New South Wales Supreme Court CITATION : Donovan Oates v Reid; Botman Holdings v Donovan Oates [2009] NSWSC 221 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 01/09/2008 - 04/09/2008; 14/10/2008 JUDGMENT DATE : 1 April 2009 JURISDICTION : Common Law JUDGMENT OF : McCallum J 1) In proceedings 16028 of 2005, the cross-claimant's application for leave to file a Second Further Amended First Cross-Claim is dismissed. DECISION : 2) In proceedings 16028 of 2005, the application to file an Amended Defence is dismissed. 3) In proceedings 20232 of 2006, the plaintiff's application for leave to file a Second Further Amended Statement of Claim is dismissed. 4) In both matters, I direct the parties to approach the list office for a date for the hearing on damages. CATCHWORDS : COMMON LAW - CONTRACTS - variation - mortgagor gave undertaking to Land and Environment Court - whether mortgagee could demand compliance with undertaking as a condition of advancing progress payment - whether mortgagee could impose further conditions at its sole discretion - COMMON LAW - CONTRACTS - breach - whether mortgagee's refusal to advance progress payment amounted to breach of contract - COMMON LAW - CONTRACTS - offer and acceptance - whether there was a binding renewal of loan - COMMON LAW - CONTRACTS - construction and interpretation of contracts - effect of incorporating letter of offer into mortgage - whether letter of offer constituted a series of discrete offers or whether single approval and settlement process was contemplated - COMMON LAW - PRACTICE AND PROCEDURE - refusal of application to amend pleadings Australian Securities and Investment Commission Act 2001 (Cth) LEGISLATION CITED : Fair Trading Act 1987 Real Property Act 1900 Trade Practices Act 1974 (Cth) CATEGORY : Procedural and other rulings Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 Commonwealth v Amann Aviation [1991] HCA 54; (1992) 174 CLR 64 CASES CITED : Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd [2007] NSWCA 7; [2007] 13 BPR 24,321 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1998) 14 NSWLR 523 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) HCA 10; (2008) 234 CLR 237 National Westminster Bank plc v Riley [1986] BCLC 268 TEXTS CITED : JW Carter and DJ Harland, Contract Law in Australia, 4th ed (2002) Butterworths Donovan Oates Hannaford Mortgage Corporation Limited (Pl in 16028/05/Def in 20232/06) PARTIES : Robert Malcolm Reid (Def in 16028/05) Botman Holdings Pty Limited ACN 105 423 498 (Pl in 20232/06)) FILE NUMBER(S) : SC 16028/05; 20232/06 COUNSEL : Mr M Ashhurst SC/ Mr S O'Brien (Pl/ Def) Mr D L Cook (Def/Pl) SOLICITORS : Philip K Coster & Co Solicitors (Pl/Def) Donovan Oates Hannaford Lawyers (Def/Pl) - 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION McCALLUM J 1 APRIL 2009 16028/05 Donovan Oates Hannaford Mortgage Corporation Limited v Reid 20232/06 Botman Holdings Pty Ltd v Donovan Oates Hannaford Mortgage Corporation Limited JUDGMENT 1 HER HONOUR: Botman Holdings Pty Ltd was incorporated for the purpose of developing a property in Bellevue Hill. In early 2004, Botman applied (through a broker) to Donovan Oates Hannaford Mortgage Corporation Limited for a loan to finance the project. Donovan Oates approved the application and made a conditional offer to advance $7,300,000 for a term of one year. The loan was to be secured by first registered mortgages over the development property and a property at Wahroonga, which was the home of Mr Reid, Botman's sole director and shareholder. Donovan Oates also required a deed of guarantee from Mr Reid. The funds were to be advanced progressively by payment of an initial advance to complete the purchase of the property and monthly progress payments as the works proceeded. 2 The loan transaction was settled on 28 April 2004 and construction (more accurately, demolition) commenced. After several progress payments had been made, geotechnical investigation disclosed the need to amend the design of the project, which forced Botman to lodge a new development application. Several further progress payments were made while that application was being processed. 3 On 2 March 2005, the Land and Environment Court approved the new development application. Regrettably, the orders of the Court also noted an undertaking given to the Court by Mr Reid to use his best endeavours to obtain an easement for overland drainage from the owners of the adjacent property and, failing success in obtaining such an easement by agreement, to prosecute an application to obtain it from the Court. The undertaking was of doubtful utility and it appears the Court would have approved the development without it. The terms of the approval permitted Botman to adopt an alternative method of drainage to which the easement would have been entirely superfluous. Nonetheless, the undertaking was offered by Botman's lawyer, and noted in the orders of the Court. 4 On 3 March 2005, Donovan Oates made an offer in writing to renew the loan for a further year. That offer was signed and returned by Botman. Separately, however, Donovan Oates was insisting that the easement referred to in Mr Reid's undertaking be obtained and registered before it would continue to fund the project. The parties disagree as to whether the loan was in fact renewed and, if so, on what terms. 5 On 4 April 2005 Botman claimed progress payment No 9. Donovan Oates refused to meet that claim or to continue funding the project until the issue of Mr Reid's undertaking to the Court was resolved. Botman was unable to resolve that issue to Donovan Oates' satisfaction and ultimately abandoned the project. Donovan Oates sold the development property under its power of sale as mortgagee. The proceeds of the sale were insufficient to discharge Botman's liability to Donovan Oates. 6 As a result of those events, the parties have commenced two sets of proceedings against each other, which were heard together. In proceedings commenced by Donovan Oates against Mr Reid (the Reid proceedings), Donovan Oates seeks judgment pursuant to the guarantee for the unpaid balance of the Botman loan and an order for possession of the Wahroonga property. A cross-claim filed by Mr Reid in those proceedings seeks to have the mortgage set aside on the basis that Donovan Oates' conduct in refusing to make further advances was unconscionable within the meaning of the Fair Trading Act 1987 and the Australian Securities and Investment Commission Act 2001 (Cth). Alternatively, Mr Reid seeks to have his indebtedness to Donovan Oates under the guarantee set off against damages claimed by Botman in the other proceedings. 7 In the second set of proceedings, Botman claims damages from Donovan Oates for breach of the covenant to meet progress payment claims (the Botman proceedings). A central issue in that claim is whether there was a binding renewal of the loan agreement before Donovan Oates sought to impose an additional term in respect of the easement. Donovan Oates has filed a cross-claim in the Botman proceedings, which only arises if that issue is determined in Botman's favour. The cross-claim seeks to have the loan agreement declared void and unenforceable under the Trade Practices Act 1974 (Cth) on the basis that Donovan Oates would not have offered to renew the loan had Botman disclosed the existence of Mr Reid's undertaking to the Court before it accepted the renewal offer. 8 On the second day of the hearing, the unavailability of an expert witness prompted the parties to join in an application to postpone the determination of any issues as to damages. I made an order, by consent, that the issues of liability in the proceedings be determined separately from issues as to the quantum of any damages: see T131.48 and judgment given 2 September 2008. Issues to be determined in the Botman proceedings 9 Since the issues in the Reid proceedings are tied to the outcome of the Botman proceedings, it is appropriate to consider Botman's claims first. The issues raised for the Court's determination in those proceedings are identified below. The parties provided a statement of issues, which was substantially agreed. I have broadly followed that document (without adopting it verbatim). In the issues identified below, the relevant issue from the document provided by the parties is indicated in brackets. The issues are: (a) whether Donovan Oates was entitled to require that Mr Reid first satisfy his undertaking to the Land and Environment Court as a condition of its meeting any further progress payment claims made by Botman (parties' issues 1 to 7 and 9, 10 and 11); (b) whether the loan agreement came to an end on 28 April 2005 or whether it was renewed for a further term of one year when Botman signed and returned the renewal offer dated 3 March 2005 (alternatively, whether Donovan Oates is estopped from denying that the loan agreement was so renewed)(parties' issue 15); (c) if the loan agreement was renewed for a second year, whether it was on terms that included a requirement that Mr Reid satisfy his undertaking to the Land and Environment Court before Donovan Oates was obliged to meet any further progress payment claims (parties' issue 17); (d) if the loan agreement was renewed on terms that did not include such a requirement, whether Donovan Oates' conduct in refusing to meet any further progress payment claims amounted to a repudiation of the loan agreement (parties' issue 12; not an agreed issue); (e) if so, whether Botman accepted the repudiation and terminated the loan agreement (parties' issue 13; not an agreed issue); (f) if Botman did not accept the repudiation and terminate the loan agreement, whether it is entitled to claim damages in respect of the repudiation (parties' issue 14; not an agreed issue); (g) if Donovan Oates was in breach of the loan agreement by failing to meet progress payment claim No 9, whether that breach caused any loss or damage to Botman (parties' issues 8 and 16). Events leading up to the refusal to continue funding 10 The terms and conditions on which Donovan Oates approved Botman's loan application were set out in a letter of offer dated 1 April 2004. The loan was offered for a term of one year. It was contemplated that it may be renewed for a further year, or some shorter period to enable the project to be completed, but there was no assurance that renewal would be offered. 11 On 28 April 2004, Botman executed a mortgage in favour of Donovan Oates over the development property and Mr Reid provided the deed of guarantee and a mortgage over his residential property. On 29 April 2004 Donovan Oates advanced almost $2.5 million to Botman to enable it to complete the purchase of the development property. 12 There was no separate written loan agreement. The terms and conditions of the loan were contained in the mortgage. Pursuant to clause 5 of the mortgage, those terms were deemed to include the terms and conditions set out in the letter of offer. 13 Donovan Oates had met a number of progress payment claims when the need to change the design of the development emerged. When the new development application was lodged, Donovan Oates' first reaction was to withhold funds until the application was approved. Donovan Oates then agreed to continue to fund works common to both development applications involving demolition and clearing of the site (which it appears to have been obliged to do in any event, since the covenant to meet progress payments was not tied to the original development approval). Several further progress payment claims were met on that basis. 14 Botman made an application to the Land and Environment Court on 18 November 2004, appealing against the "deemed refusal" of the new development application. On 2 March 2005 the Court allowed the appeal, granted development approval on certain conditions and noted Mr Reid's undertaking to the Court. 15 On 3 March 2005, Mr Reid sent an email to Mr Hannaford, a director of Donovan Oates, informing him that the appeal had been upheld. However, he did not inform Mr Hannaford of the undertaking given to the Court, or send him a copy of the Court orders, until almost two weeks later. 16 On the same day, Donovan Oates sent a letter to Botman offering to renew the loan for a further year. Donovan Oates does not contend that the renewal letter was sent specifically in response to the information that the appeal had been upheld. The evidence of Mr Hannaford was that such a letter would have been sent as a matter of routine to all lenders having loans of this type where the loan was nearing the end of its term. 17 On 14 March 2005, Donovan Oates made a progress payment in the sum of $25,000, described as progress payment No 5 (Tender Bundle 224 – 225). 18 Mr Hannaford first received a copy of the undertaking on 16 March 2005. Within an hour of seeing it, he sent an email to Mr Reid stating: "As we see it, the obtaining of the easement is critical to ensure that an occupation certificate is available, and consequent to that, approval and registration of the strata plan. We cannot accept that level of risk, and it will be essential that the easement is secured and registered before we could continue." 19 There is a dispute between the parties (considered below) as to whether the renewal offer had been accepted by Botman before that email was sent. 20 On 4 April 2005, Botman requested release of "progress payment No 9" (TB 393) claiming the sum of $19,450. That appears to be the claim referred to by the quantity surveyor as "claim six" (TB 403) and was the next claim made after progress payment No 5 on 14 March 2005 (see schedule of payments PFH 5 annexed to Mr Hannaford's affidavit). However, it was described as progress claim No 9 throughout the proceedings and it is convenient to adopt that description. 21 On 7 April 2005, Donovan Oates wrote to Botman purporting to reduce the loan to value ratio, which was then 66%, to 60%. The reduced ratio would have produced a requirement for Botman to fund a debit balance of $478,000 from its own resources. The letter also stated that Donovan Oates would not consent to second mortgage advances secured against the security properties. Mr Reid complained about that letter, which he described as "both distressing and confusing" and Donovan Oates agreed to review the position. 22 On 12 April 2005, Donovan Oates wrote to Botman saying: "After review of all the circumstances, and subject to what follows in this letter concerning the easement for drainage, my Board has confirmed that we will be prepared to continue on with the funding of the project within the currently approved limit so that no second mortgage funding should be required. As noted, all of this is subject to the position concerning the drainage easement." 23 The letter set out the concerns held by the Board in respect of the easement and concluded: "our position therefore is that we will only be prepared to proceed with funding for the project on the basis that the easement issue is firstly resolved". The letter acknowledged that it would be impracticable to commence legal proceedings to obtain the easement and suggested by way of alternatives that Botman either approach the Council and the Court to have the undertaking withdrawn or procure the easement by negotiation with the owner of the adjacent property. 24 The easement issue was never resolved and progress claim No 9 was never met. Was Donovan Oates entitled to refuse funding until Reid satisfied the undertaking? 25 Botman contends that the failure to pay progress claim No 9 in April 2005 was a breach of the covenant contained in clause 14 of the Botman mortgage, which provided: "The Mortgagee covenants to meet the Mortgagor's progress payment claims each month, provided the Mortgagor has complied with the Mortgagee's requirements in respect of that progress payment claim and given the Mortgagee reasonable time to satisfy itself regarding all matters relating to that progress claim and the Mortgagor has also complied with all covenants and conditions to be observed by the Mortgagor herein or the performance thereof has been waived by the Mortgagee." 26 Leaving aside the issues surrounding Mr Reid's undertaking to the Court, Donovan Oates accepts that Botman had otherwise complied with the requirements of that clause. It also accepts that the claim was made, and would ordinarily have been paid, within the term of the original loan (T278.2). 27 Donovan Oates contends, however, that it was entitled to impose an additional requirement before meeting that claim. It relies on the fact that, by clause 5 of the mortgage, the terms set out in the letter of offer were deemed to be incorporated in the mortgage. Donovan Oates submits that two clauses in that letter entitled it to withhold funds until the easement issue was resolved, notwithstanding the clear terms of the covenant in clause 14 of the mortgage proper. 28 First, Donovan Oates contends that, under clause 9 of the letter of offer, it was entitled, at its sole discretion, to vary the terms and conditions on which funds would be advanced at any time (parties' issues 1 and 7). Alternatively, it is contended that, even if Donovan Oates was not entitled to vary the terms unilaterally, it did in fact purport to do so on 16 March 2005 and Botman accepted the variation. 29 The second clause relied on is clause 11 of the letter of offer. Donovan Oates contends that Mr Reid's undertaking to the Court was a condition of a "deferred commencement consent" within the meaning of that clause, with the result that Donovan Oates was entitled to insist on satisfaction of the undertaking before advancing further funds (parties' issues 5, 6 and 7). 30 In response to those propositions, Botman contends that clauses 9 and 11 had no further application after settlement of the loan transaction and denies that it accepted any variation of the loan agreement. Further, Botman submits that if clauses 9 and 11 did have any application to progress payment claims, the rights conferred by those clauses were qualified by an implied obligation to act honestly and with due regard to the purpose for which the power was given. Botman submits that it is open to the Court to find that Mr Hannaford did not genuinely hold the belief he expressed in respect of the undertaking and so was not acting honestly (parties' issues 2, 3 and 4). A separate issue as to whether Donovan Oates acted reasonably became unnecessary to decide when Donovan Oates abandoned its reliance on clause 13 of the mortgage: T273.31. Clause 9 of the letter of offer 31 Clause 9 provided: "General Disclaimer – Approval of title, statutory enquiries, survey and all other matters relative to the Security Property and the Borrower must be found to be totally satisfactory. Should, at any time, any matter be found not to be totally satisfactory to the Company, the terms and conditions of this approval may be varied at the sole discretion of the Company . The loan will be made available subject to the legally binding security documentation and other requirements being completed to the satisfaction of the Company. The legally binding security documentation and other requirements will prevail over this letter." (Emphasis added.) 32 Mr Ashhurst, who appeared with Mr O'Brien for Donovan Oates, acknowledged that clause 9 refers, in terms, only to an entitlement to vary the terms of "this approval". He submitted, however, that since the funds were to be provided by an initial advance followed by a series of progress payments over a period of at least 12 months, the letter should be construed as a series of offers and clause 9 should be construed as a term of each individual offer. 33 Mr Ashhurst submitted, on that basis, that Donovan Oates was entitled in its sole discretion to vary the terms and conditions on which each separate progress payment would be made. He submitted that Donovan Oates did make two such variations in respect of progress payment No 9. He relied on Mr Hannaford's email dated 16 March 2005, which specified that the easement had to be obtained and registered before any further funding would be advanced. He said that the offer to fund was varied again by the letter from Donovan Oates dated 12 April 2005, which specified that either the undertaking must be withdrawn or the easement obtained before further funding would be advanced. I note that the second purported variation was made after the progress claim had been received by Donovan Oates. 34 I do not accept the construction of the loan agreement contended for by Donovan Oates. First, the offer contemplated an advance in the sum of $7,300,000 to be advanced progressively. Clause 1 of the letter of offer provided: "Amount of Advance - $7,300.000.00 to be progressively advanced to you by progress draw downs on the property development and made against a quantity surveyor's certificate retaining sufficient funds at all times to complete the project. Note that the amount offered is conditional upon that amount not exceeding two thirds of the finished value of the project as determined by our Valuer. Initial advance to be made against the land either for purchase or for payment out of existing loans cannot exceed two thirds of the value of the property at the present time again as determined by our Valuer." 35 The provisions of that clause indicate that the approval of the anticipated construction costs was embraced in the initial approval process, and was not intended to be revisited on the occasion of each progress claim (subject to the scrutiny of the quantity surveyor and the retention of sufficient funds to complete the project). The mechanism for ensuring that the lender's position was adequately protected from the outset was the requirement that the loan should not exceed 66% of the anticipated value of the security properties at the conclusion of the project (as determined by the lender's valuer). That ratio was in due course reflected in clause 10 of the mortgage. 36 There are other indications that the letter of offer should not be construed as a series of discrete offers in respect of each progress payment. The first is clause 2 of the letter dealing with capitalised interest. That clause stated that there was a sum for capitalised interest within the loan amount which would be "set aside from the total loan amount at settlement". That suggests that the parties were contemplating a single approval and settlement process in respect of the whole amount offered. 37 There was an establishment fee for the loan in the sum of $109,500 (which is 1.5% of $7,300,000) and provision for a further establishment fee payable at the rate of 1.5% of the total loan on an annual basis if the loan was renewed. That indicates that the initial establishment fee was calculated by reference to the total amount of the advance, including the amount estimated for progress payments. 38 In addition, clause 8 of the letter of offer, dealing with valuation, contemplated a careful process of valuation of the security property. That clause also provided that the builder chosen by Botman for the project would have to be satisfactory to Donovan Oates and that "the lump sum contract" was to be approved by its solicitors before the first progress payment. 39 Further, clause 10 of the letter of offer provided that "subject to the final approval of the advance and the settlement thereof, progress drawdowns on the property development [were to] be made as the work proceeds". That provision indicates that the parties had in contemplation a final approval decision after which Botman would be entitled to receive progress payments, rather than a series of discrete approval decisions. The reference to "the settlement" of the advance as a step to be taken after final approval is also consistent with a single approval process rather than a series of discrete approvals on terms and conditions which were liable to be varied at the sole discretion of the lender throughout the term of the loan agreement. 40 Clause 9 itself opens with the words "General Disclaimer". That suggests that, on its proper construction, the clause was intended to obviate the result that, if the offer was accepted, Donovan Oates was bound to proceed with the loan regardless of the outcome of subsequent inquiries. 41 Finally, it is necessary to have regard to the terms of the covenant to pay contained in clause 14 of the mortgage. I accept, as submitted by Mr Cook, who appeared for Botman, that clause 14 contains its own "domestic checklist" reflecting the intended safeguards for the lender in respect of progress claims. Having regard to the obvious importance of regular progress payments to the viability of the project, the parties could hardly have intended to qualify the plain words of that clause by the indirect path of incorporating the terms of the letter of offer into the mortgage. 42 Mr Ashhurst submitted that if clauses 9 and 11 were construed so as to have no application after settlement of the loan transaction on 28 April 2004, there would be no utility in clause 5 of the mortgage (the clause which incorporated the terms of the letter of offer into the mortgage). He submitted, accordingly, that the construction contended for by Donovan Oates should be preferred. I disagree. It is difficult to make complete sense of the incorporation, as terms of the mortgage, of the terms of the letter of offer. Curiously, one of the terms in the letter (part of clause 9) was that the loan would be made available "subject to the legally binding security documentation" which would prevail over the letter of offer. There is accordingly a level of circularity in the argument that the covenant to meet progress claims was qualified by reference to rights set out in the letter of offer. 43 In any event I accept, as submitted by Mr Cook, that there were some provisions of the letter that continued to apply after settlement, such as the insurance clause, so that some utility was served by clause 5 of the mortgage. 44 I do not accept that the incorporation of clause 9 of the letter of offer as a term of the mortgage conferred an entitlement on Donovan Oates, after the loan agreement was entered into (on 28 April 2004), to vary the terms and conditions on which progress payments would be made during the term of the loan. Did Botman accept a variation to the loan agreement on 16 March 2005? 45 Donovan Oates contended that, in any event, Botman must be taken to have accepted the new condition sought to be imposed by Mr Hannaford in his email dated 16 March 2005 because it did not respond to that email by protesting that Donovan Oates had no entitlement to impose such a condition. It was submitted, on that basis, that the question whether Donovan Oates was entitled under the existing contract to vary the terms of its offer to advance funds does not arise. If Donovan Oates was not entitled to vary the contract, so it was submitted, its attempt to do so amounted to a repudiation of the existing agreement in response to which Botman was obliged either to affirm or to terminate the agreement. 46 In considering that submission it is necessary to distinguish between performance of the existing loan agreement and the negotiations for its renewal. The email of 16 March 2005 did not draw that distinction. It simply communicated a blanket refusal to make any further advances until the easement was obtained. 47 Assuming the loan agreement had not already been extended for a second term when the email was sent (which is Donovan Oates' case), the communication of that position had potential implications both under the existing contract and for the negotiations as to its renewal. The suggestion that it was a repudiation of the existing agreement as to which Botman had to make an election ignores the ambiguity of the email in that respect. 48 The email did not purport to vary the terms and conditions of the approval. Rather, it asserted that further funding would not be provided until the easement was obtained. That position was expressed as a matter of present entitlement, without reference to any decision to vary the existing agreement. 49 Mr Ashhurst relied on the fact that Botman received legal advice on 13 April 2005 that it could terminate the agreement for repudiation by Donovan Oates (TB 416). However, that advice appears to have been based, at least in part, on Donovan Oates' conduct in sending the letter of 7 April 2005 in which it purported to vary the loan to value ratio. Further, it is not clear on the face of the advice whether the author was aware of the fact that the original loan matured on 28 April 2005, or whether he made an assumption one way or the other as to the question whether the loan had been renewed for a second term. 50 I do not accept that Botman's failure to protest in response to Mr Hannaford's email of 16 March 2005 by reference to its rights under the loan agreement should be construed as acquiescence to a variation of the existing obligation under clause 14 to meet duly lodged progress payment claims. 51 In the statement of issues provided to the Court by the parties, Donovan Oates raised a further issue as to whether Botman had repudiated the loan agreement. The suggestion was that, as at March 2005, Botman had evinced an intention not to comply with the terms of (Reid's) undertaking and that such conduct was a repudiation of the loan agreement between the parties such as to entitle Donovan Oates to refuse to advance further funds (parties' issues 9,10 &11). In my view, there are difficulties with that argument. In any event, since I am not satisfied that the requirement that Mr Reid comply with the undertaking as a condition of any further funding ever became a term of the loan agreement, it is not necessary for me to determine those issues. Clause 11 of the letter of offer 52 The alternative position put by Donovan Oates was based on clause 11 of the letter of offer, which provided: "Settlement Date – Upon your acceptance of the terms and conditions as set forth herein, we will set aside funds and settlement is expected to take place within 30 days from the date of your acceptance. Should settlement not take place within this time, we reserve the right to vary the terms and conditions of this approval, including but not limited to, withdrawal from the arrangements and/or to charge interest from the anticipated settlement date and by accepting this offer, you agree to put us in funds for that purpose. Note that if the development consent for the project is a deferred commencement consent, then we reserve the right in our absolute discretion to require that any conditions contained in the deferred commencement condition (sic) must be satisfied prior to any settlement taking place. Further note that funding for construction works cannot commence until such time as a Construction Certificate has been issued and provided to our Quantity surveyor and that all insurances applicable to and required for the works are in place, noting where applicable our interest as Mortgagee." (Emphasis added.) 53 Donovan Oates submitted that, by reason of the undertaking given to the Land and Environment Court by Mr Reid, the development approved by the Court was a "deferred commencement consent" within the meaning of that clause. As a consequence, it was submitted, Donovan Oates was entitled in its absolute discretion to require Botman to comply with the undertaking before Donovan Oates was required to make any further advances. 54 There are several difficulties with that proposition. First, for the reasons set out above in relation to clause 9 of the letter of offer, I am of the view that the parties contemplated a single settlement after Donovan Oates had satisfied itself as to the security for the loan and various other matters. On that analysis, although the terms and conditions set out in the letter of offer were deemed to be incorporated in the mortgage, clause 11 had no application after the settlement date, which appears to have been 28 April 2004. 55 Further, it is doubtful whether Mr Reid's undertaking to the Court is properly construed as a condition of the development approved by the Court. The Court's orders approved the development application "subject to the conditions in annexure A". Mr Reid's undertaking was not included as a condition in annexure A but was noted separately. 56 Finally, even if the undertaking should be construed as a condition of the development application approved by the Court, it is doubtful whether it could properly be regarded as a "deferred commencement consent" within the meaning of clause 11. The content of the undertaking was that Mr Reid would use his best endeavours to obtain the easement within 12 months of 28 February 2005, failing which he would make an application to the Court. Nothing in the terms of the approval suggests that it was subject to a condition that development be deferred until the undertaking was satisfied or that the commencement of the works should abide the outcome of Mr Reid's endeavours. 57 Accordingly, I do not accept that Donovan Oates was entitled to insist that Botman obtain the easement on the strength of clause 11 of the letter of offer. 58 It follows that Donovan Oates was not entitled to insist that Botman obtain the easement or secure the withdrawal of the undertaking as a condition of its meeting progress payment claim No 9. I am satisfied that Donovan Oates' failure to meet that claim was a breach of the covenant contained in clause 14 of the mortgage. Implied obligation to act honestly 59 In light of the conclusion I have reached as to the proper construction of clauses 9 and 11 of the letter of offer (once incorporated as terms of the mortgage), it is not necessary to make a determination as to the existence or content of any implied constraint on the powers conferred by those clauses. I indicate, however, that if the issue had arisen for my decision, I would not have been satisfied that Donovan Oates did not act honestly. 60 The position adopted by Mr Hannaford was perhaps surprising in the face of the wealth of material provided to him by Mr Reid (which tended to suggest that the risks were minimal) and the mutual interest of the parties in securing the success of the project rather than its abandonment. Nonetheless, I am satisfied that Mr Hannaford genuinely held the beliefs he expressed from time to time concerning the potential problems associated with the undertaking. It was an extraordinary feature of an otherwise ordinary outcome of the appeal to the Court. Mr Hannaford's "unrelenting stance", as it was described by Mr Cook, was, in my view, an indication of his genuine dissatisfaction with the position. I do not think there is any aspect of his handling of the matter that indicates a want of honesty. Was the loan agreement renewed for a further year when Botman signed and returned the renewal offer dated 3 March 2005? 61 On 3 March 2005 Donovan Oates wrote to Botman confirming that the loan was due to mature on 28 April 2005 and offering renewal for a term of one year. There were some additional proposed terms and conditions set out in the letter. Otherwise the renewal was offered on the terms and conditions set out in the existing mortgage documentation (including the letter of offer). The additional terms did not, of course, include any requirement in respect of Mr Reid's undertaking (since Donovan Oates was unaware of it at that time). 62 There is a dispute between the parties as to when the renewal offer was responded to by Botman. The significance of that dispute is that, if there was a binding agreement before 16 March 2005 extending the loan on the original terms and conditions for a further period of one year, Botman contends that it was not open to Donovan Oates after that time to impose the additional condition that Mr Reid satisfy his undertaking to the Court before further funds would be advanced. If, however, Botman did not respond to the renewal offer before 16 March 2005, Botman must deal with Mr Hannaford's email of that date in which he made it clear that Donovan Oates was not prepared to provide further funding until the easement had been obtained. 63 The dispute is complicated by an issue involving the state of the pleadings. Botman's current pleading is the Further Amended Statement of Claim filed 4 September 2008. There, it is alleged that the loan was renewed on or about 24 March 2005, when the offer of renewal was accepted by "endorsing, signing and returning…a signed copy of the letter of offer and a cheque for $577.50 as requested in such letter of offer". 64 After the conclusion of the hearing, Botman filed a notice of motion seeking leave to amend the pleading to allege, in the alternative, that the loan was renewed on about 8 March 2005. Mr Reid later sought leave to make an identical amendment to his cross-claim in the Reid proceedings. Donovan Oates opposed those amendments but consented to my determining the applications to amend as part of the reserved decision. 65 In anticipation of my allowing the amendment, Donovan Oates has indicated that it denies that the loan was renewed on 8 March 2005. It admits that a copy of the letter of renewal was returned by Botman together with the cheque on about 30 March 2005 but denies that those events had the consequence that the loan was renewed. 66 I am not satisfied that Botman returned the signed offer of renewal before 16 March 2005. The renewal letter stated: "Kindly let us know within 7 days whether you wish to renew this advance on this basis and, if you do, would you please sign the duplicate of this letter accepting the offer and return the same to us, together with payment of the costs and establishment fees , to enable us to proceed further". (Emphasis added) 67 Clause 5 of the letter stated that the establishment fee was $116,100. Mr Reid apprehended that the requirement to pay that sum at the time of acceptance of the offer was unintended. In the previous year, provision had been made for the establishment in the funds advanced. Mr Bailey, the broker, subsequently confirmed that Donovan Oates had indeed only intended to seek payment of its costs and expenses, being the sum of $577.50 for legal costs and fees. 68 Mr Reid's evidence in a supplementary affidavit (served well before the hearing) was that he recalled signing the letter at Mr Bailey's office on or about 8 March 2005 and that he had a conversation with Mr Bailey at that time to the following effect: "Don Bayly: If you want to sign the letter now, we'll pass it on after I have cleared up the advance fee condition with Peter Hannaford. You've got plenty of time until the extension date but it's better to get it in now. Malcolm Reid: Okay." 69 According to Mr Reid's affidavit, he asked Helen Tram (an employee of the broker) "a few days later" whether she had sent the acceptance to Peter Hannaford and she replied that she had. That evidence was objected to by Mr Ashhurst and was not pressed. It was then admitted provisionally for a different purpose (T194.5). At the hearing of the amendment application, Mr Cook submitted that, having been admitted, the evidence was in for all purposes. That ignores the fact that, at the time it was admitted, it served no purpose in respect of the present issue. There was at that time no issue in the proceedings the resolution of which turned on the truth of Helen Tram's statement that she had sent the signed copy of the acceptance to Donovan Oates. Botman's pleadings at that stage alleged that the loan was renewed on about 24 March 2005. 70 Mr Reid had also said in his affidavit that he sent the cheque on 24 March 2005 together with a covering copy of the signed loan renewal offer. Under cross-examination, he accepted that the cheque and the letter were sent together but volunteered that another copy of the letter went to Donovan Oates on 8 March (T222.36). It was clear from a later answer that Mr Reid was not asserting that he himself sent the first copy. He said that a copy of the original was made in the office of the broker and that he (the broker) passed on that signed copy to Donovan Oates. 71 Mr Cook submitted that I must accept that evidence unless I find Mr Reid to be an untruthful witness. I disagree. I accept that Mr Reid gave an honest account of his present recollection of the events in the broker's office but in the end there was no reliable evidence to establish that a signed copy of the letter of renewal was in fact sent to Donovan Oates before 16 March 2005. 72 Donovan Oates tendered the duplicate of the offer of renewal it received. That copy has, in original ink, a tick next to the typed words "we will be renewing this loan on maturity" and the signature of Mr Reid. It was received by Donovan Oates, together with the cheque for $577.50, and stamped "received 30 March 2005". It appears no other copy of the letter made its way into Donovan Oates' records. 73 In my view, the inference to be drawn from all of that evidence is that the broker did not return the signed offer of renewal because he first had to confirm that there was no requirement to pay a fee of $116,100 on acceptance of the offer. Once that had been confirmed, Mr Reid sent a signed copy of the letter together with the cheque for legal fees. 74 I have some doubt as to the reliability, at this distance, of Mr Reid's recollection of the specifics of those events. In any event, even accepting his evidence, it does not establish to my satisfaction that two signed copies of the letter were sent to Donovan Oates. Even if another copy of the letter was sent, I cannot be satisfied on the evidence before me that that occurred before 16 March 2005. 75 Having regard to the conclusion I have reached, there is no utility in granting Botman's application to amend the statement of claim (or Mr Reid's subsequent application to amend his cross-claim in the Reid proceedings). Further, I accept Mr Ashhurst's submission as to the prejudice that may be occasioned by granting the amendment after the conclusion of the hearing when the case was conducted on a different basis. The pleadings contended that the loan agreement was renewed on or about 24 March 2008. I do not agree with Mr Cook's submission that such a statement does not constitute an admission as to which leave to withdraw should be sought. Further, Mr Ashhurst said that if he had known he was facing a case that the offer had been accepted before 16 March 2005, he may have cross-examined Mr Reid differently and I accept that is likely. In my view, the applications to amend should be dismissed. 76 After 16 March 2005, it was clear that Donovan Oates was not prepared to continue to fund the project except on terms that accommodated its concerns about Mr Reid's undertaking to the Court. 77 The requirement identified in Mr Hannaford's email dated 16 March 2005 (TB 381) was that the easement be secured and registered before funding could continue. Donovan Oates contended that Botman agreed to renew the contract on the basis of the inclusion of a term to that effect. I am not satisfied that it did. The correspondence discloses that Donovan Oates was pressing Botman to resolve the issue of the undertaking to its satisfaction, whilst Botman was endeavouring to persuade Donovan Oates that Mr Hannaford's concerns were unfounded. At no point was there agreement that future funding would be subject to any of the conditions communicated by Donovan Oates. 78 Although Botman endorsed the renewal offer and returned a copy to Donovan Oates in accordance with the requirements of the offer, the context in which that occurred was that the parties were negotiating the basis on which funding would continue. As agreement on that issue was never reached, Botman's purported acceptance of the loan agreement was ineffective to renew the loan agreement for a further term. 79 Mr Ashhurst submitted that Botman accepted the variation of the terms pursuant to which Donovan Oates would advance further funds when Mr Reid sent the signed letter together with the cheque for legal fees on 24 March 2005. He relied on the decision of the Court of Appeal in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1998) 14 NSWLR 523 at 535. In that case, Machon had indicated that the work it would perform was offered on the terms and conditions contained in a written contract. Machon had made it plain that it was not prepared to do the work under an oral contract. From that point, Empirnall took the benefit of the work with knowledge of the terms on which it was offered. 80 It could hardly be said that Botman took the benefit of performance of the contract by Donovan Oates after becoming aware of the additional condition sought to be imposed. I do not think the principle articulated by McHugh JA in Empirnall has any application in the present case. 81 I am not satisfied that the loan agreement was ever renewed for a second year. In my view, the correspondence discloses that, after Mr Hannaford sent his email dated 16 March 2005, the parties were unable to agree as to the terms on which the loan would be renewed. 82 It follows that I am not satisfied that the loan agreement was ever renewed on terms that included a requirement that Mr Reid satisfy the undertaking before Donovan Oates was required to meet any further progress payment claims (parties' issue 17). Is Donovan Oates estopped from denying that the loan was renewed for a further year? 83 Botman alleges, in the alternative, that Donovan Oates is estopped from denying that the loan was renewed because it did not advise Botman that its acceptance of the offer of renewal was ineffective and it represented to Botman that the loan had been extended until 28 April 2006 (paragraph 8A of the Further Amended Statement of Claim). Botman relies on the fact that Donovan Oates did not demand repayment of the loan on 28 April 2005, did not return the cheque for $577.50, engaged a valuer to re-value the property, raised the additional condition of removal of the easement and claimed interest and monthly establishment fees for the months of May and June. 84 The difficulty with the estoppel argument is that each of the matters relied upon is equally consistent with the proposition that the loan was being rolled over on a monthly basis (considered below). I am not satisfied that Donovan Oates represented to Botman at any stage that the loan had been extended until 28 April 2006. 85 Mr Hannaford consistently stated that funding would not be continued unless the issue as to the undertaking could be resolved to the satisfaction of Donovan Oates. The parties continued to debate that issue until at least 10 June 2005. On that date, Mr Reid sent an email to Mr Hannaford in which he explained the delay that would be involved in the steps required by Donovan Oates. He then said: "In any event, the remedy you are demanding, whether through the Council or through having the Court waive my undertaking or rule on an easement application, will only result in an escalation of holding costs that would be unacceptable to any developer. Had you given us, as Don Bayly had proposed, five or six months to resolve the issue while still providing funding for ongoing development, we would not have been forced to seek alternative funding. So with great regret, it seems that we must move on". 86 The contents of that email are important in a number of respects. So far as the estoppel argument is concerned, Mr Reid's reference to the broker's proposal that was rejected by Donovan Oates is inconsistent with his believing, at that point, that there was a binding agreement on foot for a further year. Repudiation by Donovan Oates 87 Donovan Oates submitted that, even if the loan agreement was renewed on terms that did not include a requirement that Mr Reid satisfy the undertaking before Donovan Oates was required to meet any further progress payment claims, the refusal to meet any further claims (other than progress claim No 9) could only be an anticipatory breach. Donovan Oates says that Botman is accordingly not entitled to damages unless it can establish that Donovan Oates' conduct amounted to a repudiation of the agreement and that Botman accepted the repudiation and terminated the contract (parties' issues 12, 13 and 14). 88 Botman disagreed as to the need for the Court to determine those issues. Botman submitted that the failure to pay progress claim No 9 coupled with the refusal to meet any further claims was a "hybrid breach" of the kind referred to in JW Carter and DJ Harland, Contract Law in Australia, 4th ed (2002) Butterworths at 673 and that, accordingly, Botman would be entitled to damages without establishing the matters identified by Donovan Oates. Alternatively, Botman submitted that it did terminate the agreement for repudiation. 89 Since I am not satisfied that the loan was renewed for a second year, those issues do not arise in the form outlined by Donovan Oates. Donovan Oates did not become bound by an obligation to meet progress claims for a further year (or until the project was finished) and Botman's claim cannot succeed on that basis. Unfortunately, that is not the end of this complex issue. 90 In my view, the proper analysis is that the loan was rolled over on a monthly basis until at least the end of June 2005. Although the loan otherwise matured on 28 April 2005, Donovan Oates did not seek repayment of the principal sum on that date. On 12 May 2005, Donovan Oates sought interest for the period from 28 April 2005 to 31 May 2005 and a "monthly establishment fee". In an email sent to Mr Reid on 20 May 2005, the broker (Mr Bailey) informed him that Donovan Oates was at that stage rolling the loan over on a monthly basis (TB 465) and that an invoice sent to Mr Reid "apparently reflects this". That was presumably a reference to the letter of 12 May 2005 to which I have just referred. 91 On 10 June 2005, Mr Reid sent his email in which he said it seemed they must "move on" and sought a payout figure as at 30 June 2005. On 14 June 2005 Donovan Oates provided a payout figure as at 30 June 2005 which included a claim for establishment fees for two months at 2% (cf clause 7 of the letter of offer dated 1 April 2004). The management fee payable if the principal sum due under the loan was not paid on the "due date" was at a lower rate: see clause 9 of the mortgage. In my view, those matters indicate that the loan was rolled over until at least 30 June 2005. 92 In the absence of any contrary indication, the loan must be taken to have been rolled over on its existing terms. Accordingly, if Botman had lodged further progress payment claims during that period, Donovan Oates would have been obliged pursuant to clause 14 of the mortgage to meet those claims, provided they otherwise complied with the requirements of that clause. 93 However, Botman did not in fact make any progress payment claims after lodging claim No 9. Botman was aware during that period that Donovan Oates would refuse to meet any such claim, but that does not appear to be the reason no claim was lodged. Botman's closing written submissions state that Botman would not have been entitled to claim any further progress payments because it had been unable to pay the builder to do further work. That in turn was said to be due to Donovan Oates' failure to meet claim No 9 (although Mr Reid's evidence suggested that the reason he had let the builder go by 7 May 2005 was that he was uncertain of obtaining further funds). 94 On that analysis, the repudiation issues do not arise, but there is a difficult question to be determined as to whether Donovan Oates' failure to meet progress claim No 9 caused the failure of the project. 95 If, contrary to the conclusion I have reached, Donovan Oates did repudiate the loan agreement by refusing to meet any further claims, I do not think Botman accepted the repudiation and terminated the agreement on that basis. The two letters relied upon by Botman are the email dated 10 June 2005 and a later email dated 14 July 2005. The first, in my view, did not terminate the agreement, which at that stage had been rolled over to the end of June. Rather, the email proceeded on the implicit premise that the loan would not be rolled over again. The July email added nothing to that issue. Causation 96 Mr Cook submitted that, but for the breach alleged by Botman, the loan would have been renewed for a second term. He submitted that, if Donovan Oates had not misconstrued the contract as permitting it to withhold payment, Donovan Oates would have continued funding the project to its conclusion. With due deference to its ingenuity, I do not think that submission poses the right question. In my view, it is very clear that Donovan Oates did not wish to continue to fund the project so long as the undertaking remained in force and unfulfilled. It was the existence of the undertaking, not Donovan Oates' misreading of the contract, which prompted Donovan Oates to decide not to renew the loan for a second term. 97 I am satisfied, however, that the breach by Donovan Oates did cause substantial loss or damage. The task is to identify the position Botman would have been in had the contract been fulfilled. 98 Mr Ashhurst submitted that Botman could not possibly have suffered any loss as a result only of the failure to meet a single progress claim, having regard to the fact that the loan agreement came to an end shortly thereafter. However, for the reasons set out above, I am satisfied that, although the agreement was not renewed for a second year, it did not come to an end on 28 April 2005. Accordingly, the question is not whether Botman would have had to abandon the project in any event on 28 April 2005. Rather, the assessment of loss must take into account the events of the following two months. The obligation of Donovan Oates to meet progress claim No 9 continued throughout that period, or until at least 10 June 2005 when Mr Reid sent his email. 99 There are some aspects of the events of that period as to which the evidence is unclear. Botman paid interest for the month of April 2005 by cheque. It is not clear whether that was a departure from the practice previously adopted. The letter of offer dated 1 April 2004 appears to have contemplated that interest could be capitalised. 100 By 5 May 2005, Mr Reid had formed the view that the position was becoming "very difficult" and had instructed the builder to stop work. He identified his reason for doing so as being the uncertainty as to whether funding would be resumed. If the obligation to meet progress claim 9 had been performed by the end of April, Mr Reid would, in all probability, have been able to postpone that event. He may then have been in a position to lodge further progress claims for the months of May and June but there is no evidence on that issue. 101 By early May, the broker was making enquiries on Botman's behalf as to whether another lender would refinance the development. The evidence does not disclose the opportunities created by those inquiries. Mr Reid was also experiencing health problems that created further concern for him as to the viability of the project. There is no evidence as to the extent of his concern in that respect. 102 On 7 June 2005, Donovan Oates confirmed its position in relation to the easement and advised that interest payments due for May and June 2005 had not been received by Botman. It is not clear to me why Botman was not entitled to have those payments capitalised. The letter stated that, unless the payments were made forthwith, recovery proceedings would be commenced. It was after that occurred that Mr Reid stated in his email of 10 June 2005 that it seemed they must "move on". In that email, he stated that he would not have been forced to seek alternative funding if Donovan Oates had agreed to continue to fund the development for five or six months while the issue was sorted out. 103 Mr Reid asked the broker to seek bridging finance to enable Botman to pay the interest due. Notwithstanding his earlier email, he also continued to try to persuade Donovan Oates to resume funding. On 25 August 2005, Donovan Oates wrote to Mr Reid to inform him that the Board had reconsidered the matter and was not willing to continue with the project. It is not clear, however, whether the loan had been rolled over for July and August or whether Donovan Oates had simply agreed to delay enforcement. On 21 September 2005 Donovan Oates served notices pursuant to s 57(2)(b) of the Real Property Act 1900 on Botman and Mr Reid. 104 When the order was made separating the issue of liability from the issue of quantum of any damages, Mr Ashhurst said that, so long as Botman could establish a breach and that, as a result of the breach, the development did not go ahead, then the Court could determine at a later stage whether any loss was occasioned by the development not going ahead. 105 Since reserving my decision, I have come to the conclusion that Botman's entitlement to a further hearing on damages is not so constrained. By the time Botman decided to "move on" on 10 June 2005, the state of the project's finances may well have made it an unattractive refinance proposal. The position may well have been otherwise had the contract been performed by Donovan Oates, but that proposition raises issues as to which the parties have not been heard, and as to which I require their assistance. 106 Further, the parties did not address me at the first hearing as to whether Botman's loss or damage might be measured by reference to wasted expenditure or loss of opportunity, rather than loss of profit: see Commonwealth v Amann Aviation [1991] HCA 54; (1992) 174 CLR 64 per Mason CJ and Dawson J at 80-86; Brennan J at 104-105; Deane J at 118-119 and 126-128; Toohey J at 134-135; Gaudron J at 153-154 and McHugh J at 162-167. 107 In those circumstances, notwithstanding the compelling submissions put by Mr Ashhurst and the qualification he expressed when the hearing was truncated, I am satisfied that there is a strong prospect that Botman suffered substantial loss or damage as a result of Donovan Oates' breach. I have also come to the view that it is not appropriate to proceed on the premise that the only possible measure of such damages is any loss of profits on the project. Accordingly, it is appropriate to hold a further hearing to determine the quantum of Botman's loss. Donovan Oates' cross-claim in the Botman proceedings 108 The relief claimed in Donovan Oates' cross-claim was sought only in the event that Botman was successful in establishing that, before 16 March 2005, there was a binding agreement to renew the loan agreement for a term of one year on terms that did not impose any requirement for Mr Reid to satisfy the undertaking before Donovan Oates was required to meet further progress payment claims. Botman has not been successful in that respect. Accordingly, it is not necessary to determine the issues raised by the cross-claim (parties' issues 18 to 21). Proceedings brought by Donovan Oates against Reid 109 The mortgage over the Wahroonga property granted by Mr Reid to Donovan Oates contains drafting errors in that clauses of the Botman mortgage were repeated verbatim in the Wahroonga mortgage. In short, the problem produced by those errors is that, in some places, references to "the mortgagor" should be references to Mr Reid whilst, in others, they are plainly references to Botman. Mr Reid admits those matters and accordingly it is appropriate to grant the relief sought by Donovan Oates to rectify the Wahroonga mortgage. 110 Otherwise, there was no real issue that Donovan Oates is entitled to an order for possession of the Wahroonga property, subject to any set-off against the damages to be awarded to Botman against Donovan Oates. The quantum of those damages is to be determined at a further hearing in the Botman proceedings and accordingly it is not appropriate to make an order for possession at this stage. 111 As to the claim for judgment against Mr Reid pursuant to the guarantee, Mr Reid made an application after the conclusion of the hearing for leave to file an amended defence to plead a case that he has been discharged from any liability under the guarantee by virtue of the breach of clause 14 alleged against Donovan Oates. 112 Donovan Oates opposed that amendment but consented to my determining the application together with the reserved decision. Against the possibility of my allowing the amendment, Donovan Oates filed a proposed reply to the amended defence. I have considered the amendment application in the context of that reply. 113 Mr Ashhurst submitted that the application should be refused on the basis that the amendment is manifestly hopeless. The proposed amendment seeks to invoke the principles considered by the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549. Mr Ashhurst submitted that, whereas Ankar concerned a breach of a condition (essential term) of the contract between the surety and the creditor, the present case involves an allegation of breach of a condition of the contract between the creditor and the borrower. He submitted that a surety is not released from the terms of its guarantee by reason of a breach of a condition of the contract between the principal debtor and the creditor, citing the following authorities: National Westminster Bank plc v Riley [1986] BCLC 268; Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd [2007] NSWCA 7; [2007] 13 BPR 24,321 at 24,361 para [229] affirmed in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237. 114 Mr Cook accepted that there is no covenant given by Donovan Oates to Mr Reid in the deed of guarantee to pay Botman's progress claims. He submitted, however, that the "principal contract" should be read as being incorporated into the guarantee between Mr Reid and Donovan Oates. There is a problem with that contention. Apart from the guarantee, two other contracts were entered into on 28 April 2004, the Botman mortgage and the Wahroonga mortgage. As already noted, the Wahroonga mortgage is confusing as to whether references to "the mortgagor" should be references to Mr Reid or references to Botman. 115 The replicated clauses in the Wahroonga mortgage include the covenant to meet progress payment claims (clause 14). The consequence is that clause 14 of the Wahroonga mortgage, as it reads presently, is a covenant to Mr Reid to pay his progress claims, not a covenant to him to pay Botman's progress claims. Donovan Oates has claimed orders for rectification of the Wahroonga mortgage in respect of some of the replicated clauses. However, clause 14 is not included in that claim. 116 In his existing defence, Mr Reid denies that the mortgage should be rectified as claimed by Donovan Oates. In his evidence during the hearing, however, Mr Reid resiled from that position and made concessions as to the common intention of the parties. By his proposed amended defence, Mr Reid has sought to bring the pleadings in line with that evidence by admitting that the mortgage should be rectified. However, he has also sought to add clause 14 to the list of clauses that should be rectified. That entails an assumption as to the common intention of parties in respect of clause 14 in the Wahroonga mortgage. It is not appropriate for me to make that assumption. The amendment application proceeded on the basis that it raised only a question of law. I doubt whether the parties adverted to the problem of clause 14 in the Wahroonga mortgage when they consented to my reserving my decision on the application to amend. 117 In those circumstances, I do not think it is appropriate to grant leave to make the amendment in paragraph 13.3 of the proposed amended defence. Reid's cross-claim 118 Mr Reid's cross-claim raised an issue as to whether the conduct of Donovan Oates in refusing to fund Botman was unconscionable conduct within the meaning of s 43(1) of the Fair Trading Act, and ss 12CA, 12CB and 12CC of the ASIC Act (parties' issue 22). At the hearing, that claim was not abandoned but no submissions were put in support of it. 119 Left to my own resources, I am not able to discern unconscionable conduct in Donovan Oates' refusal to continue to fund the project. The touchstone of unconscionability is unfairly taking advantage of a person's disability. Mr Reid did not strike me as having any such disability. The Botman loan was negotiated through a broker and careful consideration appears to have been given to its terms by Mr Reid. In particular, he specifically raised a concern as to the fact that the loan was for a term of one year only. Having raised that concern, and discussed it with the broker, he pressed on. He struck me as being an intelligent man who was capable of conducting the kind of transaction he entered into. 120 No doubt, he did not anticipate the difficulties he encountered in respect of the administration of the loan. I accept that many of the problems that followed, including the need for this litigation, would have been obviated if Donovan Oates' response to the undertaking had paid greater regard to the mutual commercial interests of the parties. However, to say that its conduct was uncommercial is not to say that it was unconscionable. 121 The cross-claim also alleged that the conduct of Donovan Oates was misleading or deceptive within the terms of the same legislation. That claim was based on a representation, by silence in circumstances where there was duty to speak, that Donovan Oates would advance the funds required by Botman to complete the project. Such a representation is inconsistent with the clear provisions of the mortgage, of which Mr Reid was aware. I am not satisfied that any of the claims under the Fair Trading Act or the ASIC Act are made out. 122 It was common ground that Reid is entitled to have any damages payable by Donovan Oates to Botman set off against his liability under the guarantee (T287.7). Accordingly, it would be premature to make an order for possession of the Wahroonga property until it is known whether there is any remaining liability under the guarantee following that deduction. Orders 123 The orders I make are: (1) In proceedings 16028 of 2005, that the cross-claimant's application for leave to file a Second Further Amended First Cross-Claim be dismissed. (2) In proceedings 16028 of 2005, that the application to file an Amended Defence be dismissed. (3) In proceedings 20232 of 2006, that the plaintiff's application for leave to file a Second Further Amended Statement of Claim be dismissed. (4) In both matters, I direct the parties to approach the list office for a date for the hearing on damages. ********** 03/08/2009 - Incorrect reference to mortagor and mortgagee in catchwords - Paragraph(s) Coversheet catchwords 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.