New South Wales Supreme Court CITATION : Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Group Corporation Ltd & Ors [2006] NSWSC 1348 HEARING DATE(S) : 14-17/11/05, 21-23/11/05 JUDGMENT DATE : 8 December 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : White J DECISION : 1. Judgment for plaintiff against first defendant in the sum of $231,441.14; 2. judgment for plaintiff against second defendant in the sum of $205.976.50; 3. judgment for third defendant; 4. exhibits may be returned after 28 days. CATCHWORDS : CONTRACT – Proposed program for assignment of receivables under finance leases of luxury motor vehicles – Whether first defendant agreed to provide funding of up to $50 million per annum – Intention to contract – Where parties signed letter containing some terms intending performance to be conditional on execution of formal agreement containing other terms – Whether parties intended any contract prior to execution of formal agreement – Whether agreements inconsistent – Whether earlier agreement discharged an execution of formal contract – Held agreements were complementary - CONTRACT – Where first defendant did not fail to consider any leasing proposal because none was submitted – No actual breach – Anticipatory breach – Whether contract repudiated by first defendant's advising inability to secure funding – Whether contract terminated or abandoned before repudiation accepted – Held plaintiff terminated contract by accepting first defendant's repudiation - DAMAGES – Where contract terminable on one month's notice – Where virtually certain that first defendant would have exercised its contractual right of termination had performance been insisted on – Held damages for loss of bargain limited to loss of profits which would have been derived during period of notice - TRADE PRACTICES – Misleading and deceptive conduct in relation to supply of financial services – Misrepresentations as to availability of funding – Representation that funding had been obtained from securitiser – First defendant failed to disclose tax features of leasing product to securitiser – Securitiser entitled to reject any particular proposal – Securitiser withdrew funding after becoming aware of particular features of finance leases – Whether plaintiff had been advised of first defendant's non-disclosure of tax features to securitiser – Held representations misleading and were relied on by plaintiff in entering agreements with first defendant - DAMAGES – Whether plaintiff lost opportunity to secure finance for finance leases from other financiers – Held loss of opportunity no more than speculative - DAMAGES – Plaintiff entitled to recover expenditure on program in reliance on representations, less income derived and contractual damages claim – what loss proved - PRINCIPAL AND AGENT – Whether directors liable as primary contravenors of s 12DA of ASIC Act for misrepresentations in letter signed by one of them - ACCESSARIES – Whether director liable as an accessary. Trade Practices Act 1974 (Cth) Australian Securities and Investments Commission Act 2001 (Cth) Fair Trading Act 1999 (VIC) Fair Trading Act 1987 (NSW) LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) Civil Procedure Act 2005 (NSW) Australian Securities and Investments Commission Regulations 2001(Cth) Wrongs Act 1958 (VIC) Corporations Act 2001 (Cth) Peter Warren (Properties) Pty Ltd v Jalvoran [2005] ANZ ConvR 52; [2004] NSWSC 1149 Australia Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Masters v Cameron (1954) 91 CLR 353 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 Palmer v Johnson (1884) 13 QBD 351 Gillespie Bros & Co v Cheney, Eggar & Co [1896] 2 QB 59 Ticehurst v Moore (1907) 7 SR (NSW) 202 Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 DTR Nominees v Mona Homes Pty Ltd (1978) 138 CLR 423 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Foran v Wight (1989) 168 CLR 385 Shevill v Builders Licensing Board (1982) 149 CLR 620 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 CASES CITED : Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalos Angelos) [1971] 1 QB 164 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Arktos Pty LTd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 ALR 633 Cleary v Australian Co-operative Foods Ltd (1999) 32 ACSR 701 Citibank Ltd v Liu [2003] NSWSC 569 Wong v Citibank Ltd [2004] NSWCA 396 Arms v Houghton [2006] FCAFC 46 Astvilla Pty Ltd v Director of Consumer Affairs Victoria [2006] VSC 289 Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 Yorke v Lucas (1985) 158 CLR 661 Giorgianni v The Queen (1985) 156 CLR 473 Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539 M Pearce SC, "Accessorial Liability for Misleading or Deceptive Conduct" (2006) 80 ALJ 104 Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 Motor Trade Finances Prestige Leasing Pty Ltd PARTIES : v Elderslie Finance Group Corporation Ltd & Ors FILE NUMBER(S) : SC 50064/05 COUNSEL : Plaintiff: J Richards Defendants: C R C Newlinds SC & T Wong SOLICITORS : Plaintiff: Slidders Lawyers Defendants: Clayton Utz IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST WHITE J Friday, 8 December 2006 50064/05 Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Group Corporation Ltd & Ors JUDGMENT Introduction 1 HIS HONOUR: These are proceedings for damages for breach of contract or misleading and deceptive conduct. 2 The plaintiff ("MTFPL") was incorporated on 13 February 2002 as a special purpose vehicle for the purpose of entering into an agreement with the defendant ("Elderslie"). The plaintiff is controlled by a Mr Craig Dunn. Mr Dunn is also a director of Motor Trade Finances Australia Pty Ltd ("MTFA"). Through MTFA and associated companies, he has been involved in the business of motor vehicle financing and leasing since 1989. Elderslie is a finance company. 3 MTFPL alleges that two contracts were entered into with Elderslie for the purchase by Elderslie of lease receivables for prestige motor vehicles. MTFPL was to lease prestige motor vehicles to approved customers and assign receivables under the leases to Elderslie. Elderslie was to provide funding to the program through a securitiser, Societe Generale Australia Ltd ("Societe Generale" or "SG"). A key feature of the lease finance which Mr Dunn had devised was the provision of a tax benefit to the lessee. This distinguished it from other lease finance products available in the marketplace. Letter of Offer of 8 March 2002 4 By a letter dated 8 March 2002, Elderslie advised that: " Approval has been obtained to the commencement of the receivable securitisation program on the following terms and conditions. " The letter is set out in more detail later in these reasons. MTFPL was called the Originator. Elderslie and a company associated with it (Australian Integrated Finance Pty Ltd ("AIF")) were called the Manager. The program securitiser was Societe Generale. The terms included the following: " Program Amount Up to $50 million annually, however at the discretion of the Manager and SG this amount may be increased. … Security The following documentation is to be in place and properly executed before the Manager may purchase any receivables: a) Master Receivables Purchase Agreement between the Manager and the Originator b) Fixed and floating mortgage debenture charge over the Originator … (f) Such other reasonable documentation as deemed necessary by the Manager's legal representative to protect its position. " 5 The letter contained terms dealing with, amongst other things, pricing, credit assessment, the delegation of authority to approve applications for credit, the establishment of a loss reserve, the contribution by MTFPL of $15,000 towards legal expenses, and the establishment of on-line credit processing facilities. It described how the program would work as follows: " Essentially the transaction is envisaged to function as follows: § The Originator will receive lease applications for the leasing of prestige motor vehicles from clients ("the Lessees") § The Originator may from time to time submit lease discount proposals to the Manager. In consideration for the purchase of the lease receivables by the Manager, the Originator will assign each of the following: a) Total rent payable under the Lease; b) All moneys and damages (to the extent that they are assignable) which are not or may hereinafter become payable or receivable under the Lease; c) The benefit of all powers and remedies for enforcing payment of any of the foregoing expressed to be conferred on the Originator by the provision of the Lease; d) The benefit of a guarantee (if any) given by any third party supporting the obligation of Lessees under the Lease. § The security for rights purchased by the Manager is a charge over the motor vehicles subject to the Lease; § The discount consideration payable by the Manager in respect of the purchase of the lease receivables will be the net present value of the receivables purchase using the discount factor detailed herein under the Program Pricing; § Under the discount proposal, the Manager may on behalf of the Originator dispose of the motor vehicle at the expiration of the Lease either by public auction or private auction or private treaty. This will ensure that the Manager receives the proceeds of the sales of the vehicle which it has acquired as part of the transaction; § The Originator has no further interest in the lease or goods, upon the assignment of receivables and appointment of the Manager as agent to dispose of the vehicle and retain the proceeds." 6 The letter concluded by saying: "W e trust the foregoing is acceptable to you and request that you sign and return the attached duplicate of this letter following which we will commence preparation of legal documentation and other on-line IT service installations. " 7 The letter was signed by Mr Luis Garcia, a director of Elderslie. The letter contained a provision for acceptance by MTFPL under the heading "Offer Accepted". On 11 March 2002, Mr Dunn accepted the offer on behalf of MTFPL. He returned it to Elderslie. 8 MTFPL claims that there was a binding agreement that Elderslie would provide funding of up to $50,000,000 annually for the program, on the terms of the letter. Master Receivables Purchase Agreement ("MRPA") 9 On 9 April 2002, the parties entered into the Master Receivables Purchase Agreement (along with other agreements). MTFPL was called the Vendor. Elderslie was called the Purchaser. Clause 2.1 provided: " 2.1 Proposal The Vendor may from time to time propose the sale of Contract Rights arising under a Lease Contract or Lease Contracts to the Purchaser on the terms and conditions set out in this document by giving the Purchaser a Purchase Proposal in accordance with clause 2.2. " 10 Clause 2.2 set out what was required to be included in a Purchase Proposal. 11 Clause 3.1 relevantly provided: " 3.1 Acceptance of a proposal With respect to accepting the terms of a Purchase Proposal: (a) the Purchaser is not obliged to: (i) accept any Lease Contract the subject of a Purchase Proposal as an Approved Lease Contract; and (ii) pay the Purchase Price specified in a Purchase Proposal; (b) during the period from the date of this document until the Termination Date, the Purchaser: (i) will consider all Purchase Proposals made under clause 2.1; (ii) where the Customer is a government entity, will not reject any Purchase Proposal on the sole ground of the creditworthiness of that Customer or any Lease Contract Guarantor; and (iii) where the Customer is not a government entity, will make such decision in relation to a Purchase Proposal as it determines in its absolute discretion; (c) the Purchaser will communicate its acceptance of the proposed terms set out in a Purchase Proposal to the extent that such terms are set out in an Offer Notice served on the Vendor by the Purchaser; (d) where the Purchaser accepts any term set out in a Purchase Proposal, it may do so subject to such condition(s) that it may determine in its absolute discretion, which it will set out in the Offer Notice; (e) the Purchaser will not be obliged to disclose its reasons for rejecting any proposed term set out in a Purchase Proposal or imposing any conditions on the acceptance of any such term; and … " 12 Clause 10 provided: " 10. Termination 10.1 Either party may terminate This document shall commence immediately and shall continue until it is terminated by either party giving to the other party one calendar month's notice. 10.2 Obligations Survive The termination of this document shall not prejudice any rights already accrued between the parties in respect of an Approved Lease Contract prior to its termination. " 13 Elderslie had arranged with SG that SG would provide funding for the program. SG also had an absolute discretion whether or not to fund particular proposals. SG Withdrawal 14 When the agreements were entered into with MTFPL, Elderslie had not disclosed to SG the tax aspects of the proposal, even though the tax benefit to a customer was the key selling point of the proposal. As explained in more detail below, the tax advantage to a lessee arose from the stipulation in the lease contract of the residual value of the vehicle at the end of the lease being as close as possible to the anticipated market value of the vehicle at the end of the lease. In the case of the prestige cars in question, this could typically be about 65% of the purchase cost of the car at the commencement of the lease, rather than the residual values of about 40% which were then typical in the market. 15 It was not until late June or July 2002 that SG appreciated that the product was driven by perceived tax benefits to the lessee. On 7 or 8 August 2002, SG advised Elderslie that SG did not propose to continue with the MTFPL car leasing deal. This was because SG did not want to be involved in any arrangement which had even a hint of tax structuring. They were only prepared to look at "straight up and down luxury car finance leases". Elderslie communicated this advice to Mr Dunn on 8 August 2002. Elderslie's e-mail of 8 August 2002 to Mr Dunn noted that SG had mentioned a figure of $2,500,000 as the amount of ongoing funding which SG might provide. On 20 August 2002, SG advised Elderslie that it would provide funding of $4,000,000 for three months. On 18 December 2002, it advised that its agreement with Elderslie had expired, and it was unable to fund any further transactions. MTFPL's Income 16 Between 9 April 2002 and 18 December 2002, seventeen contracts were entered into for a total sum of $2,329,305. MTFPL's income from the transactions (after payment of brokerage) totalled $104,558.86, or 4.4888% of the amount financed. MTFPL's Claim Under the Letter of 8 March 2002 17 MTFPL claims that a contract arose from the offer and acceptance of 8 and 11 March 2002, pursuant to which Elderslie was obliged to provide funding of up to $50,000,000 per annum for the program. It alleges that Elderslie breached that contract by instructing MTFPL to cease submitting purchase proposals to it after 8 August 2002, and by Elderslie's ceasing to fund any purchase proposals after 31 December 2002. MTFPL also alleges that it was an implied term of this contract that Elderslie would secure and enforce a legally binding commitment to provide funding to it of the Program Amount for the program, and would use the Program Amount to operate the program in accordance with the terms of the security documentation. It alleges that Elderslie breached that term by failing to secure and enforce such a commitment from SG to provide funding of up to $50,000,000 for the program, by failing to arrange replacement funding to allow the program to continue, and by failing or refusing to process purchase proposals. 18 Elderslie denies that the letter of offer of 8 March 2002 and its acceptance created a binding legal agreement. It says that the letter amounted to an agreement on terms, (to the extent such terms were set out in the letter), but says that any contract was subject to formal documentation. Alternatively, Elderslie says that any contract brought into existence on 11 March 2002 was discharged by the Master Receivables Purchase Agreement, which contained additional terms and was entered into in substitution for the first contract. 19 If these contentions are rejected, Elderslie submits that there was no express term of the letter of offer requiring it to provide funding unconditionally. It submits that there was neither an express nor an implied term which required it to procure or guarantee the provision of finance up to $50,000,000. The letter of offer envisaged that the processing of any proposals for the purchase of receivables was conditional upon the parties entering into the Master Receivables Purchase Agreement. Under that agreement, Elderslie had an absolute discretion as to whether or not it accepted any proposal. Elderslie submits that the phrase "up to $50,000,000 annually" in the letter of offer, if it has any meaning, was no more than a representation as to expected volumes of business, rather than a promise to provide funds, or to ensure that such funds would be available. Alternatively, if there were an implied term concerning funding, Elderslie says that such a term was to the effect that it would use its best endeavours to obtain funding. MTFPL's Claim Under the Master Receivables Purchase Agreement ("MRPA") 20 The Master Receivables Purchase Agreement ("MRPA") obliged Elderslie to consider all proposals submitted. It had a discretion to refuse proposals. MTFPL pleaded that it was an implied term of the agreement that any discretion vested in Elderslie was to be exercised in good faith and reasonably. Elderslie admitted that that term was implied. 21 MTFPL pleaded that Elderslie breached the MRPA by ceasing to fund any purchase proposals after 31 December 2002, by failing or refusing to arrange replacement funding to allow its program to continue, by failing or refusing to secure a replacement Program Securitiser, and by failing or refusing to process purchase proposals pursuant to the agreement. It also alleges that Elderslie repudiated the agreement. 22 Elderslie contends that it did not breach the agreement. It says that it was entitled not to approve of any purchase proposal if it did not have the funding available. In fact, it accepted all proposals that were submitted. It denied that it repudiated the contract. It said that all it did was pass on the information that its funding had been withdrawn. Elderslie contends that it was not obliged to have funding in place and its conduct did not amount to a repudiation. 23 Elderslie submits that if it repudiated the MRPA, that repudiation was not accepted by MTFPL. 24 MTFPL purported to accept the repudiation and terminate the contract when it filed an amended statement of claim in these proceedings on 23 December 2004. Elderslie claims that it terminated the MRPA on 20 December 2002, when it informed Mr Dunn that the interim funding provided by SG had ceased. It says that MTFPL accepted that the contract had been terminated by declining to submit any further proposals to Elderslie pursuant to the MRPA. It says that the parties waived the notice requirement in clause 10. 25 Elderslie says that if it repudiated the contract and MTFPL accepted the repudiation and brought the contract to an end, MTFPL's damages for loss of profits were limited to the profits which MTFPL would have earned during the period of notice, which it should be inferred Elderslie would have given had MTFPL continued to submit proposals and had MTFPL asserted that Elderslie was required to provide funding for them. Misleading and Deceptive Conduct Claim 26 MTFPL claims it suffered damage by conduct of Elderslie which was misleading or deceptive, and engaged in in contravention of s 52 of the Trade Practices Act 1974 (Cth), or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). MTFPL alleges that Elderslie made three representations to it which were misleading and deceptive. The first was that Elderslie was able, or would be able, or had the capacity, to process or accept purchase proposals to a value of not less than $50,000,000 annually. The second was that it had secured, or that it would be able to secure, a legally binding commitment from SG to provide funding of $50,000,000 annually for its program. The third was that Elderslie was able, or would be able, or had the capacity, to increase or extend that facility limit beyond $50,000,000 annually. 27 Elderslie contends that it did secure funding from SG of more than $50,000,000 annually for the plaintiff's program, and it had the capacity to extend that level of funding. It says that if the representations were made, they were true. It says that it did not represent that the funding to be obtained from SG was guaranteed or more secure than the arrangement that existed between the plaintiff and Elderslie. It submits that in any event, MTFPL made no assumptions about the nature of Elderslie's relationship with SG. 28 MTFPL also alleges that the second and third defendants, Messrs Garcia and Garrett contravened s 12DA of the ASIC Act, s 9 of the Fair Trading Act 1999 (VIC), or s 42 of the Fair Trading Act 1987 (NSW), and are liable as principal contravenors. It also alleges that they are liable as accessaries to Elderslie's contravention of the Trade Practices Act or the ASIC Act. The Parties' Position on Damages 29 MTFPL said that the likely success of the program could be gauged from the success of an earlier program arranged through Esanda Finance Corporation Limited ("Esanda") for a product which MTFPL claims was a similar product. MTFPL contended that by at least the second year of trading, the plaintiff's turnover would have been at least $50,000,000 per annum, and possibly $120,000,000 per annum. MTFPL expected gross profit on a full year's turnover of $50,000,000 would be $2,244,422. MTFPL assessed its damages on the basis that the program could reasonably have been expected to run for at least five years. 30 MTFPL claims that it suffered damage through Elderslie's misleading and deceptive conduct by not taking up other opportunities which would have been available to it to obtain finance for the program. It claims damages for the loss of profits which it would otherwise have earned through a different program, had it not been induced by Elderslie to proceed with Elderslie. It says that it was unable to take up such opportunities after August or December 2002 because it had burnt its bridges with other potential arrangers of finance once it decided to proceed with Elderslie. 31 Elderslie says that the program is unlikely to have been successful even if funding had been available. That was reflected by the fact that neither Elderslie nor MTFPL was able to secure alternative funding. 32 MTFPL claims that it incurred wasted expenses totalling $693,852 in implementing and promoting the program between 11 March 2002 and 6 April 2004. A claim for stamp duty and GST was not pressed. 33 A related company of Mr Dunn's, Macburg Pty Ltd, invoiced MTFPL for administrative services, allegedly provided pursuant to a management agreement of 14 March 2002. The amounts invoiced totalled $546,252. The balance of $147,600 related to a damages claim for an insurance underwriting fee of $100,000 and out of pocket costs of $47,600. There was no evidence to support the former claim. The latter claim was duplicated in the claim of $546,252. 34 Elderslie submitted that the evidence was insufficient to establish that management services were in fact provided. If they were, Elderslie submitted that there was no causal connection between the alleged breaches of contract, or misleading and deceptive conduct, and the loss claimed. Alternatively, it says that MTFPL failed to mitigate its loss by not bringing the agreement with Macburg to an end, and by not instructing Macburg to cease incurring expenses to be passed on to it. Mr Dunn's Background 35 Mr Dunn was an accountant practising in taxation. He established the Motor Trade Finance group of companies. Since about 1989, MTFA has been involved in motor vehicle financing and leasing, focusing on the luxury car market for business use, principally doctors and other professionals. It had established links with motorcar dealers and finance brokers. Between 1990 and August 1996, MTFA arranged finance leases for prestige motor vehicles for sums totalling $254,870,000. The financing grew in volume between 1991 and 1994 from less than $1,000,000 (in 1990) to $43,000,000 in 1994. In 1995, the amount financed exceeded $93,000,000. The business ceased abruptly in August 1996 when the government changed the tax laws. Mr Dunn accepted that the advantageous feature of the finance lease product which MTFA promoted during this period enabled leases to be offered at cheaper rates than were available for other products. MTFPL's Lease Finance Product 36 On 5 February 2001, Mr Dunn wrote to Mr Garcia at Capricorn Capital Ltd (a company associated with Elderslie) setting out details of his motor vehicle leasing funding proposal. He advised that the MTFA Group had recently developed a new leasing product and was seeking funding for the vehicles it would lease. He expressed the opinion that the group would be able to write $10,000,000 of finance leases a month, or about 100 cars a month based on an average "loan" per transaction of $96,000. 37 Motor vehicle leases are not loans. However, from 20 August 1996, motor vehicle leases for cars costing more than $55,134 ("luxury cars") have been taxed on the basis that the car is notionally sold by the lessor to the lessee. The lessee of such a car for business purposes is not entitled to a deduction for the lease payments. He or she is entitled to claim a deduction for depreciation based on the lesser of the acquisition cost and $55,134. The lessor is taken to have made a notional loan for the period corresponding with the term of the lease. The amount provided by the lessor for the lessee to acquire the car is the notional loan principal. The payments made over the term of the lease and on its termination are used to calculate an implicit interest rate, which is used to calculate an "accrual amount" for each "accrual period" of the lease. A person who leases a prestige car for business purposes is not entitled to deduct the rental payment, but is entitled to claim a deduction for the "accrual amount" for the notional loan in each "accrual period". The notional rate of implicit interest is calculated as the compound interest for the accrual period at which the sum of the present value of the lease payments and any other amounts payable by the lessee, and the present value of any termination amount, equals the notional loan principal (Income Tax Assessment Act 1936 (Cth) Schedule 2E, Div 42A, s 42A-150). The higher the "termination amount" the higher the implicit interest rate. In other words, the more the lessee has to pay in lease payments, and the greater the "termination amount", the greater the cost of the lease finance, and therefore the greater the deduction. 38 The "termination amount" means: " an amount payable on the expiry, or termination before expiry, of a lease of a motor car and includes: a. if, on the expiry or termination, the lessee acquires the car from the lessor – an amount payable to the lessor for the acquisition; or b. otherwise – the value of the car at the time of the expiry or termination. " (s 42A-115) 39 Mr Dunn had analysed the market values of various makes of prestige motor cars. A finance lease is typically taken for a period of four years. He determined that at the end of that period, the market values of such cars were typically about 65% of their price as new. On the other hand, it was typical for finance leases to provide for a residual value of such cars of 40%. This meant that unless the lessee acquired the car from the lessor at the residual value of 40%, the lessee should be entitled to claim deductions for the lease of the car on the basis of the car having a market value at the expiry of the lease of 65%. Adjustments to the lessee's tax deduction can be made at the end of a lease, if the deduction has been calculated on an assumption as to the likely termination amount which differs from the actual termination amount, provided that the adjustment to the lessee's tax deduction reflects the lessor's declared income (s 42A-70). 40 Mr Dunn said that his product provided a tax advantage to lessees because the lessee would not acquire the car from the lessor at the expiry of the lease. Accordingly, the "termination amount" should be assessed as the market value of the car at the expiry of the lease. This would be estimated at the commencement of the lease based upon industry figures at the rate at which such luxury motor vehicles lost their value over time, rather than by applying the residual values which were standard in the industry. Under such finance leases, the lessee does not have an option to acquire the car at its residual value. 41 On 1 May 2001, Mr Garcia prepared a memorandum for other officers of Elderslie in which he summarised the proposed structure. He said: " MTFA has structured a financing package that provides its customers with deductible instalments equivalent to 100% of the lease payments over the term of the lease. It achieves this by structuring a higher residual value than normal and then insures that position against credit loss. An example is detailed below: Example Finance Lease for purchase of a Mercedes Benz E380 Purchase Price $100,000 (Estimated deposit from lessee is in the order of $10,000) Residual Value $65,071.70 (Insured RV component - $25,071.70) Term 48 months Monthly Payments $1,824.74 (in advance) Normal Lease (40% RV) Insured RV lease (65% RV) Sum of payments 87,587.0 87,587.0 Finance Charges 27,587.3 52,658.7 Depreciation 34,928.6 34,928.6 Total Deductions 62,515.9 87,587.3 Effective Interest Rate 9.75%pa 15.88%pa Normal lease RV = Total RV $65,071 minus Insured RV $25,071 The effect of the structure is to lift the total RV component of the lease to a level where the notional interest on the lease equates to the foregone value of the depreciation. The result is that the lessee is placed in a position equivalent to that achievable if Division 42A had not applied. MTFA has operated this structure over many years and holds tax opinions that will be made available to EFCL as part of the pre-conditions to formal approval. " 42 Mr Dunn gave Mr Garcia a memorandum entitled "Document Detailing All the Legal Rights and Obligations of the Parties". This memorandum explained the function of the "residual value insurance" as follows: " MTFA now writes a Lease as usual however the Residual Value (the estimated value of the goods at the expiration of the period of Lease) will be partially credit insured against risk of realisation. The beneficiary of this Insurance will be MTFA and indirectly the lessee … each vehicle Lease will have a portion of the Residual Value insured … . … Subsequent to acceptance of the lease agreement MTFA then assigns its right to receivables to Elderslie and irrevocably appoints Elderslie as agent to dispose of the vehicle at the expiration of the lease. MTFA at this point has received all its profit in the lease and has abrogated all its risk … The assignment to the Financier takes place based on a calculation for satisfactory return using the Uninsured Residual Value … the Financier however, is entitled to exercise his commercial discretion on disposal of cars in the same manner he previously would have as if he had been the lessor. Elderslie will dispose of the vehicle subject to any conditions which in the interest of such disposal the Financier may think fit. It is our belief that Elderslie will sell the vehicle for the uninsured portion of the residual value and retain the sale proceeds. The insurance which is in favour of MTFA at the time of acceptance becomes unclaimable when MTFA has disposed of its entitlement to Residual Value as part of the sale process of the receivables as MTFA can no longer incur a loss. MTFA when it executes a Lease and the Insurance will give an acknowledgement of the insured portion of the Residual to the Lessee. " (emphasis in original). 43 There are three important matters in this passage. The first is that the financier is expected to calculate its return using the lower, Uninsured Residual Value. The second is that Elderslie was expected to sell the vehicle for the lower uninsured portion of the residual value, not for its market value reflected by the higher residual value stated in the lease. There would be no reason for it to sell at the lower price unless it sold the vehicle to the lessee, or at the lessee's direction, because of an expectation not reflected in the lease. The third is that in some unexplained way, the credit insurance of the Insured Residual Value was expected to be of indirect benefit to the lessee. 44 On the face of the lease documents, the lessee would be entitled to a higher tax deduction because he or she would have paid a higher finance charge. The lessee had no entitlement under the lease to acquire the car at its residual value. The lessee could be required to pay to the lessor the residual value stated in the lease if the lessor disposed of the car at the end of the lease for less than its residual value. The higher the residual value in the lease, the greater the lessee's exposure. The lease provided for the residual value to be set at the anticipated market value of the car, rather than at a lower value which was standard in the industry. 45 However, both the memorandum referred to in para [42] and documents prepared by Elderslie, suggest that the lease finance industry did not operate strictly in accordance with the lease documentation. In the example given in Mr Garcia's memorandum of 1 May 2001, a financier would calculate the cost of lease finance at an effective interest rate of 9.75% per annum, on the basis that at the end of the lease, a motorcar which was purchased for $100,000 would be disposed of and the financier would receive $40,000. Clearly enough, if the lease provided for the lessor to receive not $40,000, but $65,000, the cost of the notional loan would be that much higher. It would be because the cost of the loan was higher that the lessee would be entitled to a greater tax deduction. 46 It must have been implicit in the financier estimating an effective interest rate of 9.75% per annum, based on a residual value of 40% of the original purchase price, even though the market value of the car at the end of the lease would be 65% of the original purchase price, that the financier intended that the lessee, and not it, would be entitled to the difference between the stated residual value in the lease and the market value of the car. 47 That was made clear in the analysis of the "residual value insurance" quoted above, where it was stated that the receivable to be assigned to the financier would be based upon the "uninsured residual value", that is to say, 40% in the example given, and that the financier would be entitled to use his "commercial discretion on disposal of cars in the same manner he previously would have". 48 The idea was that lessees would be entitled to tax deductions based on the monthly lease payments and the higher residual values reflecting the expected market values of the cars. In the case of a simple lease, the lessor would derive assessable income on the same basis (s 42A-35). However, MTFPL was to assign the receivables under the lease. The MRPA provides that the receivables to be assigned include "the amount that the vendor (MTFPL) records as the 'Purchased Residual Value' for that Lease Contract … in a Purchase Proposal, as confirmed by the Purchaser in the Schedule to an offer Notice". The lower uninsured residual value was assigned to Elderslie. (This is clear from a comparison of the lease schedule and the assignment form). The lessor would bring to account for tax purposes the amount it received on the assignment of the receivables and claim the cost of purchase of the car as a deduction. As MTFPL would only receive from Elderslie the discounted value of the lower uninsured residual value, it would not pay tax on the same basis as the lessee would claim a tax deduction. Accordingly, it was important that the residual value stated in the lease, (which would be used to calculate the lessee's tax deductions during the term of the lease), be as close as possible to the car's market value at termination of the lease. 49 During the course of his oral evidence, Mr Dunn said that it was an implied term of the arrangement that the lessee would not be required to pay any part of the residual value for which credit insurance was obtained. That is a very odd notion of credit insurance. There was no term of the insurance policy to that effect. If that were the arrangement, the provisions of the lease concerning the lessee's obligation to ensure that the lessor received the stated residual value for the car on termination of the lease would be a sham in the strict sense. That is, those provisions would not be intended to take effect according to their tenor. Mr Dunn admitted that the credit insurance would never be called on. It can be ignored in considering the available tax benefits and the likely competitiveness of the product. The credit insurance had no apparent purpose except to add a layer of complexity to the product in case the claimed tax advantages were challenged. 50 There is no reason to doubt that if the documents executed by the lessee were intended to take effect according to their tenor, the lessee would be entitled to a higher tax deduction based upon the higher residual value stated in the lease. However, that would be because the lessee would be paying more for his or her finance than he or she would in the case of a "normal lease" if there were a lower residual value, and the lessee, although having no legal right to do so, was expected to acquire the motor vehicle at the end of the lease for the stated residual value. 51 Mr Dunn denied that with the plaintiff's product, it was anticipated that the cars would be purchased on termination of the lease for the lower uninsured residual value. If that is so, the product would be at a disadvantage to any other lease finance where the lessee could expect to acquire the car at the end of the lease for its residual value, even if it had no right to do so. 52 I do not accept that once the product became known in the market place, it would have been more competitive than any other finance lease. I infer that the usual practice in the industry was that the lessee could acquire the motor vehicle at the end of the lease for its residual value, even though the lease gave it no right to do so. This can be inferred from the fact that the financier priced the lease finance on the basis that at the end of the lease, it would receive the stated residual value, rather than the market value of the car. It was also the assumption of Elderslie's executives. Thus, Mr James Garrett, who was a director of Elderslie, wrote to Mr David Gordon of SG on 20 June 2002 explaining the tax benefits of the lease product (p 1700). He said: " By introducing the element of insuring the RV by an additional $13,671.40 the RV becomes $46,071.40. Holding the net payment constant at $1,450.04, the cost at $81,000, for 48 months in advance, the notional funding rate becomes 13.54%. This gives the lessee a total deduction of $70,176.35 (ie: $34,673.53 interest, $34,928.60 of depreciation and $574.22 stamp duty). The total amount paid by the lessee is $102,002.13 (ie: 48 * $1,450.04 plus $32,400) and the cash value of the deduction at 48.5% is $34,035.53. This is a net cost of $67,966.60. This needs to be compared to a competitive HP product which charges 8.00%. This would have a monthly charge of $1,428.10 and the same RV of $34,400.00. The total cost is therefore $100,948.62 (48 * $1,428.10 plus $32,400). The deductions here would total $55,391.34 (the same depreciation amount of $34,928.60, $19,948.62 of interest and $514.11 of stamp duty). The cash value of the deduction at 48.5% is $26,864.80. Hence the net cost is $74,083.82. By comparing the two net costs, the finance lease is $6,117.23 cheaper than the HP. " 53 In other words, it was assumed that the lessee would pay the lower uninsured residual value, and this payment plus the rental payments would be the financier's only return. The comparison with a hire purchase contract shows that it was expected that the lessee would acquire the car, notwithstanding the lease gave it no right to do so. 54 Mr Garrett gave a similar explanation as to how he understood the product would work in his affidavit. He said that he understood that at the end of the lease the lessee would buy the car from Elderslie at the lower or uninsured residual value, and claim a tax deduction for the interest payments which were based upon the market value of the car at the time of termination. 55 The lessee's obligation, as set out in the lease, was to indemnify the lessor against the difference between the higher residual value stated in the lease and the price realised by the lessor on sale of the vehicle. This apparent obligation was not reflected in any of the calculations of benefits to be derived from the product. It also appears that the so-called credit insurance was not expected to be called on. 56 If the lessee acquired the car at the end of the lease at the lower uninsured residual value, rather than at its market value reflected by the stated residual in the lease, the lessee may be entitled to the stated tax advantage having regard to the definition of "termination amount" in s 42A-115 as being the "value of the car at the time of the expiry or termination" of the lease, provided the car was not purchased from the lessor. The question would be whether the car's "value" was the price at which it was sold or its market value. 57 However, it is far from clear that if the lessee did wish to purchase the car at the end of the lease, he would not acquire the car from the lessor. The assignment by MTFPL to Elderslie was of the receivables under the lease. The agreement did not provide for the transfer of the legal title to the car. MTFPL remained the legal owner of the car. Under clause 5.2 of the Master Receivables Purchase Agreement, upon Elderslie accepting an offer, MTFPL's interest in the leased goods was assigned by way of security to Elderslie. However, the assignment took effect in equity only (clause 5.3). There was no transfer of the legal title in the leased goods. Elderslie was appointed as agent of MTFPL to sell the leased goods on the termination of the contract. As Elderslie would be selling as MTFPL's agent, the purchaser would be acquiring the car from the lessor. The fact that Elderslie was entitled to the proceeds of sale pursuant to the assignment, (except to the extent to which the goods were sold for more than the lower uninsured residual value, in which case, the excess was to be divided equally between MTFPL and Elderslie), would not change the fact that title would pass from the lessor. If the sale were at the lower uninsured residual value, the lessee's entitlement to a tax deduction would be based upon that lower value. 58 On 24 August 2001, Elderslie sent to Mr Dunn a paper prepared by its taxation advisers, Boyd Partners regarding the tax methodology of the leases. Boyd Partners opined that the proposal created a commercial risk for all parties, including the financier. They advised that counsel's advice be obtained on the structure, including the anti-avoidance measures in Part IVA of the Income Tax Assessment Act 1936 (Cth). 59 Mr Dunn responded on 11 September 2001. He also later provided such tax advice from Mr Phillip Searle of counsel. In his letter dated 11 September 2001, Mr Dunn said: " At law the transaction is a Lease not a loan, and no interest rate is specified to the Lessee. The Lessee has no obligation to pay the Residual Value and has no preemptive right to acquire the vehicle from the MTFA, the owner of the vehicle. In fact the Lease Agreement specifies that the vehicle must be returned to MTFA at the expiration of the Lease. The Lessee is obliged to make the rental payments as a condition of the rental agreement. The rental payments for an MTFA Lease are not greater than the rental payments for a comparative Finance Lease provider, and therefore the Lease is not more expensive. In relation to MTFA, it is entitled to set a Residual Value (the estimated value of the goods at the expiration of the period of Lease) at its discretion, which has a bearing on its yield to maturity of the Lease, bearing in mind the fixed rental payments it will receive and the sale proceeds it may receive upon the ultimate disposal of the vehicle. If the Lessor chooses to set a higher Residual Value to increase its yield it is entitled to that discretion. The Lessor MTFA is also entitled to forgo that higher potential yield earned over the term of the Lease by discounting the return for a lesser net present value income with no cost or risk of collection. The Lessee having chosen to pay a rental payment the same as any other Finance Lease provider is bound by the provisions of Div 42A which spells out that for tax purposes luxury leases are to be treated as though they were a loan. A lessee will therefore be entitled to a deduction for notional depreciation and a deduction for a finance charge calculated pursuant to the provisions of Division 42A. " 60 It is implicit in this reasoning that it was not expected that the lease documentation would take effect according to its tenor. That is to say, it was not expected that the lessee would be required to make good to the lessor the difference between the net proceeds obtained by the lessor on disposal of the car at the expiration of the lease and the residual value of the goods stated in the lease. If it were expected that the lessee would have such an obligation, the lease would be more expensive than a lease with a lower residual value. 61 I do not accept that MTFPL's "product" had any likely medium or long-term competitive advantage. Such competitive advantage as there was would be in the recognition that if a lessee did not purchase the car at the end of the lease from the lessor, he or she would be entitled to claim deductions based on the market value of the car at the termination of the lease, rather than the stated residual value in the lease. However, that would be true of any finance lease. 62 It is unsurprising that both MTFPL and Elderslie had difficulties in persuading financiers to support the product. The suggested taxation advantages were of dubious validity, unless the lessee was in fact incurring higher financing costs, in which case the product would have been uncompetitive. There was an understandable reluctance by providers of finance to be involved in products which might attract the critical scrutiny of the Australian Taxation Office. That reluctance was to be expected when the way the arrangements were expected to operate in practice differed from the terms of the documents to be entered into to give effect to those arrangements. It is reasonable to assume that the targeted customer market, namely highly paid professionals, would also be unwilling to court such scrutiny. 63 I do not accept Mr Dunn's projections of future sales based upon his past experience involving a lease finance product financed through Esanda, where he had been successful in obtaining a competitive advantage from structuring a product using the taxation laws as they then stood. Mr Dunn accepted that the "Esanda product" had a competitive advantage because it was cheaper than other finance leases then available. That was not the case with MTFPL's proposal. Elderslie's Marketing of the Program to SG and Mr Dunn's Knowledge of What was Concealed 64 On 18 May 2001, Mr Garcia proposed to Mr Garrett that the finance lease proposal should be marketed to BankWest, Sogelease and National Australia Banks' "Son of Titan". He advised that: " While not avoiding the issue, we should de-emphasise the underlying 'taxation' aspects of the transactions. This is because the taxation issue is on the borrower and his tax returns. That is, neither the lender's return nor the borrower's obligation to repay are based on whether the borrower receives a tax deduction. " 65 True to that advice, Elderslie did not mention the taxation aspect of the proposal to SG, although Elderslie regarded the tax advantage consequent upon the statement of the higher residual, as being a very important feature of the product. Mr Garrett summarised the "deal" to Mr Barton of SG on 1 August 2001 as follows: " We have been introduced to a motor vehicle lessor, currently writing about $5m per month of luxury vehicles, the majority of which are used for business purposes. The average lease is 4 years, cost = $100,000, usually 40% RV, finance lease. Typically the cars are Mercedes, BMW, Audi, etc, all cars where 40% and 50% would be acceptable due to their strong resale values. Bad debts have been less than 0.5%. Direct debit is the normal mode of collection. AIF does not propose to act as the lessor, as it is a requirement of the introducer that they fulfil this role. Due to this, we were required to revise the Facility documents with SG so that we (AIF) could effectively act as a 'pass through'. The documentation that you now have allows this to occur. The difference will be that the 'Vendor' (ie: the motor vehicle lessor) will enter into a back-to-back arrangement with AIF which be identical to the facility and charge sent to you last week. AIF are still required to do everything as currently catered for under the existing facility agreement. Importantly also is that the same security is afforded to SG as the ultimate lender. With regard to lease documentation, the lessor will adopt our standard finance lease document that SG has obviously accepted. Credit will be based on our current Cat 6 matrix and a business purpose declaration will be obtained. We have performed credit analyses on some of their existing customers and it is fair to say that they invariably exceed most generally accepted standards. " 66 As Mr Gill of SG later had occasion to say, SG's "original commitment" was to " to look at straight up and down luxury car finance leases – which was always the basis of our discussions." Mr Garrett had no explanation for describing the "average lease" as being a finance lease with "usually 40% RV", when he knew that the proposed finance leases involving MTFPL would have a substantially higher residual value reflecting the expected market value of the car at the time of the termination of the lease, with a consequential tax advantage to the lessee. Elderslie did not disclose to SG, until after SG's "commitment" had been obtained, that the product was expected to be profitable because of taxation advantages to the lessee arising from its appearing on the face of the lease documentation that the lessee would be incurring a higher financing cost than would be incurred under an "average lease" for a luxury car. 67 Elderslie contended that Mr Dunn knew that SG had been kept in the dark about the taxation features of the product. Discussions and e-mail correspondence had taken place during 2001 between Mr Dunn and Elderslie, and between Elderslie and the proposed securitisers (i.e. providers of finance), including SG. Except for one meeting on 14 February 2002, Mr Dunn was not involved in the discussions between Elderslie and SG. 68 On 6 April 2001, Mr Dunn told Mr Garcia that his group was able to write business of $10,000,000 per month, with an average lend per transaction of $96,000. He asked if Elderslie had the financial capacity to deliver funding for the proposal. Mr Garcia responded affirmatively. He told Mr Dunn that Elderslie was already financing receivables through its securitisers at those levels, and had its own internal lines for working capital with the ANZ Bank and the National Australia Bank. I accept Mr Dunn's evidence that Mr Garcia said that "we have more than enough financial capacity to deliver the financing you require". However, Mr Dunn knew that Elderslie would need to obtain such finance through other financiers, known as securitisers. 69 On 30 May 2001, Mr Garcia informed Mr Dunn that Elderslie was having discussions with its securitisers and the only apparent impediment was that under its existing documentation with its securitisers, AIF needed to be the lessor. This did not remain an impediment. 70 On 27 July and 10 August 2001, Mr Garcia advised Mr Dunn that Elderslie had two funders available to fund the commitment. One of these was identified as Societe Generale. On 10 August 2001, Mr Garcia advised that the "securitisation vehicle's credit committee have now conceptually approved the commercial aspects of the facility". 71 On 24 August 2001, Elderslie's taxation advisers raised a number of issues about the proposal to which Mr Dunn responded on 11 September 2001. 72 On 15 October 2001, Mr Garcia sent an email to Mr Dunn saying that there were no real issues outstanding from Elderslie's securitiser apart from its getting comfortable with MTFA as a link in the origination process. He also said that the securitiser, "obviously also requires the certainty that the tax aspects will work favourably and we cannot go any further with them until we were positive of this". 73 Counsel's opinion was provided to Elderslie on 11 December 2001. Counsel's opinion was based on the arrangements operating in accordance with the documentation provided to him. 74 A draft of the agreement which became the Master Receivables Purchase Agreement, and a draft deed of mortgage were sent by Elderslie to Mr Dunn on 22 November 2001. They were sent under cover of an email from Mr Garrett saying that "these two documents will document the arrangements between Elderslie and MTFA". The documents had been drafted by Clayton Utz, the solicitors for Elderslie. The draft MRPA included a clause giving Elderslie an absolute discretion as to whether or not to accept a purchase proposal. It also included the clause which became clause 10 providing for the termination of the agreement by either party on one month's notice. It contained no term setting out any limit on the amount of funding to be provided by Elderslie for the purchase of lease receivables. 75 Notwithstanding the terms of Mr Garrett's emails of 22 November 2001, and the fact that the parties anticipated entering into a formal Master Receivables Purchase Agreement, Elderslie forwarded a letter to Mr Dunn on 18 December 2001 confirming the terms upon which funding would be made available. 76 In its letter of 18 December 2001 Elderslie advised that: " This letter shall confirm that subject to the following conditions [Elderslie] will make funding available for the captioned programme through its securitisation facilities. " Conditions were then set out, including that the program securitiser would be SG, that the program amount was up to $50,000,000 annually subject to annual review, and that " any offer of finance will be subject to an acceptable review of MTFA or other agreed origination vehicle and the proposed financing arrangements and documentation by SGA. " 77 On 18 January 2002, Mr Garcia asked Mr Dunn whether he had any comments on the documentation forwarded previously. Mr Dunn advised that he had the MRPA and the deed of mortgage prepared by Clayton Utz, but not the other agreements. 78 There were more discussions during January and February 2002, and tax advice was obtained from PricewaterhouseCoopers. 79 On 14 February 2002, Mr Dunn, Mr Garcia and Mr Garrett met with Mr David Gill and Mr David Barton of SG. Prior to the meeting there were discussions between Mr Dunn, Mr Garrett and Mr Garcia about the purpose of the meeting. Mr Dunn gave evidence that Mr Garrett said "when we meet later this morning you don't need to discuss the taxation aspects of the deal as we have covered those with them in detail. What they want to know is about your past business writings, the volumes you anticipate and just spell out the type of heads you generally deal with in the prestige leasing market: you know professionals, well-heeled with good asset backing". Mr Garrett told Mr Dunn that SG wanted to meet Mr Dunn personally. 80 Mr Garrett denied this evidence. However, he admitted that he told Mr Dunn that: "we shouldn't bring up the tax aspects unless there is a specific question. They are so far removed from the tax risk that it's not relevant". Likewise, Mr Garcia recalled that Mr Garrett said "Don't go into the tax aspects of the deal unless they bring it up". 81 In their affidavits, neither Mr Garcia, nor Mr Garrett deposed to having told Mr Dunn that the tax aspects of the proposal had not been discussed between Elderslie and SG. I do not find that Mr Garrett expressly told Mr Dunn that he had covered the taxation aspects of the deal with SG. That would have been a lie. However, I accept Mr Dunn's evidence that he assumed that they had been. That was a reasonable assumption for Mr Dunn to make. It was all the more reasonable for Mr Dunn to have made that assumption having regard to the terms of Mr Garcia's e-mail of 15 October 2001. That e-mail stated that SG would need to be satisfied as to the tax issues. It implied that these issues had been raised with SG, and that SG and Elderslie would work through the issues. 82 Mr Garcia gave oral evidence that the reasons Elderslie did not raise the tax advantages of the leasing product with SG before the MRPA was entered into, were because Elderslie had satisfied itself that there was no tax liability on the financier, and it was agreed with Mr Dunn that there was no need to raise it with them. In the course of cross-examination, Mr Garcia said that there was an agreement or understanding with Mr Dunn that the tax advices with which Elderslie had been provided would not be sent to SG. He said that Mr Dunn "knew everything", and that Elderslie made its decision not to discuss tax issues about the program with SG after discussion with Mr Dunn. However, he did not refer to any communications with Mr Dunn about that in his affidavit. Although he said in re-examination that the understanding he referred to with Mr Dunn was based on words, he was not asked what words were used either by Mr Garrett, Mr Garcia or Mr Dunn to create that understanding. I do not accept that it was agreed or understood with Mr Dunn that SG would not be given information about the taxation features of the product, and would not be given the tax advices which Elderslie had. I reject Mr Garcia's assertion that Mr Dunn knew the tax issues had not been discussed with SG. 83 Mr Garrett also said that he believed Mr Dunn was aware of the level of Elderslie's disclosure to SG about the taxation risks. However he said that that belief was based on his discussions with Mr Dunn on 14 February 2002. There was no such disclosure on that occasion to Mr Dunn of what Elderslie had and had not told SG about the tax issues. 84 Elderslie contended that I should infer from correspondence with Mr Dunn after 11 April 2002, that Mr Dunn was aware that SG had not been advised of the taxation advantages of the product and was prepared to go along with concealing that feature of the product from SG. On 11 April 2002, Mr Garrett sent an e-mail to Mr Dunn in which he said that: " The refinancing of second-hand cars has caused an issue with SG that we need to explain to them. You will recall that SG have asked what advantage did MTF's product have over the already competitive pricing from say BMW or Benz finance. We explained that there were service level issues with existing financiers as well as pricing etc. In our meeting at SG's offices, you also explained to David Gill that there was a structural advantage concerning the reimbursement of GST. This was not embellished any further nor did SG press the issue. Yesterday we formally requested that they put in place a limit for vehicle age at end of term. … Today SG called me to say that they only wanted to do new cars initially and then see how that went. I explained that it was crucial that cars say no older than two years old be considered … I then called David Gill [of SG] to find out what was happening. In the absence of further explanations, the issues that arose in their minds was ' why would people be refinancing from already competitive market rates unless something was wrong with their own solvency? ' - naturally enough to put any financier off. I explained that this was not the case. David then used the words ' they need to understand if the deal passes the smell test '. I did not envisage having to cross these issues at this stage of the relationship but can only see one way to allay whatever fears they have. While the tax aspects of this deal should not concern SG (as they are purely buying receivables and the purchased PRV) it is fair to say they would feel better if they had a feel for the marketing concept. Your help in formulating a concise response to them before 9.30am would be appreciated. … " 85 Mr Garcia gave evidence (which Mr Dunn did not deny) that at the time of this e-mail, he and Mr Garrett telephoned Mr Dunn and said that they did not know how to explain matters to SG. Mr Garcia said that either he or Mr Garrett asked Mr Dunn how they should deal with SG's question of "what is the advantage to the lessee" and that Mr Dunn said "we can use the GST". Either Mr Garrett or Mr Garcia suggested that SG be given comfort by focusing on the GST, rather than other tax aspects, to which Mr Dunn agreed. 86 Mr Dunn prepared a letter which he sent to Mr Garrett setting out MTFPL's rationale for financing second-hand motor vehicles. He also set out a GST advantage that MTFPL's lease product had over outright purchases or asset purchase finance. He explained why a lessee might wish to refinance a vehicle part way through a lease without its indicating that the customer was a credit risk. I do not infer from these communications between 11 and 16 April 2002 that Mr Dunn was aware that SG had not been informed of the way in which the product was said to attract taxation advantages under Div 42A of Schedule 2E of the Income Tax Assessment Act. The focus of the email, at least as Mr Dunn perceived it, was SG's concern as to why an otherwise creditworthy customer would wish to refinance an existing lease. 87 Subsequently, it must have become clear to Mr Dunn that either Elderslie had not explained, or SG had not grasped, the claimed taxation advantages of the lease product arising from the high residual value in the lease. On 12 June 2002, Mr Garrett sent to Mr Dunn a draft of a letter to SG explaining by reference to an example how the higher residual value produced a tax benefit to the lessee. I have quoted from part of the final version of that letter in paragraph [52]. Mr Dunn made no complaint at this time to Mr Garrett or to Mr Garcia that they had not properly explained the transaction to SG. However, I do not infer from that that Mr Dunn had been made aware that Elderslie had failed to do so before MTFPL entered into agreements with Elderslie. He was not privy to the discussions between SG and Elderslie, except for the one meeting he attended on 14 February 2002. 88 Mr Dunn knew that Elderslie was relying on SG to provide the funding for the program. However, what Elderslie told SG was its business, not his. He gave evidence, which I accept, that he made no assumptions himself about the terms of the agreement between Elderslie and SG which allowed Elderslie to fund the program, except that he assumed that Elderslie had made an arrangement with SG that allowed it to provide him with $50,000,000 worth of funding. He said: " The arrangements between Elderslie and Societe Generale weren't of concern to me. They [were] private, commercial, sensitive arrangements that they would have negotiated themselves. They would be very unlikely to disclose the terms of their facility with me. " 89 I accept this evidence. Mr Dunn reasonably understood from the correspondence from Elderslie, and his discussions with Mr Garcia and Mr Garrett, that Elderslie had arranged at least $50,000,000 of funding from SG to enable it to provide funding of up to $50,000,000 annually for the program. In my view, the letter of 8 March 2002 contains an express representation to that effect. The earlier letter of 18 December 2001 stated that subject to the terms and conditions set out in that letter, the letter served as confirmation that Elderslie "will make funding available for the captioned program through its securitisation facilities". Although those same words were not used in the succeeding versions of the letter of 18 February 2002 and 8 March 2002, that was the message conveyed by the letters. There was otherwise no point in Elderslie stating that the program amount would be an amount of up to $50,000,000 annually, and identifying SG as the program securitiser. 90 On 18 February 2002, Elderslie wrote again to Mr Dunn, this time at MTFPL. MTFPL had been incorporated on 13 February 2002. In the letter of 18 February, Mr Garcia advised that the Elderslie Group was "pleased to confirm that approval has been received to the commencement of the receivables securitisation program on the following terms and conditions". 91 Various conditions were then set out. The letter of 18 February 2002 did not include conditions which had been contained in the offer of 18 December 2001 that "any offer of finance would be subject to an acceptable review of MTFA or other agreed origination vehicle and the proposed financing arrangements and documentation, by SGA". 92 On 20 February 2002, Mr Garcia sent an email to Mr Dunn advising: " I have sent you today by Express Post a letter of offer detailing the terms and conditions of the facility, subject to the expanded content of the formal MRPA, for your acceptance and return (reply Express Post included). " 93 After discussing some of the terms, he advised that: " Once I receive your acceptance I will arrange for Tom to visit your office to install the Web1A system and provide training to your staff. My aim is to have you writing business 1 March. " 94 In the meantime, Elderslie was discussing with SG the terms of the agreement to be entered into between Elderslie and SG. Part of their discussions concerned the amount of a "loss reserve" to be established from the moneys drawn down by Elderslie from SG to cover arrears or customer defaults. On 1 March 2002, Elderslie forwarded to Mr Dunn what it described as an "extract of our agreement with SG". The extract dealt with relevant provisions concerning the establishment of a security deposit. This was the only part of the agreement between Elderslie and SG which was forwarded to MTFPL. 95 Mr Dunn discussed with Mr Garcia some changes to the terms of Elderslie's letter of 18 February 2002. The letter included a term that before Elderslie purchased any receivables, there should be in place a "deed of deposit in support of a loss reserve to be lodged with the Manager equivalent to 1% of the receivables purchased by the Manager. The level of the loss reserve will be reviewed annually in the context of the loss experience." Mr Dunn asked that that provision be reviewed because the loss reserve would continue to grow at the rate of 1% of the receivables purchased even though the balance outstanding was paid. Mr Garcia said that he would see if it could be reviewed so as to be 1% of the balance outstanding subject to satisfactory default history. The letter also provided for MTFPL to cover all of Elderslie's reasonable legal expenses incurred in establishing the program. Mr Dunn asked for a cap to be put on this figure. 96 On 1 March 2002, Mr Garcia and Mr Dunn agreed that MTFPL's contribution to Elderslie's legal costs would be capped at $15,000. Mr Garcia said that he would amend the provision concerning the security deposit to mirror the provision which Elderslie had in its agreement with SG. The letter was amended accordingly. The Letter of 8 March 2002 97 Some of the terms of this letter have been extracted in paragraphs [4]-[6] above. Other relevant provisions included a term setting out the basis upon which the price for the purchase of receivables would be calculated. This was done by reference to a margin over a nominated swap rate. 98 In the letter, Elderslie and AIF were described as the program manager or "the Manager". That expression applied to them either jointly or severally. Elderslie did not submit that the letter of 8 March 2002 did not give rise to legal obligations on the ground that the identity of the program manager was undecided, or that the letter was not signed for AIF. 99 The letter provided that the Manager had approved the delegation of credit approval authorities to Mr Dunn and a Mr John Crommelin, being employees or agents of MTFPL. They were given delegated authority to approve of transactions up to an amount of $170,000 per transaction. They were given authority to approve transactions that complied with the Manager's "credit matrix", up to and including the authority limit. The letter provided that the Manager could change or cancel the delegated authority at any time. It was only transactions that did not comply with the Manager's credit matrix that needed to be referred to the Manager for approval. The "credit matrix" was a reference to the parameters upon which Elderslie was prepared to provide funding for a prospective customer, particularly, the assessment of a customer's creditworthiness. 100 The letter also provided that the Manager would provide MTFPL with online credit processing of applications via its "Web1A" systems, as well as its finance lease application form, its other relevant documentation for processing transactions, and its credit matrix details as amended from time to time. The letter provided that MTFPL could badge the documentation with its own corporate name and logo. 101 The letter dealt with the establishment of a loss reserve. The Manager was to direct 1% of the initial value of the discounted receivables to a loss reserve in the name of MTFPL. This was to be invested in debenture stock in Elderslie. After one year, and subsequently and on quarterly intervals, the balance of the loss reserve would be reviewed and adjusted according to whether there had been any defaults in the receivable portfolio. If there had been no defaults, any excess over 1% would be released to MTFPL. Otherwise, any excess over 3% would be released to MTFPL. 102 The letter also provided for MTFPL to pay $5,000 towards the Manager's travel and capital costs associated with the installation of MTFPL's online application and settlement systems. Did the Acceptance of Elderslie's Offer of 8 March 2002 Give Rise to a Contract? 103 The letter of 8 March 2002 uses contractual language. It sets out what are called "terms and conditions". It was expressed as an offer and invited MTFPL's acceptance. These are indicia of the parties' intending to enter into legal relations upon the acceptance of the "offer". However, they are not conclusive (Peter Warren (Properties) Pty Ltd v Jalvoran [2005] ANZ ConvR 52; [2004] NSWSC 1149 at [37]-[38]). 104 The question of whether the parties intended to be contractually bound by MTFPL's acceptance of the letter of 8 March 2002 is to be determined objectively, having regard to the terms of the letter and the conversations and correspondence which preceded and followed it (Australia Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549-550). 105 Elderslie submitted that objectively considered, it was not to be taken to have a contractual intention on a number of grounds. It submitted that the subject matter of the alleged contract was complex. It involved substantial sums of money. To MTFPL's knowledge, Elderslie had engaged lawyers to negotiate formal agreements in relation to the transaction. However, Elderslie and MTFPL negotiated the terms of the letter of offer directly without the involvement of lawyers. This indicated, it was said, that the letter was not intended to create binding legal relations. Moreover, the parties envisaged that formal agreements would be entered into. Elderslie also submitted that the terms of the draft MRPA (and the final MRPA) were inconsistent with, or qualified, the terms in the letter of 8 March 2002. 106 The MRPA does not, and the draft MRPA did not, contain a number of important provisions which are found in the letter of 8 March 2002. Rather, the MRPA contains the framework within which more detailed provisions contained in the letter of 8 March 2002 are to operate. Thus, clause 2.4 of the MRPA provides that the discount rate to be included in a purchase proposal made by MTFPL on the basis of which the price for the purchase of the receivables will be determined, is to be the rate proposed by MTFPL and approved by Elderslie before a purchase proposal is made. Clause 2.4(b) provides that if Elderslie does not accept a discount rate proposed by MTFPL, the parties will enter into negotiations and use their best endeavours to agree on a rate to apply to the relevant Lease Contract. It is the letter of offer which contains the parties' agreement upon what the rate should be. 107 Clause 2.1 of the MRPA provides for MTFPL to propose a sale of Contract Rights under a Lease Contract to Elderslie. Clause 3 obliges Elderslie to consider all purchase proposals. However, it is only the letter of offer of 8 March 2002 which provided for the delegation of authority to MTFPL to approve transactions (up to a stated limit) which complied with Elderslie's credit matrix. 108 The letter of offer also provided for MTFPL to be provided with "online credit processing of applications via [Elderslie's] 'Web1A' systems". This was an important part of implementing the "nuts and bolts" of the program dealing with the mechanics of processing applications. The letter also provided for Elderslie to supply MTFPL with its standard documentation for finance leases and provided that MTFPL could badge that documentation with its own corporate name and logo. Such provisions are not found in the MRPA. 109 Clause 12.1 of the MRPA required MTFPL to reimburse Elderslie for, and indemnify it against, all expenses incurred by Elderslie in connection with the preparation and execution of the MRPA, the mortgage to be given in favour of Elderslie by MTFPL over MTFPL's property, any subsequent consent, agreement, approval or waiver under the MRPA, and in connection with the enforcement under such documents. The letter of 8 March 2002 contained the additional requirement that MTFPL pay $5,000 to cover Elderslie's expenses associated with the installation of its online application and settlement systems. It also required MTFPL to contribute $15,000 towards legal expenses in establishing the program. That obligation was not confined to legal expenses incurred in preparing and executing the MRPA and the mortgage and other documents provided for by clause 12.1 of the MRPA. 110 MTFPL identified other terms in the letter of 8 March 2002 which are not found in the MRPA. First, it said that the program type, namely the leasing of prestige motor vehicles is not found in the MRPA. That is true. However, the MRPA provided for MTFPL to be able to submit a proposal in respect of "Leased Goods". This covered any office, computer, furniture or other equipment, or a motor vehicle or motor vehicles. This merely means that the MRPA was in terms wide enough to encompass, but also to go beyond the more specific provisions of the letter of 8 March 2002. 111 MTFPL pointed to the fact that the MRPA did not identify the program securitiser, did not specify a limit for the program amount, and did not identify a program term. Elderslie relies on these same matters to argue that the letter was not intended to have contractual effect, or if it did, that that contract was discharged when the MRPA was entered into. Elderslie says that the parties always intended to enter into an MRPA. The draft MRPA which was in existence on 11 March 2002, like the final MRPA, included no program limit. It contained no express or implied promise, or representation, by Elderslie, that it had secured, or would secure, sufficient funds to enable it to purchase receivables up to a given annual limit. Instead, it was to have a discretion whether to accept or reject particular proposals which could be exercised however it saw fit, provided it acted reasonably and in good faith. Accordingly, it was said, the MRPA would contain provisions inconsistent with those in the letter, and the parties could not have intended to be contractually bound by the letter. 112 However, I do not perceive any inconsistency. The letter contains both a promise that Elderslie would provide funding of up to $50,000,000 annually and a representation that it had secured, (or possibly that it expected that it would obtain), funding from SG. It is entirely consistent with that promise and representation that Elderslie should have a discretion to reject particular proposals. It delegated that discretion in the letter. 113 It is relevant that Elderslie was to obtain a substantial reward for its role in the transactions. Its reward was to be only a little less than MTFPL's reward. From the seventeen finance leases processed between 10 May 2002 and 19 December 2002, MTFPL derived income of $104,588.86, and Elderslie derived income of $90,951.11. Elderslie's role was to obtain finance which would be used by MTFPL to purchase the vehicles, and would be paid to MTFPL as the purchase price of lease receivables. MTFPL had to know whether funding was available for it to market the program to prospective lessees. It is not commercially realistic to say that Elderslie made no promise except to consider individual proposals, which it could accept or reject according to whether it had funding available. If that were the only contract it intended to make, there was no purpose in its describing the program amount and the program securitiser in the letter. 114 In Masters v Cameron (1954) 91 CLR 353 at 360 the High Court said: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution." 115 The letter of 8 March 2002 is not expressly stated to be subject to formal contract. The question whether the parties intended to be bound by the terms agreed to, or whether they intended only to be bound upon execution of the formal legal documentation which they contemplated they would enter into, is to be determined having regard to the construction of the letter, the matrix of facts in which the letter was signed, and subsequent events so far as they throw light on the parties' intentions. 116 The language of the letter is explicit. It is that the formal legal documentation, (the MRPA, the mortgage debenture charge, and the other documentation referred to in the letter against the description "security"), should be in place and properly executed before MTFPL could purchase any receivables. In my view, such a provision falls within the second class of case envisaged in Masters v Cameron, namely, one where the performance of one or more of the terms agreed upon is to be conditional upon the execution of formal documents. 117 It is true that the second category of Masters v Cameron was expressed as being where the parties intend no departure from or addition to the terms which they had agreed on, but intend the performance of one or more of those terms to be conditional upon the execution of formal documents. In this case, it cannot be said that the parties intended no addition to, or departure from, the terms agreed on. The terms of the MRPA contained additional terms from those contained in the letter of offer, and it was known that it would. 118 However, the fact that the parties intended to enter into a further contract containing additional terms does not preclude the parties intending to be bound by what they have agreed. This does not quite fall within what McLelland J, Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628, described as the fourth class of case additional to the three mentioned in Masters v Cameron, namely, "one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms" (citing, Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317). The MRPA was to contain additional terms to the letter, but was not anticipated to be in substitution for the first contract. 119 It is perfectly possible to have a preliminary contract followed by the execution of a formal, more detailed agreement, where the latter is not intended to cover the whole of the ground (Palmer v Johnson (1884) 13 QBD 351; Gillespie Bros & Co v Cheney, Eggar & Co [1896] 2 QB 59 at 62; Ticehurst v Moore (1907) 7 SR (NSW) 202). 120 In Palmer v Johnson, Bowen LJ said (at 357): " Now it is commonly said, that where there is a preliminary contract for sale which has afterwards ended in the execution of a formal deed, you must look to the deed only for the terms of the contract, but it seems to me one cannot lay down any rule which is to apply to all such cases, but must endeavour to see what was the contract according to the true intention of the parties. Suppose the parties should make a parol contract, with the intention that it should afterwards be reduced into writing; and that that which is reduced into writing shall be the only contract, then, of course, one cannot go beyond it; but if they intend, as they might, that there should be something outside such contract, they might agree that that should exist, notwithstanding it was not in the contract which was put into writing. In the same way, when one is dealing with a deed by which the property has been conveyed, one must see if it covers the whole ground of the preliminary contract. One must construe the preliminary contract by itself, and see whether it was intended to go on to any, and what, extent after the formal deed had been executed. " 121 In my view, on the proper construction of the correspondence of 8 March 2002, the parties intended to be bound by the terms then agreed to, whilst also intending that the performance of some of those terms, namely, the entering into of transactions for the purchase of lease receivables, was conditional upon execution of the formal documents described in the letter in the section described as "Security". However, those formal terms were not to be in substitution for the terms agreed in the letter, but rather were to complement those terms. If there were inconsistencies, the later agreements would amend the earlier. 122 The facts that the subject matter of the parties' agreement was complex, that large sums of money were involved, and the parties did not have legal assistance in their negotiation of the terms of the letter of offer, if standing alone, would indicate that the parties were unlikely to have intended to be bound by the terms agreed on in the letter. However, the force of these matters is much diminished by the fact that the parties intended that no receivables would be purchased before the formal documentation was in place. They also envisaged that additional terms, or qualifying terms, could be included in such formal documentation. Accordingly, protective mechanisms were in place to ensure that the parties were not disadvantaged by the omission of any terms in the letter of offer, which their lawyers might suggest were desirable to be included in the arrangements governing the purchase of receivables. 123 On any view, at least parts of the letter were intended to have immediate legal effect. In an e-mail of 20 February 2002, Mr Garcia advised Mr Dunn that he would arrange for "Tom" to install the online application and settlement process at MTFPL's computer facilities, and to provide training to staff upon Elderslie's receiving MTFPL's acceptance of the letter. MTFPL's promise to contribute $15,000 towards the legal expenses incurred in establishing the program, and to cover Elderslie's reasonable out-of-pocket expenses associated with the installation of the online application and settlement systems up to a maximum cost of $5,000 were clearly intended to be immediately binding provisions. The letter itself stated that Elderslie would commence preparation of legal documentation and other online IT service installations upon receipt of the letter. I see no reason to regard some parts of the letter as being intended to have immediately binding effect and not other parts, although of course performance of the substance of the agreement was still conditional upon execution of formal documentation. 124 Both parties relied on events occurring after 11 March 2002 as showing that the parties did or did not intend to be contractually bound by the letter of offer and its acceptance. 125 Elderslie pointed to an amendment introduced to the draft MRPA on 2 April 2002 which was in substance the same as a term included in the letter of 8 March 2002. It submitted that this would have been unnecessary had the letter been intended to have contractual effect. The letter stated that: " The Manager and the Originator with (scil. will) share in equal proportions any amount recovered by the Manager in excess of the payout quote provided by the Manager to the Originator for any receivable contract that is terminated prior to its scheduled expiry date. " 126 Amendments were made to the draft MRPA to achieve this outcome (cl. 11.1(b) and (c) and the definition of "Payout Surplus"). However, such an amendment was necessary as otherwise Elderslie would have been entitled by virtue of the assignment to all of the proceeds. The amendment to the draft MRPA is consistent with the parties intending to be bound by the terms of the letter of offer, whilst recognising that if the MRPA contained inconsistent provisions, the later agreement would prevail. To avoid that, they sought to ensure consistency. 127 MTFPL relied on an amendment to the delegated authority of Messrs Dunn and Crommelin as showing that the parties intended to be contractually bound by the letter. The delegated authority to Mr Dunn and Mr Crommelin to approve transactions up to an amount of $170,000 per transaction was increased on 2 August 2002 to $180,000. The increase in delegated authority was made retrospective to 5 April 2002. This was four days before the entry into the MRPA. The date as at which the authority was made retrospective does not assist in determining whether there was any contract made before 9 April 2002 because on any view, the purchase of receivables was conditional upon execution of formal documents. 128 For the same reasons, I do not accept Elderslie's submission that if a contract came into existence on 11 March 2002 (that is, upon MTFPL's acceptance of the letter of offer), that that contract was discharged by the MRPA. In my view, the two agreements are to be read together. 129 When read together, the letter of 8 March 2002 and the MRPA have the following operation in relation to Elderslie's obligations to consider proposals and provide funding. First, Elderslie promised to make available to MTFPL funding of up to $50,000,000 per annum which, at its discretion and at the discretion of SG, could be increased. Secondly, Elderslie was required to consider each purchase proposal submitted to it by MTFPL. Thirdly, Elderslie had delegated to MTFPL the right to approve of such transactions up to the stated limit of $170,000 per transaction (later increased to $180,000 per transaction), provided that the applications conformed with its credit matrix. Fourthly, it could cancel or change that delegation at any time. Fifthly, if any transaction was submitted to it personally for approval, that is, if a transaction fell outside the terms of MTFPL's delegated authority, or if that authority was cancelled, it had a discretion to refuse any such proposal. Although its discretion was described as absolute, it was required to be exercised reasonably and in good faith. (As I have said, Elderlie accepted that the exercise by it of its powers under the MRPA was subject to an implied term that its powers be exercised reasonably and in good faith.) 130 The letter also contains a representation that SG was the program securitiser. In my view, the letter represented that $50,000,000 of funding had been arranged for this lease product from SG, although it might be read as a representation that Elderslie expected that SG would provide such funding to it. However, there was no contractual relationship between SG and MTFPL. The relevant promise in relation to funding for MTFPL was that funding of up to $50,000,000 per annum would be provided by Elderslie. Repudiation of the Contract 131 The first purchase proposal was processed by MTFPL on 10 May 2002. The establishment of the program took some time. The availability of the program had to be made known to motorcar dealers with whom Mr Dunn dealt. Up to 31 July 2002, a further five proposals were processed. The total value of the proposals processed up to that time was $695,224. 132 On 7 May 2002, Elderslie and AIF entered into an agreement called a "Master Facility Agreement" with Sogelease Australia Ltd. That may have been a different company from SG, but if so, nothing turns on that difference. It set out the terms of the facility pursuant to which SG would provide funding to enable Elderslie or AIF to acquire rights under finance leases from a vendor under a Master Receivables Assignment Agreement or Master Receivables Purchase Agreement approved by SG. SG was not obliged to accept any lease contracts the subject of a drawdown request as an approved lease contract, and was not obliged to provide any advance requested in a drawdown request. It was not required to give reasons for rejecting any such request. In other words, SG had a discretion as to whether or not it would provide funding for any particular drawdown request. 133 In June and July 2002, Elderslie explained to SG how the tax advantages to a lessee of a car arose. 134 On 7 or 8 August 2002, Mr Gill of SG telephoned Mr Garrett. He told Mr Garrett that because of the tax issue, SG would not continue with the MTFPL car leasing deal. He said that tax was an extremely sensitive issue for SG, and that anything that even hinted at tax structuring was not preferred. Mr Gill said that "we are still happy to look at more straight up and down-type transactions but we don't want to do this one". 135 Mr Garrett informed Mr Dunn of this conversation. He sent an e-mail to SG asking for a meeting with SG in the following week. It appears that in the conversation between Mr Gill and Mr Garrett, there was discussion about SG providing ongoing funding for a temporary period in an amount of $2,500,000. Mr Garrett wrote that "we also need to discuss as a matter of urgency the provision of ongoing funds (you mentioned a figure of $2,500,000) and the time period that this can be utilised within. We are meeting with other financiers but the process is slow and, as you know, involves redocumentation of funding docs." This e-mail was sent to Mr Dunn. 136 On 9 August 2002, Mr Gill wrote to Mr Garrett advising that he did not think that Mr Garrett and Mr Dunn would be able to change SG's mind. Mr Gill wrote that: "Y our arguments will probably be persuasive and technically sound, but the fact of the matter is we have been caught a couple of times before with technically sound advice, and don't want to take the risk again. … We don't want to appear close-minded but the general feeling at General Management level is that we do not want to experience a repeat – no matter how remote it may appear. James, from experience, to pursue this would be 'flogging a dead horse' and it is time to move on. We do confirm however our original commitment to look at straight up and down luxury car finance leases – which was always the basis of our discussions. Craig may have been working on this product since last year but we were only made aware last month. I am happy to discuss should you wish – but really think its [sic] time to organise another funder for this product. " 137 Mr Garrett sent this response to Mr Garcia and to Mr Dunn. Mr Dunn replied stating "very bad result. Where to from here?". Mr Garrett told Mr Dunn that Mr Garcia and he would be calling Mr Gill to pursue a meeting. 138 Mr Garrett did not change Mr Gill's mind. However, on 20 August 2002, SG agreed to provide Elderslie with funding for luxury motor vehicles under the MTFA program of $4,000,000 for three months. 139 The evidence was unclear about precisely what Mr Dunn was told about the revised arrangements between SG and Elderslie. MTFPL pleaded that on or about 8 August 2002, Elderslie informed it that it was endeavouring to secure a replacement program securitiser, that it had negotiated a temporary funding facility of $2,500,000 to enable the program to continue while alternate funding was found, and that it could process further proposals within that temporary funding facility. This allegation was denied by Elderslie. It admitted that it informed MTFPL on 8 August 2002 that SG had withdrawn from further funding. However, the e-mail of 8 August 2002 conveys in substance the allegation pleaded by MTFPL. There is no evidence that MTFPL was told of the $4,000,000 facility offered by SG. No subsequent meeting took place between Mr Dunn and representatives from SG and Elderslie. 140 Because MTFPL had been advised that SG did not propose to continue funding of MTFPL, except to the extent of $2,500,000, Mr Dunn did not market and promote the program with dealers as he would otherwise have done. Between 8 August 2002 and 19 December 2002, MTFPL submitted eleven leasing proposals to Elderslie for an amount totalling $1,614,573. Two proposals were submitted in August, two in October, two in November, and five in December. The last proposals were accepted by Elderslie on 19 December 2002. 141 In total there were seventeen lease transactions processed by MTFPL. SG refused to fund three of the transactions. They were funded by Elderslie itself. 142 On 18 December 2002, SG advised Elderslie that it would be unable to fund any transactions subsequent to a particular transaction for a Porsche. That was the last of the transactions submitted by MTFPL to Elderslie and accepted by it. 143 Mr Garrett said that he had no recollection of telling Mr Dunn that Elderslie had received a facsimile from SG stating that the program for funding of luxury vehicles had expired. However, he believed that he would have done so, because it was his invariable practice to pass such information on to a dealer like Mr Dunn. It can also be inferred that he passed this information on to Mr Dunn from the fact that MTFPL did not submit any further proposals. I accept that on or shortly after 19 December 2002, Mr Dunn was told that Elderslie's facility with SG for funding the luxury vehicle program of MTFPL had expired. 144 Mr Dunn said that by the end of 2002, all transactions had ground to a halt. Elderslie had not informed him of alternate finance being available to them for the program. He was evidently aware that Elderslie was seeking alternative finance. However, Elderslie's efforts in that direction were unsuccessful. Mr Garrett approached BankWest, Suncorp Metway, the Bank of Queensland, Rothschild, and Arab Bank Australia. Mr Garcia had discussions with Rabo Bank, Challenger, AMP Bank, NRMA Life, AM Corporation, and the Australian Property Group. None of the approaches was successful. 145 On 28 November 2002, Mr Garcia advised Mr Dunn that Suncorp's credit committee had given preliminary approval for the program. He advised that: " At this stage they want to contain the program to $10,000,000 until they get comfortable with how it works. However, I am confident once they see the quality of the receivables and the efficient admin, that they will increase their commitment. Will keep you posted upon receipt of further information. " 146 Discussions were held with Suncorp Metway in January 2003. Mr Garrett said that Suncorp Metway's representatives had difficulty in understanding the structure of MTFPL's product. His notes of the meeting on 11 February 2003, show that Suncorp Metway was lukewarm about the program. They said that they would require a private tax ruling. Ultimately, Suncorp Metway did not proceed. 147 On 12 February 2003, Mr Dunn asked Mr Garcia how the refinancing was going. Mr Garcia told him that Elderslie was talking to a few other banks but was finding the banks were not of much use. He told Mr Dunn that they were thinking of approaching some superannuation funds and life offices. 148 Elderslie did not breach its contract with MTFPL by failing to consider any particular proposal for the purchase of lease receivables. MTFPL did not submit any such proposals after 18 December 2002. Those submitted before that date were accepted. 149 Elderslie's ability to fund the proposed program in any substantial volume, was dependent on its obtaining finance from third parties. So much was common ground before me. It was known to Mr Dunn. By Elderslie's telling Mr Dunn that its funding was limited to $2,500,000, and later that SG had withdrawn, Mr Dunn drew the correct inference that there was no point in his processing further applications and submitting them to Elderlsie for purchase. 150 Mr Garcia gave evidence that had MTFPL submitted a proposal to Elderslie for approval after 18 December 2002, he would have decided on behalf of Elderslie to reject the proposal pursuant to clause 3.1 of the MRPA. His reason for doing so would have been that Elderslie did not have the funding for the proposal. 151 That would not have been a sufficient reason for Elderslie to have refused the proposal, had a proposal been submitted. In the view I take of the contract, although Elderslie had a discretion in relation to each particular proposal, it was required to consider all proposals up to a limit of $50,000,000 of funding per year, with a view to approving or rejecting them according to the characteristics of each individual proposal, such as the creditworthiness of the borrower, the period of the proposed lease, and the type of motor vehicle to be leased. Moreover, it had delegated that discretion to MTFPL. 152 If I am wrong in my conclusion that it was a term of the agreement between MTFPL and Elderslie, that Elderslie would provide funding of up to $50,000,000 per annum, nonetheless, I would conclude that if Elderslie were to have refused to purchase receivables under a lease contract because it did not have funding available, such a decision would not have been made reasonably and in good faith. Reasonableness and good faith are to be assessed having regard to the matrix of facts in which the MRPA was entered into. Even if the letter of 8 March 2002 did not contain contractual terms, it contained a representation that Elderslie had procured funding of up to $50,000,000 from SG. That representation was unqualified. Even if the letter should be construed, as Elderslie would have it, that the letter conveyed that Elderslie was to use its best endeavours to obtain funding, Elderslie had not done so. By its silence in not disclosing the tax features of the leasing product, it had misled SG about the nature of the finance leases to be the subject of the program. If the representation conveyed by the letter was that Elderslie expected that it would obtain funding of $50,000,000 from SG annually, there was no reasonable basis for that representation. In those circumstances, for Elderslie to have declined a proposal on the ground that it did not have funding, (having represented to MTFPL that it did have funding), would not have been a reasonable and bona fide exercise of its discretion. 153 However, this was never put to the test. There was no actual breach of the agreement with MTFPL. Elderslie did not fail to consider any lease discount proposals because none was submitted after 13 December 2002. 154 MTFPL submitted that Elderslie committed an anticipatory breach of contract by repudiating its obligations under the agreement by making known to MTFPL that it would be pointless for it to forward any further proposals. 155 In my view, from 8 August 2002, Elderslie repudiated its agreement with MTFPL by conveying by implication that it would be pointless for MTFPL to forward further proposals beyond the funding which it indicated it had available of $2,500,000 from SG. Having regard to my conclusion that it was a term of the contract that Elderslie provide funding of up to $50,000,000 per annum for the program, its indication that it did not have the available funding was a distinct refusal by it to be bound in the future to the term of its contract, except to the limited extent of providing funding of $2,500,000. This was a repudiation (Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 at 149; DTR Nominees v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 643, 658; Foran v Wight (1989) 168 CLR 385 at 416,441; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626.) Moreover, a party is entitled to rescind an executory contract either on the grounds of an announced repudiation, or where the opposite party is incapable of performing his essential obligations under that contract. (e.g. Foran v Wight at 423-424). Elderslie was substantially incapable of performing its essential obligations. 156 However, MTFPL did not then accept the repudiation and terminate the contract. Instead, it submitted proposals for the purchase of receivables up to 13 December 2002. That was an election to keep the contract on foot. 157 MTFPL pleaded that by Elderslie's ceasing to fund any purchase proposals from 31 December 2002, and by Elderslie's failing to arrange replacement funding, or to secure a replacement program securitiser, Elderslie repudiated its agreements with MTFPL. 158 It was not the failure of Elderslie to fund any purchase proposals after 31 December 2002 which amounted to a further repudiation of the agreement, because no proposals were submitted to it for it to consider. However, its communication to MTFPL that its facility with SG had expired, and its making known to MTFPL that it did not have other funding, was a further repudiation of the agreement. It remained substantially incapable of performing its essential obligations. Was the Agreement Terminated or Abandoned Before MTFPL Accepted the Repudiation? 159 Elderslie pleaded that in or about August 2002, it gave notice of termination of the MRPA within the meaning of clause 10.1. It says that if the letter of 8 March 2002 gave rise to a binding contract, it gave notice of termination of that agreement. 160 The alleged notice of termination is the e-mail correspondence of 8 and 9 August 2002, and the telephone conversation between Mr Garrett, Mr Garcia, and Mr Dunn on 8 August 2002. Neither the e-mail correspondence, nor the telephone conversation, addressed the issue of the termination of the agreement or agreements between MTFPL and Elderslie. 161 Elderslie also pleaded that on or about 18 December 2002, it terminated the MRPA and/or the agreement contained in the letter of 8 March 2002. No notice of termination of the agreement was given by Elderslie. It was submitted for Elderslie that it terminated the MRPA by Mr Garrett's informing Mr Dunn that the interim funding provided by SG had ceased. Elderslie submitted that the parties waived the requirement of clause 10 of the MRPA that one month's notice of termination be given in writing. 162 On any view, Elderslie did not purport to exercise a contractual right to terminate the agreement on a month's notice. No words were used, either in writing or orally, which could amount to a purported unilateral termination of the contract. 163 Elderslie's submission however, raises the issue of whether the parties are to be taken to have abandoned the contract at some time after 20 December 2002. Abandonment can be inferred when it is apparent from their words or conduct that neither party regards the contract as being on foot or intends it to be further performed (DTR Nominees v Mona Homes at 434). Abandonment must be mutual. 164 Elderslie did not plead that the contract came to an end through abandonment, but as it supported its pleading that Elderslie had terminated the contract on or after 20 December 2002 by a submission that amounted to a contention that the contract had been abandoned by both parties, I should deal with that contention. 165 In paragraph [147] above, I referred to the conversation between Mr Garcia and Mr Dunn on 12 February 2003, in which Mr Dunn asked Mr Garcia how the refinancing was going and what other prospective financiers Elderslie was approaching. That conversation suggests that at that time, both parties regarded the contract as still being on foot, but recognised that Elderslie needed to obtain funding from a third party if it were to be able to perform the contract. 166 On 19 March 2003, Elderslie sent an e-mail to Mr Dunn seeking payment of $54,962.20. $17,958.16 was claimed as MTFPL's contribution to Elderslie's legal expenses ($15,000) and out-of-pocket expenses ($1,325.60). The balance of $37,004.04 related to amounts for GST collected by MTFPL or by Elderslie from customers. The spreadsheet showed that MTFPL owed $67,374.32 to Elderslie, and that Elderslie owed $37,004.04 to MTFPL in respect of GST amounts collected and not remitted. 167 Elderslie also stated: " As per the Master Receivables Agreement, please provide us with copies of all your BAS statements lodged with the ATO. " 168 Clause 9.7 of the MRPA provided that MTFPL would permit Elderslie at any reasonable time during regular business hours to examine, make audits and take copies of all, or any, of its records in relation to the lease contracts or its obligations under the document and the Mortgage. 169 Mr Dunn replied to that e-mail on 24 March 2003. He said that copies of the BAS statements would be forwarded to Elderslie by post. He also asked that a tax invoice be provided to MTFPL for the legal expenses and out-of-pocket expenses. He also asked "could you also provide an update on your sources of finance for the prestige vehicle leasing program to replace SOG". 170 In response to this last question, Mr Garrett sent an e-mail to Mr Garcia stating, amongst other things, "I notice that Craig Dunn would like an update on the funding. Did you tell him that Suncorp was not interested? Given that we have exhausted every option, I think we should tell him that we can't provide further funding." 171 Mr Garcia responded to Mr Garrett in the following terms, " Yes I did tell him that Suncorp had said no. I mentioned that I would try some of the super funds – like ISPT but obviously being only a property trust they weren't interested. I suspect that he might want a rundown on whom else we have approached, which is none. Do you think he is trying to box us into a position where he can ethically claim non-payment of the legal bill? I do. " 172 Mr Dunn did not provide the BAS statements referred to. At some time in 2003, there was a further conversation between the parties. Mr Garrett said to Mr Dunn, "we still haven't received your GST refunds Craig". Mr Dunn asked what was happening with the funding. Either Mr Garrett or Mr Garcia said: " We have been to everyone we can think of. The tax issue continues to be a killer. Why don't you get a tax ruling?" Mr Dunn said he would investigate that. There were later discussions about the progress of obtaining further financing in which Elderslie told Mr Dunn that they would need a tax ruling to meet the financiers' concerns. 173 It is clear that at this time, the contract between Elderslie and MTFPL remained on foot. Elderslie was asserting its right under the MRPA to inspect MTFPL's records. MTFPL was not disputing that right. No leasing proposals were submitted by MTFPL because it knew that Elderslie did not have the funding to process such proposals. However, some prospect was being held out to Mr Dunn that such financing might become available if a favourable tax ruling were obtained. 174 There was further correspondence between the parties in May, November and December 2003 in relation to the remittance of GST instalments and the provision by MTFPL of its BAS statements showing the income tax credits received and the instalment payments made by MTFPL. Again, this correspondence is consistent with the agreements being still on foot. 175 There was an incident in March and April 2004 in relation to MTFPL's receiving payment from a dealer on the termination of a customer's lease. Instead of the cheque being paid directly to Elderslie or to AIF, it was paid to MTFPL. MTFPL banked the cheque. It drew a cheque in favour of AIF, but then stopped payment. On 5 April 2004, the solicitors for Elderslie demanded immediate repayment of the sum. They contended that by failing immediately to remit to Elderslie's bank account the moneys received from the customer, MTFPL had breached clause 6.3 of the MRPA. As a result of the breach of clause 6.3 of the MRPA, there was an event of default under the deed of mortgage and charge. On 5 April 2004, Elderslie appointed an agent to take possession of the property mortgaged to Elderslie under the deed of mortgage and charge. On 13 April 2004, the amount in question was paid by MTFPL to Elderslie. On 19 April 2004, Elderslie lodged with ASIC a notice of the cessation of the agent's appointment as agent of the mortgagee in possession. 176 On 30 March 2004, MTFPL wrote a letter of demand to Elderslie. MTFPL asserted that the letter of offer of 8 March 2002, which was accepted by MTFPL on 11 March 2002, gave rise to an agreement, which it called "the discount agreement". MTFPL claimed that by Elderslie having failed to provide funds of up to $50,000,000 annually to MTFPL, it had breached the terms of the discount agreement. It claimed to have suffered substantial loss and damage as a result, and required Elderslie to account to it for the loss and damage. MTFPL did not purport to terminate the discount agreement or the Master Receivables Purchase Agreement. 177 In none of the correspondence exchanged between the parties during this period was it suggested by either of them that the agreement between them for the purchase of receivables had been brought to an end. 178 On 6 April 2004, MTFPL commenced these proceedings by filing a writ in the Supreme Court of Victoria. The writ was accompanied by a statement of claim. In its statement of claim, MTFPL alleged that Elderslie had breached the discount agreement. It claimed damages. It did not purport to terminate that agreement or the Master Receivables Purchase Agreement. 179 On 13 May 2004, Elderslie again wrote to MTFPL. It asserted that MTFPL was under a continuing obligation under clause 9.6 of the MRPA to maintain accurate records and documents. It gave notice pursuant to clause 9.7 that it wished to attend at the offices of MTFPL to inspect the documents. On 24 June 2004, it again gave notice of its intention to inspect documents pursuant to clause 9.7 of the MRPA. On 25 June 2004, MTFPL replied to this correspondence. It did not dispute Elderslie's right to exercise its powers under clause 9.7. Mr Dunn said that he had been "patiently awaiting your confirmation of final arrangements as to date and time subject to your travel arrangements being made". Those arrangements were made for 9 July 2004. Again, this correspondence is only consistent with both parties treating the MRPA as being still on foot. The inspection took place on 12 July 2004. 180 On 23 December 2004, MTFPL filed an amended writ accompanied by an amended statement of claim in the Supreme Court of Victoria. After alleging that Elderslie was in fundamental breach of the discount agreement and had repudiated the discount agreement, MTFPL pleaded that "by the issue of its writ commencing this proceeding, alternatively by this amended statement of claim, MTFPL terminated, alternatively hereby terminates, alternatively accepts Elderslie's repudiation of, the discount agreement, and, to the fullest extent possible, the security documentation." 181 Elderslie had not resiled from its repudiation of the contract constituted by the discount agreement and the Master Receivables Purchase Agreement. It had not put itself in the position where it was able to perform its obligation to provide funding. Prior to 23 December 2004, neither party had sought to terminate those agreements. The parties had conducted themselves on the basis that the contract remained on foot. MTFPL was entitled to terminate the contract by accepting Elderslie's repudiation of it. It did so on 23 December 2004. 182 MTFPL is not entitled to loss of bargain damages, merely because Elderslie repudiated the contract. Its right to claim loss of bargain damages arises on its accepting the repudiation and terminating the contract. In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260-261, Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) said at (260-261): " Loss of bargain damages are recoverable only if the contract is at an end. Once termination due to the defendant's wrongful conduct is established the plaintiff is entitled to damages for loss of bargain: Dominion Coal Co Ltd v Dominion Iron & Steel Co Ltd [1909] A.C. 293 at p 311. Barwick CJ suggested in Ogle (1976) 136 CLR at p 450, that termination is not an essential element in an action for loss of bargain damages, except in the case of anticipatory breach, but the preponderant opinion in Australia and England is against his view: see Ogle (1976 136 CLR at p 458, per Gibbs, Mason and Jacobs JJ.; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, at p 31, per Mason J. (with whom Wilson and Deane JJ agreed generally, and Dawson J. agreed); Photo Production Ltd v Securicor Ltd [1980] A.C. 827 at pp 844-845,849." 183 Elderslie was not entitled to damages for actual breach of contract because there was none. It became entitled to loss of bargain damages on its termination of the contract on 23 December 2004 for Elderslie's anticipatory breach. 184 It was not submitted that Elderslie could not claim such damages in this proceeding because its right to such damages had not accrued at the time when the proceedings were commenced (see s 64(3) of the Civil Procedure Act 2005 (NSW)). Measure of Damages – Elderslie's Right to Terminate on One Month's Notice 185 The contract was not for a fixed term. However, the MRPA could be terminated by either party on one month's notice (clause 10.1) The letter of 8 March 2002 would also have no further operation on the termination of the MRPA. The obligation to provide funding for the purchase of lease receivables was dependent on the MRPA being on foot. 186 The assessment of damages for loss of bargain must take into account the probability that Elderslie would have exercised its right of termination under clause 10.1 of the MRPA (The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 114, 131-132, 143, 151, 176-177). In The Commonwealth v Amann Aviation Pty Ltd, the majority of the High Court did not apply a discount in the calculation of damages to reflect the contingency that the defendant would have exercised its contractual right to terminate the contract where the damages obtained were "reliance damages" to recover expenditure incurred. The reliance damages were assessed on the presumption that the loss of contractual rights was worth no less than the amount of wasted expenditure. However, there was no disagreement that if "expectation damages" were claimed, (that is, damages assessed by reference to the likely future profits had the contract been performed), the calculation of such expectation damages had to take into account the contingency of the defendant's exercising its contractual right of termination. 187 Damages for loss of profits are to be assessed on the assumption that notwithstanding that it had not secured funding from a third party, Elderslie would have provided funding from its own resources. Clearly, it had some such resources as it funded three of the seventeen contracts for which SG had provided funding, but which had been processed by MTFPL pursuant to its delegated authority. However, as it only intended to fund the program through a securitiser, and did not have the capacity to fund the entire program itself in any event, it is virtually certain that it would have taken such steps as were available to it to terminate the contract. There was no countervailing incentive for it not to exercise that right. 188 Elderslie's evidence was that had MTFPL submitted further proposals, it would have rejected them under clause 3 of the Master Receivables Purchase Agreement because it did not have available funding. For the reasons I have given, that would have been a breach of contract. For the purposes of assessing loss of bargain damages, the assumption to be made is that Elderslie would have honoured its contract. However, making that assumption requires the making of a further assumption that Elderslie would then have taken such steps as were properly available to it to minimise its obligation. No extended period would have been required in order to obtain legal advice. The right to terminate the contract under clause 10.1 was clear. 189 Damages are assessed at the date of breach. The question of whether it is practically certain or "predestined" that Elderslie would exercise its right of cancellation is to be assessed either in the circumstances prevailing at the date of breach, or the date of MTFPL's acceptance of Elderslie's repudiation. It does not matter which date is chosen, although there is authority for the latter date (Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalos Angelos) [1971] 1 QB 164 at 209-210; The Commonwealth v Amann Aviation Pty Ltd at 114). In either case, it is practically certain that Elderslie would have exercised its right. In making that judgment, one does not assume that Elderslie had made good its representation and secured funding from SG. 190 Accordingly, loss of bargain damages should be assessed on the basis that Elderslie would have performed its obligations by purchasing the receivables under proposals submitted to it for a period of one month, but no longer. The question then is how to assess the value of the contractual rights as at the date of MTFPL's acceptance of Elderslie's repudiation. 191 That assessment should not be made on the assumption that MTFPL would have processed leasing proposals (or submitted leasing proposals had its delegated discretion been withdrawn) to the value of $50,000,000 per annum or $4,166,000 per month, let alone at the higher figures projected by MTFPL. In over eight months, the total value of the seventeen proposals submitted by MTFPL was $2,309,797. Mr Dunn explained the slowness in proposals being submitted by the initial need to establish the program in the marketplace and thereafter by the advice he received in August 2002 that only $2,500,000 of temporary funding was available. I accept that these were constraints on MTFPL's ability to seek and obtain leasing proposals. However, if the assumption is made that Elderslie would have met its contractual obligation to fund creditworthy proposals, even if it did not have funding available from a securitiser, but the assumption is also made that in those circumstances it would have exercised its contractual right to terminate the agreement, then one must also hypothesise that its giving of one month's notice of termination would act as a constraint on MTFPL's willingness and ability to seek out and obtain such proposals. 192 In my view, the value of the bargain which MTFPL lost should be measured by taking the monthly average of the last three months in which proposals were processed by MTFPL and submitted to Elderslie. Whilst the number of proposals submitted in the latter part of 2002 was affected by the indication that only $2,500,000 of temporary funding was available, there would have been a similar constraint upon its being known that Elderslie would exercise, or had exercised, its right of termination. Nine proposals were submitted between October and December 2002 totalling $1,450,413. The monthly average was $483,471. Based on its average income derived from the seventeen proposals which were accepted by Elderslie, MTFPL would have derived income of $21,648 from the submission of proposals to the value of $483,471. 193 MTFPL is not entitled to greater damages for breach of contract to recover wasted expenditure. The contractual measure of damages aims to put the plaintiff in the same position as that in which it would have been had the contract been performed. Damages for wasted expenditure are recoverable in contract if the expenditure would have been recouped had the contract been performed. The plaintiff is entitled to the benefit of a presumption that the net value of the contractual benefits would have exceeded the wasted expenditure, if the defendant's breach and the termination of the contract has rendered it impossible for the plaintiff to prove the value of the contractual benefits. This is not such a case. It is possible to value the contractual benefits. 194 In any event, the question of whether MTFPL is entitled to claim reliance damages for wasted expenditure for breach of contract is moot. For the reasons below, MTFPL is entitled to recover such damages as loss suffered by Elderslie's misleading and deceptive conduct. 195 I conclude that MTFPL is entitled to damages for breach of contract of $21,648, together with interest at the prescribed rate from the date of its acceptance of Elderslie's repudiation, namely, 23 December 2004. Misleading and Deceptive Conduct 196 MTFPL alleged that Elderslie contravened either s 52 of the Trade Practices Act, or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). 197 Elderslie submitted that s 52 of the Trade Practices Act did not apply. Section 51AF of the Trade Practices Act provides that Pt 5 of that Act does not apply to the "supply, or possible supply, of services that are financial services". Section 51AF(2) provides that, without limiting subsection (1), s 52 does not apply to conduct engaged in in relation to financial services. "Financial service" has the same meaning as in Div 2 of Pt 2 of the ASIC Act 2001. Section 12BAB(1) of the ASIC Act (which is in Div 2 of Pt 2 of that Act) provides that for the purposes of that division, and subject to paragraph (2)(b), a person provides a "financial service" if, inter alia, they: " a. provide financial product advice (see subsection (5)); or b. deal in a financial product (see subsection (7)); or … g. provide a service that is otherwise supplied in relation to a financial product. " 198 A "financial product" is defined is s 12BAA. It includes a facility through which a person makes a "financial investment" (s 12BAA(1)(a).) 199 Subsection 12BAA(7) specifies particular things that are financial products for the purposes of the Division. Unless excluded by subs (8), those things include a "credit facility (within the meaning of the regulations)". (Section 12BAA(7)(k)). 200 Section 12BAA(4) provides that: " (4) For the purposes of this section, a person (the investor) makes a financial investment if: (a) the investor gives money or money's worth (the contribution ) to another person and any of the following apply: (i) the other person uses the contribution to generate a financial return, or other benefit, for the investor; " 201 Clause 2B of the Australian Securities and Investments Commission Regulations 2001 provides: " 2B Financial products: credit facility (1) For paragraph 12BAA (7) (k) of the Act, each of the following is a credit facility : (a) the provision of credit: (i) for any period; and (ii) with or without prior agreement between the credit provider and the debtor; and (iii) whether or not both credit and debit facilities are available; … (3) In this regulation: credit means a contract, arrangement or understanding: (a) under which: (i) payment of a debt owed by one person (a debtor ) to another person (a credit provider ) is deferred; or (ii) one person (a debtor ) incurs a deferred debt to another person (a credit provider ); and (b) including any of the following: (i) any form of financial accommodation; … (iii) credit provided for the purchase of goods or services; (iv) a contract, arrangement or understanding for the hire, lease or rental of goods or services, other than a contract, arrangement or understanding under which: (A) full payment is made before or when the goods or services are provided; and (B) for the hire, lease or rental of goods — an amount at least equal to the value of the goods is paid as a deposit in relation to the return of the goods; … (xiii) granting or taking a lease over … personal property. " 202 Elderslie submitted that Elderslie was "making a financial investment" within the meaning of s 12BAA(4), as it paid money to MTFPL to allow the purchase of a motor vehicle which would then become the subject of a lease which, upon purchase of the receivables by Elderslie, would generate a financial return or other benefit for the investor. It also submitted that each lease granted by MTFPL to its customers was a "credit facility" within the meaning of clause 2B of the Regulations. It falls squarely within the terms of clause 2B(b)(xiii). 203 I accept that for the purposes of s 12BAA(4), Elderslie was an investor making a financial investment within the meaning of paragraph 12BAA(4)(a). It supplied money which was applied at MTFPL's direction to the dealer for the purchase of the motor vehicle. The other person (MTFPL) used that money to generate a benefit for Elderslie through its purchase of the motor vehicle, the leasing of the motor vehicle to a customer, and the assignment of the receivables under the lease contracts to Elderslie. I also accept that the lease contracts between MTFPL and its customers were credit facilities within the meaning of the Regulations and were therefore "financial products" for the purposes of Div 2 Pt 2 of the ASIC Act. 204 It does not follow that Elderslie provided financial product advice (s 12BAB(1)), or dealt in a financial product (s 12BAB(1)(b)), and thereby provided "financial services". However, I accept that the services Elderslie provided to MTFPL were "supplied in relation to a financial product" within the meaning of s 12BAB(1)(g) of the ASIC Act. The word "service" in s 12BAB(1) has as wide a meaning as the expression "services" in the Act. The provision of a service includes the provision of any rights, benefits, privileges or facilities granted or conferred in trade or commerce. The facilities provided by Elderslie to MTFPL under the letter of 8 March 2002 and the Master Receivables Purchase Agreement fall within that description. There is a connection between the supply of those services and the "financial product", being the lease contracts provided by MTFPL to its customers. Without the services provided by Elderslie, MTFPL could not have supplied the services to its customers. Hence, the services provided by Elderslie are supplied "in relation to" that financial product. There is also a close connection between the services Elderslie provided to MTFPL and Elderslie's making a financial investment within the meaning of s 12BAA(4) of the Act. 205 Accordingly, I accept that the conduct engaged in by Elderslie which it is alleged was misleading or deceptive was engaged in "in relation to financial services". Section 12DA of the ASIC Act applies to such conduct. Section 52 of the Trade Practices Act does not apply to such conduct as it was engaged in "in relation to financial services" (Trade Practices Act, s 51AF(2)(a)). 206 Elderslie's letter of 8 March 2002 contained a representation that Elderslie was able to provide funding of up to $50,000,000 per annum for MTFPL's program through funding it had arranged for itself through SG. The letter also contained a promise to provide funding of up to $50,000,000 per annum, and that implied that Elderslie had the capacity to honour that promise. 207 It may be that the representation was that Elderslie expected that it would procure (as distinct from "had procured") funding of at least $50,000,000 per annum from SG as securitiser, through which Elderslie would be able to purchase receivables from MTFPL. That would be a representation about a future matter to which s 12BB of the ASIC Act applies. The representation was misleading unless Elderslie had reasonable grounds for making it. 208 Elderslie did not have reasonable grounds for making such a representation. Its contract with SG gave SG a discretion to reject any particular proposal. It is true that Elderslie's contract with MTFPL contained a provision in similar terms. However, there could be nothing to prevent SG from refusing to accept proposals on the ground that the proposals were not the "straight up and down" lease finances which it had been led to expect would be proffered. It was misleading to hold out to MTFPL that Elderslie had arranged finance which would permit it to purchase receivables in amounts up to $50,000,000 per annum, or that it would be able to do so, when Elderslie had not disclosed very important aspects of the lease proposal to SG. I find that Elderslie did not disclose to MTFPL that it had not disclosed the tax aspects of the proposal to SG. In those circumstances, its representations to MTFPL that it had arranged, or would be able to arrange, funding from SG to enable it to purchase receivables of up to $50,000,000 per annum, was misleading and deceptive. It had arranged a facility for SG to provide finance for proposals for the leasing of luxury motor vehicles, but not for the specific program proposed by MTFPL. 209 MTFPL pleaded that the misleading representations were made in the letter of offer of 8 March 2002 and in oral discussions between Mr Dunn, Mr Garcia and Mr Garrett. However, it was the representations made by Elderslie in its letter of 8 March 2002 upon which Mr Dunn relied in committing MTFPL to the program with Elderlsie. Claim for Loss of Opportunity to Obtain Finance Elsewhere 210 Elderslie was not the only finance company whom Mr Dunn approached. In February 2001, Mr Dunn approached Mr Johnson and Mr Freshwell of Australian Underwriting Agencies Ltd. Negotiations with that company proceeded sporadically during 2001. Mr Dunn said that they represented "another prospective source of funding". A confidentiality agreement was executed with that company to allow it to be given details of the proposal. 211 In March 2001, a confidentiality agreement was executed with Gerrard & Stuk for the purpose of their discussing the prospect of financing motor vehicle leases with one of their clients. 212 In May 2001, Mr Freshwell suggested to Mr Dunn that he contact Capital Finance Australia Ltd. He did so and signed a confidentiality agreement with that company on 24 May 2001. Capital Finance actively investigate the proposal. They obtained advice from KPMG, accountants. The tax advice was not favourable. Mr Dunn wrote to Capital Finance in December 2001 identifying what he regarded as errors in that advice. 213 In December 2001, Mr Dunn entered into a confidentiality agreement with Fleet Smart Australia Pty Ltd and related companies for them to consider the proposed finance leasing. He had correspondence in relation to the proposal with Fleet Smart during January and February 2002. 214 Mr Dunn terminated all discussions with Capital Finance on 8 February 2002. On 12 February 2002, a confidentiality agreement was entered into with Investec Australia Pty Ltd for the purpose of pursuing the lease funding proposals for leases in excess of the funding to be provided by Elderslie. 215 On 13 February 2002, Mr Morris sent an email to Mr Dunn referring to tax advice from Mr Searle, a barrister, and from PricewaterhouseCoopers. Mr Morris wrote: " I am struggling to see how Peter Searle and PWC can argue that the lessees' primary purpose in entering into the proposed lease would not be to get the tax benefit. Both argued that it would be difficult to even determine that there is a tax benefit. I see it differently. Can we discuss this and in doing so compare the proposed product to both other typical leases (4 years 40% RV) and CHPS? " 216 On 23 February 2002, Mr Dunn received a response from Mr Searle responding to the questions put by Mr Morris. It does not appear that Mr Morris' questions were answered by Mr Dunn. Rather, he did not complete his discussions with Mr Dunn because of the agreement which he made with Elderslie. 217 None of these approaches reached the stage where the parties were prepared to enter into funding agreements. The discussions with each of Capital Finance, Investec, and Fleet Smart reached the point that particular questions were raised about taxation issues. Mr Dunn ceased these discussions at the point of his accepting Elderslie's letter of offer of 8 March 2002. 218 From December 2002, Mr Dunn made attempts to source alternative funding. He did not go back to Capital Finance, because he considered that the adverse taxation advice they had received meant that there was no realistic prospect of their being interested in the proposal. He did not go back to Fleet Smart because he did not consider that that company had the funding capability. Mr Dunn telephoned Mr Morris of Investec and advised him that the arrangements with Elderslie had "come into some difficulty". He asked Mr Morris whether he would be interested in resurrecting the proposition of funding. Mr Morris said that he was not. Mr Dunn said that Investec was not interested in pursuing the proposal because he dropped them in favour of pursuing the transaction with Elderslie. However in his affidavit, Mr Dunn deposed that he had entered into the confidentiality agreement with Investec for the purpose of pursuing additional funding for leases, in excess of the funding to be provided by Elderslie. His evidence does not explain why negotiations with Investec ceased following his entering into the agreement with Elderslie. 219 I am not persuaded that had MTFPL not entered into the agreement with Elderslie, it could have successfully negotiated funding through Investec. Financiers were cautious in dealing with a tax driven product. There was no evidence from Investec that it would have been prepared to have pursued the negotiations for an agreement to provide lease financing for MTFPL, had MTFPL not entered into an agreement with Elderslie. There was no evidence from Investec that the reason it did not agree to pursue the proposal after December 2002 was because MTFPL had earlier concluded an agreement with Elderslie and not with it. If, as Mr Dunn deposed, his purpose of discussing the proposal with Investec was to seek additional funding to that arranged through Elderslie, there is no reason that the discussions should not have been pursued had Mr Dunn thought it worthwhile. 220 In 2003, MTFA commenced negotiations with the Commonwealth Bank, with Westpac Banking Corporation Ltd, with Societe Generale London, and with Westpac Institutional Bank. None of those approaches resulted in agreements being entered into. Elderslie's endeavours to attract other financiers were also unsuccessful. 221 For the reasons previously given, I do not accept that the proposal offered substantial taxation benefits. Moreover, if the finance leases which customers were to enter into were to take effect in accordance with their terms, the leases would expose the lessees to the risk of having to pay the higher residual value, even though the financier had assessed its return on the assumption that it would receive only the lower residual value. There was clearly a reputational issue for a financier, where the taxation benefit for the lessee was premised upon the lease finance being more expensive than the financier intended. The taking of credit insurance, which was not expected to be called on, adds a layer of obscurity and complication which would also have made it hard for MTFPL to persuade another financier to finance the product. 222 The plaintiff's claim should be treated as one for the loss of a chance to enter into an alternative profitable funding arrangement with another financier. Its claim does not fail merely because it is improbable that such an alternative arrangement would be entered into (Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 350, 355). If there was a more than speculative chance of MTFPL's entering into a funding agreement with another financier, which was lost by its reliance on Elderslie's misleading representations, then the value of the commercial opportunity lost is to be assessed by reference to the degree of probability that such an agreement would have been made, and the likely profitability of such an agreement to MTFPL if it were made. In Malec v JC Hutton Pty Ltd (1990) 169 CLR 638, Deane, Gaudron and McHugh JJ suggested that for such chance to be disregarded as speculative it should have a probability of less than one percent. 223 MTFPL has not established that it had a chance of entering into such an agreement which was more than speculative. It could have, but did not, call evidence from the persons to whom it had proposed its lease financing. In the absence of such evidence, I would not find that the possible alternative financiers with whom it dealt might have concluded an agreement with it had MTFPL not reached its agreement with Elderslie. It is not sufficient for MTFPL simply to point to the fact that negotiations had occurred. In seeking to prove the value of the chance that such negotiations would have resulted in an agreement but for MTFPL having concluded a deal with Elderslie, MTFPL could be expected to have adduced evidence from the parties with whom it dealt. Its failure to do so was not explained. I infer that evidence from the parties with whom it dealt would not have assisted its claim. In the absence of such evidence, and having regard to my findings as to the nature of the taxation advantages of the product, I am not satisfied that Elderslie's misleading conduct deprived MTFPL of a chance of securing an alternative arrangement which was more than speculative. 224 Had I been of a different view, the question would still have arisen as to what was the likely amount of business which would have been written by a financier appraised of all of the features of the product. Having regard to my views as to the likely competitiveness of the product based upon the asserted tax benefits, I consider that Elderslie's assessment that up to $50,000,000 per annum of business could be written was optimistic. A fortiori, I would not act on the basis of Mr Dunn's projection of $10,000,000 of business per month. MTFPL calculates that its gross profit on $50,000,000 of business per annum would total $2,238,784. Given the level of business actually written, and given my views as to the likely competitiveness of the program, I consider that to allow one-third of that projected gross income would be generous. The chance of deriving that gross income would have to be discounted to reflect the chance of such an agreement being made. MTFPL claimed that it incurred expenses to a related company of $546,252 between 20 March 2002 and 6 April 2004, that is, a little under $270,000 per annum. I have found below that MTFPL has failed to prove much of these expenses. However, on a claim for loss of opportunity to derive continuing profits, its pleading of the expenses it incurred is an admission against it. Unless the value of the chance of the plaintiff entering into an agreement with an alternative financier was assessed at more than 36%, the claim for damages for lost income as a result of the loss of that chance would not exceed the company's expenses. Even on the basis of the expenses of $13,200 per month which I accept MTFPL has proved, unless the value of the chance were assessed at more than 21%, the claim for damages for loss of income as a result of the loss of the chance would not exceed MTFPL's expenses. For the damages to exceed the amount recoverable by MTFPL as expenditure incurred less income derived, in reliance on Elderslie's representations, the chance of MTFPL having concluded an arrangement with an alternative financier would have to be assessed even higher. 225 In other words, even had I assessed the chance of MTFPL making an alternative arrangement as being more than speculative, the damages to which it would be entitled for the loss of the chance would in any event not exceed its claim for damages for losses actually suffered as a result of proceeding with its transaction with Elderslie. Damages for Losses Sustained 226 MTFPL was incorporated on 13 February 2002 for the purpose of entering into the agreement with Elderslie. Mr Dunn deposed that MTFPL required complete infrastructure support, office space, personnel, computer equipment, and other office support for trading. On 14 March 2002, an agreement was entered into, expressed to be between MTFPL and Macburg Pty Ltd ("Macburg"). Macburg is a company controlled by Mr Dunn. The agreement recited that MTFPL wished to engage Macburg to manage its business. Clause 2 provided that Macburg would provide management services falling within two categories. Category A was described as follows: " CATEGORY A SERVICES i) General management of the Lessor ii) Management of legal accounting and reporting requirements iii) Management maintenance and development of the lease quotation system iv) Management of the lease application process v) Management, maintenance and development of lease documentation vi) Management of the Credit Submission process vii) Management of the delegated credit approval authorities viii) Management of the credit approval process outside the delegated credit approval authorities ix) Management of the Lease settlement process x) Management of the sale of lease receivables to the Financier xi) Management of the Insurance process xii) Management and compliance of the Insurance Agreement xiii) Management of the Sale Agreement xiv) Management and provision of Credit Reference checking xv) Management and provision of ASIC searches xvi) Management and provision of REVs checks and REV's registrations for leased vehicles. " 227 The agreement provided that MTFPL would pay $12,000 per month plus GST of $1,200 as consideration for Macburg's providing the services in Category A. 228 Category B services were described as follows: " CATEGORY B SERVICES i) Management of marketing and selling services of the Lessor ii) Management of advertising and promotion services iii) Management of interstate business development iv) Management of Dealers v) Management of legal or accounting services outside general compliance areas vi) Management of bad or delinquent lease receivables vii) Management of disputes or legal claims viii) Management of IT Services and equipment ix) Management of Communication Services x) Management and provision of offices and office equipment xi) Any other Management Services. " 229 The agreement provided that for these services, and for services outside the general scope of services nominated in Category A, Macburg would invoice MTFPL for the services "at a rate applicable for the service provided". If Macburg engaged a third party to provide management services then it would invoice MTFPL for those services, or arrange for the provider of them to invoice MTFPL directly. The agreement was for a term of three years. 230 The agreement was signed by Mr Dunn. He signed the agreement against the following execution clause: " Executed by Motor Trades Finances (Australia) Pty Ltd by its duly constituted attorney under power of attorney dated 8th January 2002 … " He executed the agreement a second time against the following execution clause: " Executed by Motor Trades Finances (Australia) Pty Ltd by its duly constituted attorney under power of attorney dated 1st May 2001 … " 231 Motor Trade Finances (Australia) Pty Ltd was not a party to the agreement. The plaintiff tendered three deeds of appointment of Mr Dunn as attorney. One was a deed dated 1 May 2001 signed by Mr Dunn under the common seal of Macburg. It conferred a general power of attorney on Mr Dunn to act for Macburg. The second power of attorney was a deed dated 8 January 2002 signed by Mr Dunn under the common seal of Motor Trade Finances (Australia) Pty Ltd. It appointed Mr Dunn as a general attorney of that company (which was itself misdescribed in the body of the deed as Motor Trade Finances Pty Ltd). The third power of attorney was a deed dated 4 March 2002 signed by Mr Dunn under the common seal of MTFPL. Again, it was a general power of attorney. 232 Mr Dunn was authorised to act as the attorney of both Macburg and MTFPL to cause those companies to enter into the agreement of 14 March 2002. He was the sole director and controlling mind of both companies. Mr Dunn said that the agreement was a standard management contract that Macburg had with other companies. It is clear that he intended that MTFPL should enter into the agreement with Macburg, for Macburg to provide the services described in the agreement. So much is clear from the first page of the agreement and the recitals. There were typographical errors on the execution page and a misdescription of one of the powers of attorney being exercised. Macburg and MTFPL subsequently acted under the agreement as if it were binding on them. Macburg invoiced MTFPL for services as envisaged by the agreement. Notwithstanding its defective execution, the agreement was binding on Macburg and MTFPL until such time as Mr Dunn decided that it should be terminated, and took steps to terminate it. 233 MTFPL was induced to enter into its contract with Elderslie by Elderslie's misrepresentations in the letter of 8 March 2002. The entry by MTFPL into the agreement with Macburg was a direct consequence of MTFPL's having accepted Elderslie's letter of offer of 8 March 2002. MTFPL needed either to employ people to market its lease finance product, assess leasing proposals, and otherwise carry on the business contemplated by that agreement, or it had to contract with another party for those services. It took the latter course. There is a direct causal relationship between Elderslie's misleading and deceptive conduct and MTFPL's making the agreement with Macburg. 234 I do not think that any question arises as to whether the sums MTFPL agreed to pay to Macburg were reasonable or excessive. The moneys paid or payable by MTFPL to Macburg are not claimed as damages, on the basis that the expense was incurred by way of mitigation, where there would be an onus on the plaintiff to show that expenses were reasonable. Rather, the question is simply what expenses were incurred by MTFPL, and whether the incurring of such expenses was caused by Elderslie's misleading and deceptive conduct. (The question whether MTFPL failed to act reasonably to mitigate its damages by not terminating its arrangements with Macburg is a different question.) However, there was no evidence that the charges made by Macburg were excessive. Had its services not been used, MTFPL would have had to incur wages, rental and other costs. 235 The defendant challenged the plaintiff's evidence that invoices for services provided by Macburg were rendered. It was submitted that there was no direct evidence of what management services were in fact provided by Macburg to MTFPL. However, it is clear that MTFPL did carry on a business from March 2002 of arranging for the leasing of cars to customers, the obtaining of finance for that to be done, and the assignment of the lease receivables to Elderslie. It was not suggested that MTFPL had its own employees and equipment and office space through which it carried on the business. As it was under a contractual obligation to pay $13,200 per month for the schedule A services provided by Macburg, as those services were necessary for the conduct of that business, and as it carried on no other business, I do not think it is material that there was no direct evidence of precisely what management services were provided. Nor is it relevant whether invoices were periodically rendered or not. However, in case it be relevant, I accept Mr Dunn's evidence that they were. However, there is no evidence that the invoices were paid. Rather, the evidence establishes that a liability was incurred by MTFPL for the amounts in the invoices. The claim did not extend beyond 6 April 2004. 236 The evidence in relation to the charges for the "Category B Services" consisted of the production of three invoices each dated 20 July 2003 from Macburg to MTFPL. One invoice was for the sum of $108,662 and was for "credit management fees". Another invoice was for $57,995 and was for "additional administration costs". The third was for "general out of pocket expenses" and was for $47,600. 237 These invoices totalled $214,257. Curiously, Mr Dunn deposed that during the period from 20 March 2002 and 6 April 2004, invoices were issued to MTFPL for $210,252 for clause 2(b) services. I can only assume that the figure of $210,252 was a mistake. 238 Given the relationship between Macburg and MTFPL, I do not conclude from the fact that the invoices were rendered that MTFPL had a liability to pay the invoices. If Macburg incurred out of pocket expenses in carrying out its duties under the agreement, it was entitled to be reimbursed by MTFPL. The invoice for "general out of pocket expenses" suggests that some such expenses were incurred by Macburg. However, there was no evidence of what they were. The plaintiff has not proved that it had a liability to Macburg for the amount of that invoice. 239 The invoice of $57,995 was for "additional administration costs". Again, there is no evidence as to what was done for which this invoice was raised. Category B services were to be invoiced by Macburg to MTFPL "at a rate applicable for the service provided". No rate was specified in the agreement. Presumably, in the absence of agreement between Macburg and MTFPL as to an applicable rate, Macburg would be entitled to a reasonably charge for services provided in addition to those nominated in Category A. However, it is not possible to say what was the "additional administration" for which the charge was made. There is no evidence that any rate applicable to such "additional administration" was agreed. It is not known how the charge was made up. Therefore, it cannot be known whether the amount charged was reasonable. 240 The plaintiff has not established that it had a liability pursuant to the agreement of 14 March 2002 to pay this invoice. 241 The invoice of $108,662 was for "credit management fees". Again, there was no explanation of the charge. "Credit management" is not a "Category B service" unless it comes within the description of "any other management services" in (xi). Category A services include the management of the credit submission process (vi), the management of delegated approval authorities (vii), the management of credit approval process outside the delegated credit approval authorities (viii), and the management and provision of credit reference checking (xiv). As there is no evidence of what work was done for which "credit management fees" of $108,662 were charged, it is not possible to say that that charge was for services falling outside Category A services. Again, MTFPL did not prove that it was liable to Macburg on these invoices under the agreement of 14 March 2002. 242 In the absence of evidence as to the basis on which the invoices totalling $214,472 were raised, there is no evidence that MTFPL had a liability to Macburg for these sums. Unless it had a liability under the 14 March 2002 agreement, or it was liable to pay a reasonable sum for work performed by Macburg on its behalf which arose from Elderslie's misleading conduct, it is unable to recover such moneys as damages for breach of s 12DA(1) of the ASIC Act. 243 Subject to Elderslie's contention that MTFPL failed to take reasonable steps to mitigate its loss, MTFPL is entitled to recover as damages the amount of $336,000 payable to Macburg for general management fees incurred up to 6 April 2004. There is no explanation as to why no claim was made for such expenses incurred after 6 April 2004, but it suffices that no such claim was made. MTFPL must give credit for the income which it derived under its agreement with Elderslie of $104,588.86 and the contractual damages to which it is entitled for loss of its bargain. In other words, MTFPL has established that by entering into the contract with Elderslie and the contract with Macburg, which was entered into because of its contract with Elderslie, it was worse off by the difference between $336,000 payable to Macburg and the sum of the income (after brokerage) of $104,588.86, and the value of its claim for damages for breach of contract. (In his affidavit Mr Dunn said that the gross profit derived was $103,422.69, but the detailed summary of the motor vehicle leases funded by Elderslie at exhibit CJD104 shows that the figure was $104,558.86). Failure to Mitigate by not Terminating Agreement with Macburg 244 Elderslie submitted that Mr Dunn's decision to enter into a three-year agreement with Macburg, when he knew that the Master Receivables Purchase Agreement could be terminated on one month's notice, was so unreasonable that it broke the causal connection between the defendant's conduct and the alleged loss. It also submitted that it was unreasonable for Mr Dunn not to bring the management agreement to an end. It submitted that any loss suffered as a result of the contract with Macburg extending beyond one month's notice of the MRPA ceasing to be operative should be to the plaintiff's account. 245 The difficulty with these submission is that the MRPA was not terminated until 23 December 2004. No claim was made for moneys payable to Macburg after 6 April 2004. MTFPL was required to continue to keep books and records, to collect GST remitted to it by Elderslie, and to remit GST to the Australian Taxation Office. 246 On 16 May 2002, Elderslie wrote to Mr Dunn at MTFPL confirming the parties' discussions in relation to "operational aspects of our transaction". On 22 May 2002, Mr Dunn agreed to the provisions outlined in the letter. Elderslie wrote: " 1. GST ITC rebate Under the arrangement we are lending to you the rebatable GST component at the date of settlement. This is currently capped at $5,012.18 on each deal and may be less in some instances. You have agreed to pay to us the cash equivalent of each GST ITC rebate when received from the Australian Taxation Office. This is required by us as all of the loan pricing has been based on that assumption. You also agreed under clause 8.1(c)(iii)A of the Deed of Charge and Mortgage to furnish us with copies of the BAS within ten banking days after every lodgement of the same. 2. GST on lease receivables As we are collecting the lease receivables via direct debit to our account, we undertake to pay the relevant GST and stamp duty amount to you on a monthly basis. We will also provide a reconciliation of these amounts on an individual account basis. We have agreed that the GST that we are required to pay to you can be offset against the amount owed to us under point 1 above. In the early stages of this transaction this will mean that you are a net payer to us. " 247 As the later discussions between the parties made clear, the effect of this arrangement was that MTFPL needed to maintain accounts in relation to the loan of the "rebatable GST component" of each transaction, and to account for the cash equivalent of each GST ITC rebate when received from the Australian Taxation Office. It was to continue to receive GST collected by Elderslie from the customers on the making of regular lease payments. It had to keep accounts to reconcile these transactions. It appears that MTFPL changed its method of accounting from an accruals to a cash basis. Elderslie complained that MTFPL did not. These arrangements were not the subject of cross-examination. However, on any view, MTFPL needed to maintain the management and accounting services provided by Macburg for at least so long as the MRPA remained on foot. I do not consider that MTFPL failed to mitigate its damages by not taking steps to terminate its agreement with Macburg. 248 Nor was there a break in the chain of causation by the fact that the agreement with Macburg contained no provision for its termination following the termination of the MRPA. As Mr Dunn could bring the agreement to an end when he chose, there was no reason to have such a provision. In any event, as the MRPA was not terminated until 23 December 2004, and as MTFPL did not claim any damages for payments due to Macburg after 6 April 2004, the point is academic. 249 For these reasons, I conclude that MTFPL is entitled to damages pursuant to s 12GF(1) of the ASIC Act of the difference between $336,000 payable as management fees to Macburg for Category 2(a) services, and the income of $104,558.86 received from the seventeen lease contracts. MTFPL did not prove that it had suffered further losses by the misleading and deceptive conduct of Elderslie. Its damages under s 12GF of the ASIC Act should also be adjusted to allow for its claim for damages for breach of contract. Those damages reflect the additional value of the contract with Elderslie which are to be set off against the expenses incurred by MTFPL as a result of its entering into the contract. 250 MTFPL would also be entitled to interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) if it had paid the invoices issued to it, as distinct from being liable for the amounts shown in the invoices. However, there was no evidence that the invoices were paid. Its agreement with Macburg does not include a term providing for interest on late payments. It could discharge its debt to Macburg by paying $336,000 without interest. I do not think that it is appropriate to award pre-judgment interest on the damages. 251 Therefore, MTFPL is entitled to damages against Elderslie pursuant to s 12GF of the ASIC Act for the difference between $336,000 and the sum of $104,558.86, $21,648, and interest at 9% per annum on $21,648 from 23 December 2004 to the date of judgment. As at 8 December 2006, such interest amounts to $3,816.64. Therefore, damages under s 12GF amount to $205,976.50. In total, MTFPL is entitled to judgment against Elderslie in the sum of $231,441.14. Claims Against Mr Garcia and Mr Garrett 252 MTFPL pleaded that Mr Garcia and Mr Garrett were liable as primary contravenors of s 12BA of the ASIC Act, s 42 of the Fair Trading Act 1987 (NSW), and s 9 of the Fair Trading Act 1999 (VIC). The misleading conduct relied on was primarily the letter of 8 March 2002. MTFPL also alleged that Elderslie, Mr Garcia and Mr Garrett engaged in misleading and deceptive conduct by statements made by Mr Garcia on 6 April and 27 July 2001 to the effect that Elderslie had the capacity to provide funding for the program. MTFPL also relied upon statements made at a meeting between Mr Dunn, Mr Garcia and Mr Garrett, and representatives from SG, where it was pleaded that "the second and third defendants introduced MTFPL to Societe Generale as its proposed Program Securitiser which had committed, or would commit, funding of at least $50,000,000 annually to support the program". 253 However, the representations upon which Mr Dunn relied were those conveyed by the letter of 8 March 2002. They were the only representations which had the formality which he required before committing MTFPL. 254 Mr Garrett cannot be liable as a primary contravenor by the sending of the letter of 8 March 2002. He did not send it. He did not read it before it was sent. 255 It was submitted for Mr Garcia that the representations on which MTFPL relied were in fact not those of Mr Garcia, but of his principal, Elderslie. It was submitted that the conduct relied on by MTFPL was the "accumulation of events occurring prior to signature of the letter of offer and MRPA. … It is not possible to attribute liability to each of Messrs Garcia and Garrett, as their conduct, viewed individually, would not be sufficient to amount to the representations asserted". 256 However, in earlier submissions, the defendants said, correctly in my view, that Mr Dunn's evidence made it clear MTFPL's "representation case" stands or falls entirely on the contents of the letter of 8 March 2002. 257 Mr Garcia signed the letter of 8 March 2002 in his capacity as a director of Elderslie. He did not purport to act as a principal. He signed the letter acting within his authority as an agent for Elderslie. 258 However, that does not mean he escapes personal liability under s 12DA of the ASIC Act, or the provisions of the New South Wales and Victorian Fair Trading Acts. Both State statutes were invoked because Elderslie's place of business was in New South Wales, and Mr Dunn's place of business was in Victoria. The letter was sent from Sydney to Melbourne. However, the State Acts do not arise for consideration, because the case is covered by s 12DA of the ASIC Act. Section 24AI of the Wrongs Act 1958 (Vic) does not apply. 259 Authorities on s 52 of the Trade Practices Act, and the equivalent provisions in the State Fair Trading Acts, clearly establish that if a director or employee of a corporation engages, in trade or commerce, in conduct on behalf of the corporation which is misleading or deceptive, not only is the company primarily liable for contravention of s 52, but the individual is also primarily liable, and not merely as an accessary, for contravention of the equivalent State provisions (Arktos Pty LTd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 at [13], [87]-[89]; Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 ALR 633 at 641; Cleary v Australian Co-operative Foods Ltd (1999) 32 ACSR 701; Citibank Ltd v Liu [2003] NSWSC 569 at [53], and on appeal Wong v Citibank Ltd [2004] NSWCA 396 at [19]; Arms v Houghton [2006] FCAFC 46 at [38], [40], [42]; Astvilla Pty Ltd v Director of Consumer Affairs Victoria [2006] VSC 289 at [169]-[175]; Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 at [295]-[300]). 260 Mr Garcia is "a person" to whom s 12DA of the ASIC Act applies. On behalf of Elderslie, he made the representations in the letter of 8 March 2002. Those representations were made by him as well as by Elderslie. He has a primary liability under that section which does not depend upon its being established that he knew that the representations in the letter were misleading or deceptive. He is liable for the same reasons that Elderslie is liable. 261 For these reasons there will be judgment for the plaintiff against Mr Garcia in the sum of $205,976.50. Liability of Mr Garrett as an Accessary 262 MTFPL pleaded that Messrs Garcia and Garrett personally conducted or supervised for Elderslie, all dealings between it and MTFPL. MTFPL alleged that they were directors of Elderslie and acted within the scope of their authority as directors. They allege that by reason of these matters, Messrs Garcia and Garrett were persons who were directly or indirectly, knowingly concerned in, or party to, the conduct of Elderslie that was misleading or deceptive, or was likely to mislead or deceive, in contravention of s 75B of the Trade Practices Act, or alternatively s 12GB of the ASIC Act. 263 It follows from my conclusion that the defendants' impugned conduct was engaged in in relation to financial services, that neither Mr Garrett nor Mr Garcia can be liable as accessaries pursuant to s 75B of the Trade Practices Act for any contravention by Elderslie of s 52 of that Act. MTFPL alleged that Messrs Garrett and Garcia were liable as accessaries under s 12GB of the ASIC Act. That section makes it an offence for a person to be an accessary to certain contraventions of subdivision D of Div 2 of Pt 2 of the ASIC Act, but not s 12DA. The section does not impose civil liability on persons who aid or abet or are knowingly concerned in a contravention by another of s 12DA of the ASIC Act. 264 As counsel correctly submitted, s 12GB of the ASIC Act is not relevant on the present application. 265 However, s 12GF provides that: " A person who suffers loss or damage by conduct of another person that contravenes a provision of … Subdivision D (sections 12DA to 12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention ." 266 A person "involved in the contravention" includes a person who "has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention" (Corporations Act 2001 (Cth), s 79(c), ASIC Act, s 5(2)(b)). The fact that MTFPL identified the wrong provision of the ASIC Act as creating accessorial liability is not an answer to this claim. 267 As Mr Garcia is liable as a primary contravenor of s 12DA of the ASIC Act, it is only necessary to consider whether Mr Garrett is liable as an accessary. There is no issue that Mr Garrett knew of the representations made in the letter of 8 March 2002. Mr Garcia signed the letter. Mr Garrett was on holidays when the letter was sent. However, he saw the earlier version of the letter dated 18 February 2002. He gave evidence that he did not read the letter prior to its being sent out. He did not say that he did not read the letter after his return. The changes to the letter of 18 February 2002 incorporated into the letter of 8 March 2002 did not affect the representations made in Elderslie's correspondence that Elderslie had secured funding of $50,000,000 per annum from SG, or possibly, that it expected that it would obtain such funding. Both Mr Garrett and Mr Garcia knew that these representations were made. They were both concerned in the making of the representations. 268 However, to be liable as any accessary for being knowingly concerned in Elderslie's contravention of s 12DA, Mr Garrett must know the essential facts constituting the contravention (Yorke v Lucas (1985) 158 CLR 661 at 670). 269 It was submitted by counsel for Messrs Garcia and Garrett that for them to be liable as accessaries, it was necessary that they know of the falsity of the representations made, and that in this context, knowledge meant actual knowledge or wilful blindness (Yorke v Lucas at 668 and 670; Giorgianni v The Queen (1985) 156 CLR 473 at 487-488; Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539 at 546). 270 There is controversy as to whether for a person to be liable under these provisions as an accessary to a false or misleading representation by a primary contravenor, he or she must know that the representation is false or misleading. Knowledge that a representation is misleading is not an essential element of primary liability (see M Pearce SC, "Accessorial Liability for Misleading or Deceptive Conduct" (2006) 80 ALJ 104 at 107-110). 271 However, I accept that Yorke v Lucas does require that for a person to be liable for being directly or indirectly, knowingly concerned in, or party to, the contravention, the person must know both that the representations have been made (assuming that the relevant conduct is based on representations), and that the representations are false or misleading. Most recently, Brereton J explained the principles in the following terms (Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 (at [92]): " By s 1041I, a person who suffers loss or damage by conduct of another person that was engaged in in contravention of s 1041H may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention , whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention, subject to section 1044B. By s 79, a person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. The widest of those concepts is that of being "knowingly concerned" in a contravention, and even that involves (a) knowledge of the essential facts which constitute the contravention which, in the case of provisions such as those in issue here, requires knowledge that the relevant representation is being made and is misleading, and (b) some intentional participation or assistance in the contravening conduct [ Giorgianni v The Queen (1985) 156 CLR 473, 494, 501; Yorke v Lucas (1985) 158 CLR 661; Smithers v Beveridge (1994) 14 ACSR 197, 201]. The mere circumstance that a person is a director of a company that engages in contravening conduct is insufficient to establish that he or she is a person involved in it. As Finklestein J explained in Compaq Computer Australia Ltd v Merry (1998) 157 ALR 1, 4-5 [see also King v GIO Australia Holdings Ltd (2001) 184 ALR 98, [7]]:- "A contravention of s 52(1) of the Trade Practices Act can occur regardless of whether the corporation is acting honestly or reasonably: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197; 42 ALR 1. But where it is sought to make a person liable as an accessory to a contravention of s 52(1) based on s 75B it is necessary to establish that the person has intentionally participated in the contravention. To establish intentional participation it must be proved that the person has knowledge of the essential matters that make up a contravention of s 52(1): see generally Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307; Edwards v R (1992) 173 CLR 653; 107 ALR 190. In this regard "knowledge" means actual and not constructive knowledge. For example, it would not be sufficient merely to show that the person charged with accessorial liability had shut his eyes to the obvious if that is intended to be a substitute for actual knowledge: Giorganni v R (1985) 156 CLR 473; 58 ALR 641. Of course, where there is a combination of suspicious circumstances and a failure to make an inquiry it may be possible to infer knowledge of the relevant essential matters: Pereira v Director of Public Prosecutions (1988) 82 ALR 217; 63 ALJR 1 at 3.'" 272 It was submitted that Mr Garrett did not know that the representations were false. Mr Garret deposed that: " As at 8 March 2002 when the letter of offer was sent, I believed, based on the discussions I had with SG to that date, that SG had the capacity to and would provide funding in the amount of at least $50,000,000 provided that they were satisfied with the quality of deals presented to them by MTFPL. The basis of my belief was that SG had funded $28,000,000 of business with Elderslie in the past, so I knew that SG had substantial capacity to fund further amounts. Elderslie had a good relationship with SG. I also knew that SG was affiliated with a large French bank that operates internationally and has large balance sheet capacity. At the time when the letter of offer was sent, I had no reason to believe that there were any issues that would cause SG to reject the funding. I believe that even if the tax aspects of the proposal were raised, we would be able to convince SG to proceed because of the advice from PricewaterhouseCoopers and Peter Searle. " 273 Mr Garrett was not cross-examined on this evidence. Although there was some cross-examination as to his understanding of the representations made in the letter of 8 March 2002, it was not suggested to him that he understood that the letter was misleading because SG could reject any particular proposal and had not been told of the important taxation characteristics of the lease finance product, even though he understood that a financier was likely to treat such a product with caution. Mr Garrett acknowledged that it was a possibility (although he said it was less than a 50/50 chance) that SG would react adversely to the tax issues. 274 Mr Garrett said that he believed that Mr Dunn was aware of the extent to which Elderslie had made disclosure to SG of the taxation risks. He was cross-examined on that evidence. Neither he nor Mr Garcia gave any specific evidence as to how that disclosure was made to Mr Dunn. I have found that no such disclosure was made. Nonetheless, Mr Garrett was not cross-examined directly to seek to establish that he knew that the letter of 8 March 2002 was misleading because it failed to disclose that SG could reject any lease finance proposal, and that there was at least a possibility that it might to so because it had not been advised of the tax issues relating to the lease finance product. 275 Mr Garrett was cross-examined to establish that SG had not approved of a letter being sent to Mr Dunn in terms of the letters of 18 February and 8 March 2002, but it is not SG's lack of approval to the sending of the letter which renders it misleading. 276 Mr Garrett was also cross-examined to suggest that he understood that the letter of 8 March 2002 offered MTFPL a "committed facility" of up to $50,000,000 annually. He denied having that understanding. 277 There was some justification for the cross-examiner not exploring this matter further. Both Mr Garcia and Mr Garrett asserted a belief that Mr Dunn was aware that the tax issues had not been discussed with SG. I do not accept that Mr Dunn was made aware of that, and I would infer that neither Mr Garcia nor Mr Garrett believed that Mr Dunn had been made aware that there had been no such disclosure. Given their evidence that Mr Dunn was aware of this matter, there was limited scope for the cross-examiner to test whether they understood that the representations in the letter were misleading for making the unqualified representations that the facility had been obtained, or would be obtained, without disclosing that SG could reject any proposals and may do so because the important tax features of the product had not been disclosed to it. 278 Nonetheless, I am not satisfied that Mr Garrett had an actual appreciation that the letter of 8 March 2002 misrepresented to Mr Dunn the availability of funding through SG. There is an available inference that he did. However, it would be a serious finding which should not be made on the basis of uncertain inferences. It is one thing to find that Mr Garrett knew of the facts that made the letter of 8 March 2002 misleading. It is another thing to conclude that he put two and two together and knew that the letter was misleading. Although it may be possible to infer he had such knowledge, it is not an inference I am prepared to draw, particularly having regard to the limited cross-examination on the topic. 279 Accordingly, I do not consider that Mr Garrett is liable either as a primary contravenor or as an accessary for breach of s 12DA of the ASIC Act. Conclusion 280 For these reasons there will be judgment for MTFPL against Elderslie in the sum of $231,441.14. There will be judgment for MTFPL against Mr Garcia in the sum of $205,976.50. There will be judgment for Mr Garrett against MTFPL. The exhibits may be returned after 28 days. I will hear the parties on costs. ****** 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.