New South Wales Supreme Court CITATION : Sydney Concrete & Contracting Pty Limited & Anor v BNP Paribas Equities (Australia) Limited & Anor [2004] NSWSC 530 HEARING DATE(S) : 02/06/03; 03/06/03; 04/06/03; 05/06/03; 06/06/03; 11/09/03; 12/09/03; 18/09/03; 30/09/03; 02/10/03 JUDGMENT DATE : 25 June 2004 JUDGMENT OF : Nicholas J DECISION : See paras 185 and 186 CATCHWORDS : COMMERCIAL - share and options trading - margin lending facility - identity of parties to agreements for margin lending facility - powers of attorney - whether sub-attorney validly appointed - whether documents executed by sub-attorney binding upon donors of the power - whether power of attorney general or special - whether special power of attorney attracts Powers of Attorney Act 1956 (ACT) - whether documents executed under unregistered power of attorney effective - novation - estoppel by convention - whether agreement in respect of margin loan facility - margin call under options agreement and loan agreement - whether trader's failure to meet margin call justified closure of options and sale of shares under the agreements LEGISLATION CITED : Powers of Attorney Act 1956 (ACT), s 2(1), s 3AA, s 3AC(1), s 3AC(4), s 11(1)(b), s 11(2), s 19, Schedule 1, Forms 1 and 2 Amalgamated Investment Property Co. Ltd (In Liquidation) v Texas Commerce International Bank Ltd (1982) 1 QB 84 Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 CASES CITED : Clazy v The Registrar of Titles (1902) 4 WALR 113 Falinski v Commonwealth Bank of Australia (Unreported, NSWCA 6 Feb 1998) Fightvision Pty Ltd v Onisforou & Ors (1999) 47 NSWLR 473 Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Walton's Stores (Interstate) v Maher (1988) 164 CLR 387 Sydney Concrete & Contracting Pty Limited - First Plaintiff PARTIES : Sydney Concrete & Contracting Pty Limited as Trustee for the Sydney Concrete & Contracting Superannuation Fund - Second Plaintiff BNP Paribas Equities (Australia) Limited - First Defendant BNP Paribas Private (Australia) Limited - Second Defendant FILE NUMBER(S) : SC 50185/01 COUNSEL : J T Svehla/J B Conomy - Plaintiffs G A Seib - Defendants SOLICITORS : Holman Webb - Plaintiffs Piper Alderman - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Nicholas J 25 July 2004 50185/01 Sydney Concrete & Contracting Pty Limited & Anor v BNP Paribas Equities (Australia) Limited & Anor JUDGMENT Introduction 1 His Honour: These proceedings concern disputes arising from share and share option transactions which involved Sydney Concrete & Contracting Pty Limited (SC) as the trader, its directors Robert John Morgan (Mr Morgan) and Dene Lurline Morgan (Mrs Morgan), and BNP Paribas Equities (Australia) Limited (Equities) as the financier and BNP Paribas Equities Private (Australia) Limited (Private) as stockbroker. When it is not necessary to distinguish between Equities and Private I shall refer to them together as BNP. 2 SC traded in shares and options through Private as its stockbroker with the benefit of a margin lending facility provided by Equities between January 1999 and 17 August 2001. Options trading was subject to an agreement between Private and SC dated 28 October 1998. The facility was provided in accordance with the terms and conditions in underlying documents dated 22 December 1998, which were a loan agreement, a guarantee and indemnity, and an equitable mortgage of shares. During this period a dispute arose concerning payment for a parcel of BHP shares, which was resolved by agreement on 4 July 2001 (the July agreement). 3 On 17 August 2001 BNP informed Mr Morgan that unless security was provided for the outstanding loans under the margin lending facility, and a payment was made of an amount claimed to be due under the agreement of 4 July 2001, BNP would exercise its rights under the agreements by selling SC's shares and closing out its options. On the same day Mr Morgan refused to meet the demand and thereupon the shares were sold, the options were closed out, and the relationship between the parties was terminated. 4 These proceedings were initiated by Summons in which the Plaintiffs claim damages from the Defendants for breach of the July agreement. In particular they contend that on 17 August 2001 BNP acted in breach of the July agreement when, without its authority or consent, it sold all its shares and closed out its options. The Plaintiffs claim damages for such breach. They contend that by so acting BNP repudiated the agreement which repudiation was accepted and the agreement was terminated. 5 BNP deny liability. They plead that in breach of the July agreement SC withdrew $20,000.00 from the account with Equities, and in breach of the agreements Mr and Mrs Morgan and SC failed to comply with the margin call made on 16 August 2001. In the circumstances BNP say that on 17 August 2001, as they were entitled to do, they sold all shares held on behalf of SC and/or Mr and Mrs Morgan and closed out all options. After applying the proceeds of sale therefrom it is claimed that there remains a debt due to them in the sum of $682,187.87. 6 By their Amended Cross-Claim in which SC and Mr and Mrs Morgan are the Cross-Defendants, Equities and Private as Cross-Claimants claim payment of the said sum of $682,187.87 based on the breaches of the July agreement and of the agreements referred to in the preceding paragraph. 7 In the Reply and Defence to Amended Cross-Claim SC and Mr and Mrs Morgan deny any liability to Equities and Private. The Defence to the claim is based, essentially, on the following grounds: (i) That neither Mr nor Mrs Morgan were parties to the loan agreement and other documents upon which the facility was provided and hence are not liable for any amounts claimed under the facility. (ii) That the person who, on 22 December 1998, purported to sign the loan agreement and other documents under power of attorney on behalf of Mr and Mrs Morgan and SC was not validly appointed hence they were not bound by them, alternatively, by reason of the non-registration of the power of attorney the loan agreement and other documents were ineffective and not binding on them. (iii) That there was a novation of the loan agreement so that SC became the only party to it and Mr and Mrs Morgan were discharged from any liability under it, alternatively, that the course of dealing between the parties was based on a common assumption that SC was the only party to the agreement and Mr and Mrs Morgan were not parties to it, which circumstances gave rise to an estoppel which precludes Equities and Private claiming that Mr and Mrs Morgan are personally liable to them. 8 At the commencement of the hearing the Second Plaintiff, the Trustee, sought and was granted leave to discontinue its claim in these proceedings. As a consequence, the Court was informed that the Defendants/Cross-Claimants withdrew their claims against that party with the result that it was no longer involved in the proceedings. 9 By consent, questions of damages and other relief were deferred pending determination of the issues of liability raised by the Summons and Amended Cross-Claim. 10 From the commencement of the hearing it was accepted by SC that it was the borrower under a margin lending facility from Equities and that the shares acquired under it were subject to an equitable mortgage in favour of Equities (T pp 231-232, 296) although it left the terms of the facility in issue. Overview: April 1998 – July 2000 11 Mr and Mrs Morgan are the directors and shareholders of SC which for many years carried on business as a builder. Mr Morgan commenced share trading on his own account over 10 years ago. In late 1997 his broker was Prudential-Bache Securities (Australia) Limited (PBSA) through which he invested about $100,000.00. From about April 1998 he conducted shares and options trading through SC on its account with PBSA, and made all the decisions concerning it. 12 On about 15 July 1998 a margin lending facility for SC was established with PBSA with a limit of $400,000.00. This enabled SC to borrow for the purpose of investment in shares against its portfolio of shares: The portfolio was pledged as collateral security for the loan. 13 By letter dated 23 October 1998 PBSA informed Mr Morgan that its stockbroking operations were to be transferred to Private and that the process of transferring clients' accounts would be completed by 31 January 1999. The letter also advised that PBSA's rights and obligations under the margin lending facility (and any outstanding margin loans) would be assigned to Private with effect from 17 November 1998. 14 At the same time PBSA sent Mr Morgan a form of agreement to govern options trading through Private and a risk disclosure declaration in relation to options trading. On 28 October 1998 the agreement described as "Client Agreement for ASX Derivative Products" (the option agreement) and the risk disclosure declaration were signed on behalf of SC by Mr and Mrs Morgan as directors. The other party was Private, described therein as the "Clearing Member". The options trading account was No. 2855. Under this agreement SC was required to provide margin cover to Private by way of cash, shares, or other security in respect of options trades. 15 By letter dated 30 November 1998 from PBSA Mr Morgan was informed, relevantly, that: "As part of this process Prudential-Bache is realising its margin loan assets, and therefore, as outlined in the loan documentation, the firm is exercising its option to require repayment of your margin loan. You therefore have until 31 December, 1998 to repay your loan balance in full. On repayment Prudential-Bache will naturally release the security held over your portfolio. … Enclosed is a letter from BNP Equities (Australia) Limited inviting you to apply to BNP to re-finance your loan through a new margin lending facility with them". 16 As at 3 December 1998 SC's margin lending facility with PBSA was drawn down to the amount of $656,865.12. 17 On 4 December 1998 Mr Paul F Williams executed a Sub-Power of Attorney to Execute Specified Documents. Attached to the document was an application form and power of attorney similar to the documents completed by Mr and Mrs Morgan. The sub-power recorded that Mr Williams "… is appointed as attorney for each person named as a borrower and a guarantor who executes an Application Form and Power of Attorney in the form attached … (each borrower and guarantor being a "Head Grantor")". Pursuant to the power granted by the head grantor he appointed and delegated each partner and senior associate for the time being of Minter Ellison Lawyers severally as his sub-attorney. 18 On 7 December 1998 Equities executed as a deed poll a power of attorney which appointed any partner or senior associate for the time being of Minter Ellison. Attached to this document was an application form and power of attorney identical to those already referred to. The appointee was authorised to execute on Equities' behalf each loan agreement, equitable mortgage of shares, and guarantee and indemnity made between it and any person(s) or entity(s) who executed an application and power of attorney in the form of the documents attached. 19 On 14 December 1998 Mr and Mrs Morgan completed and signed an application form for a margin lending facility, and a power of attorney to authorise the appointee to sign a loan agreement, securities, and other documents on behalf of the applicant(s). These documents (the application documents) were then returned to BNP. 20 By letter dated 15 December 1998 from PBSA Mr Morgan was reminded that repayment of the loan was required by 31 December 1998 either through re-financing by BNP or another loan provider, or by cash settlement. He was invited to contact his equities advisor at BNP if he wished to consider refinancing through a BNP facility. It was emphasised that PBSA would act to realise loan security promptly following 31 December 1998. 21 On 21 December 1998 Mr Morgan spoke to Mr Glen Keane, an advisor with BNP. He enquired as to the progress of the application for the margin lending facility and was informed that the documents had been received and were being processed. 22 On 22 December 1998 Mr Denis Patrick O'Brien, a partner of Minter Ellison, signed pursuant to the powers of attorney the documents listed below. Where he signed for SC, Mr Morgan and Mrs Morgan, he represented that he did so under the power of attorney dated 14 December 1998. Where he signed for Equities he represented that he did so under the power of attorney dated 7 December 1998. Mr O'Brien also caused the charge given by SC to be registered on 23 December 1998. 23 The documents were: (a) A loan agreement between Equities and Mr and Mrs Morgan; (b) An equitable mortgage of shares between Equities and Mr and Mrs Morgan and SC in respect of the obligations of Mr and Mrs Morgan; (c) A guarantee and indemnity between Equities and SC in respect of the obligations of Mr and Mrs Morgan; and (d) A charge over the property of SC. 24 In its letter dated 6 January 1999 to Mr and Mrs Morgan Equities wrote: "With reference to your Application Form dated 14/12/98 in respect of BNP Equities Margin Lending, we are pleased to confirm approval by BNP Equities of a margin lending facility of AUD 400,000. We enclose a copy of the executed loan agreement, guarantee and share mortgage for your records. We would like to remind you that we will require suitable collateral for any loan. The current list of approved securities and unit trusts, showing the security value of each, is enclosed. Please direct any queries you have in this regard to your advisor. To complete our documentation of this facility, the exact facility amount will need to be inserted in the application form. In order to authorise BNP Equities (Australia) Limited to complete this detail on your behalf, would you kindly sign and date the attached authorisation form. The form should also be signed and dated by your nominated guarantor, Sydney Concrete and Contracting Pty Ltd. Please return the completed authorisation form to this office, by facsimile addressed to fax number 9221 6702, at your earliest convenience". 25 On 8 January 1999 Mr Morgan sent by facsimile to Equities an authorisation to amend the amount shown as the loan amount in the application form dated 14 December 1998 to $400,000.00. It was signed by him as the applicant, and also by him as director of SC as the guarantor next to which signature its seal was affixed. 26 In about mid-March 1999 BNP sent Mr Morgan a letter which contained information about the operation of the margin lending facility and enclosed the final PBSA statement dated 26 January 1999 and the Equities statements for January and February, 1999. Each was addressed to SC. The account number was 855689. The arrangement with Equities for the facility for share trading was entirely separate from the arrangement with Private for the provision of margin cover for options trading. 27 By letter dated 24 March 1999 to Private SC requested an increase of "our $400,000.00 facility to $1,000,000.00 in consideration of the stocks held and the volume of business done". The letter was signed by Mr and Mrs Morgan as directors, and the seal of SC was affixed. 28 As the client statement of 31 March 1999 shows, the approved facility limit became $1,000,000.00. Thereafter, until termination of the relationship on 17 August 2001, SC traded in shares and options through Private with the benefit of the facility provided by Equities. Statements were sent each month to SC which recorded its position with reference to loan details, portfolio details, unused borrowing capacity, and monthly share trade transactions. 29 By e-mail dated 7 July 2000 from Equities Mr Morgan was advised of the renewal of the dual pledge arrangement whereby shares held by SC could be used for both the margin lending facility and its option trading. He was informed that this was an individual arrangement particular to his margin lending facility. Thereafter the shares registered in the name of SC held by Equities as security for the margin lending facility account No. 855689 in the name of SC were also available to be used to provide margin cover to the Options Clearing House (OCH) for the options contracts which SC entered through Private on account No. 2855. The dual pledge arrangement remained in place until 17 August 2001. It enabled SC to engage in more options trading as it did not have to acquire further stock from its own funds to cover for this trading. 30 In February 1999 Mr Morgan arranged through his client advisor, Mr Charles Knights, for the payment to SC of $10,000.00 each month from either the margin lending facility account No. 855689 or the options account No. 2855. Thereafter such payment was made from one or other account from 9 February 1999 to 7 August 2001. The challenge to the agreements 31 Central to SC's claim under the Summons and BNP's claims under the Amended Cross-Claim are issues concerning the agreements pursuant to which trading was conducted and, ultimately, terminated. 32 BNP contend that on or about 26 January 1999 SC and/or Mr and Mrs Morgan ceased trading through PBSA and commenced trading through them. They contend that thereafter trading was pursuant to the following agreements: (i) the option agreement dated 28 October 1998 between Private and SC; (ii) the loan agreement dated 22 December 1998 between Equities and Mr and Mrs Morgan; (iii) the equitable mortgage of shares between Equities, Mr and Mrs Morgan and SC in respect of the obligations of Mr and Mrs Morgan; (iv) the guarantee and indemnity dated 22 December 1998 between Equities and SC in respect of the obligations of Mr and Mrs Morgan. 33 SC accepts that it was a party to the option agreement. It also accepts that it was the borrower under a margin lending facility with Equities, and that the shares acquired under it were subject to an equitable mortgage in favour of Equities, and to the charge registered over its property on 23 December 1998. Although SC contends that it was not a party to the facility dated 22 December 1998 it says that in late December 1998 or January 1999 it commenced to carry on share and options trading through Private as its new broker, and with a margin lending facility of $400,000.00 provided by Equities for its share trading. 34 Mr and Mrs Morgan deny liability under the loan agreement on the basis that they never intended to become, and were not in fact, parties to it. 35 SC and Mr and Mrs Morgan also contend that in the circumstances in which the application documents were completed on 14 December 1998 it was never proposed that Mr and Mrs Morgan would become party to the loan agreement or any arrangement whereby they would become personally liable for SC's contemplated share trading, or that they would engage in share or options trading on their own account. 36 They also submitted that Mr O'Brien, who on 22 December, 1998 purported to sign the loan agreement and other documents under power of attorney on their behalf, was not validly appointed hence they were not bound by them, alternatively by reason of the non-registration of the power of attorney the loan agreement and other documents were ineffective and not binding on them. 37 It was further contended that pursuant to completion of the application documents SC continued as the client upon the transfer from PBSA to BNP. It was put that thereafter all concerned proceeded on the basis that it was SC and neither Mr nor Mrs Morgan which was the relevant party involved in trading and liable to BNP as evidenced, for example, by the monthly statements all of which were issued in the name of SC and included details relevant to the operation of the facility, and of SC's transactions and portfolio. Mr and Mrs Morgan 38 To provide some background for the better understanding of the competing claims in these proceedings it is appropriate to refer to the position, experience, and personal situation of Mr and Mrs Morgan during the relationship with BNP which I find established on the evidence. 39 Mr Morgan had been a director and the operator of SC since 1991 which, until about 1998, carried on business as a builder. He has been a share trader on his own account for over 10 years. In late 1997 he commenced share and options trading with PBSA on his own account and through SC as Trustee of the Superannuation Fund. His success was such that his accountant, Mr John Halliday, suggested that for tax reasons he should trade through SC. In about June 1998 through SC he commenced share and options trading with PBSA from which SC obtained a margin loan facility for $400,000.00 on about 15 July 1998. The options trading was under an agreement with PBSA made 8 April 1998. 40 Mr Morgan set up an office in which he monitored share and options trading daily and researched companies for trading prospects. He read the client statements and contract notes from PBSA and BNP as they came in. Mr Knights gave evidence (Exhibit A paras 77-82) in support of his opinion that during the time he traded with BNP Mr Morgan was a successful and experienced share and options trader. 41 I find that Mr Morgan was an experienced trader in shares and options who followed the market closely and was well aware of the commercial risks involved. There is no reason to doubt that he had a sound working knowledge of the terms of the margin lending facility with PBSA and BNP. He impressed me as a businessman well able to make a judgment as to where his best financial interests lay, and was unlikely to make a commitment unless satisfied that it was commercially advantageous to do so. 42 With regard to these considerations I formed the view that Mr Morgan was a witness whose evidence should not be relied upon where it was contested unless it was corroborated by, or was consistent with, independent and accepted documentary or other evidence. On occasions under cross-examination he prevaricated and seemed to avoid answering a question directly when he perceived that to do so might be harmful to his case. For example, his account of the circumstances in which the application documents were completed to the effect that he did not read them and did not understand the requirements of the margin facility documents I found to be implausible having regard to his interest in obtaining the facility and to his experience. (The detail is at T pp 108-122). I have no doubt that, to the extent he wanted to, he fully understood the nature of the commitments that he and his wife were personally undertaking to procure the facility for SC's future trading. 43 Another example of evidence I found to be unconvincing was his assertion that he did not perceive the omission to debit SC's account in January 1999 in respect of a parcel of BHP shares (T pp 131-132; 135; 139). The answers he gave in cross-examination in relation to this issue and to support his denial of BNP's claim for an adjustment of $274,365.00 suggested a misunderstanding of a significant item which seemed to me to be unlikely for a person with his commercial acumen who closely monitored his trading activities. 44 Mrs Morgan is skilled in the operations of computer systems. When she retired from the workforce in March 1997 she had been employed by IATA for over three years as a senior business analyst. She has been a director of SC for over 10 years and signs its documents including accounts. It was her practice to sign documents when asked to do so by her husband. She understands the difference between a borrower and a guarantor, and the obligations of a mortgagor, and that default may put the security at risk. For years she has received an income from SC for carrying out clerical and messenger duties. 45 Mrs Morgan knew of SC's loan agreement with PBSA and had some understanding of the margin lending facility. She left it to her husband to make the decisions about SC's trading. Although she did not directly participate in share and options trading she willingly accepted whatever her husband arranged or undertook on their and SC's behalf to continue trading through BNP. I accept her evidence. The application documents and identity of borrower and guarantor 46 By letter dated 30 November 1998 PBSA informed Mr Morgan that as part of the transfer process it was realising its margin loan assets and exercising its option to require repayment of the margin loan. Repayment was required by 31 December 1998. Mr Morgan was advised of the invitation by BNP to apply to it "… to re-finance your loan through a new margin lending facility". 47 In early December 1998 Mr Morgan received the application documents. In them specific reference is made to other documents described as accompanying materials which included a sample of the loan agreement, the guarantee and an explanatory booklet dated 1 December 1988 (Exhibit 3). Mr White said it was BNP's general practice to include a pro forma set of the terms and conditions of the margin lending facility in the package in which the application documents were sent to the clients. Mr Morgan denied receiving the accompanying material and proceeded to complete the application documents without regard to them. 48 Mr Morgan's evidence was that on 14 December 1998 he completed the application documents. He said that before he commenced doing so he telephoned Mr Glen Keane, a client advisor with Private, and requested guidance as to how to fill out the application form. He proceeded to complete the first three pages of the document whilst in conversation with Mr Keane who indicated the nature of the information to be stated in various places. At the end of the conversation Mr Morgan completed the remaining pages and arranged for the documents to be signed by himself and his wife and witnessed by Mr Halliday. 49 He also said that he did not read the contents of the application documents before they were signed and sent back to BNP. He explained that the situation was urgent because he was frozen out on the options trades and BNP would not let anything be done until the application was received. He also said that by the completed and signed application documents he intended that BNP would provide a margin lending facility to SC for its share trading on the same terms as the PBSA facility but with the limit increased from $400,000.00 to $500,000.00. In my opinion Mr Morgan's conduct in returning the application form and power of attorney without sighting the significant commercial documents to which they referred is explicable on the basis that he judged there was no need to do so. 50 However, the issue as to the identities of the borrowers and of the guarantor is an objective question for the Court. It is to be resolved by reading the application documents as a whole to determine what is conveyed about them. Under the heading on page 2 the names of Mr and Mrs Morgan as borrowers are written, below which are details personal to each of them. The inevitable conclusion is that this page conveys the representation that Mr and Mrs Morgan are to be the borrowers. The inclusion of SC's ACN does not qualify that conclusion. 51 The next page (p 3) states the requirements as to the guarantor in the following terms: "Guarantor(s) Complete this section with the details of any person(s) giving a guarantee. This section must only be completed where the borrower is a company or the person(s) giving a guarantee and a mortgage is not also the borrower. If the borrower is a company, the directors must each give a guarantee. If Approved Securities will be held in the name of any person who is not a borrower, that person must give a guarantee and a mortgage". 52 Thereunder SC is named as guarantor and its seal is affixed and Mr Morgan's signature appears. Mr and Mrs Morgan are not named. The representation thereby made is that SC is the guarantor and not the borrower as it is named as such, and its directors do not proffer a guarantee. The page also conveys the representation that by giving the guarantee and mortgage SC is not the borrower, and the securities will be held in its name. The inclusion of some details personal to Mr Morgan does not detract from the representation that SC is giving a guarantee and mortgage. 53 Page 4 contains details as to the loan amount sought ($500,000.00) and details of assets and liabilities and of income and expenditure. Although the information therein provided is an amalgam of items referable to Mr and Mrs Morgan as well as SC, some of which were shown to be false, I find such information is consistent with the representation that the borrowers were to be Mr and Mrs Morgan. 54 Page 9 has two sections. The first is headed "Individual Borrowers and Guarantors". It is signed by each of Mr and Mrs Morgan and by the witness, Mr Halliday, and dated 14 December 1998. The second is headed "Corporate Borrowers and Guarantors". It is executed by SC, signed by Mr and Mrs Morgan as directors, and SC's seal is affixed. In my opinion the contention that the headings are ambiguous so as to cause doubt as to the identity of the borrower and of the guarantor in the application documents is without substance. A reasonable reading of the application documents as a whole, and with particular regard to the requirement as to the guarantor quoted from p 3, makes plain that Mr and Mrs Morgan were signing the documents as borrowers and not guarantors, and SC as a guarantor and not as a borrower. 55 Page 10 contains a Consumer Credit Code Declaration. Its opening words are "You only need to sign this declaration if you are a borrower which is not a company". It is signed by Mr and Mrs Morgan. Obviously, the representation is that they are the borrowers and, inferentially, SC is not. Finding on identity 56 In the result, in my opinion, the only rational finding to be made is that by the application documents Mr and Mrs Morgan applied to become borrowers as parties to an agreement for a margin lending facility with Equities, for which SC was to provide a guarantee and mortgage. The agreements for the margin lending facility 57 Furthermore, by signing the application documents Mr and Mrs Morgan and SC appointed the company secretary or other designated employee of Private their attorney to enable that person, as the prefatory words of the power of attorney say, "… to sign the loan agreement, any guarantee, the mortgage, … and any other relevant documents on your behalf …". 58 These documents were identified in cl (a) of the power of attorney which, relevantly, authorised the attorney: "… to do any one or more of the following on your behalf in your name: (a) to execute … any one or more of the following documents between you and BNP: (i) for each of you who is to be a borrower, a loan agreement; (ii) for each of you (if any) who is to be a guarantor, a guarantee; (iii) for each of you who is to be a borrower and each of you (if any) who is to be a guarantor who is also giving a mortgage, an equitable mortgage of shares (the "mortgage") to secure your obligations under the loan agreement or the guarantee (as the case may be); … each in substantially the same form as the sample documents contained in the terms & conditions dated 1 December, 1998 accompanying this document with the gaps completed using the information set out on pages 2 and 3 of this application form;". 59 The power of attorney also included the heading "And each of you declares that:" under which was the following: "1 You have read and understood the sections headed Privacy Act 1988 (Cth) Acknowledgements And Consents, Risk Disclosure, and the sample documents and materials in the booklet dated 1 December 1998 of which this power of attorney is part". 60 The effect of these passages is to incorporate in the power of attorney the loan agreement, guarantee and equitable mortgage of shares in substantially the same form as in the accompanying sample documents identified. (These were contained in the booklet, Exhibit 3). The terms and conditions in these documents are interlocking and provide the basis upon which the margin lending facility is provided and operated. For example, in the loan agreement "guarantor" means the person named in the application and power of attorney, and in the guarantee and indemnity "borrower" means the person named as the borrower in the application form. In the loan agreement "transaction documents" include the application form, the loan agreement, guarantee, and mortgage. I have already found that the borrowers so named were Mr and Mrs Morgan and that the guarantor was SC. 61 In my opinion the clear consequence of signing the power of attorney and thereby authorising the attorney to execute the documents on their behalf, was that the signatories acknowledged their acceptance of the terms and conditions contained in them, and represented to Equities that it should deal with the application documents on that basis. Accordingly, by signing the power of attorney Mr and Mrs Morgan accepted liability as the borrowers under the loan agreement, SC accepted liability under the guarantee and indemnity in respect of Mr and Mrs Morgan's obligations, and all accepted liability under the equitable mortgage of shares in respect of the obligations of Mr and Mrs Morgan, such liability to be effective upon approval of the application. 62 Upon receipt of the application documents Equities proceeded as intended by Mr and Mrs Morgan and SC, that is, on the assumption that they had agreed to be bound by the documents upon approval of the application. Accordingly, the loan agreement and related documents were prepared, and arrangements made for Mr O'Brien to sign them on 22 December 1998, and for the charge on the property of SC to be registered on 23 December 1998. The letter of 6 January 1999 63 By letter dated 6 January 1999 Equities wrote to Mr and Mrs Morgan as follows: "With reference to your Application Form dated 14/12/98 in respect of BNP Equities Margin Lending, we are pleased to confirm approval by BNP Equities of a margin lending facility of AUD 400,000. We enclose a copy of the executed loan agreement, guarantee and share mortgage for your records. We would like to remind you that we will require suitable collateral for any loan. The current list of approved securities and unit trusts, showing the security value of each, is enclosed. Please direct any queries you have in this regard to your advisor. To complete our documentation of this facility, the exact facility amount will need to be inserted in the application form. In order to authorise BNP Equities (Australia) Limited to complete this detail on your behalf, would you kindly sign and date the attached authorisation form. The form should also be signed and dated by your nominated guarantor, Sydney Concrete and Contracting Pty Ltd. Please return the completed authorisation form to this office, by facsimile addressed to fax number 9221 6702, at your earliest convenience". 64 The letter is significant in that it informed Mr and Mrs Morgan that the facility had been approved and the related documents had been signed. It is also clear that BNP had no doubt as to the identities of the borrowers and guarantor. 65 The authorisation form referred to was signed on 8 January 1998 by Mr Morgan as applicant and for the guarantor, SC, he signed as its director and affixed its seal following a telephone discussion with Mr Keane. 66 It was Mr Morgan's evidence that his recollection was that the authorisation form was transmitted to him by fax on 8 January 1999 and, upon receiving it, he spoke to Mr Keane who advised him to sign as the applicant and to name SC as the guarantor. This he did, and returned it the same day. He made no suggestion to Mr Keane that to so sign the form would be inconsistent with his intention and understanding that only SC was liable under the facility. 67 He said that it was not until sometime after he had returned the authorisation form that he received the letter. In his affidavit (Exhibit D para 103) he swears that he has no recollection of receiving it or of seeing the documents enclosed therewith. He said that having dispatched the authority on 8 January 1999 he paid no attention to the letter. He believed he first saw the executed loan agreement, guarantee and share mortgage on about 5 October 2001 when they were provided to his solicitors. Under cross-examination he adhered to his evidence that he had no recollection of receiving the letter at the time. 68 In my opinion it is unlikely that Mr Morgan's recollection as to the sequence of events is accurate or should be accepted. Importantly, he does not deny receiving the letter or the documents enclosed with it. The copy of the authorisation form in evidence bears no indication that it was transmitted to Mr Morgan by facsimile. It is inherently unlikely that, in the circumstances, it was sent to him without any accompanying explanation. I find it probable that, in the normal course, the letter was received by Mr Morgan on 8 January 1999 which was the day he dealt with the authority. Furthermore, in circumstances where he was then awaiting response to the application to enable SC to continue trading I find it quite implausible that he did not read the letter and become aware of its contents. 69 I also find, absent evidence to the contrary, that it was probable that a copy of each of the facility documents was enclosed with the letter. Mr Morgan's lack of recollection is no reason to doubt the truth of the statement in the letter that they were. I suspect that, if his evidence is to be accepted, the fact that he did not read the letter explains his lack of recollection and supports the inference that he accepted the terms of the documents, alternatively was indifferent to them. Whatever view is taken of his evidence I find that by his conduct he encouraged Equities to provide the facility on the assumption that he, his wife and SC were bound by the agreement and related security documents. Given that Mrs Morgan left the decision-making in connection with SC's trading to her husband, nothing turns on her failure to sign the authorisation form. 70 In my opinion Mr Morgan's conduct in returning the authority in response to the letter (which confirmed approval of the facility and referred to the executed documents relating to it) constituted both another representation and acceptance that the relationship between all the parties would proceed pursuant to the terms and conditions contained in those documents. 71 After receiving the authorisation Equities acted accordingly. A facility with a limit of $400,000.00 was provided and thereafter SC was allowed to trade in shares and options on the assumption that Mr and Mrs Morgan were liable under the loan agreement and SC was the guarantor. It is reasonable to infer that Equities relied upon the financial information as to assets and liabilities as set out in the application form in determining the amount of funds it would provide under the facility. 72 In the circumstances I hold that the facts constituted an estoppel by convention in accordance with the principle considered in Amalgamated Investment Property Co. Ltd (In Liquidation) v Texas Commerce International Bank Ltd (1982) 1 QB 84 at pp 121-122; 126; 130–131 and in Falinski v Commonwealth Bank of Australia (Unreported, NSWCA 6 February 1998) in which Sheller JA observed: "The estoppel is founded not on a representation, but on an agreed statement of the relationship between the parties, the truth of which has been assumed, by the convention, as the basis upon which they will thereafter proceed ... The effect of the doctrine is that she was estopped from denying that relationship and hence from denying her liability to CBA in accordance with the terms of the guarantee … in these proceedings she was estopped from denying a continuing liability under the guarantee after she signed the letter of acknowledgement of 15 April 1993". 73 In the circumstances of this case the effect of the doctrine is that Mr and Mrs Morgan and SC are estopped from denying the relationship evidenced by the loan agreement, the guarantee and indemnity, and the equitable mortgage and hence from denying their respective liability in accordance with the terms and conditions contained in those documents. 74 The same conclusion is reached in answer to the question whether the conduct of Mr and Mrs Morgan and, through them, SC in signing the power of attorney was sufficient to constitute their acceptance of the terms and conditions proposed in the relevant documents incorporated by reference within it. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Heydon JA posed the question in these terms: "81. In the light of the above cases, it is relevant to ask: in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the Council and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?". See also Ipp AJA para 162. 75 In my opinion reasonable persons would conclude that the signing of the power of attorney in the circumstances established contracts in accordance with the documents which were binding upon the relevant parties. It is also my opinion that they would reach the same conclusion with regard to the authorisation completed and sent in response to the letter of 6 January 1999. The challenge to the powers of attorney 76 Liability under the margin lending facility documents was also denied on the bases that Mr O'Brien was not authorised to execute them on behalf of Mr and Mrs Morgan and SC, alternatively, by reason of the non-registration of the power of attorney the documents were ineffective and not binding on them. 77 The loan agreement, the guarantee and indemnity, and the equitable mortgage of shares were signed on behalf of all parties by Mr Denis O'Brien on 22 December 1998. On each document it is represented that on behalf of Equities he signed as attorney under power of attorney dated 7 December 1998, and that on behalf of Mr and Mrs Morgan and SC he signed as attorney under power of attorney dated 14 December 1998. 78 Under the instrument dated 14 December 1998 the appointee was, relevantly, any company secretary of Equities, and was authorised to execute a loan agreement and other documents in the same form as the sample documents which accompanied it. By cl (a) the appointee was appointed attorney to execute or (as the case may be) to execute and deliver unconditionally in the Australian Capital Territory these documents. It also provided that: "The Attorney may at any time by deed appoint or remove one or more substitutes, delegates or sub-attorneys to exercise any or all of the above powers". The instrument was intended to take effect as a deed. 79 The sub-power of attorney (the sub-power) dated 4 December 1998 was executed by Mr Williams as the company secretary of Equities. It provided as follows: "PAUL F. WILLIAMS, being the company secretary of BNP Equities (Australia) Limited ACN 002 580 832, is appointed as attorney for each person named as a borrower and a guarantor who executes an Application Form & Power of Attorney in the form attached and marked 'A' (each borrower and guarantor being a 'Head Grantor'). By the power set out in each power of attorney granted by a Head Grantor (each a 'Power of Attorney'), the Grantor may appoint one or more substitutes, delegates or sub-attorneys to exercise any or all of the powers conferred on the Grantor by the relevant Power of Attorney". Under it the grantor appointed and delegated each partner and senior associate for the time being of Minter Ellison. Mr O'Brien was such a person. The sub-attorney was given the power to: "… do any of the acts, deeds or other things in the Australian Capital Territory that the Grantor is empowered to do under the relevant Power of Attorney … as the Grantor's act or deed either in the name of the Head Grantor the Grantor (as attorney for the Head Grantor) or the sub-attorney". 80 There also appeared the following: "Stamping and Registration The Grantor will promptly on execution and delivery of this document properly stamp and register it as required by any applicable law. EXECUTED as a deed poll". 81 For the Cross-Defendants it was submitted that as at the date of execution of the sub-power Mr Williams had not been appointed the attorney of Mr and Mrs Morgan and of SC, and thus had no power to delegate. Thus it was put that by the sub-power he was seeking to delegate a power not yet granted to him. It was put that as far as they were concerned Mr Williams had no power to delegate until they signed the power of attorney on 14 December 1998, and it followed that Mr O'Brien had no power as his sub-attorney to sign the documents on his behalf. 82 It is contended that, in the result, none of the documents which are purported to have been signed by Mr O'Brien on their behalf is legally binding on them. 83 It was also submitted that Mr O'Brien lacked power to sign the documents under the sub-power because, as was common ground, neither the power of attorney of 14 December 1998 nor the sub-power was registered. Reliance was placed upon s 11(1)(b) Powers of Attorney Act 1956 (ACT) (the Act) which provides: "11. Effect of registration of powers of attorney (1) Where an instrument creating a power of attorney is executed after the commencement of this Act, a conveyance or deed, not being a lease or agreement for a lease for a term not exceeding 3 years, executed by the donee in pursuance of the power of attorney shall be deemed not to have been or to be of any force or validity— … (b) in any other case—until the instrument creating the power of attorney is registered in the general register of deeds established by the Registration of Deeds Act 1957 ". Sub-section 2 is as follows: "(2) Upon the registration of an instrument creating a power of attorney, a conveyance or deed to which subsection (1) applies take effect as if the instrument had been registered before the conveyance or deed was executed". 84 The Defendant submitted that, as a matter of construction, the words of the power of attorney of 14 December 1998 which authorised the appointment of a sub-attorney should be construed broadly so as to provide for such an appointment to be made at any time. It was submitted that the phrase "at any time" is wide enough to authorise the appointment of a sub-attorney not only after the date of execution of the power of attorney but also before then. 85 As to non-registration, it was put that the execution of the sub-power by which the power granted was delegated was not the entry into a deed in pursuance of the power of attorney and therefore there was no necessity to register the sub-power, although, in fact, it was executed as a deed. It was argued that on the proper construction of s 11(1) of the Act the phrase "in pursuance of the power of attorney" means "done in the exercise of the power of attorney". The mere delegation of that power was not itself something done in exercise of the power such as, for example, the execution of the loan agreement. Thus it was put that the sub-power was not required to be registered in order to give validity to Mr O'Brien's exercise in signing the documents for SC, and Mr and Mrs Morgan. 86 In my opinion the Defendants' submission that the power of attorney authorised the delegation of power to a sub-attorney prior to its execution on 14 December 1998 is without substance. In their natural and ordinary meaning the words "The Attorney may at any time by deed appoint …" should be properly understood as conferring a power which may be exercised upon and after the attorney's appointment. Upon reading the whole of the instrument I find nothing to support the suggestion that the donors intended, by the terms in which this grant of power is expressed, to authorise acts done by the donee prior to his appointment. The words themselves, ordinarily understood, are inapt to convey such a meaning. It is readily seen from the instrument that the nature and scope of the powers of the donee are expressed in terms which are clear, specific, and unambiguous. If it had been intended that the donor should confirm, accept, or otherwise indicate authorisation of the earlier appointment of a sub-attorney it would have been simple enough for the draftsman to include a provision to effect that intention. Its absence reinforces my view that there was no such intention. Absent clear language to that effect, in my opinion it is not open upon the proper construction of this instrument to find that the donors either contemplated or intended the authorisation of prior delegation. 87 Accordingly, I find that Mr O'Brien had no authority to sign the loan agreement and other documents on behalf of Mr Morgan, Mrs Morgan and SC pursuant, ultimately, to the power of attorney of 14 December 1998. 88 The issue of non-registration involves the construction of s 11(1) of the Act to determine whether the requirement for registration has any application in the circumstances of this case. It is plain that the requirement for registration applies to the instrument creating a power of attorney. 89 Section 2(1), the interpretation provision of the Act, provides: "power of attorney means a general power of attorney or an enduring power of attorney, and includes an authorised substitution of attorney and an authorised delegation to, or appointment of, subattorney". A distinction is made in the Act between an enduring power of attorney and a general power of attorney. The latter includes an instrument created in accordance with s 3AA, which is one in or to the effect of schedule 1, form 1. 90 Pursuant to s 3AC(1) a power of attorney confers on the donee(s) "… authority to do on behalf of the donor anything the donor may lawfully do by an attorney". Sub-section (4) provides that a power of attorney may specify conditions or limitations to which the authority conferred by it is to be subject. 91 The specified form is entitled "General power of attorney". Relevantly, the scope of the power given is stated in these terms: "2. I authorise my attorney or attorneys, subject to paragraph 4, to do on my behalf anything that 1 may lawfully do by an attorney. … 4. The authority of my attorney or attorneys is subject to the following conditions and limitations:". (However, the validity and effectiveness of an instrument purporting to create a power of attorney merely because it is not in accordance with the form is not affected (s 19)). 92 In my opinion the words of the Act when read as a whole show the legislative intention to be that it applies only to a general power of attorney or an enduring power of attorney. The definition of power of attorney in s 2(1) is confined to such instruments and makes no reference to a special power of attorney. Consistently, the instruments with which the Act is concerned are powers of attorney which confer on the donee(s) the wide authority stated in s 3AC(1) and exemplified in schedule 1, forms 1 and 2. Such instruments are substantially different to special powers of attorney by which authority is restricted to the doing of specified things, or classes of things. As far as I am aware the distinction between general and special agents and general and special powers of attorney has long been, and is still, recognised. (Mackenzie: "Powers of Attorney and Proxies"; Woodyatt "The Law of Agency"; Clazy v The Registrar of Titles (1902) 4 WALR 113 at 116). It therefore seems to me that it was not intended that special powers should be registered under s 11(1). 93 The power of attorney dated 14 December 1998 states that it is "… required to enable BNP to sign the loan agreement, any guarantee, the mortgage, the sponsorship agreement and any other relevant documents on your behalf. It is also required where a company is giving a mortgage to save the company administrative inconvenience if the mortgage is varied by increasing the amount secured by it". The authority conferred thereunder is to do any one or more acts by way of execution and completion of a loan agreement and related security and other documents necessary for the provision of a margin lending facility and matters consequential to share trading with such facility. Without reciting them, it is sufficient to say that the terms of the instrument limit the scope of authority to specific matters, and none is expressed in words which correspond to those, for example, in s 3AC(1) or in schedule 1, form 1 of the Act. It follows that the authority conferred by the sub-power is similarly limited. 94 In my opinion, the power of attorney of 14 December 1998 is properly described as a special power of attorney and is therefore not an instrument to which s 11(1) of the Act applies. Thus the fact that neither it nor the sub-power was not registered does not lead to the ultimate result that Mr O'Brien had no authority thereunder to sign the loan agreement and other documents on 22 December 1998. Accordingly, I am unable to accept the submissions for Mr and Mrs Morgan and SC on the issue of non-registration. Finding on the power of attorney 95 In summary, I uphold the challenge to the validity of the appointment of Mr O'Brien and reject the contention that non-registration of the power of attorney rendered ineffective the loan agreement and other documents. However, in my opinion Mr O'Brien's lack of authority to execute the documents does not affect, and indeed is irrelevant to, my finding that Mr and Mrs Morgan and SC agreed to trade with BNP under the terms and conditions contained in those documents. Relevant terms of the margin lending facility 96 The relevant terms of the documents under which SC began trading in January 1999 through BNP and continued thereafter with the benefit of the facility are referred to in the following paragraphs. 97 The option agreement included cl 9 which entitled Private, the "Clearing Member", to call for funds or other security which it: "… considers, in its absolute discretion, appropriate in connection with the obligations incurred by the Clearing Member in respect of contracts registered in the Client's Account. The time by which the Client must pay any amount called or provide security is of the essence and, if no other time is stipulated in the Client Agreement, the Client must pay the amounts, or provide the relevant security, within 24 hours of the call for payment". 98 Clause 10.1(a) provided that failure to pay, or to provide security, is an event of default with the consequence that Private might, without prior notice, effect the close-out of open contracts (cl 10.2(a)). Private had the right at any time to refuse to deal in, or to limit dealings in, derivative products (eg options) for a client (cl 14). 99 I accept the Defendants' submission that the underlying commercial policy of this agreement was that SC traded in options at its own risk and not at the risk of Private. 100 The loan agreement enabled the borrowers to ask for an advance to settle the purchase of approved securities traded on the Australian Stock Exchange (cl 2.1(a)). Clause 7 concerns margin calls. It includes: "7.1(a) A "margin call" occurs if the sum of your loan balance and any outstanding settlements exceed the margin call buffer amount. If, however, this sum exceeds the margin call buffer amount by at least 15% of the total security value there will be no margin call but a changed circumstance will have occurred …". Sub-paragraph (b) provided for the circumstances in which Equities might cause a margin call to happen. Sub-paragraph (d) required satisfaction of each margin call by 1pm on the next business day after the margin call occurs, which must be done even if no notice was given of such requirement. Failure to meet a margin call is an event of default which attracted the application of cl 11 under which Equities was entitled to move to protect its interests and enforce the agreement. 101 In this context it is noted that the section in the application form referable to the borrowers included a statement that Equities was not obliged to contact the borrower if there is a margin call, and the risk disclosure also included a summary of the conditions relating to margin calls. 102 The guarantee and indemnity included cl 2.1 which provided that in consideration of Equities providing financial accommodation to the borrower, there was an unconditional guarantee that the borrower would pay the guaranteed money when due, and cl 3.1 which stated that the guarantor's obligations were principal obligations. SC agreed that if Mr and Mrs Morgan did not pay any part of the guaranteed money immediately it was payable SC itself would pay it to Equities immediately (cl 2.2). 103 The equitable mortgage of shares provided Equities with an interest over the shares held by Mr and Mrs Morgan and/or SC. March 1999 and thereafter 104 During March 1999 Mr Morgan received a letter from BNP containing information about the operation of the margin lending facility which, under the heading "Account Management" included the following: "As outlined in your Terms & Conditions booklet, your Margin Lending facility has an inbuilt Loan to Security Value (LVR) "Buffer" of 5% above security value. This put simply means that your loan can exceed your total BNP security value by up to 5%, allowing for market fluctuations and volatility, without placing the account in a Margin Call position. (A letter will be sent to you indicating that your account has moved into the "Buffer Zone"). However once this ratio is exceeded (the loan exceeds the security value by greater than 5%), your account will be in Margin Call. You have, under current agreements, until 1pm of the next business day to restore the account to below the maximum LVR. If this is not met your account will be considered in default and we reserve the right to sell all or part of your facility's portfolio holdings to restore the account to an acceptable level. If you are unsure of any part of the Margin Call procedure please contact your Advisor or the Margin Lending department for clarification". It concluded with an invitation for questions about any aspect of the facility. 105 With this letter was included the final PBSA client statement for 1 –26 January 1999, and the Equities client statement for January and February 1999. Each was addressed to SC. The last mentioned statements record the Facility limit of $400,000.00 and share transactions on 26 January and various dates in February 1999. 106 On 24 March 1999 Mr and Mrs Morgan, as directors of SC, requested that the limit of the facility be increased to $1,000,000.00 and, as the statement dated 31 March 1999 shows, the request was approved. Thereafter SC traded in shares and options with the benefit of a facility for that amount. 107 The evidence shows that all client statements concerning the operation of the facility and the share and options trading were issued monthly to SC. It also shows that, for the whole of the period until trading ceased on 17 August 2001, Mr Morgan traded through and to the account of SC, that all shares were acquired and held in its name, and no trading was undertaken in the names of Mr and Mrs Morgan or either of them. Private also allowed SC to trade in shares and options with the benefit of a dual pledge arrangement similar to that provided by PBSA so that shares acquired by SC were available to secure borrowings under the facility and were also available to cover Private's obligations to the OCH for SC's options trading. 108 In about early June 2000 Mr Charles Knights, a client advisor at Private, informed Mr Morgan that the dual pledge arrangement would not be allowed to continue. However, after he threatened to take his business to a firm which would provide such arrangement, Mr Morgan received advice from Equities on 7 July 2000 which identified SC with the facility and advised that the dual pledge arrangement would continue. This arrangement remained in place until 17 August 2001. Novation 109 At this point it is convenient to refer to Mr Svehla's submissions that, if it was found that originally Mr and Mrs Morgan were the borrowers under the loan agreement, there was a novation whereby SC was substituted for them and they were discharged from liability. It was contended that the novation was brought about by the acceptance by Equities of SC's request for an increase of the limit of the loan. In addition the novation was to be inferred from the subsequent course of conduct which involved Mr Morgan's instructions to Private on behalf of SC, the issuing of all client statements to SC, the apparent operation of the facility as if SC was the only party and the implementation of the dual pledge arrangement for SC's share and options trading. 110 Mr Svehla submitted that this evidence was sufficient to establish that from March 1999 SC had become the borrower by novation and Mr and Mrs Morgan were no longer liable in respect of the facility. 111 In response, Mr Seib's submission for BNP was that the evidence did not prove novation. He referred to the structure of the arrangement upon which the facility was provided which included the terms of the guarantee and indemnity, the equitable mortgage and the application itself which contained information of obvious significance to Equities in deciding whether to approve a loan and the limit thereof. He contended that the underlying common commercial purpose of the arrangement was that Mr and Mrs Morgan would have a facility which entitled them to trade through, and to the account of, SC with a loan secured by shares held by SC and/or themselves, and that the way in which the parties conducted themselves was at all times in accordance with this arrangement. 112 It followed that if the Plaintiffs' submissions were correct, it would mean that Equities had accepted SC as the borrower without a guarantor. 113 The relevant principles are summarised in Fightvision Pty Ltd v Onisforou & Ors (1999) 47 NSWLR 473 at 78: "Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson (1969) 120 CLR 365 at 388 per Windeyer J … Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: See eg, Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J … A novation may be expressed or implied from the circumstances". 114 It is fundamental to keep in mind that the loan agreement was one of several interlocking and interdependent documents described in cl 1.1 thereof as "transaction documents". These included the application form, the guarantee, the equitable mortgage of shares, each other document contemplated by or required in connection with any of them or the transactions which they contemplate (cl 1.1(f)), and each document entered into for the purposes of amending, novating, restating or replacing any of those documents (cl 1.1(g)). I have referred to this in para 60 above. 115 In my opinion the evidence does not prove novation. The acceptance by Equities of the request to increase the facility did not establish its intention to substitute SC for Mr and Mrs Morgan as the borrowers, and to release them from all liability under the loan agreement and related documents. Nor did it establish the intention to proceed on the basis that SC's future borrowings were neither guaranteed nor secured. Likewise, the course of conduct relied upon is insufficient to establish novation. Indeed, in my opinion, all the documents referred to by the Cross-Defendants on this issue properly fall within the class described in cl 1.1(f) of the loan agreement as they are, at least, documents contemplated or required in connection with the transactions which the "transaction documents" themselves contemplate. The letter of 24 March 1999 may also be described as an amending document within cl 1.1(g). 116 For the Cross-Defendants' submission to succeed clear and cogent evidence would be necessary to demonstrate that Equities agreed to provide the facility for future trading on a basis substantially different from that on which the parties began trading but a few weeks earlier, which involved the provision of a guarantee and mortgage to secure the borrowings. There is no such evidence. The submission is rejected. Estoppel 117 Alternatively, it was submitted that the course of dealing from 14 December 1998 was evidence that the parties proceeded on a common assumption that the only party liable under the loan agreement and related documents in respect of the facility was SC. It was put that in the circumstances an estoppel operated to preclude BNP from denying that SC was the only party so liable, and from claiming that Mr and Mrs Morgan were liable. 118 In my opinion the evidence does not establish the basis for a finding that there was at any time a departure from the arrangement pursuant to which the facility was originally provided. There is nothing in the evidence which points to any conduct on the part of BNP which would cause Mr and Mrs Morgan and SC to reasonably assume that from about March 1999 the facility would be provided to enable SC to trade free of any requirement for a guarantor or security. Nor does it establish any rational basis for the conclusion that BNP had willingly dispensed with any of the several components of the arrangement made on 22 December 1998 upon which the facility had been made available including, of course, the personal liability of Mr and Mrs Morgan. 119 The evidence falls far short of establishing the circumstances which give rise to an estoppel by convention in accordance with the principles in, for example, Amalgamated Investment & Property Co Ltd; Walton's Stores (Interstate) v Maher (1988) 164 CLR 387; Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582. Accordingly, I hold that this submission is without substance and is rejected. The letter of 4 July 2001 120 The letter of 4 July 2001 (the July agreement) from Equities to SC evidenced the agreement by which a dispute as to the liability of Mr and Mrs Morgan and SC for the sum of $274,365.00 for SC's purchase of BHP shares in December 1998 was settled. The construction of this agreement is considered later in these reasons. 121 As SC's claim for damages in the Summons relies upon an alleged breach of this agreement it is necessary to consider its terms in detail. The following narrative of events, not in dispute, provides some background to the formation of the agreement. 122 In December 1998 SC acquired a parcel of BHP shares for $13,114.50 and another parcel of BHP shares for $274,365.00. PBSA's statement to SC dated 25 January 1999 records that SC's loan balance under its margin lending facility was $250,216.33, and that there was outstanding the sum of $287,459.50 payable for the parcels of BHP shares. 123 On or about 26 January 1999, as part of the transfer process and under the loan agreement with Mr and Mrs Morgan, Equities paid PBSA the sum of $250,216.33 being the amount due under its facility. On about 26 February 1999 Equities paid PBSA the sum of $287,459.50 being the other sum claimed in its statement and, again, under its facility for Mr and Mrs Morgan and SC. 124 It is common ground that no payment was made to Equities by SC in respect of either amounts attributable to the BHP share purchases. 125 Equities then debited SC's account under the facility in the sum of $13,114.50 in respect of one parcel of BHP shares, but omitted to do so in the sum of $274,365.00 in respect of the other parcel of shares. Thus the statement from Equities to SC dated 31 January 1999 records only the debit of $13,114.50 as an "Unsettled Transaction". 126 A reconciliation of accounts resulted in the discovery of the omission. The matter was discussed between Mr Morgan and Mr David Holmes of Equities at a meeting on 15 October 2000. Mr Holmes explained the situation and foreshadowed an arrangement whereby the sum of $274,365.00 would be repaid whilst SC continued trading. 127 Mr Morgan then arranged for Mr Halliday to audit SC's share trading records. In December 2000 Mr Halliday was unable to establish that Equities' claim was incorrect and advised Mr Morgan that he could not disprove it. 128 By letter dated 27 December 2000 (sent again on 30 January 2001) Mr Morgan, on behalf of SC, informed Mr Holmes that he had relied upon Equities' statements in deciding the volume of options trading which could be undertaken between March and June 1999. He asserted that had the February 1999 statement correctly recorded its position SC would have traded at a lower rate with the result that losses would have been significantly reduced. He claimed that Equities was responsible for the loss and denied its entitlement to payment of the amount claimed. 129 Equities' statement to SC dated 31 December 2000 records under "Portfolio Details" the holding of 274,365 shares described as "Unlisted XXX" with a market price of $1.00, a portfolio market value of $274,365.00, a lend ratio of 85%, and a portfolio lending value of $233,210.25. Similar entries appeared in later statements. 130 On 6 February 2001 Mr Holmes explained to Mr Morgan that the entry recorded an arrangement by which SC's account was debited with the BHP trades with an off-set purchase of shares which equated with the disputed amount so that the account would not go into margin call under the facility, thereby enabling SC to continue trading. 131 By letter dated 23 February 2001 Equities replied to Mr Morgan in which the error was explained thus: "… BNPPML took over the operations of Prudential-Bache Margin Lending between November 1998 and February 1999. During this period an error was made on SCC's Margin Lending Account, where the loan balance was understated by $274,000.00. It was not until recently that the error was properly identified. Rectification of the error required entries on SCC's Margin Lending Account to be reversed, which had the effect of increasing the account's loan balance. It should be noted that as a result of the mistake, SCC has enjoyed a $274,000.00 loan, interest free for a period of almost 2 years. It should also be noted that BNPPML has recognised this error and so as not to prejudice SCC, has made no claim for interest on the full amount for that period which would amount to approximately $40,000.00". 132 Thereafter there was correspondence between the parties in which each adhered to its position. On 19 June 2001 there was a meeting attended by Mr Morgan and Mr Guy Hedley, Mr Knights and Ms Chlebnikowski for BNP at which a proposal for settlement was discussed. 133 The agreement subsequently made between Equities and SC is recorded in the letter from Equities to Mr Morgan dated 4 July 2001. Relevantly, it provides: "We refer to our recent correspondence in relation to this matter and to our meeting on 19 June 2001. BNP Paribas Equities (Australia) Limited ("BNPPE") acknowledges the error ("Error") which occurred in understating the margin loan balance of Sydney Concrete and Contracting Pty Ltd ("SCC") by $274,365 (the "Understated Amount"). BNPPE has also foregone interest on that amount for a period of 22 months, equating to $43,341 (the "Foregone Interest"). BNPPE's total loss compromises the Understated Amount plus the Foregone Interest, totalling $317,706 ("BNPPE's Loss"). BNPPE asserts that BNPPE's Loss is payable by SCC, which is denied by SCC. SCC asserts that it has relied on BNPPE's statements which included the Error, when trading in options and equities, and asserts that as a result it has suffered losses and damages in excess of approximately $460,000 ("Trading Loss"). SCC will also be required to pay interest on its trading profits some of which profits will be paid to BNPPE in accordance with the terms of clause 3 below. SCC estimates that the amount of interest that it will have to pay on its trading profits which will be paid to BNPPE under clause 3 below will be $100,000 (the "Interest on trading Profits"). SCC's total loss comprises the Trading Loss and the Interest on Trading Profits, totalling $560,000 ("SCC's Loss"). This is denied by BNPPE. The parties wish to resolve this dispute in a manner that allows BNPPE to recover BNPPE's Loss and that allows SCC to recover SCC's Loss, on the following terms: 1. SCC will continue to trade through BNP Paribas Equities Private (Australia) Limited ("BNPPEP") with its adviser Charles Knights. 2. Subject to paragraph 4 below, should SCC be required to lodge margin cover in excess of $400,000 with the Options Clearing House in connection with its options trading, BNPPE will provide this margin cover to OCH on behalf of SCC, to a maximum of $1.5 million. SCC will pay interest on this amount to BNPPE at the interest rate charged by BNPPE on margin loans to its clients from time to time. 3. Until an amount equal to BNPPE's Loss is recovered by BNPPE, SCC will forward to BNPPE on a monthly basis: (a) $10,000; and (b) if after the above payment has been made to BNPPE, SCC's remaining trading profits are in excess of $18,000, 50% of the amount by which those trading profits exceed $18,000, such payments to be credited against BNPPE's Loss. 4. The amount paid to BNPPE pursuant to item 3 and the arrangement in item 2 will be reviewed by BNPPE and SCC at six monthly intervals. At the six monthly reviews a comparison will be made between the amount which has been paid up until that time and the payment targets of $158,853 after a period of eighteen months and $317,706 after a period of three years (each period to commence on the date of execution of this letter by SCC). If taking into account the amounts paid up until the review time, market conditions and any other factors which the parties agree to be relevant, the parties agree that it is unlikely that the 18 month or three year (as applicable) repayment target will be met, the parties may discuss and attempt to agree on reasonable alternative payment arrangements, such as requiring a fixed dollar sum to be paid on a monthly basis so as to ensure that the entire amount of BNPPE's Loss is recovered by BNPPE within three years from the date of the execution of this letter by SCC. 5. Subject to the 6 monthly and eighteen monthly reviews as described in paragraph 4 above, the facility described in paragraph 2 above is to remain available to SCC for a period of 3 years to facilitate SCC's recovery of SCC's Loss. 6. The parties agree that they will also meet to discuss the payment arrangements if Charles Knights leaves the employment of BNPPE or if either Charles Knights or SCC do not wish to continue their present relationship of securities adviser and client". Payments after 4 July 2001 134 As has been observed (para 30), there was an arrangement under which payments were made to SC from the options account or the margin lending facility account. Mr Morgan's evidence was that during July 2001 he telephoned Mr Knights and requested him to arrange for the usual payments to be made to SC from its options account. He also said that at the same time he requested him to organise the payment of $10,000.00 to BNP due under the July agreement. 135 In accordance with the request Mr Knights arranged on 2 August, and again on 7 August 2001, for $10,000.00 to be withdrawn from SC's option account No. 2855 with Private and paid to its Westpac bank account. 136 It is common ground that no payment was made to BNP under the July agreement. In issue was whether Mr Morgan's evidence that he requested such payment be arranged should be accepted because submissions were put on behalf of SC that the failure to make the payment was attributable to BNP and was not a breach of the July agreement on its part. 137 Some support for Mr Morgan's assertion is in Mr White's evidence, which I accept, that during their conversation on 17 August 2001 Mr Morgan stated that at about the end of July on three separate occasions he had requested Mr Knights to transfer the $10,000.00 but it had not occurred. Mr Morgan thereby suggested that he was unaware that the payment had not been made. 138 Mr Knights' evidence, which I accept, confirmed that Mr Morgan requested him to arrange the payments to SC and he did so. However, it was silent as to any request for a payment to BNP. He said he did not understand it to be part of his function to cause such a payment to be made, and he did not do so. 139 My finding on the evidence, and taking into account my finding about him as a witness, is that, on the probabilities, Mr Morgan did not request Mr Knights to make the payment to BNP. Mr Knights had been his advisor for some time and the importance of their relationship is reflected in clauses 1 and 6 of the July agreement. Had the request been made it is highly likely that Mr Knights would have informed Mr Morgan that it was not his role to arrange it and/or he would have recalled it, particularly if, as Mr Morgan told Mr White, he had been so requested on three occasions. In contrast was Mr Knights' evidence as to his recollection of, and action upon, the request to transfer funds to SC. In my opinion, that no such request was made is consistent with Mr Morgan's contention that he was not obliged to pay anything to BNP as the July agreement provided only for profit sharing. The fact that he told Mr White he had requested the payment be made to BNP does not persuade me that, in truth, he did so. 4 July – 17 August 2001 140 On 11 and 12 July 2001 as part of its option trading SC wrote a total of 650 September 2001 $5.75 Telstra put options American style. As such, the options could be exercised at any time up to the last trading date in September 2001. Telstra shares were to be ex-dividend from 17 September 2001 which meant that holders of the put options could hold them until then, receive the dividend, and then put the shares to SC. The evidence was that it was probable that this would happen with consequential loss to SC. 141 The evidence also proves, and I find, that from the time these options were written their market price fell below the strike price of $5.75. As the options might be exercised at any time against it, SC was thereafter exposed to immediate risk of loss at any time. The situation is illustrated by the graph which records the fluctuation in the Telstra share prices over the period 4 July 2001 to 27 September 2001 (TB 936). Mr Knights agreed that from about late July until 17 August 2001 (when the share price was about $4.89) SC was losing money on these options, and I am satisfied that this was, in fact, the case. It is also clear that it would have lost money if it continued to hold the options open. 142 On 15 August 2001 a conversation took place between Mr Hedley and Mr Morgan during which their different views as to the requirements of the July agreement were expressed. Mr Hedley advised Mr Morgan that SC was required to provide stock as collateral for its margin cover with the OCH for its options trading and requested that SC's options position be collateralised no later than Friday, 17 August 2001. After initially stating his disagreement with this proposal Mr Morgan agreed, reserving SC's right to enforce the July agreement. 143 Later that day Mr Morgan gave instructions for the purchase of 26,000 Telstra shares which brought SC's total shareholding in Telstra to 100,000 which then represented all the shares in its portfolio. 144 I find that the effect of Mr Hedley's demand was that a margin call under the facility was made to be met by 17 August 2001. I also find that Mr Morgan's statement to Mr Knights later that day that Mr Hedley had told him that SC had to collateralise the margin cover for the options with stock is evidence that Mr Morgan understood that Mr Hedley was making such a call, and by buying the shares he acted upon it. 145 At this point it is convenient to consider SC's submission that the effect of the discussion with Mr Hedley was to vary the July agreement so that the $1.1 million facility referred to in cl 2 would be available for use by SC to fund the purchase of shares for margin cover with OCH in respect of the options trading. 146 In my opinion the submission is without substance and must be rejected. The evidence relied upon by SC in support of this contention is in Mr Morgan's affidavit (Exhibit D paras 296-297). It is unnecessary to recite it. As it was not challenged I accept it. The reasonable construction to be placed on Mr Hedley's words is that he was exercising Private's right under cl 9 of the options agreement to require SC to provide security for margin cover for its options trading which was then showing a substantial loss. He suggested Telstra as one of several appropriate stocks for this purpose. Mr Morgan subsequently decided to purchase 26,000 Telstra shares for the purpose, and drew upon the margin lending facility under the loan agreement for funds for that purchase. Mr Hedley's demand was not one which could reasonably be taken to have been made under cl 2 of the July agreement. 147 In my opinion nothing said by Mr Hedley provided a reasonable basis for Mr Morgan to think that the July agreement was to be varied so that Equities undertook to lend to SC, without security, money to the specified limit for the purchase of shares for margin cover with OCH in lieu of cash. As evidenced by that conversation and the subsequent conversations with BNP representatives, it seems clear that Mr Morgan's understanding of the July agreement was fundamentally flawed. 148 On 16 August 2001 Ms Antoinette Garside of BNP had a telephone conversation with Mr Morgan in which she, inter alia, enquired as to the collateral security to be provided and as to the purchase of the 26,000 Telstra shares. Mr Morgan expressed his annoyance at the call and said that the shares were purchased on Mr Hedley's instructions. I find the effect of this conversation was to confirm the call made by Mr Hedley the day before. 149 Mr Knights' evidence, which I accept, was that as at 17 August 2001 if the Telstra put options were exercised against it SC did not have funds available through either the margin lending facility or the options trading account to meet the purchase price of the 650,000 Telstra shares of about $3.7 million. Further, in the market during this period the Telstra share price was falling and, as they were to go ex-dividend on 17 September 2001, prospects for improvement were unfavourable. 150 On 17 August 2001 a meeting took place at the Defendants' offices attended by Mr Morgan, Mr Halliday, Mr White and Mr Ronald Schaffer, the Defendants' solicitor. In my opinion the versions of each do not differ in substance so far as is relevant. 151 A conversation then took place the effect of which I find to be as follows: Mr White informed Mr Morgan that he was in default under the margin loan facility and the payment of $10,000.00 to BNP under the July agreement had not been made and was due. He went on to say that further trading would not be permitted unless cash or stock was provided as security for SC's exposure under the facility, and the money due under the July agreement was paid. Mr Morgan said that he would not make any payment as, on his understanding of the July agreement which provided only for profit sharing, he was not obliged to do so, and would not provide cash or stock as security. Thereupon, Mr White advised him that as the contracts had been in default for some time there was no choice but to close down all exposures and seek a settlement. There was some discussion about settlement with no result. Mr White explained, and I accept, that the effect of this exchange was that a margin call was made which Mr Morgan would not meet, and the demand for payment was rejected. 152 At the conclusion of the conversation the meeting ended. Equities and Private then proceeded to sell all of SC's shares and to close out its options. The relationship between the parties then terminated. 153 Mr Morgan was informed of BNP's claim by letter dated 31 August 2001 which included the following: "We confirm that following that meeting all of your market exposures were closed on 17th August as a consequence of the refusal to comply with the call made on 16th August for the provision of security. This call for security was necessitated, inter alia, by the deterioration in your market positions, which had occurred between 4th July, 2001 and 16th August, 2001. As at 17th August, 2001 the amount outstanding by you was $682,187.87, which is calculated as follows: Margin Lending Account $110,462.75 Options Trading Account $571,725.12 Total $682,187.87 Interest will accrue from the 17th August balance plus accrued interest at the rate of 7.6% per annum. Payment of the above amount is required within seven (7) days". 154 The termination of the relationship resulted in the competing claims in these proceedings. In short, SC claims that BNP's conduct was in breach of the July agreement. On the other hand, BNP claims that its conduct was not in breach of that agreement and that they did what they were entitled to do under the options agreement and the loan agreement by reason of the failure to meet the margin call and provide collateral. Construction of the July agreement 155 The proper construction of the July agreement was a substantial issue on which the Court was assisted by extensive written and oral submissions. As the written submissions and the transcript will remain with the Court file for reference purposes it is unnecessary to deal with them specifically in these reasons. 156 The principles to be taken into account are well known. The Court's task is to endeavour to ascertain the commercial purpose of the agreement from the language of the parties. In Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Kirby P stated the principle at pp 313-314 thus: "Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way". 157 Further, having regard to the different views about the effect of the July agreement as expressed in conversations between the parties between 15 and 17 August 2001 it is appropriate to refer to Brambles Holdings Limited in which Heydon JA said: "27. The … principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found". 158 At the outset it is clear that the parties to the agreement were SC and Equities, and Private was not a party. 159 The introductory paragraphs serve as recitals identifying the dispute which resulted from the erroneous understatement of the margin loan balance. The commercial purpose of the agreement was an arrangement which allowed each of Equities and SC to recover its loss attributable to the understatement. 160 Clause 1 provided that SC will continue to trade through Equities with its advisor Mr Knights. In my opinion it shows that the parties intended continuing performance of the existing arrangement with the effect that SC's trading would continue in accordance with the terms and conditions of the options agreement, the loan agreement and the other documents related to the margin lending facility including the dual pledge arrangement. There is nothing in the language of the July agreement which indicates the intention of the parties to depart from those terms and conditions by which trading had been conducted until then. Indeed, a reasonable reading of the document shows that the provision of the facility under cl 2 is predicated on the assumption that trading in shares and options will continue in accordance with them. 161 In cl 2 the operative words are the following: "Subject to paragraph 4 below, should SCC be required to lodge margin cover in excess of $400,000 with the Options Clearing House in connection with its options trading, BNPPE will provide this margin cover to OCH on behalf of SCC, to a maximum of $1.5 million". 162 It concerns the provision by Equities of margin cover should SC be required to lodge margin cover in excess of $400,000.00 with the OCH in connection with its options trading. Consistent with cl 1 it is plain the references to options trading and the obligation to lodge margin cover are references to SC's trading under the terms and conditions of the options agreement and the dual pledge arrangement. By this clause Equities agrees to provide on behalf of SC money to a maximum of $1.5 million for such cover to OCH should SC be required to lodge cover in excess of $400,000.00. As a matter of common sense any such requirement would only result from the continuation of trading as envisaged by cl 1. 163 It is also clear from the language of cl 2 that the agreement to provide funds is confined to the purpose of margin cover in connection with options trading. It would be erroneous to contend that Equities agreed to provide this facility in connection with SC's share trading. 164 In my opinion the unambiguous effect of clauses 1 and 2 taken together is that SC would continue its options trading as before for which Equities would provide margin cover if required in excess of $400,000.00 to the specified limit, thereby affording SC the opportunity to increase its trading and, if profitable, to recover its loss. 165 Noting that Private is not a party to this arrangement, it is also apparent that the July agreement does not operate to relieve SC from the application of any terms and conditions of its agreement with Private. Nor, in my opinion, is anything to be found in clauses 1 and 2, or in the remainder of the document, which has the effect of varying the application of any terms and conditions of the agreements with Equities either expressly or by implication. For example, there is nothing in the July agreement which restricts or qualifies the entitlement of either to make a call and require collateral under those agreements. 166 It follows that it would be misconceived to suggest that, as a matter of construction, the undertaking by Equities to provide margin cover funding under cl 2 operated in a context outside that in which SC's share and options trading had been conducted and was to continue under the existing arrangements, including the dual pledge arrangement. The scheme established under the July agreement could only operate whilst SC continued options trading which activity depended upon compliance with the requirements each of Private and Equities under those arrangements. It was fundamental, of course, that SC never had any contractual relationship with OCH and could only trade in options under its agreement with Private as its clearing member. Upon termination of these arrangements SC could no longer continue options trading with the consequence that no requirement for margin cover could eventuate, and hence there could be no entitlement to call upon Equities for funds for that purpose. Put another way, once Private ceased to act on SC's behalf as a clearing member with OCH, SC's options trading necessarily also ceased, and with it any requirement for provision of margin cover and any obligation for Equities to provide it. 167 Clause 3 provided the basis for Equities to recover from SC its loss by instalments in these terms: "Until an amount equal to BNPPE's Loss is recovered by BNPPE, SCC will forward to BNPPE on a monthly basis: (a) $10,000; and (b) if after the above payment has been made to BNPPE, SCC's remaining trading profits are in excess of $18,000, 50% of the amount by which those trading profits exceed $18,000, such payments to be credited against BNPPE's Loss". 168 In my opinion the effect of cl 3(a) is to require SC to pay Equities $10,000.00 each month. This obligation is stated in language which is unconditional, although subject to variation pursuant to any review as contemplated in cl 4. It is to be distinguished from the requirement under cl 3(b) for the payment of an additional sum the requirement to pay which was, in terms, conditional upon SC's trading profits being in excess of $18,000.00 for the relevant month. 169 It was the commercial purpose of the July agreement that Equities' loss be paid by SC within, at least, a period of three years as is apparent from clauses 4 and 5. Consistent with that purpose, in my view, is the requirement that SC pay a sum which was fixed and certain on a regular basis such as required by cl 3(a). The language and punctuation of this clause, read in context, convey no suggestion that the source of funds for this instalment was confined to trading profits and thus conditional upon the generation of sufficient profits in any month. It would be inconsistent with the achievement of the purpose that the requirement to pay the $10,000.00 was conditional upon the availability of sufficient trading profits. It follows that I do not accept SC's submissions that cl 3 supports the proposition that the July agreement was a profit sharing arrangement whereby the recovery of the loss of each party depended upon the profitability of SC's options trading from time to time. 170 Also in issue was the basis upon which it was intended that trading profits should be calculated under the agreement. SC contends for calculation on a cash-in/cash-out or historical basis whereas BNP contend for a market to market basis. In light of my finding that cl 3(a) required SC to pay $10,000.00 per month unconditionally, and that it is common ground that no payment was made, the determination of this issue is unnecessary. 171 By cl 4 the arrangements for the provision of margin cover under cl 2 and for payment under cl 3 were to be reviewed at six monthly intervals. If it appeared that the payment targets specified for periods of 18 months and three years were unlikely to be met it was envisaged that alternative repayment arrangements might be made so as to ensure that the entire amount of Equities' loss was recovered within three years from the date of execution of the document by SC (which was 4 July 2001). The clear statement that repayment arrangements were to be such as to ensure the recovery of Equities' loss within the specified period reinforces the conclusion that Equities' entitlement was not contingent upon SC's profitable trading. 172 Clause 5 provided, in effect, that subject to the reviews described in cl 4 the facility in cl 2 was to remain available to SC for a period of three years "… to facilitate SCC's recovery of SCC's loss". 173 My conclusion as to the proper construction of the July agreement leads me to reject SC's submission that Equities was obliged to provide it with funds to enable its options trading to increase, and with the profits therefrom to pay each party's loss. 174 I also reject the submission that Equities' failure to provide such funds by way of margin cover was in breach of its obligation under cl 2. As has been pointed out, SC's entitlement to seek funds was contingent upon the continuation of its options trading through Private. 175 I have held that the July agreement effected no variation to the other agreements. It did not operate to preclude Equities from taking into account the debt of $317,706.00 in calculating SC's liability under the margin lending facility for share trading, or to quarantine the debt from the application of the loan agreement and the operation of the dual pledge arrangement. Acceptance of SC's submission that it did would lead to the commercially absurd situation that this debt was to be no longer secured, and the funds to be provided for inherently risky trading to enable repayment of the debt were also to be unsecured. The submission must be rejected. The July agreement did not affect Equities' entitlement to take the debt into account in deciding whether SC was in a margin call position under the loan agreement. Conclusion 176 The events which resulted in the termination of the relationship between the parties on 17 August 2001 have been described. Analysis of those events shows that on 17 August 2001 a call was made for the provision of security under cl 9 of the options agreement. The refusal to meet the call was an event of default under cl 10.1(a). Thereupon Private was entitled to take any action it considered reasonable in the circumstances including closing out the open contracts under cl 10.2(a). In the circumstances it was entitled to refuse to permit continuation of trading if the call was not met. 177 Furthermore, under the loan agreement, the circumstances gave rise to a margin call under cl 7.1, and refusal to comply entitled Equities to sell SC's portfolio as it believed it was necessary or desirable to do so (cl 7.3). The failure to meet the margin call was also an event of default under cl 7.3, upon which Equities was entitled under cl 11, inter alia, to terminate any obligation to make further advances, and to take any action it considered to be necessary or desirable to enforce the agreements evidenced by the transaction documents in order to remedy the event of default. 178 I accept BNP's submission that in the circumstances the significance of the dual pledge arrangement became apparent. Once the position with the options account was closed out and the underlying shares held as security were sold there was nothing further to support the margin lending facility. 179 With respect to SC's claims in the Summons I find that the evidence does not establish entitlement to relief against either Equities or Private. The claim against Equities must be dismissed because the evidence, on my findings, did not establish that it acted in breach of the July agreement as alleged. The claim against Private must be dismissed because it was not a party to that agreement. 180 With respect to BNP's claims in the Amended Cross-Claim, I find that SC's failure to pay Equities $10,000.00 was in breach of cl 3(a) of the July agreement. I also find that the margin call which Mr and Mrs Morgan and SC were required to meet on 17 August 2001 was one which, in the circumstances, BNP was entitled to make. I also find that the failure on 17 August 2001 to meet the margin call constituted a breach by SC of, and an event of default under, cl 10.1(a) of the options agreement, and a breach by Mr and Mrs Morgan of cl 7.1 of the loan agreement. 181 As for the Second Cross-Claim, SC and Mr and Mrs Morgan were, respectively, the First, Second and Third Cross-Claimants and Equities and Private were, respectively, the First and Second Cross-Defendants. 182 In written submissions (10 September 2003) for these Cross-Claimants it was put: "3. The claims for relief in the Second Cross-Claim are by Mr and Mrs Morgan and they essentially only apply to the case made by the Defendants on the Amended Cross-Claim in the event that the Court finds that on their true construction that Mr and Mrs Morgan were and remained a party to margin lending account (sic) with BNP Equities". (See also: written submissions 23 September 2003 paras 9, 10). 183 As I understand it, the Cross-Claimants assert that the conduct of BNP which they relied upon in support of the claims of novation and estoppel constituted conduct which was misleading in contravention of s 52 Trade Practices Act 1974 (Cth). It was put that by such conduct BNP represented that SC was and remained the sole borrower from Equities under the margin lending facility and that Mr and Mrs Morgan were not liable in respect of funds provided to SC for its share trading activities. In my opinion the claim is baseless, and has been negated by my findings in respect of the loan agreement and other documents in support of the margin lending facility, and by the rejection of the claims of novation and estoppel. 184 There was also a claim for relief based on an allegation of unconscionable conduct on the part of BNP. Because I found the submissions in support of it very difficult to follow I quote from the written submissions of 23 September 2003: "24. To the extent that the Court finds that the sending of the statements on the margin lending account amounted to a representation that the borrower was Sydney Concrete, and to the extent that the Court also finds that in the circumstances BNP Equities unreasonably failed to disclose its intention ultimately to rely on the margin lending facility as binding the Morgans personally, that would be relevant conduct within the meaning of s 51AC(3)(i) of the Trade Practices Act ". In rejecting the allegation of unconscionable conduct it is sufficient to say that there was no evidence whatsoever available to support it. 185 Accordingly, for the above reasons I propose to order that the Summons and Second Cross-Claim be dismissed. BNP are entitled to recover under the Amended Cross-Claim damages against Mr and Mrs Morgan and SC for loss occasioned by their failure to comply with the relevant agreements. It will be remembered that SC accepted that it was the borrower under a margin lending facility with Equities and that shares acquired under it were subject to a mortgage in favour of Equities (eg T p 296; 452). 186 As questions of damages and other relief were deferred pending determination of issues of liability it is appropriate to hear the parties on the outstanding issues, and as to the appropriate orders to be made if these cannot be agreed between them. It is also appropriate to afford the parties the opportunity to address me in relation to costs. 187 Arrangements should be made with my Associate by 2 July 2004 for the re-listing of this matter. ********** Last Modified: 07/12/2004 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.