New South Wales Supreme Court CITATION : Commonwealth Development Bank of Australia Pty Limited & Anor v Claude George Rene Cassegrain; Gerald Cassegrain & Co Pty Limited & Ors v Commonwealth Development Bank of Australia Pty Limited & Ors; [2002] NSWSC 965 FILE NUMBER(S) : SC 50062/00; 50072/00 HEARING DATE(S) : 08/10/02, 9/10/02, 10/10/02, 11/10/02, 14/10/02, 15/10/02, 16/10/02 JUDGMENT DATE : 22 October 2002 Commonwealth Development Bank of Australia Pty Limited (Plaintiff 50062/00) (Defendant 50072/00) PARTIES : Claude George Rene Cassegrain (Defendant 50062/00) Gerald Cassegrain & Co. Pty Limited and Ors (Plaintiffs 50072/00) Murray Smith and Scott Kershaw (3rd Defendants 50072/00) JUDGMENT OF : Einstein J RW Cameron, ARR Vincent (Defendant 50062/00, Plaintiff 50072/00) COUNSEL : AG Bell, DA McLure (Plaintiff 50062/00, Defendant 50072/00) DL Williams (Murray Smith & Scott Kershaw, 3rd Defendants 50072/00) MC Griffith & Co (Defendant 50062/00, Plaintiff 50072/00) SOLICITORS : L E Taylor Solicitor (Plaintiff 50062/00, Defendant 50072/00) Corrs Chambers Westgarth (3rd Defendants 50072/00) CATCHWORDS : Contract - Banker and Customer - Loan facilities - Guarantee - Claim that CDBA and CBA acted unconscionably in dealings concerning facilities granted by both banks - Claim that CBA knowingly interfered with loan facility granted by CDBA with intention of procuring breach of facility - Alleged undisclosed decision to decline application for further accommodation - Alleged unconscionable conduct in delaying communication of suggested decision to decline further accommodation - Obligation to act in good faith - Alleged unconscionable conduct - Alleged misleading and deceptive conduct - Farm Debt mediation - Alleged unconscionable conduct in relation to holding of mediation - Claim to set aside Heads of Agreement reached during mediation on the ground of vitiating factors including alleged duress in terms of suggested threats to appoint receiver unless Heads of Agreement entered, in terms of emotional state of customer representative participating in mediation and other matters. Commonwealth Banks Act 1959 (Cth) Commonwealth Bank Sale Act 1995 (Cth) LEGISLATION CITED : Family Provision Act 1982 (NSW) Farm Debt Mediation Act 1994 (NSW) Trade Practices Act 1974 (Cth) ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Blomley v Ryan (1956) 99 CLR 362 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 CASES CITED : David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Hudson Resources Ltd v Australian Diatomite Mining Pty Ltd [2002] NSWSC 314 Jones v Dunkel (1959) 101 CLR 298 Louth v Diprose (1992) 175 CLR 621 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Overlook v Foxtel [2002] NSWSC 17 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tymshare Inc v Covell 727 F2d 1145 (1984) DECISION : Claims by banking parties upheld. Claims by borrower parties not made out. Short minutes of order to be brought in. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST EINSTEIN J Tuesday 22 October 2002 50062/00 COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LIMITED & ANOR v CLAUDE GEORGE RENE CASSEGRAIN & CO PTY LIMITED & ORS 50072/00 GERALD CASSEGRAIN & CO PTY LIMITED & ORS v COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LIMITED & ORS JUDGMENT The Proceedings 1 There are before the court two sets of proceedings, 50072 of 2000 ["the Cassegrain proceedings"] and 50062 of 2000 ["the Banks proceedings"] being heard together. 2 Both sets of proceedings have their genesis in loan transactions between: · the Commonwealth Development Bank of Australia Limited ["CDBA" or "CDB"] as lender and Gerald Cassegrain and Co Pty Ltd ["the holding company" or "GCC"] as borrower. · the Commonwealth Bank of Australia Limited ["CBA"] as lender and the holding company as borrower. 3 The Banks sue on loan agreements and ancillary securities. The holding company 4 The main business of the holding company was a property development and investment in the Port Macquarie area. The holding company was involved in the management of vineyards and, through the establishment of three subsidiary companies, was involved in establishing a tea tree plantation and in the progressing of the development of its land holdings into a new township. Mediation 5 An additional parameter concerns a mediation held on 12 November 1998, as a result of which the parties entered into Heads of Agreement. The Banks rely upon the Heads of Agreement and sue upon them. Relevantly: · In the recitals to the Heads of Agreement the plaintiffs acknowledged: (a) that the first plaintiff ("GCC") was indebted to the first and second defendants in the total sum of $4,106,915.03, comprising $3,341,295,52 owed to the first defendant and $765,619.51 owed to the second defendant (the "loans"); (b) that the loans were secured by a numbered of registered mortgages and registered equitable mortgages provided by the first to fourth plaintiffs and by two guarantees provided by the fifth plaintiff (the "securities"); and (c) that GCC was in default of its obligations to the first and second defendants in respect of the loans. · By clause 2 of the Heads of Agreement the plaintiff confirmed the validity of the securities and acknowledged that the securities secured the plaintiffs' obligations under the Heads of Agreement and continued to secure the plaintiffs' obligations to the first and second defendants in respect of the loans. · By clause 4 of the Heads of Agreement the plaintiffs agreed that except as provided for in the Heads of Agreement, the loans would continue on the same terms and conditions as previously approved or varied by the first and second defendants. · By clause 6 of the Heads of Agreement the plaintiffs agreed to repay the loans on or before 1 March 1999. · By clause 7 of the Heads of Agreement the plaintiffs agreed that if the loans were not repaid by 1 March 1999 or if there was a default under the Heads of Agreement, the first and second defendants could commence proceedings against the plaintiffs in the Supreme Court of New South Wales for the debt, and, in that event, the plaintiffs would consent to the entry of judgment for the debt. · By clause 8 of the Heads of Agreement the plaintiffs unconditionally agreed that if the first and second defendants commenced legal proceedings pursuant to clause 7 of the Heads of Agreement the plaintiffs would not contest the proceedings and if the plaintiffs attempted to do so, the Heads of Agreement might be pleaded by the defendants as a bar to any defence that might be raised. 6 The case pursued by CDBA and the Commonwealth Bank is that: · on or about 12 April 1999 the first and second defendants agreed with the plaintiffs to extend the time for repayment of the loans pursuant to the Heads of Agreement until 4.00 pm on 28 May 1999. · The plaintiffs failed to repay the loans by 4.00 pm on 28 May 1999 in accordance with the Heads of Agreement as varied on or about 12 April 1999. · the plaintiffs are not entitled to plead as against the first and second defendants the matters raised in the second amended summons. The Loans 7 The subject loans were in the first instance as follows: · A fixed loan from CDBA OF $3 million ["the fixed loan" or "the CDB loan"]: [The charter of the CDBA had been one which empowered it to grant loans for commercial purposes where the lending criteria of other lenders could not be met.] · A loan from CBA comprised of what was effectively an overdraft facility ["the overdraft facility" or "the CBA loan"]. 8 The initial terms of the fixed loan and of the overdraft facility were varied from time to time. 9 The loans were guaranteed by Mr Claude Cassegrain who is the first plaintiff in the Cassegrain proceedings. Securities including real property mortgages, floating charges and equitable charges were given by the second, third and fourth plaintiffs in those proceedings which were subsidiaries of the holding company. The precise details are recorded below. The respective proceedings 10 In summary, the proceedings at the inception of the final hearing consisted of three claims: (a) in the Banks proceedings, the Banks sue Mr Cassegrain pursuant to two guarantees in respect of amounts due under the two loans; (b) in the Cassegrain proceedings, the holding company and four other plaintiffs (' the Cassegrain parties' ) sue the Banks for damages and certain declarations; (c) in the Cassegrain proceedings, the Banks cross claim against the Cassegrain parties for the amounts due under the two loans. 11 The claims against the receivers were settled on the fifth day of the final hearing. 12 An order for separate determination of all issues going to quantum was made during the final hearing. Details of the loans The CDBA loan 13 The central structure of the Banks case and the details of the CDB loan are as follows: · the CDB loan was between CDB and GCC for $3 million; · the terms of the loan are evidenced by the 'application for finance' dated 27 September 1995 and a letter from GCC to CDB dated 4 October 1995; · Paragraph 1 d of the application for finance dated 27 September 1995 provides that: 'In the event of default in payment of any one or more of the instalments of principal and/or interest... the accommodation shall at the option of the Bank immediately become payable and the Bank may thereupon demand payment of all monies owing by the applicant/s to the Bank and in the case of a loan not yet drawn or only partly drawn may decline to make any further portion thereof available to the applicant/s'; · initially, the loan was to be paid in seven instalments of $615,200 each August with the balance due by August 2003; · by letter dated 30 July 1997 from CBA to GCC, time for repayment was varied, so that the first instalment was required to be paid in August 1998 with the balance due by August 2004; · It is common ground that the instalment due in August 1998 was not paid; · as at 30 September 2002, the amount due under the loan, including interest, was $433,210.34. · Repayment of the CDB loan was guaranteed by Mr Cassegrain deed dated 18 October 1995. · The CDB loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates Pty Limited ("Clos Farming Estates") and by registered equitable mortgages over the assets of GCC, Clos Farming Estates, and Le Clos Sancrox Pty Limited, ("Le Clos Sancrox"). · The first instalment was not paid in August 1998. · By the heads of agreement entered into following the Mediation and dated 11 November 1998, the Cassegrain parties agreed to repay the CDB loan by 1 March 1999 ("Heads of Agreement"). The CDB loan was not repaid by that date. The heads of agreement included the following terms: '7. ...If the Loan is not repaid on or before 1 March 1999 or if there is a default under this agreement the Bank may commence proceedings against the Farmer and the Security Providers in the Supreme Court of New South Wales for judgment for possession of the Property and Default Judgment for the Loan debt. In this event the Farmer and Security Providers will consent to the entry of judgments for possession of the Property and the Loan debt... 8. The Farmer and Security Providers unconditionally agree that if the Bank commences legal proceedings pursuant to clause 7 above, they will not contest these proceedings and if they attempt to do so, this Agreement may be pleaded by the Bank as a part to any defence that may be raised.' · By letter dated 12 April 1999, CDB agreed to extend the time for repayment to 28 May 1999. The CDB loan was not repaid by that date. · On 15 June 1999, Smith and Kershaw were appointed as receivers of the Cassegrain parties, pursuant to securities. · By letters to the Cassegrain parties dated 6 April 2000, CDB demanded payment of $2,902,889.39, being the amount then owing by GCC under the CDB loan at that date. · CDB seeks a judgment in the banks proceedings for $433,210.34 plus interest from 1 October 2002 against GCC, Clos Farming Estates, Le Clos Sancrox and Mr Cassegrain. The CBA loan 14 The central structure of the Banks case and the details of the CBA loan are as follows: · the CBA loan was between CBA and GCC for $750,000; · and the terms of the loan are evidenced by: (i) a letter from CBA to GCC dated 2 April 1997; (ii) a letter from GCC to CBA dated 3 April 1997; (iii) 'application for finance' dated 24 April 1997 signed for GCC; · the loan was repayable on demand, but in any event by no later than 30 June 1998; · it is common ground that the loan was not repaid on 30 June 1998; · as at 30 September 2002, the amount due under the CBA loan, including interest, was $774,102. · Repayment of the CBA loan was guaranteed by Mr Cassegrain by deed dated 24 April 1997. · The CBA loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates and by registered equitable mortgage over the assets of GCC, Clos Farming Estates, Le Clos Sancrox and Endwise Holdings Pty Limited ("Endwise"). · By the Heads of Agreement, the Cassegrain parties agreed to repay the CBA loan by 1 March 1999. The CBA loan was not repaid by that date. · By letter dated 12 April 1999, CBA agreed to extend the time for repayment to 28 May 1999. The CBA loan was not repaid by that date. · On 15 June 1999, Smith and Kershaw were appointed as receivers of the Cassegrain parties, pursuant to securities. · By letters to the Cassegrain parties dated 6 April 2000, CBA demanded payment of $551,294.56, being the amount owing by GCC under the CBA loan at that date. · CBA seeks a judgment in the banks proceedings for $774,102.45 plus interest from 1 October 2002 against GCC, Clos Farming Estates, Le Clos Sancrox, and Endwise and Mr Cassegrain. The central complaints of the Cassegrain parties 15 Without limiting the precise ambit and terms of the relevant pleadings which require to be referred to for the detail, it may be said that the central complaints made by the Cassegrain parties in both sets of proceedings are apparently as follows: · that the Banks acted unconscionably by delaying the communication of their decision to decline an application to reschedule the loans before 30 June 1998; · that the Banks acted unconscionably after the default in the CBA facility; 16 Again without limiting the ambit or reach of the extensive and grave allegations made by the Cassegrain parties, it is convenient to note the emphasis put during the opening address on the fact that the provisions of the Commonwealth Banks Act 1959 had provided: · that the functions of the CDBA were - "to provide finance for the purpose of establishing, acquiring or carrying on businesses… in cases where in the opinion of the [CDBA], the provision of finance is desirable and the finance would not otherwise be available on reasonable and suitable terms and conditions "; - " in accordance with policies approved by the Treasurer, to participate in [such businesses] in cases where, in the opinion of the [CDBA], participation is desirable and other persons would not be prepared to participate on reasonable and suitable terms and conditions "; · that in determining whether or not finance should be provided, the CDBA was to have regard "primarily to the prospect of the operations of [the borrower] becoming, or continuing to be, successful and shall not necessarily have regard to the value of the security available in respect of that finance" [Sections 72, 73] 17 Hence the emphasis put by the Cassegrain parties upon the circumstance that in weighing the conduct in respect of which complaint is made, it is important for the court to focus upon the nature of the subject loans and the fact that the court should infer that the loans were entered into by borrowers who were known to be in a position such that finance on reasonable and suitable terms and conditions would not otherwise have been available to them. 18 Likewise it may be relevant to note, even at this early stage, the allegation that: · the application by the holding company in February 1998 to restructure its borrowing arrangements presented as an opportunity for the CBA "to rid itself of potential problems with the [holding company's] loan of $3 million;" · the perceived opportunity was to bring about a default by [the holding company] of its overdraft clearance obligation; · The CBA knowingly and intentionally brought about a breach of the CDBA loan to rid itself of a high-risk loan which if retained, required further substantial injections of capital by the CBA. 19 A further issue concerning the CDBA/CBA connection arises in respect of the circumstance that the Commonwealth Bank Sale Act 1995 [assented to on 16 December 1995] ["the 1995 Act"] repealed section 71 of the 1959 Act [which had established the CDBA] and repealed sections 72, 73 and 74 [which had respectively identified the functions of the CDBA, the matters to be considered by the CDBA in providing finance and the powers of the CDBA], and proceeded to make provision for converting the CDBA into a company under the Corporations Law. Prior to the 1995 Act the management of the CDBA had been prescribed by section 80 of the 1959 Act which had empowered the board of directors of the CBA to make a determination designating a position in what was described as "the Commonwealth Bank's Service" (constituted, pursuant to section 88 by officers appointed by the CBA, whose terms and conditions of employment were to be determined by the CBA). In the absence of such a determination or during any period when no such determination was in force, the managing director of the CBA was to manage the CDBA. Where such a determination was in force, the person occupying or performing the duties of a position in the Commonwealth Bank's Service designated by such a determination, was, under the managing director of the CBA, to manage the CDBA [section 80, 1959 Act]. 20 In those circumstances the CBA up until the 1995 Act, as a matter of fact and pursuant to the above regulated regime and relevant instruments (including a private treaty between the CBA and the Commonwealth), had by relevant officers, effectively run and administered the business and affairs of the CDBA. The position which followed after the enactment of the 1995 Act was different in that the CDBA had effectively been converted into an entirely different vehicle and its previous charter, stipulated for in section 73 of the 1959 Act, and its functions, stipulated for in section 72 of the 1959 Act, had now disappeared. Loans which the CDBA had made remain valid contracts but no further applications for loans could be made to the CDBA which had become the Commonwealth Development Bank of Australia Limited ["CDB Ltd"]. CDB Ltd could not undertake any increase in its on or off balance sheet exposure through provision of additional loans. Effectively the position was that any application for a variation to an existing facility, which had previously been granted by the CDBA, could only be dealt as described in exhibit D1 which is appended to the judgment and is dated 23 September 1996. 21 A new "DevBank" commenced to operate as a division of CBA but the "not otherwise available" aspect of the CDBA's previous charter disappeared. The new DevBank, as before, was to operate efficiently in accordance with commercial principles and was held out as still primarily having regard to prospects ahead of security. 22 The Cassegrain parties pleading in relation to this issue left a great deal to be desired. However during final address inconsistent submissions were put to the court, first asserting that the CBA had never had any authority or power whatever to vary the CDBA facility, and secondly asserting that, whilst it had authority or power to vary the CDBA facility, its conduct was unconscionable and/or lacking in good faith and or unreasonable for the reason that what was said to be a dimensional change in the anterior functions of the CDBA [see section 72 1959 Act] and in the anterior matters to be considered by the CDBA in providing finance [see section 73 1959 Act], was said not to have been communicated to the Cassegrain parties in their dealings with the CBA. 23 Whilst the pleading seems to me to be confined to an allegation that the CBA knowingly and intentionally brought about a breach of the CDBA loan by so dealing with the holding company in terms of treating with its restructuring application in manner such that the loan had to be brought within the parameters of acceptable commercial lending criteria "or be got rid of" [whatever this last expression may mean], the case for reasons which follow, fails both as pleaded, and if this be open on the pleadings, as put in final address. Even at this early stage it is appropriate to note that the loan was not a loan by CBA and its purpose must then be perceived as having been "to get rid of" a loan made by another entity, albeit administered by the CBA. No such motive was established on the evidence. The second amended summons in the Cassegrain proceedings 24 The second amended summons is poorly pleaded. It is prolix and it is not a simple matter to draw out of the pleading the specific causes of action pursued. They appear to be the following: Unconscionability in terms of period of notice of pending default · A claim in relation to a late June 1998 communication by the second Defendant to the holding company that particular extensions of repayment dates which had been sought following representations by CBA as to loans on offer in the holding company's category, would not be granted and that unless the overdraft facility was repaid in full by 30 June 1998 the holding company would be in default and that the Commonwealth Bank of Australia would then be at liberty to exercise its rights under the securities held by it. The claim is that the period of notice was in all of the circumstances unconscionable [second Amended Summons paragraphs 13 - 16] [The matters as pleaded is generally as follows: · End of November/end of December 1997- the second defendant is said to have assumed the management and control of the first defendants loan portfolio · The second defendant by its State Senior Manager (Mr R. Perkins) and others is said to have in the course of a function conducted by the second defendant: (a) represented to the fifth plaintiff -that the second defendant had a number of $5 million loans on offer in the first plaintiff's category at a lower interest rate than that applied by the first defendant to the first plaintiff (b) represented that the first plaintiff could qualify for such a loan if it applied to restructure its loan arrangements to fit in with the second defendant's lending criteria. Paragraph 13] · February 1998 - the first plaintiff, pursuant to the said representation is said to have applied to the second defendant to restructure its arrangements in the following three respects:- (a) to increase the CBA overdraft facility it had by $350,000 to $1.1M; (b) to reschedule the clearance date of the overdraft from 30.06.1998 to 30.10.1998; and (c) to extend the due date for the first payment on the CDB $3M loan from August 1998 to August 1999; [paragraph 14] · February 1998 until 25 June 1998- The second defendant is said to have delayed telling the first plaintiff that it would not be continuing with the first plaintiff as its customer until 25 June 1998, when the second defendant is said by its senior manager G.P. Wilmott, to have orally informed the first plaintiff's officer, S. Lloyd, that: - the extensions aforesaid would not be granted - unless the overdraft facility was repaid in full by 30 June 1998, the first plaintiff would thereby be in default and the second defendant be at liberty to exercise its rights under the securities held by it. [Paragraph 15] Breaches of obligations to act fairly and in good faith · An allegation that the CDBA and the holding company by having become parties as lender and borrower to the loan contract and the loan facilities became subject to mutual obligations to act fairly and in good faith the one to the other to ensure that: (a) normal standards of honesty were adhered to ; (b) each would co-operate to achieve the objects of the loans contract; (c) neither would act in a manner substantially to nullify the bargained objective or benefit contracted for; (d) the equitable right of redemption by the first plaintiff would not be improperly defeated, and in respect thereof the first plaintiff would have- (i) full opportunity to redeem; and (ii) full opportunity to show cause.' [Each of these obligations is said to have been breached by the CDBA by itself and by its agent the CBA] Knowing and intentional interference with loan contract · an allegation that the CBA following the enactment of the Commonwealth Bank Sale Act 1995 from a date not known by the Plaintiffs but continuing up through to 30 June 1998, knowingly interfered with the loan contract made between the holding company and the CDBA with the intention of procuring the holding company to become in breach thereof by failing to discharge the overdraft facility before 30 June 1998. Misleading or deceptive conduct · an allegation that between December 1997 and June 1998 the Commonwealth Bank of Australia was in breach of section 52 of the Trade Practices Act 1974 in engaging in conduct which was misleading or deceptive to the prejudice of the Plaintiffs. [Summons paragraph 34(c)(5)] 25 Other circumstances upon which the plaintiffs rely in the summons [paragraphs 17 - 22] are put in the following terms: "The circumstances included the following matters:- · between them, the first defendant and the second defendant held all the security that the plaintiffs and their directors could provide; · the first plaintiff was able to borrow sufficient moneys as to pay out the overdraft of $750,000.00 and to meet the august 1998 repayment on the $3M loan from a private lender subject to the provision of security; · otherwise the first plaintiff was unable to borrow moneys sufficient to pay out the overdraft of $750,000.00 unless and until it obtained a position where it could satisfy the more stringent lending requirements of the lenders other than those of the first defendant; · such a position could not be obtained within a period of 18 months and in the interim the loan commitments were to be met as follows- · Oceania Agriculture Pty Limited ("Oceania"), a wholly owned subsidiary of the first plaintiff borrowed the amount of $750,000.00 and on lent it to the first plaintiff to repay the overdraft; · Oceania and the fifth plaintiff provided the payment of $612,500.00 due in August 1998 in respect of the loan of $3 million from their respective own resources; · Oceania was able to meet the relevant lending requirements- from its own cash flow; with supporting security from the fourth plaintiff a land owning wholly owned subsidiary of the first plaintiff; · the time required for the lenders due diligence and valuations concerning Oceania, the fourth plaintiff and the fifth plaintiff was about 14 weeks. · Between February 1998 and 25 June 1998 - by 11 March, the second defendant had decided to refuse the first plaintiff's application to increase the overdraft and for extensions of time but did not communicate that latter decision to the first plaintiff until 25 June 1998; · on 27 March 1998, the second defendant requested that the first plaintiff provide it with extensive financial information on a progressive basis concerning the application for restructure and variation and represented that the collation of the information would take some time and would require a revaluation of the group's assets; · on 8 April the second defendant by its senior manager and manager met with the managing director of Oceania to further discuss the progress of the extension application; · on 21 April the second defendant advised the first plaintiff on the fact and cost of the valuation advised in the letter of 27 March 1998; · on 1 May the second defendant advised the first plaintiff that its loan accounts were to be transferred to a new accounting system; · on 15 June the second defendant unbeknown to the plaintiffs placed the first plaintiffs account in the hands of its asset recovery unit; · on 25 June the second defendant orally advised the first plaintiff that it required the overdraft facility to be cleared in full by 30 June 1998; · on 26 June the second defendant advised the first plaintiff that it was sending two investigative accountants to review the first plaintiff's business and strategic plans and, if appropriate, to develop strategies to maximise recoveries. · The first plaintiff provided the information sought by the second defendant and refrained from pursuing alternative sources of finances so as to avoid default in the belief that the second defendant was considering the first plaintiff's application for extensions on its merits and would have delivered a timely response if the application was to be declined. · By failing to have notified the first plaintiff of its decision of 11 March 1998 to decline the application, the first plaintiff was irredeemably prejudiced and prevented from avoiding the default that occurred on 30 June 1998 in the failure to have paid out the overdraft facility of $750,000.00. · Further, after taking over the lending portfolio of the first defendant the second defendant altered the basis upon which the first defendant loaned moneys to the first plaintiff and without notice to the first plaintiff that it would be in a position so to do, placed the first plaintiff in default of its lending contract with the first defendant before the due date for payment of the first payment fell due. · In the premises, where the first plaintiff as the holding company of the second, third and fourth plaintiffs became in default and under threat of receivership on 30 June 1998, the ability of the said plaintiffs to have borrowed money thereafter was negatived and the plaintiffs' property exposed to the risk of forced sales. Particular allegations of breach of obligation as pleaded to act fairly and in good faith 26 The allegations of breach by CBA by itself and by its agent the Commonwealth Bank of Australia are put [paragraph 34A(2)] in the following terms: (i) failure to have warned the first plaintiff that the Commonwealth Bank Sale Act, 1995 had adverse consequences to the first plaintiff namely that the second defendant could not or would not take over the first plaintiff as a customer on the same terms and conditions as the first defendant; (ii) failure to have given proper and sufficient notice to the first plaintiff of any likelihood that the first plaintiff would have to obtain re-finance from another lender or lenders for all its capital requirements needed to maintain and work its existing wine growing enterprises and to maintain and complete the tea tree venture; (iii) failure to have given any or any timely warning that the restructuring proposals of February 1998 were unacceptable to the second defendant and would be refused; (iv) giving notice of refusal only 5 days before the 30th June 1998; (v) refusing to extend time to enable re-financing to occur; (vi) refusing to agree to release securities for purposes of re-financing; (vii) wrongly asserting that a breach of loan arrangements with the second defendant triggered a default of the first defendant's loan; (viii) continuing its negotiations for the first plaintiff's restructuring proposals after March 1998 when the second defendant knew or ought to have known that the first plaintiff was in a vulnerable financial position for having gone to a lender of last resort for working capital on risky agricultural ventures ; (ix) wasting critical time for the first plaintiff by failing to tell it to go elsewhere; (x) gained access to the first plaintiff's group of Companies so as to allow the first defendant's "investigative accountants" to access and review the first plaintiff's Group s of Companies books and records at the first plaintiff's cost for the misrepresented expressed purpose- "to assist our business relationship"; (xi) the first plaintiff acceded to the request and fully co-operated with the so-called investigative accountants by giving them all that they required in the belief that the restructuring proposals were still proceeding; (xii) the "investigative accountants" were in fact the first named Third Defendant and a colleague of his, neither of whom were employed by the second defendant "to assist" the banking business relationship between the second defendant and the first plaintiff, but were employed as a prelude to the formal appointment of the second defendant's Receivers; (xiii) in that respect, it will be alleged that the second defendant's stated position that the 30 June 1998 default triggered off a default on the first defendant's term loan was made after the first plaintiff had agreed to let the Third Defendants into their books and records and was a part of the second defendant's plan to rid itself of the first plaintiff ; (xiv) it will be further alleged that the first plaintiff was led to believe by the second defendant that it was dealing with G.P. Wilmott as Senior Manager of the second defendant's NSW/ACT Lending Services Department. In fact, Mr Wilmott was then a senior officer in the second defendant's Credit Recovery Department and that what was occurring after 30 June 1998 so far as the second defendant was in reality doing was readying itself for the asset sale it subsequently undertook; (xv) the prejudice resulting from this conduct by the second defendant after 30 June 1998 was that the first plaintiff believed it had some sort of choice in its negotiating position concerning re-finance terms with other lenders when in fact it had none. This, misapprehension, it will be alleged, resulted in the first plaintiff refusing offers of finance from other commercial lenders whose terms were not fully acceptable to the first plaintiff; (xvi) finally, the first plaintiff had retained A.T. Cocks Consulting to prepare a strategic sales programme as part of an overall group debt reduction plan and so advised the second defendant of that fact on 10 June 1998; (xvii) a sales programme had been advocated by the second defendant since 30 June 1998 through its Mr S. Walsh; (xviii) the second defendant's response was to appoint the third defendant s as Receiver manager on 15 June 1999; (xix) the A.T. Cocks sales programme aimed to discharge both loans within 12 months; (xx) the firm A.T. Cocks Consulting is well known favourably to the second defendant; (xxi) no reason of substance or value existed for the second defendant to have appointed receiver managers so as to rob the first plaintiff of the benefit of its retainer of A.T. Cocks to sell off the first plaintiff's assets; (xxiii) in summary, by holding out that an improved business relationship with the second defendant would eventuate after the default of 30 June 1998, the first plaintiff believing that the second defendant was genuine and acting in good faith , lost all opportunity to preserve the great and valuable lands owned by the first defendant's Group and to redeem the same by discharging the mortgages thereon . Particular allegations of knowing and intentional interference with the holding company's contractual rights with CDBA 27 The allegations of knowing and intentional interference with the holding company's contractual rights with the first defendant are put [paragraph 34B] in the following terms: After the enactment by the Commonwealth Government of The Commonwealth Bank Sale Act, 1995, from a date not yet known to the plaintiffs and continuing through to 30 June 1998, the second defendant knowingly interfered with the aforesaid loan contract made between the first plaintiff and the first defendant with the intention of procuring the first plaintiff to become in breach thereof by failing to discharge the aforesaid overdraft facility of $750,000.00 given by the second defendant to the first plaintiff before 30 June 1998. Particulars (i) the circumstances relating to the first defendant's loan portfolio changed materially with the changes flowing from the change in Federal Government Policy as to the Commonwealth Bank reflected in the Commonwealth Bank Sale Act, 1995 with the consequence that high risk loans were being transferred to the second defendant which was then about to become accountable to shareholders; (ii) the second defendant policy (and that of the Federal Government) was that the first defendant's borrowers had to be brought within the parameters of acceptable commercial lending criteria or be got rid of; (iii) the first plaintiff's application of February 1998 to restructure its borrowing arrangements by short term increases presented as an opportunity for the second defendant to rid itself of potential problems with the first plaintiff's loan of $3M; (iv) the perceived opportunity was to bring about a default by the first plaintiff of its overdraft clearance obligation with the second defendant and thereby to put the first plaintiff in default of the loan repayment obligations to the first defendant; (v) once the latter occurred, the first plaintiff's position as to re-financing was practically impossible; (vi) the second defendant knew or ought to have known that that was the case; (vii) in short, it is alleged that the second defendant knowingly and intentionally brought about a breach of the first defendant's loan to rid itself of a high risk loan which if retained required further substantial injections of capital by the second defendant; [Emphasis added] Particular allegations of breaches of section 52 of the Trade Practices Act 28 The allegations of breaches of section 52 of the Trade Practices Act are put [paragraph 34C(1) in broad terms, namely that "between December 1997 and June 1998, the second defendant in breach of section 52 of the Trade Practices Act, 1974, engaged in conduct which was misleading or deceptive to the prejudice of the plaintiffs". 29 The relief sought in the summons in the Cassegrain proceedings is as follows: · Damages against each defendant; · A declaration that the purported appointment of the receivers as receivers and managers of the plaintiffs property and undertakings on 15 June 1999 was unlawful; · An order pursuant to Section 87 of the Trade Practices Act, 1974, declaring the whole of the Heads of Agreement to have been void ab initio or at all times on and after such date as is specified in the order · In the alternative, compensation pursuant to Section 87 · Damages as follows: - as against the first and second defendants, for breach of good faith in respect of the contract between them and the plaintiffs - as against the second defendant, for its unlawful interference in the operation of the contractual arrangements between the first plaintiff and the first defendant - as against the first and second defendants, or either of them, as the case may be, arising out of breaches of Section 52 of the Trade Practices Act, 1974 · Costs and interest. The Cassegrain parties' case concerning the Heads of Agreement 30 The Cassegrain parties pleaded case is to be found in a Rejoinder filed on 22 February 2002 in the banks proceedings. The substantive issue pleaded is the allegation that the execution of the Heads of Agreement was obtained by unconscionable conduct on the part of the banks representatives described in numbered paragraphs as follows: "(i) at the time of the mediation the plaintiff's had not been able to prepare the various statutory notice of demand they were required as mortgagees to prepare and serve. [Claim no longer pressed in final submissions] (ii) the plaintiffs needed more time within which to prepare and serve the notices. [Claim no longer pressed in final submissions] (iii) the extension of time given in the Heads of Agreement was given to suit the convenience of the plaintiffs and gave an illusory indulgence only to the defendant and those he represented. (iv) the mediation was stated by the plaintiffs to be only a formality. (v) the Heads of Agreement offered no compromise by the plaintiffs to the defendant. (vi) the plaintiffs had resolved upon the outcome before the mediation and had prepared the document before the mediation. (vii) the defendant was under great emotional strain and disturbance and the plaintiffs were aware of that disadvantage. (viii) the plaintiffs offered the defendant only the choice of executing the document or suffering the appointment of receivers on the following day. (ix) the plaintiffs ignored the defendant's protests and insisted he execute the agreement which he did." ("the Heads of Agreement issues") The witnesses/dramatis personae 31 The following convenient summary was prepared by the Banks by way of a dramatis personae and has been shortly complemented as necessary: Person Description Bank employees and witnesses Barry Watson Manager, Credit Management in Group Risk Management Geoffrey Wilmott Currently Executive Manager, Business and Risk Services. In 1997, Senior Manager, Credit Management Unit of Lending Services NSW / ACT Roderick Burgess Senior Manager, Group Risk Management Stephen Walsh Former Credit Manager in Group Risk Management Susan Whiting Account Manager in Credit Management Unit of Lending Services NSW / ACT Cassegrain employees, witnesses and companies The defendant in 50062 of 2000 Claude Cassegrain The fifth plaintiff in 50072 of 2000 The managing director of Gerard Cassegrain & Co Pty Ltd Stephen Lloyd Former consultant to Gerard Cassegrain & Co Pty Ltd Mr Cassegrain gave evidence that throughout 1998 he was familiar with the communications between the Banks and the holding company and that Mr Lloyd kept him informed of his dealings with the banks [Transcript 54] Troy Terp Son of JR & ED Terp employed as Business Manager of family business Stuart Morton Proprietor of Port Macquarie Hastings Real Estate Colin Fermanis Director of Southland Capital Pty Ltd David Blackwell Director of Urbis formerly A T Cocks Consulting John Read Former employer of Commonwealth Development Bank Gerard Cassegrain & Co Pty Ltd First plaintiff in 50072 of 2000 Clos Farming Estates Pty Ltd Second plaintiff in 50072 of 2000 Le Clos Sancrox Pty Ltd Third plaintiff in 50072 of 2000 Endwise Holdings Pty Ltd Fourth plaintiff in 50072 of 2000 [Notwithstanding this table not all of these persons ultimately gave evidence] Relevant relationships/corporate structure 32 Mr Cassegrain is the eldest son of Gerard and Francoise Cassegrain both of whom are now deceased. He has five brothers and sisters, Katherine, Patrick, John, Dennis and Anne-Marie. 33 GCC is the holding company of the second and third plaintiffs, Clos Farming Estates Pty Ltd and Le Clos Sancrox Pty Ltd. The shareholding in Endwise Holdings Pty Ltd is held as to 50% by GCC and as to 50% by Mr Cassegrain. Mr Cassegrain and Ms Cameron were at all material times the directors of the first four plaintiffs. 34 From the respective dates of their incorporation the first and second plaintiffs progressively acquired land in the Port Macquarie area which was earmarked for the following purposes: · the establishment of a vineyard to grow premium wine grapes for production and distribution under the Cassegrain Hastings Valley Winery label; · the development of land for a future new town development; · the development of a golf course and a hotel with some 400 residential units adjoining the vineyard; · the development of 130 residential lots for farm owners also adjoining the vineyard; and · the development of a tea tree farming project. [sub-paragraphs (a) - (e) of paragraph 6 from the statement of Mr Cassegrain of 6 July 2000] 35 Mr Cassegrain expanded on this by statement of 6 July 2000: "Between 1987 & 1990 the GC & Co Group developed three separate areas for grape vine growing. The first project was called "Le Clos Sancrox" and comprised some 46 separate farms. That was developed and established in 1987 to 1988. the second project was called "Le Clos Verdun". It was developed in 1988 and 1989 and comprised 81 separate farms. The third was developed in 1989 to 1990 and comprised 70 separate farms. It was called "Le Clos Françoise". All three estates were based on the same concept. Each purchaser acquired two lots. One was for residential use. The other was for growing grapes. The grape growing enterprise was conducted under management provided by the GC & Co Group. Each purchaser took subject to a covenant authorising such management and for sale of the grapes to the Cassegrain Hastings Valley Winery. The winery has achieved several best wines in Australia awards using the Clos farm grapes. All told, some 159 hectares divided into 144 farms have been established for use as vineyards. The development and management of the vineyard lots has been undertaken by P1, P2 and P3 since 1 July 1987. P2 retains ownership of some 104.88 hectares contained in 3 separate titles divided into 36 separate lots. In 1989 P4 acquired a property at Telegraph Point near Port Macquarie with a long term view of use as a regional airport by the local councils when funding became available. Council did not proceed and the GC & Co Group then in 1995 commissioned Arthur Anderson to investigate and prepare a business plan for the development of the property as a tea tree plantation. The plan was completed in August 1995. The plan provided for a three stage development as follows:- (a) Stage 1 involved the land preparation, infrastructure, site development, fund raising, marketing and administration costs; (b) Stage 2 involved a fall back scenario if the marketing of the tea tree project to investors was unsuccessful. Instead, the GC & Co Group would establish and maintain a 100 hectare plantation; (c) Stage 3 involved the completion of the development of the balance of the property into a tea tree plantation to total approximately 500 hectares of trees. To date, approximately 13 million trees on 330 hectares have been planted. The same system used for sales to investors in the Clos farm project was adopted in the tea tree project except that in the latter case the investors did not acquire the land or a residential lot. Each investor was given a 17 year licence over part of the land. The licence fees were paid to Oceania Agriculture Limited (ACN 076 400 872). That company managed the plantation and collected the licence fees from the investors. The cost to the GC & Co Group of bringing the project to Stage 1 was $2 million. The cost of bringing it to its present stage has been about $6 million. Up to then, the Group's banker was the Colonial State Bank. The GC & Co Group's debt to it was about $1.4 million. It needed further $1.5 million to fund Stage 1 and to fund expected revenue shortfalls from the vineyard management fees. That led to the Commonwealth Development Bank ("CDB") loan." [paragraphs 7- 14 from the statement of Mr Cassegrain of 6 July 2000] 36 Both Mr Cassegrain and his siblings held shares in Expressway Spares Pty Ltd ["Expressway Spares"] in 1988 and 1989. Expressway Spares had for many years carried on business near Port Macquarie as a dealer in parts for motor vehicles, plant and equipment. Its main banker in 1998 was the Colonial State Bank. Expressway Spares owned 100 percent of Cassegrain Vineyards Pty Ltd which in turn owned Cassegrain Winery at Port Macquarie. 37 Expressway Spares owned 100% of the shares in Cassegrain Tradition Pty Ltd. 38 In 1998 and 1999 Mr Cassegrain and all of his siblings held shares in the holding company. 39 The second and third plaintiff's had been involved during the second half of the 1980s in projects known as the 'Clos Farming Projects' which involved the investors taking an interest in small vineyard areas with the annual produce of those vineyards sold to Cassegrain Vineyards Pty Ltd. 40 The fourth plaintiff owned land which was used in connection with the tea tree farming project which project was managed by Oceania Agricultural Ltd. 41 Mr Cassegrain was not in 1998 or 1999 a director of Oceania Agricultural. The directors of that company were Mr Murtagh, Mr Lloyd, Mr Glover and Mr Liddy. 42 Yet another company, Clos Farming Management Ltd in a sub contract arrangement was involved in the management of Clos Farming Estates Pty Ltd and Le Clos Sancrox, managing the vineyards. The board of management of Clos Farming Estates were from Le Clos Sancrox. 43 Another of the companies which had an involvement in the tea tree project was a company called Agricultural and Rural Finance Pty Ltd in respect of which company Mr Cassegrain was not a director. 44 Verdun Vineyards Estates Pty Ltd was 50 percent owned by the holding company and 50 percent by Clos Farming Management Ltd. Its directors were as at 1998, Mr Curly, Mr Angus, Mr Liddy and Mr Rock. Verdun Vineyards had been formed expressly to purchase vineyard development blocks repossessed by the Colonial State Bank. It procured an approved $500,000 facility from the National Australia Bank for the purpose of purchasing 13 lots from the Colonial State Bank. [Transcript 132,133] Relevant proceedings in which Mr Cassegrain or family interests were involved 45 Mr Cassegrain gave evidence to the following effect in relation to such proceedings: · That in 1996 four of his brothers and sisters brought proceedings against him, his sister Anne-Marie and his mother in the Federal Court. One of the complaints made in those proceedings was that he was conducting the affairs of Expressway Spares in a manner that was oppressive to the applicants. The family disputation attracted publicity. In September 1996 a mediation was conducted. Mr Cassegrain participated in the mediation which did lead to an agreement which was unable to be consummated. · In late 1997 a second mediation of the family dispute in the Federal Court was conducted by the Hon John Clarke QC. Questions arose in respect of Heads of Agreement which Mr Cassegrain, in giving evidence under cross-examination, said comprised a document negotiated between counsel and the respective solicitors and which had not resulted from the mediation. Mr Cassegrain sent a copy of those Heads of Agreement to the Commonwealth Bank in early April 1998 advising that he was seeking specific performance of the Heads of Agreement because of the further dispute which had arisen. · By June 1999 Mr Cassegrain's mother had passed away leaving him and his sister Anne-Marie as executors of her estate. His mother had also held shares in Expressway Spares and after her death control of those shares passed to him and Anne-Marie as executors. Complexities arose with respect to the Heads of Agreement which Mr Cassegrain described as follows: "The Heads of Agreement included a clause that my siblings were able to obtain finance. We were advised that the bank had approved the finance and therefore the lawyers started to document the details of the Heads of Agreement. The Heads of Agreement included my mother selling her land and buildings occupied by Expressway Spares to Expressway Spares. My siblings and their lawyers approached the State Bank - I beg your pardon, my siblings and their lawyers approached my mother's lawyer and asked that there be a variation to the Heads of Agreement. The variation that they requested was that rather than the land and buildings over which Expressway Spares was operating be sold to them personally. My mother agreed to that scenario on the condition that she would also retain an equitable interest in the land and buildings as the land and buildings were to be paid for by Expressway Spares. The siblings decided that they do not want our mother to have an on-going interest in the land and buildings occupied by Expressway Spares. They reapproached the bank and asked the bank to make the approval for finance conditional and to retract the approval. The bank then retracted the approval for finance to perform the Heads of Agreement and when the time came for the confirmation of the Heads of Agreement, we were then advised that they were not going to perform because the bank had withdrawn the funding. We then asked for specific performance. The judge decided that because the finance was no longer approved, that we could not rely upon the Heads of Agreement and the Court case continued. Q. So drawing all those threads together, the effect of all that was these Heads of Agreement to which I have been drawing your attention were never consummated? A. That's correct." [Transcript 44] The relevant dealings relied upon by the plaintiffs Evidence given by Mr Read – Initial Loan 46 Mr Read gave evidence that he had been an officer in the CDBA up to 4 July 1997. He had opened the Port Macquarie office of the CDBA in 1985 and had had several conversations with Mr Cassegrain from that point in time on. He had dealt with an application for loan by the holding company. 47 He had carried out the investigation in about 1995 for the loan and had put up a submission to head office. His understanding of the charter of the CDBA was that loans had been approved on prospects of success and could not be declined only on the basis of lack of security. Prospects of success had focused upon inspections of the property, analysis of income that could be generated and the particular circumstance is as to whether the loan appeared to be able to be serviced over a reasonable period of time. He gave a detailed explanation of certain aspects of the circumstance that in 1996 the existing CDBA cease to be owned by the federal government and became owned by the Commonwealth Bank of Australia. As a result of the change existing loans were to be quarantined in a separate company which he believed had been the Commonwealth Development Bank of Australia Ltd. His understanding was that the loan conditions applying to such facilities would continue unchanged and he presumed that this would have been the case in relation to see $3 million facility to the holding company. New facilities were thereafter dealt with by a business known as Dev Bank operating as a trading arm of business banking division of Commonwealth Bank of Australia. 48 It is necessary to follow the further timeline closely in order to understand the sundry allegations of wrongdoing by the plaintiffs. It is however clearly unnecessary to chronicle all of the evidence before the court comprising inter alia many folders of correspondence and notes. The issues especially throw up a focus on certain events which are dealt with in the judgment. Hence the evidence disclosed the following relevant events: 04.10.95 49 CDBA lends Cassegrain $3 million – payments due each August, commencing August 1997 and balance by August 2003 ('the CDB loan'). 18.10.95 50 First guarantee executed in respect of the CDB loan. August 1996 51 Mr Cassegrain gave evidence that in approximately August 1996 he received a copy of the CDBA customer magazine [PX 1/122 and following]. This document importantly included at PX 1/127 and 1/130, detail of what was referred to as "the new DevBank, operating as a division of Commonwealth Bank, Australia". At PX 1/127 a series of questions and answers were included in which the following was to be found: "Q. How will this change affect existing SME [small to medium enterprises] and rural customers? A. There will be no change to existing loans-these will be quarantined in a separate company and the loan conditions will continue unchanged. This applies irrespective of whether the loans are to commercial or rural borrowers and whether the loans are by way of equipment finance or term loan. Q. What if existing clients want more money? A. Whether existing or new clients, we will happily assist all viable applications within the Business Banking Division of CBA. [Emphasis added] 52 The detail to be found at PX1/130 was as follows: " Charter - does it stay? Commonwealth Development Bank operated for 36 years under statutory charter providing finance to small businesses and primary producers. The new DevBank, operating as a division of Commonwealth Bank Australia, will not inherit this Charter when the Federal Government sells its shares and withdraws its subsidy. It will, however, maintain some of the Charter's important characteristics. The Development Bank's Charter meant it provided finance for the purpose of establishing, acquiring or carrying on business in cases where the provision of finance was desirable, but not available elsewhere on reasonable and suitable terms and conditions. As specified in the Commonwealth Bank's Act, The Development Bank was required, when determining whether to provide finance, to have regard primarily for prospects of success ahead of the value of existing security. As in the past, DevBank will continue to operate efficiently in accordance with commercial principles and still primarily have regard for prospects ahead of security . However, "the not otherwise available" aspect of The Development Bank's charter will disappear." [Emphasis added] 18.10.95 53 Mortgages executed in respect of the CDB loan. 14.08.96 54 Letter Cassegrain to CDB applying for further finance of $750,000. 02.04.97 55 Letter CBA to Cassegrain approving overdraft of $750,000 ('the CBA loan') 'Any debit balance on the account is repayable on demand which the Bank may make at any time but, unless the Bank makes such demand the overdraft arrangement will be subject to full repayment from investor proceeds or sale of assets by no later than 30 June 1998.' 24 April 1997 56 Guarantee executed in respect of the CBA loan. 12.05.97 57 Mortgages executed in respect of the CBA loan. 14.07.97 58 Letter Cassegrain to CBA requesting deferral of first repayment under the loan to August 1998. 30.07.97 59 Letter CBA to Cassegrain agreeing to deferral. 'Instalments of $615,200 covering both principal and interest are to be payable in August each year. The first instalment is to be met in August 1998 and in August 2004 the balance if any of the loan then outstanding together with interest thereon is to be met. Late 1997 - restructuring discussions 60 Mr Cassegrain gave the following evidence by statement: " As of September 1997, I believed the GC & Co Group was a valued customer of CBA. The document numbered 34 in the bundle was received at about the end of September 1997. That was followed by the document numbered 35. In late 1997 I was invited together with what I recognised as a number of people whom I recognised as prominent in business in the Hastings region to a function organized by the Bank to celebrate the opening of a Regional Business Centre at Port Macquarie and the appointment of Dale Murray as its Business Manager. At the function I was introduced to a number of CBA executives from Sydney whom I had not previously met. It was stated at the meeting by one of the executives that the purpose of the opening of the Business Centre was to attract to the bank a greater share of the local business banking market, as well as to improve by the local presence of senior officers, the existing business relationships. During the function I was speaking to a group of the senior executives, one of whom said words to the effect: "Claude, we are offering some attractive arrangements for the Development Bank clients to restructure their existing loans to take advantage of the more efficient and wide spread services that the CBA can supply. You may be able to negotiate significant interest cost savings." Another executive said to the effect: "We would like the new office to have a number of $5 million business loans, this may be your category." I said to that:- "It sounds good to me. I would like our accounts handled here in Port Macquarie rather than in Newcastle. Does this suit you Dale?" Dale Murray said:- "Yes, it does. Claude, I would very much like to have your business here. You should contact David White in Newcastle to get him to transfer the files to me." I said:- "It would sound better coming from you. I don't want David White to think I am unhappy with him." Dale Murray said:- "We had both better do it then." Soon after that meeting, Dale Murray came out to our place and spent about three quarters of the day inspecting our vineyards, proposed golf course resort site, the tea tree plantation, and our plans. At the conclusion of that he said to the effect:- "I am amazed. This is very impressive. It's a wonder more people in Port Macquarie don't know about it." During the course of that meeting we discussed the matter of restructuring the CDB loan. Toward the end of the discussion Dale Murray said to the effect:- "Claude, as soon as I get the files from Newcastle I'll go to work on it. In the meantime, could you let me have what we have discussed in the form of a written proposal I'll get our people on to it straight away while we are waiting."" [Paragraphs 25-28 from statement of Mr Cassegrain of 6 July 2000] February 1998 61 Mr Cassegrain gave evidence by statement of several conversations which he said he had had with Mr Murray in February 1998 to the following effect: "Me: Dale, when should we be dealing with the restructuring of our loan? Murray: Claude, we need to get your files from Newcastle before we can proceed any further. Me: Dale, has Newcastle sent the files down yet? Murray: No. They have promised to send them but they haven't arrived yet. Me: Dale, have the files arrived yet? Murray: I can't advance it any further till we get the files. I will chase it up. Me: Have the files arrived from Newcastle yet? Murray: No. I don't understand what is going on. I'll ring up. Me: How is it going Dale. Any progress yet? Murray: It's progressing. I don't know why, but the files ended up in Sydney instead. I'll track them down. Me: Have you found the files yet? Murray: It appears for some reason Sydney has decided to process the restructuring proposal themselves. When they have finished they said they would send the file to us to manage. Me: Have you heard from Sydney yet? Murray: No. They will send the file up when they have looked at it." [Sub-paragraphs (a) - (h) of paragraph 31 from statement of Mr Cassegrain of 6 July 2000] 62 Mr Lloyd gave evidence that the proposal to restructure the facilities was prompted by Mr Cassegrain, who said to him on returning from a function hosted by CBA to mark its takeover of CDB, "I have had positive discussions with Dale Murray (the Area Manager of Business Banking for the CBA). He said the Bank is looking to restructure CDB facilities. He thinks we should apply for a restructure of the facilities under the CBA and it could be an opportunity to apply for an increase if we need one" or words to that effect. [Evidence admitted only as evidence of the conversation and section 136 limiting order made accordingly] 23.02.98 63 Cassegrain provides Dale Murray of CBA with proposal for restructure of loans. Early 1998 - Evidence of Mr Wilmott 64 Mr Wilmott gave evidence that in about early 1998 the Lending Services Division had a "credit management unit" ["CMU"] and a "credit approvals unit". When an application for loan was made the loan was processed depending upon the credit rating of the customer. If the credit rating of a customer was satisfactory, the submission would go to the credit approvals unit which would review the credit rating, confirm that it remained a satisfactory credit and would consider the request for finance. If the application was from a customer who already had a weak credit rating, the application would come through to the CMU which then, within limits (in the same way as the approval unit), had authority to approve the application. If the application was approved it would revert to the money lending business banking centre or the branch for further administration, depending upon the point of origin of the application. If however it was a credit management unit file CMU would respond directly back to the customer. If an application was rejected by CMU then, if it had the management and control of the file, it would respond directly back to the customer. If CMU had the control of the file but not necessarily the management of the file, CMU would convey that decision back to the centre or branch and they would convey the decision to the customer. [Transcript 290-292] 65 Mr Wilmott gave evidence that where the approvals unit had given an assessment which resulted in an unsatisfactory rating, and the control of the file was migrated to CMU for further assessment, decision-making and control, if required, an attempt would be made to so treat with the matter by CMU. He in fact had the capacity to review the file and to deem whether an approval of the credit that had been originally sought or possibly a variation of the terms of any approval was warranted on the information held at that time. Insofar as CMU had a function of developing a strategy to protect the bank against loss resulting from the event of default, in terms of the Cassegrain circumstance at the time he became involved with the file, he simply had insufficient information to make a decision on whether the request for finance should be approved and he therefore confirmed the original decision taken by credit approvals unit as one which should stand. [Transcript 293] 66 Mr Wilmott did not accept that the CDBA was a lender of "last resort". Its charter permitted it to grant loans where a customer could show that an application had been declined by one only of the trading banks, and not necessarily by all of them. [Transcript 294] 67 Mr Wilmott was closely cross-examined upon exhibit D1 already described dealing with the integration of CDBA into the Commonwealth Bank lending portfolio and treating with new and increased lending in respect of previous CDBA facilities. Mr Wilmott's evidence at transcript 300–304 – included that lending policies in respect of new or increased loan applications from CDBA facility customers were to be assessed under the existing CBA policy and that he was aware of the instructions as to new and increased lending. Importantly his evidence as to the final 'Restriction' instruction was that these loans were not to be rewritten as CBA loans but to continue as the instruction directed – that is a CBD (now CBD Limited) loans. [Transcript 305] 5 March 1998 68 On 5 March 1998 an internal bank memorandum was received by CMU from the approvals unit advising that given the uncertainties surrounding the long-term viability of the tea tree oil industry, the lack of information concerning the Cassegrain group/family and the overall financial structure and the current family dispute, it would not be prudent to increase the banks exposure at the time so that the application had been declined. [PX 2/338] The same memorandum advised that further contact would be made in due course but that in the interim the applicants were not to be informed of the referral to CMU. Mr Wilmott gave evidence that: "The policy at the time was that we didn't inform the clients of the control of the filing party to CMU, because the management at that point was still being maintained by the Business Banking Centre and the fact that the file had migrated to CMU meant that we were still assessing the credit under the bank's normal credit policies whether it was within the Approvals Unit or within the Credit Management Unit and the actual decisions were still emanating out of the lending services area of the bank. [Transcript 294] 69 Also in March Mr Wilmott first received a file concerning the Cassegrain group which was the submission from the Business Banking Centre to the Credit Approvals Unit and a copy of the processing notes from the Credit Approvals Unit and the response which had been given back to the centre. [Transcript 290] By this time the bank had declined a request for accommodation which had been a request for an increase of $350,000 to the overdraft facility. 70 His evidence in relation to the management of the $3 million loan and the requirement that it be transferred to a new accounting system was that this was because the bank was moving to a new Y2K compliant system. [Transcript 340] 71 Mr Lloyd gave evidence that in March 1998 the CBA declined the temporary increase in the overdraft by letter and that about then, he asked Mr Gavin, a manager at the Port Macquarie business banking office, about the restructuring of the loans. He had said words to the effect "I can't see that being a problem but it will have to go to Sydney for approval". Between March and April 1998 72 Mr Wilmott under cross-examination gave the following evidence: "Q. So, between say March and April you were receiving information from the Cassegrain Group of the sort that you were requesting them to provide, is that right? A. Yes. They were - - we were receiving information on a progressive basis. Q. What was the reason for obtaining that information? A. To assess the clients ability to make the promised reduction that he was making. The proposition that he was making we wanted to see that he could adhere to. Q. Which promises were there? A. That they would repay the overdraft at the end of October and meet the instalment due on the DevBank facility at the end of October. Q. When were those promises made? A. In terms of the letter I sent back to the client on 27 of March of 1998 where I outlined what I believed to be his request of the bank. I had no information from the client that suggested that they wanted these requests varied in anyway. Q. But didn't. They on the 25 of March, according to you, asked that the time limits for both payments of the overdraft and the term loan be extended?… Q. Didn't you say that on the 25 of March Mr Lloyd had spoken to you by telephone and asked you to extend the time for payment of both those loans? A. He did, yes. Q. Well, isn't that going the opposite direction to promising to pay by the due date? A. But I took that as the new due date, that was going to be the end of October. He wanted to extend the loans beyond the overdraft from the end of June to the end of October. Q. I see? A. The DevBank term loan from August to the end of October. Q. So all this information he was requesting was directed to establishing whether or not they would be in a position to pay those amounts of money by the end of October? A. Correct… Q. Throughout April they continued to give you information that you requested? A. I progressively received information. Q. They were many telephone conversations as well? A. Principally in writing in relation to the provision of information. I would get a call to say such and such was on its way. Q. Then on the 20 of April of 1998 you requested valuations of all the security provided by the group as a matter of an urgent basis for establishment of specific provision. Do you remember that? A. I remember ordering re-evaluations. If I written it's in relation to the provision following a discussion I had with their chief property valuer. Q. But the specific provision that you were requesting be a valuation for was to establish a loss, wasn't it? A. It was one of the internal management decisions we had to come to in relation to the management of the file. After discussing the valuation, as it was termed, with our chief valuing officer of the day he came to the view that we needed to have a revaluation done so we could establish the true market value of this property. It was, in his eyes, that the valuation that we held at the time would not stand up to the proper rigors of a valuation. Q. But aren't you or weren't you concerned with whether or not the group was going to be able to make the two payments of the overdraft and the term loan in October? A. Yes. I was equally concerned with that because in any credit decision we try and establish what the cash flow robustness is going forward and how reliable those cash flows are. We also establish what are the levels of security based on those." [Transcript 332-333] 11 March 1998 73 Mr Wilmott was shown a diary note by Mr Baker, the Senior Credit Manager of 11 March 1998 [DX 4.109-4.110]. A copy of this note is appended to this judgment. The note importantly includes a paragraph making the point that the existing repayment arrangements called for clearance of the working capital overdraft in June 1998 and payment of the previously deferred principal and interest reduction of $617,000 on the term loan in August 1998, it being "apparent that the two commitments cannot be met without resorting to an increase in CBA facilities". The document continues: "The above issues reinforce the doubts concerning the reliability of previous cash flow budgets and also raises doubts concerning the budgets provided with the application now before us. Clearly a thorough investigation of the development and the Group needs to be undertaken to establish ongoing viability. In view of the overall position and the family dispute it would not be prudent for the CBA to provide further funds into the venture until a full understanding of the Group, the tea tree venture and the Cassegrain family as a whole is gained . Therefore the application has been declined at this stage and BBC advised accordingly." [Emphasis added] 74 Mr Wilmott gave evidence that a hand written note appended at the end of this document had been made by Mr Dennis Roams who was the chief manager "Lending Services" of New South Wales, senior to Mr Wilmott and to Mr Sergeant. He read the content of this note onto the record as follows: "This [a clear reference by the handwritten connecting line to the paragraph commencing "Clearly a thorough investigation…" ] is the most basic and desirable need, presumably the BBC file (in the court) would provide some background. However we need to know more. It is hard to dispute the CQC rating without knowing the total picture (development cost/time, the "Clos" structure and so on, it is neither appropriate to approve more finance nor launch into recovery mode …" [Emphasis added] 75 The above emphasis is to make clear that this contemporaneous note contemplated the then position being one of awaiting further developments as between launching into recovery mode or approval of some further accommodation. This disproves by contemporaneous document an important part of the Cassegrain case, which was that an irrevocable and immovable decision to decline any further accommodation had been made early in the peace and well before the communication of the decision in late June 1998. 76 Mr Wilmott gave the following evidence in relation to the words "to establish ongoing viability" being part of Mr Baker is memorandum: "Q. Did you say you read this at the time? A. Yes, I did. Q. Well, what did you understand was meant by those words 'to establish ongoing viability'? A. We had to establish the various cash flow positions of the ventures within the group. There are quite a number of ventures within the group; and we had to understand how each of those cash flows came together and resulted in a consolidated position. Q. Why, why would you have to do that? A. Because the cash is the source of repayment and it's the source of meeting all expenditure in the business, to remain solid. Q. Yes, well as between the two alternatives which are being referred to in the handwritten note on the one hand approving more finance; and on the other hand launching into recovery mode, you see it's neither appropriate to do either? A. Yes, I see that comment. Q. With respect of both or which of those was it, as you then understood it necessary to carry out this thorough investigation to establish ongoing viability? A. The answer to the ongoing viability question would determine the course of action the bank would finally take… A. Whether it would be to approve more finance or to take recovery action. [Transcript 314] 23 March 1998 77 Mr Wilmott's internal memorandum of 23 March 1998 addressed to the Business Banking Centre [DX 4.246-4.252] is appended to this judgment. He was closely cross-examined on this document. His evidence was that what he was doing when he prepared the memorandum was outlining the history of the file because a lot of the documents were missing having been subpoenaed by the Court in the family dispute. [Transcript 310] 78 The document is an important one because it covers a number of aspects explaining the banks approach up to that point in time and in coming months. Reference is made to the steps in terms of the application to vary facilities. Reference is made at 4.249 to approval having been given to the $750,000 application in March 1997 "on the understanding that if the sale to investors was not successful, the company would sell sufficient assets to clear the loan by 30 June 1998". 79 Reference is also made to the prospectus which had been issued in April 1997 and was to close on 9 April 1998. During the course of his further cross-examination Mr Wilmott referred, on more than one occasion, to the significance of the prospectus in terms of operating cash flows. His later evidence was to the effect that because of problems within the Taxation Office and other matters it had become necessary for the further prospectus to issue and that there were clearly perceived difficulties which continued in terms of being in a position to estimate what cash flow might follow success in terms of the prospectus offerings. 80 His evidence included the following [given by reference to some notes of Ms Wilmott DX 317,318 and his own note DX 4.319. In re-examination it became clear that the scenarios referred to on DX 4.319 related to the document PX 2/409-411]: "HIS HONOUR: At 4.317, at the top of the page, there is a triangle "very little" triangle "to little" submission. The triangle refers to differences between the two prospectuses. Are you telling us then that there were definitely, as you recall it, two prospectuses? One originally for April and then a later one? A. There was an original prospectus issued in '97 and that provided certain funds into Oceanic. Then they proposed to issue another prospectus in April of '98 to raise further funds for Oceanic. HIS HONOUR: Which I think you said had, you believed had been deferred because of various problems? A. The tax ruling in relation to those tax effective schemes. HIS HONOUR: What do you mean when you thought you could perhaps defer the first line on 4.317? A. Because I just looked at what she's written here in relation to it. It's obviously in relation to the tea tree prospectus. That she is writing here in terms of tea tree costs and overheads and the monies that are coming in. HIS HONOUR: It's all about the analysis of what the second prospectus added to what was at the original prospectus back in 1987 from the income. A. The reason why I asked for the difference was the original prospectus had not been successful as well. I wanted to see if in fact the subsequent one was going to be materially different and then whether it was going to be successful or not. CAMERON: Q: Did you ever find out how many farms were sold under the second prospectus? A. Did I find out? Q. Yes. A. Yes. Ultimately, yes, I did know. I shouldn't say that - no, because it hadn't closed until the 30 of June because I had lost control of the file by then." [Transcript 338-339] 81 The document at 4.250 stated that the proposal then submitted had two steps identified namely: · A temporary increase of $350,000 from $750,000 up to $1.1 million · A restructure and increase in facility limits of $3 million approximately (including repayment of 750,000 due 30 June 1998) to $6 million which was not dissimilar to the application declined by CDBA in July 1996 82 In this respect of Mr Wilmott gave the following evidence: "Q. Which is page 5 of your memorandum under (viiii), do you identify the current or last proposal put forward by the group as involving two steps, do you see that? A. Yes, I do. Q. The first one was the temporary increase of $350,000 which we referred to earlier today, and the second one was to restructure an increase facility limit of three million dollars to six million dollars? A. Yes, I see that. Q. And both of those, you would agree, involve an increase in lending facility by the bank to the group? A. Yes, that's what it constituted, that was the request. Q. That couldn't be acceded to because the decision had already been taken that the bank was not to give any more money to the group? A. No, that's incorrect because the position could be reviewed at any point in time." [Transcript 310] [Emphasis added] 83 Reference was made in the document to cash flow budgets which had forecast receipt of particular management fees during the first half of 1998 from the marketing of 400 new licences to investors. The marketing objective had been considered to be very ambitious particularly given the poor response to the initial offering. The document made the point that if the group did not sell in the order of 385 new licences there would be insufficient "new moneys" introduced (due to the investor finance arrangements) to repay the temporary assistance then sought. 84 Importantly the document at 4.250 included a paragraph which made plain that there were still options available to the group particularly if the new prospectus would prove to be a resounding success. The relevant paragraph was in the following terms: "The principal expenditure to be incurred between now and June 1998 appears to be seedlings and site preparation for the new investors lots. Accordingly, the purposes for which the temporary assistance has been sought and repayment of the short-term loan are both premised on the new prospectus being a resounding success. Even then, the group will need the Banks concurrence to restructure facilities to avoid default, and/or raise additional finance to meet commitments." 85 Mr Wilmott gave the following evidence: "Q. It then says: "Accordingly, the purposes for which the temporary assistance has been sought and repayment of this short term loan are both premised on the new prospectus being a resounding success". Then it says: "The group will need the banks concurrence to restructuring facilities to avoid default and/or raise additional finance to meet commitments". Does that sentence about 'restructuring facilities to avoid default and/or raise additional finance to meet commitments' reflect an opinion of yours which is just as you had read previously in the handwritten notation at the foot of that page where it is said that "There were these options and the bank should not move into either, without further investigation". It seems to reflect, does it not, the same sort of thing? A. Yes. What it says is we need to understand whether the assumptions underlying their forecast were reasonable and achievable. Q. The following page uses again the word 'accordingly' and there is a reference to the directors 'to be informed tactfully and so forth'. Now did this document then amount to a need to monitor how things went with (A) the prospectus and (B) with respect to this alleged principle, expenditure and so forth? A. The document was prepared to try and give a - as best picture as we could establish from the documents that we held at the time of the history of the file, and what we needed to do, going forward in managing the exposure for the bank, and I, at that time, because we had insufficient information to be comfortable with the repayment of the debts. We actually confirmed the decision to decline the request at that point." [Transcript 316-317] 86 Mr Wilmott gave evidence that where this document stated that the Bank's decision to decline the request for a temporary increase in "A/A" was confirmed, this related to the $350,000 issue. He was then asked and gave the following evidence: "Q. You go on to say: "In view of the above control and management of the account will now be taken with this unit, Mrs Sue Whiting is the new accounting manager and you may inform of this change". Then you go on to say: "It is anticipated that our involvement from now on will be minimal". and you then list a series of documents that you want to see, right? A. Yes, that's correct. Q. And why do you want those particular documents? A. We were taking management of the file. That centre had been informed that not only was the control of the file under my area, but also the management of the file and that the customer would have a new account manager which would - rather than the relationship management they had at the centre and they would have been informed of that and Sue Whiting was to be the new account manager for us, to manage the file. We needed to have those various documents within our control so as we could respond to the customer's requests and manage the file effectively. They are the standard documents that would be held at a business banking centre." [Transcript 314 - 315] 87 A further internal memorandum had been sent by the Relationship Manager to Mr Wilmott on 23 March 1998 [DX 4.260]. This memorandum included the following: "The decision to decline application has been conveyed to applicants. Alternatives for the funding will be canvassed. At the same time they have requested that the bank revisit the overall position and in particular their requirements moving forward. What they are looking for is an indication as to whether the bank is prepared to assist further or have decided that they want to exit the relationship. This would then assist them in preparing a submission to CBA or submitting it to another financial institution. [I interpolate that Mr Wilmott gave the following evidence in relation to this matter: " Q. And so far as the group is concerned, what is related there indicates so far as you are concerned where they stood, is that not your understanding of the position? A. Well, I didn't have from the group at that point exactly what they wanted. I understood that he wanted a continued relationship, but they hadn't put to me precisely what finance they required. Q. Well, what I'm suggest to you is that at that time they were wanting the restructuring in terms of stage two of that original application we've just looked at? A. No. I didn't interpret it at that point in time that that was what he was asking of us. I had interpreted the submission from the centre saying that they would approach us later with further information in relation to that. " [Transcript 322-323]] "We have not conveyed an indication either way and will leave that to you to decide and advise." 88 Mr Wilmott's interpretation of the reference to declining the application was that this was a reference to declining the $350,000 application. He then gave the following evidence: "Q. At the same time he was requesting that the bank revisit the overall position and, in particular, the requirements moving forward? A. Correct. Q. So they seem - you're still looking at the second part of the application, that's the restructuring proposal? A. No. What transpired is they came back with a subsequent request to look at the two-part application which was to - they didn't ask for the 350 again, they sourced that elsewhere. They asked for the repayment term of that overdraft to be extended and for the instalment due to the DevBank to be extended to October ." [Transcript 318] [Emphasis added] 24 March 1998 – Ms Whiting's 'comment' 89 Mr Wilmott was shown a computer system record DX 4.256-4.257] dated 24 March 1998 which had been prepared by Ms Whiting and which included comments including the following: "Decision to decline the application for T/E of $350,000 to 30 June 1998 has been confirmed due to doubtful ability of the Group to clear both the excess and existing facility. Additional finance to complete development will not be considered by the Bank. Await developments as again doubtful that sufficient income will be available to meet the T/L commitment." 90 In this regard Mr Wilmott's evidence was that his group had reservations at this point that they would be able to assist the Cassegrain group going forward because of the complex nature of the group and its cash flows. He was asked: "Q. I think I was asking you whether you were aware, as of 24 March 1998, that the bank had decided that additional finance to complete development would not be considered by the bank? A. No, I was not aware of that because it wouldn't have been the decision of Sue or myself in that respect. That is an opinion that she is expressing at that point." [Transcript 308] [Emphasis added] 91 Mr Wilmott gave further evidence as follows: "Q. Now, going back to page 4.246, the subject matter is troublesome and impaired asset? A. That's correct. Q. Now, do you remember or can you recall what it was with the group that caused you to classify in that particular category? A. The approvals unit originally assessed the credit as a troublesome or impaired asset because it assigned a CQC of F to it. I didn't change that rate. I concurred with that rating and therefore it remained a troublesome and impaired asset. Q. Did you consider yourself why it deserved to be put into that category? A. Because of its - the assessment of its credit quality at that time based on the information presented to us, there are reservations regarding the group's cash flow position. Q. Just the cash flow position? A. At that point in time we were concentrating on the cash flow position and its ability to repay the debts as and when they were due." [Transcript 309 - 310] About 25.03.98 92 Cassegrain requests extension of time to repay CBA loan and first instalment of CDB loan until 30 October 1998. Telephone conversation taking place on or about 25 March 1998 between Mr Lloyd, Mr Wilmott and Ms Whiting. 93 At paragraph 16 of his statement dated 4 July 2000, Mr Lloyd alleges that Mr Wilmott stated that "we are happy to consider the proposal". More detailed evidence of Mr Lloyd 94 Mr Lloyd in this regard gave evidence by statement as follows: "I spoke to Geoff Wilmott, a senior manager of the CBA in Sydney, on or about 25 March 1998 and I recall that the conversation was cordial and he did not raise any concerns about the Bank's exposure to GC & Co. Much of the conversation was devoted to explaining to him the businesses of the GC & Co Group. I do not recall the precise reasons he gave for the Bank declining the temporary overdraft increase,…. It was of no concern to us that the bank had declined the overdraft increase as we had already arranged to borrow privately from the Terps' and I believe the bank was going to restructure our loan to a more favourable basis. I also recall that in this discussion the request for an extension of the payment dates of the CBA overdraft and the CDB payment was discussed. I recall that Wilmott said words to the effect that "We are happy to consider that proposal but we will need some additional information from you". By letter dated 27 March 1998, the CBA detailed the information it wanted. The list was quite extensive but we responded as quickly as we could by forwarding the information sought progressively as it became available." [Paragraph 16 of the statement of Mr Lloyd of 4 July 2000] 95 Under cross-examination Mr Lloyd could not recall whether or not during the course of this conversation Mr Wilmott had confirmed that the decision to decline the $350,000 increase in the overdraft limit had been reached. [Transcript 170] Arrangement to forward material progressively 96 He did recall that he confirmed to Mr Wilmott in the course of this conversation that the holding company was seeking an extension of time to repay its overdraft and to meet its first instalment under the CDBA facility until 30 October 1998. He also recalled that Mr Wilmott said in response, that the bank was prepared to consider the proposal to defer the dates without commitment but that the bank would require further information. Certain communications then took place but at this point in time he was advising Mr Willmot that the balance of the material which the banks needed, was going to be forwarded to him progressively. More detailed evidence of Mr Wilmott 97 Mr Wilmott gave evidence by statement that the conversation was part of a conference call at which Ms Whiting and he were present. He denied having said "we are happy to consider the proposal". His evidence by statement was that he said to Mr Lloyd: "the Bank is prepared to consider your proposal to defer the dates for expiry of the overdraft facility and payment of the instalment of the term loan, without commitment, but we will require further information from you". His handwritten notes went into evidence comprising the record of the conversation which he and Ms Whiting had made for the file. The notes were contemporaneous by Ms Whiting and made by Mr Wilmott immediately thereafter. 98 Under cross-examination in relation to when the subject proposal was made by Mr Lloyd, Mr Wilmott's evidence was that it was made in the conversation with Mr Lloyd of about 25 March. Mr Lloyd had not written to him so that Mr Wilmott responded to Mr Lloyd's telephone call and outlined what he believed to be the customer's request. [Transcript 329] 27.03.98 99 Letter CBA [Mr Wilmott] to Oceania Agriculture Ltd: "We understand from our telephone conversation that the groups working capital requirements for the period ending 30 June 1998 will be funded via loans from Mr Claude Cassegrain following the bank's decision to decline the application for a temporary increase in overdraft limit of $350,000 from $750,000 to $1.1 million. Our colleagues at Business Banking Centre, Port Macquarie indicated to us (and subsequently confirmed in our telephone discussion with you) that the Borrower has requested variations in previously agreed repayment arrangements, viz, the rescheduling to 30 October 1998 of: - the expiry date for the CBA's overdraft facility of $750,000 from 30 June 1998; and - the deferment of the CDB's Term Alone instalment of $615,200 from 6 August 1998 [page 1] As discussed, to enable this application to be progressed, the Bank would appreciate your arranging for the following information to be provided: [followed by detailed requests for financial statements, management accounts, cash flow budgets and other matters]" [pages 2 et seq] [Emphasis added] 100 Mr Lloyd under cross-examination accepted that essentially page 1 of this letter was consistent with his recollection of his telephone conversation of 25 March with Mr Wilmott. [Transcript 170] 101 The letter further dealt with the anxiety of the Bank to obtain revaluations of the security properties, the fact that collation of the information sought would take some time and that the co-operation of other parties would be needed to provide certain data. 102 In being cross-examined in relation to this document Mr Wilmott gave evidence that to the best of his recollection, during his discussions with Mr Lloyd on 25 March, the Cassegrain group sought rescheduling to 30 October of the expiry date of the overdraft. An extension of the CDBA term instalments to commence from 30 October rather than on 6 August 1998 was confirmed in discussion on 25 March. [Transcript 325] His recollection was that the relevant application was one which the business banking centre at Port Macquarie had been aware of and what had happened was that the overdraft having been declined for the additional $350,000, the customer sought reconsideration, not of that same application for the $350,000 addition to the overdraft, but had sought that the bank defer the repayment dates for both the overdraft and the term loan instalments. The approvals unit had declined this and Mr Wilmott had confirmed that decision. [Transcript 326] 103 The 27 March 1999 document PX 2/369 is an important document and is also appended to this judgment. It is important because it identifies a number of requests from the Bank which required to be complied with in order for the application to be progressed. At the commencement of those requests one finds the sentence: "As discussed, to enable this application to be progressed, the bank would appreciate your arranging for the following information to be provided" 104 In relation to this sentence Mr Wilmott gave the following evidence: "Q. Why did you write the first two lines on the next page, page 370, Mr Wilmott? A. To enable this application which is the extension of terms for both those two facilities. I asked for the following information to be provided, so as I could assess the prospects of repayment.' [Transcript 326] 105 Mr Wilmott was asked why he had signed this document with his name as "Senior Manager" and had not mentioned that he was part of the credit management bureau. His answer was that there was no particular reason why he had not identified himself as the senior manager of the CMU unit and that it was his belief that the business-banking centre had already informed the client of that. He was then asked: "Q. I think we were taking you to some documents where the decision was not to inform them? A. That was prior to me writing back to the centre saying that the decision of the client was confirmed, and they would take management of the file, and I had informed the client that we had control and management of the file." [Transcript 327] 06.04.98 106 Deed of loan for $550,000 executed between Oceania and JH & ED Terp. 08.04.98 107 Mr Lloyd gave evidence by statement [4 July 2000] as follows: "On 8 April 1998, I met with Geoff Wilmott and another bank officer, Sue Whiting, at the CBA's offices in Sydney. I recall that the meeting went for about 2 hours and that much of that time was spent by me explaining the activities of the GC & Co Group in response to questions from Wilmott. I recall having a discussion with Claude Cassegrain shortly after the meeting with the CBA and telling him words to the effect that "The Bank does not seem concerned. They said they were doing a review of the account so they can consider our needs and our request for an extension. I told them that at the end of the day all we are looking for is a couple of months extension and sales from the tea tree project to the end of June will give them comfort that the money will be there. They are helpful, I can't see them declining our request for an extension. They have not even suggested they might. They may take the chance to ask for extra security over more land or OAL though". [ Admitted only as proving conversation; s.136 limiting order made] [Paragraphs 17 and 18 from Mr Lloyd statement of 4 July 2000] Family factions explanation given 108 Under cross-examination Mr Lloyd recalled that during this conversation he proceeded to give a rundown of the various factions in the Cassegrain family and the different enterprises that the family was involved with. [Transcript 171] 109 He gave the following evidence: "Q. And do [you] not recall Mr Wilmott telling you that on receipt of the three year plan and the outstanding financial information that he sought in his letter of 27 March 1998, the bank would give consideration to your requests to reschedule the facilities but distinctly on a no-commitment basis? A. I don't recall that specific conversation, but the effect of what you've said is probably correct, from my recollection. Q. You had told him in the course of this meeting, had you not, that the principal payment of $615,200 and the clearance of the overdraft on 30 June could only be forthcoming in October 1998, from payments under the prospectus, correct? A. I don't recall specifically saying that, but it is likely that I did say that." [Transcript 172] Early April 1998 - mid June 1998 110 Mr Lloyd gave evidence by statement as follows: "I had a number of subsequent telephone discussions with Wilmott and Whiting between early April and mid-June 1998. In late April or early May the bank sent a valuer from Knight Frank, Newcastle to Port Macquarie to value the security properties. I recall waiting for him to call us on that day so we could assist him. As it turned out he arrived at our office at about 2.00pm and asked for directions to two of the properties. He said he had already looked at the others and that he did not need our help. I recall that he returned to our office about 15 minutes later to say goodbye. Shortly after the visit by the valuer I recall having a telephone discussion with Wilmott in which I said to the effect: "The valuer was here. He could not possibly value the security properties properly without talking to us, council and others, he didn't spent more than half a day in Port". Wilmott didn't say anything to that." [Paragraphs 19 - 21 from the statement of Mr Lloyd of 4 July 2000] 111 Mr Lloyd gave evidence that at no time during his meeting with the bank officers of 8 April 1998 (and his telephone discussions with them between April 1998 and mid June 1998) was he given any indication that the bank was acting other than to assess and consider the request for additional or restructured facilities for the holding company. He was not aware, nor made aware, during that period that the role of Mr Wilmott in the bank was in anyway associated with debt recovery or asset management. 20 April 1998 112 By reference to a request for valuation of this date [DX 4.305] the cross examiner asked a number of questions as to what Mr Wilmott was looking for in terms of the banks need to be satisfied in order to accede to an application. It became clear in this cross-examination that the general question was about whether or not the information received from the borrower and the banks investigation would satisfy the bank that the Cassegrain Group would be in a position to repay, by the end of October, the overdraft in full, and by that time to make the first instalment of the CDBA term loan. The relevant cross-examination included the following: "Q. Just looking at the situation I think you told us or told the Court that there was a prospect. You just described that prospect. Now, this is in the face, may I remind you, of an application by the group to extend the repayment time of $750,000 overdraft from 30 of June to the 31 of October? A. Yes. Q. And to extend the time for repayment of the principle interest payment due in August on the term loan of three million dollars from August to the 31 of October? A. Yes. Q. I had asked you whether there was any prospect of your bank acceding to that request and you said there was a prospect? A. There was, yes. If they could demonstrate that we would get the money back as they were promising. Q. But you wanted the money back first, that is the three million and $750,000? A. No, the $750,000 overdraft that was been promised to be repaid at the end of October plus the $615,000 approximately that was owing in October or proposed to be paid in October to the Development Bank. HIS HONOUR: Was that the prospect when you refer to your looking at the prospect? Was it at the prospect that you could be satisfied that the borrower would make those two payments both? You mentioned in late October the first instalment of the CBD loan and the overdraft loan. Is that what you mean. A. That's what I mean. CAMERON: Q: I see. So, that the prospects of that depended upon - withdraw that. That money was going to be recovered from either cash flow or sale of assets, is that right? A. There were a number of repayment sources. The group had a number of ventures. Being the vineyard estates, tax effective scheme. There was a dairy. There was also a tea tree plantation venture. There was also recovery of monies that may potentially have come out a family dispute. There was a number of sources of potential repayment. Q. You were satisfied, were you, that everything was all right for the approvals been being sought to have being given? A. No. It was quite the opposite. I wasn't satisfied that the information that I received gave me the confidence that they could repay those loans as of the end of October. HIS HONOUR: The family dispute that you mentioned did that play a major part in your thinking. A. We asked for information on the family settlement, which we received. That indicated that unfortunately they hadn't been resolved. So, that avenue of potential repayment was essentially eliminated. We didn't get information on the cost farm management estate, which we were seeking, because that had been a negative cash flow drain on the group. We were anxious to see whether that had turned itself around and to enable the group to meet its repayments. We had under - - those circumstances I had no information to tell me that it was going to assist. In relation to the prospectus for the tea tree plantation unfortunately along with a number of other scheme providers was caught up in the tax office inquiry. That impacted upon the marketing of those particular schemes. All these things came over a period of time. At the end of the day I had inadequate confidence that they would be able to repay the monies as they were promising. HIS HONOUR: By that answer do you mean to repay had the bank extended the time by late October, the overdraft in full and the first instalment of the CBD loan? A. Correct. CAMERON: Q: You inform them of that opinion when? A. By about the end of May, beginning of June after we had been receiving information on a progressive basis. Q. But by April you had established that the security position was about two million dollars short of the existing loans? A. That's true. Q. As you said there was no cash flow? A. What we were trying to understand is the cash flows forecast coming out of the group. We were trying to verify that those forecasts could be realised. At the end of the day we couldn't be comfortable with that. Q. The group had given you all the information that it had? A. They gave all the information they could, but it wasn't ever intended to be asked for. [Transcript 335 - 336] 29.04.98 113 Letter Cassegrain to CBA providing some of the information requested: "We acknowledge that we still have to provide accounts for the period to December 1997. Our accountants omitted to prepare the accounts for Oceania Agriculture and we have asked them to act with all haste to complete this work." 114 Mr Lloyd under cross-examination gave the following evidence: " Q. The point is this; you appreciated at the time that you wrote this letter that Mr Wilmott had told you on 8th April that the bank was unable to vary repayment arrangements, unless it had the further information which he had sought? A. That's correct." [Transcript 173] [Emphasis added] 01.05.98 115 CBA advises that its loan accounts were to be transferred to a new accounting system. 7 May 1998 116 Mr Lloyd could not recall, but did not deny, that on 7 May 1998 Ms Whiting telephoned him to remind him that the banks still required the outstanding financial statements for Expressway Spares as at June 1997 and the management accounts for the holding company, Clos Farming Estate, Le Clos Farming Estates and Endwise Holdings to 30 December 1997 [Transcript 174] 08.05.98 117 Letter Cassegrain to CBA providing some further information: 'We will forward the accounts you have requested at the earliest opportunity.' 05.06.98 118 Letter Cassegrain to CBA providing further information: "The accounts for GC & Co, Clos Farming Estates Pty Ltd and Le Clos Sancrox Pty Ltd to 31 March 1998 are attached. Also attached are amended accounts for Oceania Agriculture. In preparing the OAL accounts our accountants transferred some expenditure into OAL from GC & Co for which OAL had separately paid. We hope that this information completes your requirements and we look forward to your visit to the project. Please accept our apologies for the delay in providing the accounts. We trust you will appreciate that our attention was necessarily directed to resolving the tax position so we could market Project No. 2.'" 12.06.98 119 Letter Cassegrain to CBA proposing loan, requesting increases in facilities. 15.06.98 120 CBA refers Cassegrain's account to asset recovery unit. 19 June 1998 121 Under cross-examination Mr Wilmott was referred to an internal memorandum of this date signed by Mr Chapple , the senior manager, credit recovery, which included the sentence: "Borrowers are not to be informed that the Bank will refrain from commencement of recovery action once default has been established.." 122 Upon examination there was no substance in any complaint in this respect-the cross examiner had misconstrued the sentence, seeking to put to the witness that the sentence said "that what was not to be conveyed to the Cassegrain group was that the bank was going to commence recovery action." [Transcript 343] 22 June 1998 123 On this date an internal memorandum was sent by the chief manager of the CMU setting out the bank's strategy for recovery [P. X. 2/484]. The strategy was that the borrower was to be informed that all requests for assistance were declined; that the borrower was to be placed on notice that an event of default would occur on 30 June 1998 in the absence of the overdraft being cleared by then; that subject to satisfactory legal advice, cross default would also occur with respect to the CDBA loan; the borrower was to be notified that the banks were appointing or had appointed an investigating accountant to review the group's prospects, to assess the value of the bank's securities and to develop strategies to maximise recovery of the bank's exposure. The report was likely to be completed within 30 days or whatever date it would be commissioned on. 24 June 1998 124 On 24 June 1998 Mr Wilmott received confirmation of a notification confirming the revised strategy PX 2/486. 25.06.98 Telephone conversation between Cassegrain and Mr Wilmott of CBA. Evidence of Mr Cassegrain 125 Mr Cassegrain gave evidence by his statement of 6 July 2000 that on this occasion Mr Lloyd had advised him that CBA had declined to accept the Cassegrain restructuring proposals and was going to cancel the overdraft facility altogether on 30 June 1998 and wanted it repaid in full by that date. Mr Lloyd had said that if it wasn't, the Bank would sell the securities it held. [Statement paragraph 35 – allowed as evidence of conversation only – s.136 limiting order made] Telephone conversation between Mr Wilmott and Mr Lloyd of about 25 June 1998 126 Mr Lloyd gave evidence by statement of 4 July 2000 that on or about 25 June 1998 Mr Wilmott telephoned him and told him that the Bank had decided to decline the Cassegrain parties request for an extension of time and that the overdraft was to be repaid by 30 June 1998. His evidence was that he was shocked and disappointed by this advice as, up to that point in time, the Bank had given no indication at all to the Cassegrain parties that it was not favourably disposed to their request for an extension. He recalled that in the conversation Mr Wilmott had said to him that the Bank wanted to appoint investigating accountants to conduct a review of the group of businesses and that he had said to Mr Wilmott words to the effect: "it's now the 21st of June, we have no chance of repaying the overdraft by 30th. You're putting us in a very difficult position." 127 In his statement of 18 May 2001 he added to his earlier statement evidence asserting that when he had asked Mr Wilmott why the bank had decided to decline the request, the conversation continued: "Mr Wilmott : "We are concerned about the security position and cash flow. The valuation shows the Bank is well and truly underwater… The Bank proposes to appoint investigating accountants to conduct a review of the financial position of the Group and we would like you to co-operate with this review". 128 He recalled thinking it unusual that the Bank had decided to appoint investigating accountants before they had defaulted on the loan and saying to Mr Wilmott that it was then the 25th of June and that they had no chance of refinancing or repaying the overdraft by 30 June. 129 He felt most upset at the fact that the bank had left it to the last minute to advise of its decision, leaving inadequate time to seek alternative sources of funds before the overdraft was due for repayment on 30 June. He was particularly concerned because he knew that default under the CBA overdraft facility would trigger default under the CDBA term loan facility and that the holding company would have to seek refinancing for the whole amount of $3,750,000. 130 He had told Mr Cassegrain that he was very annoyed with the bank who had led them on for three months and knocked them back at the last-minute. He had told Mr Cassegrain that default under the CBA overdraft would cause the CDBA facility to go into default and that the bank would require the whole $3.75 million repaid. 131 Mr Lloyd's further evidence was as follows: "I recall having a discussion with Claude Cassegrain on or about that time in which I said to him words to the effect that "I can't believe it. There is something amiss here. Up till now I have been totally confident that they would agree to extend the time for payment. They must be concerned about the valuation". I recall that Claude and I agreed that we should continue to co-operate fully with the bank as we believed that all of the bank's concerns set out in their letter of 26 June were misplaced or based on a misunderstanding of the businesses." [ Conversation allowed only as such; section 136 limiting order made ] [paragraph 24 from Mr Lloyd's statement of 4 July 2000] 26.06.98 132 Letter CBA to Cassegrain declining requests for further finance and variation of repayment schedule. Early July 1998 Evidence given by Mr Walsh 133 Mr Walsh had commenced management of the Cassegrain group of accounts in early July 1998 when he was the credit manager in charge of this customer group. He was then employed in the Lending Services Division. 134 When he assumed the management of the accounts his function was to review the accounts and to proceed to "get the moneys repaid to the bank". [Transcript 257] Collection of the moneys owed was achievable through more than one option including the appointment of receivers and voluntary repayments. 135 At the time he assumed control of the accounts he was aware that there was a possible loss on the accounts and that the bank had decided to have an independent body, KPMG, review the matter in detail in terms of looking at the viability of the businesses and generally. 01.07.98 136 Letter CBA to Cassegrain informing Cassegrain that overdraft limit has been cancelled and debt placed in reduction. 07.07.98 137 Conversation between Mr Cassegrain, Mr Steve Walsh and others of the CBA regarding default and repayment. Evidence given by Mr Cassegrain 138 Mr Cassegrain asserts that Mr Walsh said: "When you didn't pay the $750,000 overdraft to the CBA, it triggered off a default with the CDB loan as well. We want all the loan repaid as well". This is denied by Mr Walsh. [cf transcript 268.49, 269.16] 139 Mr Cassegrain asserts that Mr Burgess said: "The Bank wants all its monies and wants it now". This is denied by Mr Burgess whose evidence is accepted as reliable. Detailed evidence given by Mr Cassegrain 140 Mr Cassegrain gave evidence by statement as follows: "[39] On 7 July, 1998, CBA's Steve Walsh visited me. He had Mr Rod Burgess, Mr Stuart Hutton and Mr Murray Smith with him. Steve Walsh introduced Mr Burgess as the senior manager now put in charge of the GC & Co Group's accounts. Stuart Hutton and Murray Smith were introduced as the Banks' investigative accountants. Steve Walsh said of them to the effect:- "We engaged them to complete a review of your GC & Co Group's business and strategies. They will be helpful. It will assist our business relationship. We would be grateful if you could have the company books made available to them." [40] I was happy to assist in whatever way I could and gave them whatever they wanted. I was anxious for the Bank to learn the real facts about the GC & Co Group so that it could reverse its decision about cancelling the overdraft. At least that is what I was thinking when I agreed to help. Then I had a conversation with Steve Walsh in the presence of Rod Burgess to the following effect:- Me: Why did Wilmott refer to the Development Bank in his letter of 26 June? The overdraft has nothing to do with that bank? Walsh: When you didn't repay the $750,000.00 overdraft to the CBA it triggered off a default with the CDB loan as well. We want all the loan repaid as well. Me: Steve, you must be joking. You knew full well that we didn't have the $750,000.00 to give back to you. Now you are saying you want $3,750,000.00. The repayment on the CDB loan isn't even due until next month. Are you saying that if I paid you $750,000.00 tomorrow you would still be expecting me to pay $3 million on top of that? Walsh: You are in default. The Bank wants its money back. Me: What if I come up with $750,000.00 next week? What then? Walsh: Where is the $750,000.00? Me: You are not answering my question. [41] I walked away at that stage. Later that day I raised the subject with Steve Walsh again. Our conversation was to the following effect:- Me: Steve, if the bank expects me to repay all the loans, are they prepared to give a discount for early repayment? Walsh: All the bank wants is to get its money back as soon as possible and as quickly as possible. But, yes. I am sure we would be interested in discussing a lesser figure. Me: Well, how much though? Walsh: I can't say. You would have to discuss it with Rod. About $3 million would seem about right thought. Me: I can't understand why a bank would want to lose the business and the opportunity of earning the interest and at the same time accept a reduction in principal. How do we go about making the offer? Walsh: Just front up to the bank with $3 million. The bank may or may not accept." Me: But how could I do that if I don't know what they want? How could I get $3 million without security? Walsh: I don't believe you have any chance of re-financing anyway. Your best bet would be to sell assets. Me: You know they can't be sold now. They aren't mature yet except for the Clos farms. As soon as we have the display village operating we can start to sell. But that is still some months away. We need to complete the repurchase of the State Bank lots. I have explained that to you. Walsh: Well, take it from me, you have no chance of us refinancing you. Go ahead and try by all means, but I would be starting to sell as well. Me: How can you take that stand when KPMG have not even started on their report? Walsh: Experience, Claude. Been there, done that. Me: I'll see what Rod feels is a good figure. I'll mention $3 million to him. [42] Later that day I took Steve Walsh and Rod Burgess to the airport. At the airport we had a further conversation to the following effect:- Me: Rod, I have been discussing with Steve the prospect of making an offer of $3 million to release all the securities. Burgess: You what? The bank wants all the monies and it wants it now. Steve, I'm telling you, the bank wants all the money." [paragraphs 39 - 42 from Mr Cassegrain's Statement of 6 July 2000] 141 Under cross-examination Mr Cassegrain gave the following evidence: "Q. Do you say you had a conversation with Mr Walsh in Mr Burgess' presence in which he told you that the default in repaying the Commonwealth Bank of Australia overdraft meant that there was a default in the Commonwealth Development Bank facility and that the whole $3.75 million under that facility was immediately due as well? A. Yes. Q. Do you say that on 7 July 1998 both Mr Walsh and Mr Burgess told you, in effect, on several occasions that the whole of the Commonwealth Development Bank facility was immediately due and payable? A. Yes. Q. And do you say that you thought that was outrageous behaviour by the bank? A. I had been alluded to that prospect by Steve Lloyd. I thought it was outrageous. Q. Do you say that you believed that the first instalment of the Commonwealth Development Bank facility wasn't in fact due until August of that year? A. That's correct. Q. Do you say that Mr Lloyd was present when these things were said to you? A. I recall that a considerable amount of time of the discussions between Mr Burgess and Mr Walsh was in my office and Steve Lloyd was not present. There were times that he was present. I do recall moving from one office to another office and discussing with Steve different things. He was not present during all of the conversations between myself, Steve Walsh and Rod Burgess. Q. Was he present when these things were said to you? A. My recollection is that he was. Q. Did you write to the bank to complain about this outrageous behaviour on their part? A. No, I don't think I did. Q. You were always quick, weren't you, to write to the bank if you thought something unfair was going on in relation to the facility? A. Not that quick, I suppose. I don't think I had any reasons to complain about the Commonwealth Bank's handling of our affairs until that date. Q. Why didn't you write and complain to the bank about this outrageous behaviour on their part? A. I complained to the bank representatives, Steve Walsh and Rod Burgess. Q. Could you answer my question: Why didn't you write and complain to the bank about this outrageous behaviour? A. I guess I didn't know who to write to. Q. Is that a serious answer? A. It is. It never occurred to me that I was dealing with officers who I believed would be convinced otherwise. I still believe that they were acting in good faith and I believed that the mistake would come out. Q. Did it occur to you to write to Mr Burgess or Mr Walsh to complain about this outrageous behaviour? A. I had face to face expressed my disquiet about the behaviour. I don't think that there was any need for me to confirm it in writing; they were fully aware. Q. So it didn't occur to you to write to anyone at the bank to complain about this outrageous behaviour; is that what you tell his Honour? A. Yes. Q. The fact is that neither Mr Burgess nor Mr Walsh suggested to you in July 1998 that the Commonwealth Development Bank loan was due as a result of a default in paying the Commonwealth Bank of Australia overdraft; that's the case, isn't it? A. That is not correct. It was made clear, and abundantly clear, to me that I had to repay tomorrow, if you like to call it, $3.75 million. It was suggested by Steve Lloyd that I should ask them for a discount on the basis that they were getting an early repayment on the term loan. I went back into my office and discussed it at length with Stephen Walsh without the presence of Rod Burgess. I could not understand the logic behind it but Steve said that the bank would be possibly interested in a discounted price and that the figure of $3 million was discussed. He then said I should refer it to Rod Burgess. I expressed my concern to Steve Walsh during the same conversation that I could not understand why a bank would be prepared to give a discount on a $3.75 million loan when the bank had all prospects of recovering all the principal and the interest and I just couldn't understand the logic why they would consider to give a discount. After the prospects of a discount was discussed with Steve Walsh other people were around and the first occasion that I had to put it to Rod Burgess was at the airport. It was cold, we were waiting outside of the terminal because I smoke and I put it straight to Rod Burgess, "Would the bank accept a $3 million discount?" and I explained to him I had been discussing it with Steve Walsh and his response was, and I thought it was a tongue-in-cheek response, but his response was directed half to myself and half to Steve Walsh, "The bank wants all of this money and it wants it now" and that was the end of the conversation. I took the plane. Q. Did you tell Mr Lloyd that you thought the bank's behaviour was outrageous? A. I did not need to tell Mr Lloyd that. Q. Can you just answer my question: Did you tell Mr Lloyd that you thought the bank's behaviour was outrageous? A. We would have discussed that, yes. Q. You, of course, were kept informed by Mr Lloyd of his correspondence with the bank at this time? A. It wasn't an issue that was of great concern to me; it was on a reasonable casual basis that I was kept informed… Q. After 30 June 1998, when you say you were told that both facilities were in default, my question is this: Were you kept informed by Mr Lloyd of his correspondence with the bank at that time? A. At that stage most of the correspondence was taken over by myself. Q. So that bearing in mind your concern about the bank's behaviour, you made yourself aware of the correspondence between your group and the bank at this time; is that a fair comment? A. I was acutely aware after that time. Q. And you read all the correspondence, of course? A. Yes. Q. You're aware, aren't you, that Mr Lloyd wrote to the bank following the visit on 7 July 1998?.. Q. Nowhere in that letter is there any complaint that the Development Bank has called up its facility, is there? A. No. Q. What Mr Lloyd was proposing to your knowledge was that after KMPG had prepared their report there would be a meeting in Sydney with the bank to see if an agreement could be reached; correct? A. Yes. Q. And he was proposing, to your knowledge at the time, that if an agreement could not be reached then the mediation would proceed? A. Yes. Q. And he was also proposing, to your knowledge at the time, that if the mediation proceeded both the Commonwealth Bank of Australia and the Commonwealth Development Bank, mediation would occur contemporaneously; correct? A. Yes." [Transcript 46-49] Detailed evidence given by Mr Walsh 142 Mr Walsh gave evidence by statement as follows: "I refer to the conversation set out in paragraph 40 of the Cassegrain statement. I deny that I said the words attributed to me in that paragraph. At the time that I visited Mr Cassegrain's property, I knew that a default under the Commonwealth Bank overdraft facility did not constitute an event of default under the Development Bank facility. I refer to the conversation set out in paragraph 41 of the Cassegrain statement. I deny that a conversation occurred as set out in that paragraph. To the best of my recollection, a conversation to the following effect occurred. Mr Cassegrain said words to the effect: "Steve, if the Bank expects me to repay all the loans, are they prepared to give a discount for early repayment?" I said words to the effect: "All the Bank wants is to get its money back as and when it falls due. It would consider discussing a lesser figure. Mr Cassegrain: "Well, how much?" I said: "I can't say. You would have to discuss it with Rod." Mr Cassegrain: "Would $3 million be about right?" I said: "I can't answer that. That's a question for Rod Burgess. You would need to submit a proposal to the Bank." Mr Cassegrain: "How can I do that if I don't know what they want? I was proposing to refinance." I said: "Have you thought about a proposal incorporating the sale of assets?" Mr Cassegrain may have said: "You know they can't be sold now. They aren't mature yet except for the Clos farms. As soon as we have the display village operating, we can start to sell but that is still some months away. We need to complete the repurchase of the State Bank lots." I refer to the conversation set out in paragraph 42 of the Cassegrain statement. To the best of my recollection, Mr Cassegrain did say words to the effect alleged. Mr Burgess said words to the effect: "Claude, the Bank wants all its money." Mr Cassegrain replied with words to the effect: "I will repay the debt in full. I just need time." [paragraphs 4 - 6 from the statement of Mr Walsh of 19 September 2001] 7 July 1998 143 Mr Walsh gave evidence that at the time of this visit to the Cassegrain's property he knew that a default under the Commonwealth Bank overdraft facility did not constitute an event of default under the Development Bank facility. He was aware of legal advice which had resolved this issue. 144 Under cross-examination he denied that Mr Cassegrain had spoken on this occasion in terms of a concern that the group was already in default of the CDBA loan [Transcript 268]. Mr Cassegrain had spoken in a context in which he would pay the CDBA loan earlier, seeking a discount only for payment before it fell due. [Transcript 269] Detailed evidence given by Mr Burgess "I refer to paragraph 39 of the statement of Claude Cassegrain dated 6 July 2000 ("the Cassegrain statement"), and agree that Mr Cassegrain and I first met on 7 July 1998 when I visited his property in the company of Mr Walsh of the Bank and also Messrs. Stuart Hutton and Murray Smith. I have no recollection of Mr Walsh saying at that meeting the words attributed to him in that paragraph, but I do not deny that they may have been said. I refer to the conversation set out in paragraph 40 of the Cassegrain statement. I have no recollection of any such conversation between Mr Walsh and Mr Cassegrain. I refer to the conversation set out in paragraph 41 of the Cassegrain statement. I have no recollection of any such conversation. I refer to the conversation set out in paragraph 42 of the Cassegrain statement. I deny that a conversation in those terms took place. To the best of my recollection Mr Walsh said to Mr Cassegrain and myself words to the effect: "The Bank may have an interest in compromising its debt in return for prompt payment." Mr Cassegrain replied with words to the effect: "I am firm in my commitment to fully repay the debt." [paragraphs 3 - 6 from the statement of Mr Burgess of 10 September 2001] 145 Mr Cassegrain also gave evidence that on a subsequent occasion he had a conversation with Mr Walsh to the following effect: "I went to see Steve Walsh again. We spoke to the following effect:- Me: If I pay out the overdraft to your bank now would you agree to delay the CDB repayment until October. Walsh: No, Claude. We want all the money. Me: Well the CDB payment isn't due yet. What if I pay it and then repay the overdraft to your bank in October? Would that save the $3 million loan. Walsh: It won't. We want all the money now. But go ahead and make payment. We won't discourage you. Me: Steve, I need to know that the CDB loan is alright if I make the payment and will be let to run its course? Walsh: We will not make any commitment. Put a cheque on the table first then we will talk." 146 Mr Walsh had no recollection of a conversation to this effect. 15 July 1998 147 On 15 July 1998 Davies J handed down a judgment in the Federal Court proceedings declaring that in relation to a particular loan facility with the holding company, Mr Cassegrain had acted in a way which was oppressive of and unfairly prejudicial to the members of the company. [Admitted into evidence only as proving the orders] The effect of the dismissal was that the family dispute was unresolved as a result of litigation. It was at or about the same time that the fresh proceedings were commenced under the Family Provision Act against Mr Cassegrain and Anne-Marie. 30 July 1998 148 On 30 July 1998 an administrator was appointed to Clos Farming Management limited. 11 August 1998 149 An administrator was appointed to Cassegrain Vineyards Pty Ltd. 03.09.98 150 By letter dated 3 September 1998, CDB notifies Cassegrain that it is in default of the CDB loan for non-payment of the instalment of $615,200 due in August 1998. 15 September 1998 151 On 15 September 1998 Mr Cassegrain forwarded a discussion paper to Mr Walsh [PX 2/591 et seq]. A copy of this discussion paper is appended to this judgment. The discussion paper included the following: "Refinancing efforts have commenced but have been temporarily impeded due to Clos Farm Management Limited and Cassegrain Vineyards Pty Ltd having appointed administrators without the prior knowledge of both companies major creditors-in the case of CFM ,GC & Co, and in the case of CV, Expressway Spares…" Administrators appointed for Clos Farming Management and Cassegrain Vineyards – "designed to cause me as much damage as possible at the instigation of my siblings and Clos Farming Management Chairman." 152 Mr Cassegrain in terms of the appointment of these administrators gave the following evidence: Q. What is the position? A. The position is that the appointment of the administrators for Clos Farming Management and to Cassegrain Vineyards were basically, from my point of view, designed to cause me as much damage as possible at the instigation of my siblings and the chairman of Clos Farming Management. Q. Is this the position as you saw it, that the fact that administrators had been appointed to those companies imposed a considerable problem in terms of them trying to obtain refinance from the Commonwealth Bank and Commonwealth Development Bank facilities? A. Yes. Q. The facility which Expressway Spares held with Colonial State Bank expired on 30 September 1998; correct? A. Yes. Q. That bank called up the facility in full at that time subject to an extension until 30 October 1998; correct? A. They actually called it up in advance of that when an administrator was appointed to Cassegrain Vineyards. My recollection is that the State Bank then advised that they wanted all their funds repaid. Q. The total facilities with Colonial State Bank were, speaking generally, in the order of $11 million? A. About 8. Q. About $8 million? A. Yes. [Transcript 57] 12.11.98 Mediation and Heads of Agreement Evidence of Mr Cassegrain 153 Mr Cassegrain gave evidence in his statement of 5 February 2001 that on 7 July 1998 he received a bundle of documents concerning the Farm object Mediation Agreement. He telephoned Mr Walsh and the conversation was to the following effect: "When that document arrived, I rang Steve Walsh from the bank and had a conversation to this effect: CC: Steve, what's all this paperwork you are swamping the office with in regards to mediation? SW: It's just formality stuff we have to go through because you are in farming. CC: Why is this being pursued when we've got the investigative accounts doing a report? SW: Oh, the lawyers have told us that we've got to do it, and by the way, I made some mistakes and I have to do it all again next week. It really is just a waste of time as far as the bank is concerned, but because you are a farmer this is what we have to do. It is another nuisance imposed on banks to satisfy the politicians. CC: Look, Okay, I will not worry about it then if it's just a procedural thing that you blokes have to do. SW: It's a real pain in the arse for us poor buggers in the bank to have to fill in all these extra forms and it's a time waster. Don't forget to sign the documents and return them to me within the time frame." [Paragraph 5 of the affidavit of Mr Cassegrain of 5 February 2001] 154 Mr Cassegrain then deposes in his affidavit of 5 February 2001: "In due course the office received a list of different mediators for my consideration. I selected ones with the lowest fees [because I accepted Steve Walsh's word that Farm Debt Mediation process was a formality with no genuine role to play and I had determined to co-operate with the bank and mitigate cost]. [Words in parenthesis admitted only as evidence of subjective state of mind] A date was set for mediation that was corresponding with a time that I had to be in Sydney for other matters. Steve Lloyd and myself attended the office of the mediator, Rob Burgess and Steve Walsh from the CBA. At the meeting I said: "The best bank to re-finance our operation is the Commonwealth Bank, would you please recommend to the Commonwealth Bank to accept a fresh application to re-finance our activity"? Rob Burgess said: "We are not lenders of money (he was referring to his department). To which I responded: "You should recommend that our account go back to that part of the bank that does lend money". At that time I was of the view that our company would easily be bankable. Rod Burgess and Steve Walsh Expressed the contrary view. After some discussion, Rod Burgess proposed in exchange for not appointing Receivers I should sign the documents that were executed. He said: "You have the choice of executing the document or having Receivers immediately appointed". Whilst I did not agree with and could not understand the bank's position, I believed the assessment of our business and its current conduct which was underway, was being done in good faith. I believed Rod Burgess and Steve Walsh's assurances that they had dotted the i's and crossed the t's and with the backing of their legal department were acting legally. I did not seek any legal advice and I co-operated with the bank on the basis that I believed the bank was acting in good faith. I believed the best way to maintain the bank's goodwill and indulgence was not to involve lawyers or take any action to oppose the bank as I then believed that the bank would release the securities to allow the debt to be re-financed. I was conscious to minimize the cost. At this time I was involved in court proceedings including attending court as Executor and Trustee defending the challenge to my late mother's Will by 4 of my siblings…..I was also deeply upset and emotionally drawn by those events as well as the CBA withdrawing its loans. In the mediator's absence, Rod Burgess from the bank said to the effect; "The choice is simple Claude. Either complete the mediation or you know what will happen tomorrow". I agreed to the Heads of Agreement to avoid appointment of Receivers and to get time to re-finance. They produced a draft document at the mediation. Some amendments were made and we signed it. We wanted more time, but Mr Burgess said; "I am not allowed to give any more time. It is beyond my authorities". It was unsatisfactory to us but better than having Receivers appointed. [I considered that the "Knight Frank" valuation that had been undertaken as the request of Mr Wilmott was an inefficient document but I was not aware prior to the discovery of the bank documents that this valuation was to be used by the bank on the bank's record of the company's assessment of it's exposure]. [Words in parenthesis allowed as evidence of subjective state of mind] [paragraphs 8 - 17 from Mr Cassegrain's affidavit of 5 February 2001] 155 Mr Cassegrain gave evidence under cross-examination that one of his strategies for the mediation was to attempt to obtain some breathing space so that Mr Fermanis, (whom he had retained to try to obtain refinancing) as well as others, could arrange refinancing of the total group facilities. [Transcript 61] Evidence of Mr Lloyd 156 Mr Lloyd gave evidence that the mediation commenced at about 10 AM and lasted approximately three hours. The mediator had taken about 30 minutes by way of introduction and explanation which was followed by discussions of a general nature between the parties as to their respective positions. There was then a discussion about the parties compromising the debt which included Mr Burgess saying words to the effect: "We are not interested in talking about compromising or reducing the debt." 157 There was then a discussion about an extension of time and after discussion, in terms of an initial offer of an extension of one month Mr Burgess agreed to the end of February. 158 Mr Lloyd recalled that Mr Burgess said to Mr Cassegrain in his presence, words to the effect "This is the bank's final position. You either sign the agreement or we will immediately appoint receivers. Take it or leave it". Under cross-examination his evidence was that Mr Burgess had said that Mr Cassegrain either sign the document or the bank would appoint receivers on the following day. 159 Mr Lloyd gave evidence of a conversation [allowed in part as S.72 exception to hearsay rule] which he had with Mr Cassegrain who said to him words to the effect that he was very worried about being asked to forgo his legal rights but felt that he did not have any choice other than to sign. 160 He recalled reading the first of a number of notices sent pursuant to the Farm Debt Mediation Act [Exhibit PX volume 2/521]. This document [at PX 2/52 5-527] sets out considerable detail in terms of an explanation under the general heading "What is Mediation?". A copy of the document is appended to this judgment. 161 Mr Lloyd had read this. He appreciated from it than mediation was a cooperative problem solving process designed to help the parties to a dispute find constructive solutions. He believed that he had appreciated that from a commercial perspective, mediation was an extension of the usual commercial process of negotiating an agreement. He appreciated that an independent third party chosen by the disputing parties would facilitate the negotiation by the parties of a resolution of the dispute. 162 He appreciated from reading the document: · that the role of the mediator, amongst others things, was to assist the parties "systematically to isolate the issues in dispute"; · that the role of the mediator was "to develop and explore options for the resolution of the issues in dispute"; · that the role of the mediator was to assist the parties to reach a consensual agreement to accommodate their needs and interests; · that the remedies available at mediation were "unlimited"; · that the mediator would not impose a solution on the parties but may assist in the generation of options for settlement; · that the mediator would not coerce the parties into agreement nor make decisions for them; · that the mediator would not give legal advice nor direct the parties' decisions based on the mediator's interpretation of the law; · that one of the fundamental principles of mediation was that parties properly informed of their rights and fully prepared for negotiation could reach agreements which could satisfy their needs; · that a feature of mediation was that it was a voluntary and confidential process; · that a mediation would not be binding on any party unless and until agreement was reached; · that mediation was conducted without any prejudice to any legal rights which the parties may have; · that if mediation was unsuccessful, other means of dispute resolution might be used or continued; · that the mediator would open the mediation by making a short statement explaining the mediation process and his role; · that the aim of the private session was to enable the mediator to explore any underlying issues and to ensure that the parties were content with this process; · that the parties if an agreement was reached would be asked to sign the agreement which might form the basis of a more formal legal document. 163 Mr Lloyd on number of occasions in the course of giving his evidence, and very specifically in giving his evidence in relation to what occurred at the mediation said, that he could not recall matters which were being put to him by the cross-examiner although he could not deny that those events had occurred. He could not specifically recall but did not deny that Mr Cassegrain had said that he wanted nine months more for the refinancing. 164 The evidence included: "Q. Do you recall that after the opening statements, the bank officers went to another room to have a discussion between themselves about the documents that had been given to them? A. I don't specifically recall that. Q. Do you recall that when they returned to the room, they told you and Mr Cassegrain that they had no faith in the refinancing and proposals, because of the family disputes involving Mr Cassegrain? A. I recall some reference to the family disputes being in issue on the whole. Q. That's the extent of your recollection about that? A. That's the extent of my recollection, yes. Q. Do you recall that there was an open discussion that went for sometime about Mr Cassegrain's business propositions? A. Yes. Q. Do you recall that at the end of discussion, Mr Cassegrain said that in the absence of the settlement with his family, his refinancing plans probably wouldn't work? A. No, I don't recall that." [Transcript 193] 165 He also was sure that he recalled Mr Cassegrain as having said that he was confident that he could meet his obligations to the bank in full, if given enough time. He agreed that the strategy which he and Mr Cassegrain had had in mind for the mediation was to buy as much time as possible from the banks so that the restructuring plans of the group had a chance of success. [Transcript 193] 166 His evidence included: "Q. Do you recall that was a process which involved each party amending the dates that they were seeking for repayment, until the date that was ultimately reached -- A. Yes. Q. --Has occurred? A. Yes. There was toing and froing between the dates as to what they would accept. Q. Yes; and eventually Mr Burgess offered to extend the repayment date until 28th February 1999? A. That's correct." [Transcript 193] Evidence of Mr Walsh 167 Under cross-examination Mr Walsh gave the following evidence in relation to the mediation: "Q. So far as Mr Cassegrain is concerned…you told us…about your observations of Mr Cassegrain as being emotional at that mediation? A. Yes. Q. How did that emotion manifest itself to you? A. Well, he was a little bit teary, I think. Q. At what point in time? A. I don't recall exactly what time it was, but he was a bit teary at some stage during the mediation. Q. For how long? A. I don't know. Q. Did the mediator adjourn to allow him to compose himself? A. I think he may have. Q. Did Mr Cassegrain become emotional in that way again? A. I don't believe to the same degree again. Q. While he was in that emotional state did he say anything? A. Not while he was in that emotional state, no. Q. He said something to the effect that he had no choice? A. I don't recall that. Q. Mr Burgess said to him that if he didn't sign that he would put the receivers in the next day? A. No. Q. Nothing like that? A. Receivers were mentioned but not in a threatening manner. Q. In what way were they mentioned? A. That it was an option. Q. An option to do what? A. I just remember it coming up as an option that the bank may have to take HIS HONOUR: Q. Are you quite sure that you didn't hear a statement that unless agreement was reached receivers would be put in the next day? A. No, not exactly those words, your Honour. Q. Any words generally of that type? A. I recall that a receiver was brought up as an option being probable more than once during the day. As I said, I don't believe that it was in any sort of threatening capacity. Q. What do you mean in a threatening capacity? A. To do it as an ultimatum. Q. I don't quite understand "ultimatum". If you say, "Look, unless we reach an agreement today receivers will go in", or, "Unless we receive an agreement today receivers will go in tomorrow", do you say there is a difference between those two? A. No, I just don't believe it was said in that context, that's all. Q. Do you say that receivers were not used as part of the bargaining process at all? A. Well, I think it was quite obvious that that was an option to the bank, and as I said, it came up during the day that that was an option for the bank to take. Q. I don't know that it is a criminal offence to mention that you have an option to exercise contractual rights? A. Sure. Q. Do you say that it wasn't used in terms of the bank as options, the bank's options? A. Sorry, I don't understand, your Honour. Q. That they may put in a receiver, that they have that option to put in a receiver? A. Yes. As I said, I think that came up during the day, I think it may have even come up very early in the piece. Q. When you say it wasn't used in a threatening way, I don't quite understand what you mean? A. Well, it is just that it wasn't used, if you don't do a particular thing we will use that against you… Q. And the only repayment negotiations being discussed at the mediation was how long the bank was going to allow, how much further time, I am sorry, the bank was going to allow the Cassegrain Group to refinance? A. Well, that's what it got to towards the end of the mediation, yes. Q. It is either agreed to that time that we are offering you, or the receivers will be put in; that is what was being said, wasn't it? A. No. Q. Under that recommendation, even if they didn't agree to anything at the mediation the receivers were going to be put in, weren't they? A. Unless the debt was repaid it was likely. Q. And put in as quickly as possible if no agreement was reached? A. I don't think quickly as possible entered into it. [Transcript 278 - 281] Evidence of Mr Burgess 168 In cross-examination, Mr Burgess was taken to the approved Bank strategy for the mediation, found at exhibit PX(2) page 703. In doing so, the following exchange took place: "Q. Did you have any authority to depart from that approval? A. The officer that attends mediation has the authority to mediate and mediate in good faith. Usually it is a - strategies are ideally where we are, but usually they are varied for many reasons." 169 Mr Burgess then went on to give evidence that, in determining whether or not to depart from the strategy, he would have to satisfy himself that such a departure could be commercially justified. 170 Mr Burgess was asked questions in relation to the extension of time that could be and was ultimately granted to enable the repayment of the Cassegrain debt: "Q. And in your experience of these farm debt mediations, have you ever been involved if any one that involved the granting of sufficient time to enable the farmer to say refinance the debt? A. Yes. Q. And what period of time would be involved in such an extension? A. That would depend. Sometimes farmers had already done some work before the mediation and in fact would produce an approval letter at the mediation. In those circumstances, it might be four, six, eight weeks or something like that. In other circumstances, where they hadn't done the work, it might be three, four months sometimes, depending on the seasonal conditions and the crop income receipts and things like that. So we had - they would usually produce a business plan and if we had faith in that business plan, well, we would then look at the timings in terms of that. Q. And was any such effort made by the Cassegrain group at this particular mediation, that is to say, to convince you that they had in mind a proposal that would result in the debt being paid? A. Yes, they gave us a proposal. Q. And that involved them selling assets? A. Refinancing assets - refinancing debts. Q. How much time did they think they wanted to achieve that? A. I think initially a substantial amount of time was sought and if my memory is right it might have been up to about a year, nine months, 12 months, something like that initially. We didn't have faith in that. Q. And why is that? A. The refinancing was prefaced on the condition that the matter of Expressway Spares, that related to the family entity, could be resolved and that was fundamental to the business plan and Claude agreed that it would not work because of that. It couldn't get resolution within a reasonable time frame. Q. But in what way was Expressway Spares involved in the issues at the mediation, that is to say, recovery? A. Well, it was the basis of Claude's business plan. Q. But in what way did it form the basis of his business plan? A. Well, the Expressway Spares was a profitable substantial business and, if my recollection is correct, Claude was looking to capture that - some of that - cash flow or some of that cash flow to help his position. And it may also have been that he was looking - they were looking simultaneously to refinance the Expressway debt, but I'm just not sure of that. Q. But what expertise do you have to be able to reject that proposal? A. We had been dealing with Claude at that time. Mediation was sorry, when, in Feb '99; is that correct? Q. Yes, November 1999. A. Sorry, November '99 - '98? Q. Sorry, '98, yes. A. So we'd been dealing with Claude since June and that matter had not been able to be progressed by Claude. Q. Which is that, that matter? A. The matter of refinancing the debts. Q. He said he wanted nine to 12 months? A. Initially, yes. Q. Always, didn't he? A. No, no, he moved. We moved and we reached to accommodate. Q. And did you seriously believe that he was going to achieve that task within three months? A. Our view was that Claude would have difficulty given the problems in refinancing the debt. He'd been at that since June '98 and made no progress. Yes, we didn't have a lot of faith in Claude being able to refinance. 171 Mr Burgess gave further evidence that he had told Mr Cassegrain that he was not prepared to agree to an extension of nine or more months, believing that period was far too long. He stated that the Bank initially was to give Mr Cassegrain until mid-January, moved that date to the end of February and then again moved to the final date of, he believed, 1 March 1999. 172 In relation to the emotional state of Mr Cassegrain during the mediation, Mr Burgess gave evidence that the emotion was attached to the business plan put forward by Mr Cassegrain, and that Mr Cassegrain's crying arose when pointed questions were asked about the resolution of the family dispute. Mr Burgess did not believe the emotion 'arose' during the discussion of the time extensions. 173 Finally, Mr Cameron cross-examined Mr Burgess on the allegation that he had told Mr Cassegrain that receivers would be appointed the next day if Mr Cassegrain did not sign the documentation grating the three month extension: "Q. Well, didn't you tell Mr Cassegrain and Mr Lloyd that you were not giving them any further extensions and that if they didn't sign the document that you had that you'd put the receivers in the next day? A. There was no - the appointment of receivers the next day is just fundamentally wrong. The bottom line is we were at mediation and - in good faith and until such time as we obtained a section 11 and - which we wouldn't ordinarily get if we weren't there in good faith, or in the absence of an agreement, or if we had an agreement. Q. I think you may have just told me why you think he would not have said what I've put to you, but could you answer the question: did you say that or didn't you? A. Say? Q. Did you tell him that unless he signed you would put the receivers in the next day? A. No. HIS HONOUR: Q. Are you certain of that, or is there some doubt in your mind as to the possibility that you may have said it? A. No, I'm positive. CAMERON: Q. During the course of this mediation, was there discussion about the appointment of receivers? A. Not that I recall. Q. And could your recollection be deficient in that respect? A. No, I don't believe so. What I would have spoken about was in the absence of an agreement and upon the issue of a section 11 certificate. Whether by absence of agreement or agreement, the bank is then entitled to enforce its securities. Mediators Summary of Mediation 174 A document entitled "Summary of Mediation" signed by the mediator was admitted into evidence without objection. The document is in the form of a questionnaire and includes the following: "Did party A make an adequate opening statement Yes Did part B make an adequate opening statement Yes Were Party A's issues and concerns isolated/identified from the opening statement Yes Were Party B's issues and concerns isolated/identified from the opening statement Yes Were each party's issues/concerns discussed face to face sufficiently to enable the other party to appreciate the other's perspective? Yes Were Party A's options for settlement canvassed? Yes Were Party B's options for settlement canvassed? Yes How many settlement options were proposed 2 - 3 By whom: Mutually Were both parties prepared to consider/discuss the others settlement options? Yes 26.03.99 175 Letter Cassegrain to CBA informing CBA that Cassegrain is confident of refinancing within the next few days and appreciates the Bank's forbearance. 31.03.99 176 Letter Cassegrain to CBA 'I am seeking forbearance to no later than 28 May 1999 from the Bank to allow me time to complete the refinancing of the GC & Co Group.' 12.04.99 177 Letter CBA to Cassegrain agreeing to extend time for repayment to 28.05.99 subject to certain payments and reservation of rights. 28.05.99 178 Default of payment due under Heads of Agreement. 15.06.99 179 Smith and Kershaw appointed receivers of Cassegrain. 180 Mr Cassegrain gave evidence as follows: "Q. By the time that receivers were appointed in June 1999 was your position that you had not ever disputed the debt, correct? A. Yes. Q. And you had recognised without objection that the bank had the right to expect the repayment of its loan to the company? A. Yes. Q. You regarded the defaults in loan repayments on the due dates as being as a consequence of agriculture failures in the vineyards and unavoidable delays to the establishment of the tea tree plantation, correct? A. Yes. Q. And you regarded it in your view as indisputable that a significant contributing factor had been your family difficulties, correct? A. Yes." [Transcript 82 – 83] 16.06.99 181 Letter Cassegrain to Ross Griffiths of CBA. 'We never disputed the debts and have recognised without objection that the Bank has the right to expect the repayment of its loan to the company'. 27.11.99 182 Receivers sell seven properties owned by Cassegrain at auction. 29.03.00 183 Letter of demand from CDB to Cassegrain. 06.04.00 184 Letters of demand from CDB and CBA to Mr Cassegrain 23.06.00 185 Receivers sell eighth property owned by Cassegrain. The prospects of refinancing between March 1998 and 30 June 1998 Evidence given by Mr Terp 186 Mr Terp gave evidence that he was the Business Manager for his family business [essentially being his parents] and associated companies and that he and his family and the Cassegrain family had had a strong business relationship for many years. 187 In the early part of January 1998 he had spoken to Mr Cassegrain indicating that his group were reasonably cashed up and looking for well-secured investments and had made an inquiry as to whether Mr Cassegrain needed to borrow any money for his businesses. The response had been in the negative and Mr Cassegrain had said that the Commonwealth bank was helpful and looking after him. 188 In approximately March 1998 Mr Cassegrain asked him for a short-term loan of $550,000 which he had no hesitation in agreeing to advance. At the same time he had stated that if Mr Cassegrain needed additional funds he should not hesitate to ask as such funds could be advanced provided security was properly documented. He would need a few weeks notice if it was for a large sum. Mr Cassegrain had said that he did not expect to be needing any more funding as they would have a lot of cash in October. Mr Cassegrain had said that the bank was working on a restructuring proposal at that time and that he had a good long-term relationship with the bank. [Conversation allowed as evidence only of the conversation and section 136 limiting order made accordingly] 189 The $550,000 loan was advanced and was secured by first registered mortgage over real property owned by Mr and Mrs Cassegrain. This was a dairy property purchased by them in September 1996 for approximately $1.3 million. The advance was to be repaid in early April 1999. It was repaid before it was due. The mortgage provided that the principal sum was not too exceed at any time, 65% of the mortgagees' valuation of the subject property during the course of the term of the loan or any extension. The mortgage was expressed to be collateral to a Deed of Loan of the same day between Oceania Agriculture Limited as borrower and Mr and Mrs Cassegrain as mortgagor. 190 Under cross-examination Mr Terp accepted that the 65% valuation provision clause in the mortgage reflected, the fact as he understood it, that his family was prepared to lend money to Mr Cassegrain providing that it was adequately secured in the same way that the loan had been secured. If there had was to be any further loan by his family he would have expected that it would need to be secured to the same level of safety as the loan which had in fact been advanced. Evidence of Mr Cassegrain 191 Mr Cassegrain gave evidence in chief to the effect that had he been aware from early March 1998 that the banks were not going to accede to any of the Cassegrain groups requests or applications, the holding company would have been able to pay out the overdraft facility before the due date of 30 June 1998. The evidence was given in the following terms: "A. The company could have done it by quite a number of different ways. For example the NAB had approved a $500,000 facility to purchase, I think it was 13 lots from the State Bank, which we did not take up; we paid for those lots out of our own resources. We had 22 lots so it would have been reasonably easy to acquire from the NAB. I could have borrowed it from the Terp family… Q. Which development program? A. The tea tree operation which was using the money. Q. Yes? A. We could have sold some land, some of the 25 acre lots. There was - we had many alternatives to meet the 750,000 …" [Transcript 34] 192 Mr Cassegrain later gave the following evidence under cross examination: · That his reference to the $500,000 facility had been a reference to the facility granted to Verdun Vineyards; · That any decision by Verdun Vineyards to draw that money down and then on-lend it to the holding company would require the approval of the board of directors of Verdun Vineyards, he not being a member of the board; · That the 25 acre lots to which he had referred were lots 27, 17, 22 and 16 in deposited Plan 255774 and were part of what had been described as "area 13 land"; · That it was his firm view in 1998 and 1999 that area 13 land should not be fragmented [his words were that this would be a "fatal mistake"] and that an appropriate purchaser needed to be sought to purchase the land in one line; · That in March 1998 he had not made any arrangements with anyone for the sale of any part of the area 13 land; · That the tea tree project was a project that was being managed by Oceania Agriculture Pty Ltd which controlled the development program for that project and that he was not a director of Oceania Agriculture; [Transcript 133,134] 193 The "25 acre lots" part of "Area 13" were part of the Banks' security and were not likely to be available to raise or to raise sufficient finance between March and June 1998. 194 As to the possible loan from Mr Terp, it emerged that the loan made in April 1998 was by his parents to Oceania Agriculture Limited. The loan was secured by a first registered mortgage over a dairy property owned by Mr and Mrs Cassegrain valued at $1,300,000. The mortgage provided that the loan must not exceed 65% of the mortgagee's valuations. The Terp family was only prepared to lend provided such a loan was adequately secured in the way in which this loan was secured. There is no evidence that any such further security was available. Sundry attempts to refinance 195 There was substantial detail before the court of sundry attempts by the Cassegrain interests to refinance over extended periods of time. It is unnecessary to set out this detail. It included at the least that: · by October 1998 Mr Fermanis had been retained for the purpose; · he had seen to DBA group to arrange refinancing; · he was himself directly negotiating with possible financiers; · he was trying to arrange refinancing of the Expressway Spares facility with the Colonial State Bank as well as the Commonwealth Bank facilities; · he was trying to arrange a total finance package of $13.85 million; · this included refinancing the $8.3 million Expressway Spares loan from the Colonial State Bank; · the difficulties that he was experiencing with his other family members were hampering his efforts to refinance; · Mr Fermanis advised him that he should try to bring the involuntary administration of Cassegrain Vineyards to an end. 196 Further evidence concerned negotiations carried on through Ms Di Bain and others which brought the group by early 1999 into contact with possible lender's including Banana Coast Credit Union and Wealthy & Wise Advisory Services Pty Ltd. 197 Notwithstanding the evidence given by Mr Cassegrain to the effect that he had had many options of raising money had he been aware that the banks were not going to roll over the $750,000 overdraft at the time when it was due to be repaid, that evidence is not accepted as reliable. The whole of the groups circumstances at the material times, including the nature of the land, the interlocking securities, the extremely significant problematic family disputations as to the proper way forward for the groups businesses and apropos the appropriate restructuring of funding arrangements, the disparate options in terms of the viable development management of the lands, and the circumstance that Mr Cassegrain was not on the board of several of the companies including Verdun Vineyards, when seen in the light of the failure of the group to obtain finance during the relatively extended periods of grace granted by the Banks as between the end of June 1998 and the appointment of receivers in June 1999, combine to strongly suggest that Mr Cassegrain's optimism was by no means necessarily justified. Reliability of witnesses Mr Cassegrain 198 Mr Cassegrain was not a reliable witness. The reasons for this finding include the following: · He clearly compromised the independence of his recollection of events by discussing with Mr Lloyd their joint recollections. The evidence which he gave was effectively coloured in that way. He did not think that he had been counselled against or having discussed this matter with his lawyers. [Transcript 59-60] · At moments when the matter was of real significance he tended to prevaricate and to avoid accepting matters put to him in cross-examination which were plainly consistent with contemporaneous documents. · He had clearly spent a number of years engaged in a number of disparate pieces of litigation with family members. In my view this tended to mean that he had difficulty in recalling precisely which stage was involved with different aspects of the pending litigation and particularly how these matters interacted with the issues were litigated in the current proceedings. There was very particularly a concerted refusal to accept that problems in obtaining refinance were radically affected by ongoing family disputes, although there was the clearest contemporaneous evidence that this had been the case. He had clearly been required to wage a litigious war, whether in an offensive or defensive way on several fronts over an extended period of time. That experience had a great deal to say in terms of how the problems in terms of refinancing had first arisen and remained endemic · His recollection was shown to be faulty in a number of areas of significance. He clearly had difficulties with recollecting material aspects of the mediation as for example: - he could not recall the document shown to him which represented the opening address given by Mr Walsh which had been handed to him on the morning of the mediation. [Transcript 67.15] - he was not certain as to whether he had made an opening statement on behalf of the Cassegrain parties, although he thought he might have. [Transcript 67.30] - when first asked, he could not recall having handed out a number of documents to the bank at the mediation. [Transcript 67.34] · In his affidavit of 5 February 2001 [paragraph 14] he had given evidence that at the time he was involved in court proceedings including attending court as executor & trustee defending the challenge to his late mothers will by four of his siblings. · Under cross-examination however he could not recall whether he was actually attending court or counsel nor whether the Family Provision Act proceedings were in court for hearing at the time [Transcript 76.50]. He believed however that he was fully involved in this issue at the time that he had the mediation. [Transcript 77.25] · an important part of his case concerned his allegation that at a meeting of 7 July 1998 bank officers told him that there was an existing default under the CDBA facility. He had however, on or about 13 July 1998, read a letter addressed to the holding company of that date which had included the following: "Unless mutually agreed with you beforehand, CDB farm debt mediation invitation will issue upon default under the Term Loan facility. " [PX 2/531] He accepted that the letter was completely inconsistent with his contention of having been told on 7 July that there was an existing default under the CDBA facility and gave evidence that this was not something which he had recognised at the time that he read this letter. [Transcript 50.30] · His evidence in relation to the 7 July 1998 meeting had generally been set out in his statement of evidence of 6 July 2000 in paragraph 40. This was an important conversation dealt with in the affidavit. Under cross-examination however he said that he had made a mistake and had omitted to record that Mr Walsh and Mr Burgess had told him that it would make no difference if he paid the $650,000 installment due under the CDBA facility. Hence he sought to correct paragraph 40 and could not recall why he had omitted this. The evidence in this regard was as follows: " Q. Is there any doubt about the fact that this was the first written demand you had received by the Commonwealth Development Bank under this facility? A. I would accept the records, the facts prove themselves, but at the time that I received this document I could not understand it and I was a little bit annoyed about it because I had previously asked both Burgess, Walsh and Steve Lloyd that we pay the Development Bank money on time, the 612, and safeguard the term loan. I was counselled against it by Steve and I was told by both Walsh and Burgess that it made no difference if I did because they wanted the full amount. Q. When you say you were counselled against it by Steve, do you mean Steve Lloyd or Steve Walsh? A. No, I was counselled against it by Steve Lloyd and I was told by both Burgess and Walsh that if I paid the 612 term loan it would make no difference, they still want the whole 3.75. Q. Where does that appear in the affidavits you have relied upon in these proceedings? A. I don't know - well, I should have included that in my statement but, if it's not, I'd have to read it. Q. Are you referring to paragraph 40 of your statement on 6 July 2000; is that the conversation you were referring to when you gave your evidence earlier? A. Yes. Q. There's nothing in that conversation, as you record it, which refers to the 650,000 instalment under the Commonwealth Development Bank facility, is there? A. It doesn't look like it. Q. And I want to suggest to you that Mr Walsh never told you it would make no difference if you made the 650,000 instalment under the Commonwealth Development Bank on time; that's right, isn't it? A. That is wrong and the conversation included either paying the 650 or the term loan. Both Steve Walsh and Burgess informed me it would make no difference to the situation and I had to repay the lot. Q. Is what you tell his Honour that paragraph 40 is incomplete because you omitted to refer to the Commonwealth Development Bank instalment of 650,000? A. That's correct. Q. How is it that you made that mistake when you were preparing your statement? A. It's difficult to know what is relevant at the time. I mean -- Q. Do you tell his Honour that you didn't appreciate at the time you were preparing this statement that it might be relevant for his Honour to know, according to you, that Mr Walsh had told you it would make no difference if you paid the Commonwealth Development Bank instalment of 650,000? A. I've made the statement that both Walsh and Burgess made it quite clear to me that I had to repay back the 3.75 million. I canvassed the repayment of the overdraft or the repayment of the term loan, whatever, to ensure that the term facility remained and that went on for the best part - it was my major concern on the day of their visit. Q. You have told me that you want to correct paragraph 40 of your statement. What correction do you want to make to it? A. That I also spoke to Burgess and Walsh about the payment of the first interest and principal instalment due on the CBA loan and with that safeguard the term loan. Q. And you tell his Honour, do you, that Burgess and Walsh told you it would make no difference if you made that payment, is that right? A. The words were, "You can make the payment" but they were silent on - their words were, "You can make the payments but it would make no difference, they still wanted the money". Q. Do you tell his Honour you didn't appreciate at the time you prepared your statement that it might be relevant for his Honour to know that; is that what you say? A. I've made the statement that all of the moneys were called in on 30 - on 7 July, or whatever the day was. I expect the Court and the witnesses on the other side to concur. Q. But do you tell his Honour that the reason you omitted any reference to this conversation in your statement is because you didn't appreciate at the time that it might be relevant? A. I can't recall why I would have omitted it. Q. Let me suggest a reason: It's because you're making this up as you're going along and no such conversation ever occurred? A. That is not correct." [Transcript 55-56] 199 Mr Lloyd gave evidence which is accepted as reliable on one particular point which reflects adversely upon Mr Cassegrain's credit. Mr Lloyd's evidence was that he was quite sure that before the mediation Mr Cassegrain had specifically informed him that he had never been through a mediation process before. His evidence was: "Q. How are you able to say, in your statement, as you've been taken to it - I'm sorry, what was the particular sentence? BELL: "Mr Claude Cassegrain had not been through a mediation procedure". HIS HONOUR: Q. How is it that you are able to sign or make a statement to that effect, if you are now unsure on the matter A. It was based on - basing I am sure that Mr Cassegrain told me, through advice, that he had in the - been through mediation. Q. Is that that you are not certain and can't deny, are you sure on this point? A. I am sure on this point , as I recall reading up to the farm debt mediation, there was considerable uncertainty on my part and Mr Cassegrain's part as to what the process was and what was involved in it. In the course of that process, we specifically discussed that matter and I recall specifically at some stage us acknowledging to each other that neither of us had been through a mediation process before, and now what to expect in that process. Q. Are you quite sure on that? A. Certainly your Honour. [Transcript 183] [Emphasis added] Evidence of Mr Lloyd 200 The evidence of Mr Lloyd was by definition compromised by his discussions with Mr Cassegrain about their joint recollections. Hence adjudicating his evidence as reliable has this endemic difficulty. It has to be said that but for this problem I was impressed with his demeanour and his frankness. Certainly his evidence is accepted as reliable in relation to Mr Cassegrain having told him that he had never attended a mediation; 201 In relation to the evidence given by Mr Lloyd as to his absolute certainty that Mr Burgess had said at the mediation that if the agreement was not signed receivers would be appointed the next day, it is necessary to take into account the effect of Mr Lloyd and Mr Cassegrain having had close discussions in relation to their recollections. But for this circumstance which, whilst in every particular case requiring to be carefully examined, it seems to me in this case and taking all of the evidence into account, to require that the court relevantly discount their respective evidence on certain material issues, it may well have been far more difficult to reach a finding as to whether or not, in the events which occurred, the court could be satisfied on the probabilities that the threat to appoint receivers the next day was made. However taking into account the endemic difficulty thrown up by the joint approach by Mr Lloyd and Mr Cassegrain in terms of their recollections and statements and taking into account the firm position taken by Mr Burgess and by Mr Wilmott to the effect that no such statement was made, the Cassegrain parties have not proven on the balance of probabilities that the statement was so made. Having said that I am entirely satisfied that during the course of the mediation reference was made to securities and to the enforcement of securities and it is likely that on the evidence, receivers were mentioned. However Mr Burgess having attended numerous mediations and having given evidence that it would take several weeks to obtain a section 11 Certificate, it seems to me that the probabilities are clearly against his having made a threat which could never have been carried out and more importantly which it was not necessary to make. The threat of receivers and of taking relevant action under the securities, hung generally over the whole of the dealings between the banks and the Cassegrain parties at material times and particularly during the mediation. General discussion about securities and the parties respective positions was unexceptional. Whilst I accept that by the time he gave evidence in the witness box Mr Lloyd had come to sincerely believe that a threat to appoint receivers on the following day had been made at the mediation, I am unable for the above reasons to accept this evidence on the balance of probabilities. Evidence of Mr Fermanis 202 The evidence of Mr Fermanis is accepted as reliable. His credit was not placed in issue. Evidence of Mr Terp 203 The evidence of Mr Terp is accepted as reliable. His credit was not placed in issue. His evidence however does not establish on the balance of probabilities that in the circumstances any further advance would have been made by his family group on application by the Cassegrain group during the months leading to the 30 June 1998 default unless adequate security had been then provided. The evidence does not establish on the balance of probabilities that such security would have been released in order to permit repayment of the CBA advance by 30 June 1998, nor to permit repayment of the CDBA advance. Evidence of Mr Read 204 The evidence of Mr Read is accepted as reliable. Evidence of Mr Walsh 205 The evidence of Mr Walsh is accepted as generally reliable. Evidence of Mr Wilmott 206 Mr Wilmott gave evidence which in my view was reliable. His evidence was consistent with the contemporaneous documents. His evidence was given in a measured and careful fashion. He appeared to have a reasonably good command of the materials and did not hesitate where necessary to correct any small error which he may have made as soon as he saw that this was necessary by reference to the contemporaneous materials. He took care to consider carefully each question put to him and to answer it fully and frankly. Evidence of Mr Burgess 207 Generally the evidence of Mr Burgess is accepted as reliable. Dealing with the issues 208 The proceedings may be determined on the facts. Little reference to principle is called for where, on the facts, no unconscionability by the banks, no overreaching by the banks, no failure to act in good faith, and no misleading and deceptive conduct is shown to have taken place. The Principles 209 It is however appropriate to, albeit briefly, refer to some of the relevant principles which require to be taken into account. Good Faith 210 As a general proposition, the current state of the law in New South Wales is that there will usually be implied by law into commercial contracts made between parties at arms length, a term requiring the exercise of good faith in the performance of such contracts. Such a term takes its place alongside the implied obligations: · to do all such things as are necessary to enable the other party to have the benefit of the contractual promise; · not to hinder or prevent the fulfilment of the purpose of express promises made in the contract. [Alcatel Australia Ltd v Scarcella and others (1998) 44 NSWLR 349, Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187] 211 In Hudson Resources Ltd v Australian Diatomite Mining Pty Ltd & Anor [2002] NSWSC 314 at para 128 the following appears: "The recent decision of the New South Wales Court of Appeal in Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 includes some particular focus upon the implied term of reasonableness, making the point that the Australian authorities make no distinction of substance between that term and the implied term of good faith. The close association of ideas between the terms 'unreasonableness', 'lack of good faith' and 'unconscionability' is emphasised in Burger King at para 170 and para 171 where the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263 and 265 is cited.' 212 In Burger King, the Court said at paragraph 171: 'Rolfe J observed that in Alcatel, Sheller JA at 369 appeared to equate the notions of "reasonableness" and "good faith". Whilst Sheller JA did not say that in terms, his review of the case law and academic and extra-judicial writings on the topic, clearly support the proposition." 213 The nature and extent of the duty was recently considered by Barrett J in Overlook v Foxtel [2002] NSWSC 17: [63] But what are the content and effect of such an implied term? This question was the subject of discussion by the Court of Appeal in Burger King. Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept "embraced no less than three related notions", being: "(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); (2) compliance with honest standards of conduct; and (3) compliance with standards of conduct which are reasonable having regard to the interests of the parties." [64] There is some overlap here with the terms implied by law as referred to in Peters (WA) Ltd. Sir Anthony's duty of "loyalty to the promise itself" may well include the duties not to hinder fulfilment of the promise's purpose and to do everything necessary to enable the other party to have the benefit of the promise. The more substantial and separate content of the duty of good faith itself would therefore seem to lie in the second and third limbs of Sir Anthony's formulation - that is, adherence to standards of conduct which are honest, as well as being reasonable having regard to the parties' interests. [65] If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410, "nugatory, worthless or, perhaps, seriously undermined". This seems to me to be the principle emerging from para 172 to para 177 of the joint judgment in Burger King where the various authorities are collected and discussed. [66} Dr Elisabeth Peden of the University of Sydney has characterised the effect of the good faith requirement in contractual performance as follows ("Incorporation of Terms of Good Faith in Contract Law in Australia", (2001) 23 Syd L Rev 222): "Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is appropriate and what is not." [67] Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms. [68] In many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith. This is borne out by the following succinct statement by Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170, a case concerning the duty of good faith in the insurance context: "Unless the assured has acted in bad faith, he cannot, in my opinion, be in breach of a duty of good faith, utmost or otherwise." [69] The approach which regards a duty of good faith as a duty to eschew bad faith is also supported by United States jurisprudence to which resort may appropriately be had: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Burger King at para 147ff. Writing in 1968, Professor Summers described the duty of good faith imposed by the United States Uniform Commercial Code as an "excluder": R S Summers, "Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code", (1968) 54 Va L Rev 195. Its operation and effect were stated as follows: "It is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogeneous forms of bad faith. In a particular context the phrase takes on specific meaning, but usually this is only by way of contrast with the specific form of bad faith actually or hypothetically ruled out." [70] In Tymshare Inc v Covell 727 F2d 1145 (1984), Scalia J concluded that: "The doctrine of good faith performance is a means of finding within a contract an implied obligation not to engage in the particular form of conduct which, in the case at hand, constitutes 'bad faith'." [71] Scalia J went on to say that the contract itself will indicate the content of the duty in the sense that it is imbued or infused with the obligation not to engage in particular conduct. 214 An important consideration as Barrett J held in Overlook v Foxtel, is that the implied duty of good faith does not require a party to subordinate its contractual rights. Unconscionable Conduct 215 Unconscionable conduct may not be defined with precision. The classes of unconscionable conduct are not closed. 216 In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Mason J (as he then was) referred to the historic jurisdiction of the court to set aside contracts and other dealings on a variety of equitable grounds including fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct, and held that (at 461): "In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage...". 217 Sir Anthony Mason has also written extra curially that: "Relief against unconscionable bargains is granted when a transaction, considered in the light of the circumstances in which it was entered into, is so unconscionable that it cannot be allowed to stand. The power to grant relief on this ground was in the past largely confined to cases in which the party seeking relief was a person suffering from some special distinct disability or disadvantage, eg the expectant heir, or the inebriated plaintiff in Blomley v Ryan who was incapable of forming a rational judgment. But the principle according to which relief is granted is not so limited. What is required is that there be an unconscientious taking advantage of the disability or disadvantage of the person in the weaker bargaining position by procuring or retaining the benefit in question in a way that is both unreasonable and oppressive. ... Whether a plaintiff is entitled to relief on the ground of unconscionable conduct in the sense described above is very largely a question of fact and of value judgment. The cases provide little in the way of specific guidance, offering only very wide general propositions". "The Place of Equity and Equitable Remedies in the Contemporary Common Law World" (1994) 110 Law Quarterly Review 238, 248-249) 218 In ACCC v Berbatis Holding Pty Ltd [2000] FCA 1376 French J held: "Importantly, circumstances of inequality do not of themselves necessarily call for the intervention of equity. It is the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. In Amadio at 459, Gibbs CJ said: "A transaction will be unconscientious within the meaning of the relevant equitable principles only if the party seeking to enforce the transaction has taken unfair advantage of his own superior bargaining power, or of the position of disadvantage in which the other party was placed." The notion of "unfair advantage" taken of a special disadvantage was reflected in the judgment of Mason J at 467: "...if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable." 219 The essential elements of the jurisdiction of equity to relieve against unconscionable dealing were restated by Deane J in Louth v Diprose (1992) 175 CLR 621 at 637: "...(i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it." Applying the principles 220 The proceedings fail at many levels. The Heads of Agreement/The Mediation 221 There was no form of unconscionable conduct established by the evidence in relation to the holding of the mediation and the entry into of the Heads of Agreement. 222 Mr Cassegrain had been seasoned in terms of litigation over a considerable time, was no stranger to the negotiating process and fully appreciated the significance of the entry into of the Heads of Agreement. He was aware by the second half of 1998 that mediations were a method of resolving litigious disputes. Mediations had occurred in relation to the family disputes. There had also been a mediation on behalf of the holding company with the CSIRO in 1993 which had resulted in a $9.5 million settlement being received. [Transcript 57/58] 223 He had sought to give evidence in his affidavit of 5 February 2001 of a number of matters including importantly: - That the banks had said that the mediation was only a formality and that it would not change anything. [paragraph 13] ["the formality representation"] - That all attendees at the mediation were acutely aware that his attention was distracted. [paragraph 14] ["the awareness of distraction allocation"] 224 Objection having been taken to these sentences during the evidentiary rulings, the sentences were rejected but leave was granted to the plaintiffs to adduce evidence in chief on these matters if this could be done in an admissible way. In exercising that leave Mr Cassegrain's attention was drawn to these particular sentences and he was asked about those matters in detail. 225 As to the formality representation his evidence was as follows: "His [ie Mr Walsh's] exact words which were to the effect - 'the banks have been frustrated' - by words to the effect 'frustrated by the politicians' who had passed some Act that only negates[sic] the bank to go through a process of mediation for farmers; and that it was just another technicality, that made life more difficult for the banks." 226 It does not seem to me that the words "formality" and "technicality" are necessarily at all synonymous in this context. 227 As to the awareness of distraction allegation his evidence in chief was as follows: "Q. Now in paragraph 14, in the second sentence beginning "All attendees" and ending with the words on the next line "Attention was distracted and" do you see that? A. Yes. Q. Now what happened at the mediation that caused you to arrive at that state of awareness that you are referring to? A. I went in to the mediation on the understanding - as I considered the mediation as a matter of formality; and I went to it by having a break from another court matter that I was involved in, concerning the family and the - I made it known. I said words to the effect that everybody who was in attendance, you know, I apologised for the fact that I was drained out and very tired and that I was - effectively here in presence, but my mind was elsewhere." [Transcript 35] 228 The allegations put in terms of vitiating factors in relation to the mediation do not stand the test of a close examination of what actually occurred and indeed is accepted by Mr Cassegrain as having occurred at the mediation. During cross-examination, Mr Cassegrain accepted the following propositions which were put to him and which, to my mind, make plain that his engagement in the mediation was both coherent as well as logical as well as of utility in terms of a continued campaign to gain time in obtaining refinance as and wherever practicable and possible: · That he was trying to buy as much time as possible from the banks so that his restructuring plans could have a chance at success. [[Transcript 68 - 69] · That what was put to him initially was a period of extension up to approximately one month namely until mid January 1999. [Transcript 69] · That his position was that he wanted 9 or more months. [Transcript 69] · That he was strongly arguing that his company would be able to be refinanced. [Transcript 70] · That he could not deny that the mediator had said that the difference between the parties as to the date for repayment was their only difference but that it was a crucial one. [Transcript 72] · That he was aware because the mediator had read out clause 5 of the agreement, that this provided for a cooling off period of 14 days during which time the agreement could be rescinded. [Transcript 74] · That by signing the mediation agreement he had at least extended the time for repayment until 1 March 1999. [Transcript 77] · That after the mediation, Mr Fermanis was successful in obtaining refinancing for the Expressway Spares facility is with the Colonial State Bank. [Transcript 77] 229 Importantly Mr Lloyd gave evidence that as he apprehended it, there was something positive in terms of the result that was achieved at the mediation: "we achieved a three month or four month period of time in which to sort our position out." 230 It is convenient to deal with the remaining Heads of Agreement issues seriatim by reference to the numbered paragraphs earlier set out [cf paragraph 30]: · (iii) There is no substance in this complaint. The banks were entitled to invoke the mediation provisions of the Farm Debt Mediation Act at the material time. There was nothing illusory in the indulgence granted by the banks. · (iv) The courts finding is that the word "technicality" was used. In truth this statement does not bespeak a closed mind. Indeed the mediation, as Mr Lloyd readily accepted, had a beneficial result for the Cassegrain interests who procured a material time extension. As to the allegation that Mr Walsh stated that the mediation was a formality, this was denied by Mr Walsh who was not challenged on any of this evidence in cross examination. Furthermore, in circumstances where this was Mr Walsh's first mediation it is inherently unlikely that Mr Walsh would have stated that he regarded the process as a formality. Mr Burgess also denied ever stating that the mediation was a formality or being aware that anyone else had made such a statement and was not cross-examined on this evidence. Mr Lloyd did not claim that any statement had been made that the mediation was a formality in either of his statements. Mr Cassegrain's evidence to the contrary is not accepted as reliable · (v) The Heads of Agreement, as Mr Lloyd accepted [Transcript 197] and as Mr Cassegrain accepted [Transcript 77] in fact contained a degree of compromise by the banks in terms of permitting the time extension. . All of the facilities were then due and payable. As a result of the Heads of Agreement an extension of time of almost four months was provided. That date followed a process of negotiation which involved each side amending its offer in relation to the date for repayment. Initially, the Cassegrain parties had asked for nine or more months and the Banks had sought a date for repayment by mid January 1999. By later in the morning on the mediation, the Cassegrain parties had modified their offer to a repayment date of 30 April 1999 and this was followed by an offer from the Banks to extend the date until 28 February 1999. The date ultimately agreed upon was 1 March 1999. This process of negotiation is confirmed by the mediator's summary [Ex PX Vol 3 pp 854-856]. Mr O'Moore confirms in that document that two to three settlement options were proposed mutually and that both parties moved off their initial position. This followed a process in which, in the mediator's opinion, both parties made an adequate opening statement, both parties issues and concerns were identified, the parties had sufficient face to face discussion to enable each party to appreciate the others perspective and both parties' options for settlement had been canvassed. · (vi) This allegation in order to succeed would have to include as a parameter, some such proposition as that the banks had resolved not to offer any form of compromise and/or not to consider any offers which came forward from the Cassegrain parties. The evidence did not bear out any such form of resolution. To the contrary, the Heads of Agreement contained a degree of compromise in terms of the time extension granted. The Banks had not resolved upon the outcome of the mediation before it had occurred. The written instructions given to Messrs Burgess and Walsh suggested that they were able to compromise the amount of the debt by up to $250,000 (Ex PX Vol 2, p 703), yet, in the way in which the mediation progressed, and as Mr Cassegrain acknowledged that the whole debt was owed, no such compromise of the quantum of the claim was required. Further, the instructions permitted Messrs Burgess and Walsh to extend the date for repayment until 15 January 1999, yet in order to achieve a settlement Messrs Burgess and Walsh were required to extend the date for repayment to 1 March 1999. Indeed Mr Burgess made it clear in his oral evidence that he was fully authorised to mediate on whatever terms seemed to him to be commercial. Mr Burgess justified this extended time in his memorandum in relation to the mediation at Ex PX Vol 2 pp 730-731. · (vii) This allegation whilst given the closest of scrutiny by the Court, is ultimately not made out on the evidence. Mr Cassegrain had been involved in innumerable court issues and hearings over an extended period of time involving members of his family and lawyers. He had participated in mediations. The world of commerce and the enforcement of contractual obligations continue notwithstanding, inter-family litigious forensic steps. Whilst a particular circumstance may be envisaged where a person was forced to participate in a mediation literally being wrenched out of a witness box and into a mediation room and hence being unable to properly treat (or be expected to be able to treat) in any way shape or form with the mediation, that was not, on the evidence, remotely this case. I accept as reliable the evidence given by Mr Burgess to the effect that the occasion when Mr Cassegrain broke down in terms of crying was when pointed questions were addressed to him with as to whether there was a resolution of the family dispute insight, obviously a problem area of great sensitivity. No case has been made out of emotional strain and disturbance to the extent of a finding of unconscionable conduct in the banks having been prepared to participate in the mediation. See in particular the evidence of Mr Walsh which establishes that nothing was said during a time when Mr Cassegrain had been 'a bit teary' and that the matter had passed possibly following an adjournment to allow Mr Cassegrain to compose himself. Mr Cassegrain had not become emotional again to the same degree. The mediator was an independent party. The authority issued a section 11 certificate which could only be issued if it were satisfied that a satisfactory mediation in respect of the farm debt had taken place. · (viii) In terms of the finding that all that occurred was a general threat of receivers and of taking relevant action under the securities and that there was no threat to appoint receivers on the following day, this allegation of unconscionable conduct fails at a factual level. Neither of the parties to the mediation was a babe in the woods. Significantly it is also to be noted that Messrs Burgess, Walsh and Lloyd all knew that any action to enforce the securities could not be taken until a section 11 certificate had issued. Realistic discussion of options which either side may have had could only be expected during a mediation. On the findings of the court this is all that occurred. Indeed the whole of the background and context in which the mediation was taking place by definition concerned a degree of great anxiety in the Cassegrain parties as to the next step which may be taken by the banks. · (ix) This allegation in the events which happened is unexceptional. [See (viii)] 231 Moreover it is particularly significant that the acknowledgements, admissions and promises to be found in the recitals to the Heads of Agreement and in the body of the document were made in a context in which, on the evidence, the Cassegrain parties believed that they had a cause for complaint in relation to the manner in which the rescheduling application had been declined [Transcript 179] and claimed that they considered that the banks alleged conduct in asserting a cross default under the CDBA facility was "outrageous". [Transcript 47]. 232 Further the evidence establishes that the whole focus of the negotiations at the mediation concerned the time frame for refinance. This was in a context in which Mr Cassegrain did not dispute that the Bank was owed the money that it claimed: [Transcript Mr Cassegrain, 68, 69, Mr Lloyd, 193] Indeed, the mediator at one point stated that the difference in date was the only difference between the parties but that it was a crucial difference and that if agreement could not be reached on the date he would have to set aside the mediation as one in which no agreement was reached. 233 There is further no substance in the plea of the equitable set-off whereunder Mr Cassegrain asserts that he neither knew nor intended at the time that by executing the Heads of Agreement he would waive and forfeit his alleged equity to rely upon other defences. Heads of Agreement reached in a mediation have considerable significance. A cooling off period was allowed. Whilst a case may arguably succeed in terms of a vitiating factor such as was here suggested, this was not, on the evidence, such a case. This allegation fails by reason of the general holding concerning there having been no material misrepresentations, or conduct at the mediation, of a character such as to vitiate the Heads of Agreement. The entry of the parties into the Heads of Agreement was unexceptional. Significance of finding as to Heads of Agreement 234 The finding that the entry of the parties into the Heads of Agreement was unexceptional and is not vitiated by any wrongful conduct of the banks in terms of the pleaded unconscionable conduct, in effect mandates, as it seems to me, the banks success in relation to all issues of alleged misconduct in these proceedings (outside of the receivership issues which are no longer live). And for the reason that the Heads of Agreement were entered into after this alleged misconduct was said to have been engaged in. 235 Whether or not I be correct in this view, bearing in mind the manner in which the hearing was conducted, it is convenient to treat also with the allegations of anterior misconduct. As will be apparent from the reasons which follow, those allegations are of no substance. Hence even if the Heads of Agreement might in a proper case be set aside on the basis of a mistake concerning one's curial rights, which case would have to be remarkable indeed, this was not such a case. The allegation of unconscionable conduct by delaying communication of a decision to decline an application to reschedule the loans The suggested "decision" 236 There is no substance in this allegation. This allegation fails on the facts. It largely rests on Ms Whiting's computer note already referred to. Whilst of course she did not give evidence and even taking it as read that the rule in Jones v Dunkel should be taken into account [noting that the point was not taken by the Cassegrain parties and that the rule may very well be here inapplicable], the pervasive consideration relates to the part which Ms Wilmott played as account manager. Whilst this may have been her opinion at the time in question the evidence which is accepted as reliable is that the relevant decision was not one for her [Transcript 308]. And it was only her opinion that was being expressed. The whole of Mr Wilmott's evidence which is accepted as reliable is inconsistent with a finding of fact to the effect than the note by Ms Whiting proves that a decision had been taken in late March 1998 by the proper officer within the bank to the effect that additional finance to complete development would not be considered. No such decision was proved. No such decision may be inferred. No such decision was made by Mr Wilmott, or being made elsewhere, communicated to him. His actions belied the taking of any such decision. The suggested delay in communicating a decision 237 I am satisfied from the evidence that the period leading up to early June 1998 was one during which quite plainly a number of requests for further information from the Cassegrain interests continued to be the subject of staged piecemeal responses. This is made clear from the contemporaneous correspondence and for example from the cross-examination of Mr Lloyd [Transcript 174 - 177]. Hence there is a clear explanation as to how it came about that the Banks investigation and decision on a final basis was only reached during June. The 'conspiracy' theory that this was only paying 'lip service' to a cast iron 'decision' to play along with the Cassegrain parties and to bring down the guillotine at the eleventh hour, was not made out. The months preceding 25 June are not replete with any indication of particular haste by the Cassegrain parties in furnishing information expeditiously. Additionally some files had been the subject of subpoena. Whilst they now suggest that they had been misled as to their prospects, the evidence simply does not establish this proposition at a factual level. Optimism as to prospects is a subjective thing. In this case the banks level of anxiety at the family disputes had been obvious over some time and had been the subject of communications. I accept as reliable the evidence given by Mr Burgess that the occasion during the mediation when Mr Cassegrain broke down in terms of crying was when pointed questions were being addressed to him about whether there was a resolution of the family dispute insight which matter was clearly not able to be resolved short term. [Transcript 356]. The communication of the decision so close to the 30 June deadline was the product of the need for the bank to reach a decision on an informed basis. I reject on the evidence the submission that this has been shown on the balance of probabilities to have been a concerted and deliberate action intended to bring the Cassegrain parties into default. Causation 238 In any event and even if the bank had engaged in the suggested form of unconscionable conduct, the Cassegrain case fails at a causative level. The evidence did not establish on the balance of probabilities that had the banks immediately, as for example during March 1998, communicated what was suggested as having been an irrevocable and firm and immovable decision not to allow the restructuring, the Cassegrain interests would have been able to obtain the necessary refinancing to enable the overdraft facility to be repaid on 30 June 1998 or to enable the first instalment of the fixed loan to be paid by August 1998. The allegation that the banks wrongfully claimed that there was a default in the CDBA facility as a result of the default in the CBA facility 239 This allegation is not made out on the evidence. Further it is inconsistent with the contemporaneous legal advice [PX 2/488A] to the effect that default by the mortgagor under its securities with CBA did not create a "cross default" under the CDBA securities enabling CDBA to enforce its securities. The Bank's contemporaneous documents clearly demonstrate that Messrs Wilmott, Walsh and Burgess did not believe that default of the CBA loan would constitute a default of the CDB loan. Specifically: · The Bank's internal memorandum dated 15 June 1998 raised the question of whether default of the CBA loan would also constitute default of the CDB loan; · Mr Wilmott's file note of his telephone conversation with Mr Lloyd dated 25 June 1998 noted that he had not suggested to Mr Lloyd that default of the CBA loan would constitute default of the CDB loan and that he would not assert as much in his letter to Mr Lloyd without confirmation from the Legal Department. Ms Heatherington of the Bank's legal department gave advice in the memorandum dated 25 June 1998 that default of the CBA loan would not constitute default of the CDB loan; · Mr Wilmott's letter dated 26 June 1998 does not suggest that default of the CBA loan would constitute default of the CDB loan; · the Farm Debt Mediation Act notices issued on 7 July 1998 (PX 521 – 527) and 26 August 1998 (PX 572 – 574) only relate to default of the CBA loan; · In response to a letter from Mr Lloyd proposing that the parties also mediate the CDB loan, Mr Burgess responded in a letter dated 13 July 1998 that: 'Unless mutually agreed with you beforehand, CDB farm debt mediation invitation will issue upon default under the Term Loan facility.' · The Farm Debt Mediation Act notice in respect of default of the CDB loan was not issued until 3 September 1998 when it was in fact in default; · Mr Lloyd agreed that the implication in the Bank's letter of 13 July 1998 was clear; · Clearly Mr Burgess did not believe that the CBA loan would constitute default of the CDB loan. As Mr Walsh's superior, it is most improbable that Mr Burgess would have permitted Mr Walsh to assert what is alleged by Mr Cassegrain, when he (Mr Burgess) regarded this to be incorrect. 240 The most likely explanation is that either or both of Mr Cassegrain and Mr Lloyd formed the incorrect conclusion that default of the overdraft would be default of the CDB loan. Mr Cassegrain gave evidence that Mr Lloyd informed him of this very matter and Mr Lloyd accepted that he believed default of the CBA overdraft would be default of the CDB loan, but does not suggest that he was told this by any officer of the Banks. The alleged strategy to procure a default in the CBDA facility 241 As has already been made clear, this is simply not made out on the evidence. Essentially the banks submissions are adopted in what follows. 242 The basic facts in relation to the changes that occurred in respect of the Commonwealth Development Bank in 1996 are as follows: · in 1996 the CBA purchased the Commonwealth Government's shareholding in the Commonwealth Development Bank; · existing CDB business prior to 1 July 1996 was quarantined in a company structure, Commonwealth Development Bank of Australia Limited; · the loan conditions applying to quarantined loans continued unchanged; · if existing clients wanted more money or made new applications, these would be assessed by the business known as "Dev Bank" within the business banking division of CBA - see exhibit D1; · existing quarantined loans which were "troublesome and impaired assets" were not to be moved out of CDB Limited into the CBA. There were taxation implications in relation to this and the instruction in Ex D1 meant that these loans were not to be taken out of CDB's loan book and put onto CBA's loan book: Evidence of Mr Wilmott. [Transcript 298, 290, 300, 303] 243 It is clear that the Gerard Cassegrain & Co existing loan of $3 million from the Development Bank continued to be dealt with under its existing loan conditions, which continued unchanged. The loan was not transferred to the Commonwealth Bank of Australia. 244 The Cassegrain parties failed to establish any of the alleged breaches of obligation to act fairly and in good faith to ensure that: (a) normal standards of honesty were adhered to ; (b) each would co-operate to achieve the objects of the loans contract; (c) neither would act in a manner substantially to nullify the bargained objective or benefit contracted for; (d) the equitable right of redemption by the first plaintiff would not be improperly defeated, and in respect thereof the first plaintiff would have - (i) full opportunity to redeem; and (ii) full opportunity to show cause.' 245 The whole of the exercise from late 1997 and onwards involved a question of restructuring existing loans in an environment in which it was clear that the CBA was to look at any proposal. Mr Cassegrain had received the CDBA customer magazine which had made clear that if existing clients wanted more money, assistance would be given to all viable applications within the Business Banking Division of the CBA. Any early discussions in relation to restructuring were plainly expressly dependent upon the particular proposal which would be advanced and would clearly have to be assessed. There was no question of the CBA taking over the holding company "as a customer on the same terms and conditions as [CDBA]". The exercise involved an application for a restructure of the facilities under the CBA. And the Cassegrain case fails in the central allegation that the underlying intent of either or both of the banks was to remove the instant CDBA term loan [which is alleged to have been clearly seen as already a troublesome or impaired asset ["TIA"], out of CDBA and into CBA for the purpose of bringing about a default in such account. This most serious allegation that there was a "deliberate policy" to remove from the loan books of the CDB this or any existing CDB quarantined loans, is not made out on the evidence. To the contrary the evidence before the court was that the former quarantined book would run down over time which simply amounts to lending facilities running their regular course over time. The proposition that the 'deliberate policy' was conceived and carried out by reason of CBA'S anxiety about it's and CDBA'S securities or about becoming accountable to shareholders, is rejected as not made out on the evidence. On analysis the case involved an application to the CBA for a new loan with additional parameters (as to amounts and as to repayment dates) against an anterior background of a CDBA facility which, unless consensually terminated upon refinancing, would run full term. 246 There is no substance in the allegation that there was a "knowing and intentional course of conduct" by the banks or either of them to cause or bring about a breach of the CDB loan. The evidence does not bear out this grave allegation. In so far as the matter is related to the claim that the Banks asserted to the Cassegrain parties that a default in the CBA overdraft automatically brought about a default in the CDB facility, it is clear that from the documents that as late as June 1998 Mr Wilmott did not know if a default in the CBA facility would produce a cross default in the CDB facility and needed confirmation from Legal Department The advice was only obtained on 26 June 1998 and clearly indicated that a default with CBA did not create a "cross default" under the CDB securities. This chronology of events is inconsistent with the alleged strategy to procure a default in the CDB facility. And the evidence of the witnesses simply does not on the balance of probabilities establish any such knowing and intentional course of conduct. Asset Recovery Unit 247 There is no substance in the complaint that the account had been placed into the hands of the asset recovery unit without notification to the Cassegrain parties. Mr Wilmott clearly explained that the CMU simply had a continuing role to monitor and as appropriate had every entitlement to approve loans which had been referred to it. The CMU having the management during the relevant months of overseeing the administration of the loan some pleaded not carry with it a decision that no accommodation chord or would be granted to the Cassegrain interests. To the contrary its role was to very carefully indeed scrutinise the information which was forthcoming in order to decide whether or not the accommodation should be provided or recovery steps taken. 248 Nor is there any substance in the complaint concerning the access given to investigating accountants. Breach of section 52 of the Trade Practices Act 249 The allegation of breach of section 52 of the Trade Practices Act having taken place between December 1997 and June 1998 is not pleaded with any particulars but the matter has simply been litigated in terms of the otherwise conduct complained of in the second amended summons, generally concerning the dealings between the Cassegrain parties and the banks over the material period. This is an allegation pressed against the CBA. It fails for reasons otherwise given in this Judgment and it is unnecessary that it be separately dealt with. Those reasons make plain that no misleading or deceptive conduct within the meaning of section 52 has been established. Those reasons also deal with causation. The alleged repayment of the CBA facility 250 The Cassegrain parties have a further defence which is that the CBA debt has been discharged in full from moneys advanced to the principal debtor by Oceania Agricultural Limited, and the proceeds of sale of properties over which the guaranteed debt was secured. The particulars of the defence as pleaded are as follows: Particulars 06 April 1999 Deposit (Oceania) $250,000.00 13 April 1999 Deposit (Oceania) $43,000.00 13 May 1999 Deposit (Oceania) $43,000.00 10 Jan. 2000 Deposit from sales- Lot 49 Sancrox Rd $126,036.77 Lot 27 Bushland Dr $143,946.44 Lot 53 Bushland Dr $421,553.06 14 Jan. 2000 Deposit re deposits on above sales $36,433.83 251 There is no dispute that the first three payments referred to in the particulars were credited to the account of GCC with the CBA: ($250,000 on 6 April 1999, $43,000 on 13 April 1999 and $43,000 on 13 May 1999). 252 As to the three payments alleged to have been made on 10 January 2000 in the particulars, the last two amounts referred to are incorrect. The proceeds of sale of Lot 27 Bushland Drive were in fact $134,946.44 and the proceeds of sale of Lot 53 Bushland Drive were in fact $241,553.06. 253 The three amounts (126,036.77, $134,946.44 and $241,553.06) were credited to the account of GCC with the CBA on 10 January 2000 (this is confirmed by the account statement which is annexure "B" to Mr Watson's affidavit of 2 October 2002). 254 The deposit in relation to the above sales of $36,433.83 was credited to the account of GCC with the CBA on 14 January 2000, this being the last payment referred to in the particulars. The fact that this amount was credited on that date is confirmed by bank statement which is annexure "B" to Mr Watson's affidavit of 2 October 2002. 255 Mr Watson's undisputed evidence was that amounts credited on 10 and 14 January 2000 were mistakenly credited to GCC's account with CBA because he had overlooked the priority arrangement between CBA and CDB. The mistakes were: · An application of certain funds to the CBA loan when the CDB loan had priority; · Application of certain funds to the CDB loan derived from a property over which only the CBA had taken security. 256 The priority arrangement is set out in annexure "A" to Mr Watson's affidavit sworn 2 October 2002. It reflects the arrangement about which GCC had been notified as part of the facility agreement between GCC and CBA: [see the approval letter dated 2 April 1997 at PX Vol 1 pp 151-156, and specifically at 156 under paragraph numbered (Q) and Mr Watson's evidence at Transcript 8.37-51.] This arrangement also reflected the priorities arising as a matter of law in any case, as a result of CDB being the first registered mortgagee of the land in question. 257 When Mr Watson realised that the CDB had priority he reversed the credits on 27 January 2000 (as is confirmed by the bank statement which is annexure "B" to his affidavit sworn 2 October 2002). 258 In July 2000 it came to Mr Watson's attention that Lot 53 Bushland Drive secured only the CBA loan and not the CDB loan. Accordingly, on 10 July 2000 he arranged for $260,679.31, being the total proceeds (ie by now including the deposit which had come in) of the sale of Lot 53, to be debited against GCC's account with the CDB and credited to GCC's account with CBA. This is also confirmed by the bank statement which is annexure "B" to Mr Watson's affidavit. 259 Hence in each case the mistake was corrected by debiting the amount incorrectly paid and by crediting the account to which the money should have been paid. 260 There is simply no substance in the allegation by the Cassegrain parties that in these circumstances the CBA debt was discharged and the Guarantee which had been given by Mr Cassegrain, accordingly discharged. 261 In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the following propositions were clearly enunciated: · A rule precluding recovery of moneys paid under a mistake of law does not form part of the law in Australia · A payer is prima facie entitled to recover moneys paid under a mistake if it appears that the moneys were paid in the mistaken belief by the payer that he was under a legal obligation to pay them or that the payee was legally entitled to payment · In order to recover, a payer does not have to prove "unjustness" over and above the mistake · It is a defence to a claim to recover money paid under a mistake that the payee has adversely changed his position in reliance on the payment 262 There is no pleaded allegation in either suit that the banks are estopped from correcting these mistakes. No evidence was adduced from any of the Cassegrain parties that they were either misled or relied upon the mistakes or changed their position. 263 The submission advanced by the Cassegrain parties was that the priority agreement, which is annexure "A" to Mr Watson's affidavit, was ineffective because the CBA was both "the Bank" and "the Mortgagee" in the priority letter. This is clearly a typographical error which would be cured by the insertion of the word "Development" between the words "Commonwealth" and "Bank" in the first line of the letter. The letter was written to the CDB and with that typographical correction the document makes perfect sense. If the assertion of ineffectiveness had been raised at an appropriate time by the Cassegrain parties then an application could plainly have been made to rectify the document. 264 More importantly, this submission by the Cassegrain parties overlooks the fact that even if the letter of priority did not exist, the priority position would be identical. The CDB was the first registered mortgagee in respect of the relevant security properties. As first registered mortgagee it was entitled to priority to the extent of its advance plus interest and other charges even if there had been no express priority arrangement. 265 In these circumstances, it was correct as a matter of law, even disregarding the letter of priority, to credit the amounts obtained on realisation of the securities other than Lot 53 to the CDB and to credit the realisation on Lot 53 to the CBA. This was the ultimate position after the original errors had been corrected. 266 In all of those circumstances there is no substance in the claim that the CBA debt was discharged following these payments and the identified initial accounting entries and later reversals. Short minutes of order 267 The proceedings will be stood over for the purpose of the parties bringing in short minutes of order and for submissions as to costs to be taken. I certify that paragraphs 1 - 267 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 22 October 2002 ___________________ Susan Piggott Associate 22 October 2002 Last Modified: 10/31/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.