Supreme Court New South Wales Medium Neutral Citation: National Australia Bank Limited v Smith [2014] NSWSC 1605 Hearing dates: 25-28 March 2013, 3, 4, 5, 15, 17, 18, 19, 22 April 2013 and 23 October 2013 Decision date: 13 November 2014 Jurisdiction: Common Law Before: Slattery J Decision: See paragraph [366]. Catchwords: BANKING - a bank advanced money to a company for the purchase of a business and took mortgage security over the domestic residence of the company's principal and his wife to support their guarantees of the bank's advance to the company - the company defaulted on the loan - the guarantors sold their residence partially to satisfy the Bank's claims on the guarantees - whether the Bank engaged in misleading and deceptive conduct or unconscionable conduct in relation to the guarantees and the mortgage - whether these securities are unjust under the Contracts Review Act 1980 - whether these securities should be declared void, varied or their provisions not enforced. Legislation Cited: Australian Securities and Investment Commission Act 2001 (Cth) Contracts Review Act 1980 (NSW) Fair Trading Act 1987 (NSW) Real Property Act 1900 (NSW) Cases Cited: Ankar Pty Limited v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 Antonovic v Volcker (1986) 7 NSWLR 151 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Blomley v Ryan (1956) 99 CLR 362 CBA v Smith (1991) 42 FCR 390 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v Starrs [2012] SASC 222 Con-stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 Daly v The Sydney Stock Exchange Ltd (1986) 160 CLR 371 Dilosa v Latec (Finance) Pty Limited (1966) 84 WN (Pt 1) (NSW) 557 Elkotairi v Permanent Trustee Co Limited (2002) 11 BPR 20 Fast Fixed Loans Pty Limited v Samardzic [2012] NSWCA 260 Garcia v National Australia Bank (1998) 194 CLR 395 Holme v Brunskill (1878) 3 QBD 495 Jones v Dunkel (1959) 101 CLR 298 Louth v Diprose (1992) 175 CLR 621 Nguyen v Taylor (1992) 27 NSW LR 48 Payne v Parker (1976) 1 NSWLR 191 Perpetual Trustee Company v Khoshaba [2006] NSWCA 41 (2005) 14 BPR 26 Perpetual Trustees Victoria v Longobardi [2009] NSWSC 654 Provident Capital Ltd v Papa [2013] NSWCA 36 Riz v Perpetual Trustee Australia [2007] NSWSC 1153 Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWSC 676 State Bank of New South Wales v Chia (2000) 50 NSWLR 587 Sun North Investments Pty Ltd v Dale & Anor [2013] QSC 44 Ting v Blanche (1993) 118 ALR 543 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Westpac Banking Corporation v Belgroup Ltd (in liq) (No. 3) [2012] WASCA 157 Yerkey v Jones (1939) 63 CLR 649 Category: Principal judgment Parties: National Australia Bank (P) Craig Trevor Smith (D1) Denise Vitalli-Smith (D2) Patrick George Smith (D3) Nadine Anne Smith (D4) GHS Financial Services (XD) Representation: Counsel: D.C. Price (P) B. McClintock SC/G. Rubagotti (D1&2) M Tibbey (D3 and D4) B. McManus (XD) D.C. Price (P) B. McClintock SC/G. Rubagotti (D1&2) M Tibbey (D3 and D4) B. McManus (XD) Solicitors: Gadens Lawyers (Plaintiff) Peter Barker (D3 and D4) File Number(s): 2009/296546 Publication restriction: No Judgment 1In December 2004 Statewide Telescopic Forks Pty Ltd ("Statewide") borrowed more than $1.6 million from the National Australia Bank Ltd ("the Bank") to fund its purchase of an equipment hire business. Mr Craig Smith, Statewide's principal, and his wife Mrs Denise Vitalli-Smith guaranteed Statewide's loan obligations under various interrelated facilities. They mortgaged their family home in Oyster Bay to secure their guarantee obligations to the Bank. Statewide defaulted in 2006. The Bank called on their guarantees and they sold their Oyster Bay property in 2007; applying their equity in it of $113,578.92 to reduce Statewide's liability to the Bank. The plaintiff Bank commenced these proceedings in 2009 and now claims $2,117,170.21 from them. The Smiths have cross-claimed against the Bank for relief from any liability to the Bank and for damages for their lost equity in the Oyster Bay property, on the grounds that the Smiths' guarantees: were unjust under the Contracts Review Act 1980; and were occasioned by misleading and deceptive or unconscionable conduct within the Australian Securities and Investment Commission Act 2001 (Cth) and the Fair Trading Act 1981. 2These proceeding originally involved three other parties. To secure the Bank's advance to Statewide it also took guarantees from Mr Craig Smith's parents, Mr Patrick and Mrs Nadine Smith, supported by a mortgage over their Sylvania Waters property. And it took charges over Statewide's business assets. 3Mr Garry Steinberg, a finance broker, who provided broking services through his company GHS Financial Services Pty Ltd ("GHS Financial"), acted as the finance broker to arrange this transaction. 4Much of the evidence in these proceedings concerns the Bank's dealings with individual members of the Smith family. For convenience and without intending disrespect to members of the family, these reasons will refer to family members by their first names. 5The Bank commenced these proceedings by Statement of Claim against Craig, Denise, Patrick and Nadine seeking possession of Patrick and Nadine's property and judgment against each of Craig, Denise, Patrick and Nadine under their respective guarantees to meet the balance of Statewide's remaining financial defaults. 6Patrick and Nadine cross-claimed against the Bank ("the First Cross Claim"), to set aside, or vary, both their guarantees and the mortgage over the Sylvania Waters property. They later cross-claimed against GHS Financial ("the Third Cross Claim") for the amount, if any, which they may be required to pay to the Bank under their guarantees. 7Craig and Denise also cross-claimed against the Bank and GHS Financial ("Second Cross Claim") for orders declaring their guarantees void, or prohibiting their enforcement, and alternatively for damages from the Bank and from GHS Financial. In answer the Bank contended it relied on certificates and declarations Craig and Denise and their advisors signed to the effect that each had received independent legal and financial advice in relation to their dealings with the Bank. GHS Financial denied the allegations made against it in both the Second and the Third Cross Claims 8The hearing of these proceedings took place over fourteen days between 25 March 2013 and 23 October 2013. All the claims among the Bank, GHS Financial, Patrick and Nadine settled by consent on 22 April 2013. The claims among the Bank, GHS Financial, Craig and Denise continued. But the remaining parties settled with GHS Financial on the last day of the hearing, 23 October 2013. 9That left a contest between the Bank and Craig and Denise on the Statement of Claim and on the Second Cross Claim. Despite the two settlements, the evidence of Patrick, Nadine, Mr Steinberg and the Bank's officers who dealt with them, remained an important part of the relevant factual narrative. 10It was not in contest that were the Bank to be successful on the Statement of Claim, it was entitled to judgment against Craig and Denise for approximately the amount it claimed: $2,117,170.21 plus accruing interest. The primary contest in the proceedings was on the issues that Craig and Denise's Second Cross Claim raised, which may be shortly summarised as follows: (1)Are the guarantees Craig and Denise gave the Bank unjust within the meaning of the Contracts Review Act 1980 (NSW)? (2)Did the Bank or GHS Financial give Craig financial and business advice and if so was such advice misleading or deceptive or negligent? (3)Did the Bank or GHS Financial engage in unconscionable conduct? (4)Did the Bank or GHS Financial breach any fiduciary duties they owed to Craig and Denise? (5)Did the Bank contravene the Code of Conduct? 11Counsel and solicitors efficiently conducted these proceedings on all sides. Mr D. Price of counsel appeared for the Bank instructed by Gadens Lawyers. Mr B. McClintock SC and Ms G. Rubagotti appeared for Craig and Denise instructed by Landerer & Company. Ms M. Tibbey appeared for Patrick and Nadine instructed by a solicitor. And Mr B. McManus appeared for GHS Financial instructed by an attorney. Overview of the Principal Uncontested Facts 12This section of the Court's reasons contains an outline narrative of the principal uncontested facts to introduce the main witnesses and issues. The detailed terms of the security and other documents and the Court's decisions on the remaining contested matters are reserved for later sections of these reasons. 13The equipment hire business which Statewide purchased in 2004 had only been operating since 2002. Before Statewide acquired this business in 2004, Mr Claudio Provenzale and his wife Gina operated it through a company they controlled known as Statewide Telehandlers & Plant Hire Pty Limited ("Telehandlers"). Mr Provenzale was the sole director of Telehandlers and Mrs Provenzale its sole shareholder. To avoid confusion with Statewide, the similarly named company that Craig established later, Mr and Mrs Provenzale's company is called "Telehandlers" throughout these reasons. 14Telehandlers hired motorised telescopic equipment including forklift trucks. The business encompassed what is known in the equipment hire industry as both the "wet" and "dry" hire of equipment; "wet" hire of equipment includes the services of a driver but "dry" hire does not. Telehandlers principally hired equipment on medium and long term contracts to major building industry contractors. 15Craig became an employee of Telehandlers in 2003. He gained knowledge of the operations of the business through his employment. But the parties contested the extent of his knowledge, particularly in relation to the financial performance of the business. Craig was mostly involved on the operational side of the business. Mr and Mrs Provenzale ran a lean operation at Telehandlers: they were the only other permanent employees of that company involved in running of the business. 16But Telehandlers did not actually own the equipment it used in running its hire business. Another company Mr and Mrs Provenzale controlled, Newtral Pty Limited ("Newtral"), owned all Telehandlers' hire stock, and made that stock available to Telehandlers as it required. 17In mid-2004 Mr Provenzale asked Craig whether he was interested in purchasing this equipment hire business from Telehandlers. He decided to investigate Mr Provanzale's proposal. They began to negotiate the terms of purchase, each assisted by a solicitor. 18Mr Provenzale opened negotiations by asking for $2.2 million dollars for the business, a figure which Craig managed to reduce to $2 million. Craig needed time to organise finance. After unsuccessful discussions with a number of financiers, on Mr Provanzale's recommendation, Craig approached a finance broker Mr Garry Steinberg of GHS Financial. 19Mr Steinberg contacted the Bank in relation to the possible financing of the transaction being proposed between Mr Provenzale and Craig (referred to throughout these reasons as "the Statewide transaction"). He initially spoke to Mr Mark Donovan, one of the Bank's relationship managers, who was then responsible for managing the accounts that Mr and Mrs Provenzale and Telenandlers already maintained with the Bank. But because of this pre-existing relationship with the accounts of Telehandlers and Mr and Mrs Provenzale, Mr Donovan referred Mr Steinberg to another Bank employee, Mr Alan Shackleton for assistance. 20Between mid-October and mid-December 2004 Mr Shackleton handled Craig's application for the Bank's possible financing of the purchase of Telehandlers business. But he did not himself have sufficient authority to approve the financing of a proposed borrowing totalling over $2 million. To seek the necessary approval at a higher level, Mr Shackleton prepared internal credit submissions for the application and provided them to a more senior Bank officer, Mr John Coupe. Principal among these was a Credit Memorandum of 18 October 2004. On 14 December 2004 Mr Coupe approved the financing. Craig and the other members of the Smith family had some legal and financial assistance during this period but the extent of that assistance is in contest. 21On 24 October 2004 about three weeks before the Bank approved the finance, Craig incorporated Statewide as the proposed purchaser of the business and the borrower from the Bank. Craig was the sole director and secretary of Statewide from its creation. But throughout Statewide's existence each of Patrick and Craig held 50% of its shares. The circumstances in which Patrick became a shareholder of Statewide were in dispute, although that dispute principally relates to whether Patrick was entitled to any relief, an issue which has now been resolved in Patrick's settlement with the Bank. 22Between 16 and 23 December 2004 Craig executed the principal facility agreements between Statewide and the Bank, which consisted of an Equipment Loan for $1,760,000 to acquire the stock (mainly vehicles) for the business to hire out and an interest-only Fixed Rate Loan in the amount of $400,000, principally to provide working capital. The Bank and Craig, Denise, Patrick and Nadine executed guarantees and mortgages to support Statewide's facility in the same period. Their guarantees of Statewide's obligations under the Equipment Loan were limited to $1.6 million plus interest and costs. More details of the facility and the guarantee documents appear below in these reasons, under the headings "The Loan Agreements" and "The Guarantees and the Mortgages". 23Statewide used the Bank's advances to complete the purchase of the business from Telehandlers on 11 January 2005. Craig operated the business through Statewide for the next 12 months with assistance from his father. But its trading performance proved to be well below Craig's pre-purchase expectations. Analysis of the difference between the pre and post purchase trading conditions of the business is undertaken later in these reasons. By late 2005 the business was in serious financial distress. Although Statewide had not yet defaulted on its obligations to the Bank both Craig and the Bank officers anticipated that if its trading performance did not change that Statewide was likely to default in early 2006. 24In January 2006 Statewide requested the Bank to increase its facilities. In mid-January 2006 Mr Coupe for the Bank approved an additional overdraft to Statewide in the amount of $100,000 together with a renewal of Statewide's original Fixed Rate Loan. Craig and Denise executed another guarantee of Statewide's obligations under the Fixed Rate Loan and the January 2006 Overdraft, limited to $510,000 plus interest and costs. 25Statewide operated under Craig's control for a little over one more year. But in early 2007 Statewide defaulted and on 6 March 2007 it stopped trading, when the Bank appointed a receiver to its assets and operations. About six months later, in August 2007, Craig and Denise sold their Oyster Bay property, realising an equity of $113,578.92, which they paid to the Bank in partial reduction of Statewide's outstanding debt. 26Statewide was deregistered on 3 May 2009. In August 2009 the Bank made demands on the guarantees, which the Smiths failed to meet. The Loan Agreements 27An overview of Statewide's loan facility agreements with the Bank and the securities the Smiths gave to the Bank is complicated as some of them were superseded within barely a week of their execution. These facilities were first signed on 16 December in anticipation of the execution of a draft sale agreement, in which Telehandlers would sell both its business and the equipment it used in that business to Statewide. But that contract did not proceed. Instead each of the goodwill and the equipment of the business were separately sold to Statewide, respectively by Telehandlers and by Newtral. In consequence of this restructured sale, some of Statewide's and the Smiths' loan documentation was resigned in slightly varied form on 23 December 2004, in the circumstances that are explained below. 28To facilitate Statewide's purchase of the Telehandlers business, on 16 December 2004 the Bank entered, as lender, into two loan agreements with Statewide, as borrower: a "Business Letter of Offer" to provide Statewide a fixed rate interest only one year loan facility of $400,000 ("the Fixed Rate Loan") and an "Equipment Loan Goods Mortgage" to provide Statewide a facility for $1,600,000 to finance the equipment to be acquired in the business the ("the 16 December Equipment Loan"). Other minor facilities were provided. 29The 16 December Equipment Loan was superseded a week later when the structure of the sale changed. Another "Equipment Loan Goods Mortgage" in identical terms, save the amount of the facility was increased to $1,760,000, was executed on 23 December 2004 ("the 23 December Equipment Loan"). The additional amount of $160,000 was the amount required for the payment of GST on the purchase of the equipment used by the business. The Fixed Rate Loan signed on 16 December was not re-executed on 23 December. 30As earlier indicated, the last tranche of financing was put in place a year after the acquisition, to help tide Statewide over its growing financial distress. On 24 January 2006 the Bank granted Statewide a further overdraft facility of $100,000 and at the same time extended the term of the Fixed Rate Loan which only had a one year term. Statewide managed to repay the overdraft facility and the Bank does not claim any amount under that facility in these proceedings. Statewide's defaults relate to repayments due under both the Fixed Rate Loan and the 23 December Equipment Loan. The Guarantees and Mortgages 31All Statewide's obligations to the Bank were secured by guarantees executed by each of Craig, Denise, Patrick and Nadine supported in turn by mortgages over their respective family homes. 32On 16 December 2004 each of Craig, Denise, Patrick and Nadine executed a "Guarantee and Indemnity" agreement, which was incorporated as part of the form of the Fixed Rate Loan documentation. By these agreements each of them guaranteed all the amounts owed by Statewide to the Bank under the Fixed Rate Loan up to the limit of $460,000 ("the Fixed Loan Guarantee"). 33On the same day each of them also executed another "Guarantee and Indemnity" agreement up to the limit of $1,600,000 ("the 16 December Equipment Guarantees"). Those guarantees were offered in relation to Statewide's obligations under the 16 December Equipment Loan and formed part of the 16 December Equipment Loan documentation. 34But the 16 December Equipment Guarantees were superseded by other guarantees in the same form that each of Craig, Denise, Patrick and Nadine executed on 23 December 2004. Again these guarantees were not separate documents but formed part of the 23 December Equipment Loan agreement also executed that day ("the 23 December Equipment Guarantees"). The limit of those fresh guarantees was also increased from $1,600,000 to $1,760,000 to coincide with the increased amount being advanced under the 23 December Equipment Loan. 35Another set of guarantees was executed by each Craig, Denise, Patrick and Nadine over a year later, in January 2006, when the Bank provided to Statewide the additional $100,000 overdraft facility and extended the term of the Fixed Rate Loan. These guarantees were also in the form of a "Guarantee and Indemnity" agreement ("the 2006 Guarantees") and contained identical terms to the earlier guarantees. They covered all the amounts Statewide owed to the Bank up to the limit of $510,000. 36The Bank initially held two Real Property Act 1900 mortgages executed on 16 December 2004 securing Craig and Denise's and Patrick and Nadine's guarantee obligations: a mortgage over Craig and Denise's residential property in Oyster Bay and a mortgage over Patrick and Nadine's residential property in Sylvania Waters. Structure of the Sale and Completion 37The structure of the Telehandlers-Statewide sale transaction changed between execution of the 16 December Equipment Loan and execution of the 23 December Equipment Loan. This changed structure explains some of the differences between these two equipment loans. 38Prior to 16 December the contract for the sale transaction was drafted in the form of the Law Society of New South Wales 2000 edition contract for the sale of business, together with additional conditions. Telehandlers was named as vendor and Statewide as purchaser under this draft contract and Statewide was purchasing two types of assets described respectively as "Goodwill" and "Equipment" for a total consideration of $2,000,000. It was apportioned under the heading "Asset and price apportionment" as to $400,000 for "Goodwill" and as to $1,600,000 for "Equipment". 39Under the 16 December draft contract the parties contemplated that Newtral would assign to Telehandlers its interest in the equipment that Telehandlers was then using for its business. They added a condition to the standard Law Society form of the 16 December Draft Contract to deal with this equipment, as follows: "The purchaser acknowledges that the Vendor is not at this time the unencumbered owner of all the Tele Handlers and Forklifts referred to in the inventory of equipment is presently owned by Newtrell [sic] Pty Limited. Prior to completion the Vendor will arrange for the assignment of any outstanding interest in the said equipment to it and shall on or before completion discharge all encumbrances so that the Purchaser will receive the equipment without any encumbrances." 40But the 16 December draft was never executed. It seems to have been drafted with little focus on whether Newtral would actually assign the equipment to Telehandlers before the sale to Statewide. By 23 December it seems to have been clear that such an assignment would not take place. So the 16 December draft was replaced on 23 December by two separate sale contracts under which the transaction ultimately proceeded. Craig signed both these contracts as a director of Statewide. 41In one of these contracts, again in the Law Society standard form, Statewide agreed to acquire the business from Telehandlers for $400,000 ("the Business Sale Contract"). In the "Asset and price apportionment" section of that contract the consideration of $400,000 was apportioned wholly as to the one item, "Goodwill". And the contract did not deal with equipment at all. 42In the other contract, entitled "Contract For Sale of Plant & Equipment" ("the Equipment Sale Contract") Statewide agreed to acquire from Newtral the equipment Telehander's was using in the business for a consideration of $1,600,000. The equipment to be sold was specified as the items of equipment, including tele-handlers and forklifts listed in "Schedule A" to that contract. 43Statewide's acquisition of Telehandlers' business and Newtral's equipment under the two 23 December 2004 sale contracts was completed on 11 January 2005. At settlement Statewide drew down on the facilities provided under both the Fixed Rate Loan and the 23 December Equipment Loan. 44From the $1,760,000 the Bank provided to Statewide under the 23 December Equipment Loan, it applied an amount of $1,600,000 on account of the settlement moneys payable under the Equipment Sale Contract and the balance of $160,000 was applied towards the GST liability on the purchase. The sum of $400,000 the Bank provided to Statewide under the Fixed Rate Loan was applied to pay the settlement money payable on account of goodwill of the business under the Business Sale Contract. Solicitors and Financial Advisers 45In the period October 2004 to January 2005 Craig used the services of two professional advisors, a solicitor Mr Peter Ronis of Shanahan Solicitors and an accountant Mr Geoff Stubbs of Liverpool Taxation Services Pty Limited ("LT Services"). The extent of the involvement of these professionals and the extent to which they advised Craig and Denise is disputed. 46On instructions from Craig, Mr Ronis negotiated with the solicitors acting for Mr and Mrs Provanzale, concerning the agreements for the purchase of the business. He also witnessed the signatures of Craig, Denise, Patrick and Nadine on the financing documents signed on 16 December 2004: the Fixed Rate Loan, the 16 December Equipment Loan, including the 16 December Equipment Guarantees incorporated in it and the Fixed Loan Guarantee. But he was not involved in the execution of any of the later financing documents, either on 23 December 2004 or in January 2006. 47As part of the execution of the Fixed Loan Guarantee on 16 December 2004 Mr Ronis signed four certificates, one for each guarantor, certifying among other matters, that he had explained the effect of the relevant guarantee to each guarantor. 48The parties contested: whether Mr Ronis did provide any legal advice about the effect of the Smiths' guarantees; and if any such advice were provided, whether its content was sufficient and whether it was independent advice. Mr Ronis was not called by either side to give evidence. Both sides asked the court to draw inferences about the nature of the advice that he gave, without the Court hearing from him. 49It was not in contest that in October 2004 the principal of LT Services, Mr Stubbs, organised the incorporation of Statewide for Craig. He also provided advice to Craig in relation to the structure of Statewide's proposed acquisition of Telehandlers' business and about the tax consequences of that acquisition. 50The extent of Mr Stubbs' other involvement beyond this was in contest in these proceedings. The Bank claims that in providing finance to Statewide it relied on two certificates of financial advice that Mr Stubbs had apparently signed. On their face these two certificates, which bear a signature purporting to be that of Mr Stubbs, state Mr Stubbs provided financial advice to Craig and Denise and to Patrick and Nadine in relation to the acquisition. But in his evidence Mr Stubbs denied that he gave any such financial advice to either of them. Moreover he denied that the signatures on the two certificates were his. If his evidence is accepted, it is probable someone forged Mr Stubbs' signature on the certificates and provided them to the bank. 51This completes an outline of the principal uncontested facts. To outline the contested facts requires a more detailed narrative of events. Statewide Buys and Runs a Business which Collapses - 2002 to 2007 52This section of the Court's reasons contains the Court's findings in relation to the contested dealings between Craig and Denise and the Bank and with the other parties. This more detailed narrative represents the Court's findings as to what happened, recording some further uncontested facts and deciding the contested matters that require decision. Craig, Mr Provenzale and Telehandlers 53At the time of the trial Craig Smith was 46 years old. He left school in year 12 in 1984. At the time of the Statewide transaction in 2004 he was 37 years old. His post school work was mainly in clerical, administrative and junior management fields. He worked in industries as varied as insurance and motor home rental. 54Between 1998 and 2003 Craig worked for JTF Supplies as an administrative assistant, a company that supplied lifting equipment, including chains and shackles in the construction industry. Craig's father Patrick then worked at JTF Supplies as a sales representative and was Craig's introduction to the firm. Although Patrick was styled as "Group General Manager" and as an "accountant manager" for JTF Supplies, I accept that neither he nor Craig ever had any accounting experience or gained any accounting qualifications. 55Soon afterwards Craig met Mr Provenzale, who had business dealings with the owner of JTF Supplies. Whilst Craig was working as a branch manager for JTF Supplies in Perth, Mr Provenzale offered him a job working for Telehandlers in Sydney. Craig found this attractive. He accepted employment with Telehandlers in 2003 and brought his young family to Sydney. Craig's principal role at Telehandlers was to manage Mr Provenzale's existing customers, operating out of a small office located in Mr Provenzale's residence in Camden. Craig's duties included managing Mr Provenzale's existing customers and contacting potential customers to try and increase the rental sales of the company's motorised telescopic equipment, including forklifts. His time was spent with Mr Provenzale in trying to win tenders and to arrange for the leasing out of the company's equipment. Mr Provenzale's wife, Mrs Gina Provenzale, managed the books, financial accounts and paperwork of the company and paid Craig's salary. 56Craig was also responsible for arranging the ongoing maintenance and repair of some of Telehandler's leased equipment, although he did not process repair bills and was unaware of the maintenance costs of the business. The Bank sought to make a case that Craig was familiar with the financial workings of the Telehandlers business through his employment. But I accept Craig's account that he was not close to this aspect of the business, which Mrs Provenzale handled. Until Mr Provenzale made an offer to Craig to acquire the business, Craig had no ambitions in that direction. 57Craig did not know the full financial position of Statewide. He was familiar with the hire rates for the particular equipment that he leased. But Mr Provenzale exclusively managed other classes of equipment. On the costs side Craig did not know of the general outgoings for equipment and for insurance, for maintenance or transport costs or of the need to lease equipment from competitors (known as "cross-hiring") from time to time. 58It was not difficult to look at Craig in the witness box and infer what he would have been like in his mid-30's: a man without any prior experience in running his own business and a tendency to naivety. In mid-2004 Mr Provenzale first tried to interest Craig and Patrick in investing in some of his equipment that Telehandlers was leasing. But satisfactory agreement could not be reached. When those negotiations broke down, Mr Provenzale tried another tack: he declared that he wanted to leave the hire industry. He asked Craig whether he would be interested in purchasing the whole business. 59Although keen to have the autonomy of running his own business, Craig was uncertain what to do next. So he approached a number of people who he thought knew much more about finance than he did. 60Craig first went to a mortgage broker in Sutherland, Combined Financial Services ("Combined"), who asked for Telehandlers' profit and loss statements. One measure of Craig's naivety at that time was that he took this Combined request to Mr Provenzale who replied to Craig "you don't need them [the profit and loss statements]", a position that surprisingly Craig accepted. 61Craig then contacted Mr Darren McNamara at Smartline Mortgage Brokers, who Craig had met at TJF Supplies, where he was the Chief Financial Officer for a period which overlapped with Craig's employment at that company. Mr McNamara asked for the same kind of financial statements, tax returns and bank statements for the business as Combined had done. But I accept Craig's evidence that Mr Provenzale would not give him this information. 62So Craig and Mr McNamara met Mr Provenzale's accountant, a Mr Gregory Hammond. Craig and Mr McNamara asked to see Telehandlers' books. Mr Hammond declined. Mr McNamara made inquiries with a number of banks about funding the purchase but was unable to assist Craig any further. Mr McNamara did not give Craig any substantive financial advice about his purchase of the Telehandlers business. 63Within a day of two of Craig's unproductive meeting with Mr Hammond Mr Provenzale approached Craig and said to him "Don't worry, I know a guy who'll get you a loan". Within days he had arranged for Craig to meet Mr Garry Steinberg, describing Mr Steinberg as "...a good guy. He will get you the loan". 64Mr Steinberg and Craig met shortly afterwards at Mr Steinberg's office in suburban Liverpool. Mr Steinberg indeed confirmed that Mr Provenzale had spoken to him about Craig. Mr Steinberg assured Craig "I know Claude's [Mr Provenzale's] business. I understand the situation you're in and I can help you get the business. I know it's a very good business and this is an excellent opportunity for you". Mr Steinberg's approach from this moment was to take control of the information gathering to support Craig's loan application, saying "I'll handle everything" and "I know all about this business. I can get the loan for you". 65I accept Craig's account of his first meeting with Mr Steinberg. He was relieved at what he had heard: for the first time he could see the obstacles to obtaining the loan being removed by someone with an insider's connection to Mr Provenzale. And somehow Mr Steinberg seemed to know what prior unsuccessful efforts Craig had made to obtain finance and really asked Craig to "leave it to me". 66I accept Craig's account that he had about six further meetings with Mr Steinberg between May and September 2004 about the loan application. In the course of one of these meetings Mr Steinberg identified the bank to which he proposed to take Craig's application and said to Craig "I am going to go with the NAB because I have a very close relationship manager at the Bankstown Business Branch". Later he described the new relationship manager as follows: "There is also a new relationship manager who is also very keen to secure his first business deal". 67At their second meeting Mr Steinberg asked Craig to prepare financial forecasts for the business showing both revenue and costs for the whole business. Craig pointed out how little he knew about the business financials apart from the leasing income of the hire units he managed. Mr Steinberg said to him "That doesn't matter. Give it a go". 68These first few meetings are remarkable for the absence of any representation from Mr Steinberg that he was acting on behalf of the Bank. Craig and Denise make a case that Mr Steinberg was the Bank's agent in all his dealings with Craig and Patrick. But even on Craig's account, which I prefer to Mr Steinberg's account, Mr Steinberg did not claim any authority to speak in the Bank's name or point to authority that the Bank had given him to act for it. He had a broker agreement with the Bank at the time although at this distance the date of that agreement is unclear. Admittedly the Bank had not been approached at the time of Craig and Mr Steinberg's first meeting 69Moreover, the statements that Mr Steinberg made to Craig are hardly consistent with Mr Steinberg acting on behalf of the Bank. I accept Craig's evidence that Mr Steinberg said to him at various meetings "Don't worry, leave it to me, I'll look after you" and things like "this is about your best interests and I have everything under control". Mr Steinberg was seeking to promote trust and confidence in Craig with statements that placed him much closer to Craig than to the Bank. 70It took a while for Craig and Mr Steinberg to put together his forecasts. It was a task travelling in the background between July and September 2004. This was not surprising given Craig's basic lack of understanding of the business he was to buy. I accept that he said to Mr Steinberg "the forecasts are just estimates; I have no financial records from the company for which to base any of them". Mr Steinberg urged Craig to put down figures that Craig was describing as his "best guesses". The Finance Application - 22 September 2004 71In the meantime Mr Steinberg had been dealing with the Bank. On 22 September 2004 he submitted to the Bank a finance application for the financing of the purchase of the business, based on the information he had gathered so far. 72The 22 September 2004 finance application contemplated that both Craig and Patrick would be involved in the purchase of the entire business of Telehandlers. By then Craig had drawn his father into the idea of a purchase and held intra-family discussions about the proposal. Craig initially put the first involvement of his father in the transactions as occuring in November 2004. But this cannot be right. The 22 September finance application contains asset and liability information for both Craig and Denise and Patrick and Nadine consistent with Patrick having been approached at that time. I otherwise accept Craig's account of approaching Patrick about assisting in the purchase. Craig repeated to his father that Mr Steinberg was saying to him that the proposed purchase was a "good deal". 73Craig and Patrick met Mr Steinberg to discuss the loan application at Mr Steinberg's office probably before 22 September 2014. Mr Steinberg made some very positive comments at this meeting "Let me tell you that we are dealing with here with a very good business. I know that because I know the owner. I am his friend and I do all his business transactions for him". He then went on to say "I wouldn't want to see Craig let this go because I tell you he will own the business in three years' time and he will be a multimillionaire". Mr Steinberg was enthusiastic about this proposed purchase. I prefer Craig and Patrick's versions of their discussions over Mr Steinberg's. But Mr Steinberg's enthusiasm is an important factor in inferring what happened between Craig and the Bank. I accept Craig's evidence that Mr Steinberg repeatedly emphasised that "this is a great opportunity. This is a really good business. You are lucky to have this opportunity" and assured them that he could "get the deal done". 74Craig and Patrick reported their discussions with Mr Steinberg to Denise and Nadine. Patrick seemed charmed by Mr Steinberg, describing him to their wives this way: "I met Garry and he seems like a likeable cove to me. I think we can trust him". 75The 22 September finance application described Craig and Denise as having net assets of $323,000 and that Patrick and Nadine had net assets of $1,085,000. The 22 September finance application sought a loan of $2.2 million, and described the application in the following terms: "COMMENTS: Father and Son wish to purchase the entire business of Statewide Tele Handlers and Forklift Hire Pty Limited. The business is for sale for $2,200,000.00, which is made up of $1,800,000.00 in equipment and $400,000.00 goodwill. The equipment consists of 18 forklifts whereby we submit details as attached. The security on offer are all the units of which 17 are owed and 1 in under finance to Esanda Finance. A first mortgage on Patrick's house is available with a QS valuation of $900,000. As well, they have cash holdings of $200,000.00, which is on offer. ... STORY OF PROPOSED PURCHASERS Craig Smith currently works for Claudio as manager of the operation and has done so for the past 15 mths. Craig was operations manager from TJF/EBC based on Hoxton Park dealing with cranes and forklifts for the past 10 years. Prior to that period he worked for Brambles in sales and rental in the earthmoving business. His father Patrick, is an accountant and also worked for TJF/EBC. As an accountant he looked after the administration side of the company and comes to our new entity with 40 years experience in the crane/forklift industry and administration. THIS DEAL: Claudio Provenzale is asking $2,200,000.00 for the business. In that deal he is giving the proposed new purchaser two years rent free on the site at Catherine Field. All the forklifts (18), which have a valuation on $1,800,000.00 and $400,000 goodwill. As previously mentioned your security will be a CHP Agreement over all the equipment, a first mortgage over property at Sylvania Waters and $200,000.00 cash holdings security." 76Patrick's house was clearly being offered as security at this time. Mr Steinberg would not have done that without Patrick's consent. Whilst Mr Steinberg was pressing the 22 September finance application on the Bank Mr Provenzale was pressing Craig as to whether the purchase was proceeding. Craig and Patrick Deal with the Bank 77From about mid 2004 Craig had dealings with Mr Donovan and then Mr Shackleton in parallel to his discussions with Mr Steinberg. Craig met Mr Donovan, the existing Bank relationship manager for Telehandlers, who explained that he had "done a lot of work with Claude [Mr Provenzale] over the years and he runs a very good business". Mr Donovan bowed out early because of this relationship. But I accept that Mr Donovan said to Craig at the outset "But don't worry Craig, I'll be working very closely with Alan and I'll be helping him get this through". The Bank was here representing to Craig that its existing relationship with Mr Provenzale was a factor that would assist the success of his loan application. I accept that the Bank's officers did say these kinds of things to him about Mr Provenzale. Moreover they had a powerful influence on him, and in turn on Patrick, Denise and Nadine to whom they were conveyed. Everything said to Craig needs to be understood in the light of this early impression that Mr Donovan created and which Mr Shackleton soon reinforced by words and conduct. Craig thought he was lucky to have this specialised assistance. 78Mr Steinberg was giving the same kind of help to Craig based on his prior knowledge of Mr and Mrs Provenzale's business. Mr Steinberg was a close adviser to Craig but the Bank left an impression on Craig and perhaps unwittingly so, that he could rely on its knowledge of Mr Provenzale's business affairs. This echoed Mr Steinberg's advice to Craig and led him to believe that he could trust the Bank, as he trusted Mr Steinberg. This developed and leads the Court ultimately to the conclusion that the Bank, probably quite inadvertently, assumed the role of a financial adviser to Craig. Had the Bank not had as another customer, the vendor in this transaction, there would probably have been less opportunity for Craig to get this impression from the Bank. 79Mr Shackleton was in a difficult position from the outset. It was clear to him that Craig perceived him as somewhat of a newcomer, who probably had less knowledge of Mr Provenzale's businesses than did Mr Donovan. So he sought to overcome this by instilling confidence in Craig that he knew as much about Mr Provenzale's business as had Mr Donovan. He said to Craig "Look Craig, I know all about the business. I believe this to be a good business. It is definitely something the Bank is interested in". Craig's recollection as to exactly when such statements were made is imperfect and was at times shown to be in error. But his recollection as to the substance of whatMr Shackleton said to him is reliable. 80Craig had a number of meetings with Mr Shackleton, often at the Bank's Bankstown branch, as his loan application progressed. Craig asked him at one point, when he had provided some information, "How does this all stack up?" to which Mr Shackleton replied, "This looks like a good loan". 81Mr Shackleton went further. On another occasion at Mr Shackleton's office Mr Shackleton said to him "I think you are lucky to have this opportunity". And in response to Craig's question "Should I proceed with this?" Mr Shackleton replied "Yes, absolutely, this is something you should do". I do not accept Mr Shackleton's evidence distancing himself from making such statements. 82Craig was naïve. A more sophisticated person would probably have hesitated to ask Mr Shackleton some of the questions Craig asked, on the basis that they would not expect the Bank to commit itself in answer. But that did not deter Craig. At one point in about October he said to Mr Shackleton "Is this something I should still be going ahead with? Should I keep pushing forward with this?" 83Mr Shackleton was in a very difficult position not of his own making. Not to answer this question of Craig, given the Bank's knowledge of the Provenzale's business would have appeared very strange. So he answered it, saying "Yes, absolutely. It'll just take a bit of time. We've been looking at the figures of the current business, of the loan, what you are putting in, all aspects of it to make sure that this is a good loan for you". Then he concluded, "This is a good loan". 84Such statements were ambiguous. Mr Shackleton was probably only intending to convey to Craig that the loan looked as though it would meet the Bank's lending criteria. But to a reasonable listener in Craig's position the statements also looked as though the Bank was vouching for the reliability of the figures that the Bank had from Telehandlers its other client, and the financial health of that business in Mr and Mrs Provenzale's hands. This ambiguity would not have arisen if the Bank did not appear to have access to information about Mr and Mrs Provenzale's business Telehandlers, either directly or through Mr Steinberg. 85Craig did share his inexperience with Mr Shackleton by explaining that he was only "working as a sales guy for this company [Telehandlers]. I don't know all the financials of the company" and "I'm relying on you to help me with the financial side of this and to guide me through the loan to make sure I am doing the right thing". Craig says that he also said this to Mr Steinberg. I accept he saw both GHS Financial and the Bank as having superior knowledge to him about the financial performance of Telehandlers business under Mr and Mrs Provenzale. I accept that Mr Shackleton said to him in response "Look you're only going to get the loan if we know its going to work", a statement that had the same ambiguity as Mr Shackleton's earlier statements. But it was open to Craig to interpret this as a statement that the Bank would have to satisfy itself from its own knowledge and from information available to Mr Steinberg, as well as anything Craig gave the Bank, as to the reliability of Telehandlers' past financial performance. 86I infer from Craig's evidence that he had concluded from what Mr Shackleton had told him that if the Bank were to approve this loan that: (1) such approval would be based on the Bank's own assessment that this business could be financed post-acquisition from its cashflow; and (2) that such assessment would be based on all the information available to the Bank whether from Mr Steinberg or the Bank's own resources, after applying the Bank's internal credit procedures. 87Mr Shackleton, to his credit, made some concessions in cross-examination about what he said to Patrick and Craig. He conceded that he had "portrayed an optimistic portrait of the business of Telehandlers" to Craig. Mr Shackleton thought it was probable that he did say that the Bank "had been looking at the figures of the current business, the loan, that you are putting in, and all aspects of it to make sure that this is a good loan for you". Mr Shackleton even conceded it was a possibility that he had said "I believe this to be a good business" and "I know all about the business" and that "it is definitely something the Bank is interested in". But the Court's findings do not depend on Mr Shackleton's concessions. The findings may be based alone on the Court's relative assessment of Craig and Mr Shackleton in these conversations. Importantly though Mr Shackleton conceded that the effect of what he had said to Craig was that this was a business which Craig could safely purchase. 88Craig relied on the statements that Mr Shackleton made. The fact that the statements were made, as Craig said, by an officer of one of Australia's big four banks, was something which I accept impressed Craig and influenced him in accepting the correctness of what was said. But part of what was unusually influential in this case on Craig's mind was the extra weight added to the Bank's statements by the fact that Telehandlers was already a customer of the Bank. 89These statements also indirectly later influenced Denise to give her guarantees. Craig and Denise appeared to have a relationship where they communicated well. Both Patrick and Craig took the trouble to explain to their spouses the impressions they had received about this proposed transaction from both the Bank and Mr Steinberg. The 8 October Meeting 90The first combined meeting between vendor, purchaser, Bank and mortgage broker took place on 8 October 2004. The meeting was held at Telehandlers' business premises in Catherine Fields. The purpose of this meeting was for the Bank officers to inspect the machinery used in the business. Present were Craig, Patrick, Mr Shackleton, Mr Grainger, Mr Steinberg and Mr Provenzale. In fact no operating machinery was able to be inspected. Mr Shackleton took this as a good omen, saying to Craig, "It's good there's not much to look at, because it's all on site". Craig wrongly thought that Mr Donovan was at this meeting. But that was only a minor error and did not much affect Craig's credibility. 91Craig and Mr Shackleton met up again a few days later at a building site near Homebush, where Mr Shackleton observed one of the telehandlers in action. 92Some statements were also made to Craig at a later restaurant meeting. There was much controversy in the proceedings as to when this restaurant meeting took place, and indeed whether it was after the loan was made. The Bank's witnesses are right and the restaurant meeting took place later than Craig thought. But what Mr Shackleton said on this occasion repeated what he had said earlier: "This looks very good, you are very lucky to have this opportunity". I accept that Craig relied on these statements to enter the Statewide transaction and to persuade Denise to do so as well. The Credit Memorandum - 18 October 2004 93On 18 October 2004 Mr Shackleton submitted to the Bank's credit manager, Mr Coupe, a memorandum for the financing of the transaction ("the Credit Memorandum"). Mr Shackleton first gave the background to the application in the Credit Memorandum: "Preamble... Statewide Tele-Handlers & Plant Hire Pty Limited ("Statewide") is a business already utilising National Facilities throughout Liverpool Business Banking centre and have done so for a trouble free period of 2 ½ yrs, The Current owners of the company being Claudio (sole Director) & Gina Provenzale (100% sole Shareholder), Claudio is selling the business as he is wanting to return to his former interest of larger scale "Crane Hire" to such companies as Caltex, Shell & Kell and Rigby. To this he has offered his current operations Manager "Craig Smith" the opportunity to purchase the business after successfully running the "day to day" operations for the last 15months. The opportunity to fund the purchase came about through Claudio's relationship with Garry Steinberg of GHS financial services who is part of the Banks accredited broker Asset Finance scheme. Background/History of Business... Statewide as the name suggests [sic] are involved in the Hire (both wet & dry) of Telescopic Materials handling equipment. The equipment is able to be used in a number of industries including Construction, Public work, Agricultural, landscaping & Shipping. The specific tasks the machines are able to be used for within the above industries are varied from being used as a maintenance platform to a Sweeper or its more common used [sic] as a lifting device for products such as Hay or Building materials. "Tele-handlers" are very popular in Europe & America with the use of the machines rapidly becoming popular here in Australia based on their versatility." 94Mr Shackleton further explained the purpose of the submission for approval in the Credit Memorandum: "Purpose of the Submission... We have been approached to look at assisting current operations Manager "Craig Smith" and his father "Patrick Smith" in purchasing the business from current owners. R/M has recently met prospective proprietors now on two occasions, firstly at business premises @ Catherine Fields along with Garry from GHS & David Granger (Mgr Asset Finance). Secondly R/M net with just Craig @ Mirvac - Nevington site @ Homebush where R/M was able to view machinery @ work. Both Craig & Patrick bring a wealth of knowledge & experience to the table with Craig working directly in the business for the past 15 mths. Craig' previous experience prior to "Statewide" was as a "Operation's manager" for TJF/EBC based at Hoxton Park dealing with Forklifts & Cranes for 10 yrs and his Father Patrick (recently retired). Having 35yrs in the Construction, mining, Transport & Manufacturing industries during his role as a senior management for J.Blackwood & Son as a Senior Accountant." 95The last statements about Patrick's role in "senior management" and as a "Senior Accountant" were wrong. Without intending any disrespect to Patrick, having seen him in the witness box, heard him give an account of himself and his background in evidence, he has neither the manner nor the conversation of a retired senior accountant. 96The Credit Memorandum identified 17 Telehandler units to be financed and identified the structure of the purchase as Business Assets $1,800,000 and Goodwill $400,000. The memorandum suggested that the assets to be acquired were suitable for equipment finance with a term of 5 years being acceptable to the Bank, given the asset type. 97The Credit Memorandum proposed Patrick and Nadine's unencumbered home and Craig and Denise's home and the re-finance of their existing ANZ Bank lending. 98The financial and management analysis in the balance of the Credit Memorandum is divided into sections: on Debt Servicing/Sensitivity; Cash flow Forecast; Management/Management Information Systems, aspects of which have become the subject of expert commentary and analysis in these proceedings. 99Credit Memorandum - Debt Servicing Sensitivity Analysis. The Credit Memorandum addressed the financial projections of the purchased business, and commented bluntly "we have completed a debt servicing table based on existing financial performance which indicates that at current levels debts would not be able to be serviced". Indeed for the 12 months projected forward to 30 June 2005 the Debt servicing sensitivity analysis showed a deficiency of $68,832. This conclusion was then mitigated to a degree by the comment "This does not reflect the growing rate of sales/income which has occurred during 2004". The Credit Memorandum "We have been provided projected CFB and P&L with the following summary which shows; Customer protection Bank Adjusted Projected Sales/Income for Oct 04 till Sept 05 $1,071,112 $1,071,112 Less Expenses (includes debt servicing as per above table) $ 838,000 $935,508 NPBT $233,112 $135,604 Notes on projected P&L" 100The source of these figures was a forecast for the year October 2004 to September 2005 (Exhibit A) that had been produced largely by Mr Steinberg with some input from Craig and Patrick, which showed a gross profit for the business of $1,071,112 for the 12 months, expenses of $838,000 leaving a net profit before tax of $233,112. Craig and Patrick later signed this forecast on 11 November in the presence of Mr Shackleton. Although he does not remember the occasion, it must have occurred as he acknowledges his signature on the document. And I accept the Bank's contention that Craig signed the 11 November forecast, Exhibit A to signify his agreement with its contents. Mr Steinberg was largely responsible for putting this 11 November forecast together. The Bank's adjustment to the projected business expenses added back $97,061 in depreciation which had not been included in the 11 November forecast. 101The financial commentary on this information continued in the credit memorandum: "1...Leasing expenses allowed @ $33k pm with actual being $36,245pm amortising over 5 yrs in full Adjusted amount in leasing commitments $434,940pa. Business Mortgage finance also added to expenses @ $58,068pa 2...Directors wages paid $172,800 out of expenses sufficient to cover personal HML debt &Credit card expenses. 3...No allowances for depreciation 4...LER dd 15/10/04 confirms continued trend of increasing sales with the following; Turnover 12 mths till 30/09/04 $964,789 Sep. ¼ Turnover $324,585" 102The September Quarter figures of $324,585 if projected for the full year ($1,298,340) showed a recent lift in sales but this was only identifying one quarter's performance. 103Credit Memorandum - Conditions Precedent. Mr Steinberg proposed Conditions Precedent to be met before drawdown of the loan, which were later reflected in Mr Shackleton's 26 October memorandum of the Bank's approval sent to GHS Financial. Apart from a requirement for satisfactory Bank approved machinery valuations, which is dealt with below, the Credit Memorandum required "signing all CFB [Cash Flow Budget] additional financial information along with a separate accountants' due diligence of vendors financial statements". 104This condition was designed to ensure that the Bank was lending on verified genuine vendor's figures that Craig and Patrick accepted as correct. But no due diligence was done on the vendor figures for the Bank's other client, Telehandlers. What such due diligence would have then shown cannot now be decided as the Bank's lending files for the vendor are not available. Nor is there any letter produced by an accountant for Statewide, Patrick or Craig indicating that such due diligence had been done. 105The Credit Memorandum - Exit Analysis. Finally, the Credit Memorandum concluded with an "Exit Analysis", which calculated when the Bank would have the proposed facility of $2,200,000 paid out. Taking the available FY03 ($122,927) and FY04 ($196,533) NPATs, the exit analysis calculated an average NPAT (of $160,879 - the average the figure is slightly wrong) and projects forward NPAT of $163,173 for FY05. 106Dividing the average NPAT of $160,879 into the total to be drawn down of $2,200,000, the result is a pay out after 13.67 years. The memorandum commented that this was "outside current guidelines, exceeding 8 years". 107But the Exit Analysis takes some comfort that despite exceeding the 8 year guidelines for exit: (1) the asset finance was based on a 5 year term with "serviceability proven prior to NP [net profit] results; term funding against residential property "could be taken over 20 years term"; and, the directors wages of $172,000 to be drawn before calculation of net profit "could be adjusted as required". In other words the, Bank's excessive exit period is mitigated to an extent by "proven serviceability" and a buffer through the directors not taking wages from the business. But the validity of these mitigating factors relies upon the accuracy of the figures, which Mr Steinberg had partly sourced from the vendor. 108On 26 October Mr Shackleton obtained Mr Coupe's approval to the Credit Memorandum. Mr Coupe's approved facilities totalling $2.461 million "subject to the conditions and covenants contained in the Credit Memorandum". The Bank's approval was therefore on the basis of a condition precedent that included Craig and Patrick "signing of all CFB & additional financial information", which they did comply with when they signed the 11 November forecast, Exhibit A and an associated current weekly revenue analysis, Exhibit B. But the Bank's approval was also based on obtaining "a separate accountants due diligence of vendor's financial statements". This was never done. 109Mr Shackleton sent a facsimile to Mr Steinberg the same day thanking him for "this quality referral" and stating "it gives me pleasure to advise that the following funding has been approved, subject to the conditions of lease covenants detailed below". "Asset Finance - Equipment Loan $1.8 million Equipment Loan - $1.8 million Term Business Funding - $400,000" 110The 26 October communication of approval identified the security for the facility as: (1) a registered mortgage debenture of the asset holding company and trading company including goods mortgages over individual assets being purchased; (2) director's guarantees for the total amount of $2,200,000 fully supported by mortgages over the Sylvania Waters and Oyster Bay property; and, (3) a key person policy over Craig and Patrick with the Bank noted as an interested party. 111The Bank then identified the conditions precedent before loan draw down in substantially the same terms that Mr Shackleton had identified in the Credit Memorandum. Most of these were purely administrative and need not be mentioned. Two were of special importance: (1) satisfactory Bank approved valuations and inspection of the machinery assigned to the Bank provided in advance; and (2) a "letter to be provided by Clients Accountant that Due diligence of vendor's Financial Statements has been completed". Mr Shackleton had turned the requirement for accountant's due diligence of the vendor's financial statements into, a condition that such due diligence be evidenced by a letter. 112The machinery valuation and inspection was done and has not been controversial in these proceedings. Machinery valuation firm, Slattery Auctions undertook a valuation on 23 November 2004 of 15 units identified on various building sites around Sydney. Slattery Auctions valued these units at fair market value on two bases: (1) fair market value for existing use purposes was "in the vicinity of $1,140,000"; and (2) an estimate for realisable purposes only was $856,000. Both sides accept the accuracy of this valuation. 113Other Conditions Precedent Findings. Mr Coupe explained the importance of the conditions precedent placed on this loan approval, conditions for the due diligence letter and the financial advisers' certificates. He agreed that they were conditions that he "fundamentally wanted to have carried out" and that "they protected both borrowers and the guarantors, the customers...and the Bank". He saw them as "fundamental requirements before these transactions could be completed" to which he did not expect Mr Shackleton or anyone else in the Bank to merely "pay lip service". Unfortunately neither Mr Stubbs nor anyone else on behalf of Statewide did such due diligence nor provided a genuine financial advisers' certificate. 114A later issues under the Banking Code of Practice is whether the Bank failed to "exercise the care and skill of a diligent and prudent banker" in forming its opinion about Statewide's ability to repay the loan for which it had applied. Some of Mr Coupe's and Mr Shackleton's own evidence about these pre conditions and the circumstances in which they were imposed is relevant to this judgment. Mr Coupe explained that he thought Mr Shackleton at that stage was relatively experienced in "doing transactions of this size". He believes it is likely, and I accept what probably happened, is that Mr Coupe "workshopped" the transaction with him to explain to Mr Shackleton that what Mr Coupe wanted put in by way of preconditions in the Credit Memorandum. Mr Coupe was a very candid witness and was plainly unsettled by the possibility that the preconditions that he had imposed on this loan might not have been fulfilled and I accept the following judgments that he made on the situation as the soundly based opinions of a practising banker: (1)"it would have been a serious breach of the Bank's policies"; (2)"he would not regard that as an action of a prudent banker"; (3) "it would be unfair both on the banker on the borrowers"; and (4) "he would have expected the due diligence to be completed if he had imposed the condition" and he would have expected that the Bank's client also would "normally want a due diligence done...before they completed the purchase". 115But Mr Coupe accepted that some Bank's customers simply do not understand the concept of "due diligence". In my opinion having seen him in the witness box, Craig Smith was such a person. Nor in my view did anyone from the Bank or Mr Steinberg or Mr Stubbs bring home to Mr Smith exactly what this precondition meant, and how it might benefit him. 116Mr Shackleton also supported the need for Craig and Patrick to receive financial advice, as the loan approval preconditions required, because of the special risks associated with this particular transaction. Mr Shackleton understood in the absence of some other source of capital and based purely on Patrick and Nadine and Craig and Denise's personal balance sheet that if the business being acquired did not perform and the Slattery Auctioneer's valuation was correct (so the assets could only be sold for $1.14 million) that the Smiths would inevitably have to find about $900,000 and would lose their houses. Other Aspects of the Credit Memorandum 117Patrick Smith. Patrick was a salesman and had no accounting experience. As the Credit Memorandum shows, Patrick's accounting and management experience was used as a way of justifying the probable revenue generation of the new management at Statewide. Mr Shackleton rightly regarded Patrick's management experience as something "significant to draw to Mr Coupe's attention". But in my view Mr Shackleton was probably misled by information sourced from Mr Steinberg, to conclude that Patrick had a professional accounting background. A tax return that Mr Shackleton had been sent certainly showed that Patrick was a salesman with an income of only $24,000 at FY04 year end. Mr Shackleton was unable to explain why he put what he did in the Credit Memorandum. I accept Mr Shackleton's evidence that he does not think he met Patrick until about 23 December. But Mr Shackleton is not to be blamed in my view for this mistake about Patrick, because it was contributed to by Mr Steinberg, acting on behalf of Craig. Mr Steinberg's 22 December finance application makes similar but less effusive statements. But the mistake emphasises how much of the Bank's logic in approving this application was based upon assumptions about Statewide's management that had not been verified. 118Debt Service and Error. The debt servicing sensitivity table and the Credit Memorandum showed that on the financial accounts for the Telehandlers business there was a debt servicing deficiency of $68,832 projected for 2005, leaving Mr Shackleton to agree that the business was not viable. But Mr Shackleton had made an error by understating the amount outstanding on the mortgage on Patrick and Nadine's house by $100,000 ($240,000 rather than $340,000). Had the mortgage been correctly recorded the debt servicing deficiency would have been even larger. 119Evidence of Growth of 47 Per Cent. The Credit Memorandum projected sales growth of 47 per cent based on Telehandlers' 2004 cashflow budgets. These budgets were not available at the time of hearing. But there is evidence in the Credit Memorandum itself that some such budget information had been obtained from Telehandlers. But in the absence of documents proving that something was obtained in writing from Telehandlers I am not prepared to infer that the information the Bank received was anything more than a verbal communication. The LT Services Certificate - 22 November 2004 120Shortly after 22 November Mr Stubbs sent a rather non-committal and poorly structured letter to the Bank: "22/11/04 A.B.N: 23 002 443 174 National Australia Bank Limited Atom Alan Shackle ton [sic] 402-410 Chapel Road Bankstown NSW 2200 Dear Sir, We confirm we are newly appointed accountants for Craig and Patrick Smith. They come recommended By Garry Steinberg. [sic] My association thus far, is that I discussed with both Craig and Patrick a company structure, planning, purchase contract and the general procedures. To date I have not studied the financials for the purchase of Statewide Telehandlers Pty Limited. From discussion with Craig and Patrick and a brief overview of the company, it seems that the business may be viable. If you have any further questions in relation to this matter, please contact Geoff Stubbs on the above number. Yours faithfully, Liverpool Taxation Services Pty Ltd [signature] Per Geoff Stubbs" 121Mr Stubbs composed, signed and sent this LT Services letter to the Bank. I accept his recollection that he sent the letter directly to the Bank for Mr Shackleton's attention. The faxed original then remained in his file, until just before 21 December, when as the evidence later reveals, Mr Steinberg requested a copy of the letter that Mr Stubbs had already sent. 122I infer from its contents that the 22 November letter was prepared when Mr Stubbs had only been newly appointed as an accountant "for Craig and Patrick Smith". It does not convey that Mr Stubbs was giving accounting advice to Denise or Nadine. He did not advise either Denise or Nadine. It accurately set out the limits of Mr Stubbs' involvement thus far: "to date I have not studied the financials for the purchase of the company, it seems that the business may be viable". This was a clear statement that Mr Stubbs was not then in a position to advise any of the Smiths about the future viability of this business. Importantly the letter invited the Bank to whom it was addressed to contact Mr Stubbs if "you have any further queries in relation to this matter". Mr Stubbs made clear that a communication from the Bank to make contact with him to resolve the Bank's remaining queries would not be unwelcome. 123Mr Stubbs was firm about the limitations in what he was communicating to the bank in this letter. Although what the letter conveys to the Bank must be assessed objectively, Mr Stubbs' subjective assessment of what he was communicating through it coincides with an objective view. He was ably cross-examined by Mr Price, the Bank's counsel, but remained firm in his evidence about this letter and his actual advice - evidence which I accept. Mr Stubbs only provides taxation services, as his letterhead implies. He is a chartered tax adviser and is a member of the Taxation Institute of Australia. He said that the only "general procedures" referred to in the letter that he discussed with Craig or Patrick were "tax procedures" and that he did not give general advice about the merits of the purchase contract. He said that he only gave tax advice as to the company structure that Craig and Patrick were proposing. He did not provide any services beyond tax services and in my assessment, read as a whole, his letter did not imply that he did. 124The 22 November letter also implies that Mr Stubbs has not done any due diligence on the financials in the vendor's business. The letter shows that no steps had been taken by then to fulfil that condition precedent in Mr Shackleton's Credit Memorandum. Mr Stubbs arranged for the incorporation of Statewide. Craig became the sole director and company secretary, and Craig and Patrick became shareholders, each holding 90,000 shares. 125Had the Bank given any consideration in mid-December to whether that condition precedent had been or might be fulfilled, the 22 November letter was a powerful reminder to the Bank that nothing in the nature of due diligence on the vendor had been done by late November by the only accountant then known to be associated with Statewide. 126Mr Stubbs did not see the 16 December draft contract or the Business Sale contract or the Equipment Sale contract pursuant to which Statewide acquired Tele-handlers' stock and business. They were of course not available when he wrote his 22 November letter to the Bank. But even after that and before 23 December, Craig did not get any business or financial advice from Mr Stubbs, who I accept did not hold himself out as competent to give such advice. I accept as correct Mr Stubbs' denial that Craig and Patrick asked him for his opinion on the viability of the business that they were proposing to acquire. 127Craig received the Slattery's Auctions valuation shortly after 23 November, valuing 15 units at $1,140,000, and $856,000 on a forced sale basis. I accept that Craig was concerned that the valuations would not support his planned borrowing, and tried to persuade Mr Provenzale to lower his asking price below $2,000,000. Mr Steinberg expressed the view that "Claude's [Mr Provenzale] is not going to budge". Even when Craig rang Mr Provenzale directly he would not lower his price. This episode shows once again that Craig thought Mr Steinberg could be asked to act in obtaining the finance and effecting the Statewide transaction in Craig's interest. It is difficult to see how Craig could have seen Mr Steinberg and GHS Financial as the Bank's agent rather than his. 128The Bank had required that $200,000 be placed into the Statewide's new business after the purchase, as working capital. Patrick and Nadine were to be the source of this sum. But this was reduced at the time of a supplementary Credit Memorandum to $180,000 to be paid into Craig's account with the Bank. The reduction was to take into account the professional fees the Smiths had by then already incurred. The Supplementary Credit Memorandum 129Mr Shackleton prepared a supplementary credit memorandum for Mr Coupe's approval. The Supplementary Credit Memorandum showed a weakening of the Smiths' application due to the poor results of the equipment valuations from Slattery's Auctions. And the Supplementary Memorandum commented on the fact that the Slattery's Auctions valuation (recorded here curiously at $1,270,000) was well below the contract for sale equipment figure, as follows: "While the overall position for application has weakened due to the Asset finance valuations showing a lower valuation that the contract of sale. However the cashflows of the business have not weakened and infact R/m has confirmed that the Business for the month of Oct 2004 were @ $170k v's the $92k projected in the original CFB. Pricing for deal will reflect changed position with R/M to discuss with leasing appropriate margin. Plus no discount on BMIOL rates. R/M has found in the 2 months since being introduced to these clients that they are trustworthy & honest and have the full support of the R/M into this transaction." 130Mr Stubbs must also have spoken to Mr Shackleton the operation of proposed reporting covenants, as the Supplementary Credit Memorandum refers to such contact having taken place. But it was not a conversation that touched on due diligence on the vendor's financial statements. No Bank officer received from Mr Stubbs any indication that he had done such due diligence or that it had been done by others. 131Interestingly the Supplementary Credit Memorandum returned to the question of the need for satisfaction of the conditions precedent, saying: "Recommend approval of memo subject to eBL being updated & outstanding precedent being completed being; 1....Letter from Account[ant] regarding due diligence 2....All parties to transaction (Directors & Guarantors) to have completed Financial Advisors Certificate 3....Formation Balance Sheet in State-wide 4....Business Insurance policy with NAB noted as interested party to be held prior to settelement." Involvement of Mr Ronis - Late November 2004 132Craig's initial account of the Statewide transaction and of proceeding to sign the Bank's security documents in mid-December 2004 omits reference to the solicitor Mr Ronis. But Mr Ronis witnessed these documents and Craig engaged him to act as solicitor on the purchase of the Telehandlers' business. The solicitors for the vendor sent a draft contract for the sale of the equipment and business to Mr Ronis on 30 November. On 7 December the solicitor for Telehandlers provided information to Mr Ronis about Newtral and updated the equipment purchase list to 17 items. 133When it was put to Craig in cross-examination that he had requested Mr Ronis "to give advice to your wife and your parents in relation to the effect of the guarantees they were to execute", Craig said that "I asked him to check the documents and make sure they were OK for us". Mr Ronis later certified that he had explained the legal effect of the guarantees to Denise and Craig. He was not called in evidence. To the extent that Craig and Denise suggested in their evidence that they did not understand the legal nature of the transaction they were entering I do not accept their evidence. They did at other times admit sufficient understanding of their guarantees and the mortgage over their Oyster Bay property. And in the absence of any account from Mr Ronis, their evidence of the limits of what he had advised them was an unsatisfactory part of their evidence. In my view, Mr Ronis is likely to have conveyed to Craig and Denise the legal effect of all the Statewide transaction documents. The Guarantor Warnings - 16 December 2004 134These reasons have already set out the loan agreements, guarantees and mortgages and sale agreements that Smith family members all signed on 16 and 23 December 2004: see above under "Overview of the Principal Uncontested Facts". But a number of warnings and legal advice certificates were included in those instruments and they are set out in more detail here. 135The Bank's guarantee documents contained warnings in two places. The front page of the Fixed Loan Guarantee included the following notice ("the Front Page Warning"): Warning! Please Read! You should independent legal and financial advice on the effect of this guarantee and indemnity before you agree to sign it. You can refuse this guarantee and indemnity. There are financial risks involved in signing this guarantee and indemnity (for example, it may become necessary for you to sell your assets so that you can pay us). You have the right to limit your liability under this guarantee and indemnity in accordance with the Code of Banking Practice (if it applies to this guarantee and indemnity) and as allowed by law. You can request information about credit contract or other facility or financial obligation to be guaranteed (including any existing credit contract, facility or financial obligation with us to be refinanced by the new credit contract, facility or financial obligation). This guarantee and indemnity applies in relation to future credit contract or other facility of financial obligation to the extent it is within a limit previously agreed by you in writing. Otherwise this guarantee and indemnity only applies to a future credit contract or other facility or financial obligation if we give you a copy of the relevant contract document and subsequently obtain you written acceptance of the extension of the guarantee and indemnity in this regard. This Guarantee and Indemnity is an important document. By signing it you become personally responsible instead of, or as well as, the customer up to the amounts described in the details, even if you have given the Bank separate facility. They include amounts, which the customer owes the Bank with any other person. They may also include amounts, which may increase, for example if the customer has borrowed in a foreign currency or seeks to repay a fixed rate loan early. In addition you can become responsible for additional amounts up to maximum liability. It is likely that the Bank will be able to resort to any mortgage or other security which the Bank holds or which you give the Bank in relation to your own affairs as security for the amounts covered by this document. If you are an individual this would include any mortgage over your family home." 136The Fixed Loan Guarantee included a separate final execution page for each guarantor. Above the execution blocks on each of those pages the following text appeared ("the Execution Page Warning"): IMORTANT BEFORE YOU SIGN THINGS YOU MUST KNOW READ THE GUARANTEE AND INDEMNITY AND THE TERMS RELATING TO THE CREDIT CONTRACT OR OTHER FACILITY OR FINANCIAL OBLIGATION TO BE GURANTEED Understand that, by signing this guarantee and indemnity, you may become personally responsible instead of, or as well as, the debtor to pay the amounts which the debtor owes and our expenses in enforcing the guarantee and indemnity. You should obtain independent legal and financial advice. If the debtor does not pay you must pay. This could mean you lose everything you own including your home. You should make your own enquiries about the credit worthiness, financial position and honestly of the debtor. You may be able to withdraw from this guarantee and indemnity or limit your liability. Ask your legal adviser about this before you sign this guarantee and indemnity. This guarantee and indemnity applied in relation to a future credit contract or other facility or financial obligation to the extent it is within the limit previously agreed by you in writing. Otherwise this guarantee and indemnity only applies to a future credit contract or other facility or financial obligation if we give you a copy of the relevant contract document and subsequently obtain your written acceptance of the extension of the guarantee and indemnity in this regard. 137The Equipment Loan Goods Mortgage agreements signed on 16 and 23 December 2004 also had a warning on the front page and on the execution page for each guarantor. Those warnings were in substantially the same terms as the Front Page Warning and the Execution Page Warning. 138The later 2006 Guarantees also included warnings substantially in the form of the Front Page Warning and the Execution Page Warning. The Legal Advice Acknowledgments and Certificates - 16 and 23 December 2004 139After the guarantor warnings each execution page of the Fixed Loan Guarantee included the following text above an execution block for a solicitor ("the Legal Advice Certificate"): "Use a separate section for each guarantor (Certificate from guarantor's solicitor required for each individual in all States and Territories unless Bank approval granted to accept guarantor's certificate.) Certificate from guarantor's solicitor I certify that I am a legal practitioner instructed and employed by this guarantor independently of the Bank. I certify that I explained the effect of this guarantee to the guarantor who appeared to be aware of and to understand the nature and effect of the obligations of the guarantor under the guarantee and indemnity, and executed it in my presence." 140The following text was included on the same page as the Legal Advice Certificate, between the signature block for the guarantor and the signature block for the witness: "in the presence of the guarantor's solicitor or bank officer. (To be witnessed below by the solicitor who signs the solicitor's certificate or bank officer who witnesses the signature on the certificate by the guarantor.)" 141On 16 December 2004 Craig, Denise, Patrick and Nadine each signed a separate execution page of the Fixed Loan Guarantee. Mr Peter Ronis signed as the witness to the signature of each guarantor. He also signed the Legal Advice Certificates for each family member. 142On 16 December 2004 each guarantor also signed a separate document titled "Statutory Declaration - Guarantee and Indemnity" ("the 16 December Declarations") which read: "I,.......................................................................................(declarant) of do solemnly and sincerely declare that: 1.I am the Guarantor named in the Guarantee and Indemnity in favour of National Australia Bank Limited ABN 12 004 044 937 (lender) on account of the liabilities of ...............................................................................................................................................(borrower) 2.I have received independent legal advice regarding the Guarantee and Indemnity, 3.After receiving that advice I have freely and voluntarily signed the Guarantee and Indemnity. AND I MAKE THIS SOLEMN DECLARATION conscientiously believing it to be true, and by virtue of the provisions of the Oaths Act 1900." 143Mr Ronis witnessed the guarantor's signature on each of the 16 December Declarations. Craig and Denise were honest people. They would not have signed these declarations unless they had received legal advice from Mr Ronis about the effect of the guarantee and indemnity he subject of these declarations. 144The execution pages of each of the 16 December Equipment Loan and the 23 December Equipment Loan, which contained the 16 December Equipment Guarantees and the 23 December Equipment Guarantees, did not include an equivalent of the Legal Advice Certificate. But they did include the following acknowledgment on top of each guarantor's execution page: Important Acknowledgment By signing this Equipment Loan and Goods Mortgage the guarantor: agrees to be by the guarantee and indemnity in Part E and all other provisions of this Equipment Loan and Goods Mortgage relevant to that guarantee and indemnity. declares that its attention has been drawn to the warning set out on the front page of the Equipment Loan and Goods Mortgage and above, and in particular that recommendation that a legal and financial advice should be obtained before signing this Equipment Loan and Goods Mortgage. declares that it has obtained legal and financial advice as necessary or of it has not obtained such advice, declares that it does not regard any such advice as necessary and proceeds without it. declares that it is fully aware of the nature of, and risks in signing this Equipment Loan and Goods Mortgage and is signing it voluntarily. 145On 16 December 2004 Craig, Denise, Patrick and Nadine all signed a separate execution page of the 16 December Equipment Guarantee. Their signatures were witnessed by Mr Peter Ronis, who was described as "solicitor". 146On 23 December 2004 when executing the 23 December Equipment Guarantee Craig, Denise, Patrick and Nadine again signed a separate execution page. But this time their signatures were witnessed by Mr Allan Shackleton, Mr Ronis was not present on this second signing occasion. 147A certificate substantially in the form of the Legal Advice Certificate was also included on the execution pages of the 2006 Guarantees. But each of those certificates was crossed out and not signed. The rationale for this was that this time the guarantors' signatures were again witnessed by Bank officers and not by a solicitor. Nadine and Denise signed on 23 January 2006 in the presence of Mr Mark Donovan. Craig and Patrick signed the next day, 24 January 2006, before Michelle Karanikas, a Bank officer. 148But on 23 and 24 January 2006 each Craig, Denise, Patrick and Nadine signed before Mr Donovan and Ms Karanikas respectively a document titled "Legal Advice Waiver form Guarantor/s" ("the 2006 Advice Waiver"), which read: "The National has drawn my/our attention to the warning printed on the cover of the Guarantee and Indemnity/Consumer Guarantee, and in particular the recommendation that legal and financial advice should be obtained before signing it, I/We am/are satisfied that I/we am/are fully aware of the nature of the document and of the risks associated with signing it. I/We do not regard the legal or financial advice as necessary and I/we prefer to proceed without it. I/We declare that I/we am/are executing this Guarantee and Indemnity/Consumer Guarantee voluntarily." Mr Stubbs Sends the LT Services Letter to Mr Steinberg - 21 December. 149I accept Mr Stubbs' evidence that it was Mr Steinberg, not Craig or Patrick, who asked him to send the LT Services 22 November letter. Shortly before 21 December, and before the 2004 Christmas holiday period was to commence, Mr Steinberg asked Mr Stubbs to provide a Financial Advisor's Certificate for the Bank, saying to Mr Stubbs: "I need this done urgently. Trying to get a deal through as quick as possible". I further accept Mr Stubbs' evidence that Mr Steinberg knew at that time that Mr Stubbs was going away holidays and it seemed necessary for Mr Steinberg's purposes that the certificate be obtained before Mr Stubbs left for his planned vacation. I accept Mr Stubbs' evidence that he said to Mr Steinberg "I can't do the financial adviser certificate". So Mr Steinberg asked him "could you do a letter". He agreed to send through the 22 November letter that he had already done. That explains why the 22 November letter was re-sent to Mr Steinberg on 21 December. I accept Mr Stubbs' evidence that he then faxed it to Mr Steinberg at GHS Financial on 21 December, the date of the facsimile transmission for the letter. Mr Stubbs' facsimile cover sheet for the transmission to Mr Steinberg says, "Please find enclosed...copy of letter re business as requested". 150Mr Steinberg must have been disappointed with the 22 November letter. Given its clearly articulated limitations, I infer Mr Steinberg appreciated it was unlikely to satisfy the Bank and probably did not send it on to the Bank on or shortly after 21 December. Another certificate was needed. The Financial Advisor's Certificates - received 23 December 2004 151The Bank alleges that each Craig, Denise, Patrick and Nadine received financial advice in relation to the Statewide transaction in conformity with the Bank's transaction requirement that such advice be given. To support this contention the Bank relied on two undated LT Services certificates (one certificate given in respect of Craig and Denise and the other for Patrick and Nadine). Mr Stubbs appears to have signed both these certificates. But I accept Mr Stubbs' denial that the signatures are his. And I accept Craig's evidence that he did not forge Mr Stubbs' name on these certificates. 152The exact form of the certificates. The Bank says GHS Financial sent it both certificates by facsimile on 23 December 2004. The original certificates that the Bank received by fax, and which were probably printed out at the time, were not available by the time of the hearing of the proceedings. Their whereabouts is unknown. Despite the lack of any physical evidence of the original faxed certificates the Court accepts the Bank's evidence that it did receive them on 23 December, as it claims it did. The Bank acted consistently with the terms of its own loan approval and would not have allowed the transaction to be completed without the receipt of these certificates. 153The Bank produced a copy of the 23 December facsimile to it, printed on yellow paper, as part of its discovery. That copy included 3 pages: a cover page and two copies of a document entitled "Financial Advisor's Certificate". One certificate was filled out in respect of Craig and Denise and the other one referred to Patrick and Nadine. 154The Financial Advisor's Certificate in relation to Craig and Denise identified at the top the "Borrower" as Statewide and Craig and Denise as the "Guarantor" and gave the address of the Oyster Bay property as the "Property". The Certificate then continued as follows: "I advise that on........................................200.....: 1. I reviewed and perused: a)Facility letter dated 15 December, 2004 issued by that Bank to the Borrower and signed and accepted by the Borrower as amended varied or modified with the consent of the Bank; b)- Mortgage Debenture - Guarantee & Indemnity - Supported - Home Mortgage (collectively called the Documents). 2.I explained the financial aspects of the documents to Craig Trevor Smith and Denise Vitali-Smith. 3.As far as I can determine Craig Trevor Smith and Denise Vitali-Smith understood my explanation of the financial aspects of the Documents, and in particular, the financial implications of the Mortgage of the property known as [the Oyster Bay property] and the provision of financial accommodation to and the financial circumstances of the Borrower not repaying the financial accommodation." 155Beneath these typed words in each LT Services certificate was some space immediately below which appears the words "Advisor's Name" and "Advisor's Signature". An indecipherable signature appears above the words "Advisor's Signature". 156The Advisor's Name and an address block were filled out in handwriting. Against the words Adviser's Name, the handwritten words "Geoffrey Stubbs" appear. The address block has the instruction "Advisor's Address and Qualifications (to be certified practising Accountant or Chartered Accountant)". Written in handwriting above the instruction is "80 - 82 Bathurst Street, Liverpool" and on the next line "AASA." The letters AASA were the only letters corresponding to any type of professional qualification within the address block. 157The certificate in relation to Patrick and Nadine was in identical terms to that for Denise and Craig, save that Patrick and Nadine's names appeared instead in the numbered paragraphs 2 and 3, and the Sylvania Waters property was instead described in paragraph 3. Although these reasons do not analyse the certificate for Patrick and Nadine separately, the deficiencies identified below in respect of Craig and Denise's certificate were replicated in the other certificate. 158The first line of each certificate required a date to be inserted. This space was left blank on both certificates, just as it appears above in these reasons. 159I accept that the form in which the Bank had the LT Services certificates before the Statewide transaction was completed was the form attached to Mr Shackleton's 15 October 2012 affidavit (exhibit AS 1 - pp173 - 175) (the Shackleton version). Because of internal deficiencies in the Bank's documentation I have considerable hesitation in drawing this inference. The Shackleton version is a three page document with a GHS Financial facsimile cover sheet followed by two financial adviser's certificates: the first certificate is for Patrick and Nadine, the second certificate is for Craig and Denise. But the three facsimile pages were clearly not sent by facsimile in that order. The facsimile transmission markings on the certificate for Craig and Denise show that their certificate did follow the coversheet at about 2:36 PM on 23 December 2004 just before finalisation of the transaction. But the certificate for Patrick and Nadine does not bear facsimile transmission markings consistent with it being sent in the same facsimile. Perhaps it was sent later or earlier: it is difficult to tell. But the fundamentals do show a transmission from GHS Financial on that afternoon and Mr Shackleton was generally reliable witness, who says he had the documents in this form. Mr Steinberg said that he only had one certificate: that of Craig and Denise. But Mr Steinberg was a less reliable witness than Mr Shackleton and his account does not cast doubt on what Mr Shackleton says about the number of certificates that were available before the transaction. 160The LT Services certificates were essential. The Statewide financing transaction would not have settled on 23 December 2004 without the LT Services certificates. I accept Mr Shackleton's evidence that the LT Services certificates were essential to settlement: he conceded that the certificates were "to ensure that the Smiths were fully seized of the risks of the transaction" and that they were "for the benefit of both the Smiths and the Bank". 161The Bank's senior officer, Mr Coupe, was a thoughtful and serious-minded witness. He had decided to require such a certificate as evidence that Craig and Denise had obtained financial advice before their entry into the transaction. Like Mr Coupe, Mr Shackleton had recommended that all parties involved in the transaction seek both financial and legal advice: he had recommended in his supplementary memorandum "all parties to the transaction, and directors and guarantors, to have completed a financial adviser's certificate". And Mr Shackleton accepted that obtaining financial advisers certificates was "both a mandatory and significant element of Mr Coupe's approval of this transaction". The Bank should be taken at its word as requiring this condition to be fulfilled: its imposition of this requirement is a further basis to infer that it would not have proceeded in the transaction without such a certificate. 162Based on Mr Shackleton's lack of recollection of having seen the original LT Services certificates, Craig and Denise submit that the certificates must not have been provided to the Bank at all. But Mr Shackleton did not strike the Court as a reckless banker and I regard this inference as quite improbable. 163Curiously, none of the Smiths were ever told about the Bank's imposition of this financial advice condition or the basis for it. Although the Bank was convinced of its importance, and the requirement was communicated to Mr Steinberg, I accept Craig's evidence that Mr Steinberg did not tell him about the need to obtain independent financial advice or that such advice was essential to the transaction going ahead. I accept Craig's evidence that he only first became aware of the certificates when he was served with evidence in these proceedings in 2011. 164Mr Steinberg's version rejected. This conclusion necessarily involves a rejection of Mr Steinberg's account of how the certificates came to be signed and brought to him. 165It is no longer necessary to decide who forged Mr Stubbs' signature on the LT Services certificates. There was an active debate in the proceedings between Craig and Mr Steinberg about which of them was responsible for placing Mr Stubbs' signature on the documents, if Mr Stubbs's evidence were accepted (which the Court has now accepted) that he did not sign them. This debate has become less important, although not entirely academic, after the settlement of all claims involving Mr Steinberg. It is not necessary for the determination of the remaining issues in these proceedings for the Court to find exactly who did forge Mr Stubbs' signature on the certificates. But the Court finds that neither Mr Smith nor Mr Shackleton signed these certificates in Mr Stubbs' name. It is probable that they were signed by someone when the documents were under Mr Steinberg's control. 166The residue of the Stubbs - Smith - Steinberg contest justifies these conclusions. Mr Steinberg's final version (and there had been earlier different versions) of events surrounding the execution and transmission of the LT Services certificates was that sometime in the week of 16 to 23 December 2004 Craig brought unsigned Financial Adviser's certificates into his office and he told Craig to go and see Mr Stubbs to have them signed. He says that Craig brought back signed, and that he Mr Steinberg, filled out the address block on the certificates which Mr Stubbs had apparently left blank. Mr Steinberg then faxed the certificates off to the Bank. 167I do not accept this account. Mr Steinberg's evidence was not convincing and it has inherent improbabilities. Why on this version Mr Stubbs would sign the LT Services certificates but not fill out the address block opposite the signature is a mystery. Mr Steinberg could not give a coherent account of a critical step in the sequence: Craig bringing the signed certificates back to him. All that Mr Steinberg could say is that the signed certificates were dropped into his office when he was out and that an employee had drawn to his attention that Craig had dropped them in. Mr Steinberg could not remember who that employee was and Mr Steinberg's diary seem to indicate to him that Mr Stubbs was away at the time. If Mr Steinberg's final version was correct it must have been very difficult for him to comprehend how any certificate came to be signed by Mr Stubbs at this time. Moreover Mr Steinberg's final version, which admits adding words to the address block of the LT Services certificates, is quite different from an earlier version in his 7 September 2011 affidavit that after Craig's certificate was returned to him by Craig, "I simply faxed the document to NAB". Yet another version was propounded by Mr Steinberg's counsel on instructions on the fourth day of a hearing. None of his evidence on this subject bears the hallmark of consistency. But I do accept that Mr Steinberg faxed both LT Services certificates to the Bank on the afternoon of 23 December. And I accept that he was the author of the "AASA" reference in them: the Court is not confident that he obtained this qualification from an old business card of Mr Stubbs. But his use of AASA is just the result that could have been expected when a person without any specialized accounting knowledge attempts to describe accounting qualifications. 168Deficiencies in the certificates. But although the Bank received the LT Services certificates before the transaction, the certificates bore a cluster of prominent deficiencies. In the face of such deficiencies the Bank could not reasonably, in my view, have accepted the certificates in satisfaction of the Bank's financial advice requirement. The LT Services certificates transmitted to the Bank: lacked a date for the advice given; contained inaccurate information; and claimed obsolete qualifications of the adviser. The peculiarities of the certificates strongly suggested that they had been prepared by someone other than a licenced financial adviser with current accounting qualifications. The LT Services certificates would prompt any reasonable reader (whether within the Bank or elsewhere) to verify their authenticity and accuracy directly with Mr Stubbs. 169The LT Services certificates did not display the date on which the advice had been given to the various Smith parties. The standard form of certificate provided space for a date to be stated. Providing for the entry of the date of advice imposes a very basic prudential discipline: it ensures that the financial adviser who certifies can identify a particular occasion on which advice was given and that such a date is before the transaction in question. Mr Shackleton regarded its absence as "a significant omission". A lender scrutinizing the LT Services certificates is left in doubt whether the certifying financial adviser: has apparently forgotten the date of the advice or otherwise inexplicably failed to record the date of the advice, or had perhaps not given any advice at all. It was unclear on the face of the LT Services certificates, which of those possibilities was the fact. The Bank risked that the last possibility may be the truth, unless it made further inquiry of Mr Stubbs. This inference is all the stronger when the omission occurred on two certificates, prompting the question: how could Mr Stubbs have made these mistakes twice? The other deficiencies of the LT Services certificates engender a natural sense of unease about the authenticity of these certificates. 170The LT Services certificates bore the wrong date for the Bank's letter of offer. It declared that the "letter of offer" was dated "15 December 2004". The relevant letter of offer to Craig and Denise was in fact dated 16 December or 23 December 2004. This mistake suggests to the reader that LT Services either did not have the actual letter of offer before it when it gave the advice it was certifying, or it had made a potentially serious mistake and was giving advice about a different document, or it had made a typing error. Further enquiry was needed to determine which of those was correct. Without that inquiry the Bank could not reliably infer that an LT Services financial adviser had advised the Smiths about the correct documentation and was accepting the risk that it had not so advised. 171But the 15 December 2004 date in the certificates points to deeper problems. By the time the certificates had been faxed to the Bank the Statewide transaction documents proposed to be executed were those dated 23 December and they represented a purchase transaction with a different structure (including the purchase from a new entity Newtral) to that which had obtained on 16 December and they involved higher gross borrowings. The LT Services certificates did not indicate to the Bank that any of the Smiths had obtained advice about the latest, 23 December, transaction documents. Indeed the Bank was well aware of the late production of the final version of the transaction documents and must have appreciated that the Smiths squeezing in genuinely up-to-date financial advice about the final edition of the transaction documents was always going to be difficult. The LT Services certificates were really communicating to any bank that was alert to what they said that the Smiths had not received financial advice on the final form of the Statewide transaction documents. The bank did not enquire whether any advice that Mr Stubbs had given in respect of an earlier mid-December version of the documents was likely to be useful advice applicable to the final version. Without such enquiry directly to Mr Stubbs the reasonable working assumption for the Bank to make in going into this transaction was that the bank's own pre-transaction requirement that financial advice be given to the Smiths about the transaction documents proposed to be executed, had not been fulfilled. 172The LT Services Certificate gives the qualification "AASA" to Mr Stubbs. All parties accepted that in 2004 this was not a valid accounting or financial advisory qualification. The AASA is an old accounting qualification that had been superceded by the CPA accounting qualification long before 2004. The Bank had expressly asked in the printed form of the certificate for the financial adviser to have a chartered accountant or CPA qualification, no doubt to ensure the competence of the advice. The description "AASA" should have immediately indicated to the Bank that the author of the LT Services certificate: either had forgotten that his CPA qualification had long ago replaced his AASA qualification and had made that obsolete entry out of habit, or that the author of the LT Services certificate was unfamiliar with the AASA's replacement by CPA. The second of these possibilities was never excluded and represented an indicator of either gross incompetence or fraud. This potentially significant irregularity in the giving of the LT Service certificates should have been followed up with Mr Stubbs. It was not. At a basic level the certificates actually provided did not answer the question which the Bank had posed: that a person with CPA or chartered accountant qualifications must give such a certificate as evidence that competent financial advice had been given 173As a footnote to this analysis, Mr Stubbs sent the LT Services letter of 22 November 2004, on LT Services letterhead through to the Bank shortly after that date. I accept Mr Stubbs' evidence that he sent it to GHS Financial on 21 December. One further oddity of the LT Services certificates is that unlike the 22 November letter they were not on or with LT Services letterhead. I accept Mr Steinberg's evidence that the form of the certificates was a standard form that the NAB gave him to be used for this purpose. But even allowing for this, there was nothing on the two standard form certificates other than a bare handwritten address and an obsolete accounting qualification to indicate that Mr Stubbs was operating an accounting practice at that time. On its own this would not have been sufficient to the Bank on notice that the certificates were suspicious. But any process of preliminary analysis of the deficient LT Services certificates would reasonably have involved checking the Banks file to look at whether there was anything else from Mr Stubbs. That would in turn have shown Mr Stubbs had committed himself on LT Services letterhead as the prior occasion, but not this time - a further puzzle. The Signing and Settlement on 23 December 2004 174Craig's evidence is not very reliable when giving an account of what happened when the facility documents were signed on 23 December. He says Mr Shackleton and his assistant told him and the other family members present to "Sign here", with no explanation of what they were signing being offered or given to them. 175But the result of the signing on 23 December and of whatever Mr Ronis had said to them before 16 December was that both Craig and Denise both understood that they were signing guarantees and that their guarantee obligations were secured to the Bank by the mortgages they had signed over their Oyster Bay property. They both well understood what Statewide was borrowing from the Bank. 176On 23 December Statewide exchanged the Business Sale Contract with Telehandlers for a consideration of $400,000 and exchanged the Equipment Sale Contract with Newtral for $1,600,000. The facilities the Bank provided to Statewide were drawn down on 10 January 2005, when the sale agreements settled. At the time of settlement Telehandlers had two asset finance facilities over two of the items of equipment sold to Statewide. The total debt on these facilities of $138,732.24 was repaid to the Bank on settlement. Newtral did not have any facilities with the Bank. 177After settlement the Bank reported to Statewide as to the application of the funds advanced. On 19 January 2005 Mr Shackleton sent Statewide a letter including the following summary of the payments made out of the moneys drawn down under the 23 December Equipment Loan: "Disbursements · Newtral Pty Ltd $1,426,968.82 · Esanda Finanace Corporation Limited* $ 194,298.94 · National Australia Bank Account 54-281-0868* $82,484.16 · National Australia Bank Account 54-086-8409* $56,248.08 · Fees & charges as per contract $7,558.00 Total $1,767,558.00 *Payout of vendors finance on equipment" Craig and Patrick Operate the Business - 2005 178When he took over the business Craig soon realised that his business plan had not taken account of a number of business costs, including: transportation costs (incurred at the end of a hiring); public liability insurance of $1 million plus for each unit; servicing and post-hire maintenance costs; and the cost of certifying equipment attachments as fit for use on each Telehandler vehicle, such as bucket scoops on forklifts. 179Craig continued to discuss the performance of the business with Mr Steinberg, who advised purchasing more equipment and offered to arrange further finance for that purpose, if Craig needed it. Over the life of the business Mr Steinberg did arrange further funding for Statewide to acquire additional equipment, funding from Capital Finance Pty Limited for a $117,360 telescopic fork; from Reliance for a $30,000 car and from Westpac for a forklift. 180Craig also shared his growing concerns about the performance of the business with Mr Donovan, who he met regularly in a coffee shop near the Bank's Bankstown branch office. Craig began complaining about the fact that there was no cash surplus after deduction of the Bank's finance charges and the costs of the business. But between them Craig and Patrick managed Statewide in conformity with the terms of the 23 December Equipment Loan and the Fixed Rate Loan. The January 2006 Overdraft 181By late 2005 Craig needed more working capital to provide a financial buffer to meet the business costs that could not be met out of recurrent cashflow. He had an immediate need of cash to repair some of the vehicles of the business so they could generate revenue and he was facing high cross-hire costs. He gave up to date financial information about the business to Mr Steinberg. 182In November 2005 Statewide sought an overdraft of $150,000, and on 2 December 2005 Mr Donovan submitted a Credit Memorandum to Mr Coupe in respect of the application. Mr Coupe sought more information, which Statewide provided on 16 December. Craig engaged Mr McNamara to assist him to respond to the Bank's queries. Statewide's 16 December 2005 letter complained of negative cash flow and net profit before tax for the first 9 months of operations that was about half what had been expected. 183On 12 and 13 January 2006 Mr Coupe approved an overdraft of $100,000 and approved renewal of the Fixed Rate Loan. 184The security documents for the Bank's January 2006 advances were signed by Patrick, Nadine and Denise on 23 January 2006 with Mr Donovan at Patrick and Nadine's house. But this facility and these securities would not have been entered into if the Smiths had not entered into the earlier facility. 185On 24 January 2006 Craig and the Bank executed a letter of offer containing the terms on which the Bank provided the overdraft and Craig also signed a guarantee of Statewide's overdraft obligations and what was by now the usual certificate acknowledging that his attention had been drawn to the warning that legal and financial advice be obtained before signing the guarantee, and that he was aware of the nature of the guarantee and the risks associated with it. 186But the Bank's advances only provided Statewide a short reprieve. Statewide defaulted on its obligations under the 23 December Equipment Loan and the Fixed Rate Loan. The Bank appointed a receiver to Statewide on 6 March 2007 and the company was deregistered on 3 May 2008. Craig and Denise Sell the Oyster Bay Property - August 2007 187Craig and Denise sold their Oyster Bay property in August 2007, because they saw it as the only way to obtain funds to at least partially pay out their outstanding obligations to the Bank. Even before formal demand was made for payment under their guarantees, Bank officers had suggested to them that selling the house was a practical way to reduce Statewide's obligations to the Bank. 188I accept that Craig and Denise thought in August 2007 that given the mounting debt, the need to stay within facility limits, and the urging of Mr Donovan and other of the Bank's officers, they had no choice but to sell. Their application of the sale proceeds to reduce Statewide's debt to the Bank is consistent with their holding this belief. They took control of the sale because they could see a mortgage sale looming and they thought they could get a better price themselves. This was not a voluntary sale: it came six months after the Bank appointed Ferrier Hodgson as receivers to Statewide's business. And it occurred whilst Ferrier Hodgson were planning the sale of the company's equipment, which was achieved six months later for $582,088. The Expert Evidence Expert Evidence on Banking Practice 189Craig and Denise allege that the Bank breached its obligations under the Banking Code of Conduct ("the Code") to "exercise the care and skill of a diligent and prudent banker" in forming its opinion about Statewide's "ability to repay" the loan for which it had applied. 190These reasons analyse below the nature of the Bank's obligations under the Code and the legal consequences of any Code non-compliance by the Bank. But to decide what, if any, non-compliance had occurred, it was necessary to establish: against what standard the Bank's conduct in assessing the application should be compared. To perform that task the Court was provided with the assistance of several experts. 191Three expert witnesses were called in relation to the standard of banking practice applicable to assessment of loan applications: Mr John Bartle (engaged by Craig), Mr John Brewster (engaged by Patrick and Nadine) and Mr Brian Soper (engaged by the Bank). Each of the experts prepared his own report. The experts met at an experts' conclave and produced a joint report. Their reports were tendered and all the experts gave concurrent oral evidence. 192The experts' joint report highlighted the distinction in the reports between the terms "prudent banking practice" and "accepted banking practice". The experts applied different terms to the opinions that they were providing. Mr Soper's instructions related to "accepted banking practice". He declined to comment whether the relevant conduct of the Bank was "prudent". But Mr Brewster's and Mr Bartle's instructions required them to opine on "prudent banking practice"; they did not comment on what was "accepted" banking practice. The use of the terms "prudent" banking practice and "accepted" banking practice reflects a difference between a legal standard and what bankers do in the market place. What standard of banking practice the Code speaks of is a question of construction of the Code. 193It seems to me that the Code means what it says in clause 25, that before offering a credit facility the Bank "will exercise the care and skill of a prudent banker", and that an objective contractual standard of prudent conduct is being set, one that may be incorporated into finance facilities. In these agreements this term imports a standard other than mere "accepted" practice, if what is "accepted practice" is not able to be described as prudent practice. For that reason the experts opinions that Mr Brewster and Mr Bartle provided were of more ultimate relevance to the Court's task. 194The joint report and the expert's oral evidence concentrated on four main issues: (1) whether, on the material available to it, the Bank should or should not have approved Statewide's loan application; (2) whether the Bank completed sufficient due diligence, including due diligence in relation to Newtral, to decide if the loan application should have been approved; (3) whether, on the material available to it, the Bank could have been satisfied that Statewide would be able to service the loan; and (4) what is the significance of the deficiencies in the form and the substance of the independent financial advisor certificates received by the Bank. 195The issues considered by the experts had to be assessed in light of the materials available to the Bank at the time of assessing the loan application. One of the live issues was whether some documents relevant to the experts' assessment existed at the time of the transaction but have since gone missing. The experts generally assumed that the documents, which were not given to them to consider had never existed. But some of Mr Soper's opinions and some of the questions asked of the experts in cross-examination allowed for the possibility that some relevant documents relied on by the Bank might have once been in the Bank's custody but had since been lost. 196(1) Granting the Finance Facilities. I accept the Bartle/Brewster opinion that it was imprudent for the Bank to have provided these finance facilities. They said that "if the Bank had complied with its own policies and conducted itself prudently....that would have resulted in the facilities not being provided". Mr Brewster said that the Bank failed to undertake sufficient analysis to understand the level of risk in this transaction, which had a higher level of risk than a normal banking transaction". Mr Brewster's opinion was based on the information contained in the Credit Memorandum. He said he expected, and I accept as prudent banking practice, that the Credit Memorandum was where all the relevant information about the loan should be found. That being so, all the relevant material should have been in the Credit Memorandum and there was therefore little basis for the Bank to suggest that documents that were now missing might have made a difference to the Brewster/Bartle experts' opinion on this subject. 197(2) The Bank's Due Diligence Prior to Approval of the Loan. Mr Brewster's opinion was that the Bank had merely inputted forecast figures into its Credit Memorandum financial model and failed to do any analysis as to what the figures were really indicating: what were the key assumptions behind the projections; were the assumptions valid; and were the assumptions justified against the historical performance of the company. Mr Soper added to the Bartle/Brewster view to the extent of saying that two years past signed statutory financial statements were not available and should have been available to the Bank for it to be acting prudently I granting these facilities. I accept these opinions. 198(3) Serviceability. The expert witnesses agreed that it could be inferred from the historical management accounts that Statewide would be unable to meet its principal and interest payments on the facility being offered. And Mr Soper thought that more work needed to be done to verify whether the cashflow forecasts were right. The principal problem was that the inference of serviceability depended on a 47 per cent increase in revenue that was evident only in the September quarter of 2004. But the author of the reporting for this very recent September quarter period (a period that had ended just over 2 weeks before the date of the Credit Memorandum) could not be verified. All the witnesses agreed that the trading for this three month period needed to be investigated further, because so much of the future loan serviceability depended on it. There is no evidence the Bank did such an investigation and that the results may have since been lost. I am not prepared to infer that such an investigation was done and is now lost. Not to do such an investigation did not confirm with prudent banking practice. 199(4) Newtral. All experts were of the view that proceeding with the loan in the absence of any financial information about Newtral, was not prudent banking practice. This was because the Bank needed to know the "full picture" as to the major capital asset being acquired in the transaction. Such further financial information would be useful for example in revealing the level of maintenance that the machinery required. I do not accept that the Bank obtained any financial information about Newtral. I accept neither Craig or Denise knew anything of Newtral's financial affairs. Mr Shackleton did not have financial information about Newtral. Mr Shackleton conceded this was not prudent banking practice. It was not prudent banking practice. 200(5) Original Financial Advisors Certificates. All the experts agreed that the Bank should have obtained the original LT Services financial advisors certificates. I accept these certificates were faxed to the Bank. But no originals were obtained. If they were obtained good banking practice would have been to keep them with the Credit Memorandum. It was found but they were not. The Bank's witnesses cannot say they obtained them. I infer they were never obtained. 201(6) Other Matters. The Bank failed to undertake other relevant steps that fell short of prudent banking practice. It failed: to obtain 2 or 3 year cashflows; to undertake a marking capital analysis; or, to undertake a goodwill analysis. Expert Evidence - Accounting 202Craig and Denise adduced expert accounting evidence that the loans were unserviceable and that that should have been obvious to the Bank. They relied on the evidence of Mr Tony Samuel. The Bank did not call any expert accounting evidence to answer Mr Samuel. 203I accept Mr Tony Samuel's expert evidence that it should have been apparent to the Bank in November 2004 that its loans to Statewide could not be serviced out of the revenues of the business to be acquired. Two aspects of his evidence, which I accept, weigh more heavily in the Court's consideration: (a)The historical financial information for Telehandlers indicates that Statewide would require $935,000 in revenue to break even, which was an increase of 28 per cent on Telehandlers income for FY04, which Mr Samuel regarded as "an unlikely outcome", and requiring further investigation. (b)The cashflow forecasts were "optimistic and unrealistic" in that it projected a 47 per cent increase in sales revenue despite the fact Statewide was a new company and existing management had only achieved growth of approximately 15 per cent. Witness Credibility Issues 204Comments about the credibility of the principal witnesses are made throughout these reasons. But some additional observations are made here. Craig Smith 205Craig was a mostly reliable witness. His answers were often punctuated by comments of "maybe" and "I don't recall", particularly when he was being asked about parts of contentious meetings and events leading up to 23 December 2004. This was not surprising given that at the time of trial he was speaking of events that were almost nine years old. But he was no worse in this respect than was Mr Shackleton, whose memory of the same meetings was also poor. Some of the core representations that Craig relied on I accept that Mr Shackleton made despite Mr Shackleton denials. 206The Bank attacked Craig's credibility. Craig wrongly asserted that Mr Donovan was present at a meeting on 8 October 2004 and had represented various things at that meeting. Craig's recollection of when the celebration dinner occurred is probably wrong. But these are matters of relatively minor detail that they did not impair Craig's overall credibility. Denise Smith 207Denise Smith was an excellent witness. Though a party with an interest in the outcome of the proceedings she gave short and direct answers to questions, and did not commit herself beyond the genuine limits of her memory. She made reasonable concessions when required. She accepted for example that she played no role in making the arrangements for the purchase of the business. She came across as a witness for whom the truth was her first choice. The Court accepts almost all her evidence. Patrick and Nadine Smith 208As Patrick and Nadine's proceedings against the Bank settled, their credibility became less significant than that of Craig and Denise. Patrick gave mixed evidence about his understanding of the transaction he was entering, some of which could be accepted but some of which could not. He was financially unsophisticated and in 2004 before his involvement in the Statewide transaction was trusting of bankers and other family members. He disclaimed any understanding of the guarantees he was signing or the relationship of guarantor that he was entering. I accept that he did not foresee that his property would be taken and sold by the Bank if Statewide defaulted on its obligations to the Bank. But like Craig and Denise he did have sufficient understanding of the transaction he was entering to appreciate that his and his wife's Sylvania Waters property was collateral for the Statewide's obligations to the Bank. Moreover, he recognised that there was a possibility that the Bank might sell his property. But he also thought that possibility was, as he said, "low risk". 209Patrick was prepared to exaggerate his ignorance of the significance of the guarantees he was signing. He said that he had no appreciation of what he was signing other than that the documents would "help Craig to get the loan". Looking in retrospect, he felt betrayed by others. He says that after the event he could see that 'they only wanted me for my signature" and that they wanted that signature because "I had collateral". But this is what he thought at the time too. He gave unsatisfactory answers about his understanding in 2004 of the meaning of terms such as "collateral" or "security" in relation to his house, which meant that the Court could not always rely on him to give direct and accurate evidence. 210But much of his evidence should be accepted. His account of not reading any of the documents he signed is genuine, as is his comment that all the documents, with their various warnings "looked the same to me". He did not look at the transaction documents. He was signing what he had to sign to assist his son, something he frankly confessed he was very ready to do. 211Patrick is not and never was an accountant. He did not present to the Court as a person with professional training. Mr Steinberg could not have genuinely mistaken Patrick for a professionally trained accountant. Mr Patrick Smith did minor tasks within the business once Statewide took over: assembling a demountable office, hosing down equipment and doing odd jobs around the yard. He advised his son about selling for Statewide the kind of equipment (sling and chains) that Patrick had previously sold at TJF but this was not financial advice: just fatherly assistance based on a life of hard, mainly manual, work. Mr Shackleton 212Mr Shackleton was the Bank's Relationship Manager for the Smiths and for Statewide. He became the principal Bank officer with whom the Smiths dealt in order to arrange the Statewide facility. The Smiths said he made representations to them about the good qualities of the Telehandlers business. He contested making many of these but to his credit, frankly admitted some and could not recall others. 213His evidence in cross-examination was often punctuated by pauses after questions, followed by answers in the nature of "I don't recall". He was at times a difficult witness to read. His "I don't recall"s did not conceal more knowledge than he wanted to reveal. Rather they were a simple lack of recollection and indicated weakness in his overall reliability. As a result, the Court has preferred other witnesses' evidence over Mr Shackleton's evidence. 214But Mr Shackleton was often a witness whose account could be accepted, about what he did clearly recall. His overall credibility was assisted by his willingness to make appropriate concessions. But where his recollection was vague his account added little to any reliable narrative of the past. Mr Coupe 215As a CD3 credit approving authority, Bank policy removed Mr Coupe from putting together the Statewide facility, which was the role for the Relationship Manager, Mr Shackleton. Mr Coupe's file entries and requests to Mr Shackleton for information about the Smith's application, show easy mastery of its strengths and weaknesses. He supported Mr Shackleton's views that the application would only be approved if strengthened by additional conditions, to ensure that all the Smiths received independent financial and legal advice. 216Mr Coupe gave a good account of himself and his decision making processes. In places his evidence is not to be accepted but not because he was trying to mislead the Court. As was the case with Mr Shackleton his evidence was much assisted by his willingness to make appropriate concessions when pressed in cross-examination. 217Mr Coupe no longer works for the Bank. His separation from the Bank had no connection with Statewide's facility or the events in contest in these proceedings. Mr Donovan 218Mr Shackleton ceased his role as the Smiths' Relationship Manager shortly after the Bank granted the Statewide facility in December 2004, when Mr Donovan assumed that role. Mr Donovan managed the Statewide Facility throughout 2005, when it threatened to fall into default. He constructed the $100,000 overdraft facility Mr Coupe approved in January 2006 to keep Statewide trading. Mr Donovan was a generally reliable witness, who was doing his best to recall events that were more than eight years old, when he was giving evidence. Mr Stubbs 219I accept Mr Stubbs as a witness of truth. The Bank challenged his credibility in part on the basis that he had denied having conversations with Mr Shackleton when a facsimile communication to him (Exhibit 3) dated 23 November 2004 suggests there was probably at least one telephone call of about that date between them. But that must have only been a brief call and could easily have been overlooked. Mr Stubbs had no interest in the outcome of these proceedings and impressed as a reliable witness, who did not give general financial advice to Craig or Patrick. Mr Grainger and the Equipment Valuations 220Mr Grainger played a subsidiary role in the Bank's assessment of the Statewide facility: reviewed the equipment valuations submitted by Slattery Auctions, which he thought were reasonable. He used the valuations to recommend to the Bank the 5 year term for the equipment finance. His opinion was that the equipment would sustain its value over that period sufficient to warrant that length of financial accommodation. 221Mr Grainger's credibility was barely challenged. He seemed to the Court to be competent and reliable. He threw no doubt upon the Slattery Auctions valuation, which all parties accepted at $1.15 million market value and $875,000 for a forced sale value. These valuations revealed a large gap between the price at which Statewide was financing the acquired plant ($1.6 million) and the plant's uncontested market value of $1.15 million. The parties' contests essentially accepted Mr Grainger's evidence and that of Slattery Auctions. Three Subsequent Issues 222The parties debated and the Court must consider, three issues subsequent to its primary findings before it considers what relief if any is appropriate in this case. The three areas are: (1) what would have happened if Denise and Craig had been given financial advice; (2) what inferences may be drawn about the Bank's missing files; and (3) was Mr Steinberg the Bank's agent. Some Counterfactuals 223The relief that both Craig and Denise seek on the cross claim requires Court to consider what would have happened on at least one alternative scenario, or counterfactual: what would have happened if Craig and Denise had been presented with financial advice that in substance identified to them the risks raised in the expert evidence called on their behalf (referred to in these reasons as "the hypothetical financial advice"). 224Based on Mr Price's cross examination on the subject the Bank says Denise would have done whatever her husband wanted and proceed with the transaction. I do not accept that is what would have occurred. 225The Court had ample opportunity to assess Denise's and Craig's characters in the witness box and to infer how they would have interacted in the face of the hypothetical financial advice. A Court should be cautious about attempting to predict the joint decision making of any married couple. But sometimes, and this case is an example, such analysis is required because of the relief that is sought. 226I conclude that the hypothetical financial advice would have stopped this transaction, largely because of Denise's influence. She was a counterfoil to her husband. Craig was an exuberant enthusiast in 2004 for acquiring the Telehandlers business. On his own he would have been inclined to ignore the hypothetical financial advice. He was more of a risk taker than his wife. He was focussed on his goal of acquiring and operating what he was convinced would be a profitable business; a conviction to a degree induced by the Bank's representations. 227Denise was more prudent than her husband. She impressed the Court as a woman of good judgment and where necessary firm resolve. She was quite prepared to indulge her husband's business ambitions to a degree for the sake of marital harmony. But she was not the kind of person who, informed by the hypothetical financial advice, would have consciously accepted any significant risk of losing her Oyster Bay home. She then had young children. She and Craig had purchased a home in which they had a small equity and in which she wished to stay. She seemed content with what she had. Given the hypothetical financial advice she would have refused to enter this transaction. 228Mr Price in cross-examination took Denise through the many documents that she had signed in December 2004 to give effect to the Statewide transaction and that she had subsequently signed in January 2006 for the later overdraft financing for Statewide. He often secured her frank agreement in the cross-examination that on each occasion she had signed "to assist Craig in acquiring the business" or that she knew that the Bank was relying upon her signing the documents "in agreeing to provide further money to Statewide". Mr Price also gained ready admissions from Denise that she had signed other documents at her husband's request, including a hire purchase agreement in June 2005 (Exhibit 15). This cross-examination founded Mr Price's final submission on behalf of the Bank that "on her evidence she would have done whatever Craig wanted". 229But the question with which the Court must now grapple requires it to consider how Denise would have reacted to advice far more confronting for her than any of the information that she had actually received before the Statewide transaction. The Court concludes that she would have refused to enter this transaction in December 2004 with the hypothetical financial advice, notwithstanding her complaisant attitude to proceeding in December 2004. Nor does her agreement to signing documents in January 2006 weigh heavily against her, because at that time Statewide was already in financial distress and she was trying to help bail her husband out of an existing emergency. 230There are other possible counterfactuals. But once Mr Coupe had imposed the condition of legal and financial advice on the Bank's financing of the transaction, the counterfactual just considered is the decisive one, as the Statewide transaction would certainly not have proceeded had the hypothetical financial advice been given. The Bank's Missing Files 231These proceedings were shadowed throughout by missing Bank files. Early on the Smiths took issue with the adequacy of the Bank's discovery. They sought by pre-trial motion to obtain further and better discovery. The Bank's response was that the files had once existed but were no longer in the Bank's possession. Davies J ordered the Bank to provide further discovery: National Australia Bank v Smith & Ors [2012] NSWSC 1121. 232By the time the trial started the Bank's affidavit evidence did not make clear what had happened to its missing files. The Bank's counsel, Mr Price submitted during the first week of the trial that these were "lost" files. But the then state of the Bank's evidence was so lacking in detail that did not really justify that description. The Smiths foreshadowed that on the strength of the Bank's existing evidence they would be making a closing submission that the files may have been deliberately destroyed. The Bank applied for and obtained leave to adduce additional evidence to explain what had happened to the files. It contended that no inference should be drawn against it from its non-production of the files. 233The issue of the Bank's missing files was not a principal fact in issue. In the end the only relevant question arising out of this dispute is what inference can be drawn about the Bank's conduct or about the existence of documents within the Bank's possession based on the state of the Bank's files. Rather than looking at the issue of "missing files" as a whole, these reasons focus on how the issue effects the inferences the Court will draw with respect to particular documents that the Bank now relies upon. There are only a limited number of these of real significance in the proceedings. And the inference that the Court would draw about each of them will differ. But some general findings about this dispute are still useful. The material is organised in this section of these reasons under the following sub-headings: (a)What documents are missing? (b)What searches were undertaken for those documents? (c)What inferences can be drawn about particular documents of significance? 234(a) What Documents are Missing? Craig and Denise claim that four documents of significance in these proceedings, which the Bank claims it once had in its possession, are now either missing or incomplete. The Bank concedes that these documents are either missing or incomplete as Craig and Denise claim. The question is what inferences should be drawn about these documents. 235First as to the missing documents, the Bank has not produced the original faxed copy of the LT Services (financial adviser's) certificates Mr Steinberg faxed to the Bank on 23 December 2004. Nor has the Bank produced any accountants' due diligence letter. The Bank claims that such a due diligence letter may once have been in its possession but that it has since been lost. The Bank does not have an accountant's due diligence letter although Mr Coupe's loan conditions specified that such a letter be obtained. The fact that it is missing is consistent: with it never being obtained, or with it being obtained but later being lost. The Bank's case (as its counsel Mr Price stated on 17 April 2013) is that a letter of due diligence was obtained from an independent accountant in accordance with Mr Coupe's approval but has since been lost. 236Second as to the significant incomplete documents, the forecast and projections that GHS Financial sent by facsimile to the Bank in October 2004. Parts of these documents are in evidence but other parts are missing. GHS Financial sent a forecast by facsimile to the Bank on 9 October 2004, which forecast Craig and Patrick signed on 11 November 2004 (later Exhibit A). Those forecasts are the second and third pages of a three page fax. Craig and Denise allege that the Bank has failed to produce the first of the three pages, the fax coversheet, which appears to be missing. The other missing documents are parts of cashflow projections that GHS Financial sent by facsimile to the Bank on 13 October 2004 and Craig and Patrick also signed on 11 November 2004 (later Exhibit B). These two pages of projections were pages 4 and 5 of what was originally a 15 page fax. The other 13 pages of the facsimile have never been accounted for. 237Finally, a number of other documents of lesser significance are missing. It is not necessary to list them all in these reasons but they are documents, like the ones referred to above, which, if they existed, would have been found, together with the four significant documents referred to above, on one of two kinds of bank file. The Bank appears to have lost two files concerning Statewide's loan - a lending file and a security file. Quite separately the Bank has lost all its files concerning the financial status of Telehandlers, the vendor of this business to Statewide, and concerning Newtral and Mr and Mrs Provenzale. 238Craig and Denise submit that it is "highly unusual" that the Bank would lose its files on both sides of this transaction. Whether it is unusual or not is difficult to tell without knowing more about how many other files the Bank lost in this part of its back office administration since 2004. It did not serve the purposes of Civil Procedure Act s 56 to enquire beyond the Bank's own explanation for the missing files. But an odd feature of the Bank's document losses is that some documents (such as Exhibits A and B and the 18 October credit memorandum) that expert evidence suggested would ordinarily have been held on the Bank's application lending file can be found. But there is no clear explanation as to why those documents can be found and the others cannot. 239What Searches were Undertaken for Missing Documents? The Bank read four affidavits to explain the documents that were missing from its original discovery list of 22 September 2010 and its supplementary list of 23 November 2012. The four affidavits filed in the proceedings were from Sonal Shah of 25 March 2013, Pamela Tragai of 3 April 2013, Anna Maree Chochula of 5 April 2013 and Pamela Tragai of 7 March 2013. None of these witnesses was cross-examined. This affidavit evidence confirms that recent searches have been undertaken for the missing documents and that despite those searches the documents cannot now be found. But the evidence gives little insight into how the documents came to be missing or whether, for example, the Bank can eliminate the possibility that its own files have been intentionally tampered with by someone, rather than their being lost with other files, or their suffering some other systemic problem. It is unclear whether the documents were ever archived in accordance with some standard Bank archiving system or exactly what a search of that system now shows. How many of the documents were placed in the Bank's electronic storage system and when that system developed after 2004 and did that system apply in 2004 are also unclear. 240Cross-examination of the Bank's witnesses threw little further light on what had happened to the missing documents. Mr Shackleton had not been involved in searching for missing documents and could not explain why some documents had survived from what must have been dismembered files and he was unclear which of the old files may have been scanned electronically (and therefore should have been searchable electronically). Mr Donovan, who took over the files from Mr Shackleton, could not be definitive as to what had happened to the lending file that Mr Shackleton passed to him. Mr Donovan thought that the Bank's files in respect of Telehandlers, Newtral and Mr and Mrs Provenzale may have been archived but could add no more. The Bank's practice was to keep files for seven years. These proceedings were commenced in 2009, well before seven years had expired after 2004. 241The Bank has not adequately explained what happened to its missing and incomplete documents. This finding is not a criticism of either Mr Price of counsel or Gadens lawyers, who conducted these proceedings on behalf of the Bank at the hearing. Indeed, the efforts of Mr Price and Gadens lawyers in response to the issues that Craig and Denise were raising produced considerably more evidence than had been previously available about the missing documents. By the time the Bank's supplementary evidence was filed on this issue and the matter reached final submissions, Craig and Denise had accepted that there was no evidence that the Bank wilfully destroyed evidence or any parts of the lending files. 242(c) What Inferences can be Drawn about Particular Documents of Significance? Craig and Denise submit that the Court should infer that the Bank has knowingly withheld relevant evidence, including full copies of the facsimiles, parts of which are in Exhibits A and B, key parts of its lending and security files for Statewide, and its files concerning Telehandlers, Newtral and Mr and Mrs Provenzale. 243Craig and Denise conceded that there was no direct proof as to what had happened to these documents. But they submitted that a more probable inference according to the course of common experience could be drawn from these unexplained circumstances: Holloway v McFeeters (1956) 94 CLR 470 at 480-81. They submitted that the Bank chose in defiance of Court ordered discovery obligations not to discover files which would not have been of assistance to it. 244But this inference cannot be drawn for several reasons. A charge of deliberate defiance of a Court order is a serious charge of misconduct, which was never put to any of the witnesses who sought to explain the Bank's discovery. Nor did a cross-examination of Mr Shackleton or Mr Coupe or Mr Donovan satisfy Craig and Denise's obligation to put such a serious allegation to the Bank. Moreover on the available evidence the Bank's conduct is as consistent with having a disordered regional back office as it is with a charge of misconduct. So I decline to draw an inference that Craig and Denise seek. 245The Court may draw limited inferences against the Bank on account of a failure to produce documents. A party's unexplained failure to tender documents may in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case and may allow the Court more readily to draw an inference fairly to be drawn from other evidence: Jones v Dunkel (1959) 101 CLR 298, at 308, 312, 320-21. The rule in Jones v Dunkel has no application if it is not within the power of the party concerned to tender the evidence in question and, for example, the unavailability of the documents is explained: Payne v Parker (1976) 1 NSWLR 191 at 202 per Glass JA. But the rule cannot be used to infer that the untendered evidence would in fact have been damaging to the case of the non-tendering party; nor can it be used to fill gaps in the evidence, or to convert conjecture and suspicion into inference: Payne v Parker (1976) 1 NSWLR 191, at 194, per Glass JA. The rule only applies if a party is required "to explain or contradict something" (Jones v Dunkel at 321) if in the course of evidence in the case evidence is given of facts "requiring an answer" (Jones v Dunkel, at 322). 246But important questions remain about what inferences the Court should draw about three groups of documents and perhaps the Telehandler's file: (1) the 23 December 2004 LT Services Certificates Mr Steinberg faxed to the Bank, (2) any accountants letter of due diligence for the transaction received, and (3) the balance of the facsimiled documents that would have accompanied Exhibits A and B. 247As to (1), the Court has dealt elsewhere in these reasons with what inferences should be drawn concerning the missing original facsimiles at the Bank's end for the LT Services certificates that Mr Steinberg sent the Bank on 23 December 2004. The Court has concluded that the originals of those facsimiles did once exist and have since been lost; only photocopies are now available. The Court has reasoned that it is unlikely that the Bank would have proceeded with the Statewide transaction without obtaining those certificates, and that the photocopies are mostly consistent with Mr Steinberg's evidence. 248As to (2), the same inference cannot be drawn with respect to the accountants' due diligence letter. Unlike the LT Services certificates, there is no evidence that Mr Steinberg asked Mr Stubbs or anyone else for a due diligence letter, or that Mr Steinberg faxed such a letter to the Bank. Nor is there any internal evidence in any surviving Bank files of the Bank asking for such a due diligence letter or processing such a letter once it had been received. The Bank's officers cannot verify that such a letter was received. Mr Stubbs did not actually do any due diligence or sign such a letter. No other accountant, who would have produced such a letter was ever identified. That such a due diligence letter ever existed is pure speculation. I decline to infer that it must have been part of some lost Bank file. The stronger inference in the circumstances is that it never existed. The Bank seems not to have pressed for it to be obtained before proceeding with the Statewide transaction on 23 December. 249As to (3), the missing parts of Exhibits A and B present a difficult problem. Two of three pages of Exhibit A (the GHS Financial facsimile forecasts of 9 October 2004) and two of 15 pages of Exhibit B (the 13 October cash flow projections GHS Financial facsimiled to the Bank) were available to the Court. Craig and Denise submit that in the absence of the remaining pages, and given the passing of time, no submission can reliably be made as to what Craig and Patrick were agreeing to when they signed these documents. 250I accept that Exhibits A and B should be viewed with caution. And proper account is taken in the Court's reasoning of their incomplete state. As these reasons show, the Court is not prepared to infer that Exhibits A and B represent a complete account of what Craig and Patrick agreed to when they signed them on 11 November 2004. GHS Financial - an agent for the Bank? 251Craig and Denise claim that GHS Financial was the Bank's agent to make representations to them. There was a degree of tension between the Smiths' case against the Bank that GHS Financial was its agent, and their former case against GHS Financial that it was their financial advisor and was in breach of its duties to them in that role. Whilst the performance of both roles would be difficult, it may not be impossible. 252GHS Financial acted in the role of a mortgage originator. The Smiths sought to distinguish their case from other cases, where mortgage originators have been found to be agents of the borrowers. But that case is only the first part of the contest about the relationship between the mortgage originator and the Bank: whether the Bank is bound as principal by GHS Financial's knowledge may be imputed to the Bank. These reasons conclude that GHS Financial was not the Bank's agent. The Bank is not bound as principal by GHS Financial's representations to the Smiths and GHS Financial's knowledge of the transaction cannot be imputed to the Bank, as the knowledge of the Bank's agent. This agency issue is dealt with here first. But GHS Financial's role is of wider significance than mere agency. 253No Agency. GHS Financial was not the Bank's agent with actual authority to act on behalf of the Bank in the task of bringing the Statewide transaction to completion. Finding a relationship of agency between a mortgage originator and a Bank requires a finding of a contractual relationship, generally of a fiduciary character, in which the agent agrees to act on behalf of and in the interest of the principal and with a necessary degree of control requisite for the purpose of the role: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 (Tonto) Allsop P (Bathurst CJ and Campbell J agreeing), and Provident Capital Ltd v Papa [2013] NSWCA 36, at [97] ("Papa"). The precise legal structure under which a mortgage originator is engaged and then acts must be analysed in each case to determine the issue of agency. But mortgage originators can be found to be the agents of borrowers, despite the fact they are paid by the lender and despite the fact they endeavour to introduce borrowers and provide borrower-related information to the lender: see Tonto at [191], and Papa, at [98]-[99], and Con-stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 234. 254The Bank and GHS Financial each relied upon a broker agreement dated March 2009 as being in identical terms to the one which governed their mutual legal relations in 2004. So bad was the Bank's recordkeeping in this case that the Court is not readily prepared to infer in the Bank's favour that the March 2009 broker agreement was in identical terms to an agreement that existed between GHS Financial and the Bank in late 2004. No witness could vouch for the fact that there was no change of any kind from 2004 to 2009 in the standard contractual terms used between the bank and its brokers. But as a matter of ordinary business practice there must have been some such agreement and I am prepared to infer that the agreement was in substantially the form of the March 2009 broker agreement. 255The broker agreement here is in substance indistinguishable from the agreements which in Tonto and Papa resulted in findings of no agency. Its terms, summarised here non-exhaustively, are crafted with some care to ensure the mortgage broker receives no implied or apparent authority from the Bank: the broker is appointed as an independent contractor (clause 2(a)) and not as an agent (clause 2(c)); the broker undertakes to maintain its own professional indemnity insurance, to comply with all relevant laws, will assist the Bank in complying with all relevant laws, will notify the Bank if the broker becomes aware that the broker has breached the relevant law, will act at all times in good faith and with due care skill and diligence and upon the Bank's reasonable request will provide the Bank "with access to your records relating to any applicant", will not do anything to bring the Bank's name into disrepute, and will not make any statements or advertisements without the Bank's prior written consent and will not purport to act beyond its authority under the agreement (clause 3(a) - (l)); the broker must submit all referrals under the Bank's application for the Bank's assessment, must not engage in misleading or deceptive conduct, must ensure due execution of documentation by the applicant and must notify the Bank of any information which may adversely impact on the bank's decision to provide the financing (clause 4 (a), (d), (h) and (i); the Bank must pay commission unless such payment would contravene a relevant law (clause 5 (c) and (f); the broker may not appoint third parties to perform duties under the agreement (clause 6 (a)); and the Bank can terminate the agreement at any time in its sole discretion by notice in writing to the broker (clause 8). Nothing within this broker agreement assists Craig and Denise's contention that GHS Financial had actual authority from the Bank in its dealings with the Smiths; rather, it supports the opposite conclusion. 256Nor does the Bank's or GHS Financial's conduct outside the broker agreement found an inference of actual implied authority from the Bank to GHS Financial. Craig and Denise point to a number of alleged signposts of such implied authority, some of which are of greater significance than others. GHS Financial's commission of $35,200 (Exhibit 23), which I accept was not disclosed to the Smiths, is consistent with the terms of the broker agreement, which deny the broker's authority to act on behalf of the Bank. 257The Bank is said to have entrusted GHS Financial with the performance of the two crucial conditions precedent to it funding the Statewide transaction, the procurement of the financial advisers' certificates and a letter of due diligence. Craig and Denise place significance in their submissions that GHS Financial was the Bank's agent in the fact that Mr Shackleton did not seek to verify the authenticity of the two financial advisers' certificates but was content to proceed on the basis of a facsimile copy, despite its obvious deficiencies and that the Bank failed to enquire of the Smiths or Mr Stubbs whether they had received financial advice from him. This conduct is just as consistent with GHS Financial being an independent contractor as it is of agency. Craig and Denise also contend that the bank allowed GHS Financial to gather information relevant to the loan assessment. But that was its task as an independent contractor. Craig and Denise point to Mr Stubbs' evidence that he had the impression that Mr Steinbeg was the Bank's agent. This is just an example of a common lay misconception and was not based on anything that a Bank officer had said to him. Craig and Denise also contend that the Bank failed (i) to double check that Patrick and Nadine's home loan was only $240,000 rather than the $340,000, which I accept it was, and (ii) to verify Patrick's occupation. But the Bank's failure to undertake these acts is quite consistent with an expectation on its part that GHS Financial would be itself responsible for such matters in a role acting as an independent contractor, without exercising any authority as an agent of the Bank. Most of the other allegations that Craig and Denise make against the Bank of deficiencies in its conduct said to base an inference of an agency relationship are similar to these examples. 258No apparent authority as an agent. Craig and Denise submit in the alternative, that GHS Financial had apparent authority to act on behalf of the Bank. The circumstances in which the apparent authority of an agent may be inferred are well known: Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146 at 159. They include the principal holding out the agent as having authority even of a general character, arising for example out of an office or position in which the principal places the agent or "it may take the form of the setting up of an organisation or structure which presents to outsiders an appearance of authority in in the agent": Flexirent capital Pty Limited v EBS Consulting Pty Ltd [2007] VSC 158, per Whelan J (at [203]). 259Craig and Denise's submissions make a broad assertion that the Bank itself held out or permitted GHS Financial to hold itself out to the Smiths "as the Bank's authorised representative in procuring equipment financing". But the evidence lacks any statement by a Bank officer clothing Mr Steinberg or GHS Financial with such authority from the Bank. And as the Bank rightly points out, the first time that Craig or Patrick Smith met any Bank officer was on 8 October 2004 at Telehandlers premises long after they had met Mr Steinberg who the Bank had allegedly clothed with apparent authority. Merely allowing GHS Financial to act as a broker does not have that effect in the face of the terms of the broker agreement. Craig and Denise's apparent authority case is otherwise based on conduct similar to that relied upon in support of their actual implied authority case. In this context it is no more persuasive as a source of an agency relationship. 260A wider view of GHS Financial's role. But short of proof of agency, GHS Financial's conduct may still be relevant in other ways, especially to Craig and Denise's Contracts Review Act case. When evaluating the unjustness or otherwise of a contract under the Contracts Review Act by, for example, considerations such as those identified in Contracts Review Act s 9(2)(j), the Court is entitled to look at the position of the mortgage originator in the overall enterprise of the Bank's lending programs and its business structures, to see whether those structures are responsible for any misconduct of the mortgage originator towards the borrowers: Tonto, at [255] and [265], and Papa at [100] and [101]. If the Bank for example, has created business structures in the operation of which mortgage originators are given the opportunity to mislead or prey upon prospective borrowers that may be a factor favouring a finding of unjustness in any resulting transaction between the borrowers and the Bank. Here the business structure created between the borrowers and the Bank, and GHS Financial's knowledge of the transaction (whether or not imputed by agency to the Bank) must be analysed to decide the result of Craig and Denise's Contracts Review Act case against the Bank. 261The legal structure under the broker agreement by which the Bank engaged GHS Financial as an independent contractor and not an agent, not only marked out a distance between the Bank sufficient to preserve its status as an independent contractor, but reserved to the bank a degree of residual power to investigate whether GHS Financial was really meeting the standards of conduct that the Bank had set under the broker contract. 262The difference between those legal standards and what happened in practice in this case is important in the Contracts Review Act and contract claims for relief. As the Court has already found, the LT Services financial adviser's certificates had Mr Stubbs signature forged on them, at some point whilst these certificates were within GHS Financial's offices and before they were sent to the Bank on 23 December. But the deficiencies in those certificates should have been obvious to a prudent banker. The Bank's case did not explain: how the Bank vetted the character of its mortgage brokers; why the Bank's officers failed to notice those deficiencies; what systems the Bank had in place to ensure broker fraud was either prevented or at worst detected; why the Bank had failed to utilise its powers under the broker agreement to call for original documents within GHS Financial's possession to verify the provenance of the LT Services certificates; or, why the Bank did not take steps to find out by direct enquiry of Mr Stubbs whether he had signed the certificates. The Bank did not give a sensible account of its practices to deal with the obvious objective risks of fraud or other malpractice of brokers incentivised by commission that were realised in this case. The Bank did not establish actual practices that it had in place to ensure that it was alert to and had contained the risk of malpractice on the part of its brokers such as GHS Financial. 263The situation here echoes what was said in Tonto at [255] and [265] that some Bank - broker structures "should have guidelines enforced with real vigour to deal with the obvious risks of fraud and deception". In my view the Bank's failure to demonstrate in these proceedings that it had such established practices, meant that the structures behind its engagement of mortgage brokers risked that its borrowers may fall prey to fraud or malpractice on the part of mortgage brokers it had engaged. This factor is significant when considering under the Contracts Review Act the unjustness of the guarantees that Craig and Denise signed. Relief Sought on the Second Cross-Claim 264Craig and Denise claim several forms of relief against the Bank on the second cross-claim, as follows: (a)Misleading or deceptive conduct (b)Unconscionable conduct (c)The Bank claims under the Code of Conduct in contract in negligence (d)Claims in contract (e)Claims in negligence (f)Claims in breach of fiduciary duty (g)Claims under the Contracts Review Act 1980 (h)Claims for damages and declarations 265This section of these reasons deals with each of these claims for relief in turn. (a) Misleading or Deceptive Conduct 266Craig and Denise, as cross-claimants contend that their transactions with the Bank in relation to Statewide are governed by the Australian Securities and Investment Commission Act ("the ASIC Act"). If the ASIC Act applies to these transactions it excludes application of Trade Practices Act 1974 (Cth), s 51AAB and s 51AF. The submissions they make as to the effect of substantive provisions of the ASIC Act are available equally under equivalent provisions of the Trade Practices Act. So, the exact label under which they advance submissions makes little ultimate difference to the analysis. 267The guarantees and mortgages given in respect of Statewide's facilities constitute both "credit facilities" and "financial products" as defined in ASIC Act, s 12BAA. Their provision constitutes the provision of a "financial service" as is defined in ASIC Act, s 12BAB. Therefore the ASIC Act applies to the guarantees and mortgages and the Trade Practices Act does not. 268Craig and Denise also contend that the Bank, and GHS Financial as the Bank's agent, when making the representations pleaded, provided "financial product advice" within ASIC Act, s 12BAB(5), which provides: "Meaning of financial product advice (5) For the purposes of this section, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence; but does not include anything in: (c) a document prepared in accordance with requirements of Chapter 7 of the Corporations Act, other than a document of a kind prescribed by regulations made for the purposes of this paragraph; or (d) any other document of a kind prescribed by regulations made for the purposes of this paragraph". 269Statewide undoubtedly qualified as a "small business" within ASIC Act, s 12BC: it employed fewer than 20 people. The Smiths were therefore deemed to be "consumers" as defined in ASIC Act, s 12BC. 270Although the Trade Practices Act is not applicable, the Fair Trading Act still applies. In 2004 the Fair Trading Act did not include provisions corresponding with Trade Practices Act, s 51AAB and s 51AF. Craig and Denise's submissions about alleged contraventions of ASIC Act, ss 12DA(1) and 12CB apply equally in respect of their claimed contraventions of the equivalent provisions of Fair Trading Act, ss 42 (misleading and deceptive conduct) and 43 (unconscionable conduct). 271Craig and Denise contend that the Bank and GHS Financial made representations to the effect that: (i)Telehandlers was a good business; (ii)If Statewide purchased the Telehandlers business, Statewide would be able to meet its debt obligations under the loan agreement; and (iii)If so purchased, it would continue to be a possible business. 272The cross claimants allege that each of these representations was false to the knowledge of the Bank (knowledge acquired through Mr Shackleton) and GHS Financial (knowledge acquired through Mr Steinberg). They contend that as each of GHS Financial and the Bank had access to Telehandlers' financial records, they were both in a position to assess the accuracy of the representations. The cross-claimants allege those records disclose that Statewide would have been unable to service the loan from the revenues of the business and would require third party funding to do so. 273The cross-claim also relied upon two misrepresentations that GHS Financial was alleged to have made to the Bank: one about Patrick's career experience (namely as to whether he had developed financial qualifications as an accountant); and, the other as to Mr Stubbs' qualifications (namely he was not a member of a society using the acronym AASA, nor was he a certified practising accountant or a chartered accountant). But Craig and Denise have now settled all their actions against GHS Financial and allege that GHS Financial was an agent of the Bank. Contrary to their submission the Court has found that he was the cross-claimant's agent. There seems therefore to be no scope for Mr Steinberg's alleged misrepresentations to Mr Shackleton about these two matters to found any form of relief by the cross-claimants against the Bank. 274Craig and Denise also allege that the Bank and GHS made representations about future matters in contravention of ASIC Act, s 12BB, which provides: "Misleading representations with respect to future matters (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading . (2)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3)To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4)Subsection (1) does not by implication limit the meaning of a reference in this Division to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation." 275The meaning of misrepresentations as to future matters has been extensively considered in the context of Trade Practices Act, s 51A. In that context it is well established that a representation as to future conduct or a future event will generally either imply or explicitly state "that the maker of the representation was of a particular state of mind as to the future conduct or event as at the time that the representation was made": Ting v Blanche (1993) 118 ALR 543, at [552] per Hill J. 276The cross-claimants contend that two particular future events did not come to pass which are therefore actionable under ASIC Act, s 12BB: (a) the Provenzale Business (operated by Telehandlers) proving to be a good financially sound business as represented (it was not), and (b) the purchase of the Provenzale Business from Telehandlers proving to be a sound investment and a good idea, as represented (it was not). 277The cross-claimants allege that both the Bank and GHS Financial represented that those two events would occur in the future. The Court has already made findings that representations of that character were made. They were undoubtedly representations as to future matters: they related to events were yet to come to pass. 278The Bank's state of mind at the time of making these representations was in issue. The cross-claimants allege that neither the Bank nor GHS Financial believed those events would come to pass, or alternatively that there were no grounds for a belief those events would come to pass. Moreover the information available to both GHS Financial and the Bank tended to suggest that those events would not happen. 279As the above analysis shows the Bank had reason to believe the Provenzale Business would fail. The Banks' available documents tended to suggest the probability of failure. Nothing can be inferred from the fact of the missing documents in the Banks' favour. 280The cross-claimants submit that the Bank's misleading and deceptive conduct led Craig and Denise to sign the guarantees by which they suffered loss and damage. The Court's previous findings justified a conclusion that both Craig and Denise did sign the guarantees as a result of the Bank's misrepresentations. 281The Bank submits there is no evidence as to the falsity of the representations made. But the answer to that is many of them are representations as to future matters and the Bank has not adduced evidence to juistify the making of those representations. Had the Bank acted as a prudent banker in this transaction such evidence probably would be available. (b) Unconscionable Conduct 282Craig and Denise submit that the Bank engaged in unconscionable conduct at general law and in contravention of the ASIC Act and the Fair Trading Act. The ASIC Act, s 12CA provides: (1) that a person must not in trade or commerce "engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories". 283ASIC Act, s 12CA imports the standards of unconscionability set by the unwritten law of the States and the Commonwealth. The general law of unconscionability may be shortly stated as it was by Deane J in Louth v Diprose (1992) 175 CLR 621 ("Louth") at 637: "It has long been established that the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain" or retain the benefit of it". 284The adverse circumstances which may constitute special disadvantage for the purposes of the principle relating to relief against unconscionable dealings may take a wide variety of forms and the circumstances are not susceptible to being comprehensively catalogued: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 ("Amadio") at 474, Deane J in Louth v Diprose (1992) 175 CLR 621 at 637. 285In Blomley v Ryan (1956) 99 CLR 362 ("Blomley"), at 406, Fullagar J listed some examples of such special disability, namely "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary." Some of the language in subsequent cases such as Amadio and Louth seems to be founded in Fullagar J's observation in Blomley that the common characteristics of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other party": Blomley at 405. 286In Amadio Mason J qualified the word "disadvantage" in traditional formulations by the word "special" for the following reasons, as his Honour explained": "It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party." 287Cases such as Blomley, Amadio and Louth do not suggest the party who benefits from the challenged transaction must have created the relevant special disadvantage from which the party claiming relief suffers. It is enough that the party who benefits from the transaction either knows or ought to know of the relevant special disadvantage and takes unfair advantage of it. Relevant special disadvantage is determined by analysis of all the circumstances in which the parties find themselves. 288The cross-claimants also rely on ASIC Act, s 12CC, which prohibits persons in trade or commerce from engaging in conduct that is in all circumstances unconscionable. ASIC Act, s 12CC provides as follows: "12CC Unconscionable conduct in business transactions (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services (see subsection (6)) to another person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services (see subsection (7)) from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of financial services to another person (the service recipient), the Court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the person is a corporation-the requirements of any applicable industry code (see subsection (11)); and (h) the requirements of any other industry code (see subsection (11)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the financial services with the service recipient; and (k) the extent to which the supplier and the service recipient acted in good faith. ... (6) Subject to subsection (8), a reference in this section to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is or would be for the purpose of trade or commerce. ... (8) A reference in this section to the supply or possible supply of financial services does not include a reference to the supply or possible supply of financial services at a price in excess of $3,000,000, or such higher amount as is prescribed. ... (10) For the purposes of subsections (8) and (9): (a) subject to paragraphs (b), (c), (d) and (e), the price for: (i) the supply or possible supply of financial services to a person; or (ii) the acquisition or possible acquisition of financial services by a person; is taken to be the amount paid or payable by the person for the financial services; and (b) if a person: (i) was supplied financial services pursuant to a purchase; or (ii) acquired financial services by way of purchase; together with other property or services, or with both other property and services, and a specified price was not allocated to the services in the contract under which they were purchased, the price of the services is taken to have been: (iii) the price at which, at the time of the supply or acquisition, the person could have purchased the services from the supplier without the other property or services; or (iv) if, at the time of the purchase, the services were only available for purchase together with the other property or services but, at that time, services of the kind purchased were available for purchase from another supplier without other property or services-the lowest price at which the person could, at that time, reasonably have purchased services of that kind from another supplier; or (v) if, at the time of the purchase, services of the kind purchased were not available for purchase from any supplier except together with other property or services-the value of the services at that time; and (c) if a person is supplied with financial services otherwise than pursuant to a purchase, the price of the services is taken to have been: (i) the price at which, at the time of the supply, the person could have purchased the services from the supplier; or (ii) if, at the time of the supply, the services were not available for purchase from the supplier, or were available only together with other property or services, but, at that time, services of the kind supplied were available for purchase from another supplier-the lowest price at which the person could, at that time, reasonably have purchased services of that kind from another supplier; or (iii) if services of the kind supplied were not available, at the time of the supply, for purchase from any supplier, or were not available except together with other property or services-the value of the services at that time; and (d) without limiting by implication the meaning of the expression services in subsection 12BA(1): (i) the obtaining of credit by a person in connection with the supply of financial services to the person is taken to be the acquisition by the person of a service; and (ii) any amount by which the amount paid or payable by the person for the services is increased by reason of the person's so obtaining credit is taken to be paid or payable by the person for that service; and (e) the price for the supply or possible supply, or the acquisition or possible acquisition, of services comprising or including a loan or loan facility is taken to include the capital value of the loan or loan facility." 289ASIC Act, s 12CC is attracted here: the possible supply of each facility and the receipt of the guarantee was undertaken in trade or commerce in Australia and was at a price not exceeding $3 million. As the cross-claimants correctly point out: ASIC Act, s 12CC does not tie its statutory concept of unconsionability to the unwritten law; nor does it expressly require the party claiming unconscionability to be at a special disadvantage as is required at general law. However the ASIC Act, s 12CC(2) taxonomy of relevant considerations makes clear that "some degree of moral tainting" is necessary to warrant a characterisation of statutory unconscionability. That list helps define the nature of what the statute contemplates is unconscionability. 290The cross-claimants allege the Bank engaged in ASIC Act, s 12CC "unconscionable conduct" and that every one of the eleven factors in s 12CC(2)(a) to (k) is relevant to that finding. These factors can then be reduced to a lesser number of relevant factors for consideration. 291In contention (a), the cross-claimants allege that they were at a special disadvantage in relation to the Bank. Their contention is based on the fact that the Bank, which provided banking service to the vendor parties, knew substantially more about the performance of the Telehandlers business than did Craig and Denise and particularly in relation to its performance in 2002 prior to Craig's employment with Telehandlers. But the issue here is really one of how much the Bank was aware of any limitations on Craig and Denise's knowledge of the performance of the business rather than to simply contrast the relative levels of knowledge of the two. In order to make out a conclusion of unconscionability the Bank through its servants must have been conscious of those limitations on Craig and Denise's knowledge. As these reasons have found the Bank was aware of such limitations. 292In contention (b) Craig and Denise contend that they were unsophisticated consumers. The Court accepts that Denise had limited understanding of financial matters as did both Patrick and Nadine. But it is not true to say that Craig was entirely unsophisticated. Nor as a result of the legal advice they were given is it true to say that Craig and Denise did not understand the legal nature and consequences of the transaction documents that they were signing. 293As to contention (d), the Smiths argue that relevant special disadvantage was compounded by the value and the complexity of the Statewide transactions involving as they did, two facilities, divided as between goodwill and equipment, which were altered within a week of being finalised. The difficulty with this allegation is that if legal advice were given by Mr Ronin as I found it was, most of the so called complexities should have been clarified for both Craig and Denise. I am not prepared to accept the complexity was beyond them. 294As to contention (e), Craig and Denise say that the Bank was aware that based on the historical financial performance of the Telehandlers business that Statewide would be unable to repay the loan from revenues derived from the business without a further cash injection. I accept Craig and Denise's contention that the Bank must have been aware of their inability to service the loan. This is obvious from the Bank's own internal documents. The Bank's own documents do not show realistic scenarios in which the loan would be able to be repaid. 295As to contention (f), Craig and Denise allege the Bank either knew or ought to have known that: Statewide would have inevitably defaulted on its loan repayments; and, given the low value of the business equipment, the only realistic "exit strategy" for the Bank was going to be to call on the guarantees, which is indeed what happened. Considerations in respect of this contention are much the same as these in respect to contention (e): both flow from the inevitability of repayment default and the lack of alternative means of dealing with the consequences of default. I find this as a ground of unconscionability here. 296As to contention (g), Craig and Denise allege that notwithstanding the problems identified in contentions (a) to (f) that the Bank still made representations to Craig to the effect that the business was good one and that "the loan was one that could be repaid", to cite the cross-claimants submissions. This raises the question of whether the representation as to future matters made by Bank officers was one as clear as "the loan was one that could be repaid" as the cross-claimant's allege. The Court has found that these representations were made by Bank officers. 297As to contention (h), the Smiths allege that the Bank acted in disregard of the Banking Code of Conduct ("Code"), its own internal policies and its own conditions precedent, in entering into the transaction. This contention is considered in relation to the Code below. 298In contention (i), Craig and Denise allege that notwithstanding the Bank's appreciation of the importance of them getting financial advice, it failed to confirm whether that financial advice had been given, in circumstances where the financial advisors' certificates were suspicious on their face. This is an important consideration. The Bank's stipulation in its own internal policies and in the conditions imposed on this transaction that Craig and Denise get financial advice marks out the relevant standard of prudence in the circumstances. By setting that condition the Bank was declaring that being clear that financial advice had been obtained was the appropriate measure of banking prudence in this case. That means when suspicious LT certificates were obtained, the Bank had received a signal that this measure of prudence had not been met before the transaction proceeded. 299In contention (j), Craig and Denise alleged that the Bank had procured information to assess the loan from GHS Financial in circumstances in which the Bank knew that GHS Financial was also acting for the vendor in the transaction and was entitled to a commission of $35,200 from the transaction (a commission it is said which the Bank did not disclose to the Smiths). This contention is connected with the structural problems associated with GHS Financial in this transaction and is relevant to the issue of unconscionability. The Court has found that the Bank was aware of this commission. The Bank made no enquiries of Mr Steinberg as to whether that had been disclosed to the Smiths. And the Bank did not in fact disclose to them. The reasonable working assumption for the Bank in these circumstances was that Craig and Denise did not know about this commission in the absence of a Bank enquiry, or a communication from Mr Steinberg that they did. This also conveyed to the Bank that Craig and Denise were unaware that GHS Financial was in a position of conflict of its duty to the Smiths and its own financial interest, a conflict not resolved when the transaction proceeded. 300In the last contention (k), Craig and Denise allege that the Bank knew crucial information contained in GHS Financial' financial application was false, namely concerning Patrick Smith's occupation. But the Bank proceeded with the transaction without raising the falsity with Craig and Denise or indeed with Patrick. This was in part Craig and Mr Steinberg's responsibility. 301For all these reasons in my view Craig and Denise were in a position of special disadvantage and a finding of statutory and general law unconsionability is made against the Bank. (c) The Bank claims under the Code of Conduct in Contract and Negligence 302The Bank adopted the Code in May 2004 before the December 2004 Statewide transaction. The Code is a voluntary code of conduct published by the Australian Bankers Association. The cross-claim uses the Code to found causes of action both in contract and in the tort of negligence. 303The foundation of the Code-related causes of action is incorporation of the Code into each of Craig and Denise's guarantees. The Code is incorporated through the 23 December Equipment Loan, which provides as follows: "30. Code of Banking Practice - Guarantee Relevant provisions of the Code apply to this guarantee and indemnify if, at the time that this guarantee and indemnity is executed, the guarantor is an individual and you are an individual or small business customer (as defined by the Code)". 304The Code has also incorporated through the further Facilities Agreement, clause 34: "34. Code of Banking Practice 34.1 we have adopted the Code of Baking Practice and relevant provisions of the Code apply to these facilities if you are an individual or small business customer (as defined by the Code)". 305Particular provisions of the Code are relevant. That the Code applies to the Bank is not in issue, nor is it in issue that the Bank is providing a "banking service", that the guarantees are guarantees within the Code, that in acquiring Telehandlers, Statewide was a "small business". The Code makes a number of relevant commitments on which the cross-claimants rely, specifically clauses 2.2 and 25.1. 306The Code, clause 2.2("our key commitments to you") provides: "We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us". 307 Code, clause 25.1 ("the provision of credit") provides: "Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill or a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it." 308Although the expression "credit facility" is not defined in the Code I accept that the Australian Security and Investments Commission Regulations 2001 (Cth), s 2B provides for a definition of credit facility for the purposes of ASIC Act, which informs the meaning of "credit facility" as used in the Code, which was first promulgated in 2004. In any event the Bank admits that Code, clause 25 applies to Craig and Denise's provision of the guarantees. 309Incorporation of the Code to the guarantees means there was a term of a contract between Craig and Denise that the Bank: would act fairly and reasonably towards them in a consistent and ethical manner and that in doing so the Bank would consider the Bank's own conduct and the contract between them both. The precise implications of this term need to be teased out further in this case. That is the position for Code, clause 2.2. 310A similar position applies with respect to Code, clause 25.1. The Bank was under a contractual obligation before it offered or gave a credit facility to Craig and Denise to exercise the care and skill of a diligent, prudent banker in selecting and applying the Bank's credit assessment methods and informing the Bank's opinion about their ability to repay it. 311There should be no real issue that the words "your ability to repay it" in clause 25.1 apply to Statewide's capacity that Craig and Denise were guaranteeing. Although there are few cases on the operation of the Code since its introduction in 2004, the cases have consistently accepted that it can be incorporated into credit contracts: Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWSC 676 per Rein J, Westpac Banking Corporation v Belgroup Ltd (in liq) (No. 3) [2012] WASCA 157 at [343] and Sun North Investments Pty Ltd v Dale & Anor [2013] QSC 44. 312Craig and Denise also claim under the Code in negligence. The cross-claimants rely upon the duty provided for in Code, clause 2.1 that the Bank was under a duty "to act fairly and reasonably towards [them] in a consistent and ethical manner" and the duty provided for in clause 25.1 that the [b]ank should "before...[offering or giving them]...a credit facility...to "exercise the care and skill of a diligent and prudent banker in selecting and applying [it's]...credit assessment methods and informing [it's] opinions about [their] ability to repay it". 313Craig and Denise contend that these provisions define the scope of the relevant duty of care owed by the Bank to Craig and Denise and that the Court's earlier findings demonstrate that the Bank did not act in accordance with the Code and thereby breached its duty of care. The relevant loss and damage they complain of is entry into the guarantees, which in turn is said to result in their liability on the guarantees and the loss of their equity in the Oyster Bay property. 314The Bank argues that the Code is not enforceable, relying upon Sam Management Services Australia Pty Ltd v Bank of Western Australia. But in my view clause 25.1 of the Code about exercising the care and skill of a diligent and prudent banker is sufficiently certain to be enforceable. The Bank failed to meet that standard in this case, which led to the transaction proceeding. (d) Claims in Contract 315Craig and Denise's claim in contract is twofold: breach of warranty implied under the ASIC Act and the Bank's failure to comply with contractual conditions precedent. These reasons deal with each of these in turn. 316Implied ASIC Act warranties. Craig and Denise have pleaded a claim under s 12ED of the ASIC Act which provides as follows: "12ED Warranties in relation to the supply of financial services (1) In every contract for the supply of financial services by a person to a consumer in the course of a business, there is an implied warranty that: (a) the services will be rendered with due care and skill; and (b) any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied. (2) If: (a) a person supplies financial services to a consumer in the course of a business; and (b) the consumer, expressly or by implication, makes known to the person: (i) any particular purpose for which the services are required; or (ii) the result that he or she desires the services to achieve; there is an implied warranty that: (c) the services supplied under the contract for the supply of the services; and (d) any materials supplied in connection with those services; will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except if the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the person's skill or judgment. (2A) If: (a) there is a breach of an implied warranty that exists because of this section in a contract made after the commencement of this subsection; and (b) the law of a State or Territory is the proper law of the contract; the law of the State or Territory applies to limit or preclude liability for the breach, and recovery of that liability (if any), in the same way as it applies to limit or preclude liability, and recovery of a liability, for breach of another term of the contract. (3) A reference in this section to financial services does not include a reference to services that are, or are to be, provided, granted or conferred under a contract of insurance." 317Craig and Denise submit that each of their guarantees constituted contracts for the supply of financial services and that in the course of its dealings with the Smiths, the Bank entered into a contract for the supply of financial services to them the consideration for which was their undertaking of the obligations described in the guarantees or the payment of fees in connection with the guarantees. 318Craig and Denise submit that a warranty in terms of ASIC Act, s 12ED is to be implied. 319The two warranties are quite distinct. The first is that services "would be rendered with due care and skill". The second is that the services "will be reasonably fit for that purpose or are such a nature and quality that they might reasonably be expected to achieve that result. It is a pre-condition of the second warranty that the consumer must expressly or by implication make known the particular purpose for which services were required or the result that the consumer desired services to achieve. 320A preliminary factual question in relation to the second warranty is whether or not Craig and Denise made known "expressly or by implication" the purpose for which the services were applied. Much can be inferred from both Craig and Denise's communications with bank officers as to the purposes for which the services were required, or the results that they desired the services to achieve. 321Craig and Denise allege breaches of both the ASIC Act, s 12ED(1) term, the due care and skill term and the s 12ED(2) term, the reasonable fitness term. 322Craig and Denise contend that aspects of the Bank's conduct justify the conclusion that the Bank failed to exercise due care and skill and failed to provide financial products that were reasonably fit for the purpose for which they were supplied. 323Conditions Precedent. Craig and Denise further contend that there were two conditions precedent to the loan transaction: (1) a due diligence letter; and (2) a signed financial adviser's certificate for each of Craig and Denise. Craig and Denise contend that the bank's evidence, given through Mr Shackleton and Mr Coupe, indicated that these conditions precedent were intended to operate as terms of the loan transaction and that they "take effect as express terms contracts corresponding to the relevant loan facilities". 324Craig and Denise further submit that the banks failure to obtain a letter of due diligence and its failure to check the authenticity of the financial advisers' certificates and to obtain genuine certificates, were breaches of two essential terms of the loan agreement. 325Craig and Denise say that these breaches of the loan agreement had the effect of discharging their obligations on the guarantees. A guarantor is discharged from its surety obligations as a result of the creditor's breach of an essential term or a breach going to the root of the contract constituted in the principal agreement, if the surety elects to rescind for breach: Ankar Pty Limited v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 555 - 556 (Ankar). The High Court explained the principal in Ankar thus: "Breach of an essential term or a breach going to the root of the contract will of course discharge the surety from future liability if the surety elects to rescind for breach. The expression "essential term" perhaps needs some elaboration in the context of suretyship because it is said sometimes that a surety is discharged by non-fulfilment of a condition precedent and at other times that a surety is discharged by the creditor's breach of a condition. A condition precedent may be unfulfilled without any breach of contract, but when performance by the creditor of a contractual promise is a condition precedent to the liability of the surety under a contract of suretyship which otherwise involves no more than a guarantee of payment of the debt owing to that creditor, the creditor's promise is necessarily an essential term of the contract. The terms of the contract itself demonstrate that the surety would not have entered into the contract of suretyship unless he had been assured of a strict performance of the promise: see Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632 at 641-2; Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 430-1; 19 ALR 223." 326As the High Court further explained in Ankar, the principle is the by-product not so much of the general law of contract as of the special relationship between creditor and surety arising out of the suretyship contract upon which equity fastened to protect the surety when the creditor's conduct affected the surety's liability: and Ankar at 559; and Holme v Brunskill (1878) 3 QBD 495 per Cotton LJ, at 505. The High Court explained this in Ankar [at 559]: "According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, eg, a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety." 327But important issues are whether the express terms of the suretyship agreement made between the Bank and Craig and Denise overcome the terms of this general principle. 328The Bank answers Craig and Denise's conditions precedent argument by contending that the conditions precedent with the benefit of the Bank and could be waived by the Bank. That is correct in contract. The Bank did not insist on those conditions precedent being fulfilled. The Bank's contention is correct that that does not give a contractual remedy to Craig and Denise. But that does not impair the force of the Bank's failure to enforce the conditions precedent when the Court is assessing relief for example under the Contracts Review Act. 329The Bank disputes that causes of action based on ASIC Act, s 12ED have not been properly pleaded. Before the Court makes findings on this the pleading issue should be resolved. (e) Claims in Negligence 330Craig and Denise's claim in negligence is predicated upon the findings that Mr Shackleton gave Craig financial advice in connection with the 23 December Equipment Loan and the Fixed Rate Loan offered to Statewide. Craig and Denise contend that Mr Shackleton acted well beyond the role of an employee of the bank and took upon himself the mantle of adviser to Craig and Denise. They rely upon the principle that where a bank actually gives advice to a customer upon financial affairs, then in addition to the ordinary contractual rights that may exist between the bank and its customer, the relationship between the parties may be such as to found either or both a common law duty of care or a fiduciary duty: CBA v Smith (1991) 42 FCR 390, at 391. 331Here Craig and Denise contend that Mr Shackleton (and Mr Donovan) assumed the position of business adviser to Craig and Denise. Craig and Denise alleged that accordingly the Bank was under a duty to advise them with due care and skill. They further allege that the bank failed in the following ways to advise the Smiths with due care and skill: contrary to Mr Shackleton's advice, the business was not good and profitable and would not be able to meet its loan repayment; the bank failed to advise Craig and Denise of the commission to GH Services and that without an injection of funds the business would inevitably fail given the value of the business equipment and the Bank would inevitably make a call on the guarantees; the Bank failed to undertake any proper internal due diligence as to the serviceability of the loan and did not disclose that it had not done so; the Bank failed to fulfil its own conditions precedent; Mr Shackleton knowingly misrepresented Mr Patrick Smith's occupation to Mr Coupe; about the circumstances in which Mr Donovan had procured Denise's signature on the second guarantee; and, the Bank engaged in misleading, deceptive and unconscionable conduct. 332The Smiths say that they relied upon the bank's advice and suffered loss and damage as a result. 333The Court has found that Mr Shackleton gave advice to Craig. In my view he took sufficient responsibility for the correctness of the representations he made and was seen by Craig to be in a position know whether the representations were correct that a duty of care was attracted. Those representations did cause Craig and Denise to enter this transaction. 334The Bank contends that it did not give financial advice. But in my view it fails in that contention. (f) Claims in Breach of Fiduciary Duty 335Craig and Denise allege the bank owed them a fiduciary duty. They say that the Bank, although being expected to act in its own interests in ensuring the security of its position as lender to its customer, this case nevertheless created in its customer the expectation that it would nevertheless advise in the customer's interests as to the wisdom of this proposed investment: CBA v Smith, at 391. 336When can a fiduciary relationship arise? Craig and Denise point to CBA v Smith, at 391 which makes clear that a bank can create such an expectation "whether customer may fairly take it that it to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture" and by that means the bank may become a fiduciary and occupy the position that Brennan J described as "an investment advisor" in Daly v The Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 384 - 385. 337Craig and Denise allege that the bank gave financial advice to Craig in the form of representations as to the viability of the business of Telehandlers that Craig and Denise fairly took it that their interests were consistent with those of the Bank in financing a prudent business venture. 338Craig and Denise say that accordingly the Bank occupied a fiduciary relationship with them, acting as their investment advisor in respect of the 23 December Equipment Loan and the Fixed Rate Loan. Moreover Craig and Denise say that the bank breached its fiduciary duty by much the same kind of conduct as attracts liability in negligence. 339Craig and Denise allege that the Bank was also the Bank for the vendor parties "in a manner capable of giving rise to a conflict of interest". But there is very little evidence in this case as to what that conflict of interest with the vendor parties really was. This is because of the documents missing from the Bank's file. 340Craig and Denise also made allegations about GHS Financial owing fiduciary duties to them. The settlement of the portion the proceedings involving GHS Financial means that these allegations need not be considered. 341The Bank rejects in submissions that it gave any financial advice. In my view, contrary to those submissions the Bank did give financial advice through the statement Mr Shackleton made the subject of a Court's findings. Accordingly Daly v Sydney Stock Exchange duty is attracted. Craig and Denise have not established any conflict of interest on the Bank's part. The parties did not really articulate in final address the precise breaches of fiduciary duty relied upon. Any remedy for breach of fiduciary duty may be no wider than the conclusions as to negligence. (g) Claims under the Contracts Review Act 1980 342Craig and Denise also make a claim under the Contracts Review Act. They submit that the guarantees were each within Contracts Review Act s7 "unjust in the circumstances relating to the contract at the time it was made" and that "for the purpose of avoiding as far as possible an unjust consequence or result" the Court should in exercise of its power under that section, refuse to enforce or declare void the Guarantees and should also grant Contracts Review Act s 8, and Schedule 1 relief for the payment of money by way of compensation to Craig and Denise. 343Contracts Review Act s 4 defines "unjust" as including "unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner". Contracts Review Act s 9 serves a number of important purposes, requiring the court to have regard to the public interest as well is to all the circumstances and identifying a list of potentially relevant matters as follows: "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5)In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." 344The relevant applicable law in relation to Contracts Review Act may be shortly stated. The contract may be unjust "because of the way it operates in relation to the claimant [substantive injustice] or because of the way in which it was made [procedural injustice] or both": West v AGC (Advances) Ltd (1986) 5 NSWLR 610, at 620 (West). Contract may be "unjust" under the Contracts Review Act even though the circumstances that give rise to the injustice are unknown to the other party and so contract can be "unjust" even if it does not qualify as unconscionable, harsh or oppressive: West, per McHugh JA at 621, Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256, at 277 (Karavas), Nguyen v Taylor (1992) 27 NSW LR 48 at 71, per Sheller JA (Nguyen), and Perpetual Trustee Company v Khoshaba [2006] NSWCA 41 (2005) 14 BPR 26,639 at [94] - [96] (Khoshaba). 345The application of the Contracts Review Act involves a two-step process: Riz v Perpetual Trustee Australia [2007] NSWSC 1153, at [51] per Brereton J. The first step is to determine whether the contract was unjust in the circumstances in which it was made, which is a conclusion of fact although one of ultimate fact involving a broadly based a value judgment: Antonovic v Volcker (1986) 7 NSWLR 151, at 154 - 155 (per Samuels JA, Kirby P agreeing) (Antonovic ). The second step applies if the contract is found to be relevantly "unjust", and involves the exercise of judicial discretion to determine what if any relief should be granted: Khoshaba [34] - [36] and [109]. 346A particular focus of Craig and Denise's submissions is a contention that there was procedural injustice here. The details of their individual contentions are set out in paragraph 10.9 of their closing submission, and will be considered in the course of argument below. 347Craig and Denise also submitted having regard to the public interest element in Contracts Review Act s 9 (1) that the Court should recognise that in this case the Bank has engaged in a classic case of "asset lending", which authority suggests attracts particular public interest considerations in the application of the Contracts Review Act, as Basten JA explained in Khoshaba at [128]: "[128] To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Viet Nho Tong & Thi Kim Lien Tong (1997) 41 NSWLR 482 at 491 ; (1997) NSW ConvR 55-819 ; BC9701658 (Handley JA) cited with approval in Elkofairi (above) at [77] by Beazley JA" 348But there are analytical dangers in merely labelling any loan transaction as "asset lending". Allsop P explained this in Fast Fixed Loans Pty Limited v Samardzic [2012] NSWCA 260: "'Asset lending' is not a label or a legal frame of reference. It is a convenient expression, used in cases such as Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 ; 14 BPR 26,639 and Spina to describe a form of lending where the lender has little, if any, regard for the capacity of the borrower to repay and rests satisfied with the security to protect itself. As Campbell JA made clear in Kowalczuk at [96]-[99], the conclusion of "unjust" for the Act, ss 7 and 9 depends on all the circumstances and not on labels. There is no reason why considerations such as those here cannot lead to the conclusion that a contract of guarantee is unjust if entered into by a lender who is uncaring of a guarantor's capacity to repay where there is a real and significant possibility of default by the borrower and the guarantor takes no benefit under the borrowing. This is particularly so in all the other circumstances of this case - most particularly the recognition by the appellant of the only two likely sources of repayment, one (successful refinancing) having a real risk to it. The appellant lent at a significant interest rate, reflecting the underlying commercial risk, appreciating the position the parents had been placed in, without any basis to consider that the parents appreciated the commercial risk or that they could afford to take that risk." 349Craig and Denise submit that this was a case of a lender who was uncaring of the guarantor's capacity to repay and where there was a real and significant possibility of default by the borrower and the guarantor took no benefit under the borrowing. 350A substantial purpose of the legislative scheme of the Contracts Review Act is to protect persons who are not able to look after themselves: Khoshaba at [80] per Spigelman CJ. At the heart of the scheme is a recognition of the inadequacy of one party to protect her or his interests in the circumstances: Provident Capital Limited v Papa [2013] NSWCA 36 at [7]. 351Here Craig had not been told by the Bank or Mr Steinberg or Mr Stubbs that the Bank required him to obtain independent financial advice and to obtain a letter of due diligence from an accountant in respect of the vendor's financial statements. Nor was the Bank given clear notice that both those things had been done, both for the benefit of the Bank and Statewide and the guarantors. The only way that the Bank could be reasonably satisfied that these conditions had been fulfilled was to obtain evidence that they had been. The Bank failed to do this. Such information that the Bank did obtain fell well short of showing that financial advice had been given to Craig and Patrick. In light of what evidence the Bank knew it did not have from the Smiths' side of this lending transaction, the Bank is in no position to rely upon the warnings on the front page of documents the Smiths' signed on 16 December and subsequently. The Bank can certainly rely upon the declarations that the defendants signed that they had received financial advice: Perpetual Trustees Victoria v Longobardi [2009] NSWSC 654 at [103] and [104]. But such reliance is displaced by the objective absence of any evidence that due diligence had been done or any reliable evidence that financial advice had been given. 352The Bank also emphasises that Craig had retained a solicitor and an accountant and that Craig and Denise had ample opportunity to ask questions of them before the transaction was completed. The defendant's also submit that Craig and Denise have failed to identify the manner in which they were to protect their own interest. 353I do not find labels such as "asset lending" particularly helpful in analysing whether Contracts Review Act relief should be granted in a case such as this. But what is clear in my view from the Court's detailed findings in the earlier factual narrative is that the Bank had reason to know Craig and Denise had not received financial advice. The financial advice certificates that the Bank received were too uncertain a basis to infer such advice had been given. Moreover the Bank knew that due diligence had not been done on the vendor's financial statements because the Bank had neither asked for, nor been given, material which would show that such due diligence had been done. Added to that the multiple departures from prudent banking practice on the Bank's side had the capacity to increase the riskiness of this transaction for Craig and Denise, warranting a finding of unjustness enabling the Court's intervention. The appropriate intervention in my view is that Craig and Denise's guarantees and mortgages over the Oyster Bay property be declared void. 354Contracts Review Act intervention is also warranted because of the conduct of GHS Financial in allowing signatures on the LT Services certificates to be forged and then for the certificates to be forwarded by facsimile to the Bank. This must have been the result of structural problems in the Bank's relationship with this mortgage broker. 355The public interest element in relation to the Contracts Review Act is also attracted because the Bank has published its adherence to the Code and much of the risk in this case was created by the Bank's departure from the prudent conduct of a banker under the Code. (h) Claims for Damages and Declarations 356Craig and Denise claim that by reason of the Bank's conduct they suffered loss when they sold their Oyster Bay property on 8 August 2007. They applied the $113,578.92 equity realised from that sale in partial reduction of Statewide's obligations to the Bank. Relying upon the several pleaded common-law, equitable and statutory causes of action and claims to relief, Craig and Denise seek recovery of this sum, in addition to their claims to set aside their respective guarantees. Craig and Denise allege that their loss crystallised, and their various causes of action accrued, on the date on which they exchanged contracts to sell the Oyster Bay property, because it was then that what had been merely a prospective loss, became actual damage: cf Wardley Australia Limited v Western Australia (1992) 175 CLR 514, at 532. 357Craig and Denise seek damages under ASIC Act ss 12GF(1), 12GM(2) and 12GM(7)(d). ASIC Act ss12GF(1) provides that a person "who suffers loss or damage by conduct of another person that contravenes [any of the ASIC Act provisions on which the plaintiff relies on these proceedings]... may recover the amount of the loss or damage by action against that other person...". The ASIC Act s 12GM(2) provides broad rights to compensation for contraventions of the Act. 358Additionally ASIC Act s 12GM(7) allows the Court: to declare void the whole or part of the contract made between a person who is likely to suffer loss or damage and the person who engaged in relevant contravening conduct; to refuse to enforce any or all of the provisions of such a contract; and to order the person engaging in contravening conduct to refund money or pay compensation. Craig and Denise seek that the guarantees be declared void ab initio or not enforced under this provision. 359Further Craig and Denise seek damages or equitable compensation: for breach of fiduciary duty, for breach of the ASIC Act, for negligence and for breach of contract. If a fiduciary relationship is established between themselves and the Bank Craig and Denise submit: (1) based on statements in CBA v Smith (1991) 42 FCR 390 (395) that the measure of damages for breach of that duty is relevantly the same as that in negligence, for breach of contract and for breach of the ASIC Act; and (2) that compensation for breach of fiduciary duty should be assessed based on loss at the time of the trial with the full benefit of hindsight: Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] 212 CLR 484, at 499 [35]. And Craig and Denise seek to quantify their damages for any breach of contract by reference to their lost equity in the Oyster Bay property, an approach that Rares J took in Wingecarribee Shire Council v Lehman Bros Australia Ltd (in liquidation) [2012] FCA 1028 and [988]. 360More complex damages issues, if they arise, could be deferred for supplementary hearing. But only one matter needs to be decided now. The Bank submitted that any damages chain of causation was broken by the failure of Craig and Denise to obtain independent advice, procure their own due diligence and that any damages were caused by their own conduct and the down turn in the construction industry. The answer to these contentions is that Craig and Denise's sale of their residential property was not voluntary and the various failures pointed to were in my view ultimately various failures to be sheeted home to the Bank's own conduct. 361The account balance summary (Exhibit 24) for Statewide shows that $113,578.92 inclusive of interest was paid to the Bank on 7 August 2007 after the sale of Craig and Denise's Oyster Bay property. That is their primary loss. But the loss calculation may be more complicated than this. Craig and Denise may wish to contend that they would not have sold the Oyster Bay property without the pressure of Statewide's obligations to the Bank and would otherwise still own it now. Counsel for Craig and Denise submitted on 23 October 2013 that deferring the assessment of damages may be a procedural option. 362I will leave this to the parties. Denise and Craig's loss can be assessed at $113,578.92 plus interest unless either party wishes to contend for a different figure. In that case it may be necessary to hold a separate damages hearing. The parties can deal with that issue when settling the short minutes of order to give effect to these reasons. Conclusion and Orders 363The Court's principal conclusions may be briefly stated. The Court has found that Craig and Denise Smith, the second cross-claimants are able to set aside the mortgages and guarantees they signed as part of the Statewide transaction which they entered in December 2004 on several grounds, including misleading and deceptive conduct by the Bank through its bank officer, Mr Shackleton, for breaches of fiduciary duty, for contraventions of the ASIC Act and under the Contracts Review Act. It is unclear whether the parties wish the Court to separately address any other aspects of the January 2006 renewal of the Fixed Rate Loan and further overdraft. But if required that can be the subject of further submissions when the parties bring in short minutes of order. 364The usual order is that costs follow the event. But one or other party may seek a different or special order based on the Court's findings and conclusions or on out of Court communications. If so, the parties will have an opportunity to put argument about costs when the Court is hearing any submissions about the form of final orders. The orders below provide for this to occur. 365The parties should be able to agree to bring in jointly acceptable short minutes of order to give effect to these reasons. To the extent that agreement cannot be reached on any issue the Court will settle the final form of orders after hearing further from the parties. 366The Court therefore orders as follows: (1)Direct the parties by 5.00pm on 21 November 2014 to file with my Associate and serve either agreed or their competing short minutes of order to give effect to these reasons. (2)Direct the parties by 5.00pm on 21 November 2014 to file with my Associate and serve any submissions as to costs. (3)Direct the parties by 5.00pm on 28 November 2014 to file with my Associate and serve any submissions in reply as to costs. (4)List the proceedings for final argument on costs, the form of relief, and any other outstanding issues at 9.30am on 2 December 2014, or such other time and date as the parties may by agreement arrange with my Associate. ********** 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. Decision last updated: 24 November 2014