CATCHWORDS

CONTRACT - Alleged oral contract - whether terms as alleged agreed between the parties - subsequent contract in writing inconsistent with alleged oral contract - whether common intention to be immediately bound - objective common intention - agreement to enter into a contract subject to terms being satisfactory not an enforceable contract - second alleged oral contract - whether oral agreement to extend loans and facilities - evidence against agreement pleaded and contended for.

TRADE PRACTICES - Misleading and deceptive conduct - representations - claim dependent on finding that oral agreement as alleged was made - no pleading of loss or damage - evidence that alleged representations not relied upon - unconscionable conduct - s.52A (s.51AB) of Trade Practices Act - "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption" - whether s.51AA(1) Trade Practices Act retrospective in effect - whether action statute barred by s.87(1CA)(a) Trade Practices Act - cause of action accrues when loss or damage likely to be suffered.

UNCONSCIONABLE CONDUCT - Discussion of equitable principles - relative financial strengths and circumstances - whether unconscionable delay - whether terms of agreement unconscionable - separate and independent advice.

NEGLIGENCE - Whether receiver and manager negligent in conduct of receivership - whether management of assets and decisions made during receivership amounted to negligent conduct - receivership conducted according to standard of reasonably competent professional in the circumstances - no credible evidence of negligent acts or omissions or negligent mismanagement.

DAMAGES - Contractual damages - expectation loss and reliance loss - damages under the Trade Practices Act - tortious damages - principles governing the subject matter and measure of damages - no application of these principles to identification of loss allegedly sustained or the value of it - comparison of "global net worth" of group of companies - sum claimed as group entitlement and as recoverable as a joint loss - no credible evidence that any expectation or reliance loss sustained by any of applicants.

WORDS AND PHRASES - "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption" - "global net worth".

Bankruptcy Act 1966 (Cth) ss.60(2), (3)

Trade Practices Act 1974 (Cth) ss. 51AA, 51AB, 52A, 82, 87

Trade Practices Legislation Amendment Act 1992 (Cth)

Masters v. Cameron (1954) 91 CLR 353 - Appl.

Australian Broadcasting Corporation v. XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 - Appl.

Gussing v. Gussing [1977] AC 886 - Appl.

Ashington Piggeries Ltd v. Christopher Hill [1972] AC 441 - Appl.

Sinclair Scott & Co Ltd v. Naughton (1929) 43 CLR 310

Rossiter v. Miller (1878) 3 App. Cas. 1124

Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch. 284

Beglkoic v. State Bank of New South Wales Ltd (1994) ATPR 41-288 - Foll.

ANZ Banking Group v. Harvey (1994) ATPR (Digest) 46-132

Swift v. Westpac Banking Corporation (1995) ATPR 41-401 - Foll.

MCP Muswellbrook Pty Ltd v. Deutsche Bank (Asia) AG (1988) 12 NSWLR 16 - Foll Wheeler Grace & Pierucci Pty Ltd v. Wright (1989) 11 ATPR 40-940;  (1989) 16 IPR 189 - Foll.

Arcade v. Colonial Mutual Life Insurance Society Ltd (1984) ATPR 40-473 - Foll.

James v. ANZ Banking Group Ltd (1986) 64 ALR 347 - Foll.

Western Australia v. Wardley Australia Ltd (1991) 30 FCR 245 at 260-262 - Foll.

Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514 - Foll.

Magman International Pty Ltd v. Westpac Banking Corporation (1991) 32 FCR 1 - Foll.

Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447 - Appl.

Blomley v. Ryan (1956) 99 CLR 362 - Appl.

Louth v. Diprose (1992) 175 CLR 621 - Appl. 

Lloyds Bank v. Bundy [1975] QB 326 - Refd.

National Westminster Bank Pty Ltd v. Morgan [1985] 1 AC 686 - Refd.

Multiservice Bookbinding Ltd & Ors v. Marden [1979] 1 Ch 84 - Refd.

Alec Lobb Garages Ltd & Ors v. Total Oil (Great Britain) Ltd [1985] 1 WLR 173 - Refd.

Knightsbridge Estates Trust Ltd v. Byrne [1939] Ch 441

G. & C. Kreglinger v. New Patagonia Meat & Cold Storage [1914] AC 25 - Refd.

Hart v. O'Connor [1985] 1 AC 1001

Bowkett v. Action Finance [1992] 1 NZLR 449

Waribay Pty Ltd v. Minter Ellison [1991] 2 VR 391 - Refd.

J.L.W. (Vic) Pty Ltd v. Tsiloglou [1994] 1 VR 237

Robinson v. Harman (1848) 1 Ex 850 at 855;  154 ER 363 - Appl.

The Commonwealth v. Amann Aviation Pty Ltd (1991) 174 CLR 64 - Appl.

Hadley v. Baxendale [1854] 9 Ex 341;  156 ER 145 - Appl.

Gates v. City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 - Appl.

David Henry Leitch, Alma Margaret Leitch, Gary David Leitch, Gude Pty Limited (Receiver & Manager Appointed), Glen Pacific Pty Limited (Receiver & Manager Appointed), Glandore Pty Limited (Receiver & Manager Appointed)(In Liquidation) v. Natwest Australia Bank Limited and Peter Murray Walker

No. QG174 of 1991

Cooper J., Brisbane, 12 October 1995

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

                                                                                                                       No. QG174 of 1991

BETWEEN:                             DAVID HENRY LEITCH

                                                                                                                                 First Applicant

AND:                                       ALMA MARGARET LEITCH

                                                                                                                            Second Applicant

AND:                                       GARY DAVID LEITCH

                                                                                                                               Third Applicant

AND:                                       GUDE PTY LIMITED (RECEIVER &

                                                MANAGER APPOINTED)

                                                                                                                             Fourth Applicant

AND:                                       GLEN PACIFIC PTY LIMITED (RECEIVER

                                                & MANAGER APPOINTED)

                                                                                                                                 Fifth Applicant

AND:                                       GLANDORE PTY LIMITED (RECEIVER

                                                & MANAGER APPOINTED)(IN LIQUIDATION)

                                                                                                                                Sixth Applicant

AND:                                       NATWEST AUSTRALIA BANK LIMITED

                                                                                                                             First Respondent

AND:                                       PETER MURRAY WALKER

                                                                                                                        Second Respondent

AND BETWEEN:                    NATWEST AUSTRALIA BANK LIMITED

                                                                                                                               Cross-Claimant

AND:                                       GUDE PTY LIMITED (RECEIVER AND

                                                MANAGER APPOINTED)

                                                                                                                  First Cross-Respondent

AND:                                       GLEN PACIFIC PTY LIMITED (RECEIVER

                                                AND MANAGER APPOINTED)

                                                                                                              Second Cross-Respondent

JUDGE MAKING ORDER:Cooper J.

WHERE MADE:                               Brisbane

DATE OF ORDER:                           12 October 1995

                                                       MINUTES OF ORDER

THE COURT ORDERS THAT:

1.                     Alma Margaret Leitch be dismissed from the proceedings as an applicant in her own right.

2.                     Judgment be entered on the claim in favour of the first and second respondents.

3.                     The application of the applicants be dismissed.

4.                     The fourth and fifth applicants and Alma Margaret Leitch pay the first and second respondents' costs of and incidental to the application, including reserved costs, to be taxed if not agreed.

5.                     Judgment on the cross-claim be entered for the cross-claimant against the first and second cross-respondents.

6.                     The cross-claimant recover against the first and second cross-respondents the sum of TWENTY-ONE MILLION EIGHTY-ONE THOUSAND SEVEN HUNDRED DOLLARS AND FIFTY-EIGHT CENTS ($21,081,700.58) and interest at the contractual daily rate from 31 August 1994 until and including the date of judgment.

7.                     The first and second cross-respondents pay the cross-claimant's costs of and incidental to the cross-claim, including reserved costs, if any, to be taxed if not agreed.

8.                     It shall be sufficient proof of the contractual daily rate of interest from 31 August 1994 to the date of judgment, for the cross-claimant to file and serve an affidavit of an officer of the cross-claimant setting out the daily rate of interest, the sum outstanding and the interest payable by reference to the relevant daily rate or rates.

9.                     There be liberty to all parties to apply to have varied the sum of $21,081,700.58 having regard to payments received by the cross-claimant either from the cross-respondents or from any other person or on account of the cross-respondents' indebtedness to the cross-claimant including, but not limited to, payments on account of asset sales and from return of funds
advanced to Peter Murray Walker in his capacity as receiver, receiver and manager or agent of the cross-claimant as mortgagee in possession pursuant to securities held by the cross-claimant occurring since 31 August 1994.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

                                                       TABLE OF CONTENTS

            Dramatis Personae........................................................................................................... 1

            Introduction..................................................................................................................... 4

            THE GRIX AGREEMENT

                        Breach of Contract............................................................................................... 5

                        Misleading and Deceptive

                        Conduct............................................................................................................. 46

                        Unconscionable Conduct.................................................................................... 48

                        (a)        Unconscionability Claim under

                                    the Trade Practices Act.......................................................................... 48

                        (b)        Non-statutory Claim of

                                    Unconscionability................................................................................... 52

            THE TEROXY AGREEMENT...................................................................................... 63

                        The Evidence Concerning the Teroxy

                        Agreement......................................................................................................... 63

                        Conclusions on the Teroxy Agreement................................................................ 94

            CLAIM IN NEGLIGENCE

            AGAINST THE RECEIVER....................................................................................... 105

            LOSS AND DAMAGE............................................................................................... 123

            CROSS-CLAIM......................................................................................................... 135

            COSTS....................................................................................................................... 136

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

                                                                                                                       No. QG174 of 1991

BETWEEN:                             DAVID HENRY LEITCH

                                                                                                                                 First Applicant

AND:                                       ALMA MARGARET LEITCH

                                                                                                                            Second Applicant

AND:                                       GARY DAVID LEITCH

                                                                                                                               Third Applicant

AND:                                       GUDE PTY LIMITED (RECEIVER &

                                                MANAGER APPOINTED)

                                                                                                                             Fourth Applicant

AND:                                       GLEN PACIFIC PTY LIMITED (RECEIVER

                                                & MANAGER APPOINTED)

                                                                                                                                 Fifth Applicant

AND:                                       GLANDORE PTY LIMITED (RECEIVER

                                                & MANAGER APPOINTED)(IN LIQUIDATION)

                                                                                                                                Sixth Applicant

AND:                                       NATWEST AUSTRALIA BANK LIMITED

                                                                                                                             First Respondent

AND:                                       PETER MURRAY WALKER

                                                                                                                        Second Respondent

AND BETWEEN:                    NATWEST AUSTRALIA BANK LIMITED

                                                                                                                               Cross-Claimant

AND:                                       GUDE PTY LIMITED (RECEIVER AND

                                                MANAGER APPOINTED)

                                                                                                                  First Cross-Respondent

AND:                                       GLEN PACIFIC PTY LIMITED (RECEIVER

                                                AND MANAGER APPOINTED)

                                                                                                              Second Cross-Respondent

CORAM:                                Cooper J.

PLACE:                                   Brisbane

DATE:                         12 October 1995

                                                  REASONS FOR JUDGMENT

Dramatis Personae

                        Before embarking upon a consideration of the substantive issues in these proceedings, it is helpful to briefly set out the roles of and relationships between the parties in the action.

                        David Henry Leitch ("David Leitch") was originally the first applicant in the proceedings.  However, upon his becoming bankrupt in 1992, the trustee of his estate in bankruptcy did not elect to pursue the action on his behalf and by operation of sub-sections 60(2) and (3) of the Bankruptcy Act 1966 (Cth), the action on behalf of David Leitch was deemed to be abandoned.

                        Nonetheless, David Leitch is a significant figure in these proceedings.  He was, at all material times, a director and shareholder of the fourth applicant, Gude Pty Limited (Receiver and Manager Appointed) ("Gude") and the sixth applicant, Glandore Pty Limited (Receiver and Manager Appointed) (In Liquidation) ("Glandore") and was authorised to and did act on behalf of Gude, the fifth applicant Glen Pacific Pty Limited (Receiver and Manager Appointed) ("Glen Pacific") and Glandore.

                        David Leitch's wife, Alma Margaret Leitch ("Alma Leitch") is expressed
to be the second applicant.  Alma Leitch was at the relevant times a director and shareholder of Glen Pacific and Glandore but no cause of action is pleaded or argued on her behalf.  It is submitted for the respondents, and accepted by the applicants, that Alma Leitch ought be dismissed as a party to the proceedings and I propose to so do.

                        On 6 June 1994 Alma Leitch was granted leave to bring the action pleaded on behalf of Glandore.  The consequent amenability or otherwise of Alma Leitch to any order for costs against Glandore will be dealt with later in these reasons.

                        David and Alma Leitch's son, Gary David Leitch ("Gary Leitch") was also an original party to the proceedings as the third applicant.  He was, at the material times, a director and shareholder of Glen Pacific and Glandore.  Upon his bankruptcy in November 1991, the trustee of his estate in bankruptcy did not make the required election and the action on his behalf was deemed to be abandoned by force of subsections 60(2) and (3) of the Bankruptcy Act 1966 (Cth).

                        The first respondent is Natwest Australia Bank Limited ("Natwest") which is now called Natwest Markets Australia Limited.

                        The second respondent is Peter Murray Walker ("Mr Walker"), a chartered accountant and official liquidator.  Mr Walker was appointed by Natwest as receiver and manager of the assets of Glandore on or about 21 August 1991.  On 6 September 1991, Walker was also appointed by Natwest as receiver and manager of a grazing and farming property owned by Gude known as Biram Stud Cambooya ("Biram Stud") and as receiver and manager of the assets of Glen Pacific.

                        Glandore was the third respondent to the action but was dismissed as such by order of the court on 6 June 1994.

Introduction

                        On 10 December 1991, the applicants filed an application which, in its final amended form, seeks the following relief :-

            "(a)                  Damages against the First and Second Respondents for negligence;

 

            (ab)                  A declaration that the appointments of the Second Respondent by the First Respondent to act as receiver and manager or as agent for the First Respondent as Mortgagee in possession of the property of the Fourth Fifth and Sixth Applicants as particularised in annexure "A" to the statement of Peter Murray Walker made 14 October 1993 are invalid.

 

            (ac)                  A declaration that the Fourth Fifth and Sixth Applicants are entitled to possession and control of the respective assets owned by them under the control of the Second Respondent pursuant to the aforesaid appointments.

 

            (b)                    Damages against the First Respondent for breach of contract;

 

            (c)                    Damages against the First Respondent pursuant to S.52 of the Trade Practices Act 1974.

 

            (d)                    An Order pursuant to S.87 of the Trade Practices Act 1974 relieving the Applicants against the whole or part of the consequences of the various loan and security documents entered into by them or some of them with the First Respondent.

 

            (dd)                  Further, or alternatively an Order setting aside an [sic] unconscionable or refusing to enforce any contracts relied on by the First Respondent not in accordance with the Contract referred to in paragraph 14 of the Statement of Claim.

 

            (e)                    Interest on damages;

            (f)                    Costs."

                        The statement of claim as amended pleads a number of causes of action against the respondents arising out of oral agreements alleged to have been made between David Leitch on behalf of Gude, Glen Pacific and Glandore and a Mr Arthur Grix ("Mr Grix") in the first place and a Mr Denis Teroxy ("Mr Teroxy") in the second place, on behalf of Natwest.  The first alleged oral agreement will hereinafter be referred to as the "Grix agreement" and the second alleged oral agreement hereinafter referred to as the "Teroxy agreement".

                        References in these reasons to the "Leitch group" should be read as referring collectively to David Leitch, Alma Leitch, Gary Leitch, Gude, Glen Pacific and Glandore.

THE GRIX AGREEMENT

Breach of Contract

                        The background to the alleged making of the Grix agreement is not the subject of dispute between the parties. 

                        In early 1985, Elders Finance Limited ("Elders") was the principal lender to Glandore and held securities over a farming and grazing property outside Goondiwindi known as Oonavale and over the Glandore Private Hospital at Gympie.  In February 1985, National Westminster Finance Australia Limited ("Natwest Finance") lent $4.5 million to Glandore.  Elders was paid out and Natwest Finance became the principal
lender to Glandore.

                        Later that year Natwest Leasing Australia Pty Ltd ("Natwest Leasing") lent $1 million to Gude to assist in the purchase of a cattle property at Cambooya via Toowoomba, plus stock, plant and equipment.  As security Natwest Leasing took a first registered mortgage over the property, known as Biram Stud, a bill of sale over the plant and equipment and a personal guarantee of David Leitch.

                        In July 1985 David Leitch had commenced discussions with Natwest in relation to converting Glandore's loan facilities into foreign currency loans and increasing Glandore's borrowings to $5 million.  Subsequently, on or about 15 January 1986 Glandore entered into a foreign currency loan contract with Natwest Investments Australia Pty Ltd ("Natwest Investments") and on or about 13 February 1986 Glandore drew down $AUD4.925 million in Swiss francs (CHF7,005,812.50).  The foreign currency loan to Glandore was secured by :-

(a)                    a registered first mortgage over Oonavale property;

(b)                    a registered first mortgage over the Glandore Private Hospital at Gympie;

(c)                    a bill of sale over plant and equipment at Oonavale property;

(d)                    a registered first mortgage over 8 hectares of land at Jacobs Well near the Gold Coast;

(e)                    a first registered debenture over Glandore;

(f)                     a first registered mortgage over the old Glandore Private Hospital at Gympie;

(g)                    the joint and several guarantees of David Leitch, Alma Leitch, Gary Leitch and Gude;

(h)                    the collateralisation of the advance to loans made to Gude;

(i)                     an undertaking by the borrower not to pledge the equities of the properties forming part of Natwest Investments' security.

                        Gude entered into a similar loan contract with Natwest Leasing in December 1985 and in June 1986 drew down $AUD2 million in Swiss francs (CHF 2,516,000.00).  The foreign currency loan to Gude was secured by :-

(a)                    a first registered mortgage over Biram Stud;

(b)                    a first registered mortgage over Theda Station in the north Kimberleys, Western Australia;

(c)                    a registered charge over the stock, plant and equipment of Theda Station;

(d)                    a first registered debenture over Kimberley Helicopters Pty Ltd incorporating fixed charges over five helicopters and any other assets and undertakings of the company;

(e)                    a first registered debenture over Boab Air Travel Service Pty Ltd, incorporating fixed charges over four aircraft and any other assets and undertakings of the company;

(f)                     a registered charge over $500,000.00 held on deposit with Natwest Finance;

(g)                    the joint and several guarantees of David Leitch and Glandore, including the cross-collateralisation of security held on the Glandore loan;

(h)                    an undertaking by the borrower not to pledge the equities of the properties forming part of Natwest Leasing's security.

                        In October 1987 the value of the Australian dollar against the Swiss franc, amongst other currencies, fell sharply and in November Natwest reconverted the amounts due in Swiss francs under the loan contracts to Australian dollars in the amounts of $AUD7,454,578.10 and $AUD2,677,165.30 respectively.  Accordingly, the total indebtedness of Glandore and Gude to Natwest was increased from $AUD6.925 million to approximately $AUD10.2 million.

                        The reconversion of the foreign currency loans to Australian dollars gave rise to a dispute between the parties as to whether such reconversions were authorised and whether they had caused actionable damage to Gude.

                        In the ensuing period there were negotiations and discussions between David Leitch on behalf of the Leitch group and Mr Grix on behalf of Natwest, which culminated in, on the applicants' case, the Grix agreement being concluded in July 1989.

The making and breach of the Grix agreement was finally pleaded as follows :-

            "13.                 In or about July 1989, a further contract (`the contract') was made between the Fourth, Fifth and Sixth Applicant and the First Respondent.

 

                                                               PARTICULARS

 

            (a)                    The contract was oral;

 

            (b)                    The contract was made in the course of conversations between the First Applicant and Mr Arthur Grix in or about June 1989 at the office of Mr Grix and in or about July 1989, at the First Applicant's Gold Coast office and by telephone between the First Applicant and the said Grix on behalf of the First Respondent in or about July 1989.

 

            14.                   The following were the terms of the said contract:

            (a)                    that all existing indebtedness of the Fourth Applicant and the Sixth Applicant to the First Respondent, Natwest Investments Australia Pty Ltd or Natwest Leasing Australia Pty Ltd would be extinguished;

 

            (b)                    that in lieu of the indebtedness referred to in sub-paragraph (a), the Fifth Applicant and the Sixth Applicant would each be indebted to the First Respondent in the sums of $A5 million on the following terms:

 

                                    (i)                     interest would be payable at the rate of 7.5% per annum;

                                    (ii)                    interest would be capitalised and payable at the expiration fo [sic] the term of the loan;

                                    (iii)                   the term of each loan would be a period of two years from the date of first draw down.

 

            (c)                    the security for the aforesaid total sum of $A10 million would be as follows:

 

                                    (i)                     a floating charge over the assets and undertaking of the Sixth Applicant;

                                    (ii)                    a first registered mortgage over a hospital and land at Gympie owned by the sixth applicant;

                                    (iii)                   a registered mortgage over Crown leasehold in the names of the First, Second and Third Applicants on which the Sixth Applicant conducted a pastoral business known as `Oonavale';

                                    (iv)                   a first registered mortgage over land owned by the Fifth Applicant at Jacob's Well;

                                    (v)                    a personal guarantee of the First Applicant.

 

            (d)                    That in addition to the sum of $A10 million, the First Respondent would advance further monies to the Fifth and Sixth Applicants to pay out certain specified creditors, including the Commissioner for Taxation;

 

            (e)                    That the First Respondent would advance monies to the Fifth Applicant to pay out an existing mortgage on a house property known as `Whispering Pines', such monies to be secured by a first registered mortgage over the said property;

 

            (f)                    That the First Respondent would fund the purchase of land situated at Cleveland and Logan City to be acquired by the Sixth Applicant, the security for which would be a first registered mortgage over the said land and would arrange finance for the construction of a private hospital on each
piece of land;

 

            (g)                    That the First Respondent, Natwest Investments Australia Pty Ltd and Natwest Leasing Australia Pty Ltd, would release all existing securities including but without limiting the generality of the foregoing:

 

                                    (i)                     A mortgage over the land situated at Gympie owned by the Sixth Applicant;

                                    (ii)                    A mortgage over land situated at 242 Benowa Road, Benowa owned by the First Applicant;

                                    (iii)                   A mortgage over land known as `Biram Stud' owned by the Fourth Applicant;

                                    (iv)                   A mortgage over land owned by Argyle Park Thoroughbreds Pty Ltd;

                                    (v)                    All guarantees given by the Applicants.

 

            (h)                    That the Fifth and Sixth Applicants and the First Respondent would co-operate over the two year term of the loan and work closely together and keep each other informed as to operations and the need for cash injection to remain viable in order that assets be disposed of orderly [sic] at the appropriate time.

 

            (i)                     That during the two year term of the loan, the Fifth and Sixth Applicants would attempt to realise assets in order to reduce the indebtedness to the First Respondent;

 

            (j)                    the Fourth and Sixth Applicants would forego any right of action against the First Respondent, Natwest Investments Australia Pty Ltd or Natwest Leasing Australia Pty Ltd in respect of the first and second loans and the dispute pleaded at paragraph 12.

 

            15.                   In breach of the contract, the First Respondent:

 

            (a)                    Failed to pay out the existing mortgage on the property known as Whispering Pines;

 

            (b)                    Failed to release a guarantee and other existing securities in respect of the assets of the Fourth Applicant;

 

            (bb)                  Insisted on taking mortgage securities over the assets of the Fourth Applicant and guarantees from the Fourth Applicant and failing to release same;

 

            (d)                    Failed to arrange finance for the construction of private hospitals on the land at Cleveland or Logan City;"

                        The applicant's case, as I apprehend it, is that at each of a series of meetings and in the course of conversations between David Leitch and Mr Grix on 1 May, 5, 6 and 16 June 1989 the parties reached agreement in relation to certain specific issues so that at the final meeting at Southport on 3 July 1989 some form of rolling agreement was finally concluded.  That is, the applicants allege that the agreement was built upon at each meeting between David Leitch and Mr Grix until the Grix agreement as pleaded was concluded on 3 July 1989.

                        The applicants and respondents have each sought to emphasise differences in the evidence of David Leitch and Mr Grix as to what was discussed and/or agreed at each of the meetings as leading to a conclusion that one of them ought to be believed in all respects in preference to the other.  I take a different view of the differences in the evidence.

                        It is clear to me that there was not a rolling agreement concluded at each of the meetings which ultimately became, on 3 July 1989, the Grix agreement as pleaded.  The evidence, including the differences in recollection between David Leitch and Mr Grix, shows that at the May and June 1989 meetings the men were simply discussing the issues to be resolved and negotiating towards an agreement which would encompass the issues raised on both sides.  There is nothing in the evidence to suggest that a concluded position was reached in relation to any of the issues in dispute prior to the final meeting on 3 July.  In fact, it would seem that David Leitch started with what can only be described as a "wish list" and negotiation proceeded from that point.  Correspondence to which I will refer later in these reasons would seem to suggest that negotiation was still
under way as late as 12 July 1989.

                        The critical date for the applicants, insofar as the Grix agreement is concerned, is 3 July 1989.  The evidence of both David Leitch and Mr Grix is that an agreement was reached on that day.  The question is what were the terms of that agreement and whether it was the common intention of David Leitch and Mr Grix that they be immediately contractually bound by those terms.

                        In order to answer that question it is necessary to examine the background to the 3 July meeting and the circumstances in which it was conducted, as well as evidence as to what occurred on that day.

                        There is in evidence a letter dated 12 April 1989 from Messrs Primrose Couper Cronin Rudkin, David Leitch's solicitors, to Natwest's solicitors Messrs Thynne & Macartney which shows that discussions in relation to the foreign currency loan dispute and the Leitch group's indebtedness to Natwest had been under way for some time.  The letter also shows that David Leitch was eager to settle the dispute with Natwest and had in fact made a number of proposals to that end, including an offer of $7 million cash to clear the Leitch group's indebtedness to Natwest.  The letter concludes :-

            "Mr Leitch's attitude has not changed since the without prejudice meeting on 23rd January 1989.  His attitude now as then, and during all intervening times, is that he is prepared to negotiate a settlement.  Such a settlement must acknowledge my clients' claim that there is responsibility on the part of your client (apparently through its officers Goddard and Halse) for the loss suffered by my clients by reason of the premature conversion of the overseas currency loans to domestic loans.  Your letter under reply acknowledges that such loss is the central issue in dispute.  My clients note your client's attitude.  My clients' attitude, which has been expressed at length in previous correspondence, remains unchanged.

            My clients remain willing to confer with your client's representatives provided that the respective parties' legal representatives are present at the conference and also provided that your client's representatives have authority to bind your client to any settlement agreed upon at such conference."

                        On 1 May 1989 David Leitch met with Mr Grix, then Natwest's Deputy Chief Executive and General Manager of Corporate Business Division at Natwest's Sydney offices.  Mr Grix told David Leitch that he had knowledge of the dispute and was prepared to negotiate a settlement.  After the meeting Mr Grix sent a memorandum to Natwest's Victorian State Manager, Gerry Goddard ("Mr Goddard") :-

            "The abovenamed called upon us whilst in Sydney of [sic] Monday last week to outline to NatWest head office his understanding of events leading up to, and subsequent to, the decision to have the Swiss Franc borrowings brought back on-shore.

 

            When indicating to him that the threat to bring the loans back into A$ could have been avoided had he provided sufficient cash or additional security to both bring interest up to date and maintain the required loan to security ratio, he was adamant that, at the time of your demand, interest was current and no shortfall in security existed.  It would appear from my scanty knowledge of the transaction, that because at times you had allowed interest due to be applied from a cash security deposit, that he lost sight of such a deposit in reality being `charged' as collateral, not being provided initially by him as an account to which loan interest was to be debited.  Interest was to be paid from other sources.

 

            I assume at the time of the deposit being charged as security it was the $ value of such deposit when added to the value of other pledged assets that created a security ratio which complied with the minimum under our lending requirements.

 

            Leitch was not at all threatening but very firmly expressed the view that, were we not prepared to negotiate with him our sharing the increase in indebtedness caused, as he says, by not bringing his loans on-shore, contrary to his wishes when subsequent movements in the A$ exchange rate went against him, then he must take legal action or, at least, defend the action you are presently taking on the basis of NatWest' negligence and our acting illegally.

 

            Both Mr Halse and yourself, it would appear, have made statements to solicitors relating to [sic] history of the account conduct but he claims these to effectively have been a statement of actions and events he had initiated and requested and were not at all accurate in reciting the history of your (NatWest) actions.

 

            Our ability to assess the position is strictly limited without access to the files, and the statements made by you both, and, of course David Leitch.  We face a lengthy battle it would appear, were we not to negotiate and, should any judgement go against us, then it may be for a substantial sum if the Court were to accept his evidence in its entirety;  despite that it may  not necessarily accurately reflect the events.

 

            Maybe his desire to negotiate has been motivated by him having a weak case or, because he can refinance his total debt, or possibly  have sold one or more of the securities.  One thing certain he has had a concessional interest rate since the loan was brought on-shore but he is still in default on payments and obviously fails to recognise that by our not selling the securities when initial default occurred, he has had benefit of substantial increases in asset values which have been brought about by the property boom currently being experienced, whereas had his assets been sold when initial default occurred, his position would have been far worse.

 

            The increase in value of securities in dollar terms I am not aware of, nor the difference in exchange fluctuations had his default not precipitated calls by you to the borrower of need to bring the loan on-shore.

 

            I feel negotiation should be attempted to save large expenses and timing delays but this we are unable to enter sensibly without the branch and or legal files.  The alternative may be for you and he to sit down in head office, with myself and see how reasonable he intends to be before we eventually allow the litigation you have commenced to take its course.

 

            Leitch is expected to contact the undersigned tomorrow."

                        As appears from this correspondence Mr Grix and David Leitch, for different reasons, considered settlement of the dispute between Natwest and the Leitch group to be advantageous to themselves and the organisations they represented.  David Leitch and the Leitch group were in severe financial difficulty and David Leitch was anxious to reach some accommodation with Natwest in relation to the Leitch group indebtedness to it, which at the time, was at in excess of $10.2 million.  Mr Grix was concerned not to involve Natwest in long and costly litigation over the foreign currency loan contracts and it is reasonable to infer, was concerned that the Leitch group's principal and interest obligations to Natwest were met.  It is in these circumstances that negotiations continued.

                        On 7 June 1989 David Leitch met with Mr Grix and Mr Goddard to further discuss the matter.  At the conclusion of that meeting David Leitch requested a brief conference with Mr Grix alone the next day.  Mr Grix agreed to the request and the men met again on 8 June 1989.

                        Annexed to a statement of Mr Grix, which is in evidence, there is a document prepared by David Leitch headed "Brief report of discussions with Mr A. Grix".  The document contains a portion which refers to the 8 June 1989 meeting.  This portion encapsulates the terms of settlement for which David Leitch was pressing at this time :-

            "8.6.89

 

            I met with Mr. Grix in his office 2p.m.  I discussed a compromise which I thought was fair to both sides.  Mr. Grix made notes.  The compromise was :-

 

            Agree that the debt be $10,000,000 as at 1st July, 1989.  That debt be repaid in full on 30th June, 1991.  That interest be capitalized as follows :-

 

            Glen Pacific Pty. Ltd. $5,000,000 10% interest per annum capitalized on 6 monthly rests.

 

            Glandore Pty. Ltd. - $5,000,00 [sic] 4.925% interest per annum capitalized on 3 monthly rests.

 

            Security - Glen Pacific Pty. Ltd. - First mortgage Jacobs Well property.

 

            Security - Glandore Pty. Ltd.  - First mortgage Glandore Private Hospital

                                                                        - First mortgage `Oonavale' property

                                                                        - Bill of Sale - Plant at `Oonavale'

                                                                        - Bill of Sale - Plant at hospital.

 

            Release all other securities - ie Gude Pty. Ltd., Argyll Park Thoroughbreds Pty. Ltd., house owned by D.H. Leitch, vacant land at Gympie owned by Glandore Pty. Ltd. and equitable mortgages on the Companies etc.

 

            That NatWest fund my Companies to payout creditors and put my Companies back on a secure position to operate.

 

            The additional funding to be at something like commercial rates and be further secured by first mortgage on land and licence for 2 new hospitals to be built for resale on or prior to completion.

 

            Glandore Pty. Ltd. has the licences - requires $820,000 (subsequently $830,000) to pay for the land.  Security value $3,700,000."

                        On 16 June 1989 Mr Grix travelled to the Gold Coast and met with David Leitch and Gary Leitch.  Mr Grix was shown land at Jacobs Well owned by Glen Pacific and the house property Whispering Pines at Benowa, the registered proprietor of which was Glen Pacific.  Whispering Pines was subject to a mortgage held by Cellway Pty Ltd ("Cellway"), which mortgage was in default, and David Leitch wanted Natwest, as part of any compromise, to pay out the secured debt of Cellway.  That debt then stood at approximately $US1.6 million, although David Leitch was confident that Cellway would accept $AUD1.1 million or $AUD1.2 million in full satisfaction.

                        David Leitch and Mr Grix met again at David Leitch's Southport office on 3 July 1989 where, it is common ground, an agreement was reached.  The terms of that agreement, however, are not common ground.

                        According to David Leitch, he and Mr Grix discussed the Grix agreement at that meeting.  The discussions, on David Leitch's evidence, included an offer to Mr
Grix of a seat on the board of directors of Glandore and Glen Pacific so that Natwest would have "a direct insight into the operations of the group of companies, and to be available for financial advice".

                        David Leitch says that Mr Grix said he was prepared to accept the compromise as put on the basis that the Leitch group would not pursue any cause of action it may have had arising out of the reconversion of the foreign currency loans and that Natwest and the Leitch group would "go back to square one".  On David Leitch's evidence, which is denied by Mr Grix, he recited the terms of the compromise, Mr Grix agreed "to the full terms" and the men shook hands.  Mr Grix then left David Leitch's office saying that he would contact David Leitch in the very near future to formalise the agreement.

                        On or about 20 July 1989 certain contractual documents were executed by the parties ("the Natwest documents").  The evidence of Mr Grix is that these documents accurately reflect the terms of the agreement reached between he and David Leitch on 3 July 1989.

                        According to the applicants, the terms of the Natwest documents were, in a number of respects, contrary to the terms of the agreement reached on 3 July 1989.  I propose to deal in turn with each of the alleged breaches of the Grix agreement as contended for by the applicants.

                        The applicants allege that Mr Grix agreed that Natwest would pay out the mortgage held by Cellway over the property known as Whispering Pines.  In cross-examination David Leitch conceded that he did not in fact know what Glen Pacific's debt to Cellway was.  David Leitch maintained that he told Mr Grix that the principal of Cellway, Dr Levingson, would probably take $AUD1.2 million but that he "could probably screw him down to take 1.1".  When asked what was the precise proposition put by him and agreed to by Mr Grix, David Leitch replied "that he pay out Selway [sic] and Livingstone [sic] at no more than 1.2 and take their security".

                        Mr Grix's evidence is that David Leitch raised the Cellway mortgage with him on a number of occasions and that on each occasion Mr Grix said that Natwest simply would not provide the funds to pay out that mortgage.

                        There are two letters in evidence which tend to support Mr Grix's evidence in this respect.  On 18 August 1989 Gary Leitch wrote to Mr Grix on Glen Pacific letterhead in the following terms :-

            "Re:  Levingson & Cellway Pty. Ltd.

 

            I refer to my facsimile to you of 16th August, 1989, copy attached for your reference.

 

            I now enclose a copy of the noted Supreme Court Writ for your urgent attention."

                        The facsimile of 16 August is not in evidence in these proceedings, nor is there any evidence of the contents of the Supreme Court writ.  Nonetheless Glen Pacific had been in default under the mortgage held by Cellway since June 1989 and it is reasonable to assume that Gary Leitch was requesting funds from Natwest to forestall any action by Cellway pursuant to the mortgage.

                        Gary Leitch's letter was received on 23 August 1989 and Mr Grix wrote a reply that day, the veracity of which has not been challenged :-

            "Thank you for your letter dated 18 August received here today.

 

            As pointed out to your father on several occasions, we are unable to provide the funding needed to take out the indebtedness on the Benowa property, which we understood to be in excess of twice the value of the security.

 

            With the restructuring of facilities previously provided the family group we granted additional loans to support settlement on the two hospital sites and also a further substantial sum to pay group creditors, including tax liabilities.

 

            Our exposure is viewed by management as the maximum appropriate for the security which we have been provided with.

 

            Regret that we cannot be more helpful."

                        This correspondence is plainly inconsistent with any previous agreement that Natwest would pay out the mortgage held by Cellway over Whispering Pines.

                        Mr Grix's letter also supports his evidence that he did not have the authority to agree to further funding of the magnitude required to release Glen Pacific from the Cellway mortgage.  On the evidence, any further such funding required the approval of a more senior member of Natwest's management and/or the approval of Natwest's head office in London.

                        David Leitch's evidence was that at the time of the Grix agreement, he did not know at what level Glen Pacific's debt to Cellway stood.  David Leitch asserts that he told Mr Grix that Cellway would accept $AUD1.2 million and that the agreement that Natwest would pay out the mortgage was capped at that amount.  It should be noted that no such cap on the further loan is pleaded in the applicant's statement of claim as finally amended.

                        I do not accept that Mr Grix, the Deputy Chief Executive in Australia of a major international bank, would agree to lend a further $1.2 million plus to a group of companies then in serious financial difficulty and already in default on existing loans totalling in excess of $10 million in the circumstances disclosed by the evidence.  Mr Grix did not know the value of the security offered and had only the bare assertion of David Leitch that Cellway would accept $1.1 million or $1.2 million in full satisfaction of the debt.  The Leitch group was "over the limit" and to have agreed to pay out the Cellway debt would have had the effect of significantly increasing Natwest's exposure under the compromise in return for a security of unknown and ultimately inadequate value.

                        In all the circumstances, the allegation that Mr Grix agreed that Natwest would pay out Cellway's debt cannot be sustained.  Accordingly, I find that the compromise agreement reached on 3 July 1989 did not contain such a term.

                        It is further pleaded that Natwest breached the Grix agreement by failing to release a guarantee and other securities previously held over the assets of Gude.

                        David Leitch gave evidence that Mr Grix agreed that Natwest would
release existing securities and not take further securities over the assets of Gude.  According to David Leitch, Glandore and Glen Pacific were to be the sole borrowers under the compromise, with Gude being removed from the transaction altogether.  David Leitch said that he made it clear to Mr Grix that the assets of Gude had to be free from encumbrances in order that Gude could borrow further funds to complete the development of its principal asset, Biram Stud.

                        David Leitch gave evidence that when he noticed that the Natwest documents included security over the assets of Gude, he contacted Mr Grix and again explained his requirements in this regard.  Mr Grix is then alleged to have said that he was having problems with the accounts at Natwest and that David Leitch should execute the securities over the assets of Gude on the basis that Natwest would release Gude from the securities "somewhere down the track for no consideration".

                        Unsurprisingly, Mr Grix's evidence in relation to the securities over the assets of Gude is at odds with that of David Leitch.  Mr Grix acknowledges that David Leitch pressed him for the release of the securities as part of the compromise, but maintains that he refused to accede to the request.  Mr Grix also agrees that David Leitch telephoned him in relation to the Natwest documents and said that the security over the assets of Gude was not part of the deal.  However Mr Grix says that he again told David Leitch that Natwest would not release those securities.

                        The relevant parts of the transcript reflect both Mr Grix's recollection of the events and conversations as well as his rationale for refusing to release the securities
over the assets of Gude (transcript p.435) :-

            "MR CURRAN:  Now in relation to Gude, that is Biram Stud, there was no proposal put to you on 3 July that Natwest would have security over Gude, was there?---He wanted Gude released.

 

            Did he tell you that on 3 July?---He told me that on 3 July, and I think that it had come up in discussions in the past with Goddard, I think, and he may have said something to me in the past.  But it was a principal asset.  My - my suggestion to him was, `This is a principal asset, we've had it.  I have paid - we will be paying out the creditors.'  We were putting it in a better position it was ever in.  How could I possibly release it.

 

            Did you tell him - are you just relaying now a conversation that took place on 3 July?---That's - that's my conversation with Mr Leitch in relation to Biram Stud.

 

            Yes.  I am suggesting that that conversation, if it did occur, did not occur on 3 July?---Well, I believe that Biram Stud came up on 30 [sic] July, as did Argyll Park come up on 30 [sic] July.

 

            Yes.  Well, I am suggesting that that conversation in relation to Biram Stud did not come up on 3 July.  It may have come up later, but not on 3 July?---Well, we were reaching finality.  Hopefully this was the conclusion.  I couldn't have - I'm maintaining it did come up.  It must have come up.  It had to come up because of the fact that it was a principal security.  We're giving the people more money, paying creditors, unsecured;  accumulating 2 point-odd million dollars worth of capitalised interest and I'm going to let go Gude?

 

            You had to give something, too, did not you?---I did.  I gave 2 point-odd million dollars worth of subsidised interest, which paid more than 50 percent of the $3.2 million foreign currency loan."

 

            ...

            "Yes, he did.  He rang you up and said, `Look, you've put in here security from Gude for Biram Stud.  That wasn't part of the deal,' did not he?---Well, he - there were - - -

 

            No.  Just address that?---That was - - -

 

            Did he ring up and say that?---That was one thing he said, yes.

 

            And your response was?---My response was exactly as it was in the past.  I said, `David, you know that we are not releasing Biram Stud.  You're getting your charge off Biram Stud but you don't get the' - we can't discharge the real estate, it's the only valuable asset in the thing - in the company.

 

            Did not you tell him, look, you've got a problem with accounts, or some internal accounting problem, and you would release it down the track?---When he wanted a - - -

 

            No.  Please, address that question.  When he rang you up did you not tell him that you had some internal problem with accounts?---No.

 

            And that you - all right.  And that you would release Gude down the track?---I gave - he only - I gave - I replied to him in this sense:  I said the only way we will release Biram Stud when, if you sell Oonavale and get a contract that is acceptable to the bank we will then give consideration to releasing Biram Stud, but there's no obligation on our part because once - if an acceptable contract came up that left us well secured for the balance we certainly would look at it.  We might have even looked at discharging one of his other securities."

                        It is inconceivable that Mr Grix would have agreed to release securities held over the assets of Gude without some alternative security of equivalent value in its place.  Those securities represented assets valued at between $1.765 million and $2.45 million, depending on whether one accepts the applicant's or respondent's valuation evidence.  David Leitch was, in effect, asking Mr Grix to increase Natwest's exposure under the compromise by whichever of those values one accepts.

                        Natwest had advanced or agreed to advance further substantial sums to the Leitch group pursuant to the compromise, viz., $1.6 million to fund the purchase of the hospital sites at Logan City and Cleveland and to pay creditors (including the Commissioner of Taxation), and agreed to accumulate "2 point-odd million dollars worth of capitalised interest", cap the Leitch group indebtedness at $10.4 million and grant concessional interest rates in relation to that debt.  Natwest had also extended the time for payment of the loans for two years in circumstances where existing loans were in default.

                        I do not accept that Mr Grix on behalf of Natwest was prepared to, in addition to the above, release a principal asset of the Leitch group to compromise an arguable claim in relation to the foreign currency loan dispute.  Mr Grix's evidence that he indicated that Natwest might release Gude if the Oonavale property was sold for an acceptable price and Natwest was left well secured for the balance of the Leitch group's debt is entirely in accord with this view.

                        In the absence of some evidence other than that of David Leitch which might indicate to the contrary, I find that Mr Grix did not agree to release the securities held over the assets of Gude, other than in the eventuality noted in the preceding paragraph.

                        Finally, it is alleged that, in breach of the Grix agreement, Natwest failed to arrange finance for the construction of private hospitals on the land at Cleveland and Logan City.

                        When one looks closely at the evidence of David Leitch and Mr Grix, the only real point of difference between them is their respective opinions as to the ease with which such finance might be obtained from an alternative source.  It should be noted that it is not asserted that Natwest was itself to provide the finance, only that it would "arrange finance".  It should also be noted that there is no suggestion that Natwest did not attempt to find another source of finance for the construction of the hospitals.  On 4 September 1989 Mr Grix wrote a memorandum to Natwest's Victorian State Manager (Mr Goddard) detailing his efforts in this regard :-

            "This is to confirm that I have spoken with Camps of NZI Victoria enquiring as to their possible interest in providing the construction finance for the hospital projects, which would also take us out of the short term funding we recently provided for settlement on purchase of the two sites.

 

            It was suggested to NZI that on profit projections they may well be better off proceeding down the suggested route, and by cross collateralisation to the Mt Isa hospital in which they presently are involved, would possibly gain much needed security cover for their existing facilities.

 

            The indicated cover, by way of projections David Leitch prepared, may well be better than the route of a second charge behind our securities, however, until NZI agriculture expert visits the Goondawindi [sic] property they are unlikely to consider the new hospital funding in preference to the second behind us.

 

            You did suggest verbally that David Leitch was very optimistic that AGC and some other lender were likely to fund the project.  Beneficial Finance are very aggressive at present and from reports are attracted by profit share arrangements so they may be an alternative for your client.

 

            As you appreciate, despite the projects giving every indication of being successful and good margin earners, our exposure to David Leitch is considered to be full."

                        David Leitch's evidence is that his intention when he bid for the two hospital sites on behalf of the Leitch group was to attempt to sell them undeveloped but with licences for the construction of hospitals which the Leitch group then claimed to have.  If they could not be sold, David Leitch's intention was to construct a hospital on one of the sites and attempt to sell it as a completed development.  This proposal was put to Mr Grix at one or all of the meetings and according to David Leitch, Mr Grix said words to the effect that Natwest would arrange the finance for the construction, that is, Natwest "could arrange for someone to fund one of them".  David Leitch does not recall Mr Grix telling him that arranging that additional funding would be difficult.  Rather, my impression of David Leitch's evidence is that he believed such finance would be relatively easily obtained.

Mr Grix's evidence differs only in emphasis (transcript pp.396-397) :-

            "MR CURRAN:  So - and that scenario was the subject of discussions with Mr Leitch?---The development - we indicated to him that we would endeavour to assist his search for someone to do the - to provide the funding to do the development - assist him do it, not provide funds.

 

            Were the words `endeavour' used by you in your conversation with Mr Leitch?---In what sense do you mean?

 

            In the sense of getting this alternative finance to develop the property.  Can you recall using the word `endeavour'?---We would - we would endeavour to assist him.

 

            Can you recall using the word `endeavour'?---Well, I don't recall the exact word but we suggested that we would assist him in his search for someone to do the development, provide the development funds.

 

            Did he not make it clear to you that his intention was in fact to build the Logan City Hospital?---No.

 

            Did he not?  He did not make it clear that he was intending to build on the sites?---It was his desire but sale was still an option.

 

            Yes, sale is always an option though, is not it?---Well, I- maybe.

 

            Yes.  The tenor of his conversation was along the lines that he would build, he had the licences and there was a profit to be made?---Yes, he - he did.

 

            And it was clear from his conversation with you that that was his preferred course, namely, to build?---That was his preference, yes."

 

            ...

            "Right.  And you are telling us that the best you said to him, so far as alternative finance was concerned, that you would endeavour to assist in finding alternative finance?---Yes.

 

            You are quite sure of that?---Yes.

 

            You did not put any probability upon the prospects of finding alternative finance in your discussions with Mr Leitch?---What do you mean by that?

 

            Did you express an opinion as to the likelihood of him getting the alternative finance that you were going to try to get for him?---I felt it would be difficult, personally.

 

            What did you tell him?---I indicated that there were lenders who may be prepared, but my own personal view was it was going to be difficult.

 

            But you never told him that?---Well, I believe Leitch got the feeling from me exactly what the case was.

 

            Well, let us leave the feelings to one side?---Okay

 

            What did you tell him?---I told Leitch that we would endeavour to assist him, as I said before, to get the finance, but it wouldn't be easy.

 

            Oh, you did tell him it would not be easy?---I suggested to him it wouldn't be easy.

 

            Well, a moment ago you thought, but now you are saying you told him that you thought it would not be easy to get the alternative finance?---Well, my recollection is along those lines I expressed that.

 

            Your recollection is that you told Mr Leitch that it would be difficult, or not easy, to get the alternative finance to build the hospitals?---Yes, I suggested it wouldn't be easy.

 

            What did he say to that?---Well, I don't think Mr Leitch had the same opinion.  He was enthusiastic about all this.

 

            Was he enthusiastic about anything else?---I think he was enthusiastic about the future."

                        It is common ground between the parties that, at this time, the Leitch group was at the limit of its borrowings so far as Natwest was concerned.  It was David Leitch's understanding that Natwest could not lend any further funds to the Leitch group.

                        The question is really one of degree.  David Leitch alleges that Mr Grix said he could and would "arrange finance" for the construction of one private hospital.  Mr Grix says that he agreed that Natwest would "endeavour to assist" David Leitch in obtaining an alternative source of funds for any hospital development but that he indicated that he believed that would not be an easy task.

                        If David Leitch's evidence is accepted, Mr Grix agreed that Natwest would, by whatever means, ensure that the Leitch group was provided with in excess of $2.5 million (on David Leitch's unsupported evidence as to construction costs) for the construction of a hospital which was to be repaid upon sale of the completed development.  David Leitch appears to have believed that, notwithstanding the desperate financial situation of the Leitch group, that the task of arranging finance would not be a difficult one.

                        The objective evidence and the inferences which may be drawn from it support Mr Grix's account of what was agreed in this regard.  There is nothing to suggest that Mr Grix was in a position to or did in effect, guarantee funding for the hospital development from an alternative source.  At the relevant time, Mr Grix had no cost projection for such development, no evidence of the valuation of the sites and no estimates of the time required before any such development would be completed.  Further, there was no certainty that the hospital sites, developed or undeveloped, could be sold inclusive of any licence to construct or operate a hospital.  The evidence indicates that such licences are personal to the licencee and are not a transferable commodity.  At the time, Glandore had only been granted a licence or approval in principle to construct the hospitals conditional upon development being under way in September 1989.

                        Further, there is no pleading or allegation as to what was agreed would happen if, for whatever reason, Natwest was unable to find an alternative source of finance.  It is not, and could not, be suggested that Mr Grix agreed that Natwest would provide funding in default of an alternative source.  It was understood at that time that Natwest had reached the limit of its exposure in relation to the Leitch group and would not provide any further funds.

                        I do not accept that, in the circumstances then obtaining, Mr Grix agreed that Natwest would "arrange finance for the construction of private hospitals on the land at Cleveland or Logan City".  Rather, I find that Mr Grix agreed that Natwest would endeavour to assist in obtaining such finance from another source.  I also find that Mr Grix, on behalf of Natwest, did so endeavour but was unsuccessful.

                        Counsel for the respondents submitted that no binding agreement had been concluded at the 3 July 1989 meeting between David Leitch and Mr Grix.  Rather, it was submitted, there was no enforceable contract between the parties until the Natwest documents were executed on 20 July 1989.  Mr Morris QC submitted that this case was one which could be loosely described as a "third category Masters v. Cameron".

In Masters v. Cameron (1954) 91 CLR 353 at 360-362, Dixon CJ, McTiernan and Kitto JJ, in a well known passage, said :-

            "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes.  It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.  Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.  Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

            ...

 

            Cases of the third class are fundamentally different.  They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own:  Governor &c. of the Poor of Kingston-upon-Hull v. Petch (1854) 10 Exch. 610 [156 D.R. 583].  The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v. Parker (1950) 80 C.L.R. 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed.  These possibilities were both referred to in Rossiter v. Miller (1878) 3 App. Cas. 1124.  Lord O'Hagan said:  `Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed.  But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made' (1878) 3 App. Cas., at pp. 1149.  And Lord Blackburn said:  `parties often do enter into a negotiation meaning that, when they have (or think they have) come to one mind, the result shall be put into formal shape, and then (if on seeing the result in that shape they find they are agreed) signed and made binding;  but that each party is to reserve to himself the right to retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say.  Whenever, on the true construction of the evidence, this appears to be the intention, I think that the parties ought not to be held bound till they have executed the formal agreement' (1878) 3 App. Cas., at p. 1152.  So, as Parker J. said in Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch. 284, at p. 289 in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract."

                        The evidence shows that neither Mr Grix nor David Leitch intended to be immediately contractually bound by the oral agreement reached on 3 July 1989.  The men had agreed on the basic terms and Mr Grix was to have prepared the formal documentation required to give effect to that agreement, which formal documentation was to deal with the subsidiary issues and consequential details.  David Leitch's evidence on
this point was as follows (transcript p.172) :-

            "MR MORRIS:  You had not even agreed all the terms, had you?---We'd agreed that the main deal - the dot the `i's' and cross the `t's' was up to lawyers to do for his side and mine, weren't they?

 

            You agree with me, do not you, that you had every expectation that when the legal documentation was prepared, it would be - it would contain additional terms beyond what is in 61?---It certainly wouldn't be additional securities in what it was in 61.

 

            I am not suggesting that, just additional terms?---It would've - I would have been surprised if there'd been no variations because we're only - neither of us are - we're just talking a straight deal like that and I'd expect his side to see that they're protected and I'd expect that my side would see me protected."

                        Whether or not there was a common intention to be immediately bound by the agreement reached on 3 July 1989 falls to be determined objectively.  The subjective intentions of David Leitch and Mr Grix and their personal beliefs as to what was agreed are not relevant (see Australian Broadcasting Corporation v. XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549;  Gussing v. Gussing [1977] AC 886 at 906;  Ashington Piggeries Ltd v. Christopher Hill [1972] AC 441 at 502).

                        To my mind, the best evidence of the objective common intention of the parties as at 3 July 1989 is found in the correspondence and communication which passed between and amongst Natwest and the Leitch group and their respective legal advisers in the period leading up to the execution of the Natwest documents on or about 20 July 1989.  That correspondence and communication shows, amongst other things, that all the terms of the compromise agreement were not finalised at 3 July and that in fact negotiations as to significant features of the compromise, including the date on which the $10.4 million would fall due, were still under way.

                        On 7 July 1989, Mr Grix sent by facsimile a letter of instruction to a Mr Gary Gleeson ("Mr Gleeson") of Feez Ruthning's Surfers Paradise office.  Relevantly, the letter of instruction contained the following :-

            "...

 

            After much negotiation and after having instructed valuers to reassess the current market value of the principal securities, it became apparent that maybe an opportunity existed to assist his group's current cash flow problems in return for a commercial settlement on the foreign exchange problem, and in very broad terms, the compromise is set out hereunder :

 

                        The current indebtedness of the group, agreed by the borrowers and lenders as being $10,400,000.

 

                        The directors and guarantors of both Glandore and Gude (and the borrowers also) renounce irrevocably any claim which they may now have or at any time in the future consider that they may be entitled to, for damages against any member of NatWest Australia Bank Group, relating to the conversion of the Swiss franc loans to A$ in November 1987.

 

                        As consideration and in an attempt to improve the long overdue creditors situation within Glandore, Gude etc, we have agreed to provide additional funding of $600,000 which is to be utilised exclusively for the purpose of paying outstanding accounts.  The term of the additional funding for the above purpose will be set as repayment date  no later than 1 August 1991, interest to be at a rate of 18% capitalised quarterly.

 

                        We further agreed to provide funding of $880,000 to complete the purchase of land on the corner of Shaw and Wellington Sts, Cleveland to which attaches an 80 bed private hospital licence, and land at Loganlea Drive, Loganlea, to which attaches a 68 bed private hospital, for which we will be provided with first mortgage security.  Full title details in respect of these two properties will be available from Couper and Couper, solicitors acting for Leitch.  The borrowing company is to be Glandore Pty Ltd, whose registered office is situated at C/- Touche Ross, Uptom St, Bundall and both the borrower and the guarantors, David Leitch and Gary Leitch, undertake to effect the sale of these securities or payout thereon, within one year and that should they not comply with this commitment, then they empower and direct NatWest to irrevocably arrange the sale on their behalf.

 

                        If possible, we seek to charge the hospital bed licences as collateral in addition to the first mortgage.  These securities are to be cross-collateralised to existing indebtedness/securities and the term of this loan to be 1 year with interest at 18% p.a. capitalised quarterly.

 

                        The rural property known as `Oonavale' at Goondiwindi, one of the principal securities for the Glandore loan, is to be contracted for sale within 1 year, or, within 90 days of gaining a 20,000 cattle feed lot approval from the local shire, whichever is the sooner, and this commitment for disposal is an incentive proposed by Leitch for our agreeing variation of existing facilities.  The borrowing company and guarantors are to irrevocably grant power of sale, be it by way of Power of Attorney or whatever, for this express purpose in case they should fail to honour their obligation to sell.  NatWest is prepared to undertake to assist Leitch to the best of our ability to find a purchaser.

 

                        In relation to the interest rate hereinafter on the current indebtedness of the group which, as indicated earlier, has now been agreed at $10,400,000, 50% of the principal, i.e. $5.2m, will attract interest at 6% p.a. capitalised quarterly and the remaining $5.2m will attract interest at the rate of 10% p.a. capitalised and the loans to Glandore, Gude and Argyll will have a maximum term in common of 1.8.91.

 

            One of the securities for the Glandore loan, namely RIM over 60 ha at Jacobs Well was provided by a related company, Glen-Pacific Pty Ltd.  This waterfront property has potential as a canal development/resort property and, in order to provide an opportunity for us to recoup the subsidised interest cost on the restructured loans, David Leitch has agreed to fee Nat West for providing expertise to enhance the value of this particular site by production of engineering costings, architectural design etc to facilitate rezoning into canal development with adjoining open areas and by our promotion to seek a joint venture partner to assist development, or an end purchaser of the consolidated area.  Leitch agrees that NatWest's fee is to be assessed on the improvements in value over a mutually agreed current assessment at $4m and that such improvement in value is to be shared 50/50, i.e. if market improves from $4m to $7m, NatWest is to receive $1.5m, Leitch's Company $1.5m;  $4m - $6m, NatWest to receive $1m, Leitch's Company receive $1m - any sum in excess of $7 million to be for benefit of the proprietor.

 

            No doubt, Gary, drafting of documents to include some of these special conditions will be somewhat difficult and probably the most difficult matter to be covered is the one relating to the profit share on the improved value in the Jacob Wells land, so depending upon your advice, and in order not to hold up the payment to creditors and to facilitate settlement of the newly acquired hospital sites, you may feel comfortable that this particular matter be covered by way of letter of intent/undertaking from Leitch and the proprietor, in broad terms, but a commitment that such agreement  must be prepared and executed within a 14 day period.

 

            What we must avoid, of course, is Leitch getting his creditors off his back, ourselves having put out more money.  Although we would have avoided a possible lengthy and maybe costly court action, which nobody at this stage could say with any real surety who would come out victor, the borrowers with subsidised interest capitalised, no longer have pressure on them until approaching loan maturity date.

 

            It is important to have documented the asset sale commitments earlier mentioned, and that we have agreement or enforceable undertaking on the other profit share matter, otherwise we must have a right to call up the facilities, or perhaps there is another protection device which you may be able to recommend.

 

            Payment of creditors is an urgent matter otherwise all our efforts to strengthen our borrower's and own position would have been wasted.  Documenting the arrangements may be quite complex, and, perhaps to facilitate creditor payments a short term loan, of 14 days, may be considered.  This may allow further time for agreements on the total facilities to be prepared, but then we don't wish to see any of our `gains' effectively lost if they later refuse to comply with all negotiated terms on the restructured facilities.

 

            The default interest rate to apply to all borrowings is to be the equivalent of 3% margin above the NatWest Australia Bank Limited Prime Rate, as published from time to time.

 

            We will require David Leitch to provide Accidental Death Insurance on his life, cover to be for two years, the beneficiary to be the Natwest lenders, such cover to be with an underwriter acceptable to NatWest.

 

            The securities for existing facilities we understand to be as follows:

 

            Gude Pty Ltd

 

            (a)        First Registered Mortgage over `Birham [sic] Stud' Toowoomba, Qld.

            (b)        Registered First Charge over stock and equipment located at `Birham [sic] Stud'.

            (c)        Assignment of mortgage over `Theda Station' North Kimberleys, WA.

            (d)        First Registered Debentures over Kimberley Helicopters Pty Ltd and Boab Air Travel Service Pty Ltd, incorporating fixed charges over aircraft, equipment leasehold and improvements.

            (e)        Joint and several guarantees of:

                                    David Henry Leitch

                                    Glandore Pty Ltd

            (f)        Loan cross collateralised to facility provided to Glandore Pty Ltd.

 

            Glandore Pty Ltd

 

            (a)        Registered First Mortgage over `Oonavale' property Goondiwindi, Qld.

            (b)        Bill of sale over plant and equipment situated at `Oonavale', Goondiwindi, Qld.

            (c)        First Registered Mortgage over Glandore Private Hospital, Gympie, Qld.

            (d)        First Registered Debenture over the assets and undertakings of Glandore Pty Ltd.

            (e)        First Registered Mortgage over 80 ha of land at Jacobs Well, Qld.  Provided by Associated Company, Glen Pacific Pty Ltd.

            (f)        First Registered Mortgage over the Old Glandore Private Hospital, Gympie.

            (g)        Third Party Mortgage over residential property situated at 242 Benowa Road, Benowa.

            (h)        Cash deposit held with NWFA.

            (i)         Joint and several guarantees of:

 

                                    David Henry Leitch

                                    Alma Leitch

                                    Gary Leitch

                                    Gude Pty Ltd

 

            (j)        Loans cross collateralised to facility provided to Gude Pty Ltd.

 

            Argyll Park Thoroughbreds Pty Ltd

 

            (a)        Registered First Mortgage Debenture over all assets and undertakings of Argyll Park Thoroughbreds Pty Ltd.

            (b)        2RM on Perpetual Lease over properties situated at Carter Rd, Tableland, via Murgon, Qld.

            (c)        Guarantee of David Henry Leitch.

 

            Gary, the information is not complete in that we have yet to provide you with the disbursement information on new facilities being provided, but this will be available later today, but in the meantime feel that we should forward all other relevant information to enable you to get under way with documents.

 

            I should appreciate you telephoning me just as soon as you have read this letter so that when we forward the disbursement information we will be able to include any other matters which you feel need clarification."

                        On 12 July 1989 a Mr Ronald John Eames ("Mr Eames") of Feez Ruthning's Brisbane office, who under the supervision of Mr John Norman Gallimore ("Mr Gallimore") had the conduct of the transaction, had a telephone conversation with Mr Alan Couper ("Mr Couper") of the firm Primrose Couper Cronin Rudkin.  Mr Couper informed Mr Eames that he acted for David Leitch, Glandore and Glen Pacific.  Mr Couper also informed Mr Eames that the transaction was to be structured so that Natwest would advance funds to the individual companies to repay the existing indebtedness to both Natwest and Natwest Leasing.

                        By letter dated the same day Mr Eames wrote to Mr Grix seeking additional information in relation to and clarification of a number of aspects of the compromise agreement.  The letter shows that a number of issues, including the rate and calculation of interest and the repayment date of the loans, remained unresolved at this time :-

            "We refer to your discussions with Mr Gleeson of our Gold Coast office on 11 July concerning the above matter.  We have commenced preparation of the security documentation and requested the usual property enquiries in relation to the properties to be acquired by the company Glandore Pty Ltd.  We assume that you do not require full property enquiries in relation to the existing security properties.  If this is not the case please let us know.

 

            After discussions with Mr Leitch and yourself it appears that the transaction is to be structured so that NatWest Australia Bank Limited will advance funds to the individual companies to repay the existing indebtedness to both the Bank and Nat West Leasing Australia Pty Ltd.  As you know, stamp duty has been paid on the existing security given to NatWest Leasing and it may be possible to obtain the benefit of the duty paid.  The accommodation to the three companies creates new liabilities, rather than a continuation of the existing liabilities and stamp duty would, in the normal course, be payable on the full amount of the accommodation.  The Commissioner for Stamp Duties has, in some cases, not taken the point where mortgages have been transferred from an existing mortgagee (in this case NatWest Leasing Australia Pty Ltd) to a new mortgagee under similar circumstances.  It would be prudent to withhold an amount to cover the total potential stamp
duty liability in case there are difficulties in obtaining the benefit of the duty already paid with respect to the accommodation by NatWest Leasing.

 

            We are approaching a standstill in preparing the security documentation and loan agreements because we require some additional information.  Accordingly we would be grateful if you would provide us with the following :-

 

            1.         There are separate facilities to Glandore Pty Ltd, Gude Pty Ltd and Argyll Park Thoroughbreds Pty Ltd.  Some of the information regarding the terms of the accommodation is set out in your letter of 7 July although we will require the following information in order to prepare the loan agreement:-

 

                        (a)        Amount of the loan to each individual borrower;

                        (b)        Details of the rate of interest, dates upon which interest is to be paid and how interest is to be calculated etc;

                        (c)        Date of repayment of each loan.

 

            2.         The Glandore Pty Ltd security refers to funds on deposit.  Please advise the amount of the deposit and the party with whom it is deposited.

 

            3.         Settlement of the acquisition of the Cleveland and Loganlea private hospital sites is due on 18 July and we have been requested to provide separate security documentation with respect to those properties to allow settlement to proceed without the remaining additional documentation being in place.  Are you happy to allow the matter to proceed on this basis?  We assume you will require Glandore Pty Ltd execute the loan agreement incorporating the advance to acquire both sites before settlement.

 

            4.         Some of the existing security appears to relate to livestock on the properties `Oonavale', `Birham [sic] Stud' and the property owned by Argyll Park Thoroughbreds Pty Ltd.  In order to validly charge the livestock it will be necessary to adequately describe the same in the security documentation by the type, brand, earmark, sex, etc.  Do you have the relevant details?  If not, we shall approach the solicitors for Mr Leitch.

 

            5.         Part of the Gude Pty Ltd security refers to an assignment of mortgage over `Theda Station' and mortgage debentures by Kimberley Helicopters Pty Ltd and Boab Air Travel Services Pty Ltd.  We have not been provided with the mortgage over `Theda Station' and we would be pleased if you could arrange for a copy of the document to be forwarded to us to enable us to draw the appropriate assignment.  Further, our Western Australian agents advise that Kimberley Helicopters and Boab Air Travel Services are business
names, the registered proprietor of Kimberley Helicopters being Sling Air Pty Ltd and the registered proprietor of Boab Air Travel Services Pty Ltd being Gude Pty Ltd.  We have requested a company search of Sling Air Pty Ltd and would be grateful if you would let us know if you require a mortgage debenture from that company as well.  Mr Leitch has suggested that both businesses have been `wound up'.

 

            6.         Are there disputes in relation to the existing facilities to the three borrowers or simply in relation to the facility to Glandore Pty Ltd?  This information will be necessary to enable us to draw the appropriate deeds of settlement.  Additionally, it would be helpful if you could advise the principal amount owing under each existing facility.

 

            We look forward to hearing from you as a matter of urgency."

                        Mr Grix replied by facsimile transmission that afternoon responding to each of the matters raised in Mr Eames' letter.  Mr Grix's reply indicates that the issue of what securities Natwest would take under the compromise, the interest rates to be charged on the new facilities to Glandore and Glen Pacific, that is on the $10.4 million and the term of the new loans had not been finally resolved at this stage.

                        Also on 12 July 1989 David Leitch wrote to Mr Grix.  David Leitch's letter is, on its face, inconsistent with a concluded agreement having been reached on 3 July 1989.  David Leitch raises new issues to be discussed, including a "separate deal" to advance further funds to the Leitch group.  The letter is consistent only with the parties still negotiating and finalising the compromise agreement :-

            "Re:     Glandore Pty. Ltd., Gude Pty. Ltd., Glen Pacific Pty Ltd. Argyll Park Thoroughbreds Pty. Ltd.

 

            I refer to our discussions regarding NatWest Bank and my abovementioned Companies.

 

            My first meeting with you took place in your office in Sydney after my
telephone conversation with Mr. Keith Shakal [sic] on 1st May, 1989 and our latest meeting in my office at Southport on Monday 3rd July, 1989.  I have attached a brief report of these discussions.

 

            Today is 12th July.  I have previously given you a full and frank disclosure of the liquid problems.  I am having all sorts of problems and threats from creditors.

 

            I understand that you have contacted Kay Dunne of Taxation Department.

 

            Mr. Peter Pamplin, Manager, Commonwealth Bank Leasing has rung.  He can hold the amount payable to $362,700 if payment is made this week, instead of $420,000.  He says that you have not returned his calls.

 

            By tomorrow the 13th July I must have the following funds :-

 

                        $50,000 to Couper & Couper - Stamp Duty hospital (2) land.

                        $100,000 - Glandore Pty. Ltd. - N.A.B., Goondiwindi

                        $300,000 - Gude Pty. Ltd. - Westpac, Clifford Gardens

 

            By Friday 14th July :-

 

                        $780,000 to complete purchase of land Logan City and Cleveland

 

            This total further advance is approximately $1,840,000 and can be secured by first mortgage on land and licences.  This deal should be a separate deal and be completed now.  It will be repaid as soon as you arrange for a finance Company or associated Company to fund the new hospitals buildings.  Mr. R. Lister has valued this asset at $3,700,000.

 

            The further valuations you requested have been done :-

 

            Glandore Hospital - by Mr. R. Lister                           $ 5,200,000

            `Oonavale' property - by Mr. J. Kelly                          $ 5,850,000

 

                                                                                                            $11,050,000

            Firesale value of Jacobs Well would have to be                     $ 6,000,000

            Plant and equipment hospital would be                                 $   600,000

            Plant and equipment `Oonavale' would be                             $ 1,500,000

 

                                                                                                            $19,150,000

 

            I feel NatWest has adequate security for this `work out' of its and my problems.  Even after paying out the house mortgage of $1,755,000 approximately and valueing [sic] it wihout [sic] the townhouse approvals the lending rate to mortgage valuations is 60%.  I intend to sell Jacobs Well and `Oonavale' at least within the 2 year period.  I intend to sell the house property within 1 year.

            In my opinion new mortgage securities should be drawn and signed.  My Solicitor informs me that your Mr. Gleeson received from Thynne and McCartney [sic], Brisbane on Friday afternoon 7th July `a wheelbarrow full of securities'.  Amongst other problems he has is the fact that the securities are drawn up in favour of NatWest Leasing and the debt is owing to NatWest Bank.  I think that in 1986 when the offshore facilities were provided NatWest Bank paid out NatWest Leasing and took a lien on the securities so as not to incur further heavy stamp duties.  At least this is what my Solicitor advised me, at that time, was to happen.

 

            I am prepared to have new mortgages executed and to give your Bank Power of Attorney to auction the securities if any debt remains after 30th June, 1991.

 

            I have tried to contact you by phone on 10th and 11th July.  I understand that you are very busy but I feel that the matter should be finally settled urgently so that I can get the properties on the market and trade profitably until sale.

 

            I will phone you between 4.30 and 5.00p.m. today."

                        On 13 July 1989, Mr Eames and Mr Grix spoke by telephone and later that day, Mr Grix sent by facsimile transmission further instructions.  Again, the letter shows that the securities to be taken by Natwest for the new loans and the interest rates to be charged thereupon were still the subject of discussions between Mr Grix and David Leitch :-

            "RE:  DAVID LEITCH - GLANDORE/GUDE/ARGYLL

 

            Further to our discussions earlier this day we confirm that the following securities relating to existing facilities are not to be charged to NatWest in relation to the loan documentation you are now preparing to effect the reconstruction of earlier loans, and, provision of additional funding to subject companies.

 

            Re Gude Pty Ltd

 

            (i)                     Charge over Kimberley Helicopters Pty Ltd.

            (ii)                    Charge over Boab Air Travel Services Pty Ltd.

            (iii)                   Charge over Stock and Equipment at Birham [sic] Stud.

            (iv)                   Assignment of mortgage over `Theda Station', Kimberleys.

 

            Re Glandore Pty Ltd

 

            (i)                     First mortgage over land known as Old Glandore Hospital site at Gympie.  Note this is not release of site upon which Glandore Private Hospital is erected.

            (ii)                    First mortgage over residential property known as 242 Benowa Rd, Benowa.

            (iii)                   Cash deposit held by NatWest Finance Australia Limited, which it is agreed to be applied at our direction.

 

            Re Argyll Park Thoroughbreds Pty Ltd

 

            (i)                     Debenture assets and undertaking over Argyll Park Thoroughbreds Pty Ltd.

 

                                    We understand that the Argyll Park current facility is not cross-collateralised to the debt and securities of both Glandore and Gude but we wish this collateralisation to be incorporated in your new documentation.

 

            Disbursement of the $830,000 will be to effect settlement on purchase of the Cleveland and Loganlea sites including transfer duty and any surplus to be to credit of your Trust Account.

 

            Disbursement of the `Creditors' facility will be as follows :

 

            Glandore Pty Ltd                                                                    Amount

                                                                                                               $

            National Australia Bank, Goondiwindi

            BSB 084675

            Account No. 01595 2995                                                        100,000

 

            Gude Pty Ltd

 

            Westpac Banking Corporation, Toowoomba,

            BSB 034242

            Account No. 430359                                                               300,000

 

            Hua Lian Pty Ltd

 

            Bank of Queensland,

            Branch - Southport, Queensland

            Account No. 11-133383                                                          50,000

 

            Commissioner of Group Taxation                                          245,000

            Natwest Australia Bank Ltd                                                   10,000

            Feez Ruthning Trust Account                                                  Residue

 

            (For legal and stamp duty costs - any surplus to NatWest in reduction of debt.)

 

            In order to prevent any dispute that may arise in the future as a consequence of having different rates of interest applying to the two parts of the agreed current indebtedness, we have negotiated with Leitch that we apply a rate of 7.5% p.a. to the $10.4m loans.  As we discussed, argument could arise when the principal sums are repaid from sale proceeds of securities or other cash flow as to whether such reductions are applied firstly to the higher rate loan or the lower rate loan, but the single rate will overcome the likelihood of an argument.

 

            The borrower prefers that we exclude Power of Attorney and instruction to sale rights against certain securities, rather than delete these rights and substitute default clauses in the event of the borrower not meeting certain principal reductions within stated periods, which defaults would naturally give us power of sale rights, so we will proceed as originally negotiated.

 

            We feel it most desirable that we incorporate statutory declaration from the principal of each of the borrower companies in receipt of proceeds from the disbursement authorities, wherein they declare that the funds so received will be utilised solely for the purpose of paying creditors, and that they will provide us with a list of payments that they subsequently make."

                        On 13 or 14 July 1989 Mr Eames had a telephone conversation with Mr Couper whereby Mr Couper confirmed that the Natwest documents were to contain, inter alia, provisions empowering Natwest to sell certain assets of Glandore in the event that requirements for the reduction of the principal debt by stipulated dates were not met or certain assets were not realised in accordance with provisions in the documents.  The file note of Mr Eames recording the conversation is in evidence and it shows that David Leitch did not agree with Natwest's stipulation that the new loans were to fall due on 18 July 1991 but required a term of two years.  The file note also shows that the securities to be taken by Natwest were again discussed and it appears that a proposal whereby the security provided by Gude would be capped at $1.6 million was raised by Mr Couper.

                        On 14 July Mr Grix and Mr Goddard met with Mr Eames, Mr Gallimore and Mr Gleeson at the offices of Feez Ruthning.  In the course of and as a consequence of that meeting, minor alterations were made to the draft documents and on 17 July 1989 draft documents were forwarded to Messrs Primrose Couper Cronin Rudkin.  On the same day Mr Eames wrote to Mr Grix with the results of property searches undertaken by Feez Ruthning and an assessment of Natwest's security for the compromise.  It is clear from that letter that even at this late stage, there were a number of significant issues to be finalised before the deal could be completed.  The letter concludes :-

            "As you can see, the state of the security is not entirely satisfactory and there are a good many matters which you will need to consider before the accommodation can be drawn down.

 

            We would be happy to discuss these with you by telephone and look forward to hearing from you.

 

            In the meantime we are attaching copies of the deeds of compromise and copies of the three loan agreements to be couriered to you tonight."

                        Some time soon after, Mr Eames received a telephone call from Mr Couper who informed Mr Eames that the draft documents did not meet David Leitch's requirements and David Leitch would contact Mr Grix in relation to them.  David Leitch did contact Mr Grix and the conversation referred to earlier in these reasons relating to the Gude security took place.  Mr Grix also recalls that David Leitch complained about having to pay legal fees and stamp duty associated with the compromise agreement.

                        Following these conversations Mr Eames received instructions from Mr Grix by telephone and amended the documents accordingly.  On 19 July 1989 the Natwest documents were sent by facsimile transmission to the Leitch group's solicitors and were returned executed on 20 July 1989.

                        This course of events shows that as late as 18 July 1989 significant aspects of the compromise agreement remained to be finally resolved by the parties.

                        In making an objective determination of intention, it is also appropriate to have regard to the commercial circumstances in which negotiation proceeded and agreement was reached.  In particular, regard should be had to the subject matter of the negotiations and agreement.

                        In the instant case, the negotiations and agreement involved issues of some commercial complexity and related to loans totalling more than $10 million.  A threatened action in relation to foreign currency loans was to be compromised, Natwest was to be substituted as lender in place of Natwest Investments and Natwest Leasing, Glen Pacific was to be substituted as a borrower in place of Gude, and additional securities, cross-collateralised, were to be provided.  The complexity of the agreement is perhaps best emphasised by the enormous volume of documents ultimately executed on 20 July 1989.

                        Thus, the circumstances and subject matter of the agreement were such that it is impossible to objectively conclude that there was a common intention to be immediately bound by the terms of the agreement reached on 3 July 1989.  The evidence discloses an expectation on the part of both Mr Grix and David Leitch that a formal document embodying the terms of the agreement would be brought into existence.  The words of Knox CJ, Rich and Dawson JJ in Sinclair Scott & Co Ltd v. Naughton (1929)
43 CLR 310 at 316 are apposite :-

            "We do not think the parties gave their final consent to terms by which they were content to be bound as a complete and exhaustive statement of their rights and liabilities.  The transaction was one of some magnitude.  It related to the transfer of an undertaking as a going concern, and unless the parties were entirely inexperienced they must have known that many subsidiary questions would require attention and arrangement before such a piece of business could be satisfactorily carried through.  They could scarcely have regarded the sale of Queensland Crown leases as a dealing needing no special provisions or investigations.  But, naturally enough, what the parties had done was to discuss and agree upon the matters of financial importance and one or two obvious practical questions."

The evidence discloses that this is exactly what did in fact occur.

                        Putting aside for present purposes the allegation that, as a result of unconscionable conduct on the part of Natwest, David Leitch was forced to sign the Natwest documents, it is clear that, at all times, David Leitch had the right to "retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say" (Rossiter v. Miller (1878) 3 App. Cas. 1124 at 1152 per Lord Blackburn cited in Masters v. Cameron at 362).

                        In all the circumstances, I find that it was not until the Natwest documents were finally executed on 20 July 1989 that an enforceable agreement was concluded between the parties.  The terms of the agreement were those provided for in the documents then executed.  Until that time, all that the parties had was an agreement to enter into a contract subject to the terms of that contract being satisfactory to each of them.  In the words of Parker J in Von Hatzfeldt-Wildenburg v. Alexander (1912) 1 Ch. 284 at 289 (cited in Masters v. Cameron at 462) in such a case there is no enforceable
contract, either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract.

                        Accordingly and in light of the findings made earlier, the applicants' claim for damages for breach of the Grix agreement is not made out.

Misleading and Deceptive Conduct

                        Further or in the alternative to the claim for breach of contract, the applicants allege that, by agreeing to the matters set out in paragraph 14 of the finally amended statement of claim (ie. the Grix agreement as alleged), Mr Grix on behalf of Natwest represented that Natwest would act in accordance with that agreement.  It is also alleged that by delivering the security documents to the applicants for execution, Natwest represented that such documents were for the purpose of giving effect to the Grix agreement and that the applicants entered into the agreement and executed the documents in reliance on these representations.

                        These representations, it is alleged, were misleading and deceptive and in contravention of s.52 of the Trade Practices Act 1974 (Cth) ("TPA") because at the time he made the representations, Mr Grix did not intend to carry the proposal to which he agreed into effect and because the Natwest documents supplied for execution did not reflect the agreement entered into.

                        The applicants' case in this regard can be dealt with shortly.  As pleaded, the claim for damages under the TPA for contravention of s.52 depends entirely on a
finding that the Grix agreement as alleged, was in fact made.  In light of the earlier findings that it was not made, the claim based on s.52 of the TPA must fail.

                        Two further matters should be noted.  In the statement of claim as finally amended, the allegation that the applicants suffered loss as a result of Natwest's "misleading and deceptive conduct" (formerly paragraph 22) has been deleted for reasons not readily apparent to me.  Any claim for damages pursuant to s.82 of the TPA must be based on an allegation that the claimant has "suffered loss or damage by the conduct of another person that was done in contravention of a provision of Part IV or V".  In the absence of a pleading of loss or damage by such conduct, the claim is not maintainable.

                        Even if paragraph 22 of the statement of claim had not been deleted, the evidence shows that David Leitch did not rely on any representation by Natwest that the documents presented for execution by the Leitch group complied with the Grix agreement as alleged.  Rather, David Leitch was aware of the differences between the Grix agreement as alleged and the Natwest documents presented for execution.  In cross-examination David Leitch was asked whether, when he signed the Natwest documents, he was aware that they were not in accordance with what he understood to be the "deal".  David Leitch replied, "I knew they didn't reflect the deal I did.".

                        For these reasons the claim pleaded for damages under the TPA arising out of an alleged contravention of s.52 is not made out.

Unconscionable Conduct

Paragraph 22A of the amended statement of claim pleads the following :-

            "22A.   Further or in the alternative to paragraphs 19, 20, 21 and 22 in or about July 1989 the First Respondent delivered the documents to the Fourth Fifth and the Sixth Applicant for execution and thereby engaged in conduct that was unconscionable in contravention of equitable principles and the provisions of s.52A of the Trade Practices Act.

 

                                                               PARTICULARS

 

            (a)        The First Respondent was a very large and financially strong corporation;

 

            (b)        The Fourth Fifth and Sixth Applicants were relatively small and not financially strong;

 

            (c)        The Fourth Fifth and Sixth Applicants were in desperate need of cash;

 

            (d)        In the period leading up to July 1989 when the Fourth and Sixth Applicants had threatened legal action against the First Respondent in respect of the matters alleged in paragraph 12 herein the First Respondent by its servant and agent, Grix, had delayed and prolonged negotiation in the knowledge that the financial positions of the Fourth Fifth and Sixth Applicants were deteriorating to the point where they had no alternative but to agree to the terms then proposed by the First Respondent regarding the further lending of money;

 

            (e)        The First Respondent knew that the documents presented did not accord with the contract but refused to lend monies until such documents were executed.

 

            (f)        The documents as presented gave no or no adequate compensation for the loss of the Applicants' remedies referred to in paragraph 12 hereof."

(a)                    Unconscionability claim under the Trade Practices Act

                        The claim under the TPA is misconceived for three reasons and I will deal with it as shortly as possible.

                        Section 52A of the TPA was re-enacted as s.51AB by the Trade Practices Legislation Amendment Act 1992 (Cth) and applies only to unconscionable conduct in connection with the supply or possible supply of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption (ss.52A(1) and (5), now s.51AB(1) and (5)).  The transaction the subject of these proceedings is far removed from the ambit of those words, however broadly they are interpreted.  In Beglkoic v. State Bank of New South Wales Ltd (1994) ATPR 41-288 at 41,898, Drummond J said :-

            "... The borrowing of funds, even substantial in amount, e.g., the borrowing of funds by a person sufficient to enable that person to buy a private residence, can be a service of such a kind.  In order to determine whether the service in question in a particular case in which s.52A (now s.51AB) is relied on is one within s.52A(5) (now s.51AB(5)), it is in my view necessary to have regard not just to the activity, here the provision of loan funds, but also to the purpose that activity is intended, in the particular case, to serve.  Only then can the true nature of the services in connection with which it is said the respondent has acted unconscionably be identified and a proper answer given to the question posed by s.52A(5).  The provision of such a large sum as $250,000.00 by way of overdraft accommodation for the purpose of assisting a corporation to buy a business, to enable it to assist a director to pay off his own personal indebtedness to another and to assist it to undertake the commercial development of real estate is not a service of the kind referred to in the sub-section."

(See also ANZ Banking Group v. Harvey (1994) ATPR (Digest) 46-132;  Swift v. Westpac Banking Corporation (1995) ATPR 41-401 at 40,428).

                        The supply of banking services, involving finance of more than $10 million, to enable the Leitch group to continue to carry on its diverse activities and to realise some or all of its assets is not the supply of a service with which s.52A (s.51AB) is concerned.

                        Although the applicants do not in their amended statement of claim purport
to rely on s.51AA(1) of the TPA, I will refer to it briefly.  The section, which was inserted by the Trade Practices Legislation Amendment Act 1992 (Cth), provides :-

            "51AA(1)         A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories."

                        In my view, the introduction of s.51AA(1) had a substantive effect on the rights of the parties to litigation under the TPA and as such should not be construed as having any retrospective effect (see Swift v. Westpac Banking Corporation at 40,428 and to similar effect in relation to s.51A of the TPA;  MCP Muswellbrook Pty Ltd v. Deutsche Bank (Asia) AG (1988) 12 NSWLR 16 at 31 per Powell J;  Wheeler Grace & Pierucci Pty Ltd v. Wright (1989) 11 ATPR 40-940 at 50,254-50,255;  (1989) 16 IPR 189 at 205-206 per Lee J).  Accordingly, the applicants are not entitled to rely upon it.

                        Finally, in paragraph 11(i) of the respondents' defence it is pleaded that any action which the applicants may have had for breach of s.52A (s.51AB) of the TPA is statute-barred by force and effect of s.87(1CA)(a) of that Act.  Section 87(1CA)(a) provides that an application under sub-s.(1A) in relation to conduct in contravention of Part IVA of the TPA may be commenced within two years after the day on which the cause of action accrued.

                        The statutory cause of action established by s.82 of the TPA arises only when the loss or damage suffered as a result of a contravention of a provision of Part IV or Part V of the TPA occurs (Arcade v. Colonial Mutual Life Insurance Society Ltd (1984) ATPR 40-473 at 45,454;  James v. ANZ Banking Group Ltd (1986) 64 ALR 347
at 392;  see also J.D. Heydon QC "Damages under the TPA" (in P.D. Finn, Essays on Damages (Law Book Co. 1992)).  The entitlement to damages under s.82 does not arise where there is a potentiality of loss or damage, but only where the loss or damage actually occurs or is suffered (Western Australia v. Wardley Australia Ltd (1991) 30 FCR 245 at 260-262;  affirmed on appeal Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514 at 526-527;  Magman International Pty Ltd v. Westpac Banking Corporation (1991) 32 FCR 1).

                        Section 87 of the TPA contains a different formulation.  In Western Australia v. Wardley Australia, a Full Court of this court (Spender, Gummow and Lee JJ) said (at 260-261) :-

            "On the other hand, whether or not any application is made under s 80 or s 82, the court may, pursuant to s 87(1A), on the application of a person who has suffered `or is likely to suffer' loss or damage by conduct of another person engaged in contravention of a provision of Pt V, make such order as it thinks appropriate, if the court considers that the order will compensate the person who made the application in whole or part for the loss or damage, or will prevent or reduce the loss or damage which is suffered or is `likely to be suffered' by the applicant.

 

            It follows that the cause of action under s 87(1A) may accrue as soon as loss or damage is likely to be suffered.  This means that the time bar in s87(1CA) upon applications under s 87(1A) may, in a given case, have a different operation to that in s 82(2)."

                        In the instant case, the operative conduct complained of is the delivery of the Natwest documents for execution, the circumstances preceding the execution of those securities and the contents of them.  Any cause of action based upon contravention of s.52A (s.51AB) of the TPA must have arisen at that time when the applicants became likely to suffer loss or damage.  That is, time began to run for the purposes of s.87(1CA)(a) when the Natwest documents were presented for execution on 17 July 1989 or when they were in fact executed on 20 July 1989.  The applicants instituted these proceedings by application filed 10 December 1991.  The claim pleaded in paragraph 22A of the amended statement of claim is barred by operation of s.87(1CA)(a) of the TPA.

                        In any event, the applicants are left with their claim based on equitable principles.

(b)                    Non-Statutory Claim of Unconscionability

                        Since the decision of the High Court in Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447, the ingredients of the equity upon which relief against unconscientious and "catching" bargains is granted are well settled.  (See also Louth v. Diprose (1992) 175 CLR 621 and the views I expressed in (1989) 5 QUTLJ 1).

                        In Amadio, Mason J considered (at 462) that the equitable principle would apply :-

            "... whenever one party by reason of some condition of 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."

Deane J, in the other leading judgment, stated the principles (at 474) thus :-

            "... The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there
was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or `unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he 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 the benefit of the contract' (see per Lord Hatherley, O'Rorke v. Bolingbroke (1877) 2 App. Cas., at p. 823;  Fry v. Lane (1888) 40 Ch.D. 312, at p. 322;  Blomley v. Ryan (1956) 99 C.L.R. 362, at pp. 428-429."

(See also Louth v. Diprose at 637;  Blomley v. Ryan (1956) 99 CLR 362 at 428-429).

                        The circumstances which may be said to give rise to a disability of the relevant kind cannot be comprehensively or exhaustively stated (Louth v. Diprose at 637;  Amadio at 474).  In Blomley v. Ryan Kitto J (at 415) referred to illness, ignorance, inexperience, impaired faculties, financial need or other circumstances which affect a party's ability to conserve his or her own interests.  Fullagar J said (at 405) :-

            "... The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified.  Among them are 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.  The common characteristic seems to e that they have the effect of placing one party at a serious disadvantage vis-à-vis the other."

                        It is clear that the category is not closed nor closely defined but depends upon the particular circumstances of each case.  The disability or disadvantage must be serious and special.  Mere inequality of bargaining position is not sufficient and, in this respect, the dictum of Lord Denning MR in Lloyds Bank v. Bundy [1975] QB 326 at 339 to the contrary has been rejected in Australia as it has in the United Kingdom (see National Westminster Bank Pty Ltd v. Morgan [1985] 1 AC 686 at 708).

                        It is not sufficient that there be a potential for abuse by the dominant party;  the power must in fact be abused because it is the unconscionable use of the power which invokes the intervention of equity (Amadio, per Mason J at 462-463, Deane J at 474;  Multiservice Bookbinding Ltd & Ors v. Marden [1979] 1 Ch 84 at 111;  Alec Lobb Garages Ltd & Ors v. Total Oil (Great Britain) Ltd [1985] 1 WLR 173 at 183, 189).

                        Further, the party in the dominant position must know, or turn a blind eye in such circumstances as equity will impute knowledge, of the disability (Amadio at 466-467, 479).  In the absence of direct knowledge of the disability, the test is whether there were such facts known as would raise in the mind of any reasonable person a very real question as to the other party's ability to make a judgment as to what was in his or her own interests.

                        A distinction must be drawn between bargains which might generally be considered unfair or unreasonable and bargains which are liable to be set aside in equity as unconscionable.  The equitable doctrine applies to the abuse by one party of a dominant position either in the process leading to the agreement or the terms of the agreement obtained.  The mere fact that an agreement or the process leading to agreement is objectively unreasonable is not enough (Knightsbridge Estates Trust Ltd v. Byrne [1939] Ch 441 at 457;  Multiservice Bookbinding Ltd v. Marden at 108-109, 110;  G. & C. Kreglinger v. New Patagonia Meat & Cold Storage [1914] AC 25 at 37, 54).

                        The distinction between unreasonableness and unconscionability is well illustrated in the following passages from Hart v. O'Connor [1985] 1 AC 1001 at 1017-1018, where Lord Brightman, delivering the opinion of the Judicial Committee, said :-

            "If a contract is stigmatised as `unfair', it may be unfair in one of two ways.  It may be unfair by reason of the unfair manner in which it was brought into existence;  a contract induced by undue influence is unfair in this sense.  It will be convenient to call this `procedural unfairness.'  It may also, in some contexts, be described (accurately or inaccurately) as `unfair' by reason of the fact that the terms of the contract are more favourable to one party than to the other.  In order to distinguish this `unfairness' from procedural unfairness, it will be convenient to call it `contractual imbalance.'  The two concepts may overlap.  Contractual imbalance may be so extreme as to raise a presumption of procedural unfairness, such as undue influence or some other form of victimisation.  Equity will relieve a party from a contract which he has been induced to make as a result of victimisation.  Equity will not relieve a party from a contract on the ground only that there is contractual imbalance not amounting to unconscionable dealing."

His Lordship went on to say (at 1024) :-

            "... historically a court of equity did not restrain a suit at law on the ground of `unfairness' unless the conscience of the plaintiff was in some way affected.  This might be because of actual fraud (which the courts of common law would equally have remedied) or constructive fraud, i.e. conduct which falls below the standards demanded by equity, traditionally considered under its more common manifestations of undue influence, abuse of confidence, unconscionable bargains and frauds on a power.  (cf. Snell's Principles of Equity, 27th ed. (1973), pp.545 et seq.)  An unconscionable bargain in this context would be a bargain of an improvident character made by a poor or ignorant person acting without independent advice which cannot be shown to be a fair and reasonable transaction.  `Fraud' in its equitable context does not mean, or is not confined to, deceit;  `it means an unconscientious use of the power arising out of these circumstances and conditions' of the contracting parties;  Earl of Aylesford v. Morris (1873) L.R. 8 Ch. App. 484, 491.  It is victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances."

                        In the instant case, the applicants allege that the requisite special disability or disadvantage is to be found in the relative financial strengths and circumstances of the parties.  There is no dispute that at the material times Natwest was in its position as one of the ten largest banks in the world, a large and financially powerful corporation.  There
can be no argument that the Leitch group was, by comparison, small and financially weak, and that by June and July 1989 was "in desperate need of cash".

                        Whether or not those circumstances are sufficient to support a conclusion that the Leitch group was under one of the special disabilities of the kind referred to in the authorities set out above is, in light of the following, unnecessary to decide.  In any event, the question of whether a special disability of the relevant kind exists, cannot, in my view, be divorced from consideration of the abuse, if any, of the dominant position occupied by the party alleged to have acted unconscionably.

                        The applicants allege that in the period of negotiation and discussion leading up to the execution of the Natwest documents, Mr Grix delayed and prolonged the negotiations so as to take advantage of the rapidly deteriorating financial situation of the applicants and in effect, force them to agree to the terms contained in the Natwest documents.  It is also alleged that Natwest refused to lend further monies to the Leitch group until the Natwest documents were executed and that the Natwest documents, as presented, gave no or no adequate compensation to the Leitch group in return for its forbearance to sue in relation to the foreign currency loan dispute.

                        At this point it should be noted that the allegation that Natwest acted unconscionably by refusing to lend further monies until the Natwest documents were executed in circumstances where Natwest knew that these securities were not in accord with the Grix agreement (as alleged) is not sustainable in light of the findings I made earlier in these reasons and the evidence of David Leitch that he knew this to be the case
before execution.

                        The allegation of unconscionable delay is simply not made out on the evidence before me.  Mr Grix, against whom the allegation is made, first met with David Leitch on 1 May 1989.  David Leitch alleges that after that meeting, he repeatedly telephoned Mr Grix but was unable to speak to him until approximately two and a half weeks later.  For his part, Mr Grix, whilst not recalling the repeated telephone calls, did not deny the possibility that David Leitch  made a number of unsuccessful attempts to contact him.  However, Mr Grix said that it was David Leitch who was difficult to contact.  Mr Grix's evidence was that David Leitch had a habit of attending at his office until 9.00 a.m. or 9.30 a.m. then not being available until late afternoon, if at all.

                        The men met again on 7 and 8 June.  David Leitch alleges, and Mr Grix denies, that he expressed a confidence at the conclusion of the 8 June meeting that matters would be settled by 30 June 1989.  Mr Grix then met with David Leitch at Southport on 16 June and again on 3 July.  The Natwest documents were presented to David Leitch on 17 July and finally executed on 20 July 1989.

                        There is nothing in the evidence, apart from David Leitch's allegations referred to above, to suggest that Mr Grix, on behalf of Natwest, did anything but proceed expeditiously towards a conclusion of the compromise agreements. 

                        The internal memorandum sent by Mr Grix to Mr Goddard on 18 May discloses no intention on Mr Grix's part to "wait and see" or to delay in the hope and expectation that Natwest's negotiating strength would improve.  If Mr Grix expressed a confidence that the agreement would be concluded by 30 June, his confidence was misplaced.  It is not alleged that Mr Grix misrepresented that the compromise would be completed by this time, which misrepresentation caused the Leitch group loss or damage.

                        Mr Grix was aware that, as at 3 July, David Leitch had broken promises he had made to pay other major creditors and was therefore eager to "send his cheques out".  Mr Grix's evidence in this respect was as follows (transcript p.451) :-

            "MR CURRAN:  Did he happen to mention to you during the course of July that he had promised his creditors that they would have their money by the end of June?---It wouldn't be the first promise that he broke.

 

            Please, you know that is not responsive to my question?---Well, I'm saying - - -

 

            Do you want me to repeat the question?  I would rather you just answer my question?---Yes, right.  Give it to me again, please.

 

            My question is this:  did he tell you during the month of July that he had promised his creditors that they would have their money by 30 June?---I was conscious of that.  I was conscious of his desire to want to resolve the matter early, and again on 3 July when he wanted to send his cheques out.

 

            Well, if you were conscious of that, you knew that he had probably lost all credibility with his creditors?---Well, the valuations didn't come in on the properties.  We couldn't have got the thing documented any quicker.  The valuations to prove the value of the assets didn't come in until July.

 

            Yes?---I'm not sure when Kelly's came in but it obviously would have been late in June.

 

            But you knew that by the third week of July he has dishonoured major promises made to major creditors?---Well  he - had had made promises - I understood that he had made promises.  I can only believe what he was telling me, that he had phoned creditors and that he would be in breach of that, but that's - to me, if creditors knew this was coming, I 'm sure they would have been happy to have waited.

 

            If creditors what?---If creditors knew that he was - he was getting a document drawn by Natwest, creditors would be happy to wait another
week.

 

            Yes?---I don't think it's so pressing.

 

            No.  Yes, if creditors knew that he had to sign the documents to get the money, they would know that the documents had to be signed before he got the money, would not they?---Yes, as I would if I was borrowing money."

                        There is in evidence a letter dated 21 June 1989 from Mr Grix to J.D. Kelly & Associates requesting that firm's services in valuing Oonavale property and Biram Stud.  The only evidence of the date upon which the valuations were provided is that of Mr Grix and I accept that Natwest did not receive those valuations until at least 7 July.  In fact, a letter from David Leitch to Mr Grix dated 12 July 1989 sets out "further valuations you requested" being valuations of Glandore Hospital by a Mr Lister of Oonavale property by Mr Kelly and a "fire sale" valuation of the land at Jacobs Well.

                        I am not prepared to accept that the compromise agreement was to go ahead in the absence of some reassessment of the value of the assets which were to secure the Leitch group's then existing indebtedness and further loan  monies.

                        Mr Grix's evidence that the security documents could not have been prepared any faster is also supported by the other evidence as to the course of events between 7 and 20 July set out earlier.  Mr Grix sent Natwest's instructions to Feez Ruthning's Gold Coast office by facsimile on the afternoon of 7 July.  The facsimile transmission cover sheet is marked "URGENT - PLEASE HAND IMMEDIATELY TO MR GLEESON" and the letter set out earlier, refers to the urgency with which payment to creditors is required.  That the complex security documents, comprising more than 400 pages, were prepared and delivered to David Leitch's solicitors on 17 July, amended at David Leitch's request and finally executed on 20 July, supports Mr Grix's evidence that the compromise agreement was finally settled with some urgency.

                        In alleging unconscionable delay on the part of Mr Grix, the applicants are unable to point to any specific example of it nor any evidence which would suggest an intention to prolong negotiations or settlement.  Similarly, the applicants do not say what would have been a reasonable time in which to negotiate and conclude the compromise.

                        The reality is that negotiations continued over five meetings in two months and the agreement was formally concluded seventeen days after the last meeting.  I have enormous difficulty in seeing any way in which a compromise agreement of this magnitude and complexity could have reasonably been negotiated and concluded any sooner.

                        Similarly, the allegation that the terms of the compromise, as embodied in the Natwest documents, were themselves unconscionable is not supported by the objective evidence.

                        The Leitch group, as consideration for entry into the compromise agreement, renounced irrevocably any claim they may have had in relation to the foreign currency loan transactions in November 1987.  In return, the Leitch group had its indebtedness capped at $10.4 million, was advanced a further $1.6 million (and on 11 December, a further sum of $400,000) was granted concessional interest rates well below those
then prevailing, with interest to be capitalised quarterly, had interest in excess of $2 million capitalised and was given a two year term on the loans in circumstances where the Leitch group was and had been in default under previous arrangements.

                        There can be no doubt that the Leitch group was at this time in dire financial circumstances.  David Leitch's letter to Mr Grix dated 12 July (set out earlier) shows that David Leitch was in fact pushing for a further "deal".  In effect, excluding the monies to buy the private hospital sites, David Leitch was asking for an immediate further advance of more than $1 million, against security of the private hospital projects for which David Leitch had no funding, in order that past creditors could be paid.

                        The applicants have been unable to point to any specific aspect of the Natwest documents which is so unusual or unreasonable so as to be regarded as unconscionable.  The rates of interest were either ordinary commercial rates or well below commercial rates, the taking of security and the terms of them were nothing more than usual features of secured loans and guarantees.  The Natwest documents provided only for the reasonable protection of Natwest's reasonable interests.

                        Further, David Leitch was at all the relevant times being advised by his solicitor or at least it was reasonable for Natwest to assume that this was the case.   The course of events between 7 and 20 July 1989 demonstrates the Leitch group's solicitor, Mr Couper, was directly involved in negotiations with Mr Eames of Feez Ruthning representing Natwest.  Mr Eames was informed by Mr Couper that he (Mr Couper) acted for Glandore, Glen Pacific and David Leitch and Mr Eames formed the opinion, in my view reasonably, that Mr Couper also acted for the other members of the Leitch group.  The (draft and) final Natwest documents were delivered to Mr Couper and were returned to Feez Ruthning executed.  There was nothing in what occurred between 7 and 20 July 1989 which would have suggested to any reasonable person that David Leitch and the Leitch group did not have the benefit of independent advice.  In fact, all the indications were such that it would have been unreasonable to believe otherwise.

                        The terms of the Natwest documents were in all the circumstances fair, just and reasonable as between the parties if not more favourable to the Leitch group than to Natwest.  The Leitch group had, or it was reasonable for Natwest to believe that it had, separate and independent advice.  David Leitch also was acting for the Leitch group as a qualified accountant and had had considerable experience in matters of high finance and dealings with large financial institutions.  A striking comparison can be made to the circumstances in Amadio which Mason J identified as entitling the Amadios to relief on the ground of unconscionability (see 151 CLR at 464-468).

                        In the circumstances the applicants have not shown that this is a case of the class in which equity will grant relief on the ground of unconscionable conduct.  The equitable principle applies to deny to those who act unconscientiously the fruits of their wrongdoing (Blomley v. Ryan at 429 per Kitto J) or as it is sometimes put, where the circumstances shock the conscience of the court (Bowkett v. Action Finance [1992] 1 NZLR 449 at 462).  The equitable principle does not and ought not to interfere with reasonable and unremarkable commercial agreements merely on the ground of inequality in bargaining power or disparity in relative financial strength.  The applicant's claim for equitable relief must fail.

THE TEROXY AGREEMENT

                        The making and breach of the oral agreement which is alleged to have been concluded between Mr Teroxy on behalf of Natwest and David Leitch on behalf of the Leitch group is pleaded as follows :-

            "23.     Further, or alternatively, by a further agreement made orally in about June July 1991, between the First Applicant on behalf of the Fourth, Fifth and the Sixth Applicant, it was agreed in consideration of the Fourth and Sixth Applicant forbearing to sue in respect of the matters referred to in paragraph 12 hereof or in respect of the First Respondent's failure to honour the compromise agreement referred to in paragraphs 13 or 14 hereof that :

 

            (a)        The First Respondent would waive any existing breach of the terms of the loans or the securities by the Fourth, Fifth, and Sixth Applicants.

 

            (b)        The First Respondent would extend the terms of all outstanding loans for a further period of 18 months with interest during such period to be capitalised and take no action to enforce their securities during such period.

 

            (c)        The Fourth, Fifth and the Sixth Applicant would progressively realise their assets in order to repay the loans within 18 months.

 

            24.       In breach of the said agreement, the First Respondent purported to appoint the Second Respondent as receiver and manager of certain grazing and farming land known as Biram Stud Cambooya of the Fourth applicant on or about the 6th September 1991 the assets of the Fifth Applicant on or about 6th September 1991 and the assets of the Sixth Applicant on or about 20th August 1991."

The Evidence Concerning the Teroxy Agreement

                        The latter half of 1989 and 1990 were what David Leitch described as "bad years financially for my companies" and he began to actively pursue alternative avenues of finance.  In late 1990 David Leitch was introduced to a finance broker who advised
him that an offshore loan could be obtained to pay out Natwest and provide carry on finance for the Leitch group companies.  However, by March 1991 it seems that David Leitch formed the opinion that the prospects of such an offshore loan were not good.  The loans and advances made by Natwest pursuant to the Natwest documents in July 1989 and subsequently, fell due on 21 July and/or 1 August 1991 and David Leitch had formed the opinion that it was imperative that he come to some arrangement with Natwest in order that the Leitch group companies could continue to operate.  To this end, David Leitch contacted Philip Deer ("Mr Deer"), then the Chief Executive Officer of Natwest in Australia and arranged to meet with him.

                        On 23 or 24 April 1991 David Leitch met with Mr Deer and Mr Teroxy, who was then Natwest's Chief Manager, Credit Management at Natwest's Sydney offices, whereupon David Leitch made what has been described as a "catalogue of complaints" in relation to his dealings with Natwest.  David Leitch complained about the foreign currency loan transactions in November 1987, discourteous treatment at the hands of Natwest officers and other matters and stated that Natwest had failed to honour an agreement to provide additional funds to the Leitch group (almost certainly a reference to David Leitch's understanding of or contention as to what had been agreed between he and Mr Grix in July 1989).  David Leitch also raised the possibility of a re-financing deal through PacOrient Financial Services Limited ("PacOrient").

                        David Leitch and Mr Teroxy then repaired to Mr Teroxy's office for further discussions.  It is clear that, at this time, Mr Teroxy's knowledge of the Leitch group's dealings with Natwest and its then current situation was limited.  Mr Teroxy had
not read the Leitch group's file nor had he discussed the Leitch group with Mr Grix, who was no longer with Natwest, nor with any other person with direct knowledge of and/or involvement in the affairs of the companies.  The only information which Mr Teroxy had, other than that supplied by David Leitch, was information obtained at a meeting of senior members of Natwest on 13 February 1991 at which Natwest's "non-performing and problem loans" were reviewed.

                        According to Mr Teroxy it was common ground that there would be an orderly sale of the Leitch group assets which, it was envisaged, would take eighteen months or longer in order that the assets could be placed in the market most advantageously.  Mr Teroxy's evidence in this regard, which emerged for the first time in cross-examination, continued as follows (transcript p.478) :-

            "MR CURRAN:  But Mr Leitch made it clear to you that the bank's loans were due for repayment in late July '91?---Yes, he did.

 

            What did Mr Leitch say to you when you told him that the bank would not extend the loans?---He felt it was better if the bank did extend the loans.

 

            What did he say?---He did not wished [sic] to be placed in a formal condition of default.

 

            And what did you say to that?---I didn't consider that to be material.

 

            You told him you did not consider that to be material?---Not in the context of the workout, no, sir.

 

            So you are saying to him, `Look, the fact that you're in default is immaterial'?---Yes.

 

            And what did he - how did he reply to that?---He disagreed.

 

            What did he say?---He still wanted to have the loans extended and rolled over.

 

            And your reply?---I declined to do so."

                        Despite his then limited knowledge of the Leitch group, that Mr Teroxy would take such a position is entirely consistent with the evidence as to what occurred subsequently. 

                        Mr Teroxy contacted Gregory Willis Jones ("Mr Jones") Natwest's Credit Manager, Victoria, who had had the day-to-day responsibility for the Leitch group files since joining Natwest in March 1991.  Mr Teroxy instructed Mr Jones to travel to David Leitch's office at Southport to look into, consider and report on the PacOrient proposal and to try to establish some figures on the realisable value of the securities held by Natwest.

                        Mr Jones attended at Southport on Anzac Day (25 April) and spent that and the following day in discussions with David Leitch, Gary Leitch and others involved in the Leitch group's affairs.  Mr Jones inspected the land at Jacobs Well and the house property Whispering Pines, where he overnighted.  The PacOrient proposal was discussed.  It involved the Leitch group borrowing $US55 million, part of which would be applied to discharge the debt owing to Natwest (assessed by David Leitch at $AUD13 million) and Natwest guaranteeing the interest on the $US55 million loan.  The guarantee, which matured after ten years, was to be secured by certain mortgages, but not the then existing mortgages over Biram Stud and Whispering Pines.

                        On 26 April 1991 Mr Jones sent to Mr Teroxy a report of his visit to Southport.  The report considers two options;  the PacOrient proposal or a realisation of the Leitch group assets held as security by Natwest.  After setting out the mechanics of
the PacOrient proposal, Mr Jones' report continues :-

            "3.       General

 

            Personally Leitch is a very slippery character.  He has great resentment for action or lack thereof by NWAB in the past and I am sure that if things go against him again he will not hesitate to cut up rough.

 

            His eldest son Gary Leitch seems to have better control and is seen by David Leitch as the heir apparent - 3 to 4 years off.

 

            I.E.  David Leitch's aim is to now set a facility that will refloat the ship but, as soon as its off the sand bar turn it over to the children to either continue to run, or, if values improve sufficiently enough to cut up the portfolio, sell the lot and divide the spoils.

 

            4.         Our Assessment

 

            Our assessment is whether we have enough real estate security to sell and pay out the remaining guaranteed interest once/if the repaid interest and cash flow dry up.

 

            I think the graph on the next page identifies the risk.

 

            The challenge would be to realise that prepaid interest and cash flow contributions were about to run out, and to sell sufficient property to continue to fund interest to a point where the remaining real estate asset cover is more than the remaining interest guaranteed.

 

            I suggest NWAB shine up its crystal ball!!!

 

            5.         Sell Up Now

 

            The other option is to sell up now.  I don't need to tell you that I believe Leitch's fire sale numbers are probably right.  We should also realise the lengthy time delays in selling such a diverse and substantial portfolio.

 

            Additionally, the properties are all managed by the Leitch family based at Southport, there appears to be no on-site project managers that we could count on to carry on the business.

 

            Our expectation in this scenario should be:

 

            Glendore [sic]                         $2.0

            Oonavale                                 $2.0

            Jacobs Well                             $3.0

            Logan/Cleveland                     $2.0

 

            Birham [sic]                            $0.75

                                                            $9.75

 

            Less Costs and Extended Settlements

 

            Say                                          $8.00

            Debt                                        15.80

            LOSS                                       $7.8m

 

            6.         Other Real Estate Assets

 

            Leitch has other Real Estate assets not currently offered.

 

            1)         Family Home - `Whispering Pines'

                        2.5 acres 10 minutes from Gold Coast with good views said to be work [sic] $1.0m by Leitch.

 

                        $1.38m of loan funds are being used to pay debts on this property.

 

                        The property has potential as a 14 unit up market development, DA has been gained, but not viable in this market.

 

            2)         Birham [sic] Stud

                        Valued 7/89 by NWAB @ $1.2m was previously promised to be released but never was.  Property is run by a Leitch associate who has helped Leitch over the years in establishing private hospitals (I forget the woman's name).  Leitch says the property is `notionally' 1/2 hers.  Previously NWAB security.

 

                        Leitch says Value @ $2.0m has had $3.8 spent on it.

 

            3)         Argyll Park

 

                        A rural property we have not heard of before.  Will have $8,000,000 debt reduction from these borrowings.

 

                        Leitch wishes this property in particular to remain unencumbered so that it can be used to raise loan funds in an emergency.

 

            4)         Logan City Private Hospital site.  Previously NWAB security.

 

            5)         Recommendations

 

                        1)         We need to confirm many facts before we can make a judgment

 

                                    -           Creditability of borrowing deal

                                    -           Certaintity [sic] of Endowment Policy

                                    -           Interest rates and payment dates etc

                                    -           Land values

                                    -           Escalation rates in land values

                                    -           Potential of Jacobs Wells [sic].

 

                        NOTE  All other properties are developed, or have no huge potential for increases in value for  minimal development cost.  Re Increase in Jacobs Wells [sic] Value will primarily due to obtaining development approvals and the return of a confident speculative real estate market which could see a massive increase in value, which would be the catalyst for terminating the deal satisfactorily in say year 4, 5 or 6.

 

                        2)         Our time frame appears to be very short.

 

                                    David Leitch seems to think the accreditation of the deal with the off shore bank and Prudential is in Dennis Teroxy's court.

 

                        3)         If we are relatively happy with 1) above the matter should be given serious consideration.

 

                                    If the deal does go ahead, we would need to put 2 consultants between Leitch and us.  One to oversee the Hospital operations and one to oversee the rural operations.

 

                                    I've already told Leitch that this will be a requirement.

 

                        4)         We should insist on all available Real Estate properties with formulas set to allow their eventual release.

 

                        5)         Our fee for this matter should, at a minimum be full recovery of all our existing exposure not some discounted figure.

 

                                    And perhaps some long term profits share `exit fee' out of Jacobs Well.

 

                        6)         The `big risk' is that Leitch will not be able to contribute to interest from cash flow and the value of underlying properties for what ever reason, does not improve.  The result then would be very bad for NWAB

 

                                    Re        - Interest Guarantee                $50.00  US

                                                - Prepaid interest                     $13.00  US [FIRE SALE

                                                - Value of Real Estate              $7.80  US [TODAY

                                                            SHORTFALL               $29.20  US

 

                        But surely this scenario couldn't happen!!!"

                        Mr Jones' evidence, which was not seriously challenged, was that at no stage during the discussions on 25 and 26 April was an eighteen month rollover or moratorium pending asset realisation mentioned by David Leitch or anyone else connected with the Leitch group.  During May and June 1991 Mr Jones received telephone calls from David Leitch seeking information as to Natwest's attitude to the PacOrient proposal.  Mr Jones told David Leitch that the matter could take some time as Natwest was being asked to guarantee interest on a loan of $US55 million over ten years, which guarantee would increase Natwest's exposure far above the exposure at that time of about $AUD15 million.  David Leitch did not, during the course of these conversations, mention an agreement for an eighteen month extension of the loans and advances made in July 1989 and subsequently in exchange for a forbearance to sue for alleged breaches of the Grix agreement as contended for.

                        Following Mr Jones' visit to Southport, there were a number of communications from David Leitch and his representatives, Garry Brian Parker ("Mr Parker") and Ian Bruce Charles ("Mr Charles") to Natwest and on 21 June 1991, David Leitch wrote to Mr Deer in the following terms :-

            "Re:  Glandore Pty. Ltd. and associated companies

 

            I refer to my appointment with you on the 23rd April last when I discussed the above company's problems with yourself and Mr. D. Teroxy.  Also I brought up a proposal regarding re-financing through Prudential Assurance (S.E. Asia) Limited put forward by PacOrient Financial Corporation Limited.  I explained that the problems were extremely urgent and a solution needed to be found quickly.

 

            Later that morning Mr. Teroxy and I further discussed Glandore/NatWest problems.  By telephone he arranged for Mr. Greg Jones of your Melbourne office to fly to Southport on Thursday, Anzac Day, 25th April to fully examine the records, valuations etc. and to report as quickly as possible to Mr. Teroxy.  I understand Mr. Jones reported in writing to Mr.
Teroxy by 29th or 30th April.  Mr. Teroxy also agreed to check out the genuineness and practicability of the Prudential proposal.

 

            I have been told that PacOrient have had several meetings with you on this.

 

            I spent the week 6th to 10th May in Sydney trying without success to proceed further.  Mr. D. Jullian refused to speak to me or see me.

 

            Mr. Teroxy met me on Wednesday and said that NatWest would require to the end of June to make a decision.  Mr. Teroxy also told me that Mr. A.A. Grix took the files of my Companies with him when he left your employment on the 14th February, and that he had these files in his personal possession for a couple of months after that date.

 

            The history of my association with your Company shows very clearly throughout your Company has not honoured its undertakings.  Acting in breach of our agreements NatWest brought Glandore Pty. Ltd. and Gude Pty. Ltd. offshore loans on shore resulting in approximately a $4,000,000 loss and debited this loan to my Companies.  Telexes and the hand written notes thereon show that the loss was totally the fault of your staff and must be borne by your Bank.

 

            Mr. Keith Shakel arranged an appointment with Mr. Grix for me and gave me personally his assurance that should Mr. Grix and I reach a satisfactory compromise Mr. Shakel would endorse it.

 

            This compromise was reached but not honoured by your Bank.  This compromise was detailed in my letter and report to NatWest dated 12th July, 1989.  Fifteen months after the compromise was reached Mr. Grix told me that contrary to Mr. Shakel's assurances to me at the time Mr. Shakel told Mr. Grix not to agree to advance the funds.  The failure to make the further funds available when and as agreed has cost the Leitch interests a fortune in lost capacity and the loss of Government licences for two new hospitals.

 

            Mr. Deer, your Company files show the facts.  As I was a Melbourne client most of my correspondence to Mr. Grix was copied to Melbourne.  I have detailed records of all my correspondence to NatWest most of which was unanswered.  I have records of the telephone calls to Messrs. Grix and Goddard and of the dates of the numerous telephone calls when these gentlemen were `at a meeting' and did not return calls.

 

            So much for the past.

 

            I am not prepared to be bankrupted because of the refusal of NatWest to accept the cost of its actions.

 

            My eldest son Gary has had a heart attack because of the worry and strain
and has had to give up working for the Company.  He is 38 years of age.

 

            NatWest's inaction compels me to take steps to protect my family and my Companies.

 

            This letter is in no way a threat.  It is a statement of the action I will take should matters not be settled by 28th June, 1991.

 

            Mr [sic] brother, Russell Leitch and myself will go to see the International Manager in London, (I have tentative 'plane bookings for Sunday 30th June), in a final attempt to settle our differences without litigation.

 

            My Companies will issue writs to have the amount of the debt settled and substantial damages awarded.

 

            My Companies and myself will also seek legal redress for substantial damages against the individual members of your Treasury Committee at the time of its unauthorised decision to bring the loans on shore.  I learnt of this fact incidentally from Mr. Alan Halse, Commercial Manager, Victoria twelve days later in the course of a telephone call to him about another matter."

Mr Teroxy replied by letter dated 24 June 1991 :-

            "                                  Ref:  Your letter of June 21, 1991

 

            Your correspondence of the 21st was referred to me this morning and the contents noted.

 

            As indicated to you at our last meeting, we are cognisant of the nature of your allegations and indeed have had several discussions with PacOrient as regards their proposal to promote an arrangement through Prudential.  Given the complexity of this proposal and the financial ramifications for the Bank, these discussions of their nature are time consuming and involve matters beyond (albeit including) your position.  My last telephone conversation with Mr Parker of PacOrient indicated it was his understanding you were seeking to put the proposed facility in place independently through Hambros.

 

            Given the contents of your letter, it now appears necessary to refer the matter to our legal representatives whereupon the relative merits will be argued in the appropriate forum.

 

            I note your letter does not specify the basis on which you would seek to `settle' the matters by June 25, and should you feel it desirable, I would be pleased to discuss this with you.  Please feel free to contact me on (02) 250 8446."

                        According to David Leitch, this correspondence precipitated a meeting or telephone conversation with Mr Teroxy on 25 or 26 June 1991 whereby Mr Teroxy, in response to a question from David Leitch, agreed to an eighteen month extension of the Leitch group loans to allow the group's assets to be realised in an orderly fashion.  The allegation that this meeting or conversation took place and that the agreement as pleaded was reached arose for the first time in Mr Morris QC's cross-examination of David Leitch.  There is no mention of it in any of a number of statements sworn by David Leitch for the purposes of these proceedings.  Mr Teroxy cannot recall a meeting or conversation taking place at this time.

                        On 27 June 1991 David Leitch met with Mr Teroxy and a Marina Ong ("Ms Ong"), Natwest's "in-house solicitor".  Ms Ong prepared a file note of what occurred at that meeting, the contents of which, it is agreed by David Leitch and Mr Teroxy, accurately reflect what was discussed :-

            "David Leitch did almost all of the talking, mostly about the wrongs allegedly done to him and lies apparently told by Arthur Grix and Keith Shackell, how he concluded that NWAB was playing a waiting game (waiting for him to go to the wall);  how NWAB allegedly acted illegally and improperly in getting his loan back on shore;  how he was allegedly pressurised into signing the Deeds of Compromise even though he did not know what they said.

 

            I was of the belief that there was no point in contradicting him - this would, in my assessment at the time, have been counter-productive and would have resulted in antagonism.  I did indicate generally, however, that if this matter ever did go to Court, it would give rise to a long and disputed battle.  I also asked him what his major gripes were with the Bank.  He said that an arrangement existed whereby NWAB via A Grix apparently agreed to help him sell certain property at Gundi (?).  Leitch said that although steps were taken by Arthur Grix to do this, the property was not sold and he says Arthur was aware that the property would not be sold several months before Leitch was informed of this.  His other gripe, which was a constant theme (but which was not specifically referred to by him when asked to identify his major gripes), was that NWAB was supposed
(apparently) to fund him out of his problems at least regarding the property purchased by him at the time the compromise was reached and although funds were made available by NWAB from time to time, these were insufficient.

 

            Dennis Teroxy made it clear to him that NWAB was not playing a waiting game and that really, what NWAB wanted was to be paid back, in common with his desire to clear his debt.  With this common goal in mind, Dennis nonetheless indicated that he'd have to come up with something better than the PacOrient idea.  David Leitch then asked what if the time was reduced to five years.  Dennis Teroxy said that was better.  Leitch said that he had not yet approached Lendlease, though, about the five year put option.  Dennis commented that it would probably be a put and call option to potentially reduce the term to less than five years.  Dennis said he would make further investigations by ringing a Mr Stockton and a Mr Millot [sic], two names put forward by David Leitch.

 

            Leitch is to ring Dennis around 8.15 am tomorrow morning to see how these talks went.  Dennis also said that he would talk to Mr Packer from PacOrient.  Leitch cautioned Dennis about talking to Mr Packer as Leitch claimed that Mr Packer couldn't be trusted.  Leitch also said, off the record, that it was Mr Packer's idea to threaten NWAB with bad publicity and his loss on the foreign currency loans to motivate NWAB to participate in this proposal and that left to himself, Leitch would not have been pushed to these threats."

                        It is clear from Ms Ong's file note that no mention was made of an eighteen month moratorium in exchange for the release of any possible cause of action against Natwest nor of the grant of any other indulgence, extension or further accommodation to the Leitch group.

                        On 1 July 1991, Mr Teroxy wrote to David Leitch in the following terms :-

            "As agreed, I have spoken to Messrs Stockton and Millott.

 

            Ken Stockton has only just commenced his review of your position and proposal and will not be able to form a definitive view for several days, suggesting mid next week at the earliest.

 

            Austin Millott is not able to contribute anything of substance to the discussion maintaining the fact he has judgement and is allowing the legal matters to take their natural course.

 

            I have been attempting to contact Garry Parker but so far without success, nor have I heard further from London.

 

            Sorry I missed you this morning - a `minor' crises [sic] developed on another matter necessitating an early conference.

 

            I shall be available today if you wish to call."

                        Mr Teroxy met with Messrs Charles and Parker on or about 3 July 1991.  The men had had a number of meetings prior to this time at which the Leitch group was discussed in the context of a general discussion about Natwest's problem loans.  However, nothing had been agreed at any of these earlier meetings.  The substance of the conversation at the 3 July 1991 meeting is not in serious dispute.  Mr Teroxy said words to the effect that David Leitch was a "cranky old man";  that David Leitch and the Leitch group would be in default by the end of the month and that after that, all that would be left to do would be to "cover Leitch with six feet of sand".  When Mr Parker indicated that David Leitch might take legal action against Natwest, Mr Teroxy replied that Natwest had "big pockets" and Leitch could do what he liked.  Both Mr Parker and Mr Charles confessed to being confused at these statements as David Leitch had informed them that Mr Teroxy had previously agreed to an eighteen month rollover of the Leitch group loans.  However, neither man appears to have raised the issue with Mr Teroxy.

                        There is in evidence an undated document headed "David Leitch - Action Plan".  The document was prepared by Mr Teroxy in his own hand at some time in early July 1991 and is in the following terms :-

            "1.       Basic problem is:  too much debt, hostile lenders and inadequate
cashflow to service exposure.  Net realizable value at present is roughly line ball with debt but realizability would be difficult given the assets type and location.

 

            2.         Leitch is still convinced that he has a sustainable legal action against NWAB - our advice is he hasn't.  Our agreement to the interest concession must not be seen as an admission of guilt.

 

            3.         NZI is poised to bankrupt Leitch & his son.  Other lenders inc. Westpac are also pressing.

 

            4.         Other advisers to Leitch are not convinced he has a great deal of upside & cannot help.

 

                                                             - OUR OPTIONS -

 

            1.         Allow NZI et al to bankrupt Leitch/ On Aug. 01 we issue s.57(2)(b) notices & become mortgagees in possession of his assets/ sell them and crystalize [sic] our losses (if any).

 

            2.         Take out other lenders at a suitable discount - consolidate all his assets & embark on a long term sale program.  Interest is suspended but `memoed' at default rate.  If cushion adequate, no incremental provision required.

 

            3.         Do nothing re other lenders but proceed with sales program.  Inject some working capital for essential expenses to maintain viability of core assets (e.g. seed & fertilizer & possibly the grain storage).

 

            4.         Do nothing with other lenders - no more money - orderley [sic] (but insist it happen) sales - push for put option on Jacob's Well.

 

                                                             - RECOMMEND -

 

            *          Confirm with Leitch that NWAB is looking to recover its full legal debt - no $3m+ `discounts'.

 

            *          We may consider some takeout of NZI and others but it would only be at a substantial discount with no strings attached.  Any such initiative would have to come from the other lenders and Leitch.

 

            *          We may consider some working capital but only subject to :-

 

                        · Leitch's agreement as to the quantum of legal debt

                        · Full & detailed schedule of expenditure

                        · Extra security available

 

                        Any working capital must demonstrably show a benefit to NWAB security position.

 

            *          Leitch's facilities formally mature at the end of this month.  Leitch must provide a schedule of realizations (what, when, how/ $) to reduce debt - otherwise we'll take control of same.

 

            *          We must have some income inflow/cashflow from producing assets e.g. crop lien income?

 

            *          Leitch to co-ordinate the `put' option on Jacob's Well - [$15m in 5 years] with Pac-Orient."

                        Late in May 1991 Mr Jones had become aware that Westpac Banking Corporation was moving to realise security which it held over Leitch group assets and in mid-June 1991 he advised Mr Teroxy to notify David Leitch that the Leitch group loans would not be extended after the respective due dates.  On 4 July Mr Jones sent a facsimile transmission to Mr Teroxy which contained the following reference to the Leitch group :-

            "LEITCH: - I've followed up Feez Ruthning in Surfers Paradise regarding the documentation.  Their view in that there is little we could do to perfect anything if it required Leitch's consent in any event, so we should just write to Leitch requesting repayment on the due date, as a preliminary to any action we may care to take.

 

            Please advise if any matters arising out of your recent meeting with Leitch require attention."

                        Mr Teroxy then spoke with Mr Jones and instructed him to place the Leitch group loans on "non-accrual" as from 31 July 1991.  That is, Natwest would not capitalise unpaid interest but would treat it as outstanding from 1 August.  Mr Teroxy also instructed Mr Jones to issue formal notices of demand to the Leitch group.  These instructions were written by Mr Teroxy in the right hand margin of the facsimile received that day from Mr Jones.

                        On 8 July 1991 Mr Jones sent a draft advice letter to Mr Teroxy by facsimile transmission.  Mr Teroxy telephoned Mr Jones and instructed him not to send the letter for the moment "as we have a meeting with Leitch in the next few days".

                        According to David Leitch, he met again with Mr Teroxy in Sydney on 11 or 12 July 1991 where the men discussed the possibility of a workout period of at least eighteen months to allow an orderly disposal of assets at appropriate times.  Workout or carry on finance was to be provided to allow the Leitch group of companies to continue operating.  Mr Teroxy was also to contact the Leitch group's most pressing creditors, NZI Capital Corporation Limited ("NZI") and the Australian Tax Office to "give them some comfort in view of the negotiations we were then carrying on".  On David Leitch's evidence, he then told Mr Teroxy that for the workout to be successful, the mortgages would have to be extended for the eighteen month period so that the Leitch group would not be in default.  Mr Teroxy is alleged to have again agreed to extend or rollover the Leitch group loans for a further eighteen months.

                        For his part, Mr Teroxy could not recall, although did not specifically deny, meeting with David Leitch on 11 or 12 July 1991 and denied ever agreeing to extend the Leitch group loans to cover the period of the asset realisation.  It does seem likely, however, in light of Mr Jones' account of the 8 July conversation with Mr Teroxy, that either Mr Teroxy or Mr Deer and perhaps both, met with David Leitch soon after 8 July 1991.  In any event, Mr Teroxy remained firm in his denial of any agreement to extend the Leitch group loans.

                        Mr Teroxy telephoned Mr Jones on 18 July and instructed him to attend at David Leitch's office at Southport to discuss a realisation of assets schedule.  Mr Jones said words to the effect "What's the point?  Nothing's changed since my last report".  Mr Teroxy replied to the following effect "Whatever happens, there's going to have to be a realisation of the assets and I want you to look at what Leitch has in mind and see what we think."  Mr Jones then telephoned David Leitch's office at Southport and spoke to Mark Alexander Volgin ("Mr Volgin") an employee of the Leitch group who raised the issue of ongoing funding.  Mr Jones resolved to contact Mr Teroxy and obtain an agenda for the forthcoming meeting at Southport.  Mr Jones immediately telephoned Mr Teroxy to that end and Mr Teroxy indicated that he would provide an agenda.

                        Mr Jones had further telephone conversations with Mr Teroxy on 19 and 22 July in connection with the planned Southport meeting.  Mr Teroxy said that Natwest may have to provide some emergency funding to protect its securities.  Mr Teroxy did not mention a moratorium agreement between Natwest and the Leitch group.

                        In the morning of 22 July 1991 Mr Jones had a further telephone conversation with Mr Volgin.  In the course of that conversation, Mr Volgin asked Mr Jones if he had seen a letter which David Leitch had sent to Mr Teroxy by facsimile transmission on 19 July 1991.  Mr Jones had not seen the letter and requested that Mr Volgin send him a copy.  The letter referred to by Mr Volgin was in the following terms :-

            "Re:  Glandore Pty. Ltd., Glen Pacific Pty. Ltd.

 

            I refer to our telephone discussion of the 19th instant and further calls this week.

 

            You advised that on 12th July you would `fax' me a copy of your letter to NZI.  As yet this facsimile has not arrived.

 

            Would you kindly confirm in writing your statements that you were happy to extend the above Companies mortgages to cover the work-out period so that neither Company is in default under these mortgages.

 

            It is a severe disappointment to me that you were unavailable to meet me yesterday or today as working capital to preserve the assets under mortgage is in a critical position as I explained to your Mr. Deer and yourself on 11th and 12th July, 1991.  No doubt you are aware that Mr. G. Jones was unable to obtain a flight out of Melbourne for today when he tried to book it yesterday and now is expected on Tuesday 23rd July, 1991.  This leaves little time for you to try to come to a reasonable solution with NZI Capital Corporation Limited.

 

            I refer to the `Spread Sheet' of 25th April, 1991 showing the liabilities of my Companies which was verified on that day by your Mr. Jones and I understand was the subject of his report to you.

 

            If the `carry on' position is not addressed immediately the hospitals will close and the wheat crops on `Oonavale' and Gude Pty. Ltd. will be greatly reduced by weed damage.  To protect these crops aerial spraying needs to be done by 24th July.

 

            The creditors of $1,477.004.52 as at 25th April, 1991 were divided as follows :-

 

                                                                                                            Minimum required now to carry on until 31/12/91

            Glandore Pty. Ltd. - hospitals

            and general                                                     $  382,646.08              $  300,000

            `Oonavale' property                                           301,310.16                  200,000

            Toowoomba property (Gude P/L)                      218,237.56                  150,000

            Glen Pacific property                                          86,856.39                    50,000

            Murgon property (Argyll Park P/L)                    14,271.09                    20,000

            Group Tax to March, 1991                                401,556.83                  450,000

            PayRoll Tax to March, 1991                              721,125.60                   30,000

                                                                                    $1,477,004.52$1,200,000

 

            Redland Bay land under option for $1,050,000 until 31st July, 1991 is the only property that could be sold immediately.  If the option which provides for 30 day settlement (I understand) is not exercised this could be auctioned by mid-September, 1991.

 

            Because the silos were not completed prior to last harvest the wheat crop realized $200,000 instead of $450,000.  To complete the silos for this crop
Prince-Bisley requires a guarantee from NatWest by 31st July, 1991 that the balance of $100,000 will be paid after completion and certification by my Consulting Engineer.

 

            To enable a realistic `sell program' over eighteen months the above matters and a `stay of proceedings' from NZI Capital Corporation Limited need to be addressed and settled within the next few days.

 

            I enclose correspondence from some of the pressing creditors.  I await your reply urgently.

 

            I have forwarded a copy of this letter to Mr. Philip Deer for his information."

                        Mr Teroxy acknowledged that he received and read the letter but either skimmed it or did not appreciate its import, particularly the third paragraph which asks for written confirmation of an agreement to extend the Leitch group loans during the workout period.  Interestingly, paragraph four supports or calls for rebuttal of David Leitch's assertion that a meeting between he and Mr Teroxy took place on 11 or 12 July.  In any event, Mr Teroxy did not reply to David Leitch's letter.

                        In the afternoon of 22 July 1991 Mr Jones received from Mr Teroxy by facsimile transmission an agenda for the Southport meeting :-

            "As discussed last Friday, it is important for you to visit with David Leitch tomorrow.  The principal objectives are :-

 

            (1)        · Accurate evaluation of the composite group financial profile - inter alia balance sheets, profit and loss and CASHFLOWS.

 

            (2)        · Determination of the critical expenses of the group.  It is our belief that some limited expenditure may be essential to preserve our assets in marketable condition.

 

            (3)        · Formulation of an asset divestiture program.  David has been told that it is imperative that the debt level be decreased.  To this end, we should list all the group's assets, evaluate their sales potential as to value and possible timing.  In this context we also need to agree
a strategy of HOW the assets should be realized and by whom.

 

            (4)        · David still believes he MUST have working capital funds and is looking to NWAB.  You should evaluate this in the context of (2) but NO COMMITMENTS.

 

            (5)        · The only sum we are prepared to contemplate recovering is our full legal debt.  We must not compromise on this issue at this time.

 

            (6)        · Further examination should be undertaken of a possible `put option' on Jacobs Well.  PacOrient has not come back to us yet.  Probably won't.

 

            (7)        · Consideration should be given to returning to Qld next week with expert advisers on the sale of the rural properties, feed lot licence etc.  You may also wish to canvas further getting accounting expertise to shore up the critical dynamics of the hospitals.

 

            (8)        · Test the probability of sale of one of the hospital sites to McDonalds.  $1.0m has been mooted.

 

            Any problems, please call."

                        Mr. Jones went to Southport on 23 July 1991 and met for approximately five hours with David Leitch and some of his staff.  Mr Jones listened to David Leitch's requests for further finance and his ideas on asset realisation.  Mr Jones made notes at the meeting (which notes are in evidence).  The evidence and contemporaneous notes of Mr Jones show that the Leitch group had not taken any professional advice nor had it organised or started to organise an assets realisation strategy.  In fact there was no strategy in place directed to the sale of any assets and Mr Jones formed the opinion that David Leitch's suggestions in this respect were "straight off the top of David Leitch's head".  Mr Jones' note relating to Biram Stud concludes as follows :-

            "Sell plan

 

            - dispose of stock - Jan/May '92

            - list - farm?

                        - 40 acre lots?

                        -

            - no plan established

 

            Get advice - DHL does not know!"

                        Mr Jones' unchallenged evidence in relation to the meeting was that at no stage was there suggestion that David Leitch and Mr Teroxy had concluded an agreement. 

                        Mr Jones returned to Melbourne and prepared a report of the Southport meeting which was sent to Mr Teroxy by facsimile on 24 July 1991 :-

            "At your request, I visited Leitchs office on the 23rd July with the aim of completing the tasks set in your memo of the 22nd July.  My report follows.

 

            Briefly, the financials for 6/91 are not available, I've therefore spread the financials to 6/90 previously held.  They confirm our understanding that the Group is supported by asset revaluations and cash from the hospital activities.

 

            The cash requirement has been assessed and detailed.  I've attempted to catagorise [sic] the requirement into * - crucial to retain asset value, ** crucial to the ongoing viability of the Leitch Group and therefore to us in respect of our Business supported debt;  ie. Hospital;  and *** other.  The most urgent of these requirements relate to Oonavale because of the need to spray the crop NOW and commence completion of the grain drier NOW.  The others coded * OR ** are crucial now if we wish to support the group.

 

            Recommendation

 

            My view is that without support being given now, we will be locking in our fire sale estimate.  We know from our own evidence that major real estate assets cannot be sold at near their true value in todays market.

 

            Additionally, with the diversity of this connection any accurate assessment of the true trading position and market worth of the assets would take weeks and would require expert input.

 

            The threat of litigation over past matters remains, my view is that Leitch would be unsuccessful here, however Leitch appears to have comprehensive files on all past discussions, we do not.

 

            My discussions with Leitch indicate that he has not turned his mind to a
specific strategy to sell property assets.  He has not listed any property formally and is guessing as to current market value, as are we.

 

            Recommended Plan

 

            1)         Allow Leitch to draw down a maximum of $1.0m based on production of original invoices and possibly through our account over which we have 2nd signature control.

 

            2)         Look to the sale of the Cleveland site by exercise of the current option or Auction, with settlement prior to January 1992 for recovery of the $1.0m.

 

            3)         Appoint a major accounting firm to produce a pre receivership report on the Group, including independent assessments as to profitability of the group ongoing and break up value.

 

            4)         Advise Leitch that if we proceed the full legal debt will not be compromised, including all costs and interest at market rates.

 

            5)         Formal, Final documentation acknowledging the arrangements and precluding Leitch from any legal action surrounding past events.

 

            Implement plan developed as a result of 3) if 2) not achieved by JAN 92 ie take control.

 

            6)         Advise Leitch that the Group must have no overdue creditors or other liabilities outstanding on an ongoing basis until properties are sold and our debt repaid.  Any legal action threatened from another source during the term of our support will trigger default and implementation of the plan we will develop (see 3) above.

 

            7)         Dennis - all this is preconditioned on resolution of the NZI matter.

 

            PS.       Leitch advises that PacOrient is the `weakest of 3 sources' he is approaching re the Jacobs Well put option - he will keep us informed!

 

                                                                                    [Signature]

                                                                                    24.7.91"

                        On 29 July 1991 Mr Teroxy sent the following memorandum to Mr Jones and sent a copy to David Leitch :-

            "Mr P.W. Deer has approved a maximum amount of $342,944.00 for
emergency short term working capital in order to preserve the assets and maximise the potential return to the Bank.

 

            1/         Drawdowns on production of specific invoices with the prior approval of Greg Jones.

 

            2/         Execution of a crop lien over the crop.

 

            3/         David Leitch to commit the provision of monthly cashflows for August 1991 to December 1991 inclusive, together with a monthly reconciliation of actual expenditure to these forecasts.

 

            4/         A comprehensive asset realisation program is to be put in place by August 31, 1991, identifying the timing of sales and floor prices to be achieved.

 

            5/         No further expenses are to be committed or debts incurred without the prior approval or advice to NatWest.  It is essential that a ceiling on debt be identified as a matter of urgency.

 

            The first and most important disbursement must be the spraying of the wheat crop with funds allocated to this.  Pending the formal agreement of David Leitch and Glandore Pty Ltd to the above terms, an amount of $50,000 (fifty thousand dollars) is to be remitted as follows:-

 

                        To:       National Australia Bank Ltd

                        A/C:     Glandore Pty Ltd

                        No.:     084 675 01 595 2995"

                        The emergency funding seems to have been approved by Mr Deer based on an assessment dated 25 July prepared using Mr Jones' report of 24 July by a Natwest officer, Ms Denise Tipping and input in the form of margin notes by Mr Teroxy.  Ms Tipping's memorandum reflects the rationale behind the emergency funding and along with Mr Jones' report, provides an insight into Natwest's position at this point in time :-

            "It is my assessment that NWAB's only viable alternative with respect to this group is to inject some working capital and develop/implement an orderly asset sale of our securities.

 

            Due to the nature of our security there is a low probability that assets could be sold at values which would minimise our losses, in less than 12-18 months.  With that in mind, it is important that our securities are protected during the interim.  This will require the injection of limited amounts of working capital.

 

            Based on the information supplied to date, I would recommend the following:

 

            1.         Payment of the following creditors immediately:

 

                        Contract Cleaning                                                        43,000

                        Oonavale leaseholding payment                                    5,000

                        Land tax                                                                        23,000

                        Rates Logan Lea site                                                     11,000

                        Fertiliser                                                         (1)          30,000

                        Monies owing on vehicles                                             27,000

                        Engineers fees re Levy Bank claim                               13,944

                        Water board - protection of rights                                20,000

                        Grain dryer [sic]                                            (2)        170,000

 

                                                                                                            $342,944

 

                        (1)        Overdue payment - fertilisers required to spray this crop will then be supplied on credit.

 

                        (2)        Grain dryer will take 2 months to complete and must be completed when crop is harvested in October.   This equipment will improve price obtained for wheat from approx $90 to $140 per ton.

 

                        Payment of these invoices will (i) protect current crop and (ii) allow Hospital to remain operational.

 

            2.         Before commitment on the injection of any other funds is made, it is essential to determine the cost of keeping Oonavale, Birham [sic] Stud and the Hospitals operational.  It is estimated that this will be necessary up to the end of 1992.  No cash flows have been supplied for the farm properties and only limited information on the Hospitals.  We must determine the available cash and the anticipated expenditure for the remainder of 1991 (estimated at $1.1m) and the 1992 calendar year.  Leitch must supply these and they must be thoroughly reviewed by NWAB before 31/8/91.  At that time we can assess the total funds needed to be injected by NWAB while the assets are being liquidated.

 

            3.         Obtain written assessment of the optimal timing for sale of major assets and the anticipated valuation from professional agents who know the area.  Agree the sale programme timing by 31/8/91.

 

            4.         Determine the most effective way of managing the properties and hospitals and if Leitch remains in control ensure:

 

                        i)          expenditure is controlled jointly by NWAB - Leitch is not authorised to contract/commit any funds for items not previously agreed;

 

                        ii)         Leitch is paid as a manager on fixed wage.

 

            5.         Leitch must formally agree that he will at no time take action against NWAB over the Swiss Franc loan issue.

 

            6.         All funds received from sale of assets are paid directly to NWAB.

 

            7.         Monthly cashflow reports are forwarded to NWAB and variations to budget explained.

 

            8.         All security documentation is sent to Leo Smits for review and Leitch agrees to sign any additional documentation recommenced due to flaws in our existing documents.

 

            Conclusions:

 

            If NWAB does not inject further funds to keep the hospital and properties operational, the fire sale values attributed to our securities are the most likely results we would achieve.  This would realise a loss of approximately $4.5m based on 30 June outstandings."

                        Also on 29 July 1991, Mr Jones sent a letter to David Leitch advising of the emergency funding approval and the specific purposes for which the approved funds were to be utilised and setting out the conditions upon which the funding was contingent.  The letter relevantly provided :-

            "Among other administrative matters, the prime pre conditions to providing the above funding are:-

 

            -           Provision of specific invoices

            -           Execution of a Crop Lien over the current Oonavale wheat crop in NatWest's favour.  There being no other encumbrance on the crop.

 

            -           Monthly, comprehensive cash flows to be provided.

 

            -           Asset realization program to be put in place.

 

            -           No further commitments without NWAB express consent.

 

            -           Your agreement to refrain from instituting any legal proceedings surrounding past dealings with NWAB.  In this regard NWAB absolutely denies any liability.

 

            -           All funds from asset sales to be paid directly to NWAB.

 

            -           Ongoing operational procedures to be determined.

 

            If you would be kind enough to agree to these general provisions, by signing and returning a copy of this letter we will provide a more comprehensive letter and seek to document the matter formally.

 

            In the meantime would you please confirm the account details of the account to which you wish the first $50,000 to be deposited.  We are advised:

 

            NAB - 084 675

            A/C - Glandore Pty. Ltd. - 01595 2995.

 

            We expect to be able to telegraphically transfer the $50,000 tomorrow."

                        David Leitch did not reply to that letter until 9 August 1991 when he sent two facsimiles and numerous invoices to Mr Jones.  The first facsimile contained the following :-

            "I acknowledge receipt of your fax. of 29th July 1991 and enclose herewith list of monies expended and required.

 

            My company accepts all the conditions advised therein with the exception of the clause regarding the relinquishing of any legal rights or remedies available to my company.  I would expect Natwest also to reserve it's rights.

 

            It has always been my contention that legal action is a last resort and my actions so far show that I have done everything possible to avoid any legal conflict.

 

            There is no encumbrance over the present crop and Glandore is prepared to sign a crop lien in your favour when one is presented.

 

            As I mentioned during our telephone conversation this morning, Eurasian Equities Ltd is negotiating with Natwest Sydney on a take out of the debt
and have advised Natwest that settlement, if it occurs, will happen within a few days.

 

            Perhaps any legal costs associated with the crop lien could be delayed for a week pending the successful conclusion of the take out.

 

            In my opinion the attached accounts are critical to the continuation of the business and require funding in accordance with Mr Phillip Deer's prior approval, immediately.

 

            If the funds could be remitted bt [sic] 12th August, 1991, I assure you that receipts for funds expended will be forwarded promptly."

            (Emphasis added)

                        It is clear from the second facsimile and from a reply prepared by Mr Jones (sent on 12 August 1991) that David Leitch had not and did not propose to direct the emergency funding to the specific purposes for which approval had been granted.  Mr Jones' letter, sent on 12 August 1991 concludes :-

            "We repeat advice contained in our letter of the 29th July, that Payments will be made by NatWest upon provision of invoices specifically detailing the goods and services itemized in our letter.  We are concerned that, if this course of action is not strictly adhered to, funds may not be available for accounts that we specifically require to be paid.

 

            The matter of agreement to all the terms and conditions in our letter and formally documenting the arrangements as a pre-condition to draw down will be taken up with our Sydney Head Office and we will advise you of their reply."

                        Mr Jones spoke to David Leitch by telephone later that day and again advised David Leitch that the emergency funding was only available to be spent on the  matters detailed in the letter of 29 July and that the funds were not made available to be applied at David Leitch's discretion.

                        On 9 August 1991 Mr Jones sent a memorandum to Mr Teroxy which relevantly contained the following :-

            "Leitch has chosen not to make contact with me until today 09/08/91, ie:  eleven days after my letter, and requests that the funds be immediately available.  He has not returned a signed copy of our letter as requested but has acknowledged acceptance of all the conditions advised in our letter, except the relinquishing of legal remedies.

 

            Issues:

 

            -           Which terms of our approval as set out in my letter are you prepared to postpone until after we fund, given Leitch's agreement to provide?

 

            -           Which terms of our approval are you prepared to waive?

 

            -           I've spoken to Leo Smits.  Advised him of the situation, he will be in touch with you Monday or Tuesday with a recommendation.

 

            -           Crop Lien - Leo Smits has suggestion.  We need to isolate ownership of crop away from Glandore.

 

            -           The $342,994 provided does not take into account the Sundry Creditors for the Hospital as previously advised.  I assume we can expect pressure from them.

 

            -           We need to ensure our priority on the Hospitals reference Group tax debts.

 

            -           I've suggested to Leo Smits, that he and you meet early next week, and, if you wish, involve me by phone."

On 15 August 1991 David Leitch wrote to Mr Teroxy :-

            "Re:  Glandore Pty. Ltd. and associated companies

 

            I refer to your telephone call from Surfers Paradise to me at (075) 910155 of 14th August, 1991.

 

            You stated, `That you wanted to act quickly to appoint an agent for the Mortgagee or a Receiver to protect your company's position and wished to receive my approval.  The reasons given were :-

 

            1)         NatWest did not want to pay $500,000 to the Tax Department.  Your
urgency was expressed that it would put in a Receiver within a few days and rank ahead of unsecured creditors.

 

            2)         NatWest was not prepared to do the deal that Euroasian Equities Limited proposed to it.

 

            3)         That it was the best arrangement for the Leitch family as well as for NatWest and was in keeping with NatWest's fiduciary duty to the shareholders.

 

            You also advised in reply to my query that Mr. Greg Jones had been in touch with NZI Securities Limited and NZI was, quote, `still sitting'.  You told me that the $342,944 would not keep the businesses operating until the wheat crop in December, 1991.

 

            I reply as follows :-

 

            Re: (1)Although the Tax Department has issued a Section 460 notice received on 22nd May, 1991 it has taken no further action of which I am aware.  You know that the law requires a notice to the Supreme Court to be lodged and served on the Company and then there is a statutory 21 or 28 days before a hearing date can be set.

 

            Re: (3)I consider action to put certain assets under the control of an agent for the Mortgagee or your appointment of a Receiver would not be in the best interests of my Companies nor in the best interests of myself and family.  I consider any such action would have a most adverse effect on my Companies and my family.

 

            I am and have been a fully qualified Accountant and Secretary in Public Practice since 1949.  For about 20 years I was the Senior Partner in Accountancy firms with a total staff of between 50 and 60, specializing in :-

 

                        (a)        Income Tax matters.

                        (b)        Fiscal Management.

                        (c)        Business Management.

 

            I have owned, operated and managed private surgical hospitals for 30 years.  I have had 20 years of farm management experience.

 

            For two years liquidity  has been a serious problem but the situation is slowly improving as Selwyn Private Hospital keeps increasing its cash flow from 1988 to date.  Selwyn Private Hospital should keep improving its occupancy (provided I can take out NZI Securities Limited) until it reaches State average occupancy in two years.

 

            It is my opinion that the amount of $342,944 approved by Mr. Phillip Deer will be sufficient help to carry the businesses until the wheat crop is harvested provided that the money is spent under my direction.  For your information I attach a list showing :-

 

            (1)        Reduction is [sic] past debts from $1,477,044 on 23rd April, 1991 to $1,233,396 today, a reduction of $243,648.

 

            (2)        A list of overdue commitments that the Company is meeting monthly of $68,311.

 

            Twice you have verbally advised me that NatWest was extending its mortgages from the July, 1991 expiry date to cover the work-out period so that my Companies would not be in default under these mortgages.

 

            As no default has occurred please advise as a matter of urgency what legal rights NatWest is relying on to contemplate the action you wish to take.

 

            Re:  Euroasian Equities Limited

 

            This company has carefully inspected and evalued [sic] the assets of my Companies, had detailed discussions with my senior staff and had its architects/project managers thoroughly investigate the Jacob's Well land.  (NatWest has never done this).

 

            It was Euroasian's decision to put it's proposition to NatWest first.  As you can see from the attached letter from Euroasian it is confident it can refinance within a short period.

 

            When this happens NatWest will be paid out and differences between my Companies and NatWest will be settled by proper legal process.

 

            Further orderly selling of the assets was discussed fully with your Mr. Greg Jones on 23rd July, 1991 in Southport.  I gave him my opinions on appropriate sales times and my reasons thereto to reach the best market.  No doubt he has reported to you, suffice for me to say that Cleveland land was the first (to be auctioned in October, 1991) and the lot would be sold within two years.  Orderly selling would realise substantially  more than the debt owing to NatWest.

 

            I am totally opposed to any proposition other than the following :-

 

            (i)         Orderly selling of assets.

            (ii)        Refinancing and paying out NatWest."

                        The telephone conversation between Mr Teroxy and David Leitch which
appears to have occurred on 14 August 1991 was not explored in these proceedings.

Mr Teroxy replied by letter dated 20 August 1991 :-

            "Ref:  Glandore Pty Ltd - and associated companies

 

            I received your letter of the 15th and note the contents.  As advised to you by phone on the 14th, I felt it important that the Bank's assets be properly and adequately protected and that such action be done with your knowledge and, hopefully, co-operation.

 

            I would like to correct a number of matters in your letter - viz:-

 

            ·           the Bank is NOT seeking to defeat the rightful claim of the Taxation Department, only to ensure the most appropriate ranking of priorities;

 

            ·           the Bank advised you, as our client, that the Euroasian proposal was not in accord with our strategic direction.  Since you introduced the firm on your behalf, I considered it appropriate to inform you prior to reverting to Euroasian.  I a [sic] not aware of the discussions you may have had with Messrs Long and Howard, but the tone of their note of the 15th indicates some unprofessionalism on my part which I reject totally;

 

            ·           I carefully explained to you on several occasions that, although my principal and first obligation was to NatWest, I was concerned to ensure the best interests of you, our client, was looked after and that asset sales which were essential in reducing the debt levels were carried out systematically and properly.

 

            ·           I still contend that the amount of $342k does not appear adequate to keep the businesses operating.  This is especially so when the obligations of the business to meet interest is recognised.  Furthermore, the amount specified was granted subject to specific terms and conditions which were not satisfied - accordingly the funding which was on an `emergency' basis to protect the Bank's assets cannot be provided at your discretion.

 

            ·           Your assertion that the Bank's facilities were extended is not correct, the loans have matured and are due and payable.  I have always advised we reserved all our rights pursuant to your default but had not taken action whilst there were moves in train which may have resulted in full satisfaction of the debt.  Accordingly, the withholding of action cannot be interpreted as an extension of facilities in default.

 

            ·           Since your account was placed into this department we have been proactive and constructive, including assigning Mr Jones to spend two trips to Queensland to meet with you and evaluate the position at first hand.  Furthermore we have devoted considerable time and energy in exploring all the possible avenues of a commercial resolution in meetings with Messrs Parker and Charles of pacOrient, Messrs Logan and Howard of Euroasian and Messrs Millott and Beer of NZI.  Regrettably none of these efforts have secured a satisfactory result.

 

            Accordingly, and in the face of the circumstances and the very considerable debt levels, the Bank has determined to appoint Messrs Ferrier Hodgson & Co to progress the recovery of the monies owed.  In the best interests of an orderly administration, your co operation with this firm would be most appreciated."

David Leitch did not respond to Mr Teroxy's letter of 20 August 1991.

                        Between 21 August and 6 September 1991 Mr Walker of Ferrier Hodgson, Chartered Accountants, was appointed by Natwest as receiver and manager or as agent for the mortgagee in possession over the assets and undertakings of Gude, Glandore and Glen Pacific.  In addition, the Australian Taxation Office obtained a winding up order in relation to Glandore.

Conclusions on the Teroxy Agreement

                        The evidence set out above does not support the formation of the Teroxy agreement as pleaded and contended for by the applicants.  Quite to the contrary, all the evidence shows that from an early point in time, Natwest was faced with and considered two options;  a refinancing or "take-out" proposal through PacOrient or another source or an asset realisation program, which in order to avoid "fire sale" prices being obtained, would be conducted over a period of time and if possible with the assistance and co-operation of David Leitch.  There is nothing in the evidence which suggests to me that
Mr Teroxy and Natwest agreed or would have agreed to waive the Leitch group's breaches under the Natwest documents, capitalise the interest on all outstanding loans and by agreeing not to take any action to enforce their securities for eighteen months, relinquish all control over the asset realisation program to David Leitch.

                        At an early stage, possibly as early as 13 February 1991, Mr Teroxy had formed the view or had begun to form the view that the appropriate course in relation to the Leitch group was an orderly sale of assets to Natwest's best advantage.  Mr Jones' first report (26 April 1991) plainly shows that Natwest was considering the PacOrient "take out" proposal, subject to it being in satisfactory form, or the sale of the Leitch group assets over a period of time.  Natwest was concerned to implement whichever of these options would see the greatest return to them for the least risk.

                        David Leitch's letter to Mr Deer of 21 June 1991 and Mr Teroxy's reply of 24 June 1991 do not mention a moratorium or rollover for eighteen months to allow the Leitch group to realise assets.  David Leitch's letter is addressed only to the PacOrient proposal, to allegations against Natwest and to threats of litigation.  The rollover agreement which David Leitch alleges was first reached three or four days later is not referred to by either man.  Mr Teroxy's letter certainly cannot be read as supporting an inference that Natwest was prepared to extend the Leitch group's loans in order to avoid the litigation threatened by David Leitch.

                        In light of the foregoing and following analysis, I find it impossible to accept that at a meeting or telephone conversation on 25 or 26 June 1991 (if in fact such
meeting or conversation took place) Mr Teroxy agreed to rollover the Leitch group loans so that the group would not be in default during the asset realisation program.

                        Ms Ong's file note which, it is not disputed, accurately reflects the discussion which took place on 27 June 1991 (one or two days after Mr Teroxy allegedly first agreed to "roll the mortgages") stands in direct opposition to David Leitch's claim.  That David Leitch was pushing the PacOrient proposal as a matter of some urgency can be seen from his letter to Mr Deer of 21 June and Ms Ong's file note.  It is common ground that the alleged agreement to rollover the Leitch group loans was not discussed at this meeting.  I have great difficulty accepting that a compromise of such significance said to have been reached just one or two days before would not have been the subject of discussion at a meeting of this nature.

                        For one thing, the fact of the compromise would have taken at least some of the urgency out of finding and implementing a re-financing package through PacOrient or some other source.  I simply do not accept David Leitch's evidence that he did not raise the agreement he alleges that he had reached with Mr Teroxy because (transcript p.83) :-

            "... I did not discuss anything of a contentious matter because Ms Ong was there.  I just had a - they wanted to talk.  I was not prepared to talk in front of two witnesses and then I had no witness and I just - we just had a general discussion and that's all and I don't recall it because it wasn't important."

Particularly when it is also David Leitch's evidence that Ms Ong was introduced and represented to him as attending to assist the Leitch group.

                        The contents of the discussion between Mr Parker and Mr Charles and Mr Teroxy on 3 July 1991 reflects the position which Mr Teroxy had reached at that time.  Mr Teroxy clearly and rather intemperately expressed an intention, once the Leitch group went into default on their loans, to move against the group and realise its assets.  Mr Teroxy also clearly indicated that Natwest was not concerned by David Leitch's threats of litigation over past dealings. 

                        The "David Leitch - Action Plan" prepared by Mr Teroxy in early July 1991, after he had allegedly first agreed to an eighteen month rollover of the Leitch group loans, cannot, in my view, be read as supporting any contention other than that Mr Teroxy was considering some form of "take out proposal" suitable to Natwest or an orderly realisation of Leitch group assets to Natwest's best advantage.  This is clear from the four "options" listed by Mr Teroxy.

                        Much was sought to be made of the third last paragraph under the heading "RECOMMEND" :-

            "*  Leitch's facilities formally mature at the end of this month.  Leitch must provide a schedule of realisations (what, when, how/$) to reduce debt - otherwise we'll take control of same."

            (Emphasis added)

It was put to Mr Teroxy that that paragraph left open the possibility of the Leitch group controlling the asset realisation program.

                        Mr Teroxy was adamant that at no stage was it contemplated that the Leitch group would control any asset divestiture or realisation program (transcript pp.495-
496) :-

            "MR CURRAN:  Well, if that document means what it says under the fourth asterisk, namely, that while the bank was going to push for orderly sales and Leitch had to provide a schedule of realisations `otherwise we'll take control of same', it is an option that you say  now you were not really considering?---It was one of the options I was considering, yes.

 

            So it was an option that you were considering which would involve the Leitch Group controlling the same?---Not controlling, Mr Curran, no, not controlling, cooperating with us.

 

            Well, when you say `otherwise we'll take control of same,' what is the alternative to you taking control of same?---Working with the Leitch Group.

 

            Yes?---Control in that regard means that the Leitch Group would have no further input or right of input in the method, the timing, of the disposal.  We would do so on more empirical evidence.

 

            So you are telling us that the use of the word `control' is unfortunate in that fourth asterisk?---Not unfortunate but possibly out of context.

 

            You say that this document, on its proper interpretation, really meant that, at best, the Leitch Group's contribution to any sale program would be in advisory capacity?---I had always hoped that that would be the case.

 

            But at best this document means, on its true interpretation, that that was the most in the way of contribution that the Leitch Group would make to the sale program, namely, advice?---A little more than advice.

 

            What?---Advice, identifying and recommending potential purchasers, identifying and recommending possible agents to handle the sales.  I had assumed and I hoped that it would be a proactive and cooperative realisation.

 

            And what was in it for the Leitch Group if they adopted that cooperative and proactive approach?---I would assume a much higher or a much more - a better price for the subsequent realisation of the assets.

 

            Did you discuss that with Mr Leitch at any stage?---Discuss what?

 

            That it was in his interests to assist the bank with advice and proactivity in the orderly sale because that would mean a better price?---Numerous discussions we had with Mr Leitch all assumed that we would cooperate together for the realisation of the assets.

 

            Yes, but those discussions were in the context of the Leitch Group selling them, were not they?---No, sir."

                        As noted by Mr Teroxy, the phrase in question must be read in the context in which it appears in the document and in the context of the circumstances then obtaining.  Mr Teroxy's action plan was directed to a course of action which would see the Leitch group  indebtedness to Natwest discharged in full or as close to as possible in circumstances where other lenders to the group were "hostile" and the group was in desperate financial straits.  In those circumstances it is inconceivable that Natwest would have been prepared to allow David Leitch to decide when, how and for how much Leitch group assets subject to securities held by Natwest would be realised.  That Mr Teroxy instructed Mr Jones to place the Leitch group on "non-accrual" effective 1 August 1991 and to issue formal notices of demand at that time is plainly inconsistent with a compromise agreement as alleged having been concluded in the previous week.

                        Mr Teroxy's instruction to Mr Jones of 4 July 1991 not to issue a formal demand pending a forthcoming meeting between David Leitch and Natwest suggests to me that a meeting did in fact occur between David Leitch and Mr Deer and/or Mr Teroxy on 11 or 12 July 1991.  The evidence as to what occurred at any such meeting is unsatisfactory.  There are no file notes or diary notes, no agenda nor is there any correspondence (until David Leitch's letter of 19 July, which I will deal with below) that would shed any light on the contents of the discussion at the meeting.  However, subsequent correspondence and events show that it is unlikely that Mr Teroxy agreed to extend the Leitch group facilities for eighteen months to allow David Leitch to realise assets.  Mr Teroxy's instruction to Mr Jones to hold off sending formal notices pending a forthcoming meeting with David Leitch reflect that the position as far as Natwest was concerned had not changed.  That is, Natwest was considering two options;  an orderly asset realisation program or some form of "take out" proposal.

                        On 18 July 1991 Mr Teroxy instructed Mr Jones to attend at David Leitch's Southport office to discuss an asset realisation schedule.  Mr Teroxy told Mr Jones that whatever happened, there was going to have to be realisation of assets and that he (Mr Jones) was to make an assessment of David Leitch thoughts on such realisation.  In the ensuing telephone conversations between Mr Jones and Mr Volgin and Mr Jones and Mr Teroxy, no mention was made of any compromise agreement having been reached.  Mr Volgin told Mr Jones that he had a brief from David Leitch to obtain "ongoing funding" but did not raise with Mr Jones the issue of an eighteen month extension of the Leitch group facilities.  It is difficult to credit that an agreement of such importance in the context of the then current circumstances would not have been the subject of some discussion or comment between Mr Teroxy and Mr Jones and/or Mr Volgin and Mr Jones.

                        David Leitch's letter to Mr Teroxy of 19 July 1991, which in the third paragraph asks Mr Teroxy to "kindly confirm in writing your statements that you were happy to extend the above companies mortgages to cover the work-out period so that neither company is in default under these mortgages" does not, to my mind, offer evidence of any weight that an agreement as alleged had been reached.  The vast weight of evidence suggests that no such agreement was made, nor that objectively, one would expect Mr Teroxy to have made such an agreement on behalf of Natwest.  In fact, Mr Teroxy did not have the authority to do so.  Any granting of credit or extension of facilities would have to have been through channels other than Mr Teroxy.  The fact that
Mr Teroxy did not reply to the assertion contained in paragraph 3 of the letter, although imprudent on his part, does not advance the applicant's case.  The paragraph stands as an unanswered assertion by David Leitch that Mr Teroxy had agreed to extend the mortgages, and nothing more.

                        Certainly, the agenda which Mr Teroxy prepared for Mr Jones for the meeting at Southport goes against the applicant's contention that a compromise agreement had been concluded.  That document is unequivocally directed to the arrangement and implementation of an asset divestiture program which would see Leitch group assets sold to best advantage and the Leitch group's indebtedness to Natwest paid out in full.

                        It was put to Mr Teroxy that the final sentence under point 3 in the agenda, "In this context, we also need to agree a strategy of how the assets should be realised and by whom" left open the question of whether the Leitch group or a Natwest appointed receiver and manager would control the asset realisation.  Mr Teroxy rejected this suggestion.  According to Mr Teroxy the question was whether Natwest, by its own officers or by a receiver and manager, would take control of the Leitch group.  Even if that sentence is read as leaving open the possibility of the Leitch group controlling asset sales, it cannot be said to support the contention that a rollover of the Leitch group loans for the period of the sales had been agreed.  It is possible that, at that point, it remained an option for Natwest not to move and take control of the Leitch group companies pursuant to the group's default under the loans and facilities entered into from July 1989.  However, such a course would not have required that the Leitch group loans be extended so that the group was not in default.  It was always within the contemplation of Mr
Teroxy and was in fact his preferred course, that the asset realisation program be undertaken with the full co-operation of David Leitch.  The effect of an extension of the Leitch group loans would have been to place any asset realisation entirely in the control and at the discretion of David Leitch.  Such an outcome was, on the evidence, never within the contemplation of Mr Teroxy or any other Natwest officer.

                        At the Southport meeting attended by Mr Jones, David Leitch and some of David Leitch's staff, there was no suggestion that David Leitch and Mr Teroxy had concluded an agreement as alleged. 

                        Mr Jones' report of the Southport meeting is further evidence of Natwest's attitude and intended course of action at this time.  Mr Jones recommended almost immediate sale of the private hospital site at Cleveland, with settlement by January 1992.  A pre-receivership report was to be undertaken and receivers were to be appointed if the sale of the Cleveland site was not completed by January 1992.

                        In paragraph 6), it was contemplated that receivers would be appointed if legal action was "threatened from another source".  In this context, it was also recommended that "support" be given to the Leitch group in the short term to avoid "locking in our fire sale estimates", such support was to be based on production of original invoices and was to be provided through a bank account over which Natwest had second signature control.  There is nothing in Mr Jones' report which would suggest that the Leitch group loans were to be extended so that the group could control the asset realisation for a period of eighteen months during which it would not be in default under
those loans.

                        Mr Teroxy was cross-examined in relation to the passage in Mr Jones' report which stated "The others coded * OR ** are crucial now if we wish to support the group".  It was put to Mr Teroxy that this sentence left open the possibility that Natwest would continue to support the Leitch group.  Mr Teroxy said that he interpreted this to mean support in the context of the workout.  That is, to achieve an orderly disposal of assets, it was essential that the businesses were maintained to the greatest extent possible so as to attract the highest possible price on sale.  The paragraph immediately below the sentence in question and the entire thrust of Mr Jones' report supports Mr Teroxy's interpretation.  It is clear that Natwest were concerned that if some short term and specifically directed further funding was not provided, the realisable value of the Leitch group assets would fall and a further proportion of the Leitch group's indebtedness to Natwest would remain unpaid.

                        It was in this context that Mr Deer approved on 29 July 1991 a maximum of $342,944.00 in emergency funding.  Mr Deer's approval was based on a report of Ms Tipping (which in turn was based on Mr Jones' report) which recommended the injection of limited amounts of working capital to support Natwest's securities during an asset realisation program that, it was estimated, would take some twelve to eighteen months.  The subsequent correspondence between David Leitch and Natwest makes it clear that this funding was not general support for the Leitch group, but was for specific purposes and was directed to providing short-term funds for critical expenditure on assets which secured the Leitch group's debt to Natwest.  The purpose of the funding is neatly
encapsulated in the concluding paragraph of Ms Tipping's report :-

            "If NWAB does not inject further funds to keep the hospital and properties operational, the fire sale values attributed to our securities are the most likely results we would achieve.  This would realise a loss of approximately $4.5m based on 30 June outstandings."

                        Mr Jones' letter to David Leitch of 29 July 1991 set out the conditions upon which the provision of the emergency funding was to be provided.  One of these was that David Leitch would refrain from instituting any legal proceedings in respect of his and the Leitch group's past dealings with Natwest.  In a facsimile of 9 August David Leitch accepted all the conditions set out by Mr Jones except that he reserved his legal rights and remedies in relation to past events.  It is the refusal in this letter to give up the alleged causes of action which make the applicants' position on this issue untenable.  On the applicants' case David Leitch had already agreed to give up such rights in order to obtain the eighteen months extension.  It is the applicants' case as pleaded in paragraphs 23 and 24 of the final version of the amended statement of claim that a forbearance to sue in relation to the matters pleaded in paragraph 12 of the statement of claim and the alleged breaches by Natwest of the Grix agreement formed the consideration for the Teroxy agreement.  If the Teroxy agreement as alleged had been entered into on 25 or 26 June and/or on 11 or 12 July 1991, David Leitch in the context of replying to the condition contained in Mr Jones' letter of 29 July 1991 had no rights to reserve as he purported to do in his facsimile of 9 August.  Such proposed reservation is consistent only with no compromise agreement having been entered into, the consideration for which was a forbearance to sue in relation to past dealings.  The reservation cannot refer to breaches of the Teroxy agreement as alleged because, on the applicant's case, that agreement was not breached by Natwest until 20 or 21 August 1991.

                        David Leitch's letter of 15 August to Mr Teroxy wherein it is again alleged that Mr Teroxy had agreed verbally to extend the Leitch group loans to cover the workout period, was rejected by Mr Teroxy on 20 August 1991.  That rejection was left unanswered by David Leitch.

                        I do not accept David Leitch's evidence that Mr Teroxy ever agreed to extend the loans for a period of eighteen months on the terms pleaded or at all.  David Leitch's assertion in correspondence of 19 July and 15 August 1991 to Natwest of such an agreement was at best a misunderstanding of Teroxy's agreement that realisation of the properties to best advantage would take up to eighteen months and that Natwest would work with the Leitch group to achieve that outcome.

                        I find that the Teroxy agreement as pleaded by the applicants was not made by Natwest as alleged or at all.  In consequence the applicants are not entitled to the declarations sought in paragraphs (ab) and (ac) of the final amended application.

CLAIM IN NEGLIGENCE AGAINST THE RECEIVER

                        By paragraph (a) of the application the applicants seek damages against the first and second respondents for negligence.  The claim for negligence appears to have found expression in paragraphs 26 and 27 of the finally amended statement of claim.  The conduct complained of is alleged against Mr Walker and Natwest is said to be vicariously liable :-

            "26.                 In purported performance of his duties as receiver and manager of the Sixth Applicant and in reckless disregard of the right of the Sixth Applicant, the Second Respondent has dealt with the assets so as to cause loss to the Applicants.

                                                               PARTICULARS

 

            (a)                    The Second Respondent was appointed as a receiver and manager of Selwyn Private Hospital at Mt Isa being owned and operated by the Sixth Applicant, which, at or about the  time of appointment, was capable of producing a net income of $70,000.00 per month;

 

            (b)                    Upon appointment to the Selwyn Private Hospital the Second Respondent dismissed the management of such hospital and failed to appoint a replacement manager or, alternatively, a competent replacement manager, with the result that the hospital thereafter operated at a loss and was closed completely with the loss of the license [sic] and the value of the business which, at the time of appointment, was worth in the order of $A5 million;

 

            (c)                    The Second Respondent was appointed receiver and manager of the property known as Oonavale.  Since appointment, the Second Respondent has caused the wheat crop to be sold at a price of $170.00 per tonne at a time when a price of $190.00 per tonne was readily realisable.  The Second Respondent has failed to provide proper management for the property resulting in the diminution in value of the property.

 

            27.                   By reason of the unlawful appointment of the Second Respondent as receiver and manager as aforesaid, the First Respondent is liable for the loss and damage occasioned by the activities of the Second Respondent."

                        The cause of action in negligence was not the subject of either written or oral submissions by the applicants or for that matter, the respondents.  Nonetheless, there was no final abandonment of the issue at trial and as such, the alleged negligence of Mr Walker in the performance of his duties as receiver and manager over the assets and undertakings of Glandore remains a live issue.

                        The fact that this pleading was not the subject of written or oral submission raises particular difficulties in this case.  The court is left to sort through a large number
of largely unsubstantiated assertions and allegations led from witnesses for the applicants or put to witnesses for the respondents.  For example, it emerged from the evidence of David Leitch that it was his assertion that, in effect, Mr Walker through his employees, was responsible for the "disappearance" of some hundreds of head of cattle from the Oonavale property.  The allegation in this respect is simply  not supported by any other evidence.  Similarly, there seems to be some general allegation that when Oonavale was sold by the Receiver, it was not advertised sufficiently for a property of its size, value and type with the result that the property was sold for far less than its true value.  The applicants led no evidence from a qualified expert to suggest how the property could or should have been better or more appropriately marketed and when Oonavale was ultimately sold, it fetched a price commensurate with its then market value.

                        In relation to the Selwyn Private Hospital at Mt. Isa, it is pleaded that the Receiver dismissed the hospital's management and failed to appoint a replacement manager or a competent replacement manager with the result that the hospital thereafter operated at a loss and was closed.  The crux of the allegation seems to be that the Receiver during his six week occupancy of the hospital acted negligently (if that is what is pleaded) by not retaining the services of Mark Volgin or a professional hospital administrator to manage the hospital.

                        From late March 1989, when the Leitch group had the day to day running of the hospital, Mr Volgin, David Leitch's son-in-law, had been the hospital manager.  An examination of Mr Volgin's background and experience prior to his appointment as hospital manager in March 1989 shows that he could not possibly be held out as an
experienced or highly competent hospital administrator.  He is not and was not ever what could be called a professional hospital administrator.  Mr Volgin finished his secondary schooling in 1976, thereafter attending Monash University in Melbourne and Griffith University in Brisbane.  Mr Volgin did not complete a university degree.  In March 1979 he joined the ANZ Banking Group where he worked, based at the Gold Coast, until March 1989.  Upon his appointment as hospital manager, Mr Volgin lived with his wife in Mt. Isa until December 1990 when he was relocated to Southport, but remained as hospital manager.  Mr Volgin was dismissed by the Receiver on 11 September 1991.

                        Mr Walker's evidence in this respect indicates that the decision not to retain Mark Volgin and not to appoint a professional hospital administrator was entirely reasonable in all the circumstances (transcript p.611-612) :-

            "... Mr Voglin was - or Volgin was, from the time I was appointed up until mid September, still in the employ of Glandore.  Mr Leitch at that same meeting on the 4th did also say to me that the two ladies who were present in Mt Isa were - had adequate experience in running the hospital on a day-to-day basis and that Mark Volgin's role was, and had been for a number of months, to communicate with them over the phone on a very regular basis - I think he said daily - and he would pass that - get involved in speaking to the surgeons about visitations and when they would next be in Mt Isa.  On a day-to-day basis in terms of the running of the hospital I did not see that his presence there was necessary on - my staff who visited there said the two ladies were competent.  Mr Leitch confirmed that they were competent.  They knew how to run the business, arrange the rosters on wages, handle the patients.  Mark was retained.  I terminated him, I think it was mid September, principally because he was not contributing.  I was having a few problems with - with Mr Leitch.  I was also at that stage put under notice from NZI about tenancies issues, and I was looking at cutting overheads."

                        Mr Walker also gave evidence that at that point in time his priority was ensuring that the hospital had security of tenure on the property from which it operated.  NZI were in the process of attempting to take possession of the hospital site pursuant to a registered mortgage granted to them by David Leitch, Gary Leitch and Robert Charles Ogilvie ("Mr Ogilvie").  In these circumstances, Mr Walker considered that security of tenure, which he was trying to negotiate with NZI, was of higher priority than the appointment of a professional administrator.  It was Mr Walker's intention to appoint such administrator if security of tenure was arranged.  However, he quite reasonably concluded that before the issues of an ongoing nature were addressed, it was necessary to try to ensure that the hospital could in fact continue to operate from the site.

                        There also appears to be an allegation, although it was not the subject of a pleading or any submission, that Mr Walker acted negligently by notifying the doctors who attended at the hospital of his appointment as receiver and manager.  The allegation seems to be that this notification had a negative effect upon those doctors and their potential or future use of the hospital facilities.  Mr Walker's evidence on this point was as follows (transcript p.616) :-

            "... In a general sense there is a public perception to that extent.  On [sic] the doctors we spoke to, and we spoke to them concerning times they had allocated over the month of September - this was in early August - they had no problems attending because we guaranteed payment to them.  The problem I had was saying to those doctors, `Yes, I can take a booking in November,' because I would have been misleading them.  I had no security of tenure to warrant that I would be there.

 

            Yes.  So that frontness and honesty on your part with the potential users of the hospital could well have cost the hospital clientele?---Cost of honesty.  Yes, it did.  Quite possibly could have.

 

            Just as the circulars going out advising that a receiver had been appointed, that could well have had a negative impact on the value of the business, as a public perception?---As a public perception, yes.  If I hadn't have sent it it could have had an impact on my financial position;   a creditor could have sued me.  If I had dealt with him and he hadn't been paid."

                        It is ridiculous in these circumstances to suggest that Mr Walker acted negligently by circularising notification of his appointment as receiver and manager.  Had Mr Walker not notified doctors and other potential creditors of his appointment, he would have opened up the possibility of legal action against himself and/or the company.

                        It was further put to Mr Walker that the hospital should have been allowed to continue to operate beyond the short term and not be shut down.  The contention seems to be that Mr Walker should have negotiated some sort of arrangement with NZI to enable the hospital to continue trading and that, had this been done, the hospital would have begun to operate profitably in the following years.

                        An examination of the evidence as to the efforts of Mr Walker during the six week period of his control of the Selwyn Private Hospital reveals no conduct or omission on his part other than what could have been expected of a reasonably competent professional in all the circumstances.

                        Mr Walker was appointed by Natwest as receiver and manager of the hospital, conducted by Glandore on 21 August 1991.  David Leitch, Gary Leitch and Mr Ogilvie were the registered lessees from the Crown of the land and buildings described as Selwyn Private Hospital and had granted a mortgage dated 15 September 1987 to NZI over their leasehold interest as security for approximately $4.5 million advanced to them by NZI.  Most of the equipment located at the hospital and used in the operation of it was leased from NZI by a company known as Havenhead Pty Limited ("Havenhead").  Havenhead was substantially owned and controlled by David Leitch and members of his immediate family.  David Leitch, Gary Leitch and Mr Ogilvie were in default under the mortgage to NZI and Havenhead was in default under the lease.

                        As from 21 August 1991 representatives of Mr Walker attended at the hospital premises at Mt. Isa and amongst other things prepared, in consultation with the hospital administrator, Antionette Dobel ("Ms Dobel") and the director of nursing, Elizabeth Carey ("Ms Carey"), a preliminary "twelve month break even budgeted profit and loss and cash flow statement" for the year to August 1992 based on the hospital's unaudited trading profit and loss statements for the 1988, 1989 and 1990 financial years and an analysis of the hospital's trading performance and operational costs after 30 June 1990.  The statement forecast a loss for the year to August 1992 of $44,105.00, which figure did not take account of interest and taxation obligations but did provide for negotiated lease and rent costs to NZI of $30,000.00 per month.  NZI's entitlements in this regard amounted to approximately $70,000.00 per month.

                        On 23 August 1991 Mr Walker had a conversation with Austin Millott ("Mr Millott") of NZI during which Mr Millott raised a number of issues in relation to the hospital.  Mr Walker told Mr Millott that he was assessing the position of the hospital business and agreed to meet with Mr Millott again in the future.

                        On 27 August 1991 Mr Walker attended a meeting at NZI's Sydney offices with Mr Millott and other representatives of NZI.  During the course of that meeting, Mr Millott informed Mr Walker, amongst other things, of the following :-

(a)                    In January 1990 NZI had appointed receivers to the property and
equipment of the hospital but had experienced difficulty in securing possession of the business as the bed licence was held by Glandore;

(b)                    As a consequence, NZI commenced proceedings against David Leitch, Gary Leitch, Mr Ogilvie and Glandore in the Supreme Court of Queensland to procure the transfer of the bed licence to the registered owners of the property.

(c)                    Those proceedings were compromised in May 1990 on the following terms :-

                        (i)                     David Leitch, Gary Leitch and Mr Ogilvie admitted indebtedness to NZI in the sum of $4.5 million.

                        (ii)                    That sum was to be repaid by 30 June 1990, in default of which NZI would be entitled to interest at its then commercial rates.

                        (iii)                   If the debt was not repaid by 28 September 1990, the hospital and assets would be offered for sale by public auction.

                        (iv)                   David Leitch agreed that if the Oonavale property was sold, the proceeds of sale, after making any payments due to registered mortgagees, would be paid to NZI on account of the debt owed.

                        (v)                    Glandore agreed to pay arrears in respect of the equipment leases amounting to approximately $100,000.00 by 30 June 1990 and agreed to pay from July 1990, an agreed monthly instalment under the leases as well as an additional monthly
payment on account of arrears.

                        (vi)                   Glandore agreed to assign the hospital bed licence and hospital business to NZI or its nominee.

                        There is in evidence a true copy of a stamped Deed entered into between the relevant parties dated 15 May 1990 which confirms the information conveyed to Mr Walker by Mr Millott.

                        Mr Millott informed Mr Walker that the terms of the May 1990 compromise had not been honoured and as such, NZI was entitled to possession of the assets of the hospital and the bed licence.  Mr Millott also expressed NZI's belief that the cash flow generated by the hospital was being utilised for purposes other than meeting the obligations of the hospital, particularly the obligations in respect of rent for the premises and leasehold equipment.

                        Mr Walker disagreed with Mr Millott's contention that NZI was entitled to the bed licence but informed him that the assets of the hospital would realise the maximum amounts if sold as a going concern.  Mr Walker proposed that, subject to any dispute between NZI and Natwest, the hospital business be operated by him and sold in due course as a going concern.  To this end, Mr Walker asked that NZI consider agreeing to a commercial rental of the equipment and premises "for the time being".

                        Mr Walker and Mr Millott met again on 6 September 1991 whereupon he gave to Mr Millott a copy of the break-even statement (referred to earlier) which
provided for a monthly payment to NZI of $30,000.00.  Mr Millott stated that the rental offered was insufficient to  meet the outstanding obligations to NZI and that additional payments of approximately $50,000.00 per month were required to meet the debt due, including substantial arrears.  Mr Millott said that he would contact Mr Walker upon receipt of advice from NZI's legal representatives regarding its position.

                        On 11 September 1991, Messrs Holmans, solicitors for NZI, wrote to Mr Walker.  The letter relevantly contained the following :-

            "Our clients understand that you are in possession of the land and the equipment.

 

            If this is in fact the truth, which we will take that you accept should you not deny it by urgent response, then we seek urgently from you the grounds upon which you are entitled to possession of the land and equipment to the exclusion of our clients.

 

            Our clients have provided us with instructions to obtain possession of the land (including the hospital) and the equipment.

 

            Our client requires from you a written undertaking that you by yourself or by your servants or agents howsoever otherwise, will not obstruct, interfere with or otherwise oppose the taking of possession of the land (the hospital) and the equipment by our clients on Monday, 16 September, 1991 and thereafter retaining possession.  Our clients have appointed agents to take possession of the land, the hospital and the equipment on that date.

 

            Should we not receive an undertaking in writing in the above term or terms to the same effect by 4.30 p.m. on Thursday, 12 September, 1991 we will proceed immediately to seek an injunction against you interfering with the taking of possession as soon as counsel can be heard before the Supreme Court of Queensland.

 

            We await your urgent written response."

                        Mr Walker replied by letter dated 12 September 1991 seeking clarification of the basis of NZI's right to possession and offering to negotiate a commercial rent with
NZI for the ongoing use of the land and equipment or alternatively offering to sell the assets and undertaking of Glandore associated with the hospital.

                        On 16 September 1991 NZI served upon Mr Walker a Notice to Quit requiring him to vacate the land and to give up possession of the leasehold equipment by 4.00 p.m. 4 October 1991.  Also on 16 September 1991 a separate letter from Messrs Holmans was delivered in which it was stated that NZI was prepared to allow Mr Walker to occupy the premises and use the plant and equipment the subject of the lease until 4 October 1991 upon payment of $10,000.00 per month payable in advance from 21 August 1991.  Mr Walker did not consider that the proposal contained in that letter offered a realistic basis upon which he could have remained in possession of the premises and leasehold equipment.  His evidence was :-

            "... On the calculations which I had performed, the business was only capable of affording a total payment to NZI of $30,000.00 per month.  In the circumstances, I considered that:

 

            (a)                    Continuing to operate on that basis could not conceivably improve the Bank's position, since there would be nothing for the Bank to sell, as the arrangement proposed by NZI would extend only until 4 October 1991;  and

 

            (b)                    Unless a long-term arrangement could be negotiated with NZI, at a rate of rental which the business was capable of meeting, I could not responsibly advise the Bank to continue operating the business with a view to its ultimate sale as a `going concern'."

                        Mr Walker, in further discussions with Mr Millott on 13 and 18 September 1991, requested that Mr Millott reconsider a commercial rental arrangement or alternatively consider some arrangement between Natwest and NZI based on an apportionment of the proceeds of sale of the hospital business at auction after a period of
further trading.

                        On 19 September 1991 Mr Walker sought and obtained instructions from Natwest to attempt to sell the hospital bed licence and goodwill of the business to NZI.  On that day, Mr Walker sent the following letter to Mr Millott :-

            "I refer to our recent discussions and to correspondence received from your solicitors on 16 September 1991.

 

            The issues in question have been raised with the mortgagee of Glandore Pty Limited.  As a result thereof Glandore Pty Limited is prepared to offer for sale to yourself the licence and goodwill associated with the business of the private hospital operated from the `Selwyn Private Hospital' on the following terms:

 

                        1.         Effective date of sale 30 September 1991.

                        2.         Glandore is not liable for any rent prior to sale.

                        3.         NZI obtains title to those assets of Glandore located within Selwyn Private Hospital (stock, consumables, P.F.E. estimated $20-30,000).

                        4.         NZI pays to Glandore a licence fee of 5% of total income from the date of sale to NZI until the date of sale by NZI of the property/business.,

                        5.         Upon the sale of the property/business by NZI, NZI will pay to Glandore a further licence fee of 2½% total income derived during the period of their occupancy.

                        6.         NZI takes over all entitlements to employees and indemnifies Glandore in that respect.

 

            It should be noted that any final agreement relative to the above offer would be subject to appropriate legal documentation by Glandore's solicitors.

 

            Separate to the above it should be noted that Glandore will not accept any liability in relation to the existing use of the premises or in relation to the equipment leased by NZI to Havenhead as located within the premises.

 

            I would appreciate your early advice as to the offer outlined above."

                        By facsimile transmission dated 23 September Mr Millott rejected Mr Walker's proposal and at a meeting on that day, Mr Walker and Mr Millott failed to
reach agreement as to an alternative.

                        Mr Walker met with Mr Teroxy on 25 September 1991 to agree a timetable for closing down the hospital operations.  That timetable was communicated to Mr Millott who telephoned Mr Walker the following day.  During that telephone conversation Mr Walker put a further proposal to Mr Millott whereby Glandore and Natwest would agree to transfer the bed licence to NZI in return for NZI assuming responsibility for the claims of hospital employees and acquiring Glandore's stock of consumables (excluding pharmaceuticals) and its plant, fixtures and fittings.  Mr Millott said that he was interested in the proposal and was prepared to extend the date for compliance with the Notice to Quit for fourteen days to consider it.  Mr Millott also requested that Mr Walker defer giving notice to incoming patients of the forthcoming closure of the hospital.

                        On 8 October 1991 Mr Millott telephoned Mr Walker and informed him that the abovementioned proposal was not acceptable to NZI.  Mr Millott also informed Mr Walker that NZI was then negotiating with potential purchasers of the land, buildings and equipment and its preferred course was to pursue such negotiations.  That day Mr Walker sent a letter to NZI as follows :-

            "I refer to your facsimile dated 4 October 1991 wherein you formally revoked the Notice to Quit issued 16 September 1991, as amended.

 

            In relation thereto I seek your advice as to whether as a result of this action, your client is prepared to extend to the abovenamed company a lease (3 year) entitling it to operate the Selwyn Private Hospital.  Should your client be desirous as to further discussing this course of action you are requested to specify the terms and conditions which your client may consider reasonable, inclusive of amounts relevant to the usage of the premises together with plant and equipment. ..."

                        Mr Walker also wrote to Natwest advising of the situation and that "[s]ubject to reasonable proposal/response from NZI relative to the continuity of the hospital, it is proposed to continue to wind-down the operations".  Mr Walker foreshadowed that the "administrative functions to facilitate a shut-down should be completed by 11 October 1991."

                        On 8, 9 and 10 October Mr Walker had telephone conversations with a Mr Welsh of NZI (in Mr Millott's absence) who also confirmed that NZI was not willing to enter any arrangement for the leasing of the premises and/or the building and equipment.  Following these discussions Mr Walker decided to close the Selwyn Private Hospital on 11 October 1991.  On that day all operations ceased and arrangements were made to transfer existing patients to the Mt. Isa Base Hospital.  In a statement prepared for these proceedings, Mr Walker sets out the reasons upon which his decision to close the hospital was based :-

            "(a)                  At that time, Glandore Pty Limited had no security of tenure either in respect of the hospital premises or in respect of the leasehold equipment.

 

            (b)                    From my discussions with Mr. Welsh, I was satisfied that:

 

                                    (i)         NZI was not prepared to lease the premises;  and

 

                                    (ii)        All of the leasehold equipment required for the operation of the hospital was shortly going to be sold.

 

            (c)                    There was no point in continuing my attempts to run the hospital as a `going concern', given that it would have been impossible to sell the hospital business and bed licence on a `going concern', basis without secured tenure to the hospital premises, or use of the equipment necessary to conduct the hospital.

 

            (d)                    I was not willing to expose myself, the Bank or Glandore Pty Limited to the expense of continuing to run the hospital
whilst facing the prospect that NZI would require that possession of the hospital and leasehold equipment be yielded up at short notice.  Based on the expected trading performance of the hospital to March 1992, the hospital was expected to require working capital funding of approximately $100,000.  Furthermore additional expenditure of between $15,000 to $20,000 would have been required to restock the depleted medical and general supplies of the hospital in order to adequately support the hospital's normal operating capacity.

 

                                    In addition pre-appointment employee entitlement in respect of annual leave ($32,702.00) and unremitted superannuation ($7,168.00) would have been required to at lease [sic] be partially resolved over this period, requiring further expenditure.

 

            (e)                    Although I recognised that my primary legal duty as receiver and manager was to protect the interests of Glandore Pty Ltd and the Bank, I considered that I also had a moral obligation to staff and patients of the hospital, and that it was not fair to them to continue running the hospital in circumstances where closure in due course was inevitable."

                        There is no evidence to suggest that Mr Walker acted in any way unreasonably or inappropriately during his receivership of Selwyn Private Hospital.  The negotiations entered into by him and his reasons for the closure of the hospital were entirely proper and reasonable in all the circumstances.  I do not accept that there was any conduct or omission on the part of Mr Walker and/or his representatives during the receivership which could reasonably be said to amount to negligence.

                        The applicants also allege that the Receiver and/or his representatives were negligent in relation to the conduct of the receivership of the Oonavale property.  It is pleaded that the Receiver accepted $170.00 per tonne for a wheat crop, presumably the 1991 wheat crop, when $190.00 per tonne should have or could reasonably have been obtained and that the Receiver failed to appoint a competent manager having regard to the nature of the Oonavale property.  There was also an allegation, although it was not the subject of any pleading or submission, that the Receiver acted negligently in ordering the removal from the property of cattle which were subject to a stock mortgage held by Elders Rural Finance Limited ("Elders Rural"). 

                        The 1991 Oonavale wheat crop was harvested in early November and on David Leitch's recommendation had been stored "on-ground" at Oonavale pending an increase in the market prices offered for the grain.  On 29 November 1991 David Leitch recommended that the grain be transferred to silo storage at Goondiwindi.  Offers were sought by the Receiver for the purchase of the grain.  Production Credit Pty Limited offered to and did purchase the total tonnage at $172.00 per tonne "nett on farm".  At that time the price offered by the Australian Wheat Board was $163.00 per tonne ($171.00 per tonne less transfer costs of $8.00 per tonne).  Steven John Sherman ("Mr Sherman"), who was responsible for the conduct of the receivership under the supervision of Mr Walker, accepted the $172.00 "nett on farm" offer rather than incur the additional costs of $7.00 - $8.00 per tonne to transport the grain to silo storage at Goondiwindi.  There is no evidence, other than that of David Leitch, which I do not accept, that the price per tonne thereby obtained was other than a reasonable and fair market price.  In fact, what other evidence there is goes the other way.

                        The allegation that the Oonavale property was negligently mismanaged during the time of the receivership is also unfounded.  Peter Lovell ("Mr Lovell") was retained as day-to-day duty manager, a similar position as that occupied by him before the receivership.  Decisions in respect of the operations on Oonavale were made by Mr Sherman under Mr Walker's supervision and in consultation with Mr Lovell, Mr Hugh Ross, a rural consultant engaged by Mr Sherman, and officers from the Queensland Department of Primary Industries ("DPI") (Messrs D Blackett and G Salmond) and independent agronomists (including a Mr Ken Long of MacGregor Gourlay Agricultural Services of Moree).  Mr Sherman considered and evaluated a number of options for the development and operation of Oonavale, including dry and wet land cotton, sunflower and other cereal crops and livestock farming by way of agistment or acquisition of livestock.  Mr Sherman consulted with Mr Ross and Mr Lovell and the DPI officers and with Mr S Coulton of Coulton Farming Pty Limited and Mr A Monaghan of Monaghan & Associates (rural advisers) and on 28 February 1992, prepared a detailed report to Natwest evaluating the options for the future utilisation of Oonavale.

                        The evidence shows that in the circumstances, the management of Oonavale during receivership was competent and professional.  There is no evidence to support the contention that the property was inadequately managed or mismanaged by the Receiver or his representatives.  The applicants have not pointed to any specific instances of decisions which were taken or not taken and should have been such that a cause of action in negligence could be maintained.

                        Oonavale was sold on 22 December 1992 for $3.25 million, which price reflected its fair market value at that time (as calculated by Taylor Byrne, a firm of valuers in October 1991).  There is no evidence that the then market value had been in any way diminished by negligent management of the property.

                        The allegation in relation to the cattle mortgaged to Elders Rural seems to be that Mr Sherman acted negligently in requesting that Elders Rural remove some 600 or 700 head of cattle from Oonavale.  David Leitch alleged that Elders Rural were prepared to leave the cattle there at no cost to them (ie. paying no agistment) and that had this course been followed, the herd could have been progressively culled and the debt to Elders Rural could have been paid out by August 1992 leaving a substantial stock asset and no debt.

                        A proof of debt of Elders Rural stated that the amount owed under the stock mortgage as at 20 August 1991 was $673,599.58, although Stuart Ian Parker ("Mr Parker") of Elders estimated that as at March 1992 (the livestock were removed on 16 March) the debt owing to Elders was $580,000.00 after some sales during the intervening period.  In late February 1992 Mr Sherman sought and obtained a valuation of the livestock from Warialda Stock and Station Agency of $474,700.00.

                        After discussing a number of options with Mr Parker of Elders (including a possible discounted payout) and in the absence of any agreement thereby or any agreement by Elders to pay a market rate agistment and reimbursement of stock work, Mr Sherman requested that Elders remove the cattle from Oonavale.  Subsequently upon realisation, Elders Rural received $531,528.29 (from cattle, sheep and wool), leaving a shortfall of $169,626.25 after capitalised interest charges.

                        The scenario put forward in relation to the livestock by David Leitch is simply not supported by any credible evidence and depends upon Elders Rural not
exercising its rights over an account which was already in default.  Mr Sherman's decision was a reasonable and proper one particularly in the circumstances that Natwest did not intend to undertake long term farming activities on Oonavale and was not prepared to advance the funds required for a re-stocking of the property.  In the event, income earned from agistment during the receivership and applied for the benefit of the company in reducing debt and paying costs was $109,187.00.

                        The applicants' claim in negligence against the Mr Walker and Natwest fails.

LOSS AND DAMAGE

                        I turn to the question of loss and damage allegedly sustained by the applicants.

                        The first question is what has each applicant lost, if anything, which is compensable loss?  The second question is what is the value of the loss?  (Waribay Pty Ltd v. Minter Ellison [1991] 2 VR 391 at 398 per Young CJ and Kaye J).  Evidence is necessary as to each of these matters in order to establish the entitlement of the claimant for loss and the assessment of an award of monetary compensation to recompense for the loss (J.L.W. (Vic) Pty Ltd v. Tsiloglou [1994] 1 VR 237 at 250 per Tadgell and JD Phillips JJ).  Sometimes the same evidence covers both issues.

                        In respect of damages for breach of contract the formulation of the general principle governing the assessment of damages is that "where a party sustains a loss by
reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed".  (Robinson v. Harman (1848) 1 Ex 850 at 855;  154 ER 363 at 365 per Parke B).  This formulation identifies the subject matter of compensation (loss sustained by reason of a breach of contract) and the measure of damages (the amount required to place the innocent party in the same situation as if the contract had been performed) (The Commonwealth v. Amann Aviation Pty Ltd (1991) 174 CLR 64 at 99).

                        The test of recoverability of the loss is that laid down in Hadley v. Baxendale [1854] 9 Ex 341 at 354;  156 ER 145 at 151 :-

            "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

                        The party not in breach of the contract is entitled to damages for loss of bargain (expectation loss) and damage suffered including expenditure incurred in reliance on the contract (reliance loss) (Gates v. City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-12).

                        The entitlement to damages under s.82 of the TPA is to recover the amount of loss and damage caused by the conduct of another done in contravention of the TPA.  So too the relief under s.87(2)(d) is for an order for payment of the amount of the loss or damage suffered in consequence of a contravention.  The measure of loss or damage
under s.82 for actions involving a contravention of s.52 of the TPA is the same as that applicable to the measure of damages in tort to actions in deceit (Gates v. City Mutual Life Assurance Society Ltd at 7, 13).  Such damages are reliance damages and not expectation damages.

                        The difficulty in the present case is that the applicants did not seek to apply the above principles to the identification of the loss allegedly sustained by any of them and its value.  Rather, they relied upon a report of Mr Onus Maynes, the admissibility of which was objected to because it was based on information furnished to Mr Maynes by David Leitch which, to the extent that it was not included in statements of David Leitch tendered into evidence was not before the court and so far as it was included was opinion evidence not within the expertise of David Leitch.  Putting aside the question of admissibility, the methodology used by Mr Maynes is in my view wrong.  Mr Maynes treats the applicants as a group and commences with the global net worth of the group as at 30 June 1989 and then postulates what the net worth of the group would have been at 30 June 1994 if the Grix agreement had been performed or what the global net worth would have been at that date had the Teroxy agreement been performed.  Against these two hypothetical scenarios he compares the global net worth of the group in fact at 30 June 1994 and establishes a deficiency in the net asset position of the group from that which it ought to have been under each scenario.  There is a claimed net deficiency in consequence of Natwest not performing the Grix agreement of $1,310,187.00 and a claimed net deficiency in consequence of Natwest not performing the Teroxy agreement of $2,734,067.00.

                        The applicants claim that their loss and damage is either of these two figures depending upon what finding, if any, the court makes as to the agreements.  The sum claimed is predicated on the basis that it is a group entitlement and is recoverable as a joint loss.  No authority for such an approach was referred to the court.  In my view it is necessary to look at the individual position of each applicant and ask the two questions:  what has each applicant lost, if anything, which is compensable loss and what is the value of that loss, if any?

                        The allegations of contractual breach in relation to the alleged Grix agreement are those contained in paragraph 15 of the final amended statement of claim.  They are that Natwest failed :-

(a)                    To pay out the existing mortgage on Whispering Pines;

(b)                    To release the existing securities over the assets of Gude and insisted on taking fresh securities which were not thereafter released;

(c)                    To arrange finance for the construction of private hospitals on the land at Cleveland or Logan City.

                        The property Whispering Pines was owned by Glen Pacific.  If the mortgagee of the property had been paid out the net result would only have been the substitution of Natwest for the mortgagee unless Glen Pacific could have derived some reduction in the debt level from the transaction.  David Leitch claims that the mortgagee would have discounted the monies due for payment.  In the absence of some evidence from the mortgagee that it was prepared to do so, I do not accept that such was the case.  I am  not satisfied that Glen Pacific suffered any loss in consequence of this alleged
breach.

                        The failure of Natwest to pay out the mortgage on Whispering Pines caused no direct loss or damage to Glandore or to Gude.  In the absence of Glen Pacific sustaining loss it cannot be said that the other companies suffered indirect loss by being members of a group and being co-obligers with the other applicants for the group debt.

                        The owner and intended developer of the private hospitals at Cleveland and/or Logan City was Glandore.  The loss, if any, sustained by this breach was that of Glandore.  But what loss was sustained?  If it was the expectation of profit on an on-sale of the hospitals after completion, assuming that the necessary authorities, zonings and permission to build could have been obtained and maintained, there was no evidence which I am prepared to accept as to the time or cost of construction, the cost of fitting out the hospitals with plant and equipment, the holding charges until sale and the market values for a hospital at Cleveland or Logan so as to enable any calculation or reasoned assessment of achievable profit to be made.  Nor do I accept that a Department of Health approval to construct a hospital on the sites added anything to the land values.  Firstly, the balance of the evidence is that such approvals are personal to the holder and not transferable.  Secondly, when sold the land achieved values appropriate to hospital sites with approvals, if one gives any weight to the valuations of the sites by Mr Lister, and generated profits over the cost of acquisition.  Consequently no loss has been proved up under this head.

                        Glen Pacific and Gude suffered no direct or indirect loss or damage from the
non-funding of hospital construction on either of the sites.

                        The allegation is that the securities taken and maintained over Biram Stud denied to Gude the ability to deal with that property.  The loss, if any, is therefore that of Gude.  It is alleged in paragraph 27D(ab) of the final amended statement of claim that if Biram had been unsecured :-

            "(ab)                The Fourth Applicant would have, using the Biram property as security,

 

                                    (i)                     leased irrigation and other equipment in order to improve the Biram property and enhance its capacity to produce income from cropping and cattle breeding;

 

                                    (ii)                    generated the additional income and incurred the additional expenses particularised in Section 17 and Schedule 6.3 of this report of Onus Maynes."

                        The proposal concerning Biram Stud in section 17 of Mr Maynes' report was :-

            "17.                 "Biram" Stud - Development and Operations

 

            17.1                 Mr Leitch has advised that as part of the total compromise agreement reached between NWAB and himself, NWAB was to release a registered Bill of Mortgage over `Biram Stud' at Cambooya.

 

            17.2                 `Biram' was (and still is) owned by Gude Pty Ltd.

 

            17.3                 Contrary to the agreement reached, NWAB have never released that mortgage security.

 

            17.4                 I am advised that it was Mr Leitch's intention to refinance `Biram' and;

 

                                    (a)        complete the purchase [sic] a property adjoining `Biram' known as `Brookvale'.

                                    (v)        amalgamate `Biram', `Brookvale' and a third adjoining property owned by Mr Leitch as `Towersfield' into one operating parcel to provide a total land holding of 1700 acres;  and

 

                                    (c)        through Gude Pty Ltd, he would have undertaken a farming, cattle breeding, and thoroughbred operation on the amalgamated property holding.

 

            17.5                 Mr Leitch, has advised that the purchase price of `Brookvale' was $350,000.  Further, in order to get the amalgamated properties to their full operating potential, it would require an estimated further capital amount of $290,000 to $300,000 to be expended thereon.  Of that amount it was proposed that approximately $174,000 to be expended on irrigation plant and other farming plant and equipment would be funded by way of leasing finance.

 

            17.6                 The balance of capital expenditure of approximately $116,000, together with the purchase price for `Brookvale' of $350,000 was to be funded by a mortgage loan from Westpac of $500,000, with mortgages over those properties as security.

 

            17.7                 Mr Leitch has provided me with a financial projection commencing with the 1989/1990 year of the farming, cattle, and thoroughbred operations which it was proposed would be carried on at `Biram' after the acquisition of `Brookvale' and the proposed capital improvements had been carried out.

 

            17.8                 I have summarised on Schedule 6.3 hereto, the notional annual trading results for the amalgamated `Biram' Stud based on the information provided by Mr Leitch.

 

            17.9                 Included with the estimated notional expenses on Schedule 6.3 is:

 

                                    (a)        interest on the proposed $500,000 bank loan @ 18% per annum - $90,000 p.a.

 

                                    (b)        leasing costs of $5000 pre [sic] month for the irrigation equipment and other farming equipment costing an estimated $174,000 - $60,000 p.a.

 

            17.10               Estimates of income from various activities and other expenses are in accordance with the advices of Mr Leitch.

 

            17.11               As shown on Schedule 6.3, after allowing for all costs
including leasing costs and interest on the proposed bank loan, the amalgamated properties would have operated at an estimated net profit of $70,000 per annum.

 

            17.12               However as shown on page 1 of Schedule 3, the notional loan of $500,000 for `Biram' Stud would have been able to be repaid on or about 31st July 1991 from the sales proceeds of `Oonavale' and the Cleveland Hospital Site.

 

            17.13               Accordingly, from that time i.e. 1st August 1991 the estimated net profit of $70,000 per annum would increase by $7500 per month or $90,000 per annum to $160,000 as the annual interest of $90,000 on the notional loan would no longer be payable.

 

            17.14               Further, the lease of the irrigation and other farming equipment originally costing $174,000 would have expired after 4 years on 1st July 1993 with a lease residual payout of $17,400, being 10 percent of the original cost.

 

            17.15               Accordingly, for the period 1st July 1993 to 30th June 1994, the estimated net profit for `Biram' has been increased by $5000 per month or $60,000 per annum to adjust for the notional lease payments which would have been no longer payable."

                        There is no evidence that David Leitch revealed this specific proposal to Mr Grix at the time of the alleged agreement in July 1989, and in particular the proposal to use the proceeds of sale of Oonavale and the Cleveland Hospital site to repay the loan of $500,000.00 to Westpac.  Such evidence as there is indicates that the discussion was of a general nature in which David Leitch stated that he wished the property unencumbered so that he could borrow against it to complete the development of Biram Stud.  Any loss consequent upon an inability to implement the proposal outlined in section 17 of Mr Maynes' report did not arise naturally from the alleged breach itself and was not such as ought reasonably be supposed to have been in the contemplation of the parties at the time of the alleged Grix agreement as the probable result of a breach of it.  The alleged loss
falls outside both limbs of the rule in Hadley v. Baxendale.  Further, without discussing all of the substantial evidence on the proposal, I am not satisfied that it was ever achievable.  The only person to swear that it was was David Leitch.  There is no credible evidence that the additional borrowings were available, that an additional water entitlement was obtainable, that the properties could have been worked and developed for the costs David Leitch claimed or that the properties would have generated the alleged profits.  The evidence of Mr Peter Thompson the expert grazier and registered agricultural consultant with a degree in Applied Science (Rural Technology), which I accept, is against it.

                        Even if the Grix agreement as alleged by the applicants had been performed, that would have left the applicants in July 1991 still substantially indebted to Natwest.  The applicants plead in paragraph 27D of the final amended statement of claim that had Natwest performed Glandore would have disposed of the Oonavale property in July 1991 for $4.825 million and this forms part of Mr Maynes calculation in section 17 of his report.  I do not accept that Glandore would have sold at that date for that figure.  There was nothing preventing Glandore from selling and reducing debt.  That was what Natwest wanted.  However Glandore took no steps to sell. 

                        In paragraph 27D(da) the applicants plead that if the Grix agreement as alleged had been performed by Natwest the applicants would in July 1991 have negotiated an extension of the outstanding loan with Natwest or a refinancing of the loans through an alternative financier.  I do not accept that there was any reasonable likelihood of this occurring.  David Leitch had been attempting to find another financier to refinance and
pay out not just Natwest, but also myriad creditors including NZI, Elders, Commonwealth Bank and the Australian Taxation Office.  David Leitch could not find a refinancier.  The applicants were facing a situation of default under the securities and it was for that reason that David Leitch says he approached Natwest in 1991 for an extension of the loans for a further eighteen months.

                        Glandore and Glen Pacific suffered no direct or indirect loss by the taking and maintaining of securities over the property of Gude.

                        If there was a Teroxy agreement as alleged, then nothing is recoverable for an alleged breach of the Grix agreement.  All such claims were given up on the applicants' case as consideration for the Teroxy agreement.  If the Teroxy agreement had been  made out then the only possible losses would be those flowing from the appointment of the Receiver.

                        For reasons given earlier the conduct of the Receiver in relation to the cessation of the operation of the Selwyn Private Hospital at Mt. Isa was not negligent and was not causative of any loss to Glandore.  I find that NZI would have exercised its rights under the deed dated 5 May 1990 and closed down and sold up the land, buildings, plant and equipment if the hospital could not have been sold as a going concern.  The applicants would have been denied access to the fruits, if any, of the Selwyn Hospital by the action of NZI irrespective of the appointment of a receiver and manager by Natwest.

                        Likewise, Glandore would have gone into liquidation on the application of the Australian Taxation Office for non-payment of group tax irrespective of the appointment of the receiver and manager.  The occasion of a winding up order would itself have been an act of default under the securities even if the loan period had been extended and would have entitled Natwest to appoint a receiver and manager under the securities.  The Leitch group did not collapse because the members of it were required to pay the monies due to Natwest and thereby lost their liquidity.  The Leitch group did not have the liquidity to pay other creditors notwithstanding that Natwest was not enforcing payment.  I do not accept David Leitch's assertions that he would have been able to negotiate an arrangement with the Australian Taxation Office and NZI which would have resulted in their taking no recovery action against Glandore.

                        Biram Stud would not have been developed in accordance with the proposal in section 17 of Mr Maynes' report if the alleged Teroxy agreement had been performed.  This is because Gude had given up any claim based on the taking of fresh securities and the failure to release them, so that Biram Stud at the time of the making of the alleged Teroxy agreement and thereafter remained lawfully encumbered under the securities.  Additionally the Leitch group had no funds to properly run or develop Biram Stud in July 1991.

                        Nor can it credibly be said that the Leitch group could have refinanced its total debt, including its debt to Natwest, but for the appointment of the Receiver.  The Leitch group had reached the end of the line of available orthodox financiers.  The schemes for re-financing that David Leitch was investigating in 1991 were unorthodox and high risk financial transactions.  David Leitch's attempts to refinance by way of such
schemes were born out of desperation.

                        In my view, had Natwest rolled over the loans and extended the due dates by eighteen months, the appointment of a receiver and manager would have been made by Natwest around the time when it did due to the actions taken by NZI and the Australian Taxation Office to recover their debts.  The Leitch group has suffered no loss or damage by the non-extension of the loans or by the appointment of receivers.  The position of the Leitch group is not significantly different from what it would have been in any event, even if the loans had been rolled over for a further eighteen months.

                        Nor can it be said that the loss and damage claimed in the report of Mr Maynes as a consequence of an alleged breach of s.52 of the TPA is reasonably foreseeable loss flowing directly from the applicants entering into the Grix agreement and executing the securities (Gates v. City Mutual Life Assurance Society at 12).  Superficially the betterment/detriment analysis comes within the following statement from Gates (at 13) :-

            "Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation.  If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation.  This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed:  cf. Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801, at pp.820-821, 828-829;  Doyle v. Olby (Ironmongers) Ltd. [1969] 2 Q.B., at p.167.  The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation.  In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could
and would have entered into the different contract."

                        However, the evidence led by the applicants does not show that they could and would have entered into a different contract to that entered into with Natwest.  Nor does it show that they would not have been required to give security over the assets of Gude including Biram Stud to support an advance in the same amount as was received from Natwest.  The absence of such evidence is fatal to any claim for reliance loss under s.52 of the TPA even if the misleading and deceptive conduct had been established.

                        The applicants do not on either a contractual or a TPA basis prove up recoverable loss and damage as part of their pleaded causes of action for breach of contract or breach of s.52. 

CONCLUSION ON APPLICANTS' CLAIM

                        The applicants have failed to make out any entitlement to the relief claimed.  There will be judgment for the first and second respondents on the claim and the application will be dismissed.

CROSS-CLAIM

                        Natwest was put to proof on the elements of its cross-claim.  David Leitch did not seek to deny entry into, nor the validity of the signatures upon, the contractual documents reflecting the loans, advances and facilities.  David Leitch did not seek to deny receipt of the monies nor failure to pay monies advanced upon demand.  The principal sum claimed has been calculated in accordance with the contractual documents.  The
cross-respondents did not challenge these calculations.

                        In its cross-claim Natwest claims $21,081,700.58 plus interest from 24 March 1992.  However the evidence of John Leslie Staker, an officer of Natwest, was that that sum was due, owing and payable as at 31 August 1994.  There will be judgment on the cross-claim against Gude and Glen Pacific for $21,081,700.58 plus contractual interest from 31 August 1994 to date of judgment.

COSTS

                        The respondents are entitled to costs on the claim against the applicants including Alma Leitch who prosecuted the proceedings in the name of Glandore at her own risk as to costs.

                        Natwest is also entitled to its costs on the cross-claim against the first and second cross-respondents.

THE COURT ORDERS THAT:

1.                     Alma Margaret Leitch be dismissed from the proceedings as an applicant in her own right.

2.                     Judgment be entered on the claim in favour of the first and second respondents.

3.                     The application of the applicants be dismissed.

4.                     The fourth and fifth applicants and Alma Margaret Leitch pay the first and second respondents' costs of and incidental to the application, including reserved costs, to be taxed if not agreed.

5.                     Judgment on the cross-claim be entered for the cross-claimant against the first and second cross-respondents.

6.                     The cross-claimant recover against the first and second cross-respondents the sum of TWENTY-ONE MILLION EIGHTY-ONE THOUSAND SEVEN HUNDRED DOLLARS AND FIFTY-EIGHT CENTS ($21,081,700.58) and interest at the contractual daily rate from 31 August 1994 until and including the date of judgment.

7.                     The first and second cross-respondents pay the cross-claimant's costs of and incidental to the cross-claim, including reserved costs, if any, to be taxed if not agreed.

8.                     It shall be sufficient proof of the contractual daily rate of interest from 31 August 1994 to the date of judgment, for the cross-claimant to file and serve an affidavit of an officer of the cross-claimant setting out the daily rate of interest, the sum outstanding and the interest payable by reference to the relevant daily rate or rates.

9.                     There be liberty to all parties to apply to have varied the sum of $21,081,700.58 having regard to payments received by the cross-claimant either from the cross-respondents or from any other person or on account of the cross-respondents' indebtedness to the cross-claimant including, but not limited to, payments on account of asset sales and from return of funds advanced to Peter Murray Walker in his capacity as receiver, receiver and manager or agent of the cross-claimant as mortgagee in possession pursuant to securities held by the cross-claimant occurring since 31 August 1994.

                        I certify that this and the preceding One hundred and thirty-seven (137) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.

 

                        Date:  12 October 1995

 

 

                                                                                                Associate

Counsel for the Applicants:                                       Mr JF Curran

Solicitors for the Applicants:                         Hewlett & Company

Counsel for the Respondents:                                   Mr AJH Morris QC

                                                                                    Mr L Kelly

Solicitors for the Respondents:                                 Messrs Barwicks

Dates of Hearing:                                                      6, 7, 8, 9, 10, 13, 14 and 15 December 1993, 1 March 1994, 10, 11, 12, 13, 14 and 20 October 1994

Place of Hearing:                                                       Brisbane

Date of Judgment:                                                     12 October 1995