Christmas 1991 he worked at Marsdens as a solicitor full time.[Transcript page 346] 107 The nature of his practice during 1991 was general and included Local Court criminal work, Local Court family work, probate, conveyancing and general commercial. Conveyancing occupied somewhere between 30 and 50 percent of his work. 108 In the course of his practice he had given explanations of mortgages. His evidence was that he had, what he described as "an ordinary practice", in relation to his explanations of mortgages. This was as follows: "I went through the principal transaction, then I explained to the mortgagee what was a mortgage and the nature of the interest. I explained to them the difference between personal liability and personal liability that was secured over land and I explained to them that if they didn't pay or if they didn't meet their obligations under whatever financial accommodation they had with the Bank, then the Bank would realise or sell the property that they have offered or the land that they have offered as security. I also explained to them the difference between the Bank obtaining possession and the Bank selling. I also explained to them that if whatever the Bank sold the property for wasn't enough to repay the Bank, then they were still liable personally for whatever difference".[Transcript page 347] 109 On being questioned as to how often he gave this explanation, his answers were: A. "At that stage, your Honour, it was very often because from memory at that stage, the Banks were insisting on solicitors explaining mortgages to potential customers. By about July-by mid year 1990, I would have to say that I did that very often. At that stage, I am not quite sure whether we - I know we did work for St George and I know we did work for State Bank and a few of the other building societies. Q. "Can I just ask one other question - it may be impossible for you to answer, I am afraid, Mr Iuliano - when you say you did it very often, are you able to give us some sort of figures? You did it a thousand times, a hundred times, six times, 29 times, etc.? A. "I wouldn't say a thousand but I would say at least between three and five times a week. Q. "And was that from the start after you had your full qualification through the year that you described? A. "Very soon after from about February onwards. Q. "Is that 91 we are referring to? A. "91, yes. Q. "February 91 onwards, three to five times a week, is that right? A. "Yes." [Transcript page 347-348] 110 Mr Iuliano gave evidence that there had not been a file opened. The managing clerk at the time may simply have arranged for Dr and Mrs Chia to come in and see him to have the documents explained. He could not recall precisely how he had obtained the documents. This was not a straight out mortgage. It was more of a referral from another solicitor who needed or wanted an explanation to be given to Dr and Mrs Chia. He had no recollection as to whether there was a file opened. [Transcript page 348] 111 In giving evidence in chief, Mr Iuliano was asked and answered as follows: "A. When I met them, I exchanged the usual pleasantries and asked them questions about the transaction. Q. What are the usual pleasantries? A. "How are you? My name is Tony Iuliano, I work with Jim Marsden. I understand that you are involved in a transaction with the State Bank, and I have been asked to explain documents to you." Q. What happened then? A. I sat them down, made sure they were comfortable. I usually offer them refreshments, coffee, water. Then I ask questions so that I - I ask questions about the transaction. Now the kind of questions are to the effect……." HIS HONOUR: Q. Are you able to say what the questions were that you asked? A. I have no clear recollection of the exact questions your Honour. Q. You asked them certain questions, you can't recall the exact questions? A. They would have been questions such as-- Q. I think that is being objected to at the moment. You asked them certain questions about the transaction? A. Yes. Q. We may come back to that as well. You carry on. That is you speaking to them? A. Yes. Q. Then what happened? A. Then I went through the documents. Q. What do you mean by that? A. First of all the transaction in general. It was a - Dr Chia was borrowing money. HIS HONOUR: Q. When you say you went through the transaction in general, what do you mean? A. I asked questions, "Are you, Dr Chia, borrowing money from the State Bank for your Cinema business?" He said, "Yes." "Are you both giving your property at Campbelltown as security?" They both said, "Yes." I then proceeded to tell them what the mortgage was. Q. What did you say, or words to what effect? **A. A mortgage is an interest the Bank takes in the property itself as distinct from an interest in - as distinct from a personal interest that you may have to pay them. There is a difference between if I owe you $100 and I don't pay you, your action lies with me. However, if I say to you that this pen is security for my $100, and if I don't pay you the $100 you can come and take my pen. WILSON: Your Honour, are these words that are said or an example? EVANS: There seems to be a blurring with respect between practice and what was said on this day. HIS HONOUR: Q. What are you saying you said to them? A. Most of the people that I met at Campbelltown were people that - by that stage I had devised a method of explaining this thing to them as simply as I possibly could. I always used an example, and the pen example was an example that I used quite often. ANSWER MARKED ** READ BACK HIS HONOUR: Q. You gave that answer after I think you were asked what do you say, or words to what effect. The question from the bar table which is being asked is was what your evidence was about the pen and so forth either what you said, or words to the effect of what you said? A. Your Honour, as I say this occurred a long time ago. There was always - in my explanation there was always a simple example to sheet home, in my opinion to sheet home to the borrowers an example that they can translate when they, when we talked about the mortgage. Q. Did you say those words or words to that effect or not, or can't you be sure? A. They were words to that effect. The pen example was always an example I used……... Q. Mr Iuliano, in the account of what happened between you and Dr Chia, we had got to the stage where you had given them the example that I give you this pen as security and I don't pay, you can take my pen? A. Yes. Q. What happened next? A. Then I asked them, I asked Mrs Chia did she realise that the money was being borrowed by Dr Chia, and she said "Yes". I then also asked her, "Do you realise that you own the property at Campbelltown, together with your husband?" And she said, "Yes." I then said, "Do you realise that if Dr Chia does not repay the Bank, the whole property goes?" And she said, "Yes.". Q. What happened after that? A. At that stage I noticed that Dr Chia said - well, I withdraw that. Dr Chia said words to the effect, "She understands." Then I asked her again, "Are you sure you understand?" And I believe that Dr Chia said once again, "She does understand." At that point I felt it was necessary that I should have a separate conference with Mrs Chia. Q. Having formed that view, what did you do about it? A. I asked Dr Chia to leave the room, which he voluntarily did. Q. What happened then? A. I then said to Mrs Chia, "You realise, don't you, that you are not borrowing any of this money. It is going to be used in your husband's business, the Cinema business?" And she said, "Yes." I said, "Are you absolutely sure that you are quite content to allow your property to be sold by the Bank if your husband doesn't repay the money?" And she said, "Yes." Q. What happened after that? A. I said, "Are you absolutely sure? If you are not, now is the time to say something." Q. What happened after that? A. She said she was sure. Q. And then? A. Then I called Dr Chia back in. Q. What happened then? A. I then said, "You are both giving this property as security. There are certain things you can and can't do with the property. One is you can't give a further mortgage without the Bank's consent. You have got to look after it, you have got to pay the rates and other outgoings on the property." I then said, "If you don't pay, the Bank can issue you with what is known as a notice under the Real Property Act seeking payment of arrears. That is monies that you haven't paid that are owing. If that happens, you have got a month to pay. If you don't pay, the Bank can exercise its power of sale. Before it does that, it just can't come along and knock on your door and ask you to leave, it has got to get possession of the property. If you don't hand it over, they can get a Court order for possession. If you get to that point, my advice to you would be try and negotiate, but that is what could happen." Q. Was anything else said that you are able to remember in the course of that meeting? A. There was a lot of nodding and a lot of - I then asked, "Are there any questions?" Q. Were there any? A. There weren't any. Q. During the course of the meeting was anything said by Mrs Chia which indicated to you that what you were saying to her was news? A. No. HIS HONOUR: I don't quite understand your question. CAMPBELL: Q. During the course of the meeting was anything said by Mrs Chia which indicated to you that what you had been saying to her in the course of the meeting was strange information to her? A. No……... Q. If I could go back a stage to the beginning of the meeting with Dr and Mrs Chia, you said that you already had the documents when Dr and Mrs Chia came into the room? A. My recollection is that they were there. Q. Were these documents signed, unsigned, or don't you remember? A. My recollection is - and I base this recollection on my certificate - the documents that I had crossed out were signed. That was the mortgage and the other documents described in that certificate. HIS HONOUR: Q. You mean they were signed before you said a word to, or met Dr and Mrs Chia? A. Your Honour I can't recall whether - my recollection is it would have been in the process of, as I was going through the documents I noticed they were signed. Q. You deleted references to the mortgage and duplicate, this is Annexure B in your statement, the acknowledgment, consent and power of attorney? A. Yes. Q. Why did you delete those? A. My recollection is that they were signed. Q. Signed at what point in time? A. I don't know your Honour. Those documents - my recollection of how I became involved in this was that Mijatovich had either got to a point where -- Q. No, let me just make this perhaps clear. Are you saying that you didn't witness the execution by Dr or Mrs Chia of the documents that you deleted from the certificate? Is that what you are saying, you didn't witness them signing those? A. Yes, the only qualification I put on that, your Honour, is I am not quite sure about the power of attorney because I haven't seen that. I do - looking at the documents that I have attached to my statement, I notice from one of those documents there is talk about a protest of the power of attorney. What may have happened there was I don't recollect this, but if there was any [hint] of protest in relation to that document, then I could have crossed it out because of that. Q. Are you saying that as to the power of attorney document it is possible that it was signed in your presence, and that there was some discussion about a protest, and so you deleted that from your certificate? But as to the other documents, to the best of your recollection they were not signed before you, but when you looked at them and saw that they were already signed, before you spoke to Dr or Mrs Chia, you therefore deleted them? Is that what you are saying? A. It would either have been - I can't remember, I probably would have signed that certificate after the conference and at that stage, as I say, I can't remember exactly what happened with the power of attorney. From memory, given that it was a - the transaction involved a Cinema and also, from memory, I think that Cinema had a liquor licence, the power of attorney may have related to what the Bank could do in the event that it had to take over the premises and have to sell the premises with the liquor licence. Now, I just can't - without that document in front of me, I can't take that any further but my recollection is I would have deleted those documents and appended my initial to the certificate of that witness because they were already signed. Now, I - I make that recollection and I base that on sighting the memorandum of mortgage that I have attached to annexure A. That document doesn't have my signature on it and I am quite sure that it was signed when I got it and the other way - the other reason I can safely say that is there is also a letter in annexure A dated 18 July where Nicholas Winkler and Turner have asked for the duplicate mortgage to be re-signed in addition to some other - can I have your Honour's permission to turn to that letter, your Honour?…… WITNESS: Your Honour, there is a letter dated 18 July from Nicholas Winkler and Turner to Marsden's. Now, I don't recall seeing that letter, however, when I do see that letter now, I can safely say that one of the - or the reason that I crossed out the documents that I did in the certificate of witness is because they were already signed because they have asked for them to be re-signed. That's - that's - that's the only - that's the best recollection that I have of that…..". [Transcript page 350 -356] 112 Mr Iuliano gave evidence as to why he had used the subject certificate [PX 1/333]. His evidence was: "... in those days as a solicitor I didn't have terribly much discretion to question these certificates. These certificates started coming into vogue around that period. I certainly recollect that there was no way in the world that I would sign a certificate, unless I was absolutely satisfied with it. Now at that stage they were in their infancy, the Banks wanted them, and we signed it." [Transcript page 531] 113 The certificate was not dated. Yet Mr Iuliano gave evidence that he believed it would have been his normal practice to date a certificate. [Transcript page 532] 114 Mr Iuliano gave evidence that it had become clear to him when he looked at the documents, that the only person who was borrowing money from the Bank was Dr Chia and not Mrs Chia. His evidence was: "Now I'm quite sure that armed with that knowledge I would not have questioned that statement, [the schedule reference to 'parties'], because the way I read that, the borrowing contract is between the State Bank and Dr Chia" [Transcript page 532] 115 Mr Iuliano was asked and answered as follows: Q. "... If you have a look at E, you certify that you ask the parties particular questions? A. "Yes Q. "Roman 1, do you see that question? A. "Yes Q. "Did you ask them that specific question? A. "I didn't ask them that specific question, no Q. "What about in the case of (ii)? A. "No, no. Q. "Yet you assert that you did in the certificate? A. "Well Mr Evans, the certificate was a one size fits all. When I read through that certificate, I satisfied myself, after I explained those documents to both Dr and Mrs Chia, that Mrs Chia understood that she was putting her property up as security for Dr Chia's obligations to the Bank. Now when I translate that, and I look at these questions, I am satisfied that she understood that her obligations were different to that of Dr Chia. Namely, that she would lose her property if Dr Chia didn't repay the money back to the Bank Q. "...If you look at the documents enumerated under the heading 'Type of Documents'?... And you have deleted some of them? A. "Yes Q. "What was the reason for deleting those particular documents? A. "My recollection is that the mortgage was already signed before I got it, and so was the acknowledgment and consent of the mortgagor or guarantor. Q. "In that case you wouldn't have to ask any of the questions, because they would have already been executed? A. "Mr Evans, there is no way in the world that I would explain a memorandum of mortgage without referring to the mortgage itself His Honour: Q. "Why didn't you delete the memorandum, if the mortgage had been signed? What was the point of leaving the memorandum in and deleting the mortgage? A. "My recollection is that the memorandum wasn't signed" [Transcript page 533-534] 116 In relation to the memorandum X 208233, Mr Iuliano gave evidence that he referred to the document generally but did not go through the document clause by clause. [Transcript page 535] 117 Mr Iuliano was asked and answered as follows: His Honour: Q. "At the time you saw Dr and Mrs Chia, as I gather from your evidence, the relevant mortgage had already been signed? A. "Yes, your Honour Q. "Had it been witnessed with their [sic] witnesses to Dr and Mrs Chia's signature? A. "I believe it was-I believe it was, your Honour, yes Q. "Did you ask them any questions about those witnesses or not, who they were and/or whether the documents had been explained to the signatories at the time they had signed these before you saw Dr and Mrs Chia? A. "Your Honour, I probably wouldn't have because the introduction to this transaction was-was given to me by one of Jim Marsden's secretaries. Now, I do recollect talking to her. I can't remember her name at this stage but she was quite an experienced law clerk and she had been there for a long-time. Q. "Your evidence is that you probably would not have asked those questions, as I understand it? A. "Yes, your Honour... Q. "And presumably the interview wasn't very long A. "Can you give me an estimate of what you consider along? Q. "I may be wrong but my recollection is that Dr Chia said it took about 15 or 20 minutes? A. "That's probably not far from the, from the estimate. I - in practice, my secretaries always schedule appointments at half hour intervals and my recollection is that in all occasions, they were very close to half an hour or they went over half an hour so if you're saying 20 minutes, I am not going to dispute that but I would say it was at least half an hour." [Transcript pages 535-536] 118 Mr Iuliano was taken to the Power of Attorney appearing at PX 1/245. His evidence was that this document was already signed when he received it. [Transcript page 538]. 119 He was asked whether he had offered any advice to anyone about that. His answer was: "I don't recall that I did, no. My recollection is that Dr Chia had a problem with it and given that my - I understood my brief in this matter to be to explain the mortgage to Dr and Mrs Chia, Dr Chia expressed some reservations about the power of attorney and I did that Q. "Is this the case that throughout the discussions in the meeting, the comments were punctuated with expressions of discontent from Dr Chia? A. "No Q. "Protest, if you like? A. "Discontent in relation to the power of attorney. My recollection about the power of attorney, if my recollection serves, is that it was - related - related to the licence that the Cinema had and I do recall saying to Dr Chia, look, if the Bank has to take over the business, it wants to be able to sell the liquor licence. Now, I do recall he - he was uncomfortable about that and because this, as I say, this wasn't my file, I didn't take that any further. I believe that was later resolved - I had no part in that, no [Transcript page 538] 120 After Mr Iuliano had given his evidence in chief, Mrs Chia was recalled. She had not heard some of his early evidence so that when she arrived in Court, the important section of what his evidence had been was read to her and to Dr Chia. She heard the balance of Mr Iuliano's evidence. She then gave some additional evidence in chief and was further cross-examined. [Transcript pages 372 and following]. Her additional evidence given in chief was as follows: Q. "Now that you have heard Mr Iuliano's evidence which was read to you this morning, I think you heard some of it when you were in Court, do you want to add anything about any events that occurred, or conversations that took place during the visit to his office? A. "What do you mean by that? Q. "Has his evidence refreshed your memory about any event that you didn't refer to earlier? A. "No Q. "Did you ever stay with him alone, that is your husband left the office for a time? A. "No Q. "Do you have any doubt about that? A. "No Q. "You heard Mr Iuliano say that he had said a number of things to you and your husband together, do you remember that this morning? A. "But -- Q. " He said that he said a number of things to you and your husband ? A. " No, he didn't . Q. "You say he didn't? A. "No, he didn't Q. "He said that he repeated those in effect to you when you were together alone after your husband had left the room? A. "No, but -- Q. "Was that the case? A. "But my husband never left the room ..." [Transcript pages 372-373] [emphasis added] 121 In the first question asked of her in her further cross-examination, Mrs Chia was asked and answered as follows: Q. "Mrs Chia, I would like to ask you some more questions about the time that you went to see Mr Iuliano at Campbelltown. Now, did you recognise Mr Iuliano when you saw him in Court this morning? A. "No, he looks different." 122 When Mr Iuliano was later recalled for further cross-examination, he was asked about his appearance back in 1991 as opposed to the present. He was asked and answered as follows: His Honour: Q. "Back in 1991...- did you have any particular difference to the way in which we see you now, for instance, a beard or moustache or different type of hairstyle or anything that would have made you appear otherwise than today? A. "No, your Honour. I have worn spectacles since I was about 18. My hair has always been relatively short. I did have long hair during my early university days but they were - they were different days but since I started law -- ... From about 1988 onwards when I started working in the law part-time, my hair was not as grey as it is today but certainly, certainly the same style. Perhaps a little longer but nothing -- Q. "Was nothing like a long hair situation? A. "No, not all, your Honour Q. "did you used to wear a tie at Marsden's? A. "Always, always." [Transcript page 539] 123 Mr Iuliano endeavoured to simulate in the witness box, what he had seen and heard in giving evidence that in his view Dr Chia had been somewhat dismissive of his wife. The evidence included the following: "Witness: Your Honour, Dr Chia is sitting there to my left. Mrs Chia is sitting there to my right. Dr-Dr Chia, when he said the words, 'She understands, she understands', it was simultaneous with a hand movement now, along these lines, 'She understands, she understands'. His Honour: Q. "You are waving your right hand in an upward fashion in a type of a short half full arm gesture? A. "When I saw those, when I saw that body language, your Honour --... I came to the conclusion that he was being quite dismissive of his wife and that's when I came to the conclusion that I have got to talk to this lady on her own... Q. "... Now, when you were speaking with her, what did she say to you, and if you can't recall precisely what it was, how did she say anything that she did say to you A. "Well, she - she was very softly spoken compared to Dr Chia. Dr Chia I would consider to be a fairly loud person, quite sure of himself, domineering. Mrs Chia was a - I found her to be a very pleasant lady. I didn't find anything - she - there was nothing in her voice or in her mannerisms, or she didn't burst out in tears. In she had done anything like that, I can assure your Honour those documents would never left my office Q. "Did she seem in any way distressed? A. No, your Honour. No. In fact, that was the purpose of my questioning her as to whether she was content with allowing her property or the property that she was jointly, that she jointly owned to be available for borrowings of her husband in relation to a business that her husband was running..." [Transcript page 540-541] 124 Under cross-examination by Mr Evans of counsel, it was put to Mr Iuliano that he might be mistaken in that he had not asked Dr Chia to leave him with Mrs Chia. Mr Iuliano gave the following answer: "I am not mistaken, Mr Evans. I am not a great fan of third party mortgages and never had been" [Transcript page 543] 125 Mr Iuliano was asked and answered as follows: Q. "when you said a moment ago in answer to your question from Mr Evans, I think you said you were quite sure that you saw Mrs Chia separately, or 'confident' may have been the word that you used, how are you confident? What is it that makes you confident? A. "Dr Chia's demeanour and I, as a lawyer, wanted to make sure that Mrs Chia knew what she was doing" [Transcript page 544] 126 Under cross-examination Mr Iuliano was asked how certain he could be that he had given the pen example in his explanation to Mrs Chia. His evidence was that this was the example which he used very very often and that it was his practice to use this example. 127 Mr Iuliano was then shown paragraph 8 of his statement which had not been pressed and had not been read. In this paragraph he had given evidence that he had no other recollection of the meeting than that which he had deposed to but did have a clear recollection that he was satisfied at the conclusion of the meeting that both Dr and Mrs Chia independently had a proper understanding of that which he was required to explain to them. He had not used the pen example in his statement. [Transcript page 546]. 128 Mrs Chia gave evidence that Mr Iuliano had not sat her down or offered her something to drink.[Transcript page 375] 129 In his later cross-examination Mr Iuliano was asked and answered as follows: His Honour: Q "Is there any possibility, on your recollection, that she didn't sit down ? A. "Absolutely no. No, there was always two chairs in my office, your Honour. There is no way in the world that I would allow a lady not to sit down.... Q. "How could you be sure that she understood what was obviously a complicated transaction, involving a third party mortgage, or a guarantee? A. "Well Mr Evans, by the answer she gave to my questions, when I asked, 'Are you absolutely sure? Are you content with this arrangement', and she answers positively to those questions, what else am I supposed to do" [Transcript page 548] 130 Mr Iuliano was very closely cross-examined on every part of his dealings with Dr and Mrs Chia. The vehicle for the cross-examination was the letter which he had signed dated 15 July 1991 addressed to the Bank's solicitors, Messrs Nicholas Winkler & Turner. This letter identifies as enclosed undercover of the letter, twelve nominated documents said to have been "duly executed". 131 Presumably the most important documents on this list, although all are important, are the references to the mortgage in duplicate and the references to memorandum X 208233. 132 As to the latter memorandum, the evidence seems clear that the Bank is not able to produce any such memorandum duly executed. [ Transcript 553.1]. There is however in the evidence [at PX 1/300] a copy of a letter from Messrs Nicholas Winkler to Marsden's of 25 July 1991 enclosing the memorandum "for execution by Mr and Mrs Chia". 133 As to the mortgage, the evidence included a copy of the mortgage as executed by Dr and Mrs Chia and witnessed by Ms Mijatovich. The evidence also includes another copy of the same mortgage but this time executed only by Dr and Mrs Chia and not witnessed by anyone. [PX 1/290-291] 134 One other aspect of Mr Iuliano's evidence requires to be mentioned. At Transcript page 354 and following Mr Iuliano gave evidence as to which documents were signed before he saw Dr and Mrs Chia. His evidence as to his recollection was based on his certificate [PX 1/333] [Transcript page 354.15] His recollection was that the documents which he had struck out in his certificate had been signed and not witnessed before him. [Transcript page 354.40] The only qualification which he put on this was that he was not certain about the power of attorney. He had noticed from one of the documents attached to his statement that there had been talk about a protest as to the power of attorney. It was possible if there had been any indication of protest in relation to this document, that this may have been the reason why he struck out the reference to "power of attorney" in his certificate. [Transcript page 354] 135 Mr Iuliano was asked and answered as follows: Q. "Are you saying that as to the power of attorney document it is possible that it was signed in your presence, and that there was some discussion about a protest, and so you deleted that from your certificate? But as to the other documents, to the best of your recollection they were not signed before you, but when you looked at them and saw that they were already signed, before you spoke to Dr or Mrs Chia, you therefore deleted them? Is that what you are saying? A. "It would either have been - I can't remember, I probably would have signed that certificate after the conference and at that stage, as I say, I can't remember exactly what happened with the power of attorney. From memory, given that it was a - the transaction involved a Cinema and also, from memory, I think that Cinema had a liquor licence, the power of attorney may have related to what the Bank could do in the event that it had to take over the premises and had to sell the premises with the liquor licence. Now, I just can't - without that document in front of me, I can't take that any further but my recollection is I would have deleted those documents and attended my initial to the certificate of that witness because they were already signed. Now, I - I make that recollection and I base that on sighting the memorandum of mortgage that I have attached to annexure A. That document doesn't have my signature on it and I am quite sure that was signed when I got it and the other way - the other reason I can safely say that is there is also a letter in annexure A dated 18 July where Nicholas Winkler and Turner have asked for the duplicate mortgage to be re-signed in addition to some other-..." [Transcript page 356] 136 During his later cross-examination Mr Iuliano was reminded of the above answer. He then gave the following evidence: Q. "It appears, unless I misunderstand the position - in which I ask you to assist - that you were saying there that having seen either the letter which is at volume 1, page 288 -289, before giving that evidence on the 14th March A. "Yes Q. "You had in some way taken into account an assumption that the letter from Nicholas Winkler to Marsden's had in fact gone out in searching your mind for your best recollection as to which documents may have already been signed and which not signed at the time you saw Dr and Mrs Chia? A. "Yes" [Transcript page 558-559] 137 The above two questions were repeated at Transcript page 559 and Mr Evans then asked the following question and received the following answer: Q. "Does that make any difference to the reliance you place on it, whether it [the letter of 18 July 1991 from Nicholas Winkler to Marsden's] was sent or not? A. "If you say it wasn't sent, then the assumption that I made when I gave the evidence on Tuesday is incorrect" [Transcript page 559] 138 The evidence included what appears to be a copy of an unsigned original of this letter which has a handwritten line struck through the letter [PX 1/289] The evidence also includes what appears to be an unsigned copy of the sender's copy of such a letter. The Assessment of Witnesses relevant to Mrs Chia's case Mrs Chia 139 In my view Mrs Chia's evidence cannot be regarded as reliable. In formulaic terms she repeated again and again that she never seen documents shown to her or documents like the banking related documents shown to her. Time after time her evidence was that there was no discussion before she signed documents and that she did not have any understanding as to how they might affect her obligations to the Bank. I formed the view that her evidence simply could not be accepted unless it was corroborated or confirmed in some way by extrinsic evidence. It is possible that with the passage of time Mrs Chia has simply come to persuade herself and now truly believes that the evidence which she gave correctly represents the events which occurred. It is also possible as it seems to me that the pressure upon her in relation to giving evidence itself, the nature of the proceedings and the probable effect of the proceedings on the financial future of herself and her husband simply proved too much for her and that in the circumstances the evidence which she gave cannot be accepted as reliable in most part. 140 The impression she sought to convey was that of an extremely retiring and quietly spoken person who knew virtually nothing about her husband's dealings with banks and who at all material times was simply in the background virtually ignorant in close to every respect of Dr Chia's dealings with banks and of any detail to do with his business affairs. And yet she obviously carried out a deal of filing of correspondence with the Bank, of bank statements and on my findings, of materials to do with trading figures, cinema records and wages. Mr Malafiej who had been Dr Chia's accountant for about 23 years gave evidence that from time to time he had had occasion to telephone the surgery to find out where a particular bank statement was, which for example may have been needed for the purpose of preparing tax returns or some other particular financial document. His evidence was that he had had precisely such experiences and that Mrs Chia had managed to retrieve the documents and that she "is quite able at filing documents, placing documents in some sort of order". Mrs Chia herself accepted that she was able to recognise the manner in which a bank statement is set out, with the date in the first column, the second column indicating whether an amount was a deposit or a bank charge or a cheque which had been paid, the next column indicating what had been debited to the account, the next column showing what had been credited to the account and the balance column shown what the balance in the account was. She recognised that a figure with a 'dr' after it showed that an amount was owing to the Bank. She was asked and answered in as follows: Q. "And you had seen bank statements of your husband from time to time, which showed that there was a balance owing to the Bank, had you not? A. "I have seen the bank statement (sic), but I don't really recall whether I at that time knew what, whether it was, as you said, was owing to the Bank. All he did was he give me the statement and said file it away.. But I don't actually look through it and see what it is" 141 In my view Mrs Chia took pains to understate her knowledge and understanding of Dr Chia's financial affairs and relationship with the Bank. I do not find for a moment that she had a very detailed understanding of those financial affairs or of that relationship. But in my view she certainly knew far more than she accepted in the witness box. The plethora of correspondence and bank statements and materials relating to Dr Chia's business affairs which would have required to be filed must have been accepted by her as a fact of life over an extended period of time. And being as I find, quite able at filing documents and having assisted Dr Chia in this way at least with respect to a number of categories of such documents, I cannot accept that she was ignorant of the general indebtedness which the bank statements time and time again must have made plain. On my findings she was at the very least, clearly aware that Dr Chia had extensive business dealings involving borrowings from the Bank and from time to time required to and in fact varied his arrangements with the Bank. This is not to say that she knew of the intrinsic detail of these dealings and variations. But in my view the evidence establishes that her knowledge and understanding of Dr Chia's financial affairs and dealings with the Bank was more extensive than she would have the court accept. At the end of the day the question is one of degree. 142 The judgment below deals with other aspects of the evidence given by Mrs Chia and the lack of its reliability. Dr Chia 143 In my view Dr Chia's evidence cannot be accepted as reliable unless corroborated or confirmed by extrinsic evidence. Dr Chia tended quite markedly to favour his case on the occasions when matters were put to him which favoured the bank's case. He was argumentative from time to time. I formed a distinct impression that in falling out with the Bank over the matters the subject of the proceedings, his evidence was coloured to suit his case to a considerable extent. 144 My assessment of Dr Chia's reliability is based on the whole of the evidence and in particular on the whole of his evidence. He clearly was a customer who had frequently failed to keep within arrangements. He had failed to repay the bill line when it fell due at the end of August 1991. He had failed to repay the $4 million term loan when it fell due in January 1993. From 15 September 1995, Dr Chia was on my findings, aware that the Bank required that it be repaid. I accept as of substance, the Bank's submission that it showed extraordinary forbearance in waiting as long as it did (until 7 February 1997) before appointing a receiver. Dr Chia's account, from November 1995 was as he knew, being administered by the part of the Bank that dealt with customers who did not keep within arrangements. 145 On my findings Dr Chia was a customer who took an irresponsible and uncooperative attitude to the Bank's interests. In late 1994 and early 1995 he used the Bank's funds, unknown to the bank until after the event, to carry out the building works on the Strathfield home for himself and his wife. Around the middle of 1995 Dr Chia commenced the building extensions at the cinema without informing the Bank of this. He did this without having obtained finance to do so, that is to say using the overdraft facilities which the bank had provided for an unauthorised purpose. The Bank made clear that it was not prepared to provide any further finance for the extensions. Dr Chia assured the Bank that he would not use the cinema's account for anything other than ordinary running expenses. Then unknown to the Bank and contrary to the assurance that he had given the Bank, in October 1995 he started building the extensions again. Again he did this without having arranged finance. This was the final event which led to his account being transferred to the Bank's Asset Management Division. 146 In October 1996 Mr Hanly told Dr Chia and his solicitor that the bank viewed Dr Chia as "unwilling to meet his obligations, strong headed and not willing to work with the bank". 147 Dr Chia did not co-operate in allowing investigating accountants appointed by the Bank to have access to the cinema in December 1996 and did not provide the investigating accountant promptly with all the information that was asked for (although it was eventually provided). 148 At the time of appointment of the receiver, on Friday 7 February 1997, Dr Chia obstructed the receiver taking possession. There was a scene, with both parties having locksmiths in attendance, and both parties calling the police. Only on the Monday was the receiver permitted to take possession peaceably. Although the detailed evidence of each aspect of this occurrence ultimately played little part in the hearing, the underlying facts seem generally clear. 149 On 11 February 1997 the receiver requested undertakings and acknowledgments from Dr Chia which would enable the administration to proceed smoothly. Dr Chia declined to provide them and after taking legal advice (so that his refusal is to be regarded as a considered one). This caused the receiver to start court proceedings to establish the validity of the appointment of the receiver and the right of the receiver to have possession of the cinema. Dr Chia at first contested the receiver's claim, and those proceedings were on. foot until they were settled when Dr Chia withdrew his claims on 27 March 1997. Dr Chia is not shown to have had any legitimate basis whatever to oppose the appointment of the receiver. 150 Dr Chia's tendency to not produce important documents like the various finance letters of offer; to produce only parts of a document such as the building contract, and to misstate the contents of documents (as when he said that the building contract with Carlo Caon was a contract 'current at 28 July 97', when that date was the date up to which Mr Caon's builders licensing was current, does not inspire confidence in Dr Chia's reliability. 151 In the course of negotiation with the Bank, Dr Chia is shown to have allowed Mr Platcher to write a letter to the Bank saying that it was 'blatantly untruthful' to suggest that Dr Chia could get any more finance than $2.6 million, even though Dr Chia did not agree with that statement, and informed Mr Platcher that he did not agree with it. [Transcript page 201]. Dr Chia sent the Bank a statement of financial position saying that Peter Chia Pty Ltd had 'no asset', when what he meant by that was that it did not own any land [Transcript pages 206-207] 152 Dr Chia was evasive over whether the Bank had ever complained to him about spending money from the overdraft account on building the Strathfield house. It is quite clear that the Bank complained about that. Dr Chia's own contemporaneous note clearly said as much [PX 5/1438] 153 In giving evidence in chief Dr Chia said that he had seen all the letters which Mr Platcher wrote to the Bank before they were sent, but did not see all the letters which the Bank wrote to Mr Platcher or to Dr Chia's solicitors. Yet in cross-examination he said that he had not seen Mr Platcher's letter of 22 April 1998 before it were sent, nor had he seen Mr Platcher's letter of 28 April, nor had he seen Mr Platcher's letter dated 29 April, before it were sent. 154 The above detail provides part of the reason for preferring the evidence of Bank's witnesses to that of Dr Chia when there is shown to have been a conflict. But the Court's general approach to Dr Chia's evidence is taken from the whole of the evidence. 155 Ultimately it appears that in a real way, Dr Chia's reliability as a witness has nothing like the significance on the issues litigated by him as does the reliability of Mrs Chia's evidence have significance on the issues litigated in her case. This is because Dr Chia in his case, relies almost exclusively upon the evidence of intermediaries retained by him in his dealings with the Bank through the second and third periods. 156 Where Dr Chia's evidence is inconsistent with the evidence of other witnesses it is necessary to very carefully scrutinise his evidence and in particular to test it against such contemporaneous documents as are available. Mr Harkness 157 In my view the evidence of Mr Harkness was reliable. He was ready to make plain where his recollection was not good and on several occasions made concessions which to my mind indicated that he was doing his best to recall the events which had occurred and was not prepared to leave his evidence in any fashion as ambiguous. His evidence accords with the contemporaneous material. To the extent that his evidence is inconsistent with that given by Mrs Chia or Dr Chia, his evidence is preferred. Ms Sandeman 158 In my view the evidence given by Ms Sandeman may be accepted as reliable. She gave her evidence in a clear fashion in relation to the relatively confined area with which she was involved. Ms Mijatovich 159 In my view the evidence of Ms Mijatovich may be accepted as reliable. She gave her evidence by reference to contemporaneous documents including her own diary notes. Her evidence is consistent with the probabilities bearing in mind the whole of the evidence before the court. Mr Iuliano 160 In my view the evidence of Mr Iuliano was reliable. His evidence is dealt with in considerable detail below. His evidence was given confidently. His evidence accords with the probabilities. By and large his evidence is consistent with the contemporaneous documents. Principles Applicable to Mrs Chia's Defence 161 In Yerkey v Jones (1939) 63 CLR 649 at 675 Dixon J pointed out that while the relationship of husband and wife was not one where undue influence was presumed, it retained 'equitable presumptions of an invalidating tendency.' As Dixon J went onto develop, this was so in three ways: First, proof of circumstances which raise a doubt or suspicion as to a voluntary disposition by a wife in favour of a husband will cast the burden of establishing the propriety of the transaction on the husband. Second, third parties who deal with the wife through the husband may, by notice of the relationship, come to be affected by any equity which the conduct of the husband creates. Third a voluntary dealing by a wife in favour of her husband may be affected by a failure on the part of the wife to attain an adequate understanding of the nature and affect of the transactions (at 675 - 676). 162 As Mr Evans made clear in his opening, Mrs Chia does not claim that the transaction was procured as a result of undue influence of her husband and that the Bank is fixed with the results of that by dint of its notice, actual or constructive, of that fact: see Bank of Credit & Commerce v Aboody [1989] 1 QB 923 at 973 per Slade LJ. And any claim based on unconscionable conduct within the meaning of the principle in Commercial Bank of Australia v Amadio (1982) 151 CLR 447 was abandoned in Mr Evans' opening: [transcript of opening submissions, p23]. Mrs Chia has placed the burden of her case exclusively on the third way in which Dixon J specified that the relationship of husband and wife is possessed of an 'invalidating tendency:' [transcript of opening submissions, p19 - 23] This is an equity which has recently found re-affirmation in the decision of a majority of the High Court in Garcia v National Australia Bank (1998) 194 CLR 395, but begins its Australian career in the decision of Cussen J in Bank of Victoria v Mueller [1925] VLR 642. 163 In Bank of Victoria v Mueller the plaintiff sought to enforce against the defendant a guarantee given over her husband's debts about which the defendant had been mistaken in two respects: first, she mistakenly believed that the debt was not payable until the death of her husband; second, she mistakenly believed that the debt was otherwise secured by certain life insurance policies. Cussen J applied the following statement of principle to hold that the plaintiff was not entitled to enforce the guarantee (at 648): 'Where, to the knowledge of a creditor, a husband is pressed to find money and is indebted to the creditor in a large amount, and is required to give security to cover such indebtedness either with or without further advances and the creditor suggests or concurs in the suggestion of the husband that the security shall take the form of a guarantee by his wife, the consent to which is to be procured by the husband; and it appears that the husband in procuring and pressing for such consent misrepresents in a material respect what is proposed to be the nature of her liability as a guarantor, and that, by reason of such misrepresentation, the wife, in respect of such matter does not understand the true nature of her liability as expressed in the form of a guarantee signed by her and it further appears that she had no independent advice and that the creditor with whom she came into personal communication gave her no explanation or only a partial explanation not covering the material matter in respect of which she was misled and that there are no circumstances beyond the partial explanation (if any) and the mere signing of the document justifying the creditor in thinking that she in all material respects understood it - then in such a case the wife is entitled as against the creditor to equitable relief.' [Emphasis added] 164 The view of Cussen J received extended consideration by Dixon J in Yerkey v Jones (supra) where his Honour stated the proposition to be derived as follows: 'if a married woman's consent to become a surety for her husband's debt is procured by the husband and without understanding its effect in essential respects she executes the instrument of suretyship which the creditor accepts without dealing directly with her personally, she has a prima facie right to have it set aside' (at 683). In the course of his judgment, Dixon J comments that much of it is 'no more than an echo and discussion of' the views of Cussen J' (at 681). But one point of distinction may be the absence in the formulation of Dixon J of any requirement showing actual misrepresentation by the husband. In the judgment of Dixon J, misrepresentation or lack of explanation by the husband is inferred from the misunderstanding of the wife, as is evident from the following passage (at 685): ' ... where the wife agrees to become surety at the instance of her husband though she does not understand the effect of the document or the nature of the transaction, her failure to do so may be the result of the husband's actually misleading her, but in any case it could hardly occur without some impropriety on his part even if that impropriety consisted only in his neglect to inform her of the exact nature of that to which she is willing blindly, ignorantly or mistakenly to enter. 165 In the event Dixon J was of the view that the equity had no application because while the respondent may have laboured under a misunderstanding as to the 'improvidence or unwisdom' (at 686) and may have misunderstood some of the 'details,' 'possible consequences' or 'applications' of the transaction (at 689), Dixon J was not satisfied that the respondent did not understand 'the general nature and effect' of the transaction (at 689) or had not been given an explanation such as to justify the appellant in reasonably believing that she did so understand (at 689). 166 The explanation given to the appellant in Yerkey v Jones was, according to Dixon J, 'simple enough and complete enough to ensure that any woman of average intelligence would understand that she was making herself liable for interest on the £1000 and that, if it was not paid, the principal might be called up and that she bound herself to pay it so that she might be sued and her property sold' (at 689). From this passage the matters Dixon J considered to be within the 'general nature and effect' of the transaction required to be understood by, or explained sufficiently to, a woman supplying a guarantee over her husband's business debts, may be discerned as including, at least, the fact of liability, the general extent of the liability and the consequences to herself of a default by her husband. 167 Although the principle as expounded by the judgment of Cussen J in Bank of Victoria v Mueller and developed by Dixon J in Yerkey v Jones met the disapproval of a number of New South Wales Courts (see European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192 at 200 per Rogers J, Akins v National Australia Bank (1994) 34 NSWLR 155 at 173 per Clarke JA) and was not followed in National Australia Bank v Garcia (1996) 39 NSWLR 577 at 598 per Sheller JA, it has been authoritatively restated by a majority of the High Court in Garcia v National Australia Bank (supra). In Garcia the appellant had given four guarantees over debts owing by the company through which her husband conducted business. The trial judge (Young J (1993) NSW Conv R ¶55-662), found that the appellant did not understand that her liability under the guarantee extended to all monies owing by her husband's company from time to time, that the monies so guaranteed could be used for more than a particular purpose, that the guarantee was secured by a mortgage granted over her home and was further under a misapprehension as to the method by which her husband conducted business, believing that the business was 'risk proof.' The joint majority judgment of Gaudron, McHugh, Gummow and Hayne JJ placed the basis of the equity propounded in Mueller and Yerkey v Jones upon the basis of the trust and confidence which ordinarily subsists between marriage partners (at 404). Their Honours distinguished between the two kinds of cases dealt with in the judgment of Dixon J in Yerkey v Jones: first, cases of actual undue influence by the husband over the wife; second, where there is no undue influence but there is a failure to adequately or accurately explain in which the wife had entered for the substantial benefit of her husband. Later, their Honours continued as follows (at 408 - 409): Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe its purport or effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is taken to have understood that as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that her husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her. ... It will be seen that the analysis of the second kind of case identified in Yerkey v Jones is not one which depends upon any presumption of undue influence by the husband over the wife. As we have said, undue influence is dealt with separately and differently. Nor does the analysis depend upon identifying the husband as acting as agent for the creditor in procuring the wife's agreement to the transaction. Rather, it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction and the creditor being taken to have appreciated that because of the trust and confidence between the surety and debtor, the surety may well receive from the debtor no sufficient explanation of the transactions purport and effect. To enforce against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that the third party has done so, would be unconscionable.' 168 Callinan J delivered a judgment which also upheld the correctness of the principle in Yerkey v Jones (at 440). Kirby J dissented (at 412). 169 The elements of the equity as identified by the majority joint judgment in Garcia may be expanded upon seriatim. (1) The first requirement is that the wife does not understand the 'purport and effect' (or, as it is put by Dixon J in Yerkey v Jones (at 689), the 'general nature and effect') of the transaction. An understanding of the 'purport and effect' of the transaction includes, at least, an understanding of the fact of liability, the general extent of liability and the possible consequences of default: Yerkey v Jones (at 689). However, it is not productive of an equity that the wife misunderstood or failed to appreciate the degree of risk associated in the transaction, or the improvidence or unwisdom of the uses to which the money so secured will be put: Yerkey v Jones (at 686). Further, the wife's misapprehension must be of a material matter: Bank of Victoria v Mueller (at 648); that is, material to the liability the creditor wishes to impose upon the wife. (2) The second requirement is that the wife is a volunteer. It is not sufficient that the wife has received consideration as would be recognised in the law of contract: Bank of Victoria v Mueller (at 649). The consideration for the guarantee must be of 'real benefit' to the wife: Garcia (at 412). Incidental benefit which accrues generally to the family of which the wife is a member is not sufficient benefit to render a transaction which does not otherwise contain a 'real benefit,' non-voluntary: Armstrong v Commonwealth Bank of Australia (unreported, 17 June 1999, New South Wales Supreme Court, per Hamilton J), Cranfield Pty Ltd v Commonwealth Bank of Australia (unreported, 20 November 1998, Supreme Court of Victoria, per Mandie J). Where the wife expects to reap direct profit from the transaction, the transaction cannot be said to be voluntary : State Bank of New South Wales v Vecchio (Unreported, 10 November 1998, New South Wales Supreme Court, per Kirby J). Neither can it be said to be voluntary where the monies secured by the guarantee are used to purchase an asset in which the wife is equally interested with her husband: Commonwealth Bank of Australia v Khouri (Unreported, 4 November 1998, Supreme Court of Victoria, per Harper J). However, where the interest of the wife is a shareholding in the company through which her husband conducted his business and in which she has no real involvement, then a guarantee given by the wife over that company's debts will be voluntary: Commonwealth Bank of Australia v Khouri (supra). But where the wife has an active and substantial interest in the conduct of, and the fortunes of, the business run by her husband, she will not be a volunteer in relation to any guarantee over the debts of that business: Radin v Commonwealth Bank of Australia (Unreported, 23 October 1998, Federal Court of Australia, per Lindgren J). Where the transaction is not ex facie for the benefit for the wife, then the onus will lie on the party seeking to enforce the security to show that the wife was not, relevantly, a volunteer: Warbutron v Whiteley (1989) NSW ConvR ¶55-453 at 58, 288 per McHugh JA. (3) The third requirement is knowledge on the part of the person taking the security, that the guarantor is the wife of the debtor. In Garcia , the majority joint judgment speculated that this requirement may come to embrace relationships of a long term and publicly declared nature which fall short of marriage (at 404). However, as there, that issue does not arise in this case. If the creditor is aware that the guarantor is the wife of the principal debtor, then it is taken to have notice of the fact that the trust and confidence between the guarantor and the principal debtor is such that the guarantor may have less than a full understanding of the nature and purport of the transaction: Garcia (at 404, 411). (4) In the absence of any explanation by the creditor or an independent third party to the wife or any other steps by the creditor to ensure that the wife understood the nature and purport of the transaction, the wife will have a prima facie right to set the transaction aside: Garcia (at 409), Yerkey v Jones (at 685). The explanation need only go to the purport and effect of the transaction: Garcia (at 409). But the extent of the explanation necessary must depend the nature of the transaction, the degree of risk involved, the sophistication of the wife and the nature of the relationship she enjoys with her husband: Yerkey v Jones (at 685). The explanation provided by the creditor or a third party need not, in fact, successfully disabuse the wife of her misapprehensions. It need only give the creditor reasonable grounds for believing that the wife does have an adequate understanding of the nature and purport of the transaction: Garcia (at 411), Yerkey v Jones (at 686). Onus of Proof 170 Mr Evans conceded that in regard to the first three elements the onus lay on Mrs Chia to make out the elements of the equity. However, he submitted that in regard to the fourth element, the onus lay on the Bank to show that it had provided an explanation such as to enable it to reasonably believe that Mrs Chia understood the nature and purport of the transaction. In effect, he submitted that the absence of adequate explanation was not a matter which had to be pleaded by Mrs Chia. Rather, the presence of adequate explanation was a matter which the Bank could raise as a plea of confession and avoidance in response to Mrs Chia pleading the three preceding elements of the equity as outlined in Garcia. 171 Authorities since the decision in the High Court in Garcia have treated the absence of explanation or advice to be something which must be pleaded and proved by the guarantor: see Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd (Unreported, 17 May 1999, Supreme Court of Western Australia, per Master Bredmeyer), Davies v Australia and New Zealand Banking Group Ltd (unreported, 5 August 1999, Federal Court of Australia, Heerey J). But support for the contrary proposition may be derived from the statement of Sheller JA in National Australia Bank v Garcia (supra, at 593) where his Honour says: ' ... even if the husband has not on behalf of the creditor procured his wife to become surety, the security is unenforceable, if she did not understand its nature and effect, unless the creditor can show that the wife was full advised of its nature and effect. The onus is on the creditor .' [emphasis added] 172 This reflects the general approach of New South Wales courts prior to the decision of the High Court in Garcia: see also Peters v Commonwealth Bank of Australia (1992) NSW Conv R ¶55-629 at 59-580 per Brownie J. The judgment of Gaudron, McHugh, Gummow and Hayne JJ in Garcia does not specifically treat with the topic. In Yerkey v Jones Dixon J does not deal specifically with the matter either, but says that the prima facie right of the wife to set the transaction aside arises where the creditor does not deal with the wife personally (at 683) which necessitates the lack of an explanation by the creditor prior to the creation of the prima facie right. It may be that as a matter of judicial hierarchy this Court is bound to follow the words of Sheller JA set out above. However, with respect, the difficulty with this view is that it appears to conflate the equity as propounded in Garcia, with the method by which a third party creditor becomes fixed with the consequences of the undue influence of the principal debtor. Yet the joint majority judgment in Garcia clearly differentiated between them. 173 It will be recalled that the relationship of husband and wife is not a relationship of influence: Yerkey v Jones (at 678). However, if circumstances are shown which suggest that in any particular instance there did, in fact, exist a relationship of influence, it is presumed that any transaction between the parties to that relationship was procured by means of that undue influence. It falls on the party seeking to uphold the transaction and who is possessed of the influence to show that this is not so: Johnson v Buttress (1936) 56 CLR 113 at 135 per Dixon J. The approach of the House of Lords in Barclays Bank v O'Brien [1994] 1 AC 180 is to fix a creditor with the consequences of that presumed, de facto undue influence if the creditor had notice of the fact that the guarantor was the principal debtors wife: O'Brien, at 196. Here, the onus lies on the wife: Barclays Bank v Boulter [1999] 1 WLR 1919 at 1925 per Lord Hoffmann. The Bank will escape the consequences if it can show that it took reasonable steps to ensure that the consent of the wife to become a guarantor was properly obtained O'Brien (at 196). Here the onus lies upon the creditor: Barclays Bank v Boulter (at 1925). 174 As Lord Browne-Wilkinson said in Barclays Bank v O'Brien (supra, at 190) marriage relationships, where trust and confidence are placed by each party in the other, will very often give rise to cases of de facto, presumed undue influence. This is especially so where a wife can show that she did not understand a transaction entered into voluntarily for the benefit of her husband. As Dixon J said in Yerkey v Jones, such a situation 'could hardly occur without some impropriety on his part ...' (at 685). If it then falls upon the creditor to establish that it took reasonable steps to adequately explain the transaction, there will, in the vast majority of cases, be no difference in substance between the approach of the High Court in Garcia v National Australia Bank and the approach of the House of Lords in Barclays Bank v O'Brien. Yet the High Court in Garcia specifically rejected the approach of Lord Browne-Wilkinson in Barclays Bank v O'Brien (at 411) and, following Dixon J in Yerkey v Jones, specifically differentiated between undue influence and the equity afforded specifically to married women (at 406). 175 Moreover, there is a vital difference between, on the one hand, the role which the presence or absence of explanation or independent advice takes in cases of presumed, de facto undue influence under the approach of the House of Lords in Barclays Bank v O'Brien and, on the other hand, the role of a failure to explain by a creditor in the equity as propounded in Garcia. In O'Brien proof of the explanation is used to relieve the creditor of the constructive notice of the earlier equity of the wife based on actual or presumed misconduct of the principal debtor; notice which would otherwise obtain by dint of the knowledge that the principal debtor and guarantor are married: Barclays Bank v O'Brien (at 196). In Garcia, no actual misconduct on the part of the principal debtor need be proved; nor is it presumed. Rather, what impeaches the conscience of the creditor is its failure to properly explain or ensure that a guarantor properly understands a transaction, where it knows that the transaction is not substantially for the benefit of the guarantor but is for the benefit of her husband. This failure is one of the combination of circumstances which make an attempt to enforce the security so obtained, unconscionable: Garcia v National Australia Bank (at 409). That the creditor's conscience is relevantly impeached is for the guarantor to show. 176 Ultimately it seems unnecessary for me to decide this difficult question in the present case. This is because, as I shall develop below, even if one takes the view, as Mr Evans suggested, that it is for the Bank to show that it had reasonable grounds to suppose that Mrs Chia understood the transaction because the Bank had explained it to her or because a third party had done so, the claim of Mrs Chia will fail regardless. Importance of Materiality 177 I note also that Mr Evans submitted that if the four elements of the equity as propounded in Garcia are made out, she is to be relieved of the transaction without the necessity of asking whether her misapprehension caused her to enter into the transaction. No reliable evidence was called on this latter question at the hearing. To support his approach, Mr Evans relied on the decision of the High Court in Maguire v Makaronis (1997) 188 CLR 449. The decision related to a breach of fiduciary duty by the defendant who was a solicitor who had entered into a transaction with his client, the plaintiffs. The joint majority judgment of Brennan CJ, Gaudron, McHugh and Gummow JJ held that for the plaintiffs to be entitled to recision of the transaction, it was not necessary for the plaintiffs to show that the breach of the defendant's fiduciary duty caused the plaintiffs to enter into the transaction. The breach was constituted by the transaction itself, entered into without the informed consent of the plaintiffs. 178 So understood, Maguire v Makaronis is distinguishable from the present case. It was never suggested that the transaction between the Bank and Mrs Chia constituted a breach of fiduciary duty by the Bank. However, Mr Evans relied on the case for the more general proposition that 'causation is presumed in the granting of equitable relief': [Second defendant's final written submission, p13]. Certainly, the elements of the equity as propounded in Garcia, do not include a casual link between the misunderstanding and the entry into the transaction. Generally, also in the application of equitable remedies such as account of profits and equitable compensation '[c]onsideration of causation, foreseeability and remoteness of damage do not readily enter the matter:' Re Dawson (dec'd); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215 per Street J. Brickenden v London Loan and Savings Co [1934] 3 DLR 465 also concerned a breach by a solicitor of his fiduciary duties in respect of which issue Lord Thankerton for the Privy Council said (at 496): 'When a party, holding a fiduciary duty, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material , speculations as to what course the constituent, on disclosure would have taken, is not relevant.' 179 As was pointed out by Kirby J in Maguire v Makaronis (supra) it is the need for materiality that 'meets the need for there to be some connection to the breach so as to exclude events which are too remote…Facts will not be material if the relevant loss would have happened if there had been no breach': (at 492-493). In the same way, in the equity as propounded in Garcia, the need for materiality provides that link between the misunderstanding of the wife and the unconscionability of the creditor's attempt to enforce the guarantee. Without that link, any claimed equity founders. The questions for the Court 180 The precise sequence of events leading to the execution by Dr and Mrs Chia of the security documents, as can be seen from the above evidence, is somewhat complex. However, there is no question but that under the security documents signed by Mrs Chia in connection with the Campbelltown and Strathfield properties, default has occurred and the Bank is, prima facie, entitled to enforce its security. The essential question for the Court on this aspect of the case is whether this prima facie position is altered by Mrs Chia's appeal to the principles as expounded by the High Court in Garcia v National Australia Bank. That question involves a consideration of the four more particular questions as identified above, namely: (1) Did Mrs Chia have an adequate understanding of the nature and purport of the transaction in the manner outlined in the above discussion of principle? (2) Was Mrs Chia a volunteer in the manner outlined above in the above discussion of principle? (3) Did the Bank have notice of the fact that Dr and Mrs Chia were married being therefore taken to have notice of the trust and confidence which may subsist between them and of the possibility that Mrs Chia executed the transaction with less than an adequate understanding of its nature and purport? (4) Did the Bank itself explain the transaction or otherwise seek to have the transaction explained to Mrs Chia in such a way as it could reasonably believe that she did have an adequate understanding of the nature and purport of the transaction? 181 If the answers arrived at by the Court to question (1) is "no", but "yes" to questions (2) and (3), and "no" to question (4), then Mrs Chia is entitled to be relieved of her liability. 182 The Bank denies that Mrs Chia makes out the elements of the Garcia defence. It also argues that Mrs Chia is estopped from denying liability because of documents executed in 1991 and 1993, the former being a consent to provide a guarantee by Mrs Chia and the latter being an acknowledgment and consent by Mrs Chia of the existence of the guarantee; that Mrs Chia has waived her entitlement to plead a Garcia defence and that if Mrs Chia is successful in her defence, she should be required to do equity by paying back an amount of money used by the Chias without the Bank's knowledge or consent, in the renovation of their house. In the event, it will not be necessary to treat with this argument. Did Mrs Chia have an adequate understanding of the nature and purport of the transactions? 183 Mr Evans submitted that Mrs Chia did not adequately understand the nature and effect of the transactions by which she had guaranteed the debts of her husband and offered the Strathfield and Campbelltown properties as security for this guarantee. In particular, he submitted that Mrs Chia laboured under four relevant misapprehensions. First, Mrs Chia did not know that the mortgage was an all monies mortgage which allowed the bank to advance unlimited funds to Dr Chia for any purpose without informing her, and for which she would be liable. Secondly, that the Bank could have recourse to her properties for satisfaction of the debts owed by Dr Chia or his companies before it had recourse to other properties offered as security by Dr Chia or his companies. Thirdly, that the Bank was not obliged to release the Strathfield and Campelltown properties even after the initial debt in connection with which the guarantees were given was satisfied, but was entitled to retain the security until all monies owed to the Bank by Dr Chia or his companies were paid. Fourthly, that the Bank could take possession and sell the Strathfield and Campbelltown properties not only for a default under the terms of the loans to Dr Chia and his companies, but also for a failure to pay rates or licence fees in respect of those properties. These misapprehensions, in the submission of Mr Evans, stem from a representation by Dr Chia to Mrs Chia prior to the execution of the guarantees, that the properties already securing his indebtedness to the Bank, were of values already in excess of that indebtedness. 184 On the evidence, I am however satisfied that at all times material to the execution of the mortgages over the Strathfield and the Campbelltown mortgages, Mrs Chia adequately understood the nature and effect of the security instruments she was being asked to execute. 185 First, Mrs Chia understood that by signing the security documents she made herself liable for the debts of her husband. Under cross examination by Mr Campbell QC for the Bank, Dr Chia gave evidence of his wife asking him: '[y]ou have enough security for the bank, enough property for the bank. Why [does it] need the house' [transcript page 301]. Secondly, Mrs Chia understood that the effect of giving a mortgage was to give the Bank an interest in the subject properties. In her evidence, what Dr Chia had asked her to do in giving the guarantees was to 'put the house [in] for the money:' [Transcript page 51]. Elsewhere, Mrs Chia acknowledged that 'the bank took the house to borrow the money.' Thirdly, Mrs Chia understood that the money secured by the properties was to be used in the construction of and the operation of the Cinema enterprises, and that 'when he finished I will get my house back' [transcript page 51]. Fourthly, she understood that in the event of a failure to pay the money back to the Bank, the Bank was entitled to take possession of and sell the properties. During cross examination she explained her initial reluctance to sign the mortgages as based on the belief that '[b]ecause the house is mine therefore I live in it and that the bank should not take my house away:' [Transcript page 54]. 186 Ultimately the question of whether Mrs Chia has on the evidence established that she did not adequately understand the nature and effect of the security instruments is a short question of fact. In deciding that the answer to this question is in the negative, I have taken into account all of the evidence and in particular have formed the view that Mrs Chia's evidence cannot be relied upon. 187 One begins with an examination of the evidence already outlined in relation to the initial mortgages given by Mrs Chia over the Strathfield property in favour of Westpac Banking Corporation. The first mortgage [PX 1/32] is dated 9 July 1995. The mortgage is given in consideration of Westpac at the request of each of the signatories forbearing to sue in respect of advances or accommodation already granted or afforded to Ontin Pty Ltd either alone or jointly with any other person. The second such mortgage is dated December 1987 and is given in consideration of Westpac at the request of each of the signatories forbearing to sue in respect of advances or accommodation already granted or afforded or presently granting or affording advances or accommodation or any time or from time to time thereafter granting or affording advances or accommodation to Dr Chia, either alone or jointly with any other person. 188 In her first statement Mrs Chia gave evidence that the house was purchased in 1985 and the funds needed were borrowed and that she recalled the purchase price to have been approximately $180,000.00. As earlier noted, the affidavit then reads: "In or about 1987, the funds use (sic) to purchase the said Strathfield premises, and in respect to which there was a mortgage given over the said property, were paid out and discharged from the sale proceeds of certain properties my husband sold at Leumeah and Georges Hall" 189 This paragraph does not read as if the deponent was not able to understand what a mortgage is or how it is discharged. 190 A careful reading of the cross-examination of Mrs Chia in relation to the mortgages given to Westpac throws up, it seems to me, a real question as to the reliability of Mrs Chia's evidence generally. One only of a number of examples is the evidence given a transcript p 46 lines 4 - 7: "Q. "… You understood the bank was taking the mortgage for a purpose when Westpac took the mortgage over the house at the time it was purchased, that's right isn't it? A. "It is right but this was not told to me until later on ." [emphasis added] 191 Indeed at transcript p33, Mrs Chia had said that she could not remember whether she understood when she put her signature on the mortgage that she was giving a mortgage to the bank over the house. Here her evidence was that she did not remember anything about signing the document. 192 Then later under cross-examination [Transcript page 48] Mrs Chia appears to have contradicted herself: Q. "You understood that the point of you signing was so that the bank had your word that the money would be repaid, didn't you? A. "I understand (sic) that I signed because I was told to sign for the loan to borrow the money from the bank". 193 There is then the question of how it came about that the mortgage was discharged and a further mortgage granted thereafter in favour of Westpac. Mrs Chia used the words "paid out" in cross-examination herself: Q. "And you indeed had always understood from the time the Strathfield property was first purchased that there was a mortgage given over the Strathfield property, didn't you? A. "I thought it was paid out"[Transcript page 32 as corrected] 194 Mrs Chia then gave evidence at transcript p44 that once the house was paid off she understood that the mortgage was paid out as well 195 Then at transcript p44 Mrs Chia gave evidence that she understood that while ever there was money owing to Westpac, Westpac wanted a mortgage and once all the money was paid back to Westpac, Westpac didn't want the mortgage any more. And at transcript p47 she gave the following evidence: Q. "… you understood that you were giving - that you were saying to the bank, 'Here is my house which I am letting you have some rights over [it] so that you will lend money to my husband'. You understood that, didn't you? A. "If you explain it like this, it would have been yes" 196 This history in which before ever dealing with the State Bank, Mrs Chia had given two mortgages to Westpac, the first having been paid out and the second having been given to secure loans to Dr Chia, is not unimportant as it seems to me in terms of following Mrs Chia's ability to understand the nature of a mortgage. 197 I have also taken into account the fact that Mrs Chia is shown to have signed a very large number of documents on nine separate occasions over a period of more than five years after the Strathfield mortgage was given, consenting to variations or the refinancing of the arrangements with the Bank. Many of the document so signed asserted at a point in the document which was very close to the place where she in fact signed, that she understood and accepted the terms of the arrangements between Dr Chia and the Bank and was a "Provider of Security". Such documents were signed on 14 January 1991 [Document 1], 17 April 1991 [Document 3], 1 July 1991 [Document 4], 30 August 1991 [Document 7], 23 December 1991 [DX 1/354], 11 March 1993 [Document 9], 1 November 1994 [DX P786], 8 February 1995 [DX 999-1000] and 11 July 1995 [DX pages 1080-1081]. That Mrs Chia signed so many such documents assists the court in the inference that she had understood what she was first doing when she first signed the subject mortgages. 198 Mrs Chia understood that the first of these documents was signed at a time, namely on 14 January 1991, when there had been delays in construction because of rain, and that she had to sign because Dr Chia was borrowing money; that the document she was signing was to be provided to the Bank and that the Bank would take that document into account in deciding whether or not to lend more money. [Transcript 62-63] 199 As to the second document, Mrs Chia also understood it was signed so that her husband could obtain more money from the bank for the cinemas. [Transcript 64] 200 As to the 1991 Consent, she understood that this was signed so that her husband could borrow money from the bank. [Transcript page 73] 201 The 1991 consent was signed in front of Ms Mijatovich who explained it and the other 1 July 1991 documents to her. The 1991 consent (and the Campbelltown mortgage) were also explained by Mr Iuliano. 202 The 1993 consent was signed in front of Mr Gelder and at a time when Mrs Chia knew that her husband had still not paid back the money he had borrowed for the cinema. [Transcript 81] 203 When Mrs Chia signed the document of 11 July 1995, she understood that the reason she was referred to as a 'provider of security' in that document was because she had provided the house to the Bank as security: "the bank took the house to borrow the money", and this happened back in 1989.[Transcript page 94] 204 A Bank valuer had inspected the house in mid-1995, both inside and out; Mrs Chia understood that the Bank needed to know what the house was worth. The house was submitted for auction in December 1995 and again in June 1996. In November and December 1996 it was submitted for sale by private treaty, and was open for inspection by prospective purchasers for five weeks. Mrs Chia understood on each occasion that if the house was sold, it would be the Bank which received the money, because the Bank still had the mortgage, and the money was not repaid [Transcript 97, 99, 100]. Even though the house did not sell at auction, there were still several weeks when people came to inspect the house. That all these intrusions into her house happened without any suggestion that Mrs Chia was surprised is in my view strongly consistent with her understanding that it was a consequence of the mortgage being granted and the money not being repaid. 205 There is no challenge mounted whether relying on Garcia principles or otherwise to the 1991 Consent and the 1993 Acknowledgment. That there is no such challenge it seems to me is a further important factor to be taken into account in reaching the conclusion that Mrs Chia knew and understood the obligations in the mortgages at the time they were executed. This is more particularly so when Mrs Chia gave no evidence of there having been any events, between the time of execution of the mortgages and the execution of the 1991 Consent and the 1993 Acknowledgment, which caused her to come to understand what was really involved in giving a mortgage. 206 A further factor which the court is entitled to take into account as it seems to me, is that Mrs Chia does not appear on the pleadings to have placed in issue the allegation that she consented to the bank granting to her husband the facilities which were the current facilities at the time of default. [Contentions paragraphs 13; Further Amended Defence paragraph 3, Lines 2-3]. Yet the facilities in the Facility Letters of Offer were offered on the express condition that there be mortgages over the Strathfield and Campbelltown properties, and that it was a condition precedent to drawing under the facilities that the securities be entered in a form and substance satisfactory to the bank. The Court is entitled to take into account on the question of whether at all times material to the execution of the subject mortgages, Mrs Chia adequately understood the nature and effect of the mortgages, whether the consent of Mrs Chia to the facilities in the Letter of Offer necessarily involved consent to the terms on which those facilities were granted. I should make plain however that this factor whilst confirmatory of the Court's decision that Mrs Chia adequately understood the nature and effect of the security instruments she was being asked to execute, is not critical in that regard. In short, even without this factor, and upon the assumption that to take this factor into account would involve a misreading of the pleadings, the court's finding on the essential issue would still stand, based as it is on the other matters referred to in the judgment going to support this finding. 207 The one matter in respect of which I have a real doubt is as to whether or not Mrs Chia did understand that the subject mortgages were 'all moneys' mortgages. As earlier pointed out she has deposed that in respect of any documentation signed by her, she "was not aware of the legal implications of any 'all monies clause' whereby the Strathfield property could be at risk and secured the full amount of [her] husband's borrowings from time with [the Bank]". I have considerable reservations as to the reliability of this evidence. As Mrs Chia bears the onus of proving that she had no such understanding, these reservations to my mind simply translate into her having failed to satisfy the Court that on the balance of probabilities, she had no such understanding. But even if it had been shown that Mrs Chia had no such understanding, her case would fail. Whilst in some situations a mortgagor who was unaware of the existence of an 'all moneys' provision in a mortgage, may be able to rely upon that fact to set the mortgage aside or to obtain a declaration that it was unenforceable, this is not such a case. Here the sole purpose for which the Bank had advanced funds to Dr Chia was, on my findings, for construction of the cinema, a purpose at all material times known to Mrs Chia. Any misunderstanding, had there been such, as to the inclusion of the 'all moneys' clause, was simply a circumstance not material to the security sought. 208 Mrs Chia was born in Singapore and is of Chinese ethnicity. She migrated to Australia with her husband in 1976. Although trained as a nurse in Singapore, she has not continued in that profession in Australia. Mrs Chia did perform work of a secretarial and clerical nature in her husband's surgery. In general, however, she does not appear to have played any substantial role in the management of her husband's business affairs. Indeed, the evidence revealed that she requested her husband to execute business documents on her behalf [see transcript page 369]. Coming from such a background and in the light of the evidence she gave in Court, it is clear, to my mind, that Mrs Chia's understanding of the transactions into which she entered, did not reach any level of sophistication. However, Mrs Chia need not have a sophisticated understanding, she need only have an adequate understanding of the elements which constitute the nature and the purport of the transaction, material to the liability claimed by the Bank. On the evidence, and for the reasons given above I am satisfied that she had that understanding. 209 It may be, as Mr Evans asserts, that Mrs Chia did not have an understanding that under the terms of the mortgage the Bank could have recourse first to her properties, without looking to the securities given by Dr Chia and the Bank. Nevertheless the Bank never sought to do such a thing. A misunderstanding as to a fact not material to the security the Bank seeks to enforce, cannot render unconscientious the Bank's attempt to enforce it. For the same reason, it does not in my view, advance Mrs Chia case to say that she did not understand that under the mortgage the Bank could sell the house because of a failure to pay rates or that the Bank could refuse to release the securities even after Dr Chia's debt was repaid. Neither such event ever came to fruition. Neither is it relevant that Mrs Chia did not understand that the Bank could advance further monies to Dr Chia for any purpose without notifying her. The sole purpose the Bank advanced money to Dr Chia was for the cinema, a purpose well known to Mrs Chia. Furthermore, although as I have said, Mrs Chia claimed that she did not understand what an 'all monies' mortgage was, it was never suggested that that she laboured under any misapprehension as to the amount of her liability. This was a misapprehension in the air which never grounded in any manner material to Mrs Chia's liability to the Bank. The fact that certain of the moneys advanced were on my findings used on the Strathfield house extensions, would not further Mrs Chia's case in this regard. 210 In truth, the burden of Mrs Chia's misunderstanding was not connected with the nature and purport of the transaction, but with her husband's business acumen. During cross examination, Mrs Chia said: 'Because I want the house to live in and not put to the bank but he assure me that it will be - he has enough money to cover it, that's why I put the house there because I trust him and all this time he has been having success in all things he has done for the family so I trust him that nothing will happen to the house.' [Transcript, page 51] 211 The misplaced trust of Mrs Chia and her mistaken assumption that her husband's business success would continue may explain why she executed the subject mortgages, but does not on the evidence, provide grounds to resist their enforcement. 212 Having reached this conclusion it is unnecessary for me to go on and examine the remaining elements of the Garcia defence. In deference however to the detailed submissions on the remaining elements, I shall examine the remaining elements. Was Mrs Chia a Volunteer? 213 Mr Evans made the submission that any benefit which Mrs Chia realised as a result of the transactions into which she entered was so tenuous that it can be ignored [Transcript of final submissions, page 59]. Certainly, it is true that the transaction entered into by Mrs Chia was not ex facie for her benefit. Accordingly, it is for the Bank to show that she, nonetheless, received a 'real benefit' such as to render the transaction non-voluntary: Warburton v Whitely (supra). The Bank submitted that Mrs Chia was not a volunteer because the mortgages she gave over the Strathfield and Campbelltown properties enabled her husband to carry out the cinema venture to promote the best interests of the family and accordingly redounded to her benefit [Bank's final written submissions page 36 - 37]. As the Bank's submission was substantially the same in regard to each mortgage, it is again unnecessary to distinguish between them. 214 The Bank's submission is contrary to authority. As explained above, and as submitted by Mr Evans, the possibility of some incidental benefit to the wife - perhaps in the form of an improved lifestyle, achieved through her husband's business success which itself was made possible by money borrowed upon security provided by his wife - is not sufficient to render the wife other than a volunteer. In my view however, Mrs Chia realised a direct benefit at least to the extent that on my findings, money borrowed from the Bank was used by Dr Chia to renovate the Strathfield property. [see PX 5/1438 and transcript page 278] The renovations to the Strathfield property in fact redounded to Mrs Chia's benefit as a result of the transaction although not ex facie for the benefit of Mrs Chia, nonetheless provided her with a 'real benefit.' Accordingly, my conclusion is that Mrs Chia was not, in the relevant sense, a volunteer. Did the Bank Know Mrs Chia and Dr Chia were married? 215 There is no question but that the Bank knew at all material times that Mrs Chia was married to the Dr Chia, the principal debtor. Thus, the Bank is taken to have notice of the trust and confidence which may subsist as between Dr and Mrs Chia and the possibility that Dr Chia may not have explained the transactions to his wife adequately. Did the Bank have reasonable grounds on which to believe that Mrs Chia adequately understood the transaction? 216 It is clear that no officer from the Bank ever met with Mrs Chia or sought to explain the transaction to her. Mr Evans argued that it was necessary for the Bank to provide Mrs Chia with a comprehensive explanation of the mortgages, interview her in the absence of her husband and to determine what was her understanding of her obligations under the various instruments so as to identify and rectify any gaps in her knowledge or understanding [Mrs Chia's final submissions, p13]. The Bank submitted that it had reasonable grounds for believing that Mrs Chia did adequately understand the nature and purport of the transactions. In relation to the Strathfield mortgage it relies on the certificate provided by Mr Harkness [Bank's final submissions, p38]. In relation to the Campbelltown mortgage, it relies on the explanation provided to Mrs Chia by Mr Iuliano and Ms Mijatovich. Mr Evans attacks the adequacy of the certificate and the explanation. 217 It is thus necessary to treat with each transaction separately. (i) The Strathfield mortgage 218 As to this aspect of the case, it is not in dispute that the only communication the Bank had with Mr Harkness was through his Certificate of Witness [PX 1/69 - 70]. Thus, the Bank cannot rely on anything extrinsic to that document to ground a reasonable belief that Mrs Chia did understand the nature and purport of the transaction. The operative part is paragraph three which affirms that the document was signed voluntarily and paragraph four which affirms that 'the parties' have: (a) compared his or her obligations and responsibilities to the Bank with those of any person named in the document(s); and (b) considered the consequences to him or her should there be any default in those obligations and responsibilities 219 The evidence indicates that this certificate never reached the Bank but remained in the file of the Bank's solicitor's, Abbott Tout. Nevertheless, as Abbott Tout had received instructions from the Bank on this matter, the knowledge of Abbott Tout as to the execution of the certificate is to be imputed to the Bank: Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 658 - 659 per Mason J. Moreover, the Bank is entitled to assume that the certificate is true and correct without undertaking any independent investigation of the facts stated on it: Wilkinson v ASB Bank Ltd [1998] NZLR 674 at 692 per Blanchard J, Barclays Bank plc v Thomson (1996) 146 NLJ 1778 at 1778 per Simon Brown LJ. Nevertheless, the question remains as to whether the certificate executed by Mr Harkness is sufficient. 220 Mr Evans offered as a contrast, the form of certificate considered by Handley JA in Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 485 and the form of certificate considered by the New Zealand Court of Appeal in Wilkinson v ASB Bank Ltd (supra, at 677). Mr Evans also sought to tender in evidence certain business records of the New South Wales Law Society to evidence the preferred form of certificate. That evidence is inadmissible and is rejected (a decision on this matter having been reserved). To my mind, little assistance is provided by comparisons of the forms of certificate considered in other decisions. The question is not whether the certificate provided by Mr Harkness satisfied some suggested industry standard, but whether it provided reasonable grounds for the Bank to believe that Mrs Chia did understand the nature and purport of the Strathfield mortgage. 221 It seems to be of importance to note that the subject certificate was provided by a solicitor. The solicitor certifies that the documents referred to in the schedule were signed and dated before him and that he identified "the parties" before the documents were signed. 222 The certification is also that the solicitor asked the parties whether the documents were being signed voluntarily and that the answer was in the affirmative. 223 I accept that it is a close question as to whether or not the Bank, in circumstances in which the certificate itself constituted the sole source of information as to whether or not Mrs Chia understood the nature and purport of the mortgage of the Strathfield property, could be said to have had reasonable grounds for believing that Mrs Chia had had such understanding. 224 On the one hand it might be suggested that the bank had no such reasonable grounds. In support of this approach it could be said that the operative part of the certificate [paragraphs 3 and 4] provides no record of any explanation being given to any borrower. This section of the certificate affirms only that the transaction was stated by the parties as being voluntarily entered into and that the parties [the Bank would be entitled to read this as "the borrowers"], had engaged in a comparison of obligations and a consideration of the consequences of a default. This approach would emphasise the undoubted fact that the certificate does not explicitly certify that those obligations and those consequences were explained. On this approach it would be said to be insufficient that a solicitor ask a person to compare something or to consider the consequences of something, before such a person had an understanding of what that something is. Moreover, this approach would emphasis the fact that the document does not identify Mrs Chia specifically but speaks only of "Chia". This approach would also emphasise the undoubted fact that the certificate also related to mortgages given to the Bank over four other properties by Dr Chia and by his company Ontin Pty Ltd. The approach would suggest that a reader of the certificate unfamiliar with the property arrangements within the Chia family, would not be likely to discern that Mrs Chia was in any way involved in the transactions there concerned. Hence this approach to the evidence and to the question of principle would conclude that the certificate did not provide a reasonable basis for the Bank to believe that Mrs Chia understood the nature and purport of the transaction, it being clear that there was no other contact between the Bank, its agents and Mrs Chia, in relation to the Strathfield mortgage. 225 The alternative approach would suggest that the Bank in fact had such reasonable grounds. In support of this approach emphasis would be placed upon the Bank's entitlement to infer that a solicitor would, in the ordinary course of professional practice, be most unlikely to be prepared to execute such a certificate [and in particular to certify as to the detailed matters set out in paragraph 4], without regarding himself or herself as implicitly under an obligation to ensure that he or she had in fact explained to the parties, those matters which would be required to be clearly understood before an affirmative answer could possibly be given to sub questions (a) and (b) to paragraph 4. The matters which would be required to be both explained as well as understood, before an affirmative answer could be given to such sub questions, would be: (i) What were the obligations and responsibilities of the parties to the Bank? (ii) What were the obligations and responsibilities of all persons named in the security documents? (iii) What did a comparison between the obligations and responsibilities respectively referred to in (i) and (ii) throw up? (iv) What were the consequences to the parties should there be any default in the obligations and responsibilities referred to in (i)? (v) Had those consequences been considered? 226 For the reasons earlier given it becomes unnecessary to express a concluded view on which approach is correct. (ii) The Campbelltown mortgage 227 Upon this aspect of the case, the material circumstances are those which surrounded the dealings of Dr and Mrs Chia with Ms Mijatovich of Nicholas Winkler & Turner (solicitors) and Mr Iuliano of Marsdens (solicitors). The occurrence of the meeting between Mr Iuliano and Dr and Mrs Chia and the circumstances which led to Ms Mijatovich arranging for that meeting are not generally the subject of dispute. However, the evidence of Mr Iuliano and Mrs Chia as to the content of the meeting was in violent conflict. 228 As has been noted, Mr Iuliano gave evidence as to a detailed explanation said to have been provided by him to Mrs Chia, an explanation which partly occurred in the absence of her husband. Mr Iuliano's explanation covered the nature of a mortgage, the voluntary nature of the guarantee she was providing, the fact that the money borrowed was to be used in her husband's business and the possibility that should her husband not repay the loan to the Bank, she could lose the property. Mr Iuliano's evidence was that it was on the strength of this explanation that he signed the certificate of witness which, inter alia, affirms that the parties to the transaction understood the nature and effect of the transaction (although he struck out certain documents the execution of which he had not witnessed) [PX 1/333]. He informed Ms Mijatovich by telephone that, in the words of her file note of 1 July 1991, 'he had explained all doc's [sic] to his client, including mortgage': [PX 1/254]. In contrast, Mrs Chia's evidence was that Mr Iuliano provided no explanation as to the nature and effect of the mortgage and that she had never met with him in the absence of her husband. 229 The reliability of the evidence of Mr Iuliano was strongly attacked by Mr Evans. In his submission Mr Iuliano was a 'terrible witness' and his evidence was a 'gratuitous reconstruction': [Transcript of final submissions, page 69]. It was, argued Mr Evans, evidence of what Mr Iuliano likes to think he had said, rather than what he did in fact say. Further, Mr Evans submitted that the evidence of Mrs Chia should be preferred because she was likely to have the better memory as this was only one of a few transactions by Mrs Chia, while Mr Iuliano had explained thousands of mortgages. 230 Mr Iuliano impressed me as a reliable, honest and candid witness who was well aware of what he could and could not remember. While Mr Iuliano could not remember the exact words of explanation used, his recollection of the general content of what he had said was good. For her part, Mrs Chia appeared to have a poor recollection of the meeting, even to the extent of being unable to recognise Mr Iuliano in Court. Mr Iuliano gave evidence that his appearance had not materially changed since his meeting with the Chias in 1991. To my mind, Mrs Chia's evidence of the absence of any explanation by Mr Iuliano was formulaic in nature; a formula she applied in the absence of any genuine recollection. Accordingly, where the evidence of Mr Iuliano and Mrs Chia conflict as to the content of the meeting of 3 July 1991, it is the evidence of Mr Iuliano which is accepted as reliable. 231 Mr Evans next argued that, no matter what Mr Iuliano said to Mrs Chia in their meeting, the Bank could not have had reasonable grounds for believing that Mrs Chia adequately understood the transaction. In support of this submission, he points to the file note made by Ms Mijatovich on July 3 1993 which refers to an explanation being given to 'his client': [PX 1/254]. In the submission of Mr Evans, the reference to 'client' is a reference to Dr Chia and supports the inference that either an explanation was never given to Mrs Chia by Mr Iuliano, or the explanation was never related to Ms Mijatovich. Further, Mr Evans relies on the seemingly unsent letter of Winkler Turner to Marsdens, dated 17 July 1991, which requests a letter from Marsdens countersigned by 'your clients' certifying that no protest was made by the Chias in relation to the documents which had not been resigned in the presence of Mr Iuliano at their 3 July 1991 meeting [PX 1/288]. This shows, in Mr Evans submission, that Ms Mijatovich was not satisfied with the explanation as provided by Mr Iuliano: [Transcript of final argument, page 71]. 232 Mr Evans's submission is rejected. It places far to much reliance on the absence of an 's' in Ms Mijatovich's abbreviated and doubtless hastily composed file note. The note may reflect confusion on the part of Ms Mijatovich as to Mrs Chia's precise role in the transaction [see transcript page 846], but to my mind no inference bearing on what Mr Iuliano did, or told Ms Mijatovich he did, can be safely drawn from it. This is especially so when the file note is contrasted to the unsent letter of 18 July 1991, which refers to 'clients' (plural) twice. Moreover, Mr Evans' reliance on that unsent letter as evincing Ms Mijatovich's dissatisfaction with the explanation provided to Mrs Chia by Mr Iuliano is altogether misconceived. The request in the letter relates to the distinct issue of Dr Chia's protest, not to the explanation provided to Mrs Chia. Indeed, the letter earlier refers, with apparent satisfaction, to the fact that the documents, including the mortgage documents, were 'fully explained to your clients.' The clear and only inference to be derived from the letter, the file note of Ms Mijatovich and the inherent probabilities of the situation, is that the circumstances of the meeting between Mr Iuliano and Dr and Mrs Chia, as I have found them to be, were related by telephone to Ms Mijatovich by Mr Iuliano on 3 July 1991. As Ms Mijatovich's knowledge, as solicitor for the Bank, is to be imputed to the Bank (see Sargent v ASL Developments Ltd, supra), this is also knowledge of the Bank. 233 Possessed with this knowledge, the Bank had ample grounds for believing that Mrs Chia had an adequate understanding of the nature and purport of the mortgage. The explanation of Mr Iuliano comprehensively covered the nature and purport of the transaction into which Mrs Chia was entering. It was delivered in a homely manner, readily comprehensible to persons of little or no business experience. Indeed, it is difficult to conceive of what else the Bank could do to ensure that Mrs Chia understood the nature and purport of the transaction she was entering. Accordingly, even if the onus lay on the Bank to show that it had reasonable grounds for believing that Mrs Chia had an adequate understanding of the nature and purport of the Campbelltown mortgage, I am satisfied that it has have discharged that onus. 234 Although arguably not strictly relevant to the analysis presently under consideration, I propose to revert to a question of fact. To my mind it is important in a case such as this for the trial judge to decide all relevant, as well as all arguably relevant, questions of fact. One such question or set of questions, is what would Mrs Chia have done had she known: (a) that the Bank could have recourse to her properties for satisfaction of the debts owed by Dr Chia or his companies before it had recourse to other properties offered as security by Dr Chia or his companies. (b) that the Bank was not obliged to release the Strathfield and Campbelltown properties even after the initial debt in connection with which the guarantees were given was satisfied, but was entitled to retain the security until all moneys owed to the Bank by Dr Chia or his companies were paid. (c) that the Bank could take possession and sell the Strathfield and Campbelltown properties not only for a default under the terms of the loans to Dr Chia and his companies, but also for a failure to pay rates or licence fees in respect of those properties. 235 Mrs Chia gave no evidence that had she known of any or all of these matters, she would not have entered into the subject transaction. In that circumstance and bearing in mind the whole of the evidence, I am satisfied that had Mrs Chia known any or all of these matters she would still nevertheless have entered into the subject transaction. Whether and if so how and to what extent, this finding of fact is to be related to the general principles to be invoked, may remain to be clarified. Findings 236 Ultimately my findings are that all material times Mrs Chia well understood the nature and effect of the security instruments which she was asked to execute. Most importantly she signed the subject mortgages being well aware that they were to secure her husband's borrowings and that if the borrowings were not repaid in accordance with the arrangements between Dr Chia and the Bank, then the properties [Strathfield and Campbelltown] the subject of the mortgages, were liable to be sold by the Bank in exercise of the powers granted to the Bank under the mortgages. On my findings Mrs Chia was well aware at all material times that a default by Dr Chia in relation to the facilities which had been granted to him by the Bank was likely to lead, or certainly could well lead, to these properties being realised by the Bank to recover moneys owing by Dr Chia under the facilities. 237 Having reached the conclusion that Mrs Chia did understand the nature and purport of the Strathfield and Campbelltown mortgages at all material times, her only defence fails. The Bank is entitled to enforce its security. Dr Chia's case Dr Chia's defence 238 Having dealt with Mrs Chia's case as it relates to the first period of time, it is convenient to turn to the second and third periods of time which relate to the case against Dr Chia and the extensive cross claim filed by Dr Chia against the Bank the Receiver, Mr Rennie. 239 Dr Chia: (a) Denies that he is liable for to pay any moneys to the plaintiff. (b) Denies that the Bank is entitled to take possession of the Campbelltown land. (c) Denies that the Bank is entitled to any legal costs, charges and expenses as claimed. (d) Further and in the alternative, asserts that by reason of the matters pleaded in the second cross claim, "the [Bank's] entitlement to payment by [Dr Chia) of the monies claimed in the amended summons is impeached by [Dr Chia's] entitlements to receive such amounts as [the Bank] is found liable to account to or to compensate [Dr Chia] and as a consequence [Dr Chia] is entitled in equity to set off any sums due by Dr Chia to [the Bank] against the amounts [the Bank] is found liable to account to or compensate [Dr Chia]". 240 However, before turning to the cross-claim it is convenient to deal with some preliminary and reasonably technical matters of defence. Debt against Dr Chia 241 In his defence Dr Chia, the second defendant, admits that he accepted a letter of offer issued by the plaintiff in February 1993, containing, among other things, a commercial bill facility to the limit of $4 million. He admits that demand was made on him on 31 May 1996 by the plaintiff. He admits that he has not paid any of the moneys claimed by the plaintiff. But as stated above, Dr Chia denies he is liable to so pay. [Paragraphs 1 - 5 of the second defence]. 242 The Bank relies on a Certificate of Debt issued on 6 March 2000 by Robert John Moulds which certifies that, as at 29 February 2000, $2, 879, 807.47 is owing or due to the Bank from Dr Chia. Below this, the certificate informs the reader that it is signed pursuant to clause 5.1.12 of the Memorandum of Mortgage numbered X208233 and filed with the Registrar of Land Titles. Clause 5.1.12 of the Memorandum of Mortgage [PX 1/86] reads as follows: (Statements) any written statement signed by any authorised officer or employee of the Mortgagee or produced by any computer operated by the Mortgagee and bearing the Mortgagee's name for the amount owing or due in respect of the moneys hereby secured and interest thereon and produced at any time , shall, in the absence of any manifest error , be conclusive evidence that such amount is due and owing and conclusive evidence of any other matter contained in such statement and the Mortgagee shall not be required to produce any of its books of account or any other records or any copies thereof to the Mortgagor or any other person unless the Mortgagee be ordered so to do by a Court or Tribunal.' [emphasis added] Dobbs Clause 243 This type of clause is eponymously referred to as a 'Dobbs' clause after Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643. In that case the subject clause in effect provided that a certificate signed by the manager or acting manager of the bank at which the account was held was 'conclusive evidence of the indebtedness at such date.' Rich, Dixon, Evatt and McTeirnan JJ (at 650) explained the clause as follows: "[T]he manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the Bank by the customer shall be conclusive evidence of his indebtedness to the Bank." 244 In Dobbs the validity of the clause was challenged on the grounds that it was an attempt to oust the jurisdiction of the court to determine the liability of the debtor and substitute the determination of the officer of the bank who signed the certificate. The Court rejected this argument, holding that the clause was not one which denied a party access to the courts (a clause which would have been invalid) but was one of a species of arbitration clauses which made 'the acquisition of rights under the contract dependent upon the arbitrament or discretionary judgment of an ascertained or ascertainable person.' (at 651) The Court then referred to Scott v Avery (1856) 5 HLC 811; 10 ER 1121. In a separate concurring judgment, Starke J said that '[it] has never been thought that the submission of disputes to arbitrators whose award was final and conclusive ousted the jurisdiction of the Courts.' (at 655). 245 An extensive consideration of Dobbs clauses is to be found in the judgment of Young J in Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284, where his Honour affirmed his previous opinion (see National Australia Bank Pty Ltd v Sampson, unreported, 9 September 1991, Supreme Court of NSW) that such clauses should be strictly construed. Young J held that the certificate issued under a Dobbs clause must ex facie comply with the requirements of the clause. His Honour specified three ways relevant to that case in which a Dobbs statement did not comply with the clause under consideration. First, a statement issued pursuant to a Dobbs clause will fail if it requires a 'certificate' to be produced and what is produced is, in fact, a 'statement'. Second, it will fail if the position of the person who signs the certificate is not identified as within the class of persons authorised by the clause to do so. Third, the certificate must state the date on which the money is said to be due and owing and the amount secured by any mortgage. Furthermore, Young J was of the view that it was a pre-condition for the proper operation of a Dobbs clause that such clauses be prepared by a properly qualified official with due care and proper investigation. 246 The decision of Young J in Shomat Pty Ltd v Rubenstein (supra) was inconclusively discussed by the Victorian Court of Appeal in Jenkins v National Australia Bank (1999) ANZ ConvR 544. Phillips JA (with whom Brooking JA and Chernov JA agreed) rejected the following arguments of the debtor: first, that the Bank could not rely on the effect of the clause where it has issued two certificates stating different amounts; second, that the Dobbs clause could only operate once in connection with one certificate; and third, that the onus lay on the creditor to show that the certificate was properly prepared with due care and proper investigation. Drawing attention to a statement of Lord Esher MR in Lishman v Christie (1887) 19 QBD 333 at 338 - 339 [which was quoted by Starke J in Dobbs (at 656) and Young J in Shomat Pty Ltd v Rubenstein (at 287)] that 'in the absence of fraud' a provision in a mercantile contract which states that a bill of lading was conclusive evidence of the fact that the goods were shipped 'is meant to cover all bona fide mistakes,' Phillips JA suggested that a certificate which contains bona fide errors could still be relied on, in contrast to one which contains 'manifest errors.' 247 The differentiation between a 'bona fide error' and a 'manifest error' adverted to by Phillips JA is borne out in the present case for the subject clause excepts from its conclusive effect 'manifest error[s].' To define manifest error, Mr Thomson referred to the decision of the Court of Appeal in Promenade Investments Pty Ltd v NSW (1992) 26 NSWLR 203 which, so far as relevant, concerned the interpretation of the phrase 'manifest error on the face of the award' in s38 of the Commercial Arbitration Act 1984. Sheller JA, who delivered the principal judgment, referred to a 'manifest error' as 'something evident or obvious rather than arguable.' Sheller JA rejected the proposition that a 'manifest error' was one which was evident without argument. But the phrase did, in his Honour's view, connote an error of law which was more than arguable. A manifest error was an error such that there were powerful reasons for considering, on a preliminary basis, without prolonged adversarial argument that it was, indeed, an error. 248 The Dobbs clause considered by Ormiston J and by the Full Court of the Supreme Court of Victoria (McGarvie, Marks and Beach JJ) in Brick and Pipe Industries Ltd v Occidental Life Nominees [1992] 2 VR 279 similarly contained an exclusion from the conclusive effect of the clause for 'manifest error.' At first instance, Ormiston J considered that the Dobbs clause contained no error and thus did not consider the meaning of the appellation 'manifest.' On appeal the Full Court considered that the incorrect inclusion of an amount of money as interest was a 'manifest error' (at 371) but did not otherwise expand on the meaning of the phrase. However, to my mind, the basis on which the Full Court proceeded evinces a not dissimilar connotation of the word 'manifest' to that adopted by Sheller JA in Promenade Investments (supra). 249 To my mind, that approach is applicable here. In the first place, it is an approach consistent with the ordinary dictionary definition of the word 'manifest.' Furthermore, although Promenade Investments concerned the construction of the Commercial Arbitration Act 1984, the concerns which obtain in the context of arbitration are not entirely foreign here. As demonstrated by the decision in National Bank of Australasia v Dobbs itself, Dobbs clauses are just a species of the wider genus of arbitration clauses. The purposes of expedition and finality which underlie more traditional arbitration clauses also underlie Dobbs clauses. Too ready a detection of error may frustrate those purposes. Moreover, I respectfully agree with Phillips JA in Jenkins v National Australia Bank that the phrase 'manifest error' draws an implicit distinction between a 'manifest error' and an error of a lesser kind. A 'manifest error' must be an error which is easily demonstrable without extensive investigation, although some argument may be necessary. It does not includes errors which are abstruse, obscure or inconsequential. Efficacy of the Dobbs Clause 250 Dr Chia submitted that the Bank could not rely on the certificate issued by Mr Moulds as conclusive evidence of the debt because clause 5.1.12 of the memorandum of mortgage required a 'statement' to be issued, whereas a 'certificate' was issued by Mr Moulds. 'Statement,' in the submission of Dr Chia, was a term of art in the law of banking which referred to a reconciliation of various transactions between the debtor and creditor and not merely to a document expressing the amount owed. This submission receives some support from the decision of Young J in Shomat Pty Ltd v Rubenstein (supra). 251 A 'bank statement,' as the term is ordinarily used nowadays, connotes the document which has replaced the passbook as the periodic copy of the customer's account of the bank's ledger as it relates to that customer: see GA Weaver and CR Craigie, The Law Relating to Banker and Customer in Australia, para [7.1160]. However, it would not appear that the term has any settled or technical meaning. Yet even assuming that the word 'statement' does have the particular meaning contended for by Dr Chia it is clear to my mind that clause 5.1.12 in the memorandum of mortgage uses the term 'statement' in its popular, untechnical sense. This is so for two reasons. First, the subject clause is one based on the clause upheld in Dobbs v National Bank of Australasia (supra) which used the term 'certificate' rather than 'statement'. Second, and more substantively, the subject clause relieves the Bank from having to 'produce any books of account or any other records or copies thereof to the Mortgagor.' If a 'statement,' within its technical meaning, is merely the modern form of a passbook, and a passbook is simply the customer's copy of the bank's ledger, then to interpret the word 'statement' in the way suggested by Dr Chia would be to in effect require the bank to produce 'books of account or any other records or copies thereof' when the clause expressly says that it does not have too. To interpret the word 'statement' in the technical way suggested by the second defendant would be inconsistent with the last three lines of clause 5.1.12. 252 If this be the correct interpretation of the word 'statement', I do not think there is substance in Dr Chia's submission that clause 5.1.12 of the memorandum of mortgage has no effect here because a 'certificate' has been issued rather than a 'statement.' There could be no confusion as to the purport of the 'certificate;' it is expressly issued under clause 5.1.12 of the memorandum of mortgage. It is one thing to say that a Dobbs clause must be interpreted strictly. It is another to interpret a Dobbs clause in a fashion which frustrates its purpose of expeditiously and finally establishing the debt owed by the customer to the bank. To my mind, to hold the 'certificate' ineffective in the present case because it is not a 'statement' would only achieve the latter and would be a lamentable triumph of form over substance. To the extent that this is inconsistent with the decision of Young J in Shomat Pty Ltd v Rubenstein (supra), I respectfully decline to follow it. Manifest error 253 Dr Chia submits that, in this instance, there has been a manifest error in the calculation of the debt by the Bank such that the Bank cannot rely on the certificate issued by Mr Moulds. He submits that this error is to be found in the following. First, the erroneous calculations of bill reconciliations in the affidavit of Mr Moulds of 23 February 2000. Second, erroneous calculations of interest as shown by the evidence of Mr Malafiej, including his report [Ex D2AJ]. Third, 'refunds' or 'rebates' of interest and other charges made by the Bank to Dr Chia. Fourth, the existence of multiple accounts with undefined transfers and deduction. Fifth, the range of different Bank officers with different skills dealing with the account. [Final supplementary written submissions of Dr Chia. p5 - 6]. I shall deal with these alleged errors seriatim. (i) Alleged errors of calculation in the affidavit of Mr Moulds 254 As to the alleged errors in calculation in the affidavit of Mr Moulds, none are specified by Dr Chia and, having examined the affidavit carefully, I can detect none. The claim of manifest error on this ground is rejected. (ii) Alleged overcharging of interest 255 The first alleged overcharging of interest relates to the imposition by Bank of a 'default rate' of interest on the accounts of Dr Chia between 30 August 1991 and 21 January 1992. The 'default rate is calculated as the 'reference rate' plus 6%, the 'reference rate' being the base rate of interest charged to commercial loans utilised by the Bank according to market conditions. It is clear that that the 'default rate' was charged because Dr Chia was in default under the commercial bill facility after 31 June 1991 [see PX 1/177]. It is also clear that under clause 11 of the Standard Loan Facility the Bank was entitled to do so: [PX 1/180]. Under cross examination by Mr Campbell, Mr Malafeij acknowledged that he was not familiar with the terms of clause 11 when he wrote his report [see transcript p730]. I accept the Bank's submission that the reason for Dr Chia's default is immaterial to the bank's entitlement to charge interest at the default rate. Nevertheless, Mr Moulds accepted under cross examination by Mr Wilson that the reason for Dr Chia's default was that the delay in the ability of Dr Chia to draw down new monies under the new Commercial Bill Facility offered by the Bank on 30 August 1991. This delay was caused by the need to register the business name 'Astro Cinema' in Dr Chia's name rather than his company's name, Siaus Pty Ltd [see transcript p784]. However, I reject the contention that, somehow, the Bank was at fault in this [see supplementary final written submissions for Dr Chia, p4]. The Bank was entitled to delay the extension of facilities to Dr Chia until it was satisfied with the security which was being offered. No error, manifest or otherwise, has been shown here. 256 The second allegation of overcharging of interest contained Mr Malafiej's report [Ex D2AJ] is to be found at pages 10 and 11, where it is said that during the period of January to March 1993 the Bank overcharged interest in the amount of $92, 622.24. In cross examination, Mr Malafiej accepted that these calculations in his report were made on the basis that the correct rate of interest chargeable by the bank was 6.5%. He operated upon the understanding that the rate payable by Dr Chia to the Bank was the bank bill rate, which was 6.5% at the time. However, Mr Malafeij conceded under cross examination that 6.5% was the discount rate at which bank bills were traded and this figure did not reflect the effective rate of interest payable by a private lender such as Dr Chia to the Bank [see transcript p825]. The effective rate of interest also included various fees which the Bank was entitled to charge under Standard Loan Facility: [see PX 1/177]. Accordingly, the allegation, based on Mr Malafiej's report, of an overcharging of interest during the period of January to March 1993 is rejected. This conclusion applies a fortiori for the period from the 1st of March to the 23rd of March 1993 (when a new bill was drawn down) during which Dr Chia's account was in default. Thus, under clause 11 of the Standard Loan Facility, the Bank was entitled to charge the 'default rate' of interest, that is the 'reference rate' plus 6% [see the evidence of Mr Moulds, transcript p788 - 789]. 257 The third allegation of wrongly charged interest made by Mr Malafiej's report relates to the default rate charged by the Bank from March 1996 to April 1997. It is alleged that the Bank overcharged $187, 723.54 in interest during this period. The conclusion (at p12 of D2 AJ] is founded upon two assumptions: first, that the interest rate charged by the Bank was 15.75%; second, that the proper interest rate to be charged was 10.6%. However, in cross examination by Mr Campbell, Mr Malafeij accepted that Dr Chia was being charged interest at the rate of 15.75% on only $4 of his debts and that the vast bulk of the money owed by Dr Chia attracted an interest rate of 12.75%. Further, Mr Malafeij accepted that the figure of 10.6% as the proper interest rate chargeable was only his estimate of what would be 'a fair thing' and had no relation to the contractual arrangements between Dr Chia and the Bank [see transcript p825 - 826]. Accordingly, Mr Malafiej's evidence of an error in the charging of the default rate of interest during March 1996 to April 1997 cannot be accepted and no error has been shown here. (iii) 'Rebate' or 'Refunds' of interest 258 Dr Chia relies as exhibiting error on certain 'rebates' or 'refunds' of interest and debt administration fees made by the bank to Dr Chia in September of 1992. The rebates amounted to $69, 672.00. They consisted of repayment of interest charged to the extent of 2.65% amounting to $50, 712.00 and an adjustment of the debt administration fee, amounting to $19, 960.00. It is said by Dr Chia that the 'rebates' were in fact 'refunds' made by the bank of interest wrongly charged. However, this contention is unsustainable. The evidence of Mr Moulds [see transcript p784 - 785], his affidavit of 23 February 2000 and the documents annexed thereto, indicate that the repayment of interest was a partial concession by the bank in recognition of genuine efforts by Dr Chia to liquidate some of his assets and reduce his indebtedness to the Bank. Properly understood, they in no way evince any manifest error, or any other error, made by the Bank. (iv) Alleged multiple accounts, undefined transfers and deductions 259 The manner in which it is alleged that 'multiple accounts, undefined transfers and deductions' are said to amount to a manifest error is not specified. The supplementary written submissions of Dr Chia refer to four additional accounts opened without consultation with Dr Chia, but do not indicate which accounts were spurious and why. It appears from the affidavit of Mr Moulds that two additional accounts, being accounts AC 241076-16 and AC 241076-02, were opened by the Bank. The evidence contained in Mr Moulds affidavit of 23 February, which I accept, was that the first account was opened to provide a separate account at the time of the draw down of a commercial bill enabling the appropriate terms and conditions for each loan to be applied to the account. Mr Moulds evidence also showed that the second account, called a 'Manager's trust account,' was opened to hold the proceeds of the sale of some of Dr Chia's secured properties pending the maturity of the commercial bill facility to which they are to be applied. I accept that the opening of these accounts was in line with commercial practice and was not done in error or for any colourable purpose. Dr Chia has shown no manifest error in this regard. (v) Range of different bank officers with different skills dealing with the account 260 The allegation of manifest error said to be contained in the range of bank officers, with different skills dealing with the account is not particularised in any manner. The evidence does not disclose any deficiency in the skill of the Bank officers dealing with the Chia account. I reject the contention that any error is shown in this regard. Effect of the 'Dobbs' clause 261 Dr Chia having shown no manifest error, the Dobbs clause must take effect as conclusive evidence as the debt owed to the Bank by Dr Chia. The Bank went further and submitted that the effect of the clause and the certificate issued by Mr Moulds is to neutralise any claims through which Dr Chia may seek to establish an equitable set off against the debt owed to the Bank [Bank's final written submissions, p10]. This submission is contrary to authority and is rejected. In Long Leys Co Pty Ltd v Silkdale Pty Ltd (1992) NSW ConvR 59, 476 at 5, 482 Sheller JA, with whom Priestley and Meagher JJA agreed, said, referring to a certificate issued under a Dobbs clause, 'such a certificate could hardly be conclusive against a claim of equitable set off which operates to absolve the appellant in whole or part from liability.' This is because, as Giles J (as his Honour then was), said in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 710 - 711, '[t]he so-called equitable set off could be better described as an equitable defence and operates to reduce or extinguish the plaintiff's claim.' Accordingly, any rights arising out of any cross-claim which Dr Chia can make good remain unaffected by the clause. Dr Chia's cross-claim 262 A further amended cross claim was filed by Dr Chia on 8 March 2000. The Bank is the first cross defendant. Mr K J Rennie who carried on practice as a chartered accountant, receiver and manager and liquidator is the second cross defendant. The allegations made in the cross claim against the Bank 263 After reciting formal detail of the loans and securities, the pleading against the Bank is generally as follows: (i) The alleged negotiations 264 The allegation is that between August 1996 and May 1997, Dr Chia and the Bank negotiated in relation to a debt reduction scheme and an arrangement whereby when Mr Rennie commenced the process of selling the land and goods as receiver, the Bank would negotiate a settlement of Dr Chia's alleged indebtedness to the Bank. These negotiations are said to have been conducted by Mr Soulos, Mr Williams and Mr Hanley on behalf of the Bank and by Dr Chia, by his respective solicitors Mr Marsden, N.G. Cassim and by his financial consultant, Mr Charles Platcher. (ii) The alleged representations 265 The allegation is that during the negotiations, the Bank represented to Dr Chia that the Bank would be willing to deal with him and to accept a sum of money less than the debt owing by him to the Bank; that the Bank would accept the sum of $2.6 million subject to Mr Rennie completing the tender process; that the Bank would be willing to deal with Dr Chia and to entertain offers after the tender process, in respect of the sale of the land and goods was concluded, that Dr Chia would be informed when the tender process was over and of the last amounts tendered for the land and goods and that the Bank would enter into a process of negotiation with Dr Chia concerning the settlement of his indebtedness to the Bank. [Particulars of the representations are given. They are said to have been partly oral and partly in writing. Insofar as oral, they are said to have been contained in a number of conversations between Mr Platcher on behalf of Dr Chia and Messrs Soulos and Williams on behalf of the Bank.] (iii) The alleged reliance and inducement 266 The allegation is that acting on faith of the representations and induced thereby, Dr Chia obtained approval for finance of $5.8 million from Lawyers Private Mortgages Pty Ltd ("the approval") on 26 January 1997. This is said to have been contained in a letter from Lawyers Private Mortgages Pty Ltd. The allegation is that further in acting on the faith of the representations and induced thereby, Dr Chia did not make a final offer in respect of the land and goods, until he was informed that the tender process was over. (iv) The section 51A allegation 267 The representations are said to have been made with respect to future matters, the allegation being that the Bank did not have reasonable grounds for making the representations within the meaning of section 51 of the Trade Practices Act or section 41 of the Fair Trading Act. (v) The section 52 allegations 268 The allegation is that the representations were misleading and deceptive as the Bank is alleged not to have intended and not to have ever intended, to entertain any offer by Dr Chia in respect of the re-purchase by him of the land and goods or to inform him that the tender process had been concluded, or of the amount of the last tender or to carry out a tender process, or to have intended to enter into a process of negotiation with him. 269 It is further alleged that the Bank well knew that Dr Chia intended and sought to redeem the land and goods, the allegation being that at 2.50 pm on 5 May 1997, the Bank received from Dr Chia by facsimile from his solicitor, an offer to purchase the land and goods known as the Astro Cinema, including the Strathfield and Campbelltown properties for $3.3 million. 270 Dr Chia alleges that without informing him, the Bank on 5 May 1997 accepted an offer from Hoyts Multi Plex Cinema Pty Ltd ["Hoyts"]. 271 The allegation is that in the premises, the Bank in trade or commerce, engaged in misleading or deceptive conduct or in conduct which was likely to mislead or deceive in breach of section 52 of the Trade Practices Act or section 42 of the Fair Trading Act. (vi) Reliance and breach of obligation to negotiate in good faith allegation. 272 The allegation of the existence of and breaches of duties - (a) to ensure that the Bank acted in accordance with the representations; (b) to negotiate with probity, good faith and fairness. 273 The allegation is that the Bank either knew, or ought to have known, that Dr Chia would rely upon the representations and would be induced thereby to act by obtaining approval for finance and by not making a final offer until he was informed that the tender process was over. 274 Dr Chia alleges that the Bank again owed duties to him to ensure that it acted in accordance with the representations earlier set out and to negotiate with probity, good faith and fairness. 275 The allegation is then that the Bank in breach of its duty of care and negligently: (a) Failed to inform Dr Chia that the tender process had concluded. (b) Failed to inform Dr Chia of the amount of the last bid. (c) Failed to provide Dr Chia with an opportunity to make an offer to the Bank higher than the amount offered by Hoyts. (d) Failed to carry out a tender process. 276 The allegation is that Dr Chia suffered loss and damage by reason of these matters. (vii) The alleged unconscionable conduct 277 Dr Chia claims in the alternative, Hoyts having been a customer of the Bank, that in the light of the matters pleaded in paragraphs 1-9 and 10-19 of the cross claim, the Bank in trade or commerce engaged in conduct which was unconscionable within the meaning of the unwritten law from time to time of the State and Territories, in breach of section 51AA of the Trade Practices Act. 278 Particulars which are given are as follows: (a) The Bank is said to have preferred the interest of one of its other customers, namely Hoyts, to that of Dr Chia. (b) The Bank is said in making the representations, and in thereby inducing a reasonable belief and expectation in Dr Chia [consistent with the representations being honoured], to have denied Dr Chia the opportunity to re-purchase the Cinema. (c) The Bank is said to have permitted Mr Rennie to sell the Cinema to its customer Hoyts. (d) The Bank is said to have permitted Mr Rennie to accept an offer from Hoyts knowing full well that no proper and/or complete tender had ever been established by Mr Rennie; that Mr Rennie had sought expressions of interest with respect to the Cinema only; that Mr Rennie was aware that Hoyts had a special interest to eliminate competition in the Mt Druitt market for screening films within Cinemas and knowing full well that Mr Rennie was acting as Hoyts auditor and was thereby in [sic] a conflict of interest. (viii) The fiduciary obligation counts 279 The Bank is said to have owed a fiduciary duty to Dr Chia to avoid placing itself in a position of conflict between its duty to Dr Chia to advise of the result of the tender and to give him an opportunity of beating the highest tender bid and it's interest in selling the Cinema to Hoyts, its client, without the informed consent of Dr Chia. 280 The allegation is that in breach of this fiduciary duty, the Bank failed to advise Dr Chia of the results of the tender, failed to give him an opportunity of beating the higher tender bid, sold the Astro Theatre to Hoyts without his informed consent and demonstrated preference for Hoyts over him by selling the Cinema to Hoyts. (ix) Claim for Excess Interest Charges 281 A further series of claims deal with the subject of alleged excess interest charges; the alleged wrongful debiting of Dr Chia's accounts with particular moneys and the like. These claims are to be found in paragraphs 47-77 of the claim. The allegations made in the cross claim against Mr Rennie (i) The alleged Receivers duties 282 The allegation is that Mr Rennie owed to Dr Chia duties to exercise his powers under the Trader's Bill of Sale and the mortgage in good faith; and a duty of care to sell the goods and the land for not less than market value or alternatively to sell the land and goods for the best price reasonably obtainable having regard to the circumstances existing when the goods and land were sold. (ii) The fiduciary obligation counts 283 Mr Rennie is said to have owed a fiduciary duty to Dr Chia as his agent to avoid placing himself in a position of conflict as between his duty to Dr Chia and his interest in selling the Theatre to Hoyts, without the informed consent of Dr Chia. [Hoyts is generally described as a client or customer of Ernst & Young.] 284 The allegation is that in breach of this fiduciary duty, Mr Rennie sold the Cinema to Hoyts without the informed consent of Dr Chia; used information obtained through [Ernst & Young's] retainer with Hoyts to develop a feasibility proposal for the purchase by Hoyts of the Astro, thereby enabling Hoyts to defeat Dr Chia's refinance proposal and that Mr Rennie preferred the interest of Hoyts to that of Dr Chia in selling the Cinema to Hoyts. 285 The allegation is that Mr Rennie well knew that Dr Chia intended to make an offer or offers in respect of the purchase of the land and goods [the particulars given refer to correspondence passing between the respective solicitors]. 286 The allegation is that at about 5 pm on 5 May 1997, Mr Rennie accepted an offer to buy the land and goods from Hoyts without informing Dr Chia that he intended to do so. 287 Dr Chia alleges that in those circumstances he was denied the opportunity of offering to purchase the land and goods for a price which was greater than that which was offered by Hoyts. 288 Mr Rennie in those circumstances is said to have failed to act in good faith and to have been negligent. 289 Further or in the alternative, Dr Chia alleges that in breach of his duty to act in good faith, and negligently, Mr Rennie failed to obtain the best possible price for the land and goods. 290 The particulars furnished are that Mr Rennie breached his duty to act in good faith and was negligent in that he, by his servants or agents, failed to properly advertise the land and goods for sale; failed to put in place a proper, valid and predetermined process for sale of the land and goods; failed to properly promote the Cinema for sale; failed to give proper consideration to the offer made by Dr Chia; failed to disclose to Dr Chia and to the Bank his conflicting interests, that is to say in dealing with the sale to Hoyts while he was at the same time acting as an auditor to Hoyts; acted as receiver and manager whilst acting as auditor for Hoyts; preferred the interest of Hoyts in the effecting the sale to the interest of Dr Chia and/or the Bank; sold the land and goods at a price when there was available for acceptance, a higher offer; allowed the Bank to interfere in the receivership; caused too swift a sale to be effected in the circumstances, thereby resulting in a sale at an undervalue and preferred the interest of Hoyts for whom he was then acting as auditor, to the interest of Dr Chia and/or the Bank. 291 The allegation is that, well knowing that Dr Chia intended to make an offer to redeem the land and goods after any tender process was completed, Mr Rennie failed to inform Dr Chia that there was in fact no tender process being carried out; failed to ascertain whether Dr Chia was in a position to make an offer in respect of the land and goods which was higher than the sum of $2.3 million offered by Hoyts; failed to have any adequate or proper regard to the requests made by or on behalf of Dr Chia and failed to inform Dr Chia and the Bank that he was acting as auditor of Hoyts. (iii) The wilful default and neglect counts 292 Mr Rennie is also alleged to have been guilty of wilful default and neglect in respect of his acts in or about the sale of the land and goods. 293 Particulars include Mr Rennie's failing to properly advertise the land and goods for sale; failing to instigate and proceed with a proper, valid and predetermined tender process for the sale of the land and goods; failing to properly promote the Cinema Complex for sale; selling land and goods at a price when there was available for acceptance a higher offer; allowing the Bank to interfere in the receivership; causing too swift a sale to be effected in the circumstances thereby resulting in a sale at an undervalue and failing to give proper consideration to offers made, including the offer made by Dr Chia. 294 The allegation is that as a consequence of the wilful negligence and default of Mr Rennie, plaintiff suffered damage. (iv) Further claims in respect of alleged unconscionable conduct relating to valuations 295 The Bank is said to have acted unconscionably and unfairly by valuing the Cinema complex in 1991 at $3.5 million whereas the true value of the Cinema in 1990 [sic] is said to have been $5.6 million. The allegation is that the effect of the Bank's lower valuation was to reduce Dr Chia's borrowing capacity and to have restricted his working capital. The Bank is said to have required that he sell certain city properties. 296 The Bank is said to have acted unconscionably and unfairly by valuing the Cinema complex in 1994 at $2.2 million whereas the true value of the Cinema in 1995 [sic] is said to have been $6.5 million. 297 The Bank is said to have acted unconscionably and unfairly by valuing the Cinema complex in 1996 at $2.2 million whereas the true value of the Cinema in 1996 is said to have been $3.5 million. 298 The allegation is that the effect of the Bank's lower valuation was to reduce Dr Chia's borrowing capacity and restrict Dr Chia's working capital and to have meant that he was unable to update or modernise the Cinema. 299 The allegation is that the effect of the Bank's lower valuation was to limit his capacity to service the loan. 300 Dr Chia then pleads that following completion of the construction of the Cinema in 1991, the Bank failed to consolidate the loan and thereby charged him with a higher rate of interest than should have been applicable. 301 Dr Chia alleges that the Bank acted unconscionably towards him by withdrawing the sum $1.28 million from two accounts without his knowledge or consent. Claims made against Mr Rennie in relation to the management of the business (i) The alleged breaches of duty 302 The allegation is then made that in the premises Mr Rennie owed a duty of care and/or duty to act in good faith to Dr Chia to act in accordance with the terms of his appointment and owed a duty to properly manage the business of the Cinema. 303 The allegation is that Mr Rennie, by his servants or agents, acted as a manager of the business of the Cinema and operated the business between 7 February 1997 and the date of completion of the sale of the Cinema and, in so doing, breached his duties of care and/or duty to act in good faith or to act in accordance with the terms of his appointment. The breaches of these duties are said to be the failure to properly manage that business. 304 The particulars given assert that Mr Rennie by his servants or agents failed to maintain the supply of good quality films to be shown to the public in the Cinema; failed to ensure that the public telephone number to the Cinema remained connected which caused the booking number to the Cinema to be disconnected thereby reducing the trade of the Cinema; failed to properly advertise the land and goods for sale; failed to put in place a proper, valid and predetermined tender process for the sale of the land and goods; failed to properly promote or promote at all, the Cinema complex for sale: failed to access properly, or at all, proposals and offers submitted by interested parties for the land and goods; effected too swift a sale, as a consequence of which the land and goods were sold for much less than the best possible price, and/or less than their market value; failed to independently pursue negotiations in respect of offers and expressions of interest by other interested parties and allowed the Bank to interfere in the conduct of the receivership. 305 Alternative claims are that in further breach of his duties of care and/or to act in good faith to properly manage the business of the Cinema, and through Mr Rennie's negligence, Mr Rennie by his agents and servants, failed to maintain or properly maintain the supply of good quality films to be shown to the public in the Cinema and/or failed to ensure that the public telephone number to the Cinema remained connected which again is said to have caused the booking number to the Cinema to be disconnected and thereby to have reduced the trade of the Cinema. 306 The allegation is that by reason of these breaches of Mr Rennie's duty of care, of his duty to act in good faith and by reason of his alleged negligence, Dr Chia suffered loss and damage which comprised loss of revenue of the business. (ii) The claim for an account 307 There are then a series of further claims going to questions of the proper accounting by Mr Rennie and the Bank to Dr Chia in respect of moneys received and dispersed by them as from the 7 February 1997, the date upon Mr Rennie was appointed receiver of the goods and receiver and manager of the land. The consequential claims 308 Further or in the alternative and by reason of the above matters, Dr Chia pleads that the Bank's entitlement to payment by Dr Chia of the moneys claimed in the summons is "impeached" by Dr Chia's entitlement to receive such amounts in respect of which the Bank is found liable to account, or to pay compensation. As a consequence Dr Chia alleges that he is entitled in equity to set off any sums due by him to the Bank against the amounts in respect of which the Bank is found liable to account, or to pay compensation to him. 309 Allegations are made that as a consequence of the alleged breaches by the Bank of section 52 of the Trade Practices Act or alternatively of section 51AA of the Trade Practices Act and/or as a consequence of the breaches by Mr Rennie of his alleged duties to act in good faith and/or his alleged wilful negligence and default, Dr Chia has suffered loss and damage. [The particulars of such loss are asserted to be Dr Chia's loss of the opportunity to acquire the land and goods and thereby his being deprived of the capital value of the land and of the income from the business.] The second period of time 310 As recited above, the second period of time concerns the negotiations between Dr Chia and his representatives and the State Bank of NSW during the period of 7 February 1997, the date of the appointment of the Receiver, Mr Rennie, to 5pm on 5 May 1997, the date of the sale of the Astro Cinema to Hoyts. Key figures in these negotiations were: Mr Charles Platcher, financial consultant to Dr Chia; Mr Philip Soulos, officer of the State Bank of NSW with responsibility for the management of the Chia account; Mr Ross Williams, officer of the State Bank of NSW who acted for a period in the absence of Mr Soulos; Mr Paul Hanly who acted as a consultant to the State Bank of NSW and Mr David Low of Minter Ellison who acted for the State Bank of NSW. A number of other figures of lesser importance in the determination of the proceedings will appear throughout the examination of the evidence. In particular, these persons were involved in the attempt by Dr Chia to obtain alternative sources of finance. 311 The Receiver of the Astro Cinema, Mr Rennie and his employed accountants, Mr Wharlow and Mr Warbanoff also appear. Their evidence is of importance to the second and the third periods of time. In particular, Mr Warbanoff kept a detailed day book [exhibit D2 AR] in April and May of 1997 in which he recorded the meetings he attended, the telephone discussions in which he participated and his discussions with Mr Rennie. The contemporaneous nature of the day book entries permitted the notes to be used as a convenient vehicle for testing the recollection of a number of witnesses. Structure adopted for the evidence with regard to the second period of time 312 The second period of time involves a day-by-day examination of the evidence relating to the negotiations between the Bank and Dr Chia during the first five months of 1997. The chief vehicle adopted in this judgment for the examination of that evidence is a comparison of the evidence of the principal negotiator on behalf of Dr Chia, Mr Charles Platcher with that of Mr Philip Soulos on behalf of the Bank. 313 In early 1997 Mr Platcher, a financial consultant, was an employee of GrowthCorp Australia Pty Ltd [GrowthCorp]. Dr Chia retained the services of Mr Platcher and GrowthCorp on 5 March 1997 to negotiate with the Bank to finalise Dr Chia's banking relationship with the Bank and to obtain the necessary funding to discharge the debts and obligations to the Bank of Dr Chia and his associated companies. Mr Platcher's evidence which I accept on this particular proposition, was that throughout the period when he negotiated with the Bank, he reported verbally to Dr Chia, usually by telephone, as to the content of his conversations with officers of the Bank. 314 The convenient course in setting out the alternative versions of the conversations given in evidence by Mr Platcher and by Mr Soulos is, whilst covering a number of events including the receiver's negotiations, to set out Mr Platcher's version and: (a) To underline within it, those sections which Mr Soulos accepts as correct. (b) To insert within parentheses, those sections which Mr Soulos denies. (c) To follow each section with Mr Soulos' version. 315 This will then be followed with an examination of related evidence given by a number of witnesses generally having been involved at different times in the Receiver's attempts to secure offers for the freehold on which the Cinema was constructed, and for the Cinema business and ancillary assets. This evidence going to the third period of time overlaps with the evidence going to the second period. 316 Before proceeding to that day-by-day examination, it is convenient to first examine the evidence of Mr Paul Hanly as it relates to but is earlier than the period of time which is of particular concern. Evidence of Mr Hanly 317 Mr Paul Hanly is a consultant to the Asset Management group of the Bank. 318 He gave evidence that on 24 September 1996 he had a telephone conversation with Dr Chia and his then solicitor Mr Marsden in which Dr Chia had asked what the bank would accept in compromise of his debt and in which Mr Hanly responded: "Without commitment or prejudice to the Bank's existing rights, if the Bank received a firm and a funded offer, perhaps assisted by family or friends, in the sum of $3.4 million, then I would be inclined to recommend to the senior management of the Bank that they accept it". 319 This evidence is consistent with Mr Hanly's contemporaneous typed note. 320 In relation to the meeting of 1 October 1996 Mr Hanly denied that he had said to Dr Chia that if Dr Chia could find approximately $3.4 million, the Bank would forgo the balance of the debt 321 As to this meeting Mr Hanly's evidence was that words to the following effect were included in the lengthy meeting: Mr Hanly "Before we start I would like to note that all discussions we have today are strictly on a without prejudice basis to the Bank's rights and that I'm not represented by a solicitor... Your offer of $3 million to pay the Bank in full and final settlement and to release its security has been rejected. The Bank has decided to quit the relationship with Dr Chia as it regard it as unsatisfactory. However, if you wish to resubmit an offer in the sum of $3.4 million then I would recommend it to senior management. I would be reasonably confident that the Bank would accept $3.4 million, but I must say that this is not a commitment and I cannot guarantee that the bank will approve it Mr Marsden: "There is no chance that Chia could refinance the debt at $3.4 million. In any event the Bank would not realise $3.4 million on its securities. I would say that the security is worth 2 million to $2.5 million maximum. Your value of the theatre is out of the market.. If Dr Chia was inclined to compromise his other assets, what would the Bank require Mr Hanly: "The bank would require representations and warranties with supporting statements covering all assets, including discretionary benefits from trust, offshore assets or trusts etc. The Bank would also require continuing information obligations on Dr Chia to allow the bank to review the matter as if it were an "assets betterment" situation Mr Marsden "I understand that. That can be put together at short notice if need be ... Mr Hanly "If the Bank is going to compromise of it's debts, that compromise would have to include the sale of Dr Chia's house..." 322 Under cross-examination Mr Hanly was asked whether it was his view in October 1996, that there was little prospect of recovery, apart from the land and assets of Dr Chia. His answer was as follows: "There were also other, when you say land and assets, there was a Trader's Bill of Sale or similar security over assets connected, which were not real property, but which were connected with the operations of the Cinema, which meant there was a possibility or probability of the Cinema being sold as a going concern. There was also, I understood that Dr Chia, Dr Chia had potential for earnings as a GP, and that his wife, my understanding at that stage was that his wife was also a doctor and would have similar prospect of earnings". He also gave evidence that the statement made in his letter of 14 October 1996 that he would support and expect but could not assure Dr Chia of approval of a compromise repayment of $3.4 million, was made in good faith. [Transcript page 983-984] 13 February 1997 323 On this date Mr Fuller, a finance broker, whose detailed evidence is dealt with later in the Judgment, wrote to Branelly Ltd ["Branelly"] explaining that he had a client looking to finance and to extend his cinema complex in Sydney. Mr Fuller had in about January 1997, been approached by an accountant, Mr Bill Thompson, acting on behalf of Dr Chia. Mr Thompson was with Kew Partners Consulting Accountants and approached Mr Fuller seeking funds to permit Dr Chia to complete a further four screens at the cinema complex. In the course of this letter Mr Fuller stated that Dr Chia was now in the position that he had a payout figure of $3.4 million; ["The Bank have advised Dr Chia that they will accept a payout figure of $3.4 million"]. He asked whether Branelly had a lender willing to look at the application. 25 February 1997 324 On this date Mr Mogridge of Lawyers Private Mortgages Pty Ltd ["Lawyers Private Mortgages"] furnished a mortgage submission "for your perusal" to an unidentified recipient. [Exhibit D2l]. The funds statement section of the submission was in the following terms: Funds Statement: Required Available To raise finance against a residential property situated at 19 Barker Road, Strathfield $1,200,000 and commercial property at: Astro Cinema Complex, Cnr North Road and Mount Street, Mount Druitt present value $3,600,000 To payout existing loan to State Bank of NSW $2,990,000 TOTAL $2,990,000 $4,800,000 325 The submission included under the subheading "background", the following: "Dr Chia and his wife are both medical practitioners. They have developed commercial property in Sydney for 10 years and built the Astro Complex five years ago..." 326 The letter concluded by requesting "your confirmation that funds are available for this transaction". 327 Somewhat surprisingly, Mr Fuller on being shown this document was unable to assist in terms of the addressee, believing at first that this must have been Dr Chia. Yet ex facie the document appears to have been prepared to be sent to a financier. 26 February 1997 328 On this date Messrs McCarthy Durie Ryan and Neil ["McCarthy Durie"], a Queensland firm of solicitors, wrote to Dr and Mrs Chia advising them that by virtue of an introduction from Lawyers Private Mortgages , "your request for a loan facility has been approved. The approval is not unconditional until the making of the advance, the principal terms of which are outlined below... This letter is not to be construed as a binding agreement to make the advance. Such agreement shall only come into existence upon the making of the advance which may be delayed, or may not occur at all, unless all of the lender's requirements are satisfied promptly." [PX 6/1693] 5 March 1997 329 On this date Mr Platcher wrote to the Bank [to the attention of Mr Soulos] advising that GrowthCorp acted for Dr Chia in the capacity of business finance consultants. Their retainer, according to this letter, was for the purpose of procuring amicable arrangements between Dr Chia and the Bank, by means of negotiations without the need for continuation of Court proceedings which were currently in place. [This was a reference to proceedings then in place instituted by the Bank seeking a confirmation of the Receivers appointment.] The letter advised inter alia: "We understand our client is indebted to the Bank for the sum of approximately $4 million. We request the Bank to give consideration to the values of the secured properties offered, and the available serviceability. We consider it quite unrealistic on a commercial basis to raise the required funding to meet the Bank's payout figure, and suggest special consideration be given to our client in relation to today's value of Astro Cinema and the desired level of serviceability necessary to sustain the required future borrowings. Our company is in a position to procure a firm letter of offer for the sum of $2.6 million to discharge our client's total indebtedness to your Bank … Should the Bank accept our proposal, the Bank would have a substantial shortfall in their lending, however we believe it would be blatantly untruthful to suggest given the current financial status of our client that any further financial accommodation can be acquired by him. Admittedly this is our personal contention." [PX 6/184 1] 6 March 1997 330 On this date Mr Soulos responded to Mr Platcher's letter stating inter alia: "The content of your facsimile has been noted and I confirm, on an entirely without prejudice basis, that the Bank remains open to negotiation with a view to settling this matter. In this regard you will appreciate that for appropriate consideration to be given to any proposal it will need to be appropriately supported by unconditional confirmation relative to the sources of possible finance ". [PX 6/1850] [emphasis added] 331 In cross examination, Mr Soulos was referred to his letter of 6 March 1997 to Mr Platcher. Mr Soulos was asked and answered as follows: Q. "Do we take it that the time you wrote that letter you were positively disposed to negotiating a settlement with Dr Chia? A. "I was expressing the situation that the Bank remained open to negotiation with a view to ultimately settling the matter. It was - it can be looked at as an invitation or showing our availability to, to discuss. We were ready to discuss any - any solution Q. "And the statement that the Bank was open to negotiation, was it made by you in good faith at the time? A. "Certainly Q. "Was it made in the context that at that time you believed the theatre might be difficult to sell? A. "The - open to negotiation regardless of the situation, the Bank remains open to negotiation" [Transcript page 598-599] 332 Mr Soulos was asked and answered as follows: Q. "Did you mean by saying that, 'The Bank remains open to negotiation', that it would be prepared to become involved in a process of dialogue or negotiation with Mr Chia? A. "Certainly Q. "Did you understand that process to involve - depending on the particular case - the receipt of offers and the communication of a response, either by way of acceptance, rejection, counter offer or 'We are too far apart, we can't reach agreement'? Is that the type of process you envisaged involved in the process of negotiation? A. "The negotiation would take the form of Dr Chia requesting the Bank to compromise its debt Q. "In your mind that involved the process of offers being put by Dr Chia, and the Bank responding to those offers? A. "Yes, but not necessarily with a counter offer Q. "No, but it did involve the communicating of a response, either, "That is not enough" or "You will have to pay more", or "We are too far apart", something like that? A. "Yes Q. "-- -- the process of communication? It does involve, I would suggest to you, the understanding by each party at any particular point in time, where they stand in relation to the position of the other party in relation to where offers and acceptances stand? A. "I don't think so, no. The Bank wanted all of its money back, not just a portion of it" [Transcript page 600] Q. "In the case of an offer being put by Dr Chia, the process of negotiation involved on the Bank's part either communication of acceptance, rejection or, 'we will get back to you'. It involved the communication to Dr Chia of a response to his offer? A. "Yes, and maintaining the communication lines Q. "I would suggest to you that a process of negotiation between the Bank and Dr Chia would not involve for example the sale of one of his assets to a third party [without] reference to Dr Chia, what do you say about that? A. "The Bank was operating in a recovery mode, and operating under the rights under the securities provided to it, and would be quite justified in disposing of them whichever way it saw fit. Q. "Can I suggest to you that in the example I have given to you, the sale of one of Dr Chia's assets to a third party, without reference to Dr Chia, in circumstances where he believed he was still under process of negotiation, would amount to a lack of good faith on the part of the Bank. What you say about that? A. "I don't agree. The recovery process was well advanced and the Bank and rights under its securities, and in my view it had no obligation to tell Dr Chia. Q. "If the process of negotiation involved the putting of an offer by Dr Chia, and the communication by the Bank of its response to that offer, the sale by the Bank of an asset without communicating any response would be contrary to engaging in good faith in a process of negotiation, what you say about that? A. "I would say that you could be correct, depending on what stage of proceedings you are talking about. We must appreciate that negotiation with Dr Chia had been proceeding for what we could say to be two years without result. The negotiations were fairly exhausted by that point in time" [Transcript page 601] 333 Mr Wilson put to Mr Soulos a matter which is clear from the evidence in any event. This is the fact that Hoyts offer was never communicated to Dr Chia. [Transcript page 602] 334 Mr Soulos accepted that it would have been fairly straightforward to translate an offer of $2.3 million for the theatre into what it amounted to by way of offer for all of Dr Chia's assets. [Transcript page 603] 7 March 1997 335 On the evidence of Mr Platcher [statement paragraph 6], a conversation took place on this occasion to the following effect: ["Mr Soulos: 'The Bank would be prepared to negotiate a settlement with Dr Chia, but it would be a requirement that the offer he puts to the Bank be supported by confirmation of finance as stated in my letter.'"] "Mr Platcher: ' We are confident of obtaining the relevant finance and will have two sources, one a private funder, and St George Bank the other .'" ["Mr Soulos: 'You understand anything we discuss it is on a without prejudice basis. You understand that this is a credit committee matter and that any decision on this file will be made by a full committee. I have no authority to make a final decision.'" "Mr Platcher: 'Yes, I understand that.'" "Mr Soulos: 'The Bank remains open to negotiation with a view to settling this matter, however, any offer submitted on Dr Chia's behalf would need to be appropriately supported by conclusive evidence as to the source of funds.'"] 9 March 1997 336 On this date Mr Platcher, on his evidence informed Mr Soulos that he was confident of obtaining the funding for [Dr Chia] at the office of the St George Bank. 337 On Mr Platcher's statement a general conversation took place between Mr Soulos and Mr Platcher regarding Mr Kolovos' previous association with State Bank Asset Management section and the following further conversation took place between himself and Mr Soulos: "Mr Platcher said: 'I have an application with a solicitor, Mr Robert Myles, of Marks Hazzard and Bova, and I am confident that I am able to get my client to withdraw from the proceedings regarding the validity of the appointment of your receiver. I will get Mr Cassim to confirm this to your solicitor immediately. Phillip, I believe that PT will be more than happy to settle the matter amicably. I think from our discussion that we will have to rely on the integrity of ourselves, that this (meaning the withdrawal of the current proceedings) will help the Bank to consider a settlement rather than Court proceedings.'" ["Mr Soulos: 'Well, I think that you have made the right decision in this matter by doing this. Charles Platcher, I leave it to you. Thank you.'"] 338 Mr Soulos agrees that Mr Platcher said words to the following effect: "Mr Platcher: 'I am confident of obtaining the funding for PT and I have with PT attended at the office of St George Bank for a meeting with Jim Kolovos. A general discussion was about Mr Kolovos' previous association with the State Bank Asset Management section. I have an application with a solicitor, Mr Robert Miles of Marks Hazzard and Bova and I am confident that this application will be given strong consideration. I can get my client to withdraw from the proceedings regarding the validity of the appointment of your receiver. I will get Mr Cassim to confirm this to your solicitor immediately. Phillip, I believe that PT would be more than happy to settle the matter amicably. I think from our discussion, you will have to rely on the integrity of ourselves, that this will help the Bank to consider a settlement rather than Court proceedings.'" 339 Mr Soulos asserts that he said words to the following effect, rather than the statement as to Mr Platcher having made the right decision set out in Mr Platcher's version of the conversation: "Mr Soulos: 'The legal options are available to Dr Chia and the choice to proceed or otherwise is entirely his decision. However, in my opinion Dr Chia has little to achieve by opposing the appointment given his blatant inability to service his debt or to repay the Bank in full. I feel that Dr Chia is wasting money and effort with little to be gained, however, the choice is his. I am not too impressed by the time that I'm going to waste in attending Court proceedings that I consider are unnecessary. So if you are trying to settle this matter rather than go to Court, then in my mind, that's the right way to go.'" 21 March 1997 340 On this date McCarthy Durie wrote to Dr and Mrs Chia advising that by virtue of an introduction from Lawyers Private Mortgages, "your request for a loan facility has been approved". The letter was headed "Proposed Loan Facility $2,850,000.00". 341 The letter advised that "the full terms and conditions of the Loan Facility shall be set out in the security documents which will prevail over this letter and any other negotiations...". The attachment to the letter [the letter and attachment became Exhibit PX D2a], identified the loan amount as $2,990,000. 27 March 1997 342 In Mr Platcher's statement he gives evidence that on this date he had a conversation with Mr Soulos to the following effect: "[Mr Platcher: 'How is the proposal proceeding with the Bank regarding amicable settlement?'"] ["Mr Soulos: 'Has PT told you about the property at Campbelltown?'"] ["Mr Platcher: 'I have no knowledge of the property at Campbelltown as my objective was to obtain finance utilising what I believed to be the remaining securities - the Strathfield property and the Cinema. These are the two properties I have cited on file papers and correspondence in my possession.'"] ["Mr Soulos: 'This is something PT has not told you about and you better go back and have a talk to him about that particular property which you are asking the Bank now to release for full and final settlement of $2.6 million.'"] "Mr Platcher: ' What do you think the property at Campbelltown would be worth as I may be able to acquire funding for the property .'" ["Mr Soulos: 'Well the Bank would be looking for at least $140,000 to release that property in the full and final settlement offer.'"] 343 On Mr Soulos' version of this discussion, words to the following effect were said: "Mr Platcher: 'How are things proceeding?'" "Mr Soulos: 'Are you aware that the Bank retains a mortgage over the property at Campbelltown which Dr Chia and his wife operate their surgery. No consideration had been given to that property in your proposal to the Bank. If you are asking the Bank to consider full and final settlement, then this property should be included in any proposal.'" "Mr Platcher: 'No, I wasn't aware of that property. I am only operating on information Dr Chia has provided to me. I'll have to refer to my client.'" "Mr Soulos: 'I think that you should refer to PT, given that the Bank has been asked to consider a formal and final settlement.'" 344 As to Mr Platcher's version of the conversation dealing with the $140,000 figure, Mr Soulos denies that the sentence was said. Rather Mr Soulos' evidence was that Mr Soulos had said: "The Bank's valuation at $140,000 may be somewhat dated by there may not have been much movement in the area." 345 Mr Platcher sets out in his statement evidence of a further conversation which he says he had with Mr Soulos on the same day, in which words to the following effect were said: "Mr Platcher: ' I have had a valuer assess the property at Campbelltown and I believe the maximum that could be acquired in funding would be no more than $150,000. '" ["Mr Soulos: 'What about the business of the surgery?'"] "Mr Platcher: 'My financier would not be concerned about the business but only the security of the property which would only allow as said $150,000.'" ["Mr Soulos: 'What you need to do Charles is to provide me with an all encompassing proposal of your offer to the Bank and also the supporting firm letter of offer (by which Mr Platcher understood him to be referring to a letter of offer of finance). It would also be a good idea if you could provide me with a statement of position of PT and his wife.'"] "Mr Platcher: 'I shall do that for you immediately.'" 346 Mr Soulos' recollection of the exact date of the telephone discussion is in late March is not precise - see paragraph 17 of Mr Soulos' statement of May 1997. He does recall participating in a telephone discussion with Mr Platcher shortly after his previous discussion with Mr Platcher on 27 March 1997. He agrees that Mr Platcher said: "I have had a valuer assess the property at Campbelltown and I believe the maximum that could be acquired in funding would be no more than $150,000." 347 Mr Soulos denies having said "what about the business of the surgery?" Rather his recollection is that he said words to the effect "has any value been placed on the surgery business?" 348 Mr Soulos does not recall whether Mr Platcher had said "my financier would not be concerned about the business of only the security of the property which would only allow as said $150,000." 349 In relation to a question of receiving a further all encompassing proposal Mr Soulos' evidence is that he said words to the following effect: "What you need to do, Charles, is to provide me with an all encompassing proposal and it should be appropriately supported relative to the source of funds, together with a full and complete financial position of Dr Chia and his wife and any company in which they are involved, together with a signed statement of assets and liabilities for them both." Mr Soulos recalls Mr Platcher then saying that Mr Platcher would get onto it. 1 April 1997 350 On 1 April 1997 [the letter is recorded as being written on 1 March 1997 but the parties are agreed that it was written on 1 April 1997], Mr Platcher again wrote to the Bank and now advised inter alia: "It is pleasing to note consideration has been given to settling our client's matter. Our company has arranged finance for the aforementioned securities [the Astro Cinema, the Strathfield property and Campbelltown (Ruse) properties were identified]. As advised total financial package is in the sum of $2.750 million. Our lenders are in a position to settle immediately on confirmation from your Bank that it is prepared to settle at the nominated sum. It would be appreciated if firm letters of offer are available (copy attached). We therefore seek your Bank's confirmation that it would accept the sum of $2.750 million for the release of the securities held. Our lender can and shall effect settlement within seven days on receipt of confirmation that full and final settlement can be effected. It is further appreciated that your Bank requires confirmation of our lending source. We suggest a meeting with yourself to address all such requirements that would satisfy your Bank that this offer is a genuine one..." [PX 6/1913] 2 April 1997 351 On this date Mr Platcher, according to his statement, spoke with Mr Soulos and words to the following effect were said: "Mr Platcher: 'Have you received a facsimile from me of 1st April?'" "Mr Soulos: 'Yes, I have received your fax.'" "Mr Platcher: 'Have you received the statement of position of my client?'" "Mr Soulos: 'Yes I have and, as I said to you Charles, as soon as the Bank has made a decision I will provide you with a response to your facsimile." "Mr Platcher: 'Do you think the Bank will accept the proposal?'" "Mr Soulos: 'Well there is a good chance of acceptance as this figure was put to senior management and they did not express any negative thoughts. Well, they did not really baulk at it - that's what I can tell you so there is a good possibility that it would be accepted. I really can't tell you until a decision is made and, as I said, there is a good chance for it to be accepted. We will just have to wait and see.'" "Mr Platcher: 'I do hope the Bank can settle this matter as it would be in everyone's mutual interest. We believe our assessment of the securities would be very close to what could be received.'" "Mr Soulos: 'Well I really must go now as I have a lot of other files to deal with.'" 352 Mr Soulos agrees that he had a telephone conversation on 2 April 1997 but denies that it was in words to the effect set out in Mr Platcher's affidavit. On Mr Soulos' version the conversation was to the following effect: "Mr Platcher: 'I am sending you a fax which offers[ ?????] million. Cannot cause related to discuss it[?????]" "Mr Soulos: 'Sure'". 353 Mr Soulos also recalls a telephone conversation with Mr Platcher before the tender process was completed in which words to the following effect were said: "Mr Platcher: 'Have you received the facsimile?'" "Mr Soulos: 'Yes, I have it here.'" "Mr Platcher: 'Have you received the statement of position of my client?'" "Mr Soulos: 'Yes, I have.'" "Mr Platcher: 'Well, what do you think just between you and me?'" "Mr Soulos: 'Well, Charles, between you and me the offer has been outlined to the appropriate authority for decision in the Bank and my understanding is that the Bank has not particularly baulked at the figure. However, the decision has been made that the tender process will run its course prior to an ultimate decision. We'll just have to wait and see, okay.'" "Mr Platcher: 'I hope that the Bank can settle this matter. I think that we're pretty close to the valuation.'" "Mr Soulos: 'Okay, Charles, I'm very, very busy I must go.'" 4 April 1997 354 According to Mr Platcher's statement, on this date he had a conversation with Mr Soulos in which words to the following effect were said: "Mr Platcher: ' Has the Bank come to a decision on our proposal? The lender is anxious to settle this matter and does not want to hold funds for a lengthy period of time.' " ["Mr Soulos: 'Well, Charles, you know the Receiver has commenced the tender process and this matter will be going before the Credit Committee of Friday and a decision will be made. The Credit Committee meets every fortnight and we will know then.'"] "Mr Platcher: ' Has the Receiver received any offers on the Astro ?'" "Mr Soulos: ' I don't know of any firm offer that have [sic] been received but there are interested parties .'" "Mr Platcher: 'Would not the Bank want to accept our client's proposal to settle this matter to avoid legal proceedings? You know we have asked the solicitors (Mr Cassim) to withdraw proceedings on the appointment of the Receiver and Nick Cassim was not happy with me for doing this .'" "Mr Soulos: 'Well, that was a real waste of time and it was not going to achieve anything .'" "Mr Platcher: ' I agree with you especially if a settlement can be achieved. I personally think PT is wasting his money especially if negotiations with your Bank can provide a settlement .'" ["Mr Soulos: 'Why don't you ring me in a week and I will let you have our decision.'" "Mr Platcher: 'I hope an amicable resolution can be achieved by settling this matter.'"] 355 In relation to so much of the conversation as concerns the matter going before the Credit Committee, Mr Soulos' version of what was said by himself is as follows: "Charles, I have indicated to you on a number of occasions that the decision has been made that the tender process will run its course before any decision on your proposal is made." 356 Mr Soulos cannot recall when, but does recall several telephone conversations with Mr Platcher containing words to the following effect: "Mr Soulos: 'The receiver and manager is orchestrating the tender process, not the Bank.'" "Mr Platcher: 'I understand that.'" 11 April 1997 357 According to Mr Platcher's statement, he spoke to Mr Soulos on this date in terms to the following effect: "Mr Platcher: ' Has the Bank made a decision on our proposal ?'" "Mr Soulos: ' I won't know until this afternoon. Ring me at about 4pm .'" 358 Mr Platcher asserts that he telephoned Mr Soulos at 4pm and held a conversation with him during which words to the following effect were spoken: "Mr Platcher: ' Has the Credit Committee made a decision on this matter .'" "Mr Soulos: ' Not as yet. Ring me at 5pm .'" 359 Mr Platcher asserts that he telephoned Mr Soulos at 5pm and held a conversation with him during which words to the following effect were spoken: "Mr Platcher: ' Any news on the decision of the Credit Committee ?' "Mr Soulos: ' The person who attended the meeting is not back in the office and he is the one that would have knowledge of the decision. Well it is getting late now. Why don't you ring me on Monday morning ?'" 14 April 1997 360 On this date Mr Fuller wrote to Mr Mogridge stating that he had been advised by Mr Platcher that the Bank had agreed to settle the mortgage although it was waiting for a report to confirm a number of details. He asked Mr Mogridge to telephone both Mr Platcher and Dr Chia to satisfy them that settlement would take place within the next few days. 361 On the same day Mr Platcher, according to his statement, telephoned Mr Soulos where a conversation to the following effect took place: "Mr Platcher: ' Was the decision of the Credit Committee to accept our offer ?'" ["Mr Soulos: 'The Credit Committee has accepted your offer subject to the completion of the tender process by the Receiver.'" "Mr Platcher: 'Well, if they have accepted our offer, why do we have to wait for the tender process to be completed?' "Mr Soulos: 'The Receiver has a job to do and until the tender process is completed I cannot advise you formally. So let's just leave it at that.'"] "Mr Platcher: 'Well how long do you think they will take to finalise their offers? Are there any firm offers?'" "Mr Soulos: ' There are no firm offers that I am aware of that have been received by the Receiver. All I can tell you is that there are interested parties that are conducting due diligence and they would need to finalise their offer for the tender process to be completed .'" "Mr Platcher: 'Well, they are taking their time in getting firm offers and this could go on for ever and a day. As I said, Phillip, our lender has been holding these funds for a substantial period of time and they are not going to hold on much longer. I have told them that the Bank is waiting for the report from the Receiver and it is being done as urgently as possible .'" "Mr Soulos: ' Well if they cannot hold the funds that is just bad luck . The Receiver has been appointed and the tender process has to be finalised.'" "Mr Platcher: 'Well do you think it is going to be much longer ?'" ["Mr Soulos: 'I really don't think so. It should be finalised within a week. I will ring you back after a week.'"] 362 In contradistinction to Mr Platcher's version of the section of the conversation dealing with the Credit Committee having accepted the offer, Mr Soulos' evidence is that words to the following effect were said: "Mr Soulos: 'The decision was made by the Credit Committee for the tender process to run its course prior to any consideration being given to your offer." "Mr Platcher: 'Surely media offers on the Cinema would be in by now.'" 363 Mr Soulos asserts that after he had said "well if they cannot hold the funds that is just bad luck", he added "I appreciate that the funds may disappear, but the receiver has been appointed and the tender process must run its course." 364 In contradistinction to Mr Platcher's version that Mr Soulos had said that the tender process should be finalised within a week, Mr Soulos' evidence was that he had said "you would think that it would be finalised shortly." 17 April 1997 365 On this date Mr Warbanoff had conferred by telephone with Mr Soulos. Mr Warbanoff's day book summarises the conversation at page 3 [exhibit D2AR]. The conversation involved a reporting by Mr Warbanoff of his meeting with another prospective purchaser, Mr Dunlop. Mr Warbanoff gave evidence that Mr Soulos had referred to Dr Chia as 'not flavour of the month' in the course of conversation [Transcript page 35]. 366 Mr Warbanoff's evidence was that at this time he and Mr Soulos were effectively discussing or looking at "say a Dunlop bid on the basis that we could get 2.1 for the Cinema and then there would [be] the third party property with a value of, you know, $950, 000 then comparing that versus a 2.7 all-encompassing offer from Dr Chia." 367 Mr Warbanoff gave evidence that Mr Soulos in this conversation said to him words to the effect "The State Bank wants tender process to run its course. Bank almost prefer not to sell to Chia" [Transcript page 36] 368 Mr Warbanoff was asked and answered as follows: "Q. "Did he amplify why he had said that to you, do you recall? A. "From my recollection, it was effectively - I wanted to see the tender process to see what price they could get effectively. Obviously if they could get a higher price through the tender process, that would be more favourable to the Bank and to the debtor, but my understanding was that there'd been promises previously that hadn't been honoured and there were concerns about credibility. [Transcript page 36] 21 April 1997 369 Mr Platcher gives evidence in his statement that on this date he spoke with Mr Soulos in words to the following effect: "Mr Platcher: ' Has your Receiver finalised the offers ?'" "Mr Soulos: ' No they are still dealing with the interested parties. As I said before I cannot tell you any more till the tender has been completed .'" "Mr Platcher: ' Our lender is getting really concerned. They do not believe the Bank is prepared to settle this matter .'" ["Mr Soulos: 'If your lender is not prepared to wait you will just have to get another financier to fund this deal.'"] "Mr Platcher: ' Have you received any firm offers on the Astro ?'" "Mr Soulos: ' No, I said to you that there are interested parties that are still providing their offers, and I cannot tell you any more. We have really gone over this a number of times. I told you I will ring you when I hear something .'" "Mr Platcher: ' I am a bit concerned that the lender is going to take some action against myself as they have relied on this matter being settled which I thought would have been completed by now. I think your Receiver has had plenty of time for offers to be made, since the tender process was completed on 7th April. If they have any firm offers, they should have been received by now. They should give some consideration to our position, especially when I have told you that the lender is anxious to release these funds that have been in their trust account for some time now. I really was not aware that PT was discussing this with the lender from February of this year, so the lender has shown a lot of consideration to us .'" "Mr Soulos: ' Well, the Receiver is dealing with this matter and they are aware of the urgency of it . [So it is only a matter of a few days or more that a decision will be made.'"] "Mr Platcher: ' I will be sending you a letter so that I can cover my interests in this matter, if the lender decides to take legal action against my company .'" 370 In contradistinction to Mr Platcher's evidence that Mr Soulos had said "if your lender is not prepared to wait, you just have to get another financier to fund this deal", on Mr Soulos' evidence he, Mr Soulos had simply said "that is not my concern". 371 In contradistinction to Mr Platcher's evidence that Mr Soulos had said "so it is only a matter of a few days or more that a decision will be made", on Mr Soulos' evidence he had in fact said "I expect that the tender process would be concluded in the short term". 22 April 1997 372 On this date Mr Platcher wrote to Mr Soulos advising inter alia: "…we refer to our previous correspondence dated 1st April 1997, in response to your letter of 6 March 1997. We understand from our verbal discussions with yourself, on a 'Without Prejudice' basis that at the meeting of the Credit Committee, our client's offer has been accepted subject to the completion of all tender offers obtained by your appointed receiver ... [P X. 6/1998] Our company appreciated the position of your Bank, that necessarily requires finalisation of all offers initiated by the tender process of your receiver, no doubt a necessity in providing due application and consideration to our offer on our client's behalf … We further invite your Bank to respond should offers be relatively close , to allow our company the final opportunity [as it] endeavours to be of assistance to our client." [PX 7/1998] 373 On Mr Platcher's statement, on 22 April 1997 he had a telephone conversation with Mr Soulos in which words to the following effect were said: "Mr Platcher: ' Have you received my fax of today ?'" "Mr Soulos: ' Yes I have .'" "Mr Platcher: ' Would you mind replying back to me as you know I have been put in an invidious position in relation to the lender. I would like to cover my interests in this matter. I would really appreciate it if you do not mind doing that for me as a personal favour .'" "Mr Soulos: ['Yes. I will be getting a fax back to you. I am trying to get things done in the office before I go on leave. I am going on leave for a week.'"] "Mr Platcher: 'Have a good holiday. I hope that this matter is resolved by the time you get back.'" 374 In contradistinction to Mr Platcher's evidence that Mr Soulos had said that he would be getting a facsimile back to Mr Platcher and was trying to get things done in the office before he went on leave for a week, on Mr Soulos' evidence in fact he simply said "I'll get something back to you." 23 April 1997 375 On this date Mr Warbanoff spoke to Mr Soulos. The evidence is detailed in the third period of time section. 376 By letter of this date Mr Soulos wrote to Mr Platcher advising as follows: "I refer to your facsimile advice of 22 April 1997. Your initial statement that '... at the meeting of the Credit Committee, our client's offer has been accepted subject to the completion of all tender offers obtained...' is entirely incorrect. The correct position is that your client's settlement offer in an amount of $2,750,000 has been received however , no decision will be made as to acceptance or rejection until such time as the tender process for the sale of the Astro Cinema has been concluded . In this regard, you will be aware that the appointed Receivers and Managers of the Cinema are overseeing the tender process and they have been unable to predict with any certainty when they expect same to conclude. In general, it can be reported that negotiations with interested parties are continuing and the Receivers and Managers have been directed by the Bank to use their best endeavours to obtain the best price as soon as possible. Accordingly, I can provide you with no definite time-frames within which a final decision will be made by the Bank and can only advise that all involved parties are particularly aware of the urgency of the matter. The Bank appreciates your position and concerns however, I am in no position to be more succinct." [PX 7/2004] 24 April 1997 377 On 24 April 1997 Mr Rennie had a telephone call with Mr Ward, another officer of the State Bank, using a speaker phone. Mr Warbanoff who was with Mr Rennie gave evidence as to what was said, his daybook recording the telephone call on pages 26 and 27. Mr Ward said that he had spoken to one Mr Johnson, of Hoyts, concerning Mr Johnson's request that Hoyts have a last right of refusal. Mr Ward also informed Mr Rennie that Mr Colin Resnick of Hoyts had spoken to Mr Glover of the Bank about wanting the Astro Cinema. Mr Warbanoff gave detailed evidence of the contents of this meeting, evidence which is more relevant to the third period of time and is set out below. 25 April 1997 - 5 May 1997 378 Mr Soulos was away on leave during this period, returning on the morning of Monday, 5 May 1997. During this time Mr Williams acted for the Bank in regard to the Chia account. 28 April 1997 379 By letter of this date Mr Platcher responded to the correspondence of 6 March, 1 April and 23 April received from Mr Soulos. 380 Mr Platcher noted from the terms of Mr Soulos' 7 March 1997 letter that "your Bank remains open to negotiations with a view to settling this matter." The letter continued: "On advice, it was understood that the Credit Committee of your Bank would meet within a fortnight to review our proposal. Your appointed receiver proceeded to advertise that sale of Astro Cinema. This action followed our client's reluctant decision to withdraw legal proceedings as to the valid appointment of your receiver, such action was initiated by his instructing solicitor in the Federal Court. In respect, it was our company's intervention, acting on such positive representation of an amicable settlement, in turn prompted our client's solicitors to refrain from nonproductive and expensive litigation. The prevailing choice to adopt a winning stance towards the process of negotiations as proposed. It was further acknowledged by all parties that your Bank would be required to act with prudence to our proposal, due consideration, given to the forgiveness of debt, applied with the required acceptance. Accordingly, accepted, was the necessity for your Receiver's involvement to pursue tenders. We believed your Receiver would provide an urgent assessment of firm tender offers on conclusion of their receipt as of the 7 April. Pending this outcome of such offers we requested our lender to hold the requested settlement funds.... We now call upon your Bank for its urgent response to the following issues that need be addressed: .... B In the interest of a desired settlement, our client be permitted the opportunity to be made aware of the 'best price' sought by your Bank from your Receiver. This would allow our company the final opportunity to positively address the lender immediately for the required funds to the satisfaction of your Bank ..."[PX 7/2023] 29 April 1997 381 On this date, on the evidence given in Mr Platcher's statement, Mr Soulos telephoned the Bank and spoke to Mr Ross Williams in the absence of Mr Soulos. After an initial conversation they spoke again one hour later. In this conversation words to the following effect were said: "Mr Platcher: 'Have you received my fax of 28th April?'" "Mr Williams: 'Yes I have. I shall be providing a response to it.'" "Mr Platcher: 'Have you had any response to your tender process from your Receiver? I have been discussing this matter with Phillip Soulos who told me he was on leave for a week, so would you be able to tell me whether there has been a decision made on the tendering process? I told Phillip my position with our lender who is now pressing for a settlement on this matter.'" "Mr Williams: 'Yes, we have interested parties, and the matter should be finalised very shortly.'" "Mr Platcher: 'Do you think the offers would be relatively close to our proposal?' "Mr Williams: 'Yes, I think the offers are quite substantial. There are two very interested parties.'" "Mr Platcher: 'In order to effect our settlement quickly, I think our lender would be prepared to advance some more money so long as the settlement could be effected quickly.'" "Mr Williams: 'Send me your offer, and I will provide you our response.'" 382 Following the conversation Mr Platcher sent a facsimile to Mr Williams advising that: "our lender has now confirmed that the additional funds of $200,000 sought by our company is now available for our client..... The lender has accepted additional second mortgage security on present securities offered for the granting of this additional sum. Accordingly, we now submit to your Bank the sum of $2.95 million to enable consideration to be provided for full and final settlement of our client's indebtedness to your Bank. We consider this matter can be settled amicably and our revised offer we believe should be relatively close to any tender offers that your receiver is likely to accept. The additional benefit should your Bank accept this offer is that our vendor has been prepared for immediate settlement." 1 May 1997 383 On this date Mr Platcher, on the evidence given in his statement, had a telephone conversation with Mr Williams in which words to the following effect were said: "Mr Platcher: 'Have you received a final firm offer from your tendering process? As you know our lender would like to settle this matter and they are anxious to finalise things.'" "Mr Williams: 'The tender process has not been finalised. But there are interested parties that will be providing offers to the Receiver very shortly.'" "Mr Platcher: 'If there are to be firm offers they would need to be supported financially. I cannot believe after such a long time that there are interested parties for the site that are of any substance. I cannot believe that there is such interest, especially when you consider the site would have to be operated by a person who knows the business and who is a Cinema operator.'" "Mr Williams: 'I can tell you that there are two very interested parties that are of considerable substance.'" "Mr Platcher: 'I have not received a reply to my letter of 28th April.'" "Mr Williams: 'There was a certain tone to your letter [that] was not accepted with great enthusiasm.'" "Mr Platcher: 'I do not understand what you mean by the tone of my letter. I have only indicated the facts as were discussed between Phillip Soulos and myself. I have not tried to place Phillip Soulos in an invidious position. More so I have only put forward what we discussed which was that our offer was accepted allowing due application and consideration to the tender process. As I have stated in my letter of 22nd April, in the second paragraph, providing due application to the tender process. I think for you to say that the tone of my letter was derogatory is not being fair to me.'" "Mr Williams: 'The last paragraph of your letter was concerning and we have forwarded your letter to our legal people and they will certainly be providing a response to it. Your proposal has also been discussed with my senior management. As I said you will be receiving the Bank's response to all your correspondence.'" "Mr Platcher: 'Really, I cannot understand why the Bank is not prepared to settle this matter, especially when both parties are trying to mitigate their losses. I have said this in my letter and I think this matter should be settled amicably without legal proceedings being involved. As I have said to Phil Soulos, the solicitors for PT are of the opinion that I am hindering and delaying their possible actions. The lender also believes that I am delaying this matter and I am concerned that I might be the bunny that is likely to be sued by the lender.'" "Mr Williams: 'I cannot tell you any more. I think we have gone over old ground and I really have to leave now.'" 384 A meeting took place on 1 May 1997 which was attended by Mr Rennie, Mr Warbanoff and Mr Resnick. Mr Warbanoff's file note appears at pages 35 and following of his day book. Intensive cross-examination of Mr Rennie, Mr Warbanoff and Mr Resnick took place in relation to the file note and events which took place during this meeting [of May 1]. It is convenient to annex to the judgment a copy of the file note. [Appendix A] 385 Most of the dot points appearing on page 30 for the day book had recorded what Mr Resnick has said early in the meeting.[Transcript page 25] The contents of this meeting is most relevant to the third period of time and detailed evidence of Mr Warbanoff as to its contents is set out below. 2 May 1997 386 By letter dated 2 May 1997 Hoyts wrote to Mr Rennie submitting a formal offer for the acquisition by Hoyts or its nominee of the freehold and of the Cinema business and subject equipment. The offer identified an intended date of completion as 7 May 1997. Hoyts proposed that it would be entitled to commence trading in its own account from 8 May 1997. The offer price was $2.3 million subject to usual conveyancing adjustments of statutory outgoings. The amount of $2.3 million would be paid as to 10 per cent on written acceptance by the Bank and the remainder on 18 May 1997 subject to completion of appropriate sale documentation. The offer would remain valid for acceptance until 5 pm on Monday, 5 May 1997 after which it was to lapse. [PX 7/2035] 387 Also on the same date N. G. Cassim & Co forwarded a facsimile to Minter Ellison who acted for the Bank advising inter alia: "We're instructed that your client has indicated that it does not propose to accept our client's offer to redeem the mortgages and securities for $2.75 million. Our client has been advised that your client is contemplating an offer to sell the Cinema, the amount of which has not been communicated to our client. It is possible that our client could match that offer. Please advise by return as to the amount of the offer received. We also require that no contract be entered into without reference to us. Should we not receive your reply by 4:45pm today, our client instructs us to commence an appropriate application to the Court. Please let us have your most urgent reply." 388 Also on 2 May 1997 Minter Ellison, in the personage of Mr David Low, acting for the Bank, wrote to N G Cassim referring to their telephone discussion that afternoon with Mr Cassim, and to Mr Cassim's subsequent facsimile letter. Minter Ellison continued inter alia: "As we pointed out during our telephone discussion, it is inaccurate for you to describe your client's offer as one to 'redeem' the mortgages and securities. If your client was to offer cash payment of the full amount owing to the mortgagee, Colonial State Bank, that would be 'redemption'. What your client has offered is to compromise the debt owed by him for a lesser amount. As your aware, our client, Mr Rennie is of the view that the Cinema would generate the highest possible price if it is now offered for sale. To that end, last month tenders were invited by Mr Rennie and he has been pursuing expressions of interest in the Cinema arising out of the tenderers submitted. He is fulfilling completely his duty to act bona fide. He has no duty to disclose to your client the amount of any other offers which you may have received for the Cinema. At this time, no contract has been entered into by Mr Rennie. We are instructed that if your client wishes to increase his offer to compromise the amount owing to the mortgagee, he should put the offer in writing to us by 3 PM, Monday 5 May 1997. After that date, our client will deal with all offers received , but cannot offer 'last right of refusal' to your client, or any other party. If your client wishes to submit a further offer to compromise, we're instructed that he should also supply a copy of any offer to refinance which you may have received from another financier. Otherwise, our client will be unable to verify your client's ability to fund his offer. We note your advice that the figure of $2.75 million referred to in your letter is incorrect and it should read to $2.95 million." [emphasis added] 389 Mr Low of Minter Ellison gave detailed evidence as to this letter. His evidence was that this letter was written on the instructions of Mr Rennie. [Transcript p1020] Mr Low gave evidence to the effect that he had not been told on 2 May that a decision would be made by the receiver or by the Bank on 5 May concerning the sale of the cinema. He had only learned on 6 May that the Cinema had been sold. Mr Low was asked and answered as follows: Q. "In your letter... of 2 May... you say, 'After that date our client will deal with all offers received, but cannot offer last right of refusal to your client or any other party'. The reason you put those words in was because you didn't know that on 5 May the receiver was going to make a final decision, correct? A. "My recollection is that the receiver had told me that he needed an answer by 3.00pm. He needed to know Dr Chia's best offer by 3.00pm, because he had an offer, or was expecting an offer from Hoyts which would lapse at 5.00pm on Monday 5 May, but I didn't know what he intended to do. Q. "He didn't tell you that he was going to make a decision at 5.00pm on 5 May? A. "No." [Transcript page 1021] Q. "Insofar as your letter says, 'After that date, our client will deal with all offers received', it carried the implication that offers may be put after 3.00pm on 5 May, correct? A. "I didn't intend it to have that intention and that is not how I read it Q. "Were you intending it to convey that no offers could be put after 3.00pm on 5 May? A. " That's correct" [Transcript page 1023] 390 Mr Low's recollection and belief was that a draft of the letter of 2 May was sent to Mr Rennie before the final version was faxed off. [Transcript page 1023] Although Mr Low did not have a precise recollection he also believed that a draft of the letter was sent to the Bank before it was sent out in final form. At this point in time and during the week before Mr Soulos returned, Mr Williams was Mr Low's point of contact within the Bank. 391 Mr Low did not believe that he had been asked by Mr Rennie to advise Dr Chia's advisers that an offer had been received which had a deadline of 5.00pm on the Monday. [Transcript page 1024] 392 Mr Low's evidence was that he had not been asked to advise Dr Chia's advisers that a final decision would be made on 5 May. [Transcript page 1024] 393 Mr Low's evidence was that the final form of letter was not sent out until he had obtained approval for the draft. 394 Mr Low had been asked to specifically request evidence of ability to refinance. [Transcript page 1025] 395 Mr Low was asked and answered as follows: Q. "In the second last paragraph on page one of your letter of 2 May, you say that, 'After that date our client will deal with all offers received', correct? A. "Yes Q. "Can I suggest to you that that paragraph carries the implication that an offer may be submitted after 3.00pm on 5 May? A. "I disagree... His Honour: Q. "When you say you disagree, what is the basis of that disagreement? A. "Your Honour, I didn't write that sentence with the intention of conveying that impression and I didn't believe that that's a meaning capable of…arising from that ordinary reading of that sentence Q. "What is your view of the way into sentence should be reasonably read? A. "That that is the last opportunity for an offer to be submitted and that I would not be coming back to him because there would be no last right of refusal to anybody Q. "How in terms of, as you read it, and believe it should be reasonably read, would the words 'after that date' be read? A. "Maybe that, your Honour, that I should have said 'after that time' but it was my intention that the final offer be in at 3.00pm on Monday the 5th. Q. "So you read as, 'After that time on that day, our client will', and so on? A. "Yes, your Honour, after that hour" [Transcript page 1026] Monday 5 May 1997 396 On 5 May 1997 Mr Fuller wrote to Mr Platcher advising that "Mr Andrew Mogride of Australian Mortgage and Development Corporation Ltd has agreed, providing all securities are released that an amount of $3,300,000 will be advanced, utilising a combination of First and Second Mortgages". 397 On this date Mr Platcher sent a facsimile to Mr Soulos in the following terms: "We refer to our previous discussions and correspondence, entered into, in relation to this matter. As advised, our company is retained to negotiating an amicable settlement, procure the necessary funds to discharge our client's debts to your Bank. On perusal of our client's file, we note the long-standing cordial relationship, he had with your Bank. It would be mutually conceded that difficulties arose when a major Cinema operator, Hoyts, commenced operations in the area; this compounded with a recessive economy, brought about disastrous results for both parties, particularly to Bank customer relationship. It was inevitable and understandingly so, that your Bank would choose to protect its security interests. Accordingly, influencing our client to a speedy retirement of its lending exposure with your Bank, so actioned since May 1996. We believe, as a result of our client's good standing, and understanding of this position, your Bank sought to acknowledge the employment of our client's previous best efforts and granted time for refinancing. The impending Hoyts competition eventuated into reality, incurring substantial reductions to cash flow levels of the Astro Cinema. Accordingly, our client's persistent endeavours to obtain refinance, at considerable cost to himself, from bogus brokers inevitably proved fruitless. In early December, cordial relations were assuredly strained to its limits, resulting in the initiation of your Bank's recovery process of outstanding debt. From the inception of our company's involvement, we choose to avoid legal proceedings, adopt a cause of action of sensible commercial negotiation and amicable settlement, notably with the consent of your Bank. It is our present understanding that the Bank remains "open to negotiations". Its paramount objective to effectively maximise returns of its securities, in its process of recovery, by obtaining the "best price". It remains our contentions that our assessment about our client's securities would not be substantially incorrect. In fact, it is our humble belief that prospective purchasers would most assuredly be subjected to similar limited commercial and financial constraints. In this instance we acknowledge it remains the prerogative of your Bank to consider our client's request for a 'compromise' arrangement avoiding, no doubt, a 'Dutch auction'. We therefore seek the invaluable assistance of your Bank to enable such a compromise to be effected. In this light, as a result of our persistent negotiations and time lapsed, our lender is prepared to positively support our client, in his endeavours to retain his securities. Further, the added expression of interest from prospective purchasers for the Astro Cinema has also provided the lenders and individual investors, a considerable level of security comfort, ensuring also their willingness to participate in such assistance to our client. In our view, mutual interests should superimpose any other interests. Your Bank and our client may embarked on a similar course of action, to mitigate substantial losses, regrettably and unavoidably sustained from their financial participation with the Astro Cinema. A compromise would most certainly effect an amicable resolution. In deliberation of your consent, we request your Bank to review the mitigating circumstances, applicable in this matter, particularly to our client: a. The unavoidable increase cost of the Cinema construction from an expected $3.9 million to $5.2 million on account of excessive rainfall during the construction period, February to June 1990. b. The recession climate of the 1991-1993 that brought about substantial interest rate charges. This had to be sustained by our client for considerable period of time, immediately after construction. c. The unavoidable and disastrous consequences of Hoyts competition, compounded with continued recession in a socially disadvantage area; high interest cost on specialised security, resulting to our client's current financial demise. d. The best effort employed by our client to reduce debt levels when called upon from your Bank to do so, selling his city securities to maintain good Bank/customer relations. e. The financial ruin likely to arise to our client and his family, should the Bank not participate in our proposed compromise arrangement. In all previous dealings with your Bank, we have always found your Bank initiated a responsible moral and business stance. At times a more than sympathetic view was adopted towards exercising a 'moral conscience' attitude. In this light, we request your Bank to employ such consideration to our client. We suggest an urgent meeting to effect a mutual amicable resolution of this matter. By means of a compromise, your Bank is assured our parties best efforts shall be employed to meet, above all others, the maximum recovery expectations anticipated, effect in a final resolution of our client's matter. Kindly favour us in your response to date of our suggested request for an urgent meeting to avoid the necessity of contemplated legal proceedings to be actioned in this matter." 398 Also on Mr Platcher 's evidence he telephoned Mr Soulos at about 3pm and had a conversation in which words to the following effect were said: "Mr Platcher: 'Have you received my fax? I have faxed you the offer from our lender. Our solicitor Mr N Cassim has forwarded the offer to your solicitor, David Low. Mr Cassim's secretary did not want to give a copy of his letter that were sent to Mr David Low. You have got the lender's letter. It is Labour Day in Queensland and there is no one at the office in Queensland. They will provide the official letter tomorrow. I am confident we will be getting a favourable response.'" "Mr Soulos: 'We will let you know.'" 399 On Mr Platcher's evidence he telephoned Mr Soulos again at 4pm when he asked whether the Bank had made a decision on the proposal and when Mr Soulos asked him to ring in one hour's time when he would let Mr Platcher know. 400 On Mr Platcher's evidence, at 5:15pm he again telephoned Mr Soulos when a conversation to the following effect took place: "Mr Platcher: 'Has a decision been reached?'" "Mr Soulos: 'It is all over. There was an offer more substantial than yours and the Bank will be accepting it.'" "Mr Platcher: 'I cannot believe that they would have offered what we have offered. They would have to offer more than $2.4 million to beat our offer.'" "Mr Soulos: 'You originally offered $1.8 million on the Cinema and you allowed $800,000 for the house and $150,000 for the Campbelltown property. Would not then your offer for the Cinema be $2.3 million "Mr Platcher: 'If it is $2.3 million, I do not think anyone would have offered $2.3 million. That is quite a substantial offer. Our offer would be $2.3 million.'" "Mr Soulos: 'Charles, if you had a $2.3 million offer from yourself and a tenderer which one would you go for.'" "Mr Platcher: 'I would go for the client's offer as both parties are trying to mitigate losses and both have suffered a detriment over this deal. Why would you go for the other party?'" "Mr Soulos: 'I think the other party is more substantial and your letter of offer from a broker would not be considered substantial if you were a receiver.'" "Mr Platcher: 'I am extremely disappointed because I thought this matter could be settled by negotiation. Now there is likely to be a Court case, and we all will be required to provide affidavits.'" "Mr Soulos: 'If PT is smart he will allow the Cinema to be sold and maybe we could discuss a proposition on the other two properties." "Mr Platcher: 'Would you allow $1 million on the other two properties if that was considered by PT?'" "Mr Soulos: 'Well, the property at Strathfield we might get more than $800,000 and there will still be the other property which will still leave us a debt to be recovered. The Bank would have to be given a decent proposal for the release of the two properties to be considered. PT and his wife are on good income and you can't expect the Bank to walk away from a large debt when you give consideration to their income. They have shares, I think, which they could sell.'" "Mr Platcher: 'I am surprised that the Bank do not want to compromise. I believe our assessment of the properties was realistic. You still can't tell me what the other offer is, seeing that it is now finalised.'" "Mr Soulos: 'No I cannot, but the offer was much more substantial than yours and the person making the offer was quite substantial.'" "Mr Platcher: 'I leave it to the lawyers to sort things out. We have done our best to resolve the issues. Thank you for letting us know the results.'" 401 A letter written by Minter Ellison to Mr Platcher at GrowthCorp, dated 5 May 1997 is in evidence. On Mr Platcher's affidavit evidence he received this facsimile on 6 May 1997. In fact the facsimile appears to bear a printout by way of date of sending as 3:57pm on 5 May. The letter reads as follows: "As you would be aware, we have previously been instructed by Mr Rennie, the receiver and manager of the Cinema. We have now been requested to write to you on behalf of Colonial State Bank in response to your recent correspondence, particularly your facsimile letter to Mr Phillip Soulos of the Bank, today. We do not wish to canvass all of the issues raised in your recent correspondence, as we have had discussions with your client's solicitors, N G Cassim & Co on behalf of the Receiver and Manager. The Bank's position. 1. Unfortunately, your client has not always consulted the Bank regarding the various factors set out on the second page of your letter and, we are instructed, he did not fully co-operate with the "investigating accountant" in December last year when he sought information when preparing a report to the Bank. 2. In addition, the Bank and the receiver and manager were put to considerable time and expense in having to initiate the equity division proceedings to seek a declaration of validity of the receiver and manager's appointment, when your client refused to give the undertakings and acknowledgments sought by us. 3. Nonetheless, our client is concerned only to maximise the recovery from its securities. In view of your client's desire to obtain a decision on a possible compromise of the debt, in our client's view it is in the best interests of all parties that the best offers from all parties interested in the Cinema be made immediately and a decision made. We enclose for your attention a copy of the letter from us to N G Cassim & Co sent by facsimile last Friday evening. We also spoke with Mr Cassim around 6pm. 4. We confirm that neither the Bank nor the receiver and manager are prepared to disclose to your client the amount of any other offer that the receiver and manager has been given by other parties. However, we are instructed to advise you that an offer was received for the Cinema, at a figure higher than what your client has attributed to it, in his discussions with the Bank.'" 402 Mr Low gave evidence as to this letter. Having been shown a copy, his evidence was that he believed that it had been sent out at 3.57pm on that day. This is apparently clear from the facsimile printout as to time and date to be found at Annexure H to the affidavit of Mr Platcher of 24 December 1998. 403 Mr Low could not recall whether he had sent a draft of his letter of 5 May to Mr Soulos before it went out. [Transcript page 1027] 404 Mr Low accepted that at the time he wrote this letter he did not know that the Bank was going to make a final decision to sell the cinema at 5.00pm on the same day. His recollection was that he had had at least one conversation with Mr Soulos on 5 May. He could not recall how many such conversations he may have had with Mr Soulos on that day. In being asked to accept that Mr Soulos certainly did not tell him that the Bank was going to make a decision on that day, his answer was: "No, I didn't know anything more than it was a Hoyts offer that was due to expire on that day". [Transcript page 1028] 6 May 1997 405 Mr Platcher gave evidence that he had had a telephone conversation at about 11:30am on 6 May 1997 with Mr David Low of Minter Ellison. On Mr Platcher's evidence, words to the following effect were spoken: Mr Platcher "I have received your fax in response to my correspondence. Thank you very much. Is there any way we can settle this matter, without resorting to Court proceedings? I cannot understand why the Bank has not accepted our proposal to amicably settle this matter. If you look at the value of the securities, our assessment of what can be acquired on the properties would be the maximum the Bank could obtain if the Bank decided to sell these properties. Also to avoid Court proceedings and you know Mr Cassim is adamant of fighting this matter. I think it is ridiculous that the Bank is not prepared to settle this. I can see the Bank's point of view is to maximise return on the securities. That is the reason why I cannot understand why we cannot come to an arrangement. Mr Low The Bank has received an offer more substantial than what you have provided and the Bank is not prepared to accept writing off a considerable loss of more than $100,000. Why should the Bank write off this amount of money? Mr Platcher Well, how much more can the Bank expect to get from the sale of the securities? As I said our assessment of the securities would have to be relatively close to any offers that you have received, besides the maximum funding that could be arranged at this stage would not be that far away from your offers received. Mr Low There has been a lot of substantial interest in this property, the Astro Cinema, and the Bank would not be prepared to lose $800,000. Besides the Bank does not have to write off this money because your client cannot obtain funding to discharge his debt. The Bank should not have to weather this loss of $100,000 because finance cannot be obtained. Mr Platcher While we are discussing these offers I must state that my client's instructions were to provide an offer of $3.4 million. I mentioned that to….. Soulos initially and told him that I was trying to meet the compromise offer originally proposed by the Bank. Just to cover myself I better get the offer to you because I believe Mr Cassim has placed an offer of $3.3 million and I'm not party to that offer. Mr Low Well you better get that offer to us as a decision will be made on this matter today. Mr Platcher What I cannot understand is how they have worked out our offer because it was for a total amount of $3.4 million. When I had a discussion with Philip Soulos. I know that an assessment of the two properties, Strathfield and Campbelltown, were taken as $800,000 or $150,000, or thereabouts but that was our assessment of those properties. I think Mr Cassim has made his own assessment on what has been allocated to the cinema. As you know Mr Cassim and myself, are not the best of friends over this incident of withdrawal of the Receiver's appointment proceedings. He has always wanted to oppose legally this appointment. I had hoped that this matter would be settled amicably by now. I still cannot understand why it cannot be settled amicably without legal proceedings which are now likely to be put in place. Mr Low "Your final offer will be considered and I can tell you now that the bank is not prepared to write off any loss on this matter or come to any compromise…" [Statement of Mr Platcher of 23 December 1998 at paragraph 31] 406 On Mr Low's evidence this conversation took place at 12.30 pm and not 11.30 am. Although the words "without prejudice" were not used, Mr Low understood the conversation to be in that context 407 Mr Low did not accept the first quotation attributed to him in the telephone conversation. His evidence was that he had responded by saying words to the effect: "I will have to check with the Bank, but I cannot imagine that the bank will be making an offer to Dr Chia. Why should the Bank volunteer to write off more than $800,000. Dr Chia will have to be the one that makes an offer to the Bank. It will then be considered with all other offers. 408 Mr Low denied the second quotation attributed to him commencing with the words "There has been a lot of substantial interest". On Mr Low's recollection, he had responded by saying: "Dr Chia has to be the one that puts the offer. Dr Chia has made previous offers thinking that there would be no interest in the Cinema and that he would persuade the Bank to compromise its debt for a low figure. In fact, there has been a lot of substantial interest in the property. A deadline was specified in my letter to Nick Cassim and an offer was received from him" 409 On Mr Low's recollection of this conversation, after Mr Platcher had made the comments in his paragraph commencing with the words "while we are discussing these offers", Mr Low in fact replied by saying words to the effect: "I have not seen anything from Nick Cassim mentioning $3.4 million. All I have seen is a letter from Cassim mentioning $3.3 million and attaching a letter from a finance broker also mentioning the $3.3 million. 410 Mr Low recalls Mr Platcher then advising him that perhaps Mr Cassim spoke to the broker after Mr Platcher had and if so that would be the right figure. Mr Low gave evidence that he replied by saying: "If the offer is for $3.4 million, you better get me written confirmation immediately together with a letter from the financier confirming it will provide finance for $3.4 million" 411 In relation to Mr Platcher's version of the conversation attributing to Mr Low the words in the paragraph beginning "What I cannot understand", Mr Low gave evidence that Mr Platcher had not used the words "What I cannot understand is how they have worked out our offer because it was for a total amount of $3.4 million". 412 Mr Low had kept a contemporaneous handwritten note of the conversation. 413 Mr Low gave evidence that at the time of his conversation with Mr Platcher he was unaware whether any decision had been taken by Mr Rennie following receipt of Dr Chia's offer on 5 May 1997. 414 Mr Low also gave evidence that he subsequently and later on 6 May 1997 had a telephone discussion with Mr Cassim in which words to the following effect were said: "Mr Low I spoke with Charles Platcher and he told me that Dr Chia had an offer of $3.4 million and your letter only referred to an offer of $3.3 million. Is Mr Platcher correct Mr Cassim No, the only figure I had instructions for was $3.3 million" [Affidavit of Mr Low of 15 May 1997] 415 I accept the evidence given by Mr Soulos as reliable. Insofar as the evidence comprises a contradiction or inconsistency as between the evidence of Mr Soulos on the one hand and that given by Mr Platcher on the other hand, I accept as reliable the evidence given by Mr Soulos. 416 I accept the evidence given by Mr Low as reliable. Insofar as the evidence discloses a contradiction or inconsistency between the evidence of Mr Low on the one hand and that given by Mr Platcher on the other hand, I accept as reliable the evidence given by Mr Low. Claims arising from the second period of time - Representational Case 417 As a result of the process of negotiation between Dr Chia, his representatives and the bank and its officers and representatives, Dr Chia claims that the Bank made representations which were misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth) or s 42 of the Fair Trading Act 1987. In particular, Mr Wilson of Counsel for Dr Chia claimed that the Bank made the following misrepresentations: (a) That the Bank would enter into a process of negotiation with him concerning the settlement of his indebtedness of the Bank. [Final written submissions, p1 - 3] (b) That the Bank would deal with Dr Chia and entertain offers from him after the tender process was concluded. (c) That the Bank would inform Dr Chia when the tender process for the sale of the Cinema was complete and the figure of the best offer made so as to enable Dr Chia make a final offer to the Bank. The representations were misleading and deceptive because the Bank did not deal with Dr Chia after the tender process or inform him of the other offers for the Cinema. [Final written submissions, pp5 - 7] (i) Representation that the Bank would enter into a process of negotiation 418 Mr Wilson relies on various statements to support this representation. First, a statement by the Receiver, Mr Rennie, to Dr Chia's solicitor, NG Cassim, to the effect that the Bank would consider any proposal put to them by Dr Chia; two statements by Mr Soulos to Mr Platcher that the Bank remains open to a process of negotiation with a view to settling the matter; a statement by Mr Soulos to Mr Platcher to the effect that termination of proceedings regarding the validity of the appointment of the Receiver was the 'right way to go' if 'you are trying to settle the matter.' Mr Wilson further relies on the request of Mr Soulos to Mr Platcher for 'an all encompassing proposal ... appropriately supported' from Dr Chia and the statement of Mr Williams to Mr Platcher that Platcher should '[s]end me your offer and I will provide you with our response.' 419 Mr Wilson submits that a representation to negotiate includes a representation to negotiate in good faith. [Final written submissions of Dr Chia, pp2 - 3]. Mr Wilson relies on s51A of the Trade Practices Act to submit that as this representation was a representation of a future matter, the representation is to be taken to be misleading unless the Bank had reasonable grounds for making the representation: [Transcript of final argument, p87]. 420 Mr Wilson submits that the representation was misleading and deceptive in so far as the Bank did not ever intend to and never did in fact enter into a process of negotiation with Dr Chia. It is submitted for Dr Chia that the Bank never dealt with Dr Chia's offers in a considered fashion necessarily involved in a process of negotiation. Mr Wilson relies on the failure of the Bank to inform Dr Chia of its intention to accept the Hoyts offer and consequently refuse him the opportunity to make a better offer. Mr Wilson also relies on the statement of Mr Soulos to the effect that the Bank could dispose of Dr Chia's assets 'whichever way it saw fit' and 'had no obligation to tell Dr Chia of any proposed sale of the asset to a third party.' [Final written submissions, pp 4 - 5] 421 In reply, Mr Thomson for the Bank did not deny that it had represented that it was willing to negotiate with Dr Chia: [transcript of final submissions, p31]. Rather, the Bank submits that a representation to negotiate is too vague and uncertain to attract liability under s 52 of the Trade Practices Act. To support this submission, it relies on authorities for the proposition that a contractual agreement to negotiate or agree is unenforceable: Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1, Hooper Bailey Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194, Elizabeth Bay Developments Pty Ltdv Boral Building Services Pty Ltd (1995) 36 NSWLR 709. It submits that a representation of a willingness of negotiate is inherently imprecise because a negotiation will not necessarily lead to an agreement, it inherently includes an entitlement to withdraw from negotiations at any time, it inherently includes an appreciation that each negotiating party will seek to advance their own interests, perhaps at the expense of another party's, perhaps by means other than negotiation and negotiation, itself, does not fetter or limit the legal rights the parties otherwise possess [Supplementary final written submissions, pp 4 - 6]. In the alternative, the Bank submitted that even if a representation to negotiate is actionable under s 52 of the TP Act, it did in fact negotiate and so its conduct was not misleading or deceptive [Final written submissions, p64]. 422 There is authority for the proposition that conduct which is too vague or uncertain: Hospitals Contribution Fund of Australia Pty Ltd v Switzerland Australia Health Fund (1987) 78 ALR 483 at 489 per Morling J; or, representations which depend upon many variable, subjective and objective factors: Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 at 54 per Gummow J; or are a 'mere puff:' Dynamic Lifter Pty Ltd v Incitec Ltd (1994) 30 IPR 198 at 204 per Whitlam J, do not contravene s 52. The Bank's claim that a representation to negotiate falls within this principle rests upon an analogy with those cases which have held that an agreement to agree or an agreement to negotiate is unenforceable in the law of contract. 423 The analogy is flawed in my view, for two reasons. 424 First, while it is undoubtedly true that an agreement to agree does not constitute a contract because, as Lord Wensleydale in Ridgway v Wharton (1857) 6 HLC 238; 10 ER 1287 at 1313 said, such an agreement is a contradiction in terms: see also Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604 per Gibbs CJ, Murphy and Wilson JJ; it is not at all clear that an agreement to negotiate is similarly unenforceable. Handley JA was of this opinion in Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR1 at 43 and there are other cases to that effect: Walford v Miles [1992] 2 AC 128 at 138 per Lord Ackner Courtney & Fairburn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 at 301 per Lord Denning MR. However, in Coal Cliff Collieries Kirby P, with whom Waddell AJA agreed, was of the opinion that in some circumstances an agreement to negotiate would be enforceable (at 26). Kirby P approved a statement by Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] All ER 494 at 505 - 506 to the effect that a bargain to negotiate was, in strict theory, a bargain even though a breach of the contract may only sound in nominal damages. I have previously expressed the opinion that an agreement to participate in a process of negotiation is not to be equated with an agreement to agree and that an agreement to negotiate in an endeavour to reach an agreement is not necessarily void for uncertainty: Aiton v Transfield (unreported, 1 October 1999, Supreme Court of NSW, per Einstein J). Leave to appeal from this decision has now been refused by the Court of Appeal. 425 In the second place, principles of uncertainty and incompleteness in contract law are, in the final analysis, concerned with whether all the incidents of a concluded bargain are present; that is to say, it asks whether the offeror and the acceptor have truly agreed on something: G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251 at 254 per Viscount Simon LC, at 255 per Viscount Maugham, at 268-269 per Lord Wright. Of course, this question has no currency under the Trade Practices Act and authorities on the topic of uncertainty in contract law may be thought to provide only meagre assistance on the question as to whether conduct is too vague or uncertain to create liability under section 52. Here the ultimate question is whether conduct is such that it 'leads into error:' Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 per Gibbs CJ. And as Deane and Fitzgerald JJ pointed out in Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 201, it is conceivable that conduct which is vague or uncertain and therefore productive of confusion could be misleading for that very reason. 426 It appeared to be implicit in the submissions of Mr Wilson that a representation to negotiate necessarily involved a representation to carry on those negotiations in good faith. In Macgowan, Macgowan v Murray [1891] 1 Ch 105 at 155 Bowen LJ defines negotiation as 'that which passes between parties or their agents in the course of or incidental to the making of a contract, a definition which may be accepted subject to the caveat that negotiations are not always successful and even successful negotiations need not end in a contract. In Canada the view has been taken that only negotiations carried on in good faith are negotiations properly so called: Boziuk v City of Edmonton [1977] 1 Alta LR (2d) 371 at 376, per Stevenson DCJ. In the United States it has been said that parties who agree to negotiate open terms 'also thereby concomitantly accept the obligation of negotiating the open terms in good faith:' LLMD of Michigan v Marine Midland Realty Credit 789 F Supp 657 (1992) at 660 per Bartle DJ. A similar approach may be discernible in the statement of Carr J in Walley v Western Australia (1996) 137 ALR 561, that negotiating 'usually involves bilateral communication.' To my mind, any negotiation which is not carried on in good faith is not negotiation properly so called. It would hardly be consonant with the purposes of s 52, which are concerned with the promotion of honesty in trade and commerce, to hold that a representation that a party would negotiate was not misleading because negotiation was carried on, albeit in bad faith. 427 Even though the Bank did represent that it would negotiate and that, I accept, involved a representation that it would do so in good faith, I am not satisfied that the Bank is shown to have engaged in misleading and deceptive conduct. In this connection, it is important to note what a representation to negotiate in good faith does not involve. It does not involve a representation that a party will act otherwise than in its self interest. It does not involve a representation that a party will act for or on behalf of or in the interests of another party: Aiton v Transfield (supra, at 44). It does not involve a representation that a party will successfully conclude the negotiations, or that they will not consider or pursue alternative arrangements: Coal Cliff Collieries v Sijehama Pty Ltd, (supra, at 29). 428 I have previously outlined the essential or core components of good faith negotiation as a willingness to consider such options for the resolution of the dispute as may be propounded by the opposing party and a willingness to give consideration to putting forward options for the resolution of the dispute: Aiton v Transfield (supra, at 44). Clearly enough the second limb of this core component is not applicable here, as the process in which the Bank and Dr Chia were engaged consisted of Dr Chia putting various proposals for the compromise of his debt, proposals which were in effective competition with any offers the Bank received during the tender process for the sale of the Cinema. It did not involve the Bank making proposals to Dr Chia or any other party. However, the first limb of the requirement of good faith does apply. By representing that it would negotiate in good faith the Bank represented that it would give real and genuine consideration to any proposal which Dr Chia put forward. 429 To my mind, what the evidence reveals is that the bank did exactly this. In this way, I essentially accept the submission of the Bank. On my findings the officers of the Bank, received the proposals and accompanying representations of Dr Chia and his agent Mr Platcher and, although they viewed them with an understandingly sceptical eye, treated with them seriously and genuinely. The submissions of Mr Wilson that by failing to inform Dr Chia of the existence of and the scope of the other offers and by failing to inform Dr Chia of its intention to accept the Hoyts offer and thereby enabling him make a final offer, the Bank failed to negotiate in good faith [Dr Chia's final written submissions, p4] are rejected. At no stage did the Bank represent that it would give Dr Chia such a privileged position. Dr Chia could have no reasonable expectation for believing that the Bank would inform him of these matters (see Demagogue v Ramensky (1992) 110 ALR 608 at 619 per Gummow J) and the process of good faith negotiation does not demand that it do so. In this connection, the following comments of Gleeson CJ in Lam v Ausintel Investments (1989) 97 FLR 558 at 475 are relevant: 'Where parties are dealing at arms length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not in itself impose any obligation on the first party to bring the information to the attention of the other party and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice.' 430 Accordingly, Dr Chia's claim for relief based on the first representation must fail. (ii) Representation that the Bank would negotiate with Dr Chia after the completion of the tender process 431 In support of this claim, Mr Wilson could point to no conduct which expressly had the effect of representing that the Bank would negotiate with Dr Chia after the completion of the tender process. Instead, Mr Wilson submitted that this representation was the result of a combination of a 'myriad of circumstances,' as he put it in final argument: [see transcript, p90]. According to Mr Wilson, those circumstances are: First, the statement by Mr Soulos to Mr Platcher that the Bank 'did not particularly baulk' at Dr Chia's settlement offer of $2.75 million. Second, the repeated statements by Mr Soulos to Mr Platcher to the effect that the tender process will be completed before a decision on the offer of Dr Chia was reached, including the letter of Mr Soulos to Mr Platcher on 22 April 1997 [PX 2023]. Third, the following statement by Mr Platcher to Mr Soulos in the letter of 28 April to a similar effect: 'It was further acknowledged by all parties that your Bank would be required to act with prudence to our proposal, due consideration given to the forgiveness of debt applied with the required acceptance. Accordingly, accepted, was the necessity of your Receiver's involvement to pursue tenders:' see PX 2024. Fourth, the letter of Mr David Low of Minter Ellison to NG Cassim, informing MG Cassim that if Dr Chia wishes to increase his offer he should do so by 3pm 5 May and '[a]fter that date, our client will deal with all offers received:' see PX 2040 [Final written submissions for Dr Chia, p4 - 5]. 432 Mr Thomson submitted that no representation was made by the Bank to the effect that it would deal with Dr Chia after the tender process for the Cinema was completed. The statement of Mr Soulos to the effect that the Bank 'did not baulk' at the offer of Dr Chia of $2.75 million for a compromise of the debt means no more than that the Bank did not consider the offer unacceptably low and so could continue to negotiate: [Final written submissions of the Bank, p66]. Furthermore, Mr Thomson submits that statements of officers of the Bank to the effect that the tender process would be carried to a conclusion carried within them the possibility that the Bank would sell during the tender process to a third party purchaser or accept the compromise offered by Dr Chia and so cannot have the effect contended for by Mr Wilson: [Transcript of final argument, p32]. Finally, Mr Thomson submits that the behaviour of Dr Chia and Mr Platcher is inconsistent with what they now contend they were led into erroneously believing, namely that the Bank would continue to deal with Dr Chia after the tender process. If, submits Mr Thomson, Dr Chia and Mr Platcher were of this belief, why did they continually revise and improve their offers to the Bank during the tender process? They would, he points out, in effect, be bidding against themselves. [Transcript of final argument, p32] 433 To my mind, the Bank's submissions ought be accepted. It is true that when examining whether conduct is misleading or deceptive, courts will examine the conduct of the defendant as a whole, rather than its isolated parts: Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 at 421 per Lockhart J. But here I am not satisfied that the conduct of the Bank, either taken in individual parts or (as Mr Wilson would have it), as a 'myriad of circumstances', ever conveyed to Dr Chia that he would be given an opportunity to continue to negotiate after the completion of the tender process. As Mr Thomson further submits, for the Bank to have so represented would mean that it had decided to treat the tender process as a sham. Third party bids would be treated with, not as genuine offers which might culminate in a sale, but to permit the Bank to decide how much to accept from Dr Chia [Final written submissions, p69]. There is no evidence to suggest that the tender process was treated as a sham by the Bank. The tender process always involved, and inherently involved, the possibility of sale. The Bank continually informed Dr Chia that the tender process would be completed, for example in the letter of 23 April from Mr Soulos to Mr Platcher [PX 2004]. What this meant was made explicit by Mr Low of Minter Ellison in the letter of 2 May 1997 to NG Cassim (solicitors for Dr Chia) when Mr Low informed Mr Cassim that the Bank 'cannot offer a 'last right of refusal to your client or any other party:' [PX 2038]. 434 The statement of Mr Low in his letter of 2 May that 'after that date,' the date being 2 May 1997, 'our client will deal with all offers received' requires close consideration. However, these words could not, to my mind, reasonably have been relied upon by Dr Chia as a representation that a last right of refusal would be granted to him or that he would be permitted to continue to deal with the Bank after the completion of the tender process. The use of the phrase 'after that date' are, I accept, an unfortunate selection of words. However, in the context, I accept the Bank submission, that those words are properly understood as committing the Bank to only to deal with offers which were received by 3pm on Monday 5 May: [Bank's final written submissions, p70]. This is especially so in view of the previous paragraph of that letter which instructs Dr Chia to make any increase in his offer of compromise by that time and the words immediately following the crucial words, which strongly negative any prospect that Dr Chia will receive 'a last right of refusal.' 435 Furthermore, I accept the Bank's second submission that Dr Chia and Mr Platcher did not in fact believe that they would be given the opportunity to negotiate with the Bank after the tender process was completed. Their behaviour during the tender process is entirely at odds with the posited belief. Of course, a plaintiff cannot seek relief under s52 if he or she was not, in fact, mislead or deceived: Sutton v AJ Thompson Pty Ltd (1987) 72 ALR 223 at 240 per Forster, Woodward and Wilcox JJ. It is clear, to my mind, that Dr Chia and Mr Platcher were well aware of the possibility that the Bank might sell to a bidder during the tender process. Their awareness is reflected in the fact that they increased their offers of compromise to the Bank from $2.75 to $2.9 million on 29 April and to $3.3 million on 5 May. It is reflected in the letter of NG Cassim to Minter Ellison of 2 May which relates Dr Chia's understanding that the Bank was contemplating another offer for the Cinema and informs Minter Ellison that '[i]t is possible that our client could match that offer': [PX 2037]. And it is reflected in the plaintive letter of Mr Platcher to Mr Soulos of 5 May 1997, written on the eve of the Bank's acceptance of the Hoyts' offer, imploring the Bank to take a 'sympathetic view' of Dr Chia and requesting an 'urgent meeting to effect a mutual amicable resolution of this matter': [PX 2051]. 436 To my mind, what Mr Platcher and Dr Chia misunderstood was not the intention of the Bank towards other possible offers made for the cinema, but the existence of the scope of those other offers. In effect, as Mr Thomson submitted, Mr Platcher and Dr Chia misread the market: [Bank's final written submissions, p69]. On 1 May Mr Platcher confessed to Mr Williams of the Bank his inability to believe that 'there are interested parties for the site that are of any substance': [transcript p411] If Mr Platcher and Dr Chia had not made their best offer by the time the Bank accepted the offer of Hoyts, it is this disbelief, not any misleading or deceptive conduct on the part of the Bank, which explains their actions, and it is a tactical decision with which they must live. 437 Accordingly, Dr Chia has made out no entitlement to relief upon the ground of misleading and deceptive conduct contained in the second alleged representation. (iii) Representation that the Bank would inform Dr Chia when the tender process was complete and the best price offered. 438 Thirdly, Mr Wilson submitted that the Bank had represented to Dr Chia that it would inform him of the completion of the tender process and the best price offered, enabling him to have the opportunity to match or better that price. Here, Mr Wilson relies on the circumstances by which he sought to establish the representation that the Bank would continue to deal with Dr Chia after the completion of the tender process and the following statement of Mr Platcher in a letter to Mr Soulos on 22 April 1997 'We further invite your bank to respond should offers be relatively close to allow our company the final opportunity endeavours [sic] to be of assistance to our client:' [PX 2001] and the failure of the Bank to 'traverse' it: [Dr Chia's final written submissions, p5]. 439 In final submissions, Mr Thomson submitted that that all the evidence of the communications between Dr Chia, Mr Platcher and the officers of the Bank show that the Bank did not represent to Dr Chia that it would inform him of the completion of the tender process and the highest bid attained thereby. In particular, Mr Thomson pointed to the letter of Mr Low of 2 May which unequivocally stated that the Bank 'cannot offer a last right of refusal': PX 2040, [Transcript of final submissions, p31]. 440 To my mind, the Bank is correct when it submits that the no representation was made to the effect that the Bank would inform Dr Chia of the completion of the tender process and the best offer attained. To the extent that Mr Wilson relies here on the facts, matters and circumstances he relied on to establish the representation that the Bank would continue to negotiate with Dr Chia after the completion of the tender process, I need not amplify what I have said above. For if the Bank did not represent that it would negotiate with Dr Chia after the tender process, a fortiori it did not represent it would inform Dr Chia of the end of the tender process and the results of the tender process. 441 To the extent that Mr Wilson's submission seeks to establish misleading and deceptive conduct on the part of the Bank by relying on its failure to deny or traverse statements made by Mr Platcher to Mr Soulos, it is a submission of some novelty. It is true that under the Trade Practices Act (s4(2)(a) and (c)) and the Fair Trading Act (s4(4)(a) and (b)), 'conduct' is defined to include 'refraining from doing an act.' It is also true that in the correct circumstances, silence can be misleading or deceptive: Rhone Poulec Agrochime v IUM Chemical Services Pty Ltd (1986) 68 ALR 77 at 84 - 85 per Bowen CJ, at 99 per Lockhart J, at 102 per Jackson J. This is so where one party had a reasonable expectation that the other would disclose a relevant fact if it existed: Kimberly NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 at 53, 195 per Wilcox J. However, it cannot be correct that the mere failure of one negotiating party to respond to the invitation of another, means that the first mentioned party thereby represents it will act as invited by the second mentioned party. Just as the law will not ordinarily conclude that the failure to respond to an offer is acceptance sufficient to conclude a contract (see Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 527 - 528 per Kirby P, at 534 - 535 per McHugh JA), so it is not ordinarily reasonable to assume that an invitation not responded to is accepted. 442 In this case it was especially unreasonable because the evidence revealed that the Bank, far from acceding to any request by Dr Chia and his representatives to make known to them when the tender process had concluded and the best offer made, expressly negatived any such prospect. The letter of Minter Ellison to NG Cassim of 2 May denied the proposition that the Receiver, Mr Rennie, had any duty to disclose to Dr Chia any offer which he has received from the Cinema: [PX 2040]. To Mr Platcher's repeated requests for information as to the offers made during the tender process, the constant refrain of the officers of the Bank, Mr Soulos and Mr Williams, was that there were interested parties, but that is all that they could say. This was an understanding which Mr Platcher himself reflected upon being informed of the sale of the Cinema to Hoyts, asking Mr Soulos '[y]ou still can't tell me what the other offer is, seeing that it is all now finalised.' Obviously, this is not a comment of a man that expected to be informed. 443 The conclusion which follows is that Dr Chia's claim to relief based upon misleading and deceptive conduct contained in the third alleged representation must fail. The third period of time 444 The third period of time relates to the dealings between the Receiver, Mr Rennie, the Bank Hoyts with regard to the sale of the Astro Cinema. Out of these dealings, Dr Chia's claims against the Receiver and the Bank for the breach of duty and for relief under s 51AA of the Trade Practices Act 1974 (Cth) and s 43 of the Fair Trading Act 1987. 445 In this section of the case it is convenient to examine the evidence of each witness individually. It shall be noted that some of the witnesses who were involved in the second period of time, also appear in the third period of time. However, where this is the case their evidence as examined here is only relevant to the third period of time. Evidence given by Mr Robert Fuller 446 Mr Fuller is a finance broker who conducts his own business known as Direct Funding Corporation Pty Ltd. He has been a finance broker continuously for five years. 447 Mr Fuller gave evidence in his affidavit of 7 June 1999 that in about January 1997 he was approached by an accountant, Mr Bill Thompson acting on behalf of Dr Chia from the firm known as Kew Partners Consulting Accountants requesting funds for completion of a further four screens and a Cinema complex in Sydney. Mr Fuller's evidence was that he contacted Mr Andrew Mogeridge who at that time was an employee of a firm called Branelly, for the purpose of raising finance of $5.8 million. On Mr Fuller's evidence he said words to the effect that Dr Chia was seeking a package deal amount to $5.8 million which he wanted to borrow for the purpose of re-financing an existing loan with the State Bank and to enable him to complete the construction of the Cinema complex by adding a further four screens in Sydney. Mr Fuller referred to his letter of 13 February 1997 to Mr Mogeridge [Annexure "A" to Mr Fuller's affidavit]. In this letter Mr Fuller gave a number of details with respect to Dr Chia, including that the Bank had advised Dr Chia that they would accept a payout figure of $3.4 million. 448 Mr Fuller gave evidence that Dr Chia had provided him with details of the construction works which were proposed to be undertaken by him and details of the refinancing and that before proceeding further, Mr Fuller had requested a valuation from Landmark White Realty in relation to the Mt Druitt property. [Affidavit paragraph 5] 449 Mr Fuller's evidence was that after receiving the valuation he made inquiries from Mr Mogeridge regarding the raising of the loan of $5.8 million from any business source he had available at the time. 450 Mr Fuller then gave evidence that in early February 1997, Dr Chia had advised him that the State Bank had taken possession of the property and that accordingly the sum of $5.8 million was not required by Dr Chia. Mr Fuller's evidence was that upon instructions from Dr Chia he then sought to raise a sum of about $3 million which sum Dr Chia was negotiating with the Bank as a re-finance. 451 Mr Fuller then referred in his affidavit to his letter to Mr Mogeridge of 14 April 1997. This time the letter had been addressed to Mr Mogeridge at Australian Mortgage and Development Corporation Ltd. In this letter, Mr Fuller indicated that had he had been advised by Mr Platcher that "the Bank has agreed to settle mortgage although they were awaiting a report to confirm a number of details." Mr Fuller advised that he had been expressing the urgency of the matter with Mr Platcher who had been passing Mr Fuller's thoughts on to Mr Soulos at the Bank. He asked Mr Mogeridge to make a point of telephoning Mr Platcher as well as Dr Chia to satisfy himself that settlement would take place within the next few days. [Annexure "B" to Mr Fuller's affidavit] 452 Mr Fuller's evidence was that between March and April 1997 he had a number of telephone conversations on behalf of Dr Chia with Mr Soulos at the Bank. In his statement he gave evidence that on one occasion he told Mr Soulos "I got the $3 million which I understand will cover the loan from the State Bank to Dr Chia". On Mr Fuller's evidence Mr Soulos had responded by saying "That is good. The Credit Committee is examining your proposal and I'll let you know its decision as soon as possible" 453 Mr Fuller's statement included his evidence that the loan of $5.8 million was based on the end valuation of $9.6 million from the Landmark White valuation on the Cinema, $1.2 million on the Strathfield property and $140,000 on the surgery. This totalled $10.9 million in assets and on a loan of $5.8 million, the loan valuation is said to have been 53 percent. 454 Mr Fuller also gave evidence that he spoke to Mr Soulos on 17 April 1997 as well as at least on one other occasion. During the last conversation 17 April he said words to the effect "Is there some problem with the loan being accepted by the Bank?" 455 On his evidence, Mr Soulos had replied "The matter is still before the Credit Committee and nothing can be done until the Credit Committee has made a decision in relation to the proposal. I do not know what that decision is likely to be". 456 Mr Fuller gave evidence that he had responded by saying "The loan is in place and all that is needed is a settlement time and place". 457 Finally in his affidavit Mr Fuller had given evidence that on 5 May 1997 he spoke with Mr Platcher by telephone. His evidence was "I advised him that the loan moneys of $3.3 million was firmly in place". This sentence was only allowed into evidence as proving the conversation and not as proving the underlying fact, that is to say that the loan moneys of $3.3 million were firmly in place as an approved facility. 458 In giving oral evidence in chief, Mr Fuller said that prior to 1997 he had not put in place any finance deals through Mr Mogeridge of Branelly Pty Ltd nor with the firm of solicitors McCarthy Ryan. By this he meant that although he had given them applications, none had proceeded up to that point in time. [Transcript page 473] 459 Under cross-examination Mr Fuller was not able to assist in terms of providing the detailed construction works material and details of refinancing referred to in paragraph 5 of his affidavit as having been provided to him by Dr Chia. He had not kept the file. He had thrown his own file out. He had given all the information that he had received to Mr Mogeridge. In consequence Mr Fuller could only go from memory, in terms of knowing what details were furnished with the loan application. His memory of the details of construction works were properly described as broad and general at the time he was giving evidence. His memory of details of the refinancing were also properly described as broad and general. 460 His evidence was the Dr Chia had informed him that he needed to repay the Bank an amount of approximately $3.9 million. The construction amount was always indicated as required to be $1.5 million. Over time, the $3.9 million figure had been reduced to $3 million. Mr Fuller's evidence was that he notified Mr Mogeridge on about 3 February that there was a reduction for the reason that the Bank had stepped in to take control of the Cinema. Mr Platcher had become involved and that was when they were instructed that an amount of $3 million was all that was required. 461 Under cross-examination Mr Fuller appeared somewhat confused as to precisely what the original approach was. Eventually it appeared to be his evidence that the original approach for finance was $5.8 million, of which $3.9 million was required to go to the Bank and $1.5 million was required for construction. [Transcript page 477] A further amount was also sought which brought the total application to $5.8 million and this could well have been fees for financiers and other forms of fees. 462 Mr Fuller's evidence was that he had applied to Mr Mogeridge but that he did not have a copy of the application. This was the application for $5.8 million. His evidence was that to the best of his memory this was all written up in a document by way of the application which he had given to Mr Mogeridge. [Transcript page 477] That application had apparently set out what the use of funds was and what the security was, but not the details of the borrower's capacity, which detail would have had to be supplied at a further date. As to the details which Mr Fuller recalled had been included in the initial application, his evidence was: "The application would normally have the borrower's details being company name, security, present value at that stage, whatever valuation I had, an amount required, term and so forth, term and interest rate, suggested interest rate and it would just had been a general, a general overview of the project, what it was, what it was made up of, and it also would have said a construction amount in there is well... " [an application which was really only a preliminary application] [Transcript page 478-479] 463 Mr Fuller gave evidence that he expected that before anything else could happen, the prospective lender would make a decision whether they might be interested in exploring the proposal further and that more detail and more supporting material would subsequently be required. Mr Fuller's evidence was that it was his understanding that his dealings with Mr Mogeridge were subject to the proposal otherwise satisfying subsequent due diligence by the lender. [Transcript page 478] 464 Mr Fuller gave evidence that Branelly was a company that Mr Mogeridge either worked with or worked for. Mr Fuller knew the principal lender as McCarthy Durie & Ryan but he couldn't go direct to this principal lender and had to go through their front man. He understood that Branelly's acted as a source of funds from a number of clients. They were an accountancy and insurance business and their clients put money into investments that McCarthy Durie & Ryan might have recommended. Mr Fuller himself was not familiar with Branelly. [Transcript page 478-479] 465 Mr Fuller had been approached by Mr Thomson to see if he could raise some finance. The basis upon which he had approached Mr Mogeridge was in order to be able to deal with McCarthy Durie & Ryan. He did not know what the relationship between Mr Mogeridge and the solicitors firm was but he knew that there was a relationship. His understanding was that this was the only way he could obtain access to the funds in the control of the solicitors firm. [Transcript page 479] 466 Mr Fuller was asked and answered as follows: Q. "By 26 January 1997, you have ascertained, had you, that Lawyers Private Mortgage's would be interested in further considering the proposed application for $5.8 million on the basis that they had expressed a desire to take it further. 467 Mr Fuller's understanding was that any offer of funding at that level was contingent on due diligence still occurring and contingent also on the lender being satisfied that the borrower had a capacity to repay. [Transcript page 479] 468 Mr Fuller's understanding was that the loan application was to be one made on behalf of Dr Chia only. He could not remember referring to Mrs Chia's name at any stage. If Branelly or McCarthy, Durie Ryan and Neill were putting forward proposed loan facilities for both Dr & Mrs Chia, that was something which Mr Fuller had not investigated. [Transcript page 480] 469 Mr Fuller under cross-examination gave evidence that as he understood it, as at 25 February 1997, he was the sole person liaising with Mr Mogeridge in relation to the proposed facility. Evidence given by Mr Philip Ryan 470 Mr Ryan is a solicitor who practices in Queensland and is a partner of McCarthy Durie Ryan Neill. His principal area of practice is in securities lending. His firm conducts a substantial mortgage practice in which private clients invest moneys with the firm which are lent out on the security of first mortgages. His evidence was the moneys are lent by the firm through its nominee company Lawyer's Private Mortgage Pty Ltd. He is a director of that company. 471 In his affidavit of 21 March 2000, Mr Ryan, gave evidence that applications for finance to the firm were lodged with an assessment by Branelly Ltd which also operated a superannuation and insurance consultancy business. His evidence was that Mr Mogeridge was the general manager of Branelly. His evidence was that it was Mr Mogeridge's practice after receiving a finance application to prepare a Loan Synopsis. Applications for finance were made directly to Branelly or through a broker such as Mr Fuller of Direct Funding Corporation. Mr Mogeridge, on Mr Ryan's evidence, used the material furnished to him to evaluate the loan application and to carry out other due diligence checks. 472 In his statement, Mr Ryan gave evidence that on 25 February 1997 he received from Mr Mogeridge a loan synopsis in respect of a proposed loan of $5.8 million to Dr Chia. His evidence was that on 26 February he issued a loan offer of $3.9 million to Dr and Mrs Chia. His evidence was the Dr Chia had signed the acceptance form to that loan offer and returned to him. 473 His further evidence in his statement was that on 21 March 1997, he issued a further loan facility for Dr and Mrs Chia for $1.5 million. 474 His further evidence was that the loan offered on 26 February was for the purpose of refinancing Dr Chia's existing facilities with the Bank. The loan offered on 21 March was a further loan offered for the purpose of enabling Dr Chia to complete construction of the Cinema. 475 Mr Ryan then gave evidence that subsequent to 26 February 1997, his firm issued further offers of loan for lesser amounts than $3.9 million which corresponded with offers which Mr Ryan believed were to be made to the Bank in connection with Dr Chia's refinance negotiations. 476 Mr Ryan also gave evidence that on 1 April 1997 his firm issued a further loan facility offer of $2.99 million. His evidence was Dr Chia duly signed the acceptance formed and returned it to him. 477 Mr Ryan's evidence was that the special conditions in the loan offer of 26 February were relevantly satisfied by the valuation of the Cinema by Landmark White in March 1997 and by the letter from Landmark White in April 1997, confirming that the valuation of $1.2 million for the Strathfield residence in March 1996 remained applicable in March 1997. 478 Mr Ryan's evidence was then that on 2 April 1997 he issued a further offer of loan for $2.75 million. 479 On 7 April 1997 Mr Ryan wrote to the Bank seeking confirmation that they were in a position to settle on 14 April. He also appointed a Sydney solicitor to act for him in relation to the settlement and his evidence was that all loan documentation was prepared including Loan Agreement, Traders Bill of Sale, Mortgage and Guarantees. 480 Mr Ryan gave evidence in his statement that on 16 April 1997 Dr Chia made a part payment of fees of $3000 which satisfied the requirements of the firm at that time. Mr Ryan was informed that on 5 May 1997 Dr Chia owed approximately $3.9 million to the Bank. 481 Mr Ryan annexed to his affidavit a printout of the firm's investment Bank's trial balance with the Commonwealth Bank at Brisbane which listed detail of all moneys available to the firm for investment on first mortgage as at 5 May 1997. His evidence was that as at that date, an amount of $ 4, 847, 548.00 was deposited in that account and was available for investment on first mortgage. 482 Mr Ryan deposed that had Dr Chia requested finance on 5 May 1997 of $3.9 million in order to redeem or to settle with the Bank, the following position would have applied: "(1) Mr Mogeridge would have raised a loan synopsis for an amount of $3.9 million. As all the special conditions had been satisfied in respect of the earlier loan for $3.9 million on 26 February 97, I would have approved the offer of loan. I would not have included any further Special Conditions as there was no need to modify the terms of the Special Conditions which attached to the earlier loan offer. I would simply have regarded this as the reactivation of the earlier offer of loan (2) Having regard to the investment Bank's trial balance as at 5 May 1997, there is no reason for me to believe that funds were not available to satisfy the loan subject to consent from investors (3) In terms of timing, a Letter of Offer would have been issued by me two days after Mr Mogeridge provided me with a Loan Synopsis and subject to the above, the Mortgagee Lawyers Private Mortgages would have been in a position to settle within 14 days." 483 Mr Ryan also deposed that had Dr Chia refinanced the Bank using the offer of $3.9 million it would have been appropriate for him to make further application for a construction loan of $1.5 million to complete the Cinema. He deposed that as he had previously received the valuation from Landmark White for the Astro Cinema on completion at $9.6 million and the quantity surveyor's certificate, he would have issued an offer of loan for a further $1.5 million. 484 Mr Ryan was cross-examined at Transcript page 790 and following. Evidence given by Mr Rennie 485 Mr Rennie had been acquainted with Mr John Rochester who had once been managing director of Hoyts Cinemas and later became the managing director of a company called Redding. As at February 1997 Mr Rennie had believed that Mr Rochester was still managing director of Hoyts Cinemas when in fact he had sometime earlier become managing director of Redding. [Transcript page 875] 486 Mr Rennie was closely examined and then cross-examined upon every aspect of his dealings or of those reporting to him with Hoyts leading up to the making of a formal offer by Hoyts on 2 May 2000 accepted on 5 May 2000. 487 To Mr Rennie's recollection the first contact with Hoyts representatives would have been by telephone probably by Mr Peter Warbanoff and in March or April of 1997. Mr Rennie's recollection was that at that time Mr Warbanoff was dealing with the Operations Manager for Hoyts 488 Mr Rennie's personal involvement started in about late April [Transcript 876.15] when Mr Resnick telephoned him to say that what the Receiver's office had previously been told by Hoyts Operating Manager was incorrect and that Hoyts were in fact interested in the theatre. 489 In this conversation Mr Rennie informed Mr Resnick that he would like to pursue the matter. Mr Resnick asked if he could have some time to review the papers. Mr Rennie told Mr Resnick that Hoyts already had the documents that had been distributed to the other potential tenderers. 490 Thereafter Mr Rennie recalled meeting with Mr Resnick on Thursday 1 May 1997 at Hoyts premises. This was Mr Rennie's first meeting with Mr Resnick. At this meeting Mr Warbanoff was also present. 491 Mr Rennie had taken to the meeting some spreadsheets prepared by Mr Wharlow which indicated under certain scenarios what the value to Hoyts would be, to close down the Cinema. With a view to leading into that item, Mr Rennie asked Mr Resnick about the current trading position for Hoyts in the Mt Druitt Cinemas. Mr Resnick immediately, from the figures which he gave to Mr Rennie, gave Mr Rennie the clearest indication that the spreadsheet assumptions which Mr Rennie had made were quite fanciful. In the result Mr Rennie left in his briefcase the spreadsheets which he had prepared to bring along to the meeting. [Transcript page 877.5] 492 Mr Resnick quoted figures to Mr Rennie which indicated that Mr Rennie's estimates of a 60/40 split of the trading in the Mt Druit area were grossly astray and which indicated to Mr Rennie that the trading figures of the Hoyts Cinema were more like 90 percent of the trading figures of the overall area. This meant that Mr Rennie's spreadsheets would have a negative effect on the negotiation in that they would have shown that it was better for Hoyts to trade the Cinema on, rather than be closed down. In short Mr Rennie's spreadsheets included a 60/40 split in terms of the assumption that Hoyts had a 60 percent share of the overall market in the Mt Druitt and the Astro Cinema had the remaining 40% share. 493 Mr Resnick, on Mr Rennie's evidence, indicated to Mr Rennie that he did not want to get into a 'Dutch Auction'. Mr Resnick asked Mr Rennie to tell him the price at which he could effectively buy the Cinema. Mr Rennie refused to do this. Mr Resnick then subsequently said that Hoyts were thinking of making an offer of $1.8 million for the Cinema. Mr Rennie said "I can't tell you whether that is the highest or lowest offer. All I can say is that it will have to be materially higher than that if you wish to succeed in bidding for the Cinema. 494 To Mr Rennie's recollection Mr Resnick concluded by saying that he would need to go back and revisit the figures but that Hoyts were still interested in buying the Cinema. [Transcript page 877] 495 Mr Rennie recalled that there may have been two telephone calls on the Friday morning but that he was led to believe that he would be receiving an offer on the Friday 2 May 2000. The next direct contact as he recalled, was a telephone call from Mr Resnick late on the Friday afternoon, either to say that a facsimile was on its way, or to check whether he had received it. [Transcript Page 878.5] 496 Mr Rennie's recollection of what was said in the course of this telephone conversation from Mr Resnick was minimal; effectively that Mr Resnick would not tell him what the figure on offer was at the time and that Mr Rennie had to wait until he received the written offer before knowing what the figure was. 497 Mr Rennie's evidence at transcript 878 was that he received the offer from Hoyts at about 5.00pm on Friday 2 May 2000. It was received by facsimile. The only facsimile which he was able to produce [exhibit P 20] had a printed "sent" date and time, as 5.07am on 3 May 1997. Mr Rennie was quite clear that this was a mistake on the sending facsimile machine's setup. He had clearly received the facsimile on the Friday and very late on Friday. [Transcript pages 878-879] 498 Mr Rennie had had a golf lesson on the Saturday morning. 499 Mr Rennie recalls speaking with Mr Ross Williams who was Mr Soulos' immediate superior and informing him that they had received the Hoyts offer. Mr Rennie also believed he spoke to Mr David Low of Minter Ellison to inform him about the offer because one of the terms in the offer was that it was subject to acceptance by 5pm on the Monday. 500 In his contact with Mr Williams, Mr Rennie recalls telling Mr Williams that they had received the offer and that a copy of the document had also been sent to Mr Gary Glover at the Bank and that Mr Williams should look to Mr Glover for the information. 501 Mr Rennie's recollection was that he informed Mr Low at the 5.00pm deadline stipulated for the following Monday and that they needed to notify, in particular Dr Chia, or Dr Chia's solicitors, so that they were aware of the deadline. 502 To his recollection no other activity resulted from receipt of the offer on the Friday [Transcript page 880.5] 503 Mr Rennie's evidence was that as at Friday 2 May 2000 there were only three interested parties. One was Hoyts. One was clearly Dr Chia. The third was a syndicate of businessmen, the main spokesman of whom was a Mr Bob Dunlop, an investigating accountant and member of that syndicate. Some time earlier this syndicate had put in what they termed an "indicative offer" of two million dollars. 504 On the Monday morning Mr Rennie telephoned Mr Dunlop and reminded him of a conversation which they had had earlier the week before. He told Mr Dunlop that the time for coming up with an offer had now been reached and that if they wanted to make their indicative offer a firm one, they would have to do so before 5.00pm that day. The conversation which Mr Rennie had had with Mr Dunlop during the previous week had been one in which Mr Rennie told Mr Dunlop that as he had not heard from Mr Dunlop recently, Mr Dunlop needed to be aware that the negotiations were coming to a head, and that if Mr Dunlop was going to make an offer, he should do so sooner rather than later. 505 Mr Rennie also gave evidence that when he discovered that Mr Rochester had become the managing director of Redding he arranged a meeting with Mr Rochester to assess his level of interest in the Cinema. Mr Rochester had said to Mr Rennie "It is a dog, and am not interested". This meeting with Mr Rochester would have been in early March. [Transcript page 880.50] 506 Mr Rennie's evidence as to the steps which he had taken to obtain instructions about acceptance or otherwise of the offer on May 5th was that he had spoken to Mr Soulos during the course of the day. Mr Soulos explained to Mr Rennie that Mr Soulos had to obtain approval from, among others, the Indemnified Loans Committee, and his Bank Credit Committees. Mr Soulos undertook to do that and subsequently telephoned Mr Rennie at about 4:45pm on the Monday to say that he had obtained approval from the various parties who needed to give that approval. Mr Soulos informed Mr Rennie that it was in order to accept the Hoyts offer and Mr Rennie therefore sent the letter of acceptance to Hoyts shortly after Mr Soulos' telephone call to him. [Transcript page 881.5] 507 Mr Rennie was asked whether he had had any communications before that point in time with Mr Soulos by way of reviewing any offer. He believed he had had the one conversation on the Monday morning and the final conversation at 4.45 pm. 508 Under cross-examination Mr Rennie recalled his first involvement with the Cinema had been his appointment to investigate the operations of the theatre in about December 1996. 509 The present was a Rennie's first involvement as a receiver of a Cinema. Nor had he ever been involved in any other way as an accountant in relation to the Cinema industry prior to 1996. 510 Mr Rennie accepted that by May 1997 he knew that Dr Chia was interested in retaining the Cinema and had been negotiating with the Bank in order to retain it. 511 Mr Rennie gave the following evidence: Q. "Mr Rennie, furnished with the knowledge that Dr Chia was interested in retaining the Cinema and as the agent of Dr Chia, was it your view that you were under an obligation to give him a reasonable opportunity to make a final decision in relation to the purchase or retention of the Cinema. A. "I am not sure what you mean by a final decision. I certainly wanted Dr Chia to have the opportunity to make a bid for the theatre, yes Q. "You wanted the negotiations in relation to the purchase of the Cinema by whoever to be on a level playing field, didn't you? A. "Yes" Q. "You took the view, didn't you, that you were under an obligation to make disclosure to Dr Chia of material circumstances relevant to negotiations for the sale of the Cinema A. "Yes" Q. "And as the agent of Dr Chia, did your views of your role extend to this extent that you had a duty to obtain his instructions concerning the sale of the Cinema A. "No" [Transcript page 886] Q. "Was this your understanding that it would have amounted to a conflict of interest on your part to give Hoyts, as an audit client of Ernst and Young, any preference in the process of sale of the Astro A. "Yes" [Transcript page at 886 and 887] Q. "Was it your view that you and your staff would need to be vigilant in case of an unconscious preference being given to Hoyts in the process of sale of that Cinema? A. "Yes" 512 Mr Rennie was asked whether it was possible that a draft letter of acceptance of the Hoyts offer was prepared in his office on 5 May pending receipt of a communication from the Bank that the letter of acceptance could be sent. He disagreed that this had occurred. On his evidence it was on the 5th May that he first instructed Mr Warbanoff to draft the letter of acceptance and this occurred just after he received the telephone call from the Bank at approximately 4:47pm. [Transcript page 888] 513 Mr Rennie was asked whose idea it was that Hoyts might be interested in purchasing the Astro and then closing it down. He believed that it had arisen in the course of a meeting between Mr Warbanoff and himself during the course of which they were canvassing the possibilities of getting any offers.[Transcript page 889] 514 Mr Rennie was shown his executive summary of 28 February 1997 where on page 13 [PX 6/1718] the following appeared: "The purchase of the Astro by Hoyts would give it a monopoly in the area and allow it to control the local market. It could do this by closing down the Astro, or by using it in addition to its current facilities" 515 Mr Rennie was asked whether Mr Gary Glover of the Bank had contacted him early on in the receivership in February or March to advise that Hoyts were interested in purchasing the Cinema. He could not recall speaking to Mr Glover about that, his evidence being that such a call would be "very unusual in Mr Glover's case"[Transcript page 889] 516 Mr Rennie could not recall ever having been told by Mr Wharlow or Mr Warbanoff that they had been contacted by Mr Glover and that he had said that Hoyts were interested in purchasing the Astro. [Transcript page 890] 517 Mr Rennie did not know Mr Mooney of the Bank who was a relationship manager in the Bank, according to the cross-examiner, looking after the Hoyts account. [Transcript page 890] 518 Mr Rennie recalled that about 20 March 1997, Mr Wharlow had prepared a feasibility study being a document in which he had set out the benefit to Hoyts if they purchased the Astro and closed it down [Transcript page 892] 519 Mr Rennie knew Mr Appleby who worked in the Corporate Finance section of Ernst & Young. Mr Rennie recalled Mr Appleby having a meeting with Mr Rennie very early in the peace to obtain some generic information about the Cinema industry as Mr Appleby had had some experience in the Cinema industry. [Transcript page 893] 520 Mr Rennie recalled Mr Appleby informing him who the main players were in the Cinema industry.[Transcript page 894] 521 Mr Rennie was asked and answered as follows: Q. "Were you aware that, as at 20 March 1997, there were discussions between Mr Wharlow and Mr Appleby who relevant contacts would be in the audit department of Ernst & Young concerning Hoyts? A. "I was unaware of those discussions. I believe that - I don't know if it was Mr Wharlow but I believe that somebody told me about that time that Brian Long from our office knew the executives at Hoyts Q. "Did you regard approaches being made to the audit partners of Ernst & Young to seek to find out who the contacts in Hoyts were, as improper that stage A. "No" [Transcript page 895] 522 Mr Rennie could not recall ever being told by Mr Wharlow or Mr Warbanoff that a Bank officer had provided the name of Mr Johnston as a point of reference at Hoyts. 523 Mr Rennie gave evidence that as best he could recall, his first meeting with the executives of Hoyts took place on the 1st May. He was quite certain that he had not had a meeting with Mr Resnick on or about 8 April 1997 rather than on the 1st May. 524 In relation to the manner in which the receivership had been conducted, Mr Rennie's evidence was that Ernst and Young, insofar as his own duties were concerned, worked in groups. The jobs were allocated a group manager. Mr Warbanoff was the group manager. He had the carriage of several assignments during the relevant period and staff members reporting to him in turn reported through him, to Mr Rennie. Persons who Mr Rennie recalled having worked on the job with Mr Wharlow, were Mr Warbanoff and Ms Clements. Mr Peter Shear apparently also had carried out that some work in the early days on the theatre. 525 Mr Rennie's evidence was that he had an easy relationship with the staff members. They understood his requirement to be that they not bother him with inconsequential matters but that they referred to him any thing which was of importance. This could take my place four or five times in a day or there might be four or five days with no contact at all. [Transcript page 898] 526 On being referred to a report by Mr Soulos of 7 April for the Indemnified Loan Committee in which he had referred to a further discussion meeting of 8 April, Mr Rennie gave evidence that it was possible that there had been a meeting which he attended with Mr Resnick on 8 April but he could not recall such a meeting. 527 Mr Rennie's evidence as to the meeting on 1 May was that he immediately led the conversation down the path of there being definite commercial reasons for Hoyts to eliminate the competition because he wanted to enhance the value of the Cinema. [Transcript page 898] 528 Mr Rennie gave the following evidence Q. "At the time when the Hoyts offer actually came in, had you been given any indication in any of your previous dealings either those within the group which Mr Warbanoff was a manager of - or by any representative of Hoyts, as to whether they were making an offer based on a proposal to close the Cinema down, or perhaps contemplating retaining it as a viable ongoing business? A. "Yes, Your Honour. I recall asking Mr Rennie that question towards the end of our discussion on the Thursday [1 May]. He replied that they would probably-that is Hoyts-would probably continue to run the Cinema, or overflow first releases, and for holiday features Q. " At the commencement of the receivership it was your view that the Astro ought to be sold quickly, rather than via an extended sale program isn't that correct A. "Yes, that was my view" [Transcript page 900] Q. "Was a reason for that the upon your analysis of the business, it was at the breaking even, and any extended receivership would simply result in further debts being generated through continued operation A. "At best breaking even, yes Q. "At the commencement of the receivership, did you contemplate any time frame for the ultimate sale of the Cinema? A. "Not immediately. It would have been within, I suppose, within a couple of weeks of the commencement of the receivership Q. "That was your initial intention, to sell it off within a couple of weeks A. "Subject to analysing the trading once we took possession of it [Transcript pages 900-901] 529 Mr Rennie's evidence was also that the Hayden group had expressed initial interest but had dropped out a couple of weeks after tenders had closed. 530 Mr Rennie gave evidence that it was his view as at the middle of April that the tender process ought be kept alive in order to try to elicit an offer from at least one of the offerors. [Transcript page 903] 531 Mr Rennie gave the following evidence: Q. "Can I ask what sort of autonomy did you believe you had, or did you in fact believe you had at the time? Could you instantly have accepted an offer, or sold at your whim, or did you feel obliged to consult with the Bank? Whose decision was it on how quickly to go, you being the receiver A. "Your Honour, it was always going to be a collaborative decision" [Transcript page 903] 532 It was put to Mr Rennie under cross-examination that as at the third week of April the position was that apart from Mr Dunlop, the tender [process] had been concluded and that he was in a position to recommend final consideration of Dr Chia's offer. His answer was that he could have done so. [Transcript page 904] 533 Mr Rennie did not accept that the tender process was extended by him into May in order to enable Hoyts to finalise it's offer. [Transcript page 904] 534 Mr Rennie accepted that by the end of April some anxiety was felt by himself and his team as to whether or not Hoyts would come to with an offer. [Transcript page 907] 535 In being tested on the words which Mr Resnick had used during the meeting of 1 May, Mr Rennie gave evidence that he thought Mr Resnick's words were to the effect "If I made an offer of $1.8 million, would that be successful?" 536 Mr Rennie believed that he had responded: "I can't comment on any offers that I have received but I can tell you that if you want to acquire the theatre, that won't get you there" 537 Mr Rennie accepted that a similar approach had been adopted by him in his conversation with Mr Dunlop on the morning of the first of May. On that occasion Mr Rennie accepted that he had said that there was a materially higher offer. [Transcript page 908] 538 Mr Rennie gave the following evidence for Q. "It was only fair that you said to Mr Resnick in the meeting on 1 May that, 'your offer will need to the materially higher if you want to be successful? A. "Yes Q. "Let him know where, in general terms, the negotiations were up to without actually telling him the actual numbers is involved in the other contenders A. "Without-without saying what, what offers I did have, yes" [Transcript page 909] 539 It is clear from the concluding sentence of Mr Rennie's letter of 1 May [Exhibit D2A0] that Mr Resnick had foreshadowed on 1 May that a written offer would be received by Mr Rennie for the Astro Cinema by the close of business on the 2nd May. 540 Mr Rennie's evidence was that he had had two telephone calls with Mr Resnick on the 2nd of May, one in the morning and one later on in the afternoon. In the conversation in the morning of Friday 2 May, Mr Rennie had been advised by Mr Resnick that Hoyts would be submitting an offer before the close of business on that day and that it would be the subject of acceptance by 5.00pm on Monday 5 May 1997. At that time Mr Resnick had not disclosed to Mr Rennie the amount of the proposed offer. [Transcript page 911] 541 Mr Rennie's evidence was that it was at that stage that he decided to stipulate a deadline by which all interested parties were to submit final offers and that he instructed Minter Ellison to stipulate 3.00pm on 5 May as a deadline for Dr Chia. At that stage Mr Rennie had not yet received the offer from Hoyts. What Mr Rennie knew was that the Hoyts offer would stipulate a deadline. [Transcript page 912] 542 Mr Rennie had then got on to Mr Low at Minter Ellison and instructed him to write a letter to Mr Cassim. Hence the situation was that without even seeing the Hoyts offer or knowing the amount, Mr Rennie was prepared to bring the sale process to a head by 5.00pm on Monday. This notwithstanding that the Astro Cinema had been being marketed for two months since his appointment on 7 February. [Transcript page 912] 543 Expressions of interest had had to be in by 7 April. Yet Mr Rennie accepted that he was prepared to bring the tender to a head on the strength of one telephone call from Mr Resnick. He was then asked and answered as follows: Q. "You must have had great trust in Mr Resnick to through with an offer, a satisfactory offer, is that the situation A. "Yes Q. "And you say you didn't know what the amount of the offer was at that time when he rang you that morning A. "Yes Q. "Wasn't the situation that you decided to bring the sale process to a head within one business day in order to give Dr Chia too little time to put together a better offer, is it? A. "No Q. "Are you sure about that A. "I am" [Transcript page 913] 544 It was then put to Mr Rennie that the Minter Ellison offer did not call for final offers by Dr Chia by either 3.00pm or 5.00pm on 5 May. He accepted that the letter had not called for such offers. 545 The following evidence was then given by Mr Rennie under cross-examination: Q. "I suggest to you that the second last paragraph, "after that date, our client will deal with all offers received", carried the implication that Dr Chia could submit a further offer after 3.00pm on 5 May, correct? A. "If it could be read that way, yes. Q. "And can I suggest to you that the letter did not accurately implement your instructions? A. "You could - you could surmise that, yes Q. "Do you agree with that? A. "Yes" [Transcript page 914] 546 The reference to instructions given to Minter Ellison written is a reference to Mr Rennie's evidence at Transcript page 913, namely that his instructions to Mr Low were that he was going to receive an offer which had a deadline of 5.00pm on Monday May 5 and that he needed to notify Dr Chia's solicitors so that they were aware of the deadline 547 It was then put to Mr Rennie, insofar as Mr Low's letter did not implement his instructions and on the assumption that there was no communication implementing that instruction, that Dr Chia was not given an opportunity to make a final bid. Mr Rennie's answer was as follows: "I don't accept that because I believe, firstly, that there had been direct contact with Mr Cassim or his company and, secondly, although the words are loose, it says 'after that date', I think you should have read 'after that time', mainly 3.00pm on Monday, but I accept what you say about the wording of the letter. [Transcript page 915] 548 Also at transcript page 915, Mr Rennie accepted that the letter did not say that a final decision would be made on May 5. Yet he accepted that he communicated that orally to Mr Dunlop on the morning of May 5 in the telephone conversation. 549 When it was put to Mr Rennie that the letter went further and implied that a decision would not be made on the 5th May as it contemplates that further offers might be made after that date, Mr Rennie's evidence was that he read the letter as 'after 3.00pm on the 5th May I will deal with all offers received'. He did however accept that the letter did not say that an offer had been received which was open for acceptance by 5.00pm on the 5th May [Transcript page 915], yet that had been communicated to Mr Dunlop on the morning of the 1st May. Mr Rennie was then asked and answered as follows: Q. "Do agree that in the way in which we had just discussed it, the letter was misleading? A. "Potentially, yes. Yep. Q. "Why do you say that? A. "Because it says Your Honour 'after that date', and I think you should have said 'after that time'. But I believe also it should be read in the context of the conversations and phone calls that the place that day [Transcript page 917] 550 At Transcript page 918 Mr Rennie did not accept that in setting 5pm on 5 May as the time when the tender process would be brought to a head, he had engaged in an element of planning with Hoyts. Mr Rennie gave the following answer: "5.00pm was the time specified in the letter of offer, beyond which it would expire. From my earlier conversation on Friday morning, Mr Resnick had made clear that he would not indulge in a Dutch auction, so I went along with it" [Transcript page 918] 551 Mr Rennie was asked and answered as follows Q. "Subject to what may or may not have passed between Mr Cassim and Mr Low of Minter Ellison, as to which I gather you were not party to the conversation, putting that aside for the moment, on the basis let's assume that there was never any such discussion.... If there was no discussion between Mr Cassim and Mr Low about the matter at all, but only the Minter Ellison letter... then it would be the case that Dr Chia, of all three, would not have been told either that his offer would need to be materially higher in order to carry the day, or that there was a 5.00pm on Monday deadline before which any final offer that he wished to put should be put." Q. "Do I misunderstand your evidence, or is that broadly correct?" A. "No, from our point of view Your Honour that's correct, but all of the negotiations with Dr Chia were basically being done by the Bank, and I would have relied on them to convey the position to him." [Transcript page 919] 552 It was then put to Mr Rennie that his actions in bringing the tender to a head on 5 May were hasty, given the two months that passed in the sale process. He disagreed. It was also put to him that his decision in bringing the tender process to a head on 5 May was irregular, given the notice is involved and in particular given the short time. He disagreed. 553 Mr Rennie accepted that on Monday 5 May he had been aware that that day was a holiday in Queensland. He had not been aware of that fact before the day in question Mr Rennie had received a letter or a copy of a letter which had made this plain. [Transcript page 919] 554 Mr Rennie was asked and answered as follows: Q. "Had Mr Soulos told you that in monetary terms the Hoyts offer of $2.3 million was equivalent to the offer made by Dr Chia at $3.3 million, if we disregard the write up [sic] of the remaining debt? A. "I don't know if he told me that, that that would be my understanding, yes Q. "In those circumstances, would a prudent practice on your part have involved delaying decision? A. "No, I don't believe so. I had one offer from a purchaser who had the funds to buy the Cinema Q. "There was no approach made to Hoyts for an extension of the time for acceptance or settlement, was there? A. "No... Q. "It is not unusual, in your dealings as a receiver, to receive offers which specify deadlines, and you go back to the offeror and say, 'I can't make a decision now, give me a bit more time.' A. "It is not unusual, no" Q. "Did you have any knowledge of the communication from Dr Chia or his financial advisers to the Bank, which had indicated Queensland sources of finance, being the sources with which he was able to make his offers?" A. "Yes, Your Honour, I do. I made some preliminary investigations about them" [Transcript page 919] 555 Mr Rennie accepts that he was aware on the 1st May that Hoyts were an audit client of Ernst & Young, that they were an important client and a client of some standing in terms of the time that they had been a client and that they generated significant income for his firm. He did not however accept at all the suggestion strongly put to him that the decision by him to bring the tender process to a head on the 1st May was influenced to some extent, even if unconsciously, by the fact that Hoyts had an association with Ernst & Young. [Transcript page 920] 556 Also at page 920 Mr Rennie was questioned as to the differences as he saw his position, as between on the one hand the decision which he would have had to make had he only been dealing with third parties who had submitted tender offers, and on the other hand the manner in which offers received from Dr Chia to compromise the entirety of his liabilities with the Bank were to be dealt with. Mr Rennie was asked and answered as follows: Q. "Your role was to sell or realise the Cinema assets for their best price, as Receiver of those assets. You were not given any sort of legal authority from the Bank, were you, to deal with how Dr Chia's whole indebtedness and portfolio of releases and so forth should be treated with, is that not correct? A. "That is correct" [Transcript page 921] 557 Mr Rennie recalled having some discussions with Mr Fermanis on the morning of 5 May 1997. Mr Fermanis had telephoned Mr Rennie. Mr Rennie took a handwritten note at the time. His evidence was: "The words I have written down are not particularly delicate, but they say, 'Not jerking around.' He was ringing me to ensure that I wasn't jerking Hoyts around in negotiating with them ." [Transcript page 923] 558 The conversation was a fairly short conversation. Mr Rennie could not recall what he had said but he knew that he did not have the offer at the time that conversation took place. His evidence was as follows: Q "Having not received the offer at that stage, were you perplexed by this telephone call from Mr Fermanis?" A "No, I wasn't perplexed by it, no." Q "What was your understanding of what he had communicated to you, and why?" A "My understanding was that he believed Hoyts would make an offer, that they wanted to be sure that I would not be jerking them around. His words I think" [Transcript page 923] Q "You knew Mr Fermanis?" A "I knew him from several years before when he had been a member of a committee of inspection for Equity Corp." Q "Did you know what his association with Hoyts was at that stage?" A "Not really. He was in the corporate section of the Bank". Q "You assumed he had some Banking association with Hoyts as its customer?" A "I assumed that, yes." [Transcript page 924] 559 Mr Rennie could not be certain as to whether on 5 May he had seen the letter from Mr Cassim of that date which had enclosed the letter of finance from Queensland. 560 Mr Rennie did not know whether or not he had seen the Queensland offer before 3:40pm on the Monday. 561 Mr Rennie accepted that he had ordered some searches of the Queensland company at about 4.10pm on the Monday. The searches had, he recalled, disclosed at least the name of Mr Mogeridge as associated with the company. 562 Mr Rennie was aware that there was a Queensland holiday on the Monday. [Transcript page 926] 563 Mr Rennie was asked and answered as follows: Q. "And can I suggest to you that you didn't follow up the prospect of obtaining the best price for the Cinema or not going back to Dr Chia and saying, 'I have received a substantial offer from someone. I want to give you your last opportunity to make your best offer', or doing that via the Bank?" A. "I did not confer with Dr Chia but I was relying on the Bank to do so." [Transcript page 926]… Q. "Can I suggest to you that you didn't follow up the prospect of obtaining the best price by failing to recommend to the Bank that it go back to Dr Chia and suggest to him that he put his best price?" A. "I believe I discussed the offer of 3.3 million with Mr Soulos. I believe that I expressed concerns about the credentials of the funding organisation and I believe I said to Mr Soulos that there was no mention in the letter of it being subject to valuations because if it were, then the value of the Cinema would have had to have been somewhere in excess of $3 million to achieve a normal, say, 70 percent funding rate by a mortgagee so I believe I had those discussions with Mr Soulos by telephone on that day and I then relied on him to convey whatever he conveyed to Dr Chia." [Transcript page 926] 564 Mr Rennie was also asked and answered as follows: Q. "Ultimately, the Cinema was sold to an audit client of Ernst & Young, we know that. Was that a factor which, at that time, caused you some concern? A. "I wasn't aware, until you just said, that it had been sold to an audit client of Ernst & Young. Are you talking about the second sale or the first sale, please? Q. "Hoyts were an audit client of Ernst & Young? A. "Yes Q. "As at 5 May, wasn't the sale of the Cinema to Hoyts a matter which caused you some concern because they were a client of Ernst & Young? A. "No, it wasn't of concern to me Q. "You didn't ask the question of yourself then 'whether I'm in a position of conflict and ought to disclose this to Dr Chia'?" A. "No, I didn't believe I was in a position of conflict." [Transcript page 927] 565 Later at Transcript page 928 Mr Rennie corrected his earlier evidence and accepted that he had in fact been aware that Hoyts was an audit client. 566 Mr Rennie was questioned as to the precise part which he understood he was to play in the matter of dealing with on the one hand, offers received from Dr Chia and on the other hand incoming offers from entities interested in bidding for the acquisition of the Cinema and associated assets and the freehold. He was taken to the Minter Ellison letter of 2 May addressed to N G Cassim. Mr Rennie was asked and answered as follows: Q. "The letter seems, unless I misunderstand it, to suggest that you, as Minter Ellison's client, are inviting N G Cassim and company's client if wishing to increase an offer to compromise to do that by 3.00pm, correct?" A. " Yes, Your Honour." Q. "So that it doesn't really read, does it, as if you, the Receiver, have nothing whatever to do with any increase by Dr Chia of his offer to compromise. It seems to simply leave you in the suggested role of having a decision to make about an offer to compromise which may come in, do you see that?" A. "Yes I do, Your Honour. Q. "Well then, in a sense, is this correct, you are appointed Receiver and Manager of the Astro Cinema, meaning the assets of it, including, I suppose, the freehold, as well as the business? A. "Yes Q. "And your task, as I gather it is common ground, is to, within the principles of law which obtain, do the best you can to endeavour to maximise the amount which can be obtained upon realisation of that asset, correct? A. "Yes, Your Honour Q. "Well, there are three ways in which funds can come in by way of realisation of the assets by the receiver and manager. One is a third party makes an offer to, by Bank cheque, settlement, etc-in fact, there are really two ways. One is a third party approach, maybe any number of third parties interested in the Dutch auction or auction or tender type process, cash is received by the receiver and manager and accounted to the Bank. The other way apparently is a Dr Chia concern, somehow from Dr Chia's end of the equation funds must come in which the receiver can allocate towards realisation of the security, correct?" A. "Yes." Q. "In that exercise of endeavouring to balance what those otherwise than Dr Chia may have been prepared to offer to acquire in a, as it were, clean and easy to understand way, an asset from the Receiver, balancing that as against how one is going to treat with an offer from Dr Chia to compromise his level of indebtedness with the Bank by paying certain amounts, a clear amount which is to be regarded by you as Receiver as appropriated towards the assets over which you are a Receiver, do you say that you had any role to play in the decision or the Bank had the sole role or that in some fashion this was a collaborative exercise? A. "It was a collaborative exercise, Your Honour, because I was-I had been told by the Bank that the other securities Dr Chia had had been valued at approximately $1 million and by simple arithmetic, an offer of, say 3 million would have made the offer for the theatre to the equivalent of $2 million." Q. "Had you been given to understand, is this what you are saying, by the Bank, that you were able to regard a compromise by Dr Chia offer of $3.3 million as one which you could take it as receiver was to be regarded as appropriated as to $2.3 million in relation to the asset over which you were Receiver in comparison with offers which came in from others, is that the case?" A. "Not perhaps in such specific terms but in general terms, yes, Your Honour." Q. "You would have had to, in some fashion, one presumes, I may be wrong, but you would have had to, would you not, have had some type of rule of thumb which you would apply because by definition on the Monday, you were hopeful you would receive offers from at least one. You had one from Hoyts, you were hopeful you would receive one from the Dunlop syndicate and also, presumably, you assumed something might well come in from Dr Chia?" A. Yes, Your Honour." Q. "And in the absence of what you have just indicated as an explanation to you by the Bank, you would have had no way in the world of assessing how to treat an offer from Dr Chia against the others, correct?" A. "That's right." [Transcript page 929-930] 567 In re-examination Mr Rennie was reminded that it had been suggested to him in cross-examination that there was a failure to obtain a best price for the Cinema by failing to have the Bank go back to Dr Chia to obtain some further offer from him. Mr Rennie was asked and answered as follows: Q. "Bearing the offers that you did have, namely the Hoyts offer and Dr Chia's proposed debt scheme offer of $3.3 million, which course, in your opinion, on 5 May was likely, in your opinion, to have achieved the best price for the Cinema? A. "The Hoyts offer." Q. "And why was that?" A. "Well, it was a - an offer from a, an operator in the Cinema industry. It was an offer from a company which I believed was - had good credit worthiness and I believed it was most likely to proceed." Q. "How did that compare with the other options, one being, I suppose, accepting Dr Chia's offer or inviting Dr Chia to put some further offer - what was the pros and cons of accepting Hoyts offer compared to those other options to your mind as the position existed on 5 May 1997? A. "Well, the - I suppose the cons of Dr Chia's offer were that the letter of funding that I was shown or which was sent to me was of dubious - of a dubious nature. It seemed to be an incomplete document. It made no reference to the terms on which the money would be advanced and I had no way, given that it was a holiday in Queensland, of dispelling those fears. I also knew or believed that the Hoyts offer would simply go away at 5 o'clock on that day and that was a commercial risk I wasn't prepared to take." His Honour Q. "Why did you believe that?" A. "Because Mr Resnick had told me unequivocally that on the morning of the offer and because it said in the letter, 'this offer expires at 5 o'clock'. Q. "You accepted that that was Hoyts' position according to the terms, is that the position" A "Yes" Q. "Perhaps it is the same subject-you were asked whether you had a belief as to whether you could get an extension on the offer from Hoyts?" A. "Yes, I was." Q. "You indicated it was not uncommon for you to request extensions?" A. Yes." Q. "Why wasn't that course followed on this occasion?" A. For the same answer, because of the conversation with Mr Resnick that morning about Dutch auctions and because of the, the very firm nature of the letter of offer." His Honour Q. "Doesn't it often happen that in a negotiation situation, 'I will not make any further offer, this is the last one, you must accept it', comes from one party - the only way off and success that is to invite an extension ought to play some sort of a gambling card?" A. "Yes, Your Honour. I have done that on many occasions. On this - in this occasion, I - my commercial instincts told me that wouldn't apply." Q. "But you had asked for an extension, let us say before 5.00pm, until 2pm the next day or 5.00pm the next day, you would have either been told yes or no. If no, then presumably you could have proceeded in exactly the same way you had. To ask for an extension is not to reject the offer, it is just to make an inquiry?" A. "I accept that, Your Honour, yes." Q. "So that could have happened?" A. "Yes, Your Honour." Q. "Why didn't you try it?" A. "I don't know. I - in the course of the day, I formed certain views. I had had certain conversations and I made a decision not to." Q. "Are there any other considerations that contributed to that decision not to go back to seek an extension?" A. "I think the only other consideration was that all of the recognised potential buyers had indicated they were not interested in the theatre. It was highly unlikely that I was going to get an offer from anywhere and the risk of Hoyts going away with one that I assessed at the time I couldn't afford to take." [Transcript page 931-932] 568 Mr Rennie was asked and answered as follows: His Honour Q. "Mr Rennie, again assuming in the hypothetical that Dr Chia's solicitors or financial advisers had in fact submitted an offer of $3.4 million, and assuming - again this may be hypothetical - that it had a very solid financial entity's offer of finance which you were quite satisfied with when it came in, that would mean, would it not, that on one view, in the way you have explained that, as I understand it, that offer would be $100,000 more for the Cinema assets than for the other offers than the Hoyts offer - but, on the other hand, the Bank could, I assume, have required you or asked you to take into account the possibility that they may still be able to recover on their personal covenants if Dr Chia' assets statement proved incorrect, ie, I can envisage the possibility that when you are discussing the matter with Mr Soulos or your Banking contact, the discussion may have involved, 'Well, it may be $100,000 more for the Cinema, sure, but we at the Bank's end still feel that that there may be some additional assets and why should we compromise now, even for $3.4 million, if we want that avenue open to us'. I can envisage you saying, 'well, I am the receiver, what am I supposed to do here? I am trying to sell this asset'. Now, do you follow the type of inquiry that I have?" A "I do, Your Honour." Q "Why are you able to say how you would see your relevant role in that hypothetical situation, or is it just too complex for you to be able to really unravel?" A "I think my - my role was to maximise the price for the Cinema but always with the knowledge that the Bank had certain dealings with Dr Chia in the background and that they were always going to have to balance those separate considerations, which I wasn't party to other than discussions with Mr Soulos or Mr Williams, so it was a complex set of circumstances. I make no-make no mistake about that, it was a complex set of circumstances but I could only rely on the Bank giving me the information and it may well have been that they were considering the other personal covenants from Dr Chia Q "In a way, which you accept that the type of problem that I have been in a hypothetical fashion raising with you involves the question of once the receiver is appointed in respect of certain assets, whose really is the financial decision on a sale absent of a termination by the mortgagee of the receivership, ie, assuming that some outside entity had offered $5 million for the Cinema on the day you were hoping to sell it and the Bank had said, 'no, no, we require you not to accept that', presumably again you would have a difficulty in that you were appointed to realise the asset and the mortgagee is seeking to hold the back?" A "That, thankfully, is not a frequent occurrence, Your Honour, but it does point up the complexities of the nature of a receiver appointment. We have been talking about the receiver being an agent for the mortgagor. That, in my view, is an oversimplification of it. It - if the receiver has another responsibility to his appointor, the mortgagee, and to running parallel in my view, Your Honour." [Transcript page 933-934] 569 Following the second defendants counsel obtaining Mr Warbanoff's daybook, the second defendant was granted leave to recall Mr Rennie for further cross-examination. 570 Mr Rennie now believes that he had held a meeting attended by Mr Warbanoff and Mr Dunlop in about mid-April. [Transcript page 1036] The purpose of the meeting was to discuss what position Mr Dunlop was in concerning his potential offer. Refreshed by Mr Warbanoff's handwritten daybook notes, Mr Rennie accepted that the record of this meeting confirmed that Dr Chia had been attempting to refinance for a number of years. Here he was also shown the note reading 'CST/Chia and deal?' - may do - however may be reluctant to do so - lack of credibility". When asked whether he had been sold by Mr Soulos that Dr Chia had a lack of credibility, and for that reason the Bank may be reluctant to do a deal with him Mr Rennie's evidence was that he did not know whether he had been told this by Mr Soulos. "It is either that, or a conclusion on my part based on a number of conversations with Bank officers, and Mr Soulos in particular". [Transcript page 1036] 571 The cross-examination dealt generally with the discussions with Mr Dunlop. Mr Rennie recalled that he or Mr Warbanoff had stated that the Bank needed more than $2 million probably in trying to encourage Mr Dunlop to bid more than that figure. [Transcript page 1038] 572 Page 3 of the daybook recorded, as Mr Rennie believed, a telephone discussion between Mr Warbanoff and Mr Soulos concerning the sale. Mr Rennie's evidence was that it would have been normal for Mr Warbanoff to report to him the conversation which he had with Mr Soulos of the Dunlop meeting. [Transcript page 1038] 573 Mr Rennie was shown on page 3 of the day book, figures reading: Offer Chia 2.10 Million $2.75 .95 3.05 574 He accepted that this was a comparison as between the Chia offer and the Dunlop offer. His evidence was that he had never told Mr Dunlop that Dr Chia's offer was $2.75 million. 575 Page 4 of the daybook includes a note reading "CST want tender process to run its course - Bank almost prefer not to sell to Chia". This was not something that, on Mr Rennie's evidence, Mr Soulos had ever said to him. [Transcript page 1040] 576 Also on page 4 of the daybook, Mr Warbanoff's note read as follows: "Call from Paul Johnson -- wanted to have a last word on the deal-Pat Ward had a telephone conversation with Johnson re CST - if we do get offer from Hoyts couple hundred grand premium." 577 Mr Rennie gave evidence that he believed that Mr Warbanoff had told him that Mr Johnson had rung Mr Warbanoff and that Mr Warbanoff effectively wanted a last right of refusal. 578 Mr Rennie understood Mr Ward to be a Bank manager with the Bank. He believed that Mr Ward was at about the level of seniority of Mr Soulos or Mr Williams, either one up or one down. 579 Mr Rennie was asked and answered as follows: His Honour: Q. "Mr Rennie, any suggestion of a premium to be received from Hoyts by the Bank in or about a matter which involved sale by you of assets the subject of your receivership, presumably if it came to your attention would be something you would have taken notice of that the time? A "Yes, your Honour Q "Do you recall any such matter coming to your attention? A "I don't recall any such matter, but I must say from Peter's file, and the extent to which I know we conferred, that he probably said words to that effect. Whether he used those specific words, I would not know. Q "The notion of premium in that context, is that as you understood it a premium which the Bank would receive by way of some sort of windfall gain, or some other form of premium? A "Your Honour, I think what it is suggesting is that Hoyts would be prepared to pay $200,000 more for the theatre in order to obtain it" Wilson:Q. "Taking an overview of the negotiations for the Cinema, there were a number of Bank officers - including Mr Fermanis-who went in to bat for Hoyts to get the Cinema, weren't there? A "I think the only one who tried to influence my deliberations in favour of Hoyts, was Mr Fermanis" [Transcript page 1042] His Honour:Q. "Can I just ask, you said a moment ago that Mr Fermanis tried to influence your deliberations. Do you recall giving that evidence? A. "Yes, your Honour. Q "You said the other day that you had taken a handwritten note, and the words that you had written down were not particularly delicate, that they were not jerking around, and that he was ringing you to ensure that you weren't jerking Hoyts around in negotiating with them, correct? A "Yes, your Honour.... Q "What is your evidence as to the best of your recollection, as to exactly what was said in the course of this conversation? A "I believe that Mr Fermanis would have opened the conversation by saying that he had been speaking to Mr Resnick and that Hoyts were interested in making an offer for the theatre, but that they were concerned that they would not be, in his words, jerked around by me in the sale process. I would have them gone on to say, 'well, I will certainly not be doing that, and presumably I will be dealing with all offers as they are received'. I believe that would have concluded the conversation because I was anxious to dismiss Mr Fermanis from the considerations, your Honour. Q "On your evidence he tried to influence your deliberations, do you recall saying that twice today? A "Yes, your Honour. Q "So your deliberations, insofar as the day was concerned, presumably involved some decision being made at some point in the day as to whether or not the Hoyts offer should be accepted or rejected, or the offer ultimatum date time of 5.00pm sought to be extended, is that correct? A "Yes, your Honour Q "Do you say that in determining as you did not to ask Hoyts to extend the ultimatum for acceptance of their offer, you do not take into account at all Mr Fermanis' attempt to influence your deliberations? A "I do say that, your Honour. Q "How are you able to give that evidence if he had telephoned you and you must have had that in your mind as an occurrence of the very same date? A "Because he was in a totally different section of the Bank, he had no part in the process of a direct nature and I was frankly annoyed at his attempt to phone me. Q "And expressed concern that you as receiver would not be jerking around, to use this expression again, Hoyts was taken by you in hearing that said as meaning precisely what?. What did you believe they were trying to tell you they were concerned about? A "They were concerned, your Honour, I believe, about getting into a Dutch auction. Q "And by Dutch auction, as the phrase has been used, I think, by you on several occasions, it is simply when one doesn't know the extent to which what one is being told about other offers is correct or credible and one is really continuing to offer in the dark, as it were, is that correct? A "No. I - I believe that is that correct definition of Dutch auction. The one that is more commonly used is a one where one party makes a bid then the vendor goes to the other party and says they have bid 2.5 million and a ratcheting process takes place, whether by real or imagined bids by the various purchasers. Q "So are you saying that, as you recall it, you took what Mr Fermanis was saying to you as an indication of the concern by Hoyts lest you go informing others of precisely what the latest Hoyts offer was in that ratchet time fashion leading to a, perhaps, escalation upwards of offers? A "That would have been a very strong part of it, your Honour, yes.... Q "In relation to your decision not to inform Dr Chia's side, as it were, of the Hoyts offer, which was a decision of yours being carried through on Monday not to inform Dr Chia's side of the offer, do you say you didn't take into account this phone call which you had received from Mr Fermanis on Friday? A "That wasn't part of my considerations and, in addition, any relaying of the offers and the negotiations with Dr Chia were all taking place between the Bank and Dr Chia, not between me and Dr Chia, your Honour. Wilson.Q. "When Mr Fermanis rang you on the 2nd May and used the words 'they are not jerking around', did you get the impression that he had been asked by Mr Resnick to ring you and communicate this to you A "No, I didn't get the impression he had been asked to do so. Q "Did he tell you that he had spoken to Resnick and Resnick has said, 'we don't want to be jerked around' and that is why he was ringing you, to tell you that? A Yes, he told me that he had spoken to Resnick and that Hoyts didn't want to be jerked around, that's right" [Transcript page 1045-1046] 580 Mr Rennie's day book [exhibit D2AS] at page 144 referred to a telephone call from Mr Colin Resnick of the fifth of May 1997. Mr Rennie gave evidence that he had told Mr Resnick that the Bank was referring the matter to the board and the indemnified loans committee. On reflection Mr Rennie believed that he would have thought it was the credit committee rather than a board that he had referred to. Then within a short interlude of time, represented by only one line in his notebook, Mr Fermanis telephoned. [Transcript page 1047] Mr Rennie was asked and answered as follows: Q "What did [Mr Fermanis] say to you on 5 May? A "He, I believe, asked me where the offer was at and I would have told him exactly what I told Mr Resnick when he rang. Q "He was, to your understanding, as it were, monitoring or supervising how the Hoyts' bid was going on the day? A "In an informal way, I believe he was Q "Did he use any similar words that 'Hoyts are not jerking around' on this occasion? A. "No Q "You told Mr Fermanis the same, did you, 're above', namely, that the Bank had referred the matter to the board and the indemnified loans committee.? A "I assume so. I don't have a specific note. I presume I would have told him just that. Q "Mr Fermanis was the State manager looking after the Hoyts account to your understanding, wasn't he, at that time - State Bank manager? A "He was - I don't recall - I thought, and I think I said last week, that he was in the corporate area. I don't recall whether he ever told me he was a relationship manager or had just assisted Hoyts at the time they were having their financing difficulties back in the early 90's." [Transcript page 1047] Mr Rennie's day book at page 145 recorded that at 4.47pm on 5 May, Mr Soulos gave him the OK to accept the offer. The note reads: "4.47 Phil Soulos OK to accept offer. Board approval obtained. G Glover OK obtained." [see also Transcript page 1047] Mr Rennie was asked and answered as follows: Q "Did you speak to Gary Glover?"' A "No" Q "At that time?" A "No" Q "He, being Mr Soulos, had told you that Glover's okay had been obtained?" A "yes" [Transcript page 1048] His Honour:Q. "Did you, in fact, make the decision to sell to Hoyts awarded the Bank make the decision or do you say both of you made the same decision?" A "At the end of the day, the Bank made the decision to sell the theatre." Q "To Hoyts?" A "To Hoyts." Q "And you simply executed the decision as requested by having the letter of acceptance sent off?" A. "Yes, your Honour" [Transcript page 1048] Evidence given by Mr Peter Warbanoff 581 Early in the piece, Mr. Rennie, Mr Wharlow and Mr Warbanoff when discussing the Cinema complex, had looked at the potential for sale and had discussed who would be interested in buying the property and the business. Mr Warbanoff recalled that it was unlikely to be Great Union. In contemplating Hoyts as a possible buyer they had come up with the idea within the Receiver's office, that a beneficial method of marketing the sale to Hoyts might be to develop a feasibility proposal whereby Hoyts would buy the Cinema and close it down. The idea had been reached almost to procure a minimum value. [Transcript page 33] 582 Mr Warbanoff gave evidence that prior to the placing of the advertisement for sale in late March, he was unaware of an interest by Hoyts in the Cinema. [Transcript page 34] 583 Mr Warbanoff's evidence was that in developing the feasibility proposal he had not dealt with and there had been no discussions with Mr Long or Mr Elliott. Meeting of 17 April 584 On about 17 April 1997 Mr Johnson had telephoned Mr Warbanoff saying effectively that he wanted to be able to have a last right of refusal. That is to say that he wanted to be the last man to make a bid. He wished to be able to come in with an offer without having been told what had been the highest bid on the table at the time. [Transcript page 37] Meeting of 1 May 1997 - Messrs. Rennie, Warbanoff and Resnick 585 In giving evidence in chief, Mr Warbanoff said that this meeting effectively constituted negotiations for sale of the Astro. His evidence included: "...There is references to... Resnick wanting to, or Hoyts wanting to purchase the property and he felt that the biddings that - or the offers that were on the table were approximating somewhere between 1.8 and 2.1 million... And he seemed to know, or he seemed to feel that he knew who the other parties were. 'JR' refers to a John Rochester, being another party, and he didn't believe that anyone else could basically, you know, come up with the money within the week, or basically cut a deal straight away, effectively. He then went on to discuss or ask how to basically - how it was best to cut a deal... And that was then a source of general discussion between the three parties, in particular Mr Rennie and Mr Resnick. Mr Rennie did explain that the anti had been upped, but he did reaffirm that he could not tell Mr Resnick the precise figures. However, he did indicate that 2.1 million was not the actual figure. The reference in the middle point to $850,000K, that value refers to the value of the land alone, and the CR is a capital return, 50 to 60 percent which Mr Resnick indicated was too high. That refers back to my previous statement where Mr Wharlow prepared a number of scenarios as were trying to ascertain values, or approximate values of the property, or the business to Hoyts. "Colin was very aware of not, as I referred to, fllitting Ken around, in the middle of the page 36. Effectively he wanted to get a quick resolution and Ken indicated that obviously that would be our intention as well. But, however, at the price that he was talking at... the present time, in this meeting, at 2.1 million, it simply wouldn't be good enough." Then the issue about other creditors being superfluous refers to the fact that the company, or the property was in receivership-was in a corporate structure, so was no need for Mr Resnick to pay other creditors. They wouldn't be taking on those liabilities. And effectively the last comment there was that we [don't] want to get into a Dutch auction. "I can't recall as to the 2.1,10 percent, whether there was - who actually made that comment, whether that was Resnick making a query or Mr Rennie actually saying that might be the price. But effectively, I know Mr Rennie was stressed that we did not want to enter a Dutch auction and have this going on continuously." The last comment was that at the end of the day, the Bank was not too fussed about selling up Dr Chia, but effectively wanted to get the best price possible. Then over the page, Mr Resnick discussed about the best way forward about putting perhaps a time limit on an offer together with the deposit, to evidence his bona fides, and that way he would be able to put the pressure on the Bank and also the Receiver, Mr Rennie, in dealing with the offer That way, I suppose, going into the next comment, the Bank can say 'we will take chances'. It is effectively putting the ball in the Court of the Bank by framing a letter in that way. The reference to, 'more than $2 million, not possible to make money', was Mr Resnick indicating that he felt that a $2 million offer, that it wasn't impossible to make money out of the business. And, effectively, he was trying to talk down the value of the business, obviously, from a buyer's perspective. "We then indicated that we would ask the Bank it was agreeable to provide any valuation they had on hand, to Hoyts in order for them to facilitate to make an offer..." [Transcript pages 26-27] 586 Mr Warbanoff's evidence was that Mr Resnick said that he had spoken to Mr Long of Ernst & Young about strategic areas. Mr Warbanoff believed that his handwritten note referring to "preference for other parties not to be competing", was a reference to strategy in terms of whether it was worthwhile buying the Astro as opposed to allowing competition to go into the Astro. Mr Warbanoff's understanding from the conversation with Mr Resnick was that Mr Resnick had sought some professional advice from Mr Long concerning the advisability or not of Hoyts buying the Cinema. [Transcript page 32]. 587 A very close cross-examination of Mr Warbanoff appeared to be aimed at suggesting that Mr Resnick was given an inside edge during this meeting by way of a clear indication as to the amount which Mr Resnick should offer in order to secure the property. To my mind the evidence discloses that no such indication was given. It is, however, the case that Mr Warbanoff's notes, had they not been carefully explained, might have been open to an inference that such indication had been given. 588 An example of the alternative ways in which some of Mr Warbanoff's notes might be interpreted may be observed by the reference to "significantly underbidder - more than 5% out at $2.1 million". [Day book page 36] 589 Mr Warbanoff was asked and answered as follows: Q. "Who was it that said 'more than 5% out at 2.1 million', do you recall? A. "I cannot recall whether that was a question from Mr Resnick, or whether it was a statement from Mr Rennie. Similarly with the 10 percent down below. Q. "Okay. But the words ' significantly underbidder' were referring to Chia, in all likelihood? A. "I can't recall. I'm sorry, I can't recall whether it was Dunlop or Chia Q. "But analysing the situation, it is likely to have been Chia, isn't it? A. "Not likely, because Dunlop was quite a stronger bidder at that time. It was still quite interested and we'd still hoped that we might be able to build his-get him up to 2.2. Q. "But reading those two lines together, isn't it a reference to a 'significantly under bidder', five per cent out at 2.1 million? A. "Is that a question? Q. "Yes, is that how you understood your words there? A. "No, I don't, actually, because the way I interpret this is a rhetoric question by Resnick of saying, 'if I put 5% on top of 2.1, will that get me over the line" Q. "I see, all right. Similarly, might he have been saying, 'if I put 10 percent on at 2.1, might that -- -- A. "Yes, that's right. Q. "…….. Get me over the line"? A. "Yes Q. "Do you recall whether there was any general discussion by you and by Mr Rennie at the meeting of the fact that Chia was under 2.1 million? A. "No, not - not directly. Not - we didn't disclose a price Q. "No, I appreciate that, but did you disclose where he was in the relatively under 2 million? A. "no" [Transcript pages 29-30] 590 Later in the cross-examination, when the cross examiner returned to this meeting, Mr Warbanoff was asked and answered as follows: Q. "At about point 3 there is a reference to 2 bids; 'one from the mortgagor, potentially very litigious, if there is not a sufficient margin'; is that Mr Rennie saying that to Mr Resnick? A. "Yes Q. "Was there any discussion then about what the margin needed to be? A. "No. It was more a case of talking up the price with the comment there 'Anti was upped yesterday 200K, cannot tell you the figures, however, 2.1 was not the figure that Resnick had got in his mind'. If you're referring to the last line on page 35, Resnick had indicated 1.8 to 2.1 million was what he thought the offer was on the table Q. "5% gives you the extra 100,000; is that correct? A. "As I said earlier, I can't really recall the basis on the 5% out at 2.1 ,but at 5% that would give you - you know, the sheer mathematics of it, you would say, yes. Q. "In the meeting of 1 May, was it said to Mr Resnick, 'Any offer by Hoyts needs to be significantly greater than Dr Chia's, there needs to be a substantial margin'? A. "Well, we simply said there needed to be a sufficient margin. He knew that the mortgagor had made some offer, you know, to clear out his debts with the Bank, and as indicated it would need to be a substantial offer. It could just be a dollar more because it would be litigious, and invariably the Bank would presumably take the whole package that Chia was offering if it was only a dollar different Q. "Right. So was your understanding that it was indicated to Hoyts that if they were to get the Cinema, they needed to win the bid, they needed to hurdle it fairly quickly by a margin of a couple of hundred thousand; is that correct? A. "No, we didn't say what the exact margin had to be, but we indicated that it had to be substantially higher than what the current bid was, and the current bid was higher than what Resnick had proposed it had been. His Honour: Q. "And it was what, in that sense? A. "Well, the actual bid, by recollection, was around about the 2 to 2.1 million mark, and we indicated that 2.1 wasn't in order to try and price him up.... Q. "You suggested to Resnick that a 10 percent margin on 2.1 million was the substantial margin, or the sufficient margin which might make the day; correct? A. "No, I can't recall in the context in which that comment - in the way I've notated '2.1 at 10 percent', whether that was Resnick speaking out loud as opposed to Ken actually making that comment. I just can't recall His Honour: Q. "Well, is that the case that as you can recall it, someone said something about this topic, '2.1 and 10 percent' and mark A. "Well, they were the figures being talked about. Wilson: Q. "can I just ask this again, if you go back to your page headed 'Tactics', and you compare it with your note of the meeting at 36? A. "yes Q. "The reference to '2.1-10 percent', can only mean that you were flagging the substantial margin which needed to be achieved in order to successfully win this bid and avoid any litigation problems? A. "That's not quite correct, because I can't - as I said I can't recall whether that was Resnick proposing the 2.1% against our 10 percent, or as opposed to Ken indicating that, and whether he was surmising that that's what would need to be taken In any event, even if we had got an offer, it would still have to be passed by the Bank. We did not know what the Bank was willing to accept or prepared to accept if there were conditions, etc. So it would also depend on how the deal was structured... "...It would have been one of two situations. Either Resnick or Ken would have talked on those figures. It is the same as with the 5% out at 2 1, as well, on both those cases, I do seem to recall that Colin was fishing to sort of get a figure, you know, from us, so he could establish what he would need to pay. He was keen to purchase the property, but obviously not willing to pay well and above what he thought he needed to pay to actually win the property. His Honour: Q. "If he was told 2.1 plus 10 per cent, then he would have caught a fish, would he not? A. "If he had been told. He would have been in the running, but not necessarily. As I said, it still would have needed to depend on how the offer was made in terms of settlement and so forth, and, also, it would still be dependent on the State Bank accepting that offer. Q. "Is it correct that you actually do recall now that you see the note, or can give evidence, at least to this extent, that the words 2.1 million were used in the course of the meeting? A. "They were used, but I don't know by whom, because as I referred earlier, Ken was - he was - 'Cannot tell you the figures' was definitely a comment that came from Ken. Wilson: Q. "Does this 2.1,10 per cent, reflect what you set out in your document 'Tactics'; namely it would be off the record that if Hoyts paid a premium of 10 percent on 2.1 they would, to use His Honour's words, catch the fish? A. "No it's not my recollection that was the case... Q. "And did the meeting then proceed this way, Rennie said - did the meeting then consider this scenario, that if Hoyts paid 10 percent on 2.1, it would ensure that there was no Dutch auction? A. "No, far from it. The comment 'no Dutch auction' was made in respect of Ken saying that he was not prepared to enter into a Dutch auction, which would seem to suggest that may be that comment of 2.1 to 10 per cent was Resnick fishing to try to get a figure and Ken's retort was, 'well, I don't want to enter into a Dutch auction, you have to make your bid'. Q. "And then can I ask you to go to 37, there was a discussion of 'framing of offer'. Is that a summary of a conversation between Mr Resnick and Mr Rennie, namely, the words 'framing of offer, best ways to put time limits, deposit to put up the bona fides in writing, pressure on Bank and KJR". A. "That was - my recollection is that that was Resnick suggesting that this perhaps is the best way going forward effectively so we could get some sort of resolution. His fear was that it would continue to labour on and that it would go back to a Dutch auction, that Hoyts would come in at a certain price, then the Bank would negotiate back with Dr Chia and get a higher price, then go back to Hoyts expecting a higher price, and that was the scenario which I wished to avoid, hence the 'no Dutch auction'. Q And when Resnick suggested this manner of framing of the offer, I assume Mr Rennie simply said, 'well, there seems all right to me' or such? A. "My recollection is that Ken would have said to him, 'look, you are the one who will be making the offer' effectively. Q. "Did Mr Resnick in fact make an offer at this meeting of 1 May? A. "No. Because as far as I was concerned he was fishing for what the actual figure was going to be and that indicated that he would be making an offer as a result... His Honour: Q. "There is a line there, 'then Bank can say we will take chances', is that the wording? A. "Yes, that is the wording... It was said in the context that if - I think this may have come from Colin Resnick but I can't categorically recall that that was the case, but it was more along the lines that if the offer was put to the Bank with a time limit and a deposit on the table then the Bank really, the Bank fell back on its onus to take its chances with whom it would prefer to deal with in terms of trying to finalise a sale" [Transcript page 47-50] 591 On 23 April 1997 Mr Warbanoff had a telephone conversation with Mr Soulos. [Exhibit D2AR, page 17] 592 The day book records that at this time discussions were taking place with representatives of Hoyts and also with the syndicate in respect of which Mr Dunlop was the spokesperson. The discussion related to the current status of the receivership in terms of the sale. Mr Warbanoff informed Mr Soulos that Hoyts had undertaken to provide an offer by a date in late April 1997. The date was possibly initially the 24th of April but then changed by Hoyts to the 28th April. [Transcript page 23] 593 Mr Warbanoff also gave evidence as to the contents of the telephone conversation between Mr Rennie and Mr Ward of the State Bank on speaker phone on 24 April 1997. [referred to earlier in the Judgment] Mr Warbanoff's note reads: " Colin Resnick - spoke to Glover - re 'wanting it' but problem for CST how do we do it - protection." 594 In being asked to assist on what he meant by using these words Mr Warbanoff was asked and answered as follows: "I'm not clear on - I can't recall problems with CST, how do we do it. 'Protection' would be in the context of making sure that it was open and that was the best price possible that was achieved under - as Ken had, you know a duty to achieve the best price under his appointment. His Honour: Q. "You've written these words down, 'Problems for CST, how do we do it'. As far as you can recall, looking at those notes, were they words which Mr Ward said over this phone, 'But there is a problem for the Bank, how do we do it?' Or how do you, as you best recall those words having been written onto your pad by reference to who said what, etc? A. "It would have been paraphrasing probably Mr Ward " [Transcript page 39] 595 On my findings this conversation included a discussion of how to get the process back on track to try and get a sale completed as quickly as possible. [Transcript page 40] 596 Mr Warbanoff was asked and answered as follows: Q. "The problem of how to handle and what to do, was that tied up with the presence of Dr Chia? Do you remember that? A. "And also Dunlop. At this point there were still three and it was the case of everyone sort of holding off and making it a bid and wanting the last, you know, saying 5 o'clock at this time on this day will be the end of the process and everyone wanting to submit at 4.59 hoping they knew what the others is basically had an onboard" [Transcript page 40] Q. "And then the next reference, "Process of integrity; make offer to each party to put their best bid." Is that likely to be Mr Rennie's words, is it? A. "Yes, is that more than likely. Q. "Page 27, top of the page you write "Resnick, much more of an idea than what they should". Does that record what one of the parties to the conversations said? A. "I believe it refers to a comment that - I, can't recall who made the comment, but it's referring to the fact that Colin Resnick had more of an idea of whether they should buy and should buy at what price, given his position" 597 [Transcript page 40] Evidence given by Mr Soulos 598 Mr Soulos was away from work from the end of 24 April 1997 until he returned on the morning of 5 May. Although he was in Sydney for part of the week commencing 28 April he had no specific recollection of making any telephone calls into the office. It had however been his practice, to check that others were handling what he called live referred accounts report relating to cheques issued on his clients accounts. He did have a colleague at work whom he believed he would have communicated with at least once. 599 Mr Soulos did not attend meetings of the Indemnified Loan Committee. [Transcript page 572] 600 Mr Soulos accepted that the Indemnified Loan Committee made all decisions concerning the ongoing administration of the file. The Bank's Credit Committee's involvement was different. The Credit Committee made no decisions on the ongoing administration of Dr Chia's file. 601 Mr Soulos accepted that when in April of 1997 he had informed Mr Platcher that the Credit Committee had some responsibility in the decision-making process concerning Dr Chia, he had in fact been describing the Indemnified Loan Committee, as it was not the Bank's policy to inform clients of the Indemnified Loan Committee. 602 The Indemnified Loan Committee had been formed following upon the sale of the Bank. The State Government had under the relevant legislation, been required to indemnify the Bank in respect of certain loans. Those were loans which had been identified at the time of sale of the Bank. Dr Chia's account was one of those files. These were loans known as "Indemnified Loans". 603 A report by Mr Soulos of 28 November 1995 in relation to Dr Chia's account had identified the Bank's concerns regarding the relationship, the most significant of which was said to revolve around the potential detrimental impact on earnings/viability of competition by the larger Cinema operators, noting that there was council approval for the construction of an eight Cinema complex in the Westfield Market Town Centre anticipated to be operational by Hoyts by late 1996. [PX 5/1235] 604 The same report included the following: "There is no doubt that the Astro Cinema is an extremely profitable operation which has posted a substantial growth since commencing operations in March 1991." 605 The report included a handwritten notation reading inter alia "We want to exit relationship in the short term due to the impending high-profile competition" [PX 5/1230] 606 Mr Soulos was asked and answered as follows: Q. "And is it fair to say that as at the date of preparation of this report, the Bank had decided to quit its relationship with Dr Chia and what was to follow was the process of an orderly division or separation of the Bank and its customer?" A. "The Bank expressed its view that it would like to exit the relationship." [Transcript page 576] 607 In October 1996 Mr Hanly had had control of Dr Chia's affairs for a period. Mr Soulos took over control of the file again in 1997. Mr Hanly had written on 14 October 1996 to Mr Marsden, who acted for Dr Chia, stating inter alia "I confirm that I would support and expect (but cannot assure you of) approval of a compromise repayment amount of $3.4 million. [PX 5/1492] 608 Mr Soulos in being shown this letter was asked and answered as follows: Q. "Are you able to say whether or not as at 14 October 1996 you would have recommended a compromise repayment of $3.4 million given your involvement in the file until September?" A. "I think it at that point in time I would consider the 3.4 million to be a reasonable result for the Bank." Q. "I don't think it changed up until the sale of the Cinema in May of 1997, did it?" A. "I think that a figure around about there was quite possibly the mark" [Transcript page 579] 609 By letter dated 10 December 1996 to yet another solicitor acting for Dr Chia, Mr Hanly said inter alia: "The total balance at 9 December of $3,989,037.03 $ plus any interest and fees not yet charged is due and payable and notices of demand have previously been served. The Bank has previously indicated, on a without prejudice basis, that an offer for a discounted payout of $3.4 million would be seriously considered. This has been discussed with but not formally approved by the relevant approving authority."[PX 5/1546] 610 Mr Soulos was closely cross-examined on the supporting facility letters received from time to time by the Bank from Dr Chia's relevant advisers and financial consultants particularly in Queensland. These included draft proposed loan facility letters sent by a Queensland firm of solicitors. The convenient course is to deal in this judgment in a separate section with all such draft facility letters as there were a number of those letters and as many of them were attacked by the Bank's counsel as insubstantial and as documents which in the circumstances in which they were received by the Bank, were entitled to be treated with suspicion. 611 It had been Mr Soulos' group on 31 January 1997 which had prepared a report for the Indemnified Loan Committee recommending the appointment of Ernst & Young as receivers and managers over the operations of the Cinema. 612 Mr Soulos was cross-examined over a two-day period and then again cross-examined following the inspection by Mr Wilson of Mr Warbanoff's Day Book. It is inappropriate and unnecessary to set out the whole of this cross-examination. 613 The receivership and had never been intended to be otherwise than on a short-term basis. This was particularly because of the concern with cash flow and the situation presented to the Receiver namely that the Cinema would be running at a loss. Hence time had been of the essence. [Transcript page 586]. 614 As at February 1997 Mr Soulos who had understood that the Bank had had a hands-on involvement with Hoyts in the past, was not, on his evidence, aware as to whether Hoyts were still customers. [Transcript page 587]. 615 Mr Soulos gave evidence that he was not aware of any marketing or direct approach to Hoyts to elicit an offer of purchase from them prior to their actual offer being made. His evidence was that he was not aware of any particular Courting or marketing or information flow moving to Hoyts as a precursor to any offer which Hoyts might make. 616 Mr Soulos gave evidence that during his initial meeting with Mr Rennie, Mr Rennie has suggested that he make discreet inquiries with Cinema operators and hence Mr Soulos was aware that Hoyts could be a potential purchaser. [Transcript page 588] 617 Mr Soulos had first become aware of the offer made by Hoyts on May 5 upon his return to work. 618 The cross-examination of Mr Soulos suggesting that the Hoyts offer had been received at 5.07 am on May 3 was based on the Hoyts facsimile printout. Following the evidence given by Mr Resnick, I was satisfied that this facsimile had in fact been sent late in the afternoon on May 2. Clearly the facsimile machine utilised by Hoyts had operated for a time when its settings had been incorrect. [see exhibit P31] 619 At the time Mr Soulos had left for his holiday, he understood the last offer on the table from Dr Chia to be $2.75 million by way of final settlement of all of the obligations and liabilities of Dr Chia to the Bank. [Transcript page 593]. Evidence given by Mr Ross Williams 620 Mr Williams and gave evidence that on 29 April 1997 Mr Platcher telephoned him asking to talk about Dr Chia's matter. Mr Williams asked him to call back in an hour. 621 Mr Williams gave evidence that he had a telephone conversation with Mr Platcher on 29 April 1997 in which Mr Platcher asked whether Mr Williams had received his facsimile of 28 April, and Mr Williams said that he had and would be providing a response to it. On Mr Williams evidence the conversation which followed included words to the following effect: Mr Platcher: Have you any response to your tender process from the Receivers? I have been discussing this matter with Philip Soulos who told me that he was on leave for a week, so would you be able to tell me whether there has been a decision made on the tendering process. I told Phillip my position with our lender who is now pressing for a settlement on this matter Mr Williams: Yes, we have interested parties and the matter should be finalised very shortly Mr Platcher Do you think the offers have been relatively close to our proposal Mr Williams Yes, I think the offers are quite substantial. There are two very interested parties Mr Platcher In order to effect a settlement quickly, I think our lender would be prepared to advance some more money so long as a settlement could be effected quickly Mr Williams: Send me your offer and I will provide you our response." 622 Mr Williams accepts that he had a telephone conversation on 1 May 1997 in which words to the following effect were said: Mr Platcher Have you received a final offer from your tendering process? As you know, our lender would like to settle this matter and they are anxious to finalise things. Mr Williams The tender process has not been finalised. But there are interested parties that will be providing offers to the Receiver very shortly. Mr Platcher If they are to be firm offers, they would need to be supported financially. I cannot believe after such a long time, that there are interested parties for the site, that are of any substance. I cannot believe that there is such interested especially when you consider the site would have to be operated by a person that knows the business and is a cinema operator. Mr Williams I can tell that there are two very interested parties that are of considerable substance. Mr Platcher I have not received a reply to my letter of the 28 April. Mr Williams There were certain tones of your letter which were not accepted with great enthusiasm. Mr Platcher I do not understand what you mean by the tone of my letter. I have only indicated the facts as were discussed between Phillip Soulos and myself. I have not tried to place Phillip Soulos in an invidious position." 623 Mr Williams denied that Mr Platcher said "More so I have only put forward what we discussed which was that our offer was accepted allowing due application and consideration to the tender process." 624 On Mr Williams version of the conversation it continued in words to this effect "Mr Platcher As I have stated in my letter of 22 April in the second paragraph, providing due application to the tender process. I think for you to say that the tone of my letter was derogatory, that is not being fair to me. Mr Williams The last paragraph of your letter was concerning and we have forwarded your letter to our legal people and they will certainly provide a response to it. The proposal has also been discussed with my senior management. As I said, you will be receiving the bank's response toward your correspondence. Mr Platcher I really cannot understand why the bank is not prepared to settle this matter especially when both parties are trying to mitigate their losses. I have said this in my letter and I think this matter should be settled amicably without legal proceedings being involved. As I have said to Phillip Soulos, the solicitors for [Dr Chia] are of the opinion that I am hindering and delaying their possible actions. The lender also believes that I am delaying this matter and I am concerned that I might be the bunny that is likely to be sued by the lender. Mr Williams The Bank is always prepared to consider compromise the offers to effect amicable settlements. However it must reflect the best return to the bank. The Bank has a responsibility to its shareholders to obtain a maximum return from its assets. I cannot see you any more. I think we have gone over a ground and are really have to leave now." 625 On Mr Williams evidence between 28 April 1997 and 2 May 1997 he had several other telephone conversations with Mr Platcher. In each conversation Mr Platcher would ask whether Mr Williams had heard from the credit committee yet and what the response was. Mr Williams would reply: "The receivers and managers are going through the tender process and the bank will not make any decision until the tender process is completed 626 Transcript evidence of Mr Williams is to be found at page 987 and following. 627 Insofar as the evidence of Mr Williams and that of Mr Platcher contradicted one another I accept the evidence given by Mr Williams as reliable. Evidence given by Mr Colin Resnick 628 Mr Resnick gave oral evidence having been served with a subpoena by the Bank. The court was informed by the Bank's counsel that Mr Resnick had not been prepared to make a written statement. 629 Mr Resnick's evidence was that he first learned about the Cinema becoming available for sale when it was advertised in the Sydney Morning Herald. Steps were then taken to have Hoyts' real estate department head contact the person indicated by the advertisement to obtain appropriate details. 630 Upon ascertaining that the Cinema was that trading in Mt Druitt, Hoyts then requested details from the receiver. On receipt of the details, Hoyts did their best to ascertain the value of the Cinema to Hoyts and to estimate a reasonable and best price that they could pay for it. 631 Mr Resnick then gave evidence in chief that he had had a meeting with the Receiver and his assistant possibly on 1 May 1997. Mr Resnick gave the following evidence in relation to this meeting: "I said words to the effect that 'We have done our best estimate of what we can pay for the said property that's being offered', and I indicated a price to him somewhat lower than $2.3 million. He indicated that there had been significant interest in the property and he did not believe my offer would be favourably received. There was discussion on why I believed our offer was reasonable and at the termination of that meeting I then said I would get together with my then partners and I would endeavour to increase my price….I did indicate that we were the logical buyer in that we were already operating in the market and that we would make a definitive offer quickly, and we would give him a limited amount of time to respond and we were good people to deal with and he would be paid promptly." [Transcript page 5-31 March 2000] 632 Mr Resnick gave evidence that the Hoyts offer was sent by facsimile, to the best of his recollection, during the middle of the afternoon or in the early afternoon of 2 May 1997. 633 Mr Resnick's evidence was that the notation at the top of the facsimile copy was due to an error in the time setting of the facsimile machine. 634 Mr Resnick's evidence was that during the morning of 2 May he telephoned the Receiver to say that during that day the Receiver would receive a written offer which would be binding on Hoyts and just to put the Receiver on alert and to be ready for the facsimile that afternoon. Mr Resnick gave evidence that he had told the Receiver that he intended to give him a relatively short space of time in which to accept the offer. Mr Resnick also gave evidence that after the acquisition of the Cinema, Hoyts continued to operate it until approximately 19 November 1997 when they closed it. 635 Under cross-examination Mr Resnick accepted that Hoyts Cinemas had been banking with the Bank for sometime as at 1997 and that he knew Mr Fermanis as at April and May 1997 and that he believed Mr Fermanis may have been his main point of contact with the Bank. He also knew Mr Glover of the bank. He had in fact known Mr Fermanis for approximately seven years. [Transcript page 8] 636 He had also known Mr Glover for approximately seven years and Mr Moody for approximately the same period of time. He also knew Mr Brian Long and he knew Mr Mark Elliott as they had assisted Hoyts with the auditing of Hoyts cinemas. He had known Mr Long and Mr Elliott since the last quarter of calendar 1994. 637 Mr Resnick's evidence was that sometime during the month or two after he first saw the advertisement, he telephoned Mr Glover. Mr Resnick believed that he would have had a conversation to the following effect with Mr Glover: "I understand that the bank has taken control of the Cinema in Mount Druitt. Hoyts is interested in acquiring it. We have a competitive Cinema quite close and we have an interest in buying the Cinema for strategic reasons. What would be the best way to expedite the acquisition of the Cinema….." [Transcript page 9-10] 638 Mr Resnick recalled Mr Glover saying to him that the Bank had taken control of the Cinema and had appointed Mr Rennie of Ernst & Young as receiver and manager and that if Hoyts was interested in acquiring the Cinema, they would have to talk to the receiver who was looking at competitive tenders to sell the Cinema. [Transcript page 10] 639 Mr Resnick believed that it was likely to have been both himself and Mr Johnson who, at different times, were initially involved in ascertaining further information in relation to the Cinema. 640 Mr Resnick's evidence was that he would not have paid any more than $2.3 million for the Cinema, this having been his maximum price. [Transcript page 11] 641 Mr Resnick was asked and answered as follows: Q. "However, the position was, wasn't it….. that at that price, for strategic reasons Hoyts were very interested in acquiring the Cinema ... A. "You are using the phrase 'very interested'. If I may respond by saying this: I would say that at that price we had an interest and it made sense. It was a reasonable purchase. It was no wonderful buy." [Transcript page 11-12] 642 Mr Resnick was asked whether there had been discussion about Dr Chia at the meeting. His evidence was that his only recollection was that Hoyts naturally would have ascertained who owned the Cinema at the time to try and understand as much as they could about the business. As to Dr Chia's particular circumstances, he did not believe they were of relevance and he would not have asked any questions about that. [Transcript page 12] 643 Mr Resnick was asked whether it was communicated to him that Dr Chia was interested in retaining the Cinema. His answer was that any reference to someone wanting to retain the Cinema was made in the context of the receiver saying that he had a number of interested parties. In short, apart from reference to other interested parties, there was no mention of Dr Chia at all. [Transcript page 12] 644 Mr Resnick's evidence was that the specification of acceptance required of the Hoyts offer by 5.00pm on the Monday, was done to bring the matter to a swift completion and in the best commercial interests of the company. 645 Mr Resnick was asked, had the Receiver said to him that the Receiver needed another two days to finally make a decision, would Mr Resnick have granted the Receiver that indulgence. He answered in this way: "If I may put it to you, in a situation like this what I would normally do is I would say to the offeror, 'Take your two days, but I don't hold my offer at that price. When you return to me in two days I have every right to drop my offer as you have to try and increase it." 646 Mr Resnick was asked and answered as follows: Q. "But the likelihood is - and we're talking theoretically here - that if there was no change of circumstances the 2.3 million would have been available at the end of the further two days? A. "I put it to you that there is at least a good chance that I would have reduced the offer, because if you return to me in two days time and you're still asking me for 2.3, I know you have nobody higher and I may well take advantage of you." [Transcript page 13] 647 Mr Resnick's evidence was that he had endeavoured to buy the Cinema at a lesser price in the days leading up to when Hoyts submitted the offer, and had been unsuccessful, and so he offered to the $2.3 million. 648 Mr Resnick gave evidence that he tried to ascertain from Mr Rennie, what was the highest price he had received, but had had no success in doing so. 649 Mr Resnick could not recall any conversation which he had with Mr Fermanis around 24 April concerning a possible price of which the Cinema might be sold to Hoyts. [Transcript page 13-14] 650 In terms of any conversations which he may have had with Mr Fermanis in the two weeks prior to 2 May, Mr Resnick's best recollection was that from the first conversation he had with Mr Fermanis about it, Mr Fermanis did not seem to know very much about it and it was left. He did not recall any discussion of price with Mr Fermanis. 651 Mr Resnick was asked and answered as follows: Q. "Do you recall a discussion with Mr Fermanis in which he suggested to you that might be available for purchase at the 2.4 or 2.5 million range A. "I don't recall that precise conversation. I do recall conversations from both the receiver and I believe more than one party who had said that you have to pay this price or we have to pay that price over and above what we originally offered, but I believe that to have been nothing more than a seller endeavouring to get the best price Q. "But you remember a conversation with Fermanis in which he said to you words such as this: "You know what it takes to win this". And you replied 'I may not want to win it'? A. I don't recall having said that, but it's not an unlikely thing that I would have said in an attempt to show disinterest" [Transcript page 14] 652 Mr Resnick could not recall any discussion or mention of Mr Brian Long at the meeting of 1 May. 653 Mr Resnick was asked and answered as follows: Q. "Do you remember a general discussion with the State Bank and, in particular, a discussion that Hoyts owes allegiance to the bank because in 89 to 94 if Hoyts had gone under then the bank would have gone under.... A. "I do not recall those words having been said, but we have a long relationship with the bank and the only context I would have brought that up is they knew us to be people who are straightforward and honest and if we put in an offer we'll stand behind that offer and we believe that to be a recommendation in these circumstances. [Transcript page 14] 654 Mr Resnick accepted that he had made an offer for the Cinema at the meeting but had no recollection of precisely what it was. He was able to give evidence that it would have been significantly below the $2.3 million amount. 655 Mr Resnick gave evidence[Transcript page 16] that Mr Rennie had indicated that there had been a bid from the mortgagor and other parties. Mr Resnick was asked and answered as follows: Q. "Do you recall whether there was some discussion about whether 2.1 million was the mark A. "No, but I believe I would have tried to see whether that amount could be successful. I was given no comfort in that regard Q. "Do you remember whether an indication was given to you that you might be out 10 percent at 2.1 million A. "No 656 Mr Resnick did not recall Mr Rennie telling him that the meeting that the bank was not too fussed about selling Dr Chia up and he could not recall a mention to the effect that the bank had no fear in selling Dr Chia up. 657 In being asked whether there was discussion about how the offer would be framed in terms of time limit and deposit, Mr Resnick's evidence was that his only recollection was that he would have indicated to Mr Rennie that Hoyts intended making an offer, and offering to pay the deposit immediately upon acceptance and that the time frame they would give Mr Rennie to accept, would-be short. [Transcript page 16] 658 Mr Resnick could not recall whether he received any telephone calls from Mr Fermanis on 5 May. As Mr Fermanis was the Accounts Officer, Mr Resnick would speak to him once every fortnight. 659 Mr Resnick was asked and answered as follows: Q. "Did [Mr Fermanis] ever indicate to you that he would support your bid for the Cinema A. "I don't believe that he would have given me such a specific indication Q. "Were you aware that he was supporting your bid A. "I was not aware, no. I could hope, but I was not aware Q. "Did you ever ring up Mr Fermanis and ask him to communicate to Mr Rennie that Hoyts don't want to be jerked around with this bid A. "I cannot recall having used those specific words. I would have indicated that I would like their support, but I would know that the best offer would win Q. "Did you ring Mr Fermanis and ask him to communicate to the Receiver that Hoyts either don't want to be jerked around or don't want to be mucked around A. "No [Transcript page 18] 660 Mr Resnick's evidence was that he had spoken to Mr Fermanis before the 1 May meeting and had in mind, for Mr Fermanis to advise the Receiver "that we have the wherewithal to complete quickly, we do complete quickly; that's the type of support, to let the Receiver know we're good and decent people to deal with." [Transcript page 18] 661 In being asked whether there was a reason why Mr Fermanis was the person that Mr Resnick was speaking with, Mr Resnick answered that Mr Fermanis was the Accounts or Relationship Manager between the Bank and Hoyts. 662 Mr Resnick was asked and answered as follows: Q. "So do we take it that between the meeting on 1 May and the offer on 2 May, you increased your bid by at least a couple of hundred thousand dollars A. " Yeah , I say so Q. "Was that because there had been some indication to you by the Receiver that there needed to be a sufficient margin in order to prevent any problems there might be with Dr Chia A. "No, I don't believe it was for that reason at all. Q. "Had ever been indicated to you prior to nominating the figure of 2.3 million that 2.3 million might be the mark? A. "No. I got no such assistance" [Transcript page 19] Evidence given by Mr Colin Fermanis 663 Mr Fermanis gave evidence through a statement dated 28 March 2000 and in the witness box. 664 He had formerly been employed by the Bank for approximately 10 years up until 7 May 1997. In 1997 he held the position of 'Area Manager, CBD' and was based in Martin Place. His responsibilities included attending to the needs of major corporate clients of the bank in the CBD area. In his position as area manager, CBD, he supervised approximately 15 to 20 managers. 665 He recalled that Mr Moody had been the relationship manager for Hoyts 'on and off' for a number of years but that as at May 1997, Mr Moody was not the relationship manager for Hoyts. 666 Specifically in relation to Hoyts Mr Fermanis gave evidence that his duties included supervising the relationship and monitoring the bank's exposure to Hoyts through the banking syndicate of which the Bank was a member. Mr Fermanis also monitored reports of Hoyts day-to-day commercial activities. He recalls that in 1997 the Hoyts group was in an expansionary phase. 667 In 1997 he knew Mr Resnick the finance director of Hoyts well. He had also met Mr Peter Ivany whom he recalled to be the managing director of Hoyts, only socially. When he had any contact with Hoyts it was through Mr Resnick. 668 Mr Fermanis could not recall the precise date when he learned that the Astro Cinema at Mt Druitt was in receivership. Because his duties related to affairs of major corporate customers of the Bank whose accounts were in good order, he had little to do with customers where accounts were in default and in respect of whom the Bank had appointed a receiver and manager. His recollection was that he learned of the Bank's appointment of a receiver and manager to the Cinema when he received a call from Mr Resnick. To the best of his recollection that call was made at the end of April 1997 or perhaps on 1 May 1997. He could not now recall the precise words used by Mr Resnick but his recollection was that Mr Resnick had expressed interest in the Cinema and had wanted Mr Fermanis to convey that interest to the Receiver and Manager, Mr Rennie. Mr Fermanis recalled Mr Resnick using the words "I don't want to be jerked around". His evidence was that his reply to Mr Resnick was in words to the following effect: "I will ring the Receiver and tell him you are interested in the Astro Cinema and that Hoyts is a substantial client of the bank" 669 Mr Fermanis could not now recall the precise date but gave evidence that within a few days of his discussion with Mr Resnick, he telephoned the Receiver and Manager and had a discussion with him. That discussion included words to the following effect: Mr Fermanis: "I have been called by Colin Resnick of Hoyts. It is not within my area of responsibility, but he has asked me to ring you and let you know that he is interested in the Astro Cinema, Management Druitt. The bank has a substantial ongoing relationship with Hoyts. Mr Rennie: "Well, I am undertaking a tender for the Cinema. As long as Hoyts pays the highest price…." 670 In his statement Mr Fermanis gave evidence that he left it with Mr Rennie to pursue the interest which had been shown by Hoyts. 671 Mr Fermanis gave evidence by his statement that he called Mr Resnick back although he could not recall the precise date on which he did so. His evidence was that he said words to the following effect to Mr Resnick: "I have spoken to the Receiver and Manager, Ken Rennie, and made him aware of Hoyts interest in the Astro Cinema and Hoyts existing relationship with the bank. Mr Rennie tells me is running a tender for the Cinema. The highest price wins. 672 Mr Fermanis' recollection was that he had heard nothing further from Mr Resnick or Mr Rennie until he was copied by Hoyts with the letter of offer of 2 May. He assumed that he had been copied with that letter because he had been contacted earlier by Mr Resnick. Following his receipt of that copy letter he did not take any particular action and at that time was preparing to leave the bank which he did on 7 May. 673 His recollection was that he did not make any file notes of the conversations referred to above. 674 Under cross-examination Mr Fermanis gave evidence that at various times in 1997 he was Mr Moody is supervisor but held a more senior position to Mr Moody. 675 Mr Fermanis gave evidence that it was his responsibility to monitor the $40 million exposure of the bank to Hoyts on the Hoyts drawdown. 676 Mr Fermanis gave evidence that his task was to look after the Bank's relationship with Hoyts with a view to either grow or retrieve the money which was owed to the Bank. The position was termed the "relationship manager", or some such. [Transcript page 1060] 677 Mr Fermanis had reported to a general manager at the time and he was, Mr Fermanis believed, Mr Peter Harrington. 678 Mr Fermanis knew Mr Glover. Mr Glover was to Mr Fermanis recollection, in charge of the Asset and Management group. 679 Mr Fermanis gave evidence that he and Mr Glover had separate areas of demarcation entirely. 680 Mr Fermanis evidence was that he understood from Mr Resnick that Mr Resnick, in relation to the Hoyts bid for the Cinema, did not "want to be jerked around" by the Receiver or by the Bank. [Transcript page 1061] 681 Mr Fermanis gave evidence that it was less than a week which passed between the conversation he had with Mr Resnick when Mr Resnick had informed him that Mr Resnick did not want to be jerked around, and when Mr Fermanis received the copy of the Hoyts offer. It was possibly only a few days .[Transcript page 1062] 682 Mr Fermanis accepted that when he had spoken to Mr Rennie, he, Mr. Fermanis, had used the words "Hoyts don't want to be jerked around". [Transcript page 1062] 683 Mr Fermanis was asked and answered as follows: Q. "You rang Rennie in order to support the Hoyts bid for the Astro Cinema, didn't you? A. "No Q. You rang up Rennie, and then in no uncertain terms said, 'Hoyts don't want to be jerked around about their offer', didn't you A. "I said that Mr Rennie, yes Q. "In so doing, you were communicating to Mr Rennie your support for the Hoyts bid? A. "No Q. "As a senior manager of the bank dealing with the Hoyts account A. "No Q. "You deny that you sought to impose any influence at all on Mr Rennie in his decision concerning the sale of the Astro Cinema? A. "Yes... Q. "Is it your evidence that in your communications with Mr Rennie, you did not in any way lend support for the Hoyts bid for the Astro Cinema, is that your evidence? A. "Yes ... Q. "Is it your evidence that in your communications with Mr Rennie, you remained totally impartial as to Hoyts bid for the Astro Cinema A. "Yes Q. "You say that you didn't demonstrate any support for the Hoyts bid at all by saying to Mr Rennie, "Hoyts don't want to be jerked around"? A. "In relation to 'Hoyts don't want to be jerked around', it is in relation to price. When I said here that I don't want to be jerked around, Hoyts were trying obviously to buy this cheaply. In my statement here, Hoyts wanted to buy it Q. "You wanted to ensure that Hoyts got it for as cheap as possible, is that your evidence A. "No. Quite the reverse Q. "So were you saying to Mr Rennie they don't want to be jerked around, they want to pay the maximum price necessary to buy this Cinema, is that what you are saying? A. "No His Honour: Q. "Why did you say to Mr Rennie that the Bank has a substantial ongoing relationship with Hoyts A. "He asked me to say that, as though he was a customer of the Bank, and that he was an important customer of the bank, that's all, and wanted to be treated fairly Q. "Doing the best you can to recall the exact words, or as close as you can to them, is that set out in paragraph 10, with the exception of the reference to 'Hoyts don't want to be jerked around' A. "Yes, it doesn't want to be jerked around with regards to price Q. "Did you know that Mr Rennie was the Receiver and Manager of the Astro Cinema and its associated assets at the time you phoned him A. "Yes Q. "Why did you phone him at all A. "He asked me to phone him... Mr Resnick asked me to phone him Q. "You were a representative of the Bank which had appointed a receiver A. "Yes Q. "You phoned the Receiver to inform them that a substantial client of the bank had a substantial ongoing relationship with the Bank, and was interested in an asset A. "Yes Q. "Why did you make that phone call at all? Why was it within your realm of responsibility or duty or otherwise? Why did you make the phone call to the Receiver at all? A. "Mr Resnick gave me the impression that he wasn't being treated fairly Q. "In what way? What did he say to you? I think just with regards to - I don't know, just as an impression, and asked me to do it. As his relationship person, he wanted me to ring Mr Rennie to sort of imply that he was a serious purchaser of this asset Wilson:Q. "So you wanted to, as it were, level the playing field, because Resnick felt he wasn't being treated fairly, is that correct? You wanted to even up the balance? A. "I didn't want to even up the balance Q. "It wasn't the case that you wanted to move the balance into positive territory in favour of Hoyts, was it A. "No" [Transcript pages 1062-1064] 684 Mr Fermanis could not recall ever having a conversation with Mr Glover on about 24 April 1997, concerning the Hoyts bid for the Cinema. 685 At Transcript page 1066 Mr Fermanis gave evidence that Mr Resnick had told him that he felt that the Receiver was pushing up the price of the Cinema and that Hoyts was not being treated fairly. 686 Mr Fermanis thought that Mr Resnick was trying to talk the price down and the Receiver was trying to talk the price up. He gave evidence that Mr Resnick "was trying to use me, if that's when you saying, yes". [Transcript page 1066] 687 Mr Fermanis was asked and answered as follows: Q. "To your recollection he did use you that way, is that the case A. "Yes, he did use me that way" [Transcript page 1066] 688 Mr Fermanis could not recall having had a conversation with Mr Resnick in which Mr Fermanis had said words to the effect "You know what it takes to win this" and Mr Resnick had said "I may not want to win it" and Mr Fermanis had said "Fair enough. If you want it, come and get it at that price." [Transcript page 1067] 689 Mr Fermanis categorically denied saying to Mr Resnick "Here it is, come and get it at $2.4 million, $2.5 million." [Transcript page 1067] 690 Mr Fermanis gave evidence that he had never heard of Mr Warbanoff. He had taken no other interest in the purchase of the Cinema after receiving the copy of the offer from Hoyts. He thought that he knew that the offer from Hoyts set a time limit for acceptance at 5.00pm on the Monday and could not recall but did not think, that he had telephoned Mr Rennie on the Monday just to keep in touch with what was happening with the bid. Mr Fermanis was asked and answered as follows: Q. "You didn't ring Mr Resnick on 5 May to tell him that the Bank had referred the decision as to who the Cinema was to be sold to, to the board and the independent loans committee A. "No. Q. "You didn't ring up Mr Rennie on 5 May and inquire what was happening concerning the decision to sell the Cinema. A. "To the best of my knowledge, no. [Transcript page 1069] 691 Mr Fermanis was asked and answered as follows: Q. "The situation was that around the third week of April 1997, Resnick told you that he very much was interested in purchasing the Astro Cinema, didn't he? A. "He rang me and told me he wanted to buy the Cinema, yes Q. "The situation was that armed with that knowledge, and as the senior bank manager in the State Bank looking after the Hoyts account, you did what you could to ensure that Hoyts purchased the Astro Cinema didn't you? A. "No [Transcript page 1070] 692 Mr Fermanis was asked and answered as follows: Q. "Can I suggest to you that as the senior State Bank manager looking after the Hoyts account, you took it upon yourself with Mr Glover to do what you could to ensure that Hoyts was successful in their bid for the Astro Cinema, didn't you A. "No His Honour:Q. "You did say that Mr Resnick used you to try to push the price down. Do you recall that A. "Yes Q. "The two methods included, did they, your saying to Mr Rennie that Hoyts did not want to be jerked around, and your saying to Mr Rennie that the Bank has a substantial ongoing relationship with Hoyts? Is that correct A. "Yes Wilson: Q. "Is this the situation Mr Fermanis; you sought to exert positive influence on the decision of Mr Rennie as to the Astro Cinema was to be sold to A. "Positive influence? What you mean by positive influence Q. "Was this the situation, that you sought to exert influence on Mr Rennie so that he sold the Cinema to Hoyts A. "No Q. "Is it the situation that you sought to directly affect his deliberations in favour of Hoyts in the sale of the Astro Cinema A. "No Q. "Could I suggest to you that you improperly intervened on behalf of the Bank in order to exert influence on Mr Rennie in the sale of the Astro Cinema to Hoyts? A. "No [Transcript page 1071-1072] Evidence given by Mr Gary Glover 693 Mr Glover currently holds the position of "Head of Risk Services" and has held this position since July 1999. Asset Management Group (which he referred to as AMG) is part of Risk Services and he held the position of "Head of Asset Management Group" from a 1995 until July 1999. 694 In 1997 as head of Asset Management Group Mr Glover supervised nearly 200 staff. Those staff had day-to-day conduct of customers accounts that had been referred to Asset Management Group due to default or serious difficulties. He did not have any day-to-day conduct of Dr Chia's account but was aware that Mr Rennie from Ernst & Young had been appointed as Receiver and Manager of the Cinema. 695 Mr Glover's evidence was that although he could not presently recall the exact date, in early 1997 he was telephoned by Mr Resnick from Hoyts. To the best of his recollection the conversation was in words to the following effect: "Resnick: I understand that the Bank has taken control of the Astro Cinema in Mt Druitt. Hoyts is interested in acquiring it. We have a competitive Cinema quite close and we have an interest in buying the Cinema for strategic reasons. What would be the best way to expedite the acquisition of the Cinema? We don't want to deal with third parties. Glover: The Bank hasn't taken control of the Cinema. The Bank has appointed a Receiver and Manager, Ken Rennie from Ernst & Young. If Hoyts is interested in acquiring the Cinema you'll have to talk to the Receiver. I know the Receiver is looking at competitive tender is to sell the Cinema" 696 Mr Glover's evidence was that he then gave Mr Resnick, Mr Rennie's telephone number. 697 Mr Glover's evidence was that Mr Resnick and he did not discuss any details of a possible acquisition of the Cinema by Hoyts. Nor did they discuss any other interested parties, possible terms or sale price. 698 Mr Glover did not make any file note or record of the conversation which he had with Mr Resnick. He did not mention the call to Mr Rennie. Since the telephone conversation with Mr Resnick, Mr Glover had not had any further conversations with Mr Resnick or any other person from Hoyts. 699 In giving additional oral evidence in chief Mr Glover stated that in general the role which he had in relation to the Indemnified Loans Committee in the first half of 1997 was by reason of his being head of the Asset Management Group which was responsible within the Bank for managing the impaired loan and non accrual loans within the organisation. His responsibility in terms of the Indemnified Loans Committee was to, at their invitation, address the committee in terms of the recommendations the Bank was making in regards to those loans. 700 Mr Glover's evidence was that the Indemnified Loans Committee had been established as a forum on the sale of the State Bank, to manage and review and approve the recommendations in terms of the indemnified loans that were being managed by the Bank on behalf of the State. The Indemnified Loans Committee had absolute authority in terms of approval, in terms of those recommendations that were put to them. The Bank was to manage those loans in its normal process and was to provide the committee with recommendations that were consistent with what a bank would normally do in the absence of an indemnity on that loan. 701 Mr Glover gave evidence that the committee was really an audit on the Bank's behaviour. The indemnity on each of those loans was obviously a benefit to the State Bank. The committee had been set up to ensure that the Bank did not abuse the indemnity and the fact that the Bank minimised where possible, loan losses with respect to the indemnity. His evidence was that in fact the Indemnified Loans Committee was an audit of the banks behaviour in terms of managing those loans. 702 The committee was comprised of five members, two representatives of the State, two representatives of the Bank, and an independent chairman who was non-voting but acted as an arbitrator in terms of the fund decisions. [Transcript page 955-956] 703 Mr Glover's evidence was that in the first half of 1997 the Indemnified Loans Committee met on a regular basis once a fortnight but there were also occasions from time to time when it was necessary to obtain a turnaround on decisions faster than that. Mr Glover's evidence was that in such situations the committee at its discretion could carry out what they referred to as a "ring around decision", where what was submitted were faxed copies to the members of the committee who would telephone their decisions into the Secretary to enable a quick turn around in the case of urgent decisions. Such situations could be handled on a telephone book a port telephone in buying each member to the Secretary who would in turn respond to the chairman. 704 Mr Glover was asked and answered as follows: Q. "Along with this overview function that the Indemnified Loans Committee performed, the question of decisions to be taken about the Bank securities, and particularly in the case of Dr Chia, within the Bank's normal organisation, who had the authority to make that decision from that prospective? A. "I was empowered under my delegation to make decisions in relation to that matter Q. "So from that perspective the decision to accept the Hoyts offer was your decision, is that right? A. "That's correct Q. "In making that decision, what did you have regard to? A. "I was aware of the conduct of that case for some time. I had before me at the time, although I wasn't in direct contact with Mr Chia or the negotiations, the account manager had made in the aware that there had been quite lengthy and protracted negotiations, and that in his view there was a certain risk in accepting Mr Chia's offer at the time versus accepting the Hoyts offer, in the sense that Hoyts had the ability to complete the transaction. We have some serious doubts about whether Mr Chia could raise the funding, and whether he would in fact not seek to change the terms of that deal again. The commercial decision that the time was to accept the Hoyts offer, given that it was pretty close to, or in fact equal to the valuation that we held at the time. 705 Exhibit D2AH is a document comprising a number of sections. The first page of the exhibit is a nice time by the Secretary of the Indemnified Loans Committee and dated 5 May 1997. This page states that the Bank's recommendation was faxed to Mr Cole during the afternoon for his information. The page includes the following: "G Glover, Head of AMG , advised that due to the urgency of this matter, he had already discussed the recommendation with Messrs M Cole (representing the States) and R Logan (representing the Bank) and that their verbal approval had already been given to approve the relevant recommendation. This paper is being circulated to members for their information and with the intention of having the verbal decision, fund at the meeting 9 may 1997" 706 The balance of the exhibit includes the page report the dated 5 May 1997 and signed by Mr Soulos as Accounts Manager, Asset Management Group. The report includes the following: COMPROMISED SETTLEMENT OFFER Borrower initiated offer representing a 'full and final' settlement arrangement was increased from $M2.75 to $M2.95 with suggestion that settlement can be effected on an immediate basis. Funds are proposed to be sourced from a QLD based non-traditional lender Lawyers Private Mortgages P/L and evidence in support of the availability of funds remains ambiguous and lacking in detail. Borrower, being aware of the imminent conclusion of Receiver and Manager orchestrated tender/expression of interest sale endeavours, were on notice to submit any further offer by 3 pm Monday 5 May 1997 and a subsequent unsupported offer increasing total amount to $M3.30 was received at 2.55 pm Monday 5 May 1997. It appears that borrower anticipated that previous settlement offers would be insufficient and it is presumed that this is borrower's final offer. RECEIVER AND MANAGER SALE PURSUITS A formal offer has been submitted by Hoyts Cinemas Limited to purchase the Astro Cinema building, business and equipment for $M2.30 with the offer closing 5 pm Monday 5 May 1997 and with an undertaking that settlement can be effected by Thursday 8 May 1997. In relation to the Dunlop Group, no formal offer has been submitted to this point in time however, a previous 'indicative' offer of $M2.0 had been made and this entity had recently appeared as the prime candidate evolving from the tender process. The Dunlop Group are well aware of established time-frames relative to the submission of formal offers however, Receiver and Managers have expressed some pessimism regarding Dunlop's ability to match or better the Hoyts offer. COMMENTARY/REMARKS Given the Bank's assessment that the value of all security other than the Cinema is in the vicinity of $M1.0, it is discerned that borrowers revised 'full and final' settlement offer of $M3.30 equates to a Cinema sale price of $M2.30 which mirrors the offer of Hoyts. By applying this reasoning, borrower's offer for the Cinema compares favourably with that of Hoyts at $M2. 30, however, the following points are considered significant:- * Borrower's offer is in full and final settlement of all obligations and liability and, if accepted, would negate the prospect of recovery via the personal mortgage covenants of borrower/security providers noting that both Mr and Mrs Chia are professional people both operating as medical practitioners; * It is presumed that Hoyts retain the means to honour their commitment to effect an immediate settlement while it is not unreasonable to remain sceptical regarding the source and availability of borrower's funds; * Should borrower's offer be accepted however, they are ultimately unable to complete, the Bank would likely forsake its genuine Cinema sale opportunities and risk the prospect of additional damage/loss; * Dr P T Chia has been uncooperative, dishonest and obstructive throughout the course of this banking relationship in his dealings with the Bank and his credibility has been damaged to a large degree. CONCLUSION In short, the Bank has determined that it will achieve a similar immediate monetary result in any event however, by accepting Hoyts offer on the Cinema it retains the right to pursue Dr Chia for what will be a relatively substantial residual debt. Conversely, the Chia 'full and final settlement offer includes no undertakings regarding any liability or obligation for the residual debt. Accordingly, Account Manager recommends acceptance of Hoyts offer to purchase the Astro Cinema complex while a recovery strategy will be adopted in respect of all other securities via previous AMG/ILC approval. 707 Mr Glover gave evidence that the information contained in Mr Soulos' report was available to him when he made the decision to accept the Hoyts offer and was taken into account in making that decision. 708 Mr Glover's evidence was that he did have discussions on 5 May with both Mr Cole and Mr Logan who had telephoned him and had both given approval to the recommendation. 709 Under cross-examination Mr Glover gave evidence that the State Bank had been indemnified by the government in respect of the Chia account to the extent of any loan loss. 710 Mr Glover's evidence was that the Indemnified Loans Committee made the decision referred to in exhibit D2AH and on behalf of the Bank he himself had authority to and made the decision. [Transcript page 958] 711 Mr Glover was asked and answered as follows: Q. "Mr Glover, I understood your evidence to be that the Indemnified Loans Committee had made the decision referred to in this document that you were handed, and on behalf of the Bank you yourself had authority to, and made the decision, correct? A. "That's correct Q. "I thought a receiver had been appointed. Did he not have any role whatsoever to play in making the decision as to what price to sell the asset, the subject of the receivership? A. "He would have made a recommendation to the account manager. Then my decision would be based on the recommendation brought forward to me from the account manager. Q. "As I understand your evidence, correct me if I'm wrong, it was the Bank, not the Receiver, who made the relevant decision? A. "The Bank would make the decision, yes, to accept that offer from Hoyts. Q. "Implicit in it was first of all to accept the offer from Hoyts? A. " Mmmm Q. "Yet the Receiver had been appointed to sell the asset, yet the Bank, you say, made the decision, not the Receiver, as to the offer which he was to accept? Is that correct? A. "We would rely on the recommendation of the Receiver, yes Q. "You say the Bank relied on his recommendation? A. "Mmm" [Transcript page 958-959 712 Mr Glover's evidence was that as head of corporate finance group from 1987 to 1995 he did have some responsibility and dealings with Hoyts as a customer. In general terms he accepted that he had been intimately involved in the syndication of the Hoyts alone of approximately $200 million in 1988. Top his evidence was that in 1988 Hoyts owed the Bank about $210 million and that in order to distribute the risk a syndication facility was put in place whereby the risk was distributed between a number of Banks. 713 His first information that Hoyts had made a bid for the purchase of the Cinema was when Mr Soulos the account manager told him. [Transcript page 959] 714 Mr Soulos, probably informed him of the Hoyts bid fairly close to the time when the bid was submitted to the Receiver. As far as he could recall this was his only knowledge of the bid which Mr Soulos had inform him of. 715 His evidence [Transcript page 959] was that he did not have any other interaction at all with the receiver or with Hoyts. 716 He believed that the copy of the Hoyts bid which had been copied to him was delivered around to Mr Soulos as office late on Friday afternoon 2 May 1997. 717 Mr Glover knew Mr Resnick. He had commenced a deal with them in the 1980s. At that stage Mr Ivany was the managing director of Hoyts. 718 Mr Glover's evidence was that Hoyts media and Hoyts entertainment were floated in the late 1980s. Until 1997 Mr Ivany the had been a managing director of Hoyts which was then known as Hoyts Cinemas. 719 Mr Glover's evidence was that he knows Mr Ivany well having had a commercial relationship over a number of years and that he would on occasions go out to lunch with Mr Ivany. 720 Mr Glover gave evidence that Mr Fermanis in 1997 would have been a senior manager in the corporate finance area and that to Mr Glover's knowledge, Mr Fermanis also knew Mr Resnick. 721 On the very morning of the day when Mr Glover was giving evidence [3 - 4 March 2000] he had met with Mr Fermanis in a coffee shop in Sydney it being the case that there have it was to meet every day. 722 Mr Glover gave evidence that in relation to the decision to sell the Cinema to Hoyts it was not the case that the decision was also considered by the Board of the Bank in addition to the Indemnified Loans Committee. [Transcript page 963] 723 Mr Glover was asked and answered as follows: His Honour Q. "When you effectively the highest officer within the Bank that was making, as far as the Bank was concerned, the decision to accept the Hoyts offer? A. "No, I reported to Mr Ron Logan who was a member of the ILC committee and that was a discussion that I had with him at that time Q. "Is it the case that, as you recall it, the Receiver had no entitlement to accept Dr Chia's offer, had to be a matter for the Bank and/or the ILC committee but not the Receiver? A. "The ultimate decision rested with ILC Q. "That is the ultimate decision presumably in relation to whether or not the offer that Dr Chia's advisers had put in should be accept that were rejected? A. " Yeah, they - they made the ultimate decision Q. "On that issue? A. "On that issue Q. "So that as you understood it, the Receiver had no part to play in terms of a decision as to whether to accept or reject Dr Chia's offer which had come in? A. "That's correct Q. "Additionally, in relation to the question of which offer to accept by way of the sale of the Cinema, asset over which Mr Rennie had been appointed Receiver, I have understood you to say that that was also a decision of the Banks, not his? A. " Yeah, it was a decision that would be submitted to the ILC." [Transcript page 963] 724 Mr Glover accepted under cross-examination that between 1989 and 1994 the Bank had a major exposure on its loans to Hoyts. Also that there was a lot of deprivation during that time as to whether or not Hoyts would default. [Transcript page 964] 725 As far as Mr Glover could recollect after he received a copy of the Hoyts offer and before it had been accepted he had no further discussions with Mr Resnick and had no discussions with the Receiver. 726 Back in April and May of 1997 Mr Glover was working with Asset Management Group. Mr Fermanis was senior manager, business banking and his office was enlightened players whereas Mr Glover's office was in Parramatta. To his knowledge Mr Fermanis knew Mr Resnick. 727 Mr Glover was asked and answered as follows: Q. "You know why Mr Fermanis was also sent a copy of the Hoyts bid? A. "He was the senior account manager for Hoyts at the time. Q. "Does that mean that he was the relationship manager for Hoyts at the time. A. "Yes, he would have been the senior manager responsible for that relationship. 728 Mr Glover believed that Mr Moody at the material time accounted to Mr Fermanis in relation to the Hoyts account. [Transcript page 965] 729 Mr Glover was asked and answered as follows: Q. "And did Mr Fermanis ever to know that he had run up the Receiver on 2 May and said to him, "Hoyts are not jerking around"? A. "No, I don't recall that. Q. "What to your knowledge, was Mr Fermanis taking a keen interest in Hoyts bid for the Astro Cinema? A. "I wasn't aware of it, no, but I assumed he might have, seeing as he was involved in the relationship Q. "Why was it that you were sent a copy of the bid, to your knowledge? A. "I assumed it was just out of courtesy because he had phoned me about-about the actually responded to to make a bid" Transcript page 965 730 Mr Glover had been generally aware of the circumstances of Dr Chia's account since late 1995 when it was transferred to the Asset Management group and it was towards the end of 1995 that the Bank had taken the view that the relationship ought be brought to an end. [Transcript page 966] 731 Mr Glover accepted that Hoyts were an important customer of the Bank. Mr Glover was asked and answered as follows: Q. "You had a preference for Hoyts to be sold the Astro Cinema as opposed to Dr Chia, didn't you Mr Mark And is Only in this is it was a better, better commercial decision for us at the time... Q. "Can I suggest you it was not just a commercial decision but the decision was made to sell the Astro to Hoyts by virtue of the fact that Hoyts was an existing customer of the Bank A. "No, I disagree with that statement Q. "You say that that played no part at all in your decision-making process? A. "No, because we only had two choices. One was to go with Dr Chia's offer or one was to accept the Hoyts offer and we believe that the Hoyts offer was a much more commercial decision at the time and they had the substance to complete the transaction... .............. the history was a long protracted negotiation with Dr Chia. The decision we had was did we go with the Hoyts offer or do we go with Dr Chia. We believed that Dr Chia would have problems raising funding in the marketplace given the assets he had declared to us. We also knew he would probably change his mind numerous times.. The commercial decision was really do we accept the Hoyts offer which we knew they could complete or do we continue negotiations with Dr Chia on the risk that Hoyts would fall away at the asset that we had our disposal would deteriorate" [Transcript page 966-967]. 732 Mr Glover was asked whether he had known at the time the decision was made to accept the Hoyts bid, that Dr Chia's financial backing such as it was came from Queensland or was said to be from Queensland financiers. His evidence was that Mr Soulos had mentioned that in his submission but that Mr Soulos had also said that the details were vague. Mr Glover's evidence was that he did not know that it was a holiday in Queensland on the day when the decision to accept the Hoyts offer had to be made by. 733 Mr Glover was asked and answered as follows: Q. "Did you know that, or presumably you knew that the Hoyts offer had only come in late on Friday so that there was no working day or any part of it available to Dr Chia to have his financial backers such as they may have been come forward with proof of non-financial substance? A. "We didn't - I didn't know it was a holiday but at the time I think there were other reasons for making that decision as well that with all that clearly the Hoyts offer was funded, it would be clean, it would be quick. The other decision was that Dr Chia was seeking complete release so that another dimension to his offer and also the fact that he may seek to change the terms of that offer should we give you more time to consider" [Transcript page 967-968] 734 Mr Glover could not recall precisely at what time it was on 5 May that he decided to accept the Hoyts offer but believed that it was probably during the afternoon. It was the secretary who had telephoned all of the five members. The secretary had documented the decision. Mr Glover was asked and answered as follows: Q. "So is it fair to say it wasn't strictly your decision to accept the Hoyts offer? A. "The protocol of the indemnity is that we go through the normal decision-making process within the organisation and then submit that decision to the ILC for their decision [Transcript page 968 735 Mr Glover was asked and answered as follows: Q. "I want you to assume that Mr Fermanis rang Mr Rennie on 2 May and said, "Hoyts are not jerking around". In your view, was that approach to the Receiver an improper one, given that Hoyts were to be making the bid for the Astro on that day? A. "It is difficult to say because Colin had a different position to me. He was acting for Hoyts as their banker and he certainly had an interest in them….If he chose to support their bid for it, maybe the language was inappropriate but certainly the intent to support his client was there." [Transcript page 970] 736 Mr Glover did not recall Mr Fermanis telling him at the time that he would seek to support the bid. 737 Mr Glover's evidence was that the recommendation was for the committee to accept Hoyts for the reasons set out in the paper will stop [Transcript page 970] 738 Mr Glover was asked whether he recalled at the time considering whether or not to postpone the decision in order to go back to Dr Chia to see if the bank could get a better price from him. Mr Glover's evidence was "We decided against that". [Transcript page 971] 739 Mr Glover was asked and answered as follows: Q. "In his paper, Mr Soulos said that it is inferred that this is Dr Chia's final bid but do you recall at the time being uncertain as to whether it was his final bid? A. "No, we were uncertain at all that that would be his final bid Q. "But notwithstanding that, you went ahead and selected Hoyts? A. "We did that on the basis that we didn't believe that Dr Chia could arrange the funding and even so that he would be likely to move the terms of his deal again and that given the deals were so close together, that the certainty of a settlement with Hoyts was far above what we could do with Dr Chia Q. "The timing of it imposed by Hoyts was a very short given the lead-up campaign for the sale of the Astro Cinema, correct? A. "It was a normal, normal business terms, I believe Q. "It is normal from your understanding of Hoyts to put a bid in on the Friday and require acceptance by the--? A. "Commercial world, that is normal. People put pressure on people to accept this very quickly" [Transcript page 971] 740 Following the production to Dr Chia's Council of Mr Warbanoff's day book Mr Glover was recalled and further cross-examined. On this occasion his evidence was that he never spoke to Mr Warbanoff that he could recall. He may have had a conversation with Mr Fermanis around 3- 4 April concerning the Astro bid by Hoyts but did not have any recollection of such a conversation. The basis of his giving evidence that he may have had such a conversation was because they spoke day-to-day about a number of matters. A number of accounts were transferred from Mr Fermanis portfolio to Mr Glover's area so that discussions covered a number of areas at that time. 741 Mr Glover's evidence was that he was aware that Mr Fermanis was very keen for Hoyts to participate in the bid for the Cinema. [Transcript page 1094] 742 Mr Glover's evidence was that Mr Ward was in the Asset Management Group and reported directly to him. Mr Ward was a senior manager who had direct responsibility of Mr Soulos. In relation to the possibility of discussions at around 24 April about a Hoyts bid in the vicinity of $2 million Mr Glover's evidence was "one-off-we would have had discussions about the bidding process but I don't think we were discussing specific prices at that stage". [Transcript page 1095] 743 Mr Glover was asked and answered as follows: Q. "Mr Fermanis was a good friend of yours, and still is A. "Yes Q. "And he, to your knowledge, new in 1997 that you were to play a part in any decision concerning the sale of the Astro Cinema? A. "He would have been aware of that, yes Q. "Did he tell you at the time that on 5 May, the day for expiry of the Hoyts bid, that he had been communicating with the Receiver as to find out what had happened to the bid. A. "No, I don't recall that conversation Q. "Did he ever contact you on 5 May as to find out what had happened to the Hoyts bid or whether a decision had been made by the bank A. "No, I can't recollect that Q. "But there is no doubt that he made it plain to you that he wished Hoyts to succeed in their bid for the Astro Cinema? A. "Yes, he was the account manager for Hoyts Q "And did you ever say to him, 'I will see what I can do in relation to the Hoyts bid'? A. "No, I never recall making that statement His Honour:Q. "Did Mr Fermanis ever to see that he proposed to phone Mr Rennie in relation to the manner in which Hoyts would be treated or was being treated by the Receiver or should be cheated in relation to offers it may make A. "No, he never advised me that he was speaking directly with Mr Rennie. I knew he was speaking directly with Mr Resnick Q. "Did he ever advise you after the event that he had spoken to Mr Rennie about any aspect of the way in which Mr Rennie should treat with Hoyts qua their bid? A. "No, I can't recall him ever mentioning that to me Q. "Mr Glover, I wanted to assume 1 2 May 1997 Mr Fermanis rang Mr Rennie and said, "Hoyts don't want to be jerked around in relation to their offer"..... the bank as a substantial ongoing relationship with Hoyts" Q. "Do you receive anything improper in that approach to Mr Rennie? A. "I believe Mr Fermanis' role was acting as account manager for Hoyts and looking after the interests of Hoyts. I think if he was or believe he was applying pressure to Mr Rennie, I believe that was inappropriate but I think that if you were stressing that he was acting on behalf of Hoyts as the account manager, that he could stress that this was a very important acquisition to Hoyts His Honour: Q. "Why would have been, in your view, inappropriate if he was trying to apply pressure to Mr Rennie? A. "On the assumption that Colin was representing the bank in the role of Asset Management Group rather than in the role of account manager Q. "What would be wrong in your view with that, ie, you said on the assumption that if he was seeking to apply pressure that would be, I think you said, improper. I would just like the flesh out what you mean by this? A. "Well, Mr Rennie was working for the Asset Management Group arm of the bank and Colin Fermanis did not have a role in the Asset Management Group of the Bank Q. "Well, it wouldn't take much, presumably, would you agree, for a statement by an officer in the senior position of Mr Fermanis to Mr Rennie emphasising the bank substantial ongoing relationship with Hoyts for Mr Rennie, presumably, to be having placed pressure upon him? A. "No, I think Mr Rennie was very professional and would have responded accordingly. That is why I don't think that any - any comments that Colin Fermanis made would have aspect of Mr Rennie's position. He probably would have reported to a city did feel as though he was under pressure... Q. ".Then as far as you were aware, was there any occasion which would have made it appropriate for Mr Fermanis to deal with Mr Rennie while Mr Rennie, as Bank appointed Receiver, is considering how to deal with those bidding for an asset in receivership? A. "Yes, I can think of circumstances. Usually he was the account manager in the bank, took an interest in what Hoyts were doing and what assets they were purchasing because the bank was, in fact, finding that and very conscious of what Hoyts was doing in the marketplace Q. "Even in that regard, I don't quite follow what you mean. I new meaning to suggest that it would have been appropriate, as you see it, for Mr Fermanis task Mr Rennie about what Hoyts was doing in terms of Hoyts offer is so that Mr Fermanis could act as some sort of check on his client in terms of borrowings and the light? A. "No, I think from what was said to me on the assumption that he was ringing up, that he said that Hoyts did not want to be marked around in this process, they wanted to the professional and put in a big and he was emphasising that to Mr Rennie. That is my understanding of the situation…. Q. "Did Mr Fermanis express his support for the Hoyts bid to you as the head of the Asset Management Group? A. "No, he suggested to me they were very keen to acquire the asset" [Transcript page 1097-1098] 744 A note which appears on the second page of the exhibit is in the handwriting of Mr Glover and reads "recommendation approved as submitted (this matter was discussed and endorsed by General Manager Risk and operations). Evidence given by Mr Michael Elliott 745 Mr Elliott is a partner of Ernst & Young. Since 1981 he has practised in the audit division of Ernst & Young. 746 Mr Elliott gave evidence that the Hoyts Cinema Limited group (including HMC) has been an audit client of Ernst & Young since 1994 and that he had been associated with the audit of the group since that time. 747 Mr Elliott has been a partner responsible for the audit since 1995. 748 In Mr Elliott's capacity as auditor of the Hoyts Cinema Limited Group, he is responsible for working with and supervising staff from the Ernst & Young audit division in the annual audit of the financial statements prepared by the directors of HMC each year and preparation of the report to members of HMC on the accuracy of those financial statements. 749 Each year he determines the number and level of staff whom he will assign to assist in the conduct of the audit. The staff vary from year to year, are drawn from within the Ernst & Young audit division. 750 The partners and staff who work in the audit division are, on Mr Elliott's evidence, a separate group from those who work in the corporate recovery and other divisions of the firm. The audit division partners and staff have separate work spaces and offices from people working in other divisions of the firm. This had also been the case in 1997. The staff within the audit division report to other levels of staff and partners within the same division. The audit partners of the firm make decisions on audit matters independently from partners in the corporate recovery or other divisions of the firm. 751 Mr Elliott recalled a conversation which he had with Mr Resnick who was the finance director of Hoyts Cinema Limited (the holding company of HMC) in during 1997, when Mr Elliott was at Mr Resnick's offices for the purpose of undertaking planning for the audit relating to the six months ending 30 June 1997. Mr Elliott could not recall the precise date or month of his conversation with Mr Resnick but gave evidence that it may have been May 1997, this being the month in which he usually undertook audit planning. 752 Mr Elliott gave evidence that the work required for the audit included ascertaining details of any cinemas opened by the group within the period being audited. To the best of his recollection, Mr Resnick said to him on this occasion words to the following effect: "... In a few days time, we are settling on the purchase of the Astro Cinema at Mt Druitt... by the way, we are dealing with one of your partners who is administering the company" stock 753 Mr Elliott did not take this comment any further and did not make a note of the conversation. During approximately June or July 1997 his staff and he returned to the offices of Hoyts Cinema Limited Group and continued work required for the audit. As part of the audit of the group it became necessary for Mr Elliott's staff to review the documentation concerning any Cinema acquisition within the six-month period ending 30 June 1997. 754 Mr Elliott did not become aware of the name of the Receiver and Manager to the Astro Cinema until he was contacted by one of his partners, Mr Rennie of the firm's corporate recovery group following the commencement of these proceedings. 755 Mr Elliott's evidence was that at no time did he receive any approach or contact from Mr Rennie, or any staff of Ernst & Young, concerning the subject of HMC's possible interest in, or purchase of, the Astro Cinema. Nor did he receive any approach or contact from the Bank, or anyone on its behalf, concerning possible interest by HMC or the Hoyts Cinema Limited group in, or the purchase of, the Astro Cinema 756 Save for the above described discussion, Mr Elliott's evidence was that he did not receive any approach or contact from any officer or employee of Hoyts Cinema Limited Group or HMC concerning interest in, or the purchase of, the Cinema. 757 Mr Elliott gave evidence that Mr Brian Long, one of his partners, was also involved in the audit of Hoyts. From time to time he was responsible for signing off on the audit to Hoyts. This occurred during the year ended 30 June 1995. 758 Mr Elliott was asked and answered as follows: Q. "In your opinion, it would be quite improper for an employee of Ernst & Young to consult the audit division of Ernst & Young for information to assist in the sale of the Astro Cinema, isn't that correct. A. "It would be unusual... Q. "It would have been quite unusual if you had received an approach from Mr Rennie or any of his staff concerning the sale of the Astro Cinema, correct? A. "It would have been unusual Q. "It would have been, in your mind, the improper A. "It depended on the nature of the approach Q. "If the approach had been for information which you had concerning Hoyts which you had acquired in the course of your auditing of Hoyts, well, then, in your view, that would have been the improper if it had been conveyed to you that the information was to be used to assist in the sale of the Astro Cinema, isn't that correct? A. "If it was not publicly available information it would be inappropriate His Honour:Q. "Why did say that it would be inappropriate? A. "We-confidentiality arrangements amongst professional relationship with a client, we do not make what we learn in confidence available to parties who have no direct interest in it A. "...What I understand I have been asked about, was it inappropriate for me to provide information and - what I answered was that it depended on the nature of the information. If it was publicly available, there is no problems with me making that sort of information available but if it is not - if it is not publicly available, then I wouldn't make such information available anywhere, within the firm, outside the firm... Not without the express permission of my client"] [Transcript pages 867 et seq ] 759 Asked whether he had ever received a telephone call from Mr Wharlow regarding the sale of the Cinema, Mr Elliott's evidence was that he did not notice name. His evidence was that he had not ever received any telephone call from Mr Warbanoff concerning the sale of the Cinema. 760 His evidence was that after the Cinema was purchased it became his responsibility to audit the trading results of the Cinema until its closure. This would be if the Cinema had been acquired inter alia 761 Mr Elliott gave evidence that the Cinema had not been subject to separate audit. 762 Mr Elliott was questioned as to whether or not Mr Brian Long who is the second Ernst & Young partner the engagement, back in 1997 had informed Mr Elliott that Mr Long had been approached by someone from Ernst & Young looking after the receivership concerning Hoyts potential purchase of the Cinema. Mr Elliott did not recall any such conversation. 763 In April and May 1997 Mr Elliott's evidence was that he would have had significantly greater contact with Hoyts than Mr Long. Mr Long was second partner on the engagement which was a quality control mechanism. 764 Mr Elliott knows Mr Rob Appleby but had no recollection that Mr Appleby had ever contacted him in relation to sale of the Cinema. Evidence given by Mr Long 765 Mr Brian Long has, since 1981, been a partner in the audit practice of Ernst & Young. He works in the Sydney office with Mr Elliott. 766 Mr Long 's evidence was that his role on the Hoyts Cinema's Ltd engagement was as colleague partner and client service executive which involved dealing with all of Ernst & Young service issues with that client. 767 Mr Long acted as a colleague and advisory partner in Mr Elliott's performance of Mr Elliott's responsibility in Mr Elliott's capacity as auditor of the group. 768 Mr Long gave evidence that the partners and staff who work in the audit practice are a separate group from those who work in the corporate recovery and other divisions of the firm. The audit practice partners and staff have separate workspaces and offices from people working in other divisions of the firm, this having also been the case in 1997. The staff within the audit practice report to other levels of staff and partners within the same division. The audit partners of the firm make decisions on audit matters independently from partners in the corporate recovery or other divisions of the firm. 769 Mr Long recalled receiving in 1997, a telephone call from a person within the corporate recovery/insolvency division of Ernst & Young. He could not recall the precise date or that person's name, but he did recall the caller saying to him words to the following effect: "We are trying to sell a cinema in the western suburbs. It's called Astro Cinema. Do you think Hoyts might be interested in buying it?" 770 Mr Long replied advising that he would contact Mr Resnick of Hoyts to find out and would get back to the caller. 771 Mr Long recalled having a telephone conversation with Mr Resnick soon after the previous telephone call, could not recall the precise date but did recall saying words to the following effect to Mr Resnick: "There is a Cinema in the western suburbs known as the Astro that is available for sale. Would Hoyts be interested in purchasing it" 772 Mr Long could not fully recall what Mr Resnick has said in response but believed that Mr Resnick was already aware that the cinema was available for sale when he called Mr Resnick, and believes that Mr Resnick said words to the effect "Hoyts might be interested in buying the Cinema." 773 Shortly after this telephone conversation with Mr Resnick, Mr Long recalled having a telephone conversation with someone in the corporate recovery/insolvency division of Ernst & Young. He could not recall the precise date but did recall saying words to the following effect: "Colin Resnick has indicated that Hoyts might be interested in buying Astro" 774 Mr Long could not recall having any further involvement in relation to the sale of the cinema after these telephone conversations. 775 Under cross-examination Mr Long gave evidence that he did not know Mr Peter Warbanoff. He could not connect that name with any person. 776 He did have a recollection of speaking to a manager working in conjunction with Mr Rennie in the receivership of the cinema. 777 When asked whether he recalled on about 30 April 1997, a manager working with Mr Rennie telephoning him and asking him what the position was with the Hoyts offer for the cinema, his evidence was that he had a very vague recollection and did recall sometime in 1997, but not exactly when, or whom it was, but did recall a telephone call asking whether or not Hoyts might be interested in acquiring the cinema. He did not recall saying to Mr Warbanoff or to anyone working with the Receiver, that he hoped to have an answer later in the day and that apparently Mr Resnick was tied up in meetings that morning. It may have happened but he did not specifically remember any such call. 778 He had no recollection of ever having any discussion with anyone associated with the receivership of the cinema concerning the strategic advantage to Hoyts of purchasing the cinema.[Transcript page 1011] 779 He had not had any discussion with anyone associated with the receivership about the strategic advantage to Hoyts in the Mt Druitt area. 780 He knew Mr Rennie. He could not recall having a conversation with Mr Rennie in late April concerning the receivership of the cinema. Nor did he recall having any meeting with Mr Rennie around 30 April 1997 about the cinema. He did not recall Mr Rennie speaking to him at that time about strategic areas. 781 As to the conversations to which he had referred in his affidavit, he was not able to give them a specific date. His evidence was: "The interchange, which, to be honest, I have only a vague recollection of, is the sort of interchange which might ordinarily take place between one party [sic] of my practice and the other on a whole range of different clients and is not remarkable, it is not something that I would ordinarily recollect details of. Q. "Would there have been any occasion in late April or early May, the Receiver having sought to elicit tenders for the cinema and dealing with tenderers, when it would be, to your recollection, necessary or likely to involve in any way yourself? A. "Absolutely not. I mean, - the recollection I have is simply that someone out of Mr Rennie's office had asked whether the client with whom I am associated might be interested. I recall making an inquiry with them as to whether they were or were not interested but it wasn't in a way where there was anything remarkable happening that occurred to me to make file notes or anything like that" [Transcript page 1012] 782 Mr Long was asked and answered as follows: Q. "Do you remember [Mr Resnick] saying to you that this was a cinema which they wanted to purchase? A. "No, I don't specifically recall that Q. "You recall him asking you, 'What do you think the Receiver might want as a purchase price for the cinema'. Was there any discussion about that? A. "No, that is, that would have been something that I would have recalled, if he had that level of conversation with me His Honour Q. "Why is that? A. "Because that is more remarkable. In the normal course the role that I play with audit clients your Honour is I receive inquiries and I tend to put, if it is appropriate, people in my organisation together with the people whom I relate to with the client. But I wouldn't ordinarily get involved in the intricacies or the detail of what might transpire in terms of those relationships [Transcript page 1015-1016] 783 Mr Long could not recall any conversation between himself and Mr Rennie's staff about the potential advantage to Hoyts of purchasing the cinema and closing down. 784 His evidence was that it was Mr Elliott and not himself, from Ernst and Young, who had the most face-to-face contact with Hoyts. [Transcript page 1017] 785 Mr Long was asked and answered as follows: Q. "In the course of the auditing of Hoyts, is part of your retainer to give certain advice to Hoyts concerning the conduct of their financial affairs A. "Not in the wide interpretation of financial affairs. As the auditors, our responsibilities to act in an independent capacity in relation to their financial statements. It is usually inconsistent with our audit role to work without clients on business matters, if I can put it that way. So when you refer to financial affairs, if it is in the context of an independent examination, then that is usual. If it is in the context of conducting business, that is most unusual Q. "You wouldn't have any contact with Hoyts bankers for example A. "Absolutely not His Honour: Q. "Would you know whether or not there was another section of Ernst & Young which was [retained] for the purpose of giving financial advice to Hoyts generally A. "Your Honour, there are strict rules on questions of independence. We have within our firm guidelines about what you can and cannot do. One of the roles I play with clients such as Hoyts as client service executive is to be, if you like, the judge of when we can undertake an engagement for a particular client, and when we cannot, and when it might breach our independent position Q. "I was inquiring as to whether or not you were aware at that time as to was there or was there not some other section of Ernst & Young outside audit which had Hoyts as a client, and was in the habit of giving, as requested, general financial advice to Hoyts?. That may or may not be something which cannot occur in terms of being independent auditors, I don't know A. "Your Honour, the tax practice has a regular engagement with Hoyts, giving them tax advice. From time to time the corporate finance practice may have been involved on particular engagement for them in relation to mergers or acquisitions. I'm not aware of any particular engagement that was being conducted at around about that time, although the tax people would have been working on a regular basis Q. "So I am gathering from you, correct me if I am wrong, Ernst & Young, to your recollection, had a very strict division has between what the audit section called all could not do in terms of its auditing practice, insofar as giving of financial advice was perhaps a little outside the [area] of what the audit partners and staff could do, but they could, within constraints of an audit, look at aspects of importance to the audit A. "Yes.... The prohibition is on the firm being involved in a particular engagement. So, as I said, the role that I have the managing that relationship, is that no other parts of practice are permitted to do work for that client, unless I would agree with the nature of it. So it isn't so much that the audit practitioners can't do that work, the question is can the firm do it. The way our firm functions, that is a role that I ordinarily play Q. "So for arguments sake, it at sometime in early 1997 Hoyts had asked some other section of Ernst & Young to give advice to x subject, your role within the firm obliged you to look at that request for the retainer, to see whether it would or could not take place, and to balance, against the request some sensitive questions which might arise regarding the independence of the audit team A. "Correct, of the firm as the auditor... Q. "In short, the firm could not have carried out any work for Hoyts without going past your desk, without you thinking about the topic and having to tick or cross, or make some comments 786 A. "That's the firm's process [Transcript page 1018-1019] 787 Mr Long gave evidence that no application or request came to his attention during early 1997, by way of an inquiry from Ernst & Young in any of its divisions, as to whether it could assist Hoyts in relation to the prospective acquisition of the Astro Cinema.[Transcript page 1019] Evidence given by Mr Low 788 Certain of Mr Low's evidence relating to conversations with Mr Platcher has already been set out. 789 In his statement of 27 March 2000 Mr Low also gave evidence in relation to the letter which appears that exhibit PX1693-1700 in volume 6. He had perused the Bank's files and had been unable to locate the letter on the bank's files. He did not believe that the letter was on the Bank's files. This is because the copy of the letter in the bundle had a particular pagination number in the bottom right-hand corner, which had been placed on the document by Minter Ellison's Document Management Services as part of the discovery process. Following a careful analysis of the Document Management Services practice in placing stickers and numbers on documents, Mr Low believed that the letter was not part of the Bank's files. Had it been part of those files, it would have a sticker bearing the prefix CSB 036 or below. 790 Mr Low gave reasons for his belief that he obtained a copy of the letter from McKells in the second half of 1998, they having then been the solicitors for Mrs Chia. Mr Low's belief was that the letter never formed part of the Bank's files. 791 Under cross-examination Mr Low accepted that he had not learned that the cinema had been sold by the Receiver to Hoyts until 6 May. He could not recall the precise time on that day when he had learned of the sale. Mr Low gave evidence that he believed he had written the Minter Ellison letter of 5 May 1997 on behalf of the Bank and the Receiver. It was Mr Soulos who instructed him to write that letter. [Transcript page 1021] 792 In being referred to the distinction between the first and second paragraphs of this letter Mr Low's evidence was that he had originally received instructions from Mr Rennie and subsequently, he received instructions on behalf of the Bank as well. 793 Mr Low was shown his facsimile of 6 May 1997 addressed to the receiver and also to the Bank. This letter enclosed the two page facsimile letter received from Dr Chia solicitors that morning, this being the 6 May 1997 letter. In Mr Low's facsimile to the Receiver's office and to the Bank, Mr Low states that at 12:30pm he had received a telephone call from Mr Platcher who had asked the Bank to give Dr Chia a figure for which it would, compromise all debts. Mr Low informed the Bank and Mr Soulos as follows: "We told him that was unlikely to forthcoming and the Bank would only consider what offers Dr Chia might make that were in writing and verified as to the source of repayment" Evidence given by Mr Garry Moody 794 Mr Moody made a statement on 22 February 2000. 795 He gave evidence that from 1988 to July 1996 he had held the position of Manager- Business Financial Services within the Bank, in which position he was the relationship manager responsible for dealing with the Hoyts Cinema Ltd Group. He was the manager allocated to the Hoyts account and had the day-to-day contact with Hoyts, which was a substantial customer of the Bank. During this period the Bank was equal main Bank with Commonwealth Bank. During this period Hoyts were one of the top 20 clients of the Bank. 796 He had occupied a different position between July 1996 and February 1997 which did not include direct responsibility for existing customer relationships. 797 He had again resumed responsibility as the relationships manager for Hoyts in December 1997, there having been two intermediate such managers between July 1996 and December 1997. 798 His evidence was that up until October 1995 there was no Bank syndicate which looked after loans to Hoyts. Hoyts had by financial accommodation, borrowed moneys from the Bank during that period. He believed that during 1995 on average the Bank had an exposure of in excess of $100 million to the Hoyts account. Then in October 1995, a Commonwealth Bank syndicate was put together by a number of Banks which was later taken over by a Westpac syndicate which remains in place. Insofar as loans were written in favour of Hoyts pursuant to that syndicate, the mortgagee was Commonwealth Custodial Services Ltd. 799 In relation to the putting in place of the loan by which Hoyts had purchased the Cinema, he had been involved in writing the original transaction for Hoyts, but had not been involved at the time of the purchase of the Cinema. The loan would have been rolled over on a number of occasions and the exposure maintained, so that at the outset of Hoyts borrowing from the Bank, he was involved but only at that time. 800 Mr Moody was asked and answered as follows: Q. "Is this the position, that originally under the Commonwealth Bank syndicate, Hoyts had a line of - they effectively had a line of credit, had they? A. "The moneys were fully borrowed Q. "Do you recall what it was under the Commonwealth Bank's syndicate A. The amount of debt? Q. "Yes A. "In the order of $250 million Q. "And you know what the exposure of the State Bank was under that facility? A. "I am not exactly [sic] but I believe it was around a hundred million Q. "Then returning to the Westpac syndicate, do you know what the total exposure of the syndicate was to Hoyts? A. "I believe it was maintained at 250 million Q. "And the State Bank's participation or share? A. "I believe we were reduced to 45 million Q. "In relation to the purchase of the Astro Cinema pursuant to the Westpac syndicate, was it necessary for Hoyts to lodge an application with the mortgagee? A. "No. I don't believe it would have been... they possibly just write a cheque, a Hoyts cheque" [Transcript page 758] 801 Mr Moody's evidence was that the Hoyts facility was accommodation of an overdraft and he believed, a commercial bill facility, so that Hoyts could have written a cheque under their overdraft for that amount of money if they had wanted to. 802 Mr Moody gave evidence that he had had no involvement in the Bank's appointment of Mr Rennie. The policy of the Bank in 1997, on his evidence was that when business Banking accounts fell into serious default, day-to-day control of the account was transferred to a separate division of the Bank known as the 'Asset Management Group', which specialised in undertaking restructuring of loans, work-outs, and/or enforcement action as may be appropriate in each case from time to time. 803 Mr Moody's evidence was that the only mention made to him by anyone during 1997 about the receivership of the Cinema or a possible sale, was during a telephone conversation he had with either Mr Resnick or Mr Johnston, who were both senior executives of Hoyts. He could not recall the date of the conversation or which of the two persons he had the conversation with. To the best of his recollection during the conversation, the callee had said to him words to the effect: "…..I have heard that the Astro Cinema at Mr Druitt has had a receiver appointed to it by the Bank. Could you refer me to someone to whom I could speak to about the Astro…." 804 Mr Moody was not aware of the name of the officer within the Asset Management Group who had control of the matter at that time. His recollection at that time was that Mr Glover was the head of the Asset Management Group. Therefore, on his evidence, he replied to either Mr Resnick or Mr Johnston, whichever had made the telephone call to him, by saying that they should get in contact with Mr Glover who was head of the Asset Management Group. 805 Mr Moody did not make any file note or other record of the question that he had been asked or of his reply. He did not contact Mr Glover to inform him of the Resnick or Johnston call, nor did he subsequently receive any contact from Mr Glover or anyone else within the Bank's Asset Management Group. It was the last he had heard of the Astro Cinema until after commencement of these proceedings. Evidence given by Ms Sophie Clements 806 Ms Clements is an accountant in the employ of Ernst and Young and assisted Mr Rennie during the receivership of the Astro Cinema. Her evidence went to a number of aspects of the claims by Dr Chia as to failures by the Receiver to properly conduct the business of the Cinema during the receivership. Her affidavit evidence was contained in her affidavits made on 12 November 1997 and 30 September 1999. Her evidence is to be found at Transcript page 162 and following. Evidence given by Mr Robert John Moulds 807 Mr Moulds is an account manager with the Bank. He gave evidence of a relatively formal nature of as to the history of the accounts of Dr Chia. The Bank also tendered a Certificate of Debt signed by him as an account manager and authorised officer of the Bank on 3 March 2000. 808 Mr Moulds also gave evidence identifying the manner in which the Bank calculated interest charged as the "non-default interest rate" and as the "default rate". Evidence given by Mr Timothy Gavan 809 Mr Gavan is a registered valuer who had been instructed by Dr Chia in about early 1997 to prepare a Valuation Report on the Astro Cinema. Subject to the qualifications and recommendations made within the body of his report his current market assessment of the fee simple interest as at 3 March 1997 was: Value as a Going Concern "As Is"-$3.6 million Value as a Going Concern "On Completion"-$9.6 million His evidence is to be found at Transcript page 426 and following. Evidence given by Mr James Avery 810 Mr Avery is a real estate agent who was the project manager responsible for construction of the Astro Cinema in the early 1990s. He ceased to be involved with the Cinema on about the day when the Receiver was appointed. 811 During the seven or so years that he was involved in the Cinema business as a consultant, that is to say between 1989 and 1996 he arranged for various consultants to inspect the Mt Druitt site and was involved with a number of meetings with Bank representatives on behalf of Dr Chia. He gave evidence as to certain of these discussions with Bank officers including Mr Soulos. He also gave evidence that sometime in 1996 he attended a meeting with Bank officers and Dr Chia and Mr Marsden on which occasion Mr Hanly of the Bank had said that the Bank had valued his home surgery and Cinema and did not agree with Dr Chia's valuation of the Strathfield house. His evidence was the Dr Chia had said that he believed the house was valued at $1 million. His evidence was that Mr Hanly had said that the Bank believed that the house was worth a $850,000. His evidence was that Mr Hanly further said: "Have put a proposal to the Credit Committee that you pay $3.3 million in total forgiveness of the debt even though you owe the Bank $4.3 [million] with interest accruing. However, I believe that whilst the Credit Committee has rejected $3.3 million before, I could offer them $3.3 million in full satisfaction of the debt again and have approved. If your house was auctioned we could agree to accept a figure of $850,000 as part of the payment of $3.3 million. Anything over and above $850,000 you keep." [Affidavit paragraph 7] 812 He further gave evidence that in May 1996 he attended a meeting at the Bank with Mr Logan of the Bank and Dr Chia. Dr Chia, on his evidence, had again raised the question of the discrepancy between the Bank's valuation of the Cinema complex and its business by the in-house valuers and the valuation obtained by Dr Chia from Landmark White. During this meeting, on Mr Avery's evidence, Mr Logan said "The loan to valuation ratio is around 110% to 120%. We know that if Hoyts starts up next to you it will put you out of business" [Affidavit paragraphs 5] the inter alia 813 Mr Avery gave evidence that his project management activities were through his company E Tully Pty Ltd. From time to time he had prepared budgets for the proposed extension of the Cinema. He had never prepared or caused to be prepared a schedule of works for the proposed extension to the Cinema. At one stage he was involved in obtaining a schedule of works from the builder but he did not know what had happened to it. The schedule of works had contemplated the entire building program. [Transcript page 385] 814 In paragraph 6 of his affidavit Mr Avery had given evidence that in January 1996 he attended a meeting at the Bank with the Dr Chia and one other Bank representatives. His evidence was that during the course of this meeting, Mr Soulos had said that Hoyts was a customer of the Bank and had already written off a $66 million debt owed by Hoyts". It was put to Mr Avery that Mr Soulos had not made the statement to him. He disagreed. [Transcript page 387] Evidence given by Mr Ronald Malafiej 815 Mr Malafiej is a certified practising accountant, registered taxation and registered proper authority holder for financial planning. He is Dr Chia's accountant and Mrs Chia's accountant. Is the accountant for Dr Chia's companies Siaus Pty Ltd, Ontin Pty Ltd and Peter Chia Pty Ltd. He had acted as accountant for Dr & Mrs Chia and their companies for about 23 years. 816 Mr Malafiej prepared a detailed report which, subject to many sections which were rejected, sought to give a review of Dr Chia's interest, fee and other payments to the Bank during the period of the Astro Cinema operations and related matters. The report covers Dr Chia's funding; the allegations of interest overcharging; considerations of valuation matters; matters dealing with the "loan to value ratio"; issues going to Bank statement entries and a number of other issues including questions going to the Receiver's management of the of the Cinema. Evidence given by Mr Stephen Mills 817 Mr Mills had a background as a part time projectionist and retail manager of electrical stores. In October 1996 he commenced employment managing the Theatre and controlling the projection room. He did not have access to the books of account or financial statements but gave evidence that the business had been successful over a period of five or six years. That observation was based on the number of people attending the Cinema each day and on his own observation of ticket sales on a daily basis 818 Mr Mills gave evidence that between 17 October 1996 and the appointment of the Receiver, his duties included booking all films which were shown. His evidence detailed his ability to obtain films in competition with Hoyts after September 1996. 819 He gave detailed evidence as to the circumstances in which the Receivers had demanded possession of the Theatre on 7 February 1997 and in which over the weekend the Theatre had effectively been closed, with both the Bank and Dr Chia appointing their own security guards over the Theatre in the light of Dr Chia's then dispute as to the validity of the Receivers appointment. Ultimately all of this evidence as to the events of the weekend proved irrelevant to any issue, as all Counsel accepted. 820 The balance of evidence given by Mr Mills went to the allegations that the Receiver had failed to properly operate the ongoing business of the Cinema in terms of the purchasing of appropriate films, expenditure on food and drink, subscriptions to magazines containing detail of which were the most popular films to be ordered and matters relating to the telephone subscription, the telephone lines having been disconnected and a new line or lines having been commenced. The evidence also covered promotion of the Theatre. Evidence given by Mr Allenby 821 Mr Allenby is a certified practising valuer and an associate of the Australian Property Institute. He holds an associate diploma in valuation and has had over 18 years experience in property valuation and consultancy, predominantly in the Sydney metropolitan area plus New South Wales country locations. He is a senior consultant employed by Knight Frank (NSW) Pty Ltd. 822 Mr Allenby gave evidence in his report [Exhibit P 23A] that in his opinion the range of values of the cinema on a going concern basis as at 23 December 1996, subject to the comments set out in the report, was $2 million to $2,300,000. His other reports were exhibits P23B and 24. The Assessment of Witnesses relevant to Dr Chia's case Mr Hanly 823 In my view the evidence given by Mr Hanly may be accepted as reliable. Mr Fuller 824 In my view the evidence given by Mr Fuller cannot be accepted as reliable in the absence of corroboration by reference to extrinsic evidence or contemporaneous documents. His evidence was given haltingly. On a number of occasions he appeared to me to be quite confused. Importantly he was unable to give any meaningful assistance to the court in his evidence as to why his letter of 5 May 1997 addressed to Mr Platcher had departed from earlier information in now indicating that the proposed loan would be advanced utilising a combination of first and second mortgages. His evidence was that Mr Mogridge had not given him any more information about what mortgages would be first mortgages and what mortgages would be second mortgages. Nor did he have any specific knowledge as to the reason why by this date Mr Mogridge was advising that a combination of first and second mortgages would be required. [Transcript at pp 504-505]. These are matters of detail of particular importance in endeavouring to assess the credibility and reliability of the suggested break up and availability of loan funds at this time. Mr Ryan 825 Mr Phillip Ryan gave evidence which to my mind may be accepted as reliable. This is not to say however that his evidence ultimately satisfied the court as to the availability of the finance which had been referred to in tangible terms most recently in the letter from Mr Fuller to Mr Platcher of 5 May 1997. It will be recalled that this letter had referred to the proposed advance utilising a combination of first and second mortgages. Although Mr Ryan gave evidence which I accept that he had only become aware of this letter a few days before he actually gave evidence, he was asked and answered as follows: Q. "If Mr Mogridge were to tell Mr Fuller that he had agreed that provided all securities released in an amount of $3.3 million will be advanced utilising a combination of first and second mortgages, are we to take it that any such agreement of Mr Mogridge was not an agreement that was made on behalf of Lawyer's Private Mortgages? A. "No, because we couldn't do second mortgages … Second mortgage funding [may] have been available through the Branelly group direct, through their professional clients. It was something our firm didn't get involved in. His Honour:Q. "You wouldn't know what second mortgages referred to then? A. "No, I wouldn't your Honour" [Transcript p 823] 826 Hence there remained it seemed to me, a real question as to precisely what Mr Fuller had been referring to in the letter to Mr Platcher of 5 May 1997 and a real doubt as to whether second mortgages had now become part of the proposed loan advance and if so how. The introduction of second mortgages at this late stage involves a new tier of complexity which would have to be unravelled in any endeavour to assess the credibility of the suggested availability of loan funds. Mr Rennie 827 Mr Rennie gave evidence which I accept as reliable. His evidence is dealt with in considerable detail. His evidence was given clearly and where his recollection was not good to my mind he accepted this. His evidence is consistent with the probabilities and with the other evidence before the court and with his own hand written notes and with the other contemporaneous documents, [particularly in so far as Mr Warbanoff's day book and notes are concerned, as explained by Mr Warbanoff.]. Mr Soulos 828 As earlier made plain, I accept Mr Soulos as having given evidence which was reliable. His cross-examination was extensive. His evidence was consistent with the contemporaneous documents. His evidence was given carefully and in cautious terms. In my view his evidence is consistent with Mr Warbanoff's day book and notes read in association with Mr Warbanoff's explanation of such materials. In my view his evidence is consistent with the probabilities and with the preponderance of other evidence before the court. Mr Resnick 829 Mr Resnick gave evidence which I accept as reliable. Although he had not apparently been prepared to make a statement and gave all his evidence in the witness box, to my mind he may be accepted as having been entirely frank insofar as his recollection may not have been good but generally had a fairly reasonable recollection of the events which occurred. Where a particular discussion was put to him in respect of which he could not recall the precise words suggested as having passing between himself and someone else, as appropriate he accepted that some such conversation or similar likely took place. Although he was closely tested in cross-examination to my mind he was shown to have given evidence which may be relied upon. Mr Fermanis 830 Mr Fermanis suffers from the particular difficulty that on my findings he acted improperly in seeking to apply pressure upon Mr Rennie by trying to influence his deliberations in favour of Hoyts. He clearly ought to have known better. He used strong language in speaking with Mr Rennie. He occupied a very senior position with the Bank indeed. Hoyts was a very significant major corporate client of the Bank. Mr Fermanis had been closely involved in supervising the relationship between Hoyts and the Bank and monitoring the Bank's exposure to Hoyts through the banking syndicate of which the Bank was a member. He monitored reports of Hoyts day-to-day commercial activities. It was quite inappropriate for him to seek to place pressure upon the receiver who was by definition required to be impartial in the exercise of carrying out his receivership duties, by emphasising that Hoyts was a substantial client of and had a substantial ongoing relationship with the Bank. Although Mr Fermanis denied, in giving evidence, that in his communications with Mr Rennie he had sought to impose influence on Mr Rennie in his decision concerning the sale of the cinema, on my findings he clearly did seek to impose precisely that form of influence in that circumstance. I reject his evidence that he was given the impression by Mr Resnick that he was not being treated fairly and that this was his explanation for telephoning Mr Rennie. 831 In those circumstances Mr Fermanis gave evidence which plainly requires the closest scrutiny and on the important matters raised with him going to whether or not he improperly intervened on behalf of the Bank in order to influence Mr Rennie in the sale of the cinema to Hoyts, his evidence was not reliable and is not accepted. Mr Glover 832 In my view the evidence given by Mr Gary Glover was reliable. He gave his evidence confidently. His evidence was consistent with the probabilities. Mr Elliott 833 I accept as reliable the evidence given by Mr Michael Elliott. Mr Long 834 I accept as reliable the evidence given by Mr Long. Mr Moody 835 I accept as reliable the evidence given by Mr Gary Moody. Ms Clements 836 I accept as reliable the evidence given by Ms Clements. Mr Gavan 837 As to the valuation given by Mr Gavan, to my mind there were so many flaws exposed in this valuation that a financier who looked at it closely was likely to find it unacceptable. The following examination of that valuation and of the evidence given by Mr Gavan generally accepts the detailed submissions put by the plaintiffs in this regard. The whole of Mr Gavan's evidence, including the detailed cross-examination, requires to be taken into account. 838 Mr Gavan inspected the cinema only externally in August 1996 and March 1997 and did not update himself on the state of the fittings, fixtures and equipment. He was unaware of the deficiencies in the state of repair and fit out that Mr Mills had told the receiver about and made no allowance for such deficiencies. Mr Mills' list of deficiencies is consistent with the receiver's report of 28 February 1997 that the Astro was "tired and in need of significant refurbishment" 839 Mr Gavan's report does not annex his instructions and he is unable to provide them. This leaves the court in a state of uncertainty about just what task he was set and just what assumptions he was asked to make. 840 Mr Gavan was unaware that a receiver had been appointed to the cinema and accepted in giving evidence in chief that had he known of the receivership his value "as is" would have declined by 10-15 percent, and his value "on completion" by about 10 percent. 841 The Astro was the first cinema he had ever valued. 842 The report does not annex the "as is" cash flow projections that he used to derive the "as is" value. This affects the credibility of the "as is" value. 843 Mr Gavan's "on completion" value has so many demonstrable errors and so many unlikely assumptions that it seems to me that one is not able to accept his conclusion when one cannot discern the reasoning behind it. It is possible to see that his "as is" valuation is based on applying a reversionary yield of 16% to the projections that he makes. That yield does not, I accept, represent the real risk of the cinema. 844 The "on completion" projections in the March 1997 report are likely to be a copy of a cash flow projection prepared for the August 1996 report. Given that Hoyts opened in September 1996, and that the income of the Astro declined by more than 60 percent in the period after Hoyts opened, this appears to me to be particularly significant. Mr Gavan had assumed that there would be a revenue drop of 50% as a result of the Hoyts opening. 845 Mr Gavan's "on completion" cash flow, according to him, is one which assumes that the cinema is already complete, at the start of the period that he models. Hence there is no allowance in it for the cost of completion, or disruption resulting from the building works. I accept the plaintiff's submission that this makes the projection quite unrealistic as an attempt to predict the future of the Astro, where actual building would need to be carried out. 846 The cash flow shows an increase in the number of seats available for sale in the 1997 year, over that in the 1996 year. That the projection shows this, is inconsistent with the assumption which Mr Gavan says he made, that the cinema was already complete. 847 The ticket prices that Mr Gavan assumes in the cash flow start out at $6.80, which is greater than the actual ticket price the Astro was charging in March 1997. Those ticket prices also increase over the years in a way which, on Mr Gavan's valuation, seems to me to be unrealistic. 848 Further Mr Gavan's assumption that the occupancy percentage of the cinema would increase is unfounded on the evidence. The Astro had achieved an 11% occupancy when it had had a quasi monopoly of the local market and its pick of first release films. The arrival of Hoyts meant that neither of those conditions would continue. The trading results of the Astro for the 1994, 1995 and 1996 financial year's show that the market was not growing significantly during the period that the Astro was the only cinema in Mt Druitt. The experience of the receivers with film distributors was that the distributors experimented with giving some first release movies to the Astro, but found that Hoyts could produce better returns to the distributors, and so favoured Hoyts in the allocation of first release movies. 849 Mr Gavan deleted consultants fees from the expenses of the cinema. In evidence he agreed that this deletion, for example for consultants fees paid to Mr Avery for acting as a quasi-manager, was not appropriate. 850 The expenses which Mr Gavan used in the projection were all a percentage of revenue. In fact the expenses of a cinema do not vary directly with revenue. 851 The expenses which Mr Gavan included in his projection leaves out around $620,000 of expenses that were actually incurred. If those expenses are taken into account, the cinema has a cash flow deficit of the order of $380,000 in the first year and cannot meet its interest bill.. Once the cinema is unable to meet its interest bill for the first year of the projection, I accept as of substance the plaintiff's submission that it is unrealistic for projections to be made for years after this-the enterprise will simply not continue. 852 The August 1996 valuation includes the same error as the March 1997 valuation in understating the expenses. If that error is corrected, the August 1996 valuation also results in the cinema not having enough money to pay its interest bill in the first year. 853 The March 1997 valuation uses a discount rate derived from the 3-star accommodation hotels and better quality pubs. I accept the plaintiff submission that this is not persuasive. The reason for this is that there were no comparable sales of cinemas available from which a discount rate actually applied to a cinema could be derived. When there was no market, or a very thin market, for the sale of cinemas, that in itself is a risk factor which an investor would take into account in deciding what discount rate to apply to a cash flow projection. 854 Further, the valuation model that Mr Gavan has adopted is one which assumes that at the end of the period for which projections will be made, an investor will purchase the property. 855 I accept as of substance the plaintiff submission that: "The industry structure relevant to a cinema is different to those in an accommodation hotel or a pub. Pubs operate in an industry which is not dominated by a couple of main players. Also pubs have an assured ability to be able to get enough good quality product to be able to sell. By contrast, a cinema operator does not have it in his own control whether he will be able to get good quality product from the film distributors. The cinema business is one which has been subject to "stinging events" in the period since the 1950's, which has made it volatile. While it was booming in 1997, there was no reason to believe that the boom conditions would continue" [see generally transcript at pages 453 and following] 856 The March 1997 report was prepared in a hurry. It has numerous passages which show that parts of the text were lifted from an earlier report which was written before Hoyts opened. 857 I further accept that the curious incident of there being a letter confirming the value of the Strathfield house being sent to Brisbane brokers, when Mr Gavan had not valued the Strathfield house, does not inspire confidence. 858 In re-examination Mr Gavan produce some re-worked projected cash flows. This in itself, I accept, is a highly unpersuasive procedure. In my view the reworked calculations do not take into account all the deficiencies which had been identified in Mr Gavan's original projections. 859 Ultimately the many inconsistencies and mistakes and unreliable assumptions exposed in the cross-examination of Mr Gavan resulted in his evidence being of little value Mr Moulds 860 I accept as reliable the evidence given by Mr Moulds. Mr Avery 861 At the end of the day the evidence given by Mr Avery does not appear to significantly affect the issues. To the extent that his evidence was inconsistent with that of Mr Soulos, I accept the evidence given by Mr Soulos as reliable. Mr Malafiej 862 The evidence given by Mr Malafiej is dealt with in detail in this judgment. Where the evidence of Mr Malafiej is in conflict with that of Mr Moulds, the evidence of Mr Moulds is accepted. Ultimately the many inconsistencies and mistakes and unreliable assumptions exposed in the cross examinations of Mr Malafiej also resulted in his evidence being of little value. Mr Mills 863 As to the evidence given by Mr Mills I do not except that the defendants have established a failure by the Receiver to properly conduct or operate the ongoing business of the cinema. By definition the appointment of a receiver may be anticipated as affecting, sometimes in unfortunate ways, the ongoing business affected by the receivership. The question is always one of degree and I was not satisfied that the receiver was shown to have acted inappropriately in all the circumstances. Mr Allenby 864 To my mind the evidence given by Mr Allenby in the should be accepted as reliable. His reports seem to be carefully prepared and to be credible. Claim for breach of Receiver's duty 865 Mr Wilson submitted that the evidence disclosed a breach by the Receiver of the duties owed by the Receiver in the sale of the cinema and that because of its participation in the sale of the cinema, liability for the breach extended to the Bank. The convenient course to follow is to first examine the duties which a Receiver appointed out of Court owes at general law, and then to examine whether these duties extend to the Bank by reason of the Bank's participation in the sale of the Cinema. The discussion should be prefaced by saying that Mr Wilson at no stage placed any reliance upon the duties s 420A of the Corporations Law casts upon Receivers. [Cf Jeogla v Australia New Zealand Bank [1999] NSWSC 56; 150 FLR 359] Obligations of a receiver appointed out of court 866 Mr Wilson submitted that the Receiver stood in a fiduciary position qua Dr Chia and the Receiver, Mr Rennie, appeared to operate under this impression. [Transcript p 885] Mr Wilson referred the Court to the following passage to be found in JC Shepherd's Law of Fiduciaries (1981, at p23) - ' ... [T]here are other, somewhat trust like' relationships which also carry with them fiduciary obligations. The closest category to trustees is probably receivers who do virtually everything that a trustee does but with less discretion.' 867 But as the author immediately proceeds to point out, a distinction must be made between a receiver appointed by a court and a receiver appointed privately. It is undoubted that a court appointed receiver owes fiduciary obligations to all persons interested in the subject property: Cape v Redarb Pty Ltd (1992) 8 ACSR 67 at 78 per Higgins J. The function of such a receiver is to preserve the assets of the company and its potential to earn future profits: Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 at 383-384 per Street J. 868 The purpose of the appointment of a receiver out of court is somewhat different; they are not appointed for the benefit of the company but for the purpose of realising the security held by the appointer: see Re B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 at 644 per Evershed MR, Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 at 167 per Stark J (Ontario High Court). The appointment of such a receiver is performed by the mortgagee, however, it is invariably the case, and is here the case, that the instrument under which the receiver is appointed provides that the receiver is the agent of the mortgagor. It has been said that the agency is 'a very special' and 'limited' one: (see WRD Stevenson, 'Receivers' (1973) 44 ALJ 438 at 444. The purpose and effect of rendering the receiver the agent of the mortgagor is to relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver: Gaskell v Gosling [1886] 1 QB 669 at 692 - 693 per Rigby LJ (dissenting), approved on appeal: Gosling v Gaskell [1897] AC 575 at 589, 590, 595, Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 368 per Latham CJ. 869 To make the receiver the agent of the mortgagor is, of course, something of a contrivance. As Starke J said in Visbord v Federal Commission of Taxation (supra at 376) '[w]e must not lose sight of the substance of the appointment. It was made for the benefit of the mortgagee and to protect the mortgagee from liability as mortgagee in possession or as principal.' Yet it is a contrivance which has the effect of removing a receiver appointed out of court from those classes of persons who may be said to be fiduciaries. As Professor Finn explained in his work Fiduciary Obligations (1977, p12), there are no reasons for the imposition of fiduciary obligations where, although one party agrees to act for or on behalf of another, the other party is able to control what powers are exercised for or on his or her behalf or able to control the manner of its exercise. Because the receiver is made the agent of the mortgagee, 'the receiver-mortgagor relationship becomes one founded upon agreement and escapes the imposition of general fiduciary obligations' (see p13). Accordingly, it is said in Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd edition, para 2845) that the receiver appointed out of court is the only genuinely non-fiduciary agency: see also Ostrander v Niagara Helicopters Ltd (supra, at 167). 870 To say that a receiver appointed out of court is not, generally, a fiduciary, is not to say that they are in no circumstances a fiduciary nor to say they owe no duties in the conduct of their receivership. Outside of those imposed by Statute, the general law imposes at least three duties upon a receiver. In the first place, the receiver has a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security: In re B Johnson & Co (Builders) (supra, at 645 per Evershed MR), Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 831 per Needham J. In the second place, the receiver holds in trust for the mortgagor, any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors: Visbord v Federal Commissioner for Taxation (supra, at 384 per Williams J), Expo International Pty Ltd v Chant, (supra, at 830). In the third place, and most relevantly for these proceedings, the receiver, as the donee of a power, must exercise the powers and duties granted to him or her in good faith and for a proper purpose. 871 The content of this last duty is determined by its assimilation with the duty imposed by the law on a mortgagee exercising a power of sale: Downsview Ltd v First City Corporation Ltd [1993] AC 295 at 312 per Lord Templeman. The locus classicus in this area of the law is to be found in the judgment of Lord Hershall in Kennedy v De Trafford [1897] AC 180 where (at 185), the Lord Chancellor formulated the duty of a mortgagee (and therefore a receiver) as one to act in good faith, without wilfully or recklessly sacrificing the interests of the mortgagee. To a similar effect, Lord Macnaughten said (at 192) that 'if a mortgagee selling under a power of sale in his mortgage takes pains to comply with the provisions of that power, and acts in good faith, I do not think his conduct in regard to the sale can be impeached.' This formulation was adopted and applied by Griffith CJ in Barns v Queensland National Bank Ltd (1906) 3 CLR 925 at 943 where evidence indicated that the mortgagee had conducted the sale in pursuit of a personal vendetta against the mortgagor. The Chief Justice, in giving the judgment of the Court, suggested that a power of sale exercised not for the purpose of obtaining payment of a debt, but to deprive the mortgagor of the opportunity of retaining the property by a redemption or which wilfully and reckless sacrificed the interests of the mortgagor, was not a power exercised in good faith. 872 The scope of the duty of a mortgagor was again considered by the High Court in Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 where the Court was of the view that the failure of the mortgagee to place proper or sufficient advertising of a sale was so manifest as to amount to recklessness within the meaning of the test as laid down by Lord Hershall in Kennedy v De Trafford (supra). Isaacs J was of the view that while 'recklessness' included a sale in disregard of the interests of the mortgagor, not caring whether or not a proper price was obtained, it did not embrace mere negligence or carelessness (at 700 - 702). According to Griffith CJ, if the receiver 'omits to take obvious precautions to ensure a fair price and the facts show that he was absolutely careless whether a fair price was obtained or not, his conduct is reckless and he does not act in good faith (at 680). Barton J was of a similar view (at 694). 873 A different line of authority for the scope of the duties of a mortgagee exercising a power of sale is to be found in the decision of the English Court of Appeal in Cuckmere Brick Co v Mutual Finance Ltd [1971] 1 Ch 949. In that case the burden of the mortgagor's complaint was the failure of the mortgagee to mention in advertising, the fact that the subject property had obtained planning permission for flats as well as houses and the failure to postpone the auction in order to promulgate that fact. The Court was unanimously of the view that the duties of the mortgagee exercising a power of sale went beyond a mere duty to act in good faith and for a proper purpose and embraced a duty to take reasonable care to obtain a proper price founded in the law of negligence. The decision in Cuckmere was applied to receivers by the Court of Appeal in Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 at 1415 per Lord Denning MR. 874 Cuckmere Brick Co Pty Ltd v Mutual Finance Co Ltd (supra) was discussed inconclusively by the High Court in Forsyth v Blundell (1973) 129 CLR 477 where the evidence revealed that the mortgagee had failed to pursue a possible higher bid and accepted a lower one instead. The High Court by majority (Walsh and Mason JJ; Menzies J dissenting) upheld the trial judge's conclusion that the mortgagee acted recklessly insofar as it considered only its own interests and deliberately sacrificed the interests of the mortgagor (at 493-494 per Walsh J, at 508 - 509 per Mason J). In dissent Menzies J did not perceive any difference between the duties of the mortgagor as expressed in Kennedy v De Trafford and as expressed in Cuckmere for '[t]o take reasonable precautions to act is but a part of the duty to act in good faith:' (at 481).' Walsh J noted the conflicting views but did not feel the need to decide between them for, on the trial judge's findings, the actions of the mortgagee amounted to a reckless disregard of the interests of the mortgagor: (at 493 - 494). The view of Mason J appears to lie somewhere in between those of Menzies J and Walsh J, for his Honour said (at 506): 'It will be seen that the conclusion which I reach is that ASL [the mortgagee] was in breach of its duty to the mortgagors in that it exercised its power of sale without taking reasonable steps to obtain a proper price and in so doing acted otherwise than bona fide , that is, recklessly, not caring whether the price obtained was in the circumstances the proper price or not. Accordingly, I need not consider the vexed question whether the mortgagee's duty is merely to act bona fide or whether, in addition, he is bound to take reasonable precautions to obtain a proper price.' [emphasis added]. 875 Mr Wilson placed considerable reliance on the decision of the High Court in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195. In that case a mortgagee company effected a sale of a property under its power of sale to another company controlled by the same persons who controlled the mortgagee company at an auction where the purchaser was the only bidder. The High Court considered that in these circumstances, the onus of showing that the sale had been a genuine one effected bona fide was cast upon the mortgagee. Reversing the trial judge, the Court was of the view that by dint of the fact that the property was sold at very short notice, with little advertising of the sale, very close to Christmas and under what the purchaser had determined was the maximum price it would pay (that figure having been determined by the same persons who set the reserve price), the sale was not shown to be an independent bargain: (at 202 per Jacobs J, at 227-228 per Aickin J). Earlier, Jacobs J had said (at 201): 'It is true that bona fides in this connexion is not concerned with the motive for exercising the power of sale, but once the decision to sell has been made it is concerned with a genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realize his security. At the same time the mortgagee is concerned with his own security and not with the interests of the mortgagor or subsequent encumbrances and therefore a wide latitude has been allowed to him in his manner of exercising the power of sale. However, where there is a possible conflict between that desire and a desire that an associate should obtain the best possible bargain the facts must show that the desire to obtain the best price was given absolute preference over any desire that an associate should obtain a good bargain.' 876 The matter was adverted to by the High Court in Commercial and General Acceptance Ltd v Nixon (1983) 152 CLR 491 where, in the context of considering a duty cast upon a mortgagee by the Property Law Act 1974 (Qld) requiring a mortgagee to take reasonable care in exercising a power of sale to ensure that the mortgaged property was sold at the market value, Gibbs CJ referred to the authorities dealing with the duty of a mortgagee at general law as 'conflicting' and 'irreconcilable,' but declined to decide between them (at 494 - 495). The matter was similarly left open by Mason J (at 501), Wilson J (at 517) and Brennan J (at 523). Aickin J, however, appears to have decided that the liability of a mortgagee goes beyond a mere liability for fraud and extends to liability for negligent acts or omissions of the mortgagee or his or her agent in the conduct of the sale (at 515 -516). 877 In Downsview Ltd v First City Corporation (supra) the Privy Council, on appeal from New Zealand, held that the New Zealand Court of Appeal had been incorrect in applying the standard of negligence to the sale of a property by a receiver. Their Lordships identified the requirements of good faith and a proper purpose as the essential duties of a receiver and, in particular, were of the opinion that 'there was no room for the imposition of a general duty to use reasonable care in dealing with the assets of the company' (at 315 per Lord Templeman). Nevertheless, the Judicial Committee did not expressly disapprove Cuckmere and despite some predictions to the contrary (see L Aitken 'The Receiver's Duty in Equity: The Impact of Statute and the Privy Council' (1993) 1 Insolvency Law Journal 118 at 118) the Cuckmere test continues to have some currency among the English courts, albeit transposed into equitable form: Medforth v Blake [1999] 3 WLR 922 at 936 per Scott VC. 878 Nevertheless, the Cuckmere test has no currency in New South Wales. In this State Courts have continued to apply the test as stated in Kennedy v De Trafford, rather than Cuckmere: see for instance Expo International Pty Ltd v Chant (supra, at 836), Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 at 707 - 709 per Cole J, State Bank of NSW v Vincent (Unreported, 7 April 1995 per Giles J), Qorum v Younger (1994) NSW ConvR 55738 per Bryson J, Adamse v Broadway Credit Union Ltd (1999) NSW Conv R 55-976, Jeogla v Australia New Zealand Banking Group Ltd (1999) 150 FLR 359 at 443. In particular, the following reformulation by McLelland CJ in Eq Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW Conv R 55-731 has been widely applied: 'This is an area of the law where particular phrases used in judgments should not be construed and applied as if embodied in an Act of Parliament (cf Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77 at 110). What matters is the underlying equitable principle which in the modern idiom usually find expression in terms of unconscionability. The mortgagee is not answerable for what Isaacs J in Pendlebury describes (at 700) as 'mere negligence or carelessness in carrying out the sale.' Any departure from reasonable standards must be so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable. If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as the expression is understood in equity, then in the taking of accounts between the mortgagee and mortgagor, the mortgagee will be accountable on the basis of wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct.' 879 The test of 'unconscionability' correctly identifies, as the Chief Judge in Equity points out, the underlying principle; or, the equitable grundnorm: see Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd Edition, at xi). Nevertheless, and without limiting the reach of the general principle, it can be given some more particular content: (1) The basal duty of the receiver is to obey the terms of the instrument which has effected his or her appointment and to exercise the powers conferred upon him or her for the purpose of securing or realizing the appointor's security: Downsview Ltd v First City Corporation Ltd (supra, at 312). (2) The receiver must exercise his or her powers in good faith and an exercise of the powers of a receiver for any colourable purpose is an exercise of those powers in bad faith: Barns v Queensland National Bank (supra, 941 - 945). (3) Although the primary duty of the receiver is to realize the security, an exercise of the powers of the receiver which wilfully sacrifices the interests of the mortgagor or subsequent creditors by, for instance, failing to pursue any bids in excess of what is necessary to satisfy the debt of the mortgagor ( Forsyth v Blundell , supra at 493 - 494, 506-507); or, by conducting the receivers powers in such a deficient fashion as to impugn the sincerity of the desire of the receiver to obtain the proper price for the assets of the mortgagor ( Pendlebury v Colonial Mutual Life Assurance Society , supra, 691-692, 694, 700-703), is an exercise of powers in bad faith. (4) Where a sale by a receiver is a sale to a close associate such that the sale cannot be said to be an independent transaction, then the burden is cast upon the receiver to show that the sale was in good faith and for a proper purpose. The closer the association between a receiver and the purchaser, the heavier the burden : Australia and New Zealand Banking group v Bangadilly Pastoral Co Pty Ltd (supra, 201 - 202, 227-228). (5) Generally, the test of unconscionability requires some moral turpitude or dishonesty or improper motive on the part of the receiver and does not embrace mere negligence or inadvertence: Medforth v Blake (supra, at page 938). Relationship Between Receiver and Mortgagee 880 The evidence in the present case indicates that the Receiver, carried out his tasks as Receiver and ultimately executed the sale of the Astro Cinema to Hoyts in close association with the Bank and that, in fact, it was the Bank who made the ultimate decision to sell the Cinema to Hoyts. [Transcript page 1048]. 881 The first point to make is that a mortgagee has no power to direct the receiver in the performance of the receiver's task: Medforth v Blake (supra, at 930 per Scott VC), Knight v Lawrence [1993] BCLC 215 at 223 per Browne-Wilkinson VC. But there is no doubt that the law allows, and even requires, interaction between a receiver and his or her appointors. The receiver occupies a fiduciary relationship with his or her appointors, one aspect of which is the duty of the receiver to keep his or her appointors informed about the progress of the receivership: In re Magadi Soda Co Ltd (1925) 41 TLR 297 at 302 per Eve J, Gomba Holdings Ltd v Minorities Finance Ltd [1988] 1 WLR 1231 at 1233 per Fox LJ. However, there is authority for the proposition that where a mortgagee directs the exercise of the powers of the receiver, it comes under the duties of the receiver: American Express v Hurley [1985] 3 All ER at 571 per Mann J, Standard Chartered Bank v Walker [1982] 1 WLR 1410 at 1416 where Lord Denning MR said: 'The debenture holder, the bank, is not responsible for what the receiver does except in so far as it gives him directions or interferes with his conduct of the realisation . If it does so, then it too is under a duty to use reasonable care towards the company and the guarantor.' [emphasis added]' 882 The authority of these two cases is weakened by the fact that they were decided upon the discredited premise that the receiver's duty lay in negligence because of the 'proximity' between the receiver and mortgagor. To decide that an intermeddling mortgagee was similarly proximate was a short step. 883 Another possibility is that by directing the receiver on certain matters, the mortgagee constitutes the receiver as its agent on those matters, notwithstanding that generally the receiver is the agent of the mortgagor. However, in the judgment of Somers J in RA Price Securities Ltd v Henderson [1989] 2 NZLR 257 at 262, the following passage occurs: 'As between the receiver on the one hand and the company and third parties on the other, directions given to the receiver by the debenture holder will not render the latter liable at the suit of the company or such third parties. Such directions are taken as emanating from the company ... I do not think it possible that a receiver can be the agent of the debenture holder in the sense that he is agent of the company when the debenture so provides ...' 884 After quoting part of this passage Blanchard and Gedye, The Law of Company Receiverships in Australia and New Zealand (2nd Edition, 1984 para 3.04) go on to say that: 'in agency law generally, an agent can have two principals and it should not be thought that a receiver could never be the agent of the debenture holder in relation to particular matters whilst generally being the agent of the company.' The matter was also the subject of discussion by the Ontario Court of Appeal in Peat Marwick Ltd v Consumers Gas Co (1980) 29 OR (2d) 336 at 344 where Houlden JA considered that, notwithstanding the language of a debenture which clearly made the receiver the agent of the mortgagor, in performing acts such as exercising the power of sale, the receiver acts as agent for the mortgagee while, in performing acts such as occupying the premises and carrying on the business, the receiver acts as agent for the mortgagor. Conversely, in Robinson Printing Company Ltd v Chic Ltd [1905] 2 Ch 123, Warrington J in considering a debenture that did not constitute the receiver the agent of the mortgagor, said that although such a receiver was generally the agent of the mortgagee, 'he is also for some purposes the agent of the company and certainly to such an extent as may be necessary to enable him to exercise the powers conferred upon him by the debenture' (at 132). 885 Certainly, as Blanchard and Geyde say (supra at p52), the intervention of a mortgagee will have to be serious before that mortgagee is found liable for the defaults of the receiver and in particular it will have to go beyond mere consultation or the communication of preferences by the mortgagee. Nevertheless, the position is, to my mind, correctly stated by Sir Richard Scott VC in Medforth v Blake (supra at 930) as follows: 'If a mortgagee establishes a relationship with the receiver he has appointed under which the receiver exercises his powers in accordance with instructions given by the mortgagee, I can see the force of an argument that if the receiver is liable to the mortgagor then so will the mortgagee be liable. ... If the mortgagee chooses to instruct the receiver to carry on the business in a manner that is a breach of the receiver's duty to the mortgagor, it seems to be quite right that the mortgagee, as well as the receiver, should incur liability. This conclusion does not in the least undermine the receivership system. What it might do is to promote caution on the part of mortgagees in seeking to direct receivers as to the manner in which they (the receivers) should exercise their powers. I would regard that as salutary.' 886 Here the evidence clearly reveals that the Bank was heavily involved in the performance of the Receiver's duties, even to the extent of directing when and to whom the Receiver was to exercise his power of sale. In those circumstances, it is proper that the Bank be held to account in the same manner as the Receiver and to the same standards. Application of principles to the facts 887 As a threshold issue, it is important to distinguish between the content of the offers made by Dr Chia and the content of the competing offers made to the Receiver by those bidding for the cinema. The offer made by Dr Chia was a payment of a sum of money less than his debts to be made to the Bank to release him from all his obligations to the Bank and to release all the securities held by the Bank, including the securities over the Strathfield and Campbelltown properties. I need not pause to consider the extent to which the rule in Pinnel's Case (1602) 5 Co Rep 117A; 77 ER 237 is relevant - see Foakes v Beer (1884) 9 App Cas 605. The offers made to the Receiver are offers for the sale of the Cinema alone. Thus the comparison of the offers made for the purchase of the Cinema with offers made by Dr Chia, whilst not overly complex, is not a straightforward exercise. In particular, the offers made by Dr Chia must be seen in the context of the continuing value to the Bank of the securities over the Campbelltown and Strathfield properties and importantly, of Dr Chia's personal covenants. 888 The second cross claim as pleaded by Dr Chia included allegations that the Receiver, Mr Rennie, had failed to exercise his powers under the Trader's Bill of Sale and Mortgage in good faith and failed to sell the goods and the land for not less than its market value or alternatively the best price reasonably obtainable: [Second amended cross claim, paragraphs 28 - 30]. These allegations were not pursued in final submissions by Mr Wilson and, in any event, I accept the evidence of Ms Clements, an employee of Ernst and Young who worked on the receivership, which demonstrated that these allegations had no basis in fact. 889 The gravamen of this aspect of Dr Chia's cross claim alleged a breach of the Receiver's duty to act in good faith by his failure to properly manage the business of the Cinema prior to its sale: [Second amended cross claim, paragraphs 40 - 43]. This allegation was variously particularised in the pleadings: [Second amended cross claim, paragraph 35]. However, in his final submissions, Mr Wilson put forward three bases on which it was alleged the Receiver and the Bank had breached duties owed to Dr Chia. First, by failing to inform Dr Chia of the impending sale of the Cinema to Hoyts on 5 May 1997. Second, by failing to postpone the sale to Hoyts to seek a higher price from Dr Chia. Third, by consciously or unconsciously favouring the interests of Hoyts in the tender process. These allegations were made concurrently against the Bank. (i) Failure to inform Dr Chia of intended sale 890 Mr Wilson submits that the failure of Mr Rennie to inform Dr Chia of his intention to sell the cinema on 5 May 1997 and thus allow Dr Chia to put his best offer, was a breach of Mr Rennie's obligations [Final written submissions of Dr Chia 22 - 23]. In this connection, Mr Wilson appears to place reliance on the following statement of Hope JA (with whom Kerr CJ agreed) in Walden Properties Ltd v Beaver Properties Ltd [1973] 2 NSWLR 815 at 833, made in the context where the defendant had appointed itself agent for the plaintiff, in the negotiation for and purchase of some shares: The duties imposed on Beaver Properties would, in the circumstances be limited, in my opinion, to carrying on the negotiations with due regard to Walden's interests, giving Walden a reasonable opportunity to make a final decision whether to join in the purchase agreement and making a full disclosure to Walden of all material circumstances concerning the negotiations, the shares and their value. 891 The Bank accepts that the Receiver did have a duty of good faith towards Dr Chia. However, they submit that this duty did not involve a duty on the Receiver to act in such a way so as to ensure that Dr Chia had an opportunity to put his best offer to the Bank. Indeed, the Bank submits that as the assessment of Dr Chia's offers involved consideration of the value of the securities over the Strathfield and Campbelltown mortgages and the value of the Chia's personal covenants, Dr Chia's offers were outside of the ambit of the Receiver's consideration as he was concerned only with the sale of the Cinema [Bank's final submissions, p98]. 892 To my mind, the submission of Mr Wilson is misconceived. When Hope JA spoke in Walden Properties Ltd v Beaver Properties Ltd (supra), he spoke of an agency relationship which was fiduciary in nature. For the reasons given above, the relationship of receiver-mortgagor is not of this character. It is not inconceivable that a failure by a receiver to inform a mortgagor of his intention to sell would, in certain circumstances, be unconscionable in the meaning used by McLelland CJ in Eq in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (supra). However, this case does not present those circumstances. The history of the dealings between the Bank, the Receiver and Dr Chia reveal that Dr Chia had and availed himself of ample opportunities to make offers of compromise. What, in effect, Mr Wilson submits, is that by failing to give Dr Chia a last right of refusal, Mr Rennie acted with mala fides. The contention is obviously wrong: the refusal to grant Dr Chia a significant advantage over competing bidders not does not equate with bad faith. On this aspect, Dr Chia's claim must fail. (ii) Failure to postpone sale to allow Dr Chia to make a higher offer 893 Mr Wilson submits that the failure of the Receiver and the Bank to postpone the sale of the Cinema to Hoyts to pursue the possibility of a higher offer from Dr Chia was a breach of duty by the Receiver. Mr Wilson points to evidence which indicates the possibility that Dr Chia could have made an offer of compromise of $3.4 million. Valuing the securities the Bank held over the Campbelltown and Strathfield properties at $1 million, it is Mr Wilson's submission that Dr Chia's possible bid was $100 000 above the Hoyts offer which was eventually accepted. The failure of the Receiver to pursue that possibility and his acceptance the Hoyts offer for the Cinema of $2.3 million was, in the submission of Mr Wilson, 'a serious departure from accepted standards' within the meaning of that phrase as used by Aickin J in ANZ Bank Ltd v Bangadilly Pastoral Co Ltd (supra, 228) - [Final written submissions on behalf of Dr Chia, p23]. 894 The Bank submits that even if it were proved that the Bank had failed to obtain the best price possible, this would not be a breach of the Receiver's duty. The Bank also submits that the Receiver was justified in accepting the Hoyts offer over the offers made by Dr Chia. In particular, the Bank points to what I accept as the unsatisfactory and suspect documentary support furnished by Dr Chia in support of his various bids. The doubt which hung over Dr Chia's capacity to live up to his bids was, in the submission of the Bank, a powerful reason supporting the decision of the Receiver to accept the offer of Hoyts over that offer of compromise of Dr Chia [Banks' supplementary final written submissions, p10] 895 It is certainly true to say, as Kearney J said in Stoyanovich v National Westminster Finance (1984) 3 BPR 9310 at 9315, that at general law a receiver is not burdened with a 'duty of care to sell the goods and the land for less than market value.' However, to the extent that the Bank's submissions assert that the failure by a receiver to pursue the best price can never be a breach of duty, they go too far. Forsyth v Blundell (supra) is a case where the failure of the mortgagee to follow up a significantly higher bid was a breach of the mortgagee's duty. However, to my mind, the Bank's failure to follow up the possibility that Dr Chia may make an offer of compromise of $3.4 million cannot, in this instance, establish an absence of good faith. On my findings, the Receiver and the Bank reasonably took the view that the offers of Dr Chia had significant credibility problems. [see Transcript p926, 1036] In contrast, Hoyts were known to be a substantial bidder who could be relied on to stand behind its offer and complete with expedition. [Transcript p931] To prefer the safe bet of Hoyts as compared to the risky prospect of a higher figure from Dr Chia was perfectly explicable and consistent with the good faith of the Receiver. 896 The failure of the Receiver to postpone the sale was relied upon by Mr Wilson as evincing the failure of the Receiver to discharge his duty to Dr Chia [Final written submissions p23]. Mr Rennie was closely questioned on his failure to request an extension. He gave evidence that his failure to request an extension was based on the firmness of the offer from Hoyts and his commercial instincts which indicated that letting the Hoyts offer lapse was a risk that he could not afford to take. [Transcript, p931 - 932] To my mind, Mr Rennie's instincts were accurate; at the least, it was reasonable for him to act on them. It is clear that Mr Resnick of Hoyts was a very shrewd negotiator. He gave evidence that if Mr Rennie had asked for an extension, he may have granted it but could not guarantee that his offer would not fall and that if Mr Rennie had re-approached him then there was every possibility that he might drop the price, for it would be clear that Mr Rennie had no better offer and 'I may well take advantage of [Mr Rennie].' [Transcript p13]. 897 Accordingly, to my mind the subject circumstances - namely, the very uncertain possibility of an offer from the mortgagor which was reasonably regarded as dubious and the existence of a firm offer from a substantial offeror who employed very shrewd and effective negotiating techniques - do not render the Receiver's acceptance of the Hoyts offer, without pursuing the remote possibility of a higher offer from Dr Chia 'a serious departure from accepted standards,' within the meaning ascribed to that phrase by Aickin J in ANZ Ltd v Bandgadilly Pastoral Co Ltd (supra). (iii) Unconscious preference for Hoyts bid 898 Mr Wilson alleges that the sale of the cinema by the Receiver to Hoyts was vitiated by the desire, conscious or unconscious, of the Receiver and of the Bank, to grant a preference to Hoyts. Mr Wilson relies on the statement of Jacobs J in ANZ Banking Group v Bangadilly (supra, at p202) that '[t]he inevitable conflict of interest which arises on the sale to a close associate may be not only consciously but unconsciously resolved in favour of a close associate:' [Transcript of final argument, p129] 899 To make out his allegation, Mr Wilson relies on the fact that Hoyts was an audit client of Ernst and Young, Mr Rennie's firm, and was a customer of the State Bank. He relies on a meeting between the Receiver and Mr Resnick of Hoyts on 1 May in which, Mr Wilson alleges, Mr Rennie discussed with Mr Resnick how to frame Hoyts' offer for the Cinema and upon the note made by Mr Warbanoff of that meeting which was headed 'tactics' and referred to a bid of $2.3 - $2.4 million from Hoyts and 'a substantial margin off the record': [Ex D2AR, p34]. Mr Wilson further relies on the conduct of Mr Fermanis of the Bank, which, he alleges, amounted to an attempt to exert pressure on the receiver, in particular by telephoning Mr Rennie on May 2 and informing him that Hoyts did not want to be 'jerked around.' [Final written submissions for Dr Chia, p24 - 25] 900 Mr Thomson submitted that the Court should not receive these submissions from Mr Wilson as they were not open on the pleadings and had never been particularised prior to final submissions by Mr Wilson. Mr Thomson then submitted that the allegations as made should attract the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 and now to be found in s140(3) of the Evidence Act 1995. [Transcript of final argument, p149] Whether the allegation was pleaded or not is a nice question. Something of its nature may be found in the Further Amended Cross Claim of 3 December 1999 filed for Dr Chia, paragraph 29B(c) of which alleges that Mr Rennie 'preferred the interest of Hoyts to that of the cross claimant in selling the Astro Cinema to Hoyts.' However, Mr Thomson is correct when he says that no allegation of conspiracy between the Receiver, Hoyts and the Bank is particularised. I have formed the view that, even if they were properly pleaded, the allegations have not been made out. 901 It is convenient first to address the nature of the alleged connection between Hoyts, Ernst and Young and the Bank which, so Mr Wilson submits, amounts to an association such as to raise the suspicion that conscious or unconscious preference was given in the sale of the Cinema to Hoyts - see ANZ Banking Group Ltd v Bangadilly Pastoral Co Ltd (supra, at 202 per Jacobs J, at 228 per Aickin J). In Bangadilly the facts were somewhat different: the purchaser was a company which was controlled by the same persons who controlled the mortgagee company. These facts are a long way removed from the present case. The evidence revealed that the degree of contact between the audit group and the corporate recovery group was very limited. Mr Elliott, an audit partner of Ernst and Young, gave evidence, which I accept, that apart from being informed of the purchase of the Astro by Mr Resnick, he had never been approached by any person in relation to the matter. The evidence of Mr Long, another audit partner of Ernst and Young, was that the extent of his involvement in the sale of the Astro was limited to inquiring in 1997 as to whether Hoyts might be interested in purchasing the cinema and passing on the results of that inquiry to someone in the corporate recovery area. Otherwise, he had no involvement. In the result, I am satisfied that the fact that the Receiver was a partner of Ernst and Young in the corporate recovery group and that Ernst and Young also performed audit tasks for Hoyts, in no substantial way impugns the independence of the sale of the Astro Cinema. 902 Mr Wilson relied particularly heavily on the conduct of Mr Fermanis from the Bank to establish that the fact that Hoyts was a customer of the Bank had, consciously or unconsciously, caused the Bank to give Hoyts preference in relation to the sale of the Astro. I have outlined elsewhere my view on Mr Fermanis' evidence. In particular, I reject Mr Fermanis' evidence that he did not attempt to influence the Receiver in favour of Hoyts. On my findings, he did precisely that, principally by telephoning Mr Rennie and informing him that Hoyts did not want to be 'jerked around.' However, while the actions of Mr Fermanis demands that the underlying facts surrounding the sale be closely scrutinised, I am satisfied that his crude efforts to influence the sale of the Astro were wholly unsuccessful. I accept the evidence of Mr Rennie that Mr Fermanis' did not succeed in influencing the process followed by the Receiver and only succeeded in irritating Mr Rennie. To the same effect is the evidence given by Mr Warbanoff. 903 Further, I am satisfied that Mr Fermanis' attempt to influence the tender process also proved fruitless within the Bank. Mr Gary Glover, whom I accept as a reliable witness of truth, gave evidence that he was the person who made the final recommendation to the Indemnified Loans Committee [the ILC], the decision making body who had final determination of the matter. He gave the following evidence: Q Insofar as the recommendation went forward under your hand in the way you just described it did, did you take into account in any way, and if so, what sense, the fact that Hoyts had a substantial ongoing relationship with the Bank? A. My concern was to maximise the price and under the terms of the indemnified loans deed we minimise losses and explain to the ILC to the best of our ability how we have done that and certainly we try to maximise the bids for the market. Hoyts were certainly an attractive bidder in that process and we wanted to retain them in there. The fact that they were a client of the Bank was, to us, irrelevant at the end of the day. We were seeking the best price. In the eyes of the ILC, they were seeking that we do the best deal and minimise the loss. Q. I gather, correct me if I am wrong, please, you knew that Mr Resnick and/or Hoyts were somewhat anxious to secure, if they could, that their offer be accepted, is that correct. A. That is correct. Q And do you say that the fact that Hoyts had a long standing and reasonably close and from that the fact that Hoyts had a long standing and reasonably close from time to time relationship with the Bank played no part at all in terms of your own consideration leading you to recommend the offer to the indemnified loans committee? A. Only the fact that we knew they had the funds to complete the purchase. Q As opposed, is this correct, to any suggestion that - as opposed, is this correct, the parameter of Hoyts having a relationship with and, therefore, being close to the Bank? A That is correct. 904 Finally, Mr Wilson alleges that the meeting between Mr Rennie and Mr Resnick of May 1 1997 was a means by which the Receiver connived with Hoyts to effect the sale of the Astro to Hoyts in preference to Dr Chia's offer. This claim is without substance. Of itself, there is nothing sinister in a receiver meeting with a potential bidder to discuss a possible offer. Indeed, the evidence of Mr Rennie, which I accept, was that at the meeting he was attempting to get Hoyts to increase their offer and did not reveal to Mr Resnick the other offers which had been made by Dr Chia and the other bidders. Mr Warbanoff's evidence was to the same effect. In his attempt to increase Hoyts' offer, Mr Rennie was successful, for Hoyts did increase their bid following their meeting. Mr Resnick was also firm in his evidence which I accept as reliable, that the Receiver had given him no assistance in terms of indicating how much he would have to bid to attain the Cinema. 905 The comment to be found in Mr Warbanoff's daybook, viz., 'substantial margin off the record' is one which, to my mind, required some explanation. However, I accept as reliable Mr Warbanoff's explanation that what it referred to was the necessity that any third party bidder for the Cinema would have to attain a 'substantial margin' over any offer made by Dr Chia in view of the Bank's assessment that Dr Chia would, as he did, initiate litigation. So understood, the comment is in no way reflective of any conspiracy against Dr Chia as was suggested by Mr Wilson. 906 On my findings, it is clear that the decision making process within the Bank paid regard only to the commercial merits of the Hoyts offer. After an exhaustive and close investigation at the hearing, no element of favouritism for the Hoyts' offer can be found. Accordingly, I reject this aspect of Dr Chia's case. Conclusion on claim against the Receiver and Bank for breach of duty 907 It follows from the above that Dr Chia's claim against the Receiver and against the Bank for breach of a duty owed to him as mortgagor fails. Dr Chia's claim against the Bank for unconscionable conduct 908 Dr Chia also alleges that the Bank had breached s51AA(1) of the Trade Practices Act, which reads as follows: A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. 909 The pleadings included allegations that the Bank had engaged in conduct which was in breach of s51AA in relation to the imposition of certain fees and charges imposed by the Bank on Dr Chia, in relation to the Bank's valuation of the Cinema and in relation to an alleged withdrawal of $1.28 million from two of Dr Chia's accounts in the period January to March 1993 without the consent of Dr Chia [see Further Amended Cross-Claim, paragraphs 73 - 85]. However, these claims were not pursued in final written submissions, Mr Wilson made clear that all that remained was an allegation that the Bank had breached s51AA in the same manner in which it had breached its general law duties as a mortgagee. [Final written submissions on behalf of Dr Chia. p 27] The proper construction of such a claim is an interesting and difficult question: see generally Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324. However, it is not one which needs to be treated with here. Even, assuming the question of construction in favour of Mr Wilson, as I have found that there was no breach of duty by either the Receiver or the Bank, the claim must inevitably fail. Claim by Mrs Chia against the Receiver and Bank 910 Mrs Chia makes certain cross claims against the Receiver and the Bank which, in substance, are identical to the claims of Dr Chia. She claims that Mr Rennie has breached a duty of good faith and a duty of care owed to her as a guarantor by failing to obtain the best price possible for the cinema and by demonstrating wilful default and neglect in the management of the business of the Cinema. Further, she claims that the Bank is estopped from maintaining its action against her. 911 Just as a receiver or mortgagor does not owe a duty of care, as that expression is understood in negligence, to the mortgagor, so he does not owe a duty of care to guarantors of the mortgagor's debt: Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 at 708 - 709 per Cole J. However, it appears to be accepted that the duty of good faith owed by a receiver and mortgagee to a mortgagor extends to any guarantor of the mortgagor: ANZ Banking Group Ltd v Carnegie (unreported, 16 June 1997, Supreme Court of Victoria, per Crockett J), Commonwealth Bank of Australia v Milder Elfman Szmerling Krycer Pty Ltd (unreported, 18 February 1998, Supreme Court of Victoria, per Hansen J). So much was conceded by the Bank. However, because, on my findings, no duty owed by the Receiver or the Bank to the mortgagor was breached, no duty owed to the guarantor of the mortgagor was breached. Accordingly, Mrs Chia's cross claim fails. 912 Mrs Chia's estoppel claim can also be shortly dealt with. Mrs Chia relies on the representations which Dr Chia alleged in paragraph 11 of his cross claim to constitute misleading and deceptive conduct on the part of the Bank contrary to s 52 of the Trade Practices Act. On my findings, the representations were either not made or not falsified. Accordingly, Mrs Chia's claim that the Bank is estopped from acting contrary to those representations must fail. Moreover, it was not shown that Mrs Chia assumed any particular position obtained or would obtain between her and the Bank, and it was not shown that anything the Bank did induced her to assume that any particular position did or would obtain between her and the Bank - two threshold requirements to found an estoppel: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428 - 429 per Brennan J. There is good reason for this, the representations relied on were made to Dr Chia. Mrs Chia's estoppel claim is misconceived and must fail. Conclusion in Dr Chia's Case 913 As all the defences and cross claims of Dr Chia have failed, there is no reason why the Bank is not entitled to the relief which it seeks, namely an order that Dr Chia pay to the Bank an amount which, as at 29 February, was stated in the certificate of Mr Moulds as $2, 879, 807.47. The Bank further claims interest accruing at the rate of $1, 189.59 per day. 914 Section 94(1) of the Supreme Court Act gives to the Court power in proceedings for the recovery of any money to order that there shall be included in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or part of the money for the whole or part of the period between the date when the cause of action arose and the date when the judgment takes effect. 915 As Barwick CJ showed in Ruby v Marsh (1975) 132 CLR 642 at 652 - 653 an award of interest has two purposes: first, to ensure the plaintiff has not suffered a detriment by being kept out of its money by the defendant and, secondly, to ensure that the defendant does not gain a collateral advantage by keeping the plaintiff out of its money. Here, to my mind the proper application of these principles involves awarding interest to the Bank at the default rate which Dr Chia is liable for under the Memorandum of Mortgage. The provenance of the figure of $1, 189.59 interest per day is not in evidence. However, if, as seems probable, this is the amount of interest payable by application of the default rate, in my view it is the correct figure. Claim for a Special Rate of Interest 916 Furthermore, the Bank seeks that the Court exercise its power under s 95(1) of the Supreme Court Act 1970 to award, from the date the judgment takes effect, a rate of interest other than the prescribed rate. Section 95(1) reads: Where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders , be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. [Emphasis added] 917 The grounds upon which the Bank seeks that the Court 'otherwise order' is founded upon the definition of 'interest rate' to be found in Memorandum of Mortgage [PX 1/80] which reads as follows: interest rate means the rate or rates from time to time agreed upon between the Mortgagor and/or Customer and the Mortgagee and failing such agreement, the rate determined from time to time by the Mortgagee as being applicable to like accounts and in the event that the interest payable under any Agreement and/or Mortgage becomes merged in any judgment or order or of any court, interest payable on the moneys hereby secured shall be at the rate which is the higher of the interest rate as agreed or provided to be paid under such judgment or order as aforesaid. . 918 Upon a judgment being entered for payment of a debt, it is ordinarily the case that the contractual obligation to pay the debt and attendant interest merges in the judgment. However, the parties can, by drafting their agreement to this effect, provide that an obligation to pay interest does not merge in the judgment for the debt. The question is one of construction: Ex parte Fewings (1883) 25 Ch D 338 at 355 per Fry LJ, Economic Life Assurance Society v Usbourne [1902] AC 147 at 149 - 150 per Earl of Halsbury LC, at 154 - 155 per Lord Davey, Farrow Mortgage Services Pty Ltd (in Liq) v Victor Tunevitsch Pty Ltd (1998) 8 Tas R 65 at 74 per Underwood J. 919 McDonald v Scorbie [1980] Qd R 477 is an example of where the agreement of the parties evinced an intention to displace the general rule. There the subject clause in effect provided that in the event of the liability of the debtor becoming merged in the judgment of a court, the debtor will pay interest on the amount being owed under the judgment at the rate provided for by the agreement. Hoare J considered (at 480) that the clause 'operates in such a way as to be an exception to the general rule as to the merger of a covenant in a judgment.' 920 Another example where the general rule was ousted by the agreement of the parties is to be found in the decision of Begg J in General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786 where the clause provided for the payment of interest 'on any judgment or order in which the covenant for payment thereof may be merged' (the emphasis is Begg J's). Begg J considered (at 789) 'the mortgagor's liability to pay the higher interest rate as specified in the mortgage does not merge in the judgment.' 921 The subject clause is a more difficult one to construe than those the subject of the above two cases. Beginning with the words 'in the event' it appears to specifically contemplate that the claim for interest will become merged in the judgment of the Court. The contrast with McDonald v Scrobie (supra) and General Credits (Finance) Pty Ltd v Bushford Pty Ltd (supra), where the agreements only contemplated that principal debt would become merged in the judgment, is clear. However, the clause goes on to provide that in that event, the interest payable shall be the higher of two amounts: either that provided for in the agreement or that awarded by the Court. This rather suggests a continuing obligation to pay interest outside the order of the Court. 922 Upon one interpretation, it might be thought that the clause it is an attempt by the Bank to live in two worlds. It accepts that the obligation to pay interest will, upon a judgment for the debt, become merged in the order of the Court. At the same time, and in the case that the statutory rate for interest is less advantageous to the Bank than the rate under the agreement, it attempts to keep alive the continuing obligation to pay the higher rate of interest outside the merged judgment. But such an interpretation is internally inconsistent and contrary to common sense. In the interpretation of a commercial contract, a construction which is consistent with common sense is always to be preferred: Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 per Lord Diplock, Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 314 per Kirby P. To my mind, the common sense interpretation is that the parties contemplated that the contractual obligation of Dr Chia to pay interest is to merge in the judgment for the debt, but further contemplated that any award for interest made by the Court should be at the rate provided for in the agreement if that rate was higher that the prescribed rate. 923 Upon this interpretation, the subject clause may be considered questionable to the extent that it was seen as an attempt to dictate the manner in which the Court is to exercise its discretion under s95 of the Supreme Court Act. The discretion of the Court cannot be so cut down. In Gould v Vaggelas (1985) 157 CLR 215 at 271 Gibbs CJ, Wilson, Brennan and Dawson JJ, in considering a similar power of the Queensland Supreme Court said: The power conferred on a court to make an order inconsistent with the provision of interest made by the section is expressed in broad terms and we can see no reason for confining it to the threshold question of whether interest on the judgment is or is not to be payable. The discretion confided to the court introduces flexibility which enables such lower or higher rate of interest to be determined as the interests of justice in a particular case may require ' (emphasis added). 924 However, to my mind, the fact that the parties have agreed for an interest rate to be paid by the debtor which is different from the interest rate prescribed, is a relevant consideration in the exercise of the Court's discretion. It is true that in General Credits (Finance) Pty Ltd v Bushford Pty Ltd (supra, at 788) Begg J considered that 'something more than a reference to a mere mortgage rate of interest would necessarily have to be shown before the Court would depart from the prescribed rate.' But, to my mind, the preferable view is that expressed by Rogers J in Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 at 104: '[w]here there are no facts placed before the Court to displace the prima facie effect of what was agreed on between the parties, I think it is proper that the Court should lend its aid to enforce the agreement.' It would not be consonant with the requirements of justice for Dr Chia to attain a commercial advantage in the way of a lower interest rate than he would otherwise have paid because he elected to unsuccessfully defend the action in Court, rather than discharge his debt without recourse to litigation. 925 Dr Chia is in default of his contractual obligations to the Bank. Under Clause 11 of the Standard Loan Details [PX 1/102] if monies due to the Bank are unpaid, the Bank is immediately entitled to charge interest on the unpaid monies at the interest rate charged on like accounts by the Bank. The affidavit of Mr Moulds sworn on 23 February reveals that the rate charged by the bank on like accounts rate is the 'default rate,' calculated as the reference rate plus six percent. The reference rate is the base rate of interest charged to commercial loans by the Bank from time to time. There is no evidence as to what the 'reference rate' is currently. However, to my mind, it is clear that is appropriate for the Court to 'otherwise order' under s95 of the Supreme Court Act and award interest at the rate of the 'default rate;' that is the 'reference rate' plus six percent. The two sets of proceedings 926 Both sets of proceedings were litigated together on the basis that no separate issues were raised in proceedings 50021/98. Orders 927 The parties are to bring in short minutes of order to reflect these reasons for judgment. I certify that paragraphs 1 - 927 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 29 June 2000 ___________________ Susan Piggott Associate 29 June 2000 CATCHWORDS Equity - Husband and wife - Wife as guarantor for husband's debts - Claim to set aside guarantee - Equity in Garcia v National Australia Bank - Necessity for wife to gain adequate understanding of transaction - Misunderstanding of wife must be material to liability - Whether creditor must show that they had reasonable grounds for believing that wife did have adequate understanding - Knowledge of solicitor of creditor amounting to reasonable grounds is to be imputed to creditor. Equity - Receivers - Whether privately appointed receiver is a fiduciary - Duties of privately appointed receivers - Whether receiver has a duty to disclose all matters to mortgagor - Whether receiver has a duty to pursue the best price - Whether receiver's sale may be upheld when there is a relationship between receiver, mortgagor and purchaser. Equity - Mortgagees - Duties of mortgagees effecting a power of sale - Interference by mortgagee in performance of receiver's duties - Whether mortgagee is then subject to the same set of duties of receiver. Equity - Receiver and mortgagee - Whether duties of receiver and mortgagee extend to guarantor of the mortgagor's debt. Contract - Banker and Customer - Clause modelled on clause in Dobbs v National Bank of Australasia - Conclusive effect of 'Dobbs Clause' - Ability of Bank to rely on conclusive effect - Exception in the case of 'manifest error' - What constitutes a 'manifest error - Whether necessary for 'statement' or 'certificate' to be issued. Trade Practices - Misleading and deceptive Conduct - Whether liability may attach to a representation to negotiate - Whether representation to negotiate is too vague or uncertain - Meaning of 'negotiation' - Whether a representation to negotiate inherently includes a representation to negotiate in good faith - Requirements of a negotiation in good faith. Trade Practices - Misleading and deceptive conduct - When silence can be misleading - Whether acting inconsistently with an invitation not accepted or rejected is misleading and deceptive conduct. Trade Practices - Unconscionable conduct within the meaning of the unwritten law - Whether breach by receiver is unconscionable conduct within the meaning of the unwritten law. Practice and Procedure - Award of interest - Principles on which interest to be awarded prior to the date for judgment. Practice and Procedure - Award of interest - Whether claim for interest merged in the judgment - Circumstances in which interest after the date of judgment may be awarded at rates other than the prescribed rate. LEGISLATION CITED Commercial Arbitration Act 1984. Evidence Act 1995 Fair Trading Act 1987 Real Property Act 1900 Supreme Court Act 1970 Trade Practices Act 1974 (Cth) CASES CITED Adamse v Broadway Credit Union Ltd (1999) NSW Conv R 55-976, Aiton v Transfield (unreported, 1 October 1999, Supreme Court of NSW, per Einstein J) Akins v National Australia Bank (1994) 34 NSWLR 155 American Express v Hurley [1985] 3 All ER Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 ANZ Banking Group Ltd v Carnegie (unreported, 16 June 1997, Supreme Court of Victoria, per Crockett J) Armstrong v Commonwealth Bank of Australia (unreported, 17 June 1999, New South Wales Supreme Court, per Hamilton J), Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 Bank of Credit & Commerce v Aboody [1989] 1 QB 923 Bank of Victoria v Mueller [1925] VLR 642. Barclays Bank plc v Thomson (1996) 146 NLJ 1778 Barclays Bank v Boulter [1999] 1 WLR 1919 Barclays Bank v O'Brien [1994] 1 AC 180 Barns v Queensland National Bank Ltd (1906) 3 CLR 925 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 Boziuk v City of Edmonton [1977] 1 Alta LR (2d) 371 Brick and Pipe Industries Ltd v Occidental Life Nominees [1992] 2 VR 279 Brickenden v London Loan and Savings Co [1934] 3 DLR 465 Briginshaw v Briginshaw (1938) 60 CLR 336 Cape v Redarb Pty Ltd (1992) 8 ACSR 67 Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1 Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 Commercial and General Acceptance Ltd v Nixon (1983) 152 CLR 491 Commercial Bank of Australia v Amadio (1982) 151 CLR 447 Commonwealth Bank of Australia v Khouri (Unreported, 4 November 1998, Supreme Court of Victoria, per Harper J) Commonwealth Bank of Australia v Milder Elfman Szmerling Krycer Pty Ltd (unreported, 18 February 1998, Supreme Court of Victoria, per Hansen J) Courtney & Fairburn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 Cranfield Pty Ltd v Commonwealth Bank of Australia (unreported, 20 November 1998, Supreme Court of Victoria, per Mandie J). Cuckmere Brick Co v Mutual Finance Ltd [1971] 1 Ch 949 Davies v Australia and New Zealand Banking Group Ltd (unreported, 5 August 1999, Federal Court of Australia, Heerey J) Dobbs v The National Bank of Australasia Ltd (1935) 53 CLR 643 Downsview Ltd v First City Corporation Ltd [1993] AC 295 Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 Dynamic Lifter Pty Ltd v Incitec Ltd (1994) 30 IPR 198 Economic Life Assurance Society v Usbourne [1902] AC 147 Elizabeth Bay Developments Pty Ltdv Boral Building Services Pty Ltd (1995) 36 NSWLR 709 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192 Ex parte Fewings (1883) 25 Ch D 338 Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 Farrow Mortgage Services Pty Ltd (in Liq) v Victor Tunevitsch Pty Ltd (1998) 8 Tas R 65 Foakes v Beer (1884) 9 App Cas 605 Forsyth v Blundell (1973) 129 CLR 477 G Scammell and Nephew Ltd v HC and JG Ouston [1941] AC 251 Garcia v National Australia Bank (1998) 194 CLR 395 Gaskell v Gosling [1886] 1 QB 669 General Credits (Finance) Pty Ltd v Brushford Pty Ltd [1975] 2 NSWLR 786 Gomba Holdings Ltd v Minorities Finance Ltd [1988] 1 WLR 1231 Gosling v Gaskell [1897] AC 575 Gould v Vagellas (1985) 157 CLR 215 Gould v Vaggelas (1985) 157 CLR 215 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW Conv R 55-731 Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hillas & Co Ltd v Arcos Ltd [1932] All ER 494 Hilton Hotels of Australia Pty Ltd v Sunrise Resources (Australia) Pty Ltd (Unreported 18 February 2000, NSWSC per Hodgson CJ in Eq) Hooper Bailey Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 Hospitals Contribution Fund of Australia Pty Ltd v Switzerland Australia Health Fund (1987) 78 ALR 483 Jenkins v National Australia Bank (1999) ANZ ConvR 544 Jeogla v Australia New Zealand Banking Group Ltd (1999) 150 FLR 359 Johnson v Buttress (1936) 56 CLR 113 Kennedy v De Trafford [1897] AC 180 Kimberly NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 Knight v Lawrence [1993] BCLC 215 Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404 Lishman v Christie (1887) 19 QBD 333 LLMD of Michigan v Marine Midland Realty Credit 789 F Supp 657 (1992) Long Leys Co Pty Ltd v Silkdale Pty Ltd (1992) NSW ConvR 59, 476 at 5, 482 Sheller JA Macgowan, Macgowan v Murray [1891] 1 Ch 105 Magadi Soda Co Ltd (1925) 41 TLR 297 Maguire v Makaronis (1997) 188 CLR 449 McDonald v Scorbie [1980] Qd R 477 Medforth v Blake [1999] 3 WLR 922 Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101 Mercantile Credits Ltd v McDowell (1980) 2 NSWLR 101; National Australia Bank Pty Ltd v Sampson (unreported, 9 September 1991, Supreme Court of NSW) National Australia Bank v Garcia (1996) 39 NSWLR 577 Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Peat Marwick Ltd v Consumers Gas Co (1980) 29 OR (2d) 336 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 Peters v Commonwealth Bank of Australia (1992) NSW Conv R ¶55-629 at 59-580 per Brownie J Pinnel's Case (1602) 5 Co Rep 117A; 77 ER 237 Promenade Investments Pty Ltd v NSW (1992) 26 NSWLR 203 Qorum v Younger (1994) NSW ConvR 55738 RA Price Securities Ltd v Henderson [1989] 2 NZLR 257 Radin v Commonwealth Bank of Australia (Unreported, 23 October 1998, Federal Court of Australia, per Lindgren J). Rhone Poulec Agrochime v IUM Chemical Services Pty Ltd (1986) 68 ALR 77 Ridgway v Wharton (1857) 6 HLC 238; 10 ER 1287 Robinson Printing Company Ltd v Chic Ltd [1905] 2 Ch 123 Ruby v Marsh (1975) 132 CLR 642 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Scott v Avery (1856) 5 HLC 811; 10 ER 1121 Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284, Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 State Bank of New South Wales v Vecchio (Unreported, 10 November 1998, New South Wales Supreme Court, per Kirby J) State Bank of NSW v Vincent (Unreported, 7 April 1995 per Giles J), Stoyanovich v National Westminster Finance (1984) 3 BPR 9310 Sutton v AJ Thompson Pty Ltd (1987) 72 ALR 223 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 The Commonwealth v Verwayen (1990) 170 CLR 394 Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd (Unreported, 17 May 1999, Supreme Court of Western Australia, per Master Bredmeyer) Walden Properties Ltd v Beaver Properties Ltd [1973] 2 NSWLR 815 Walford v Miles [1992] 2 AC 128 Walley v Western Australia (1996) 137 ALR 561 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Warbutron v Whiteley (1989) NSW ConvR ¶55-453 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 Wilkinson v ASB Bank Ltd [1998] NZLR 674 Yerkey v Jones (1939) 63 CLR 649 Last Modified: 01/07/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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