CATCHWORDS
TRADE PRACTICES -Breach of s 52 Trade Practices Act - Whether bank represented loan approval not subject to further valuations - whether bank represented it would provide further funds on rezoning of properties - whether silence amounted to representation - whether silence amounted to misleading conduct.
CONTRACT - Breach of contract - whether contract subject to a condition precedent - whether contract subject to satisfactory valuations - whether bank contractually bound.
TORT - negligence - whether duty to inform valuations not satisfactory - whether breach of duty of care.
EQUITY - unconscionable conduct - whether unconscionable conduct arising from undue influence and duress - whether inequality of bargaining power - estoppel - whether estopped from alleging misrepresentation and unconscionable conduct.
Trade Practices Act 1974 (Cth)
Commercial Bank of Australia Limited v Amadio (1983)
151 CLR 447
Louth v Diprose (1992) 175 CLR 621
Barton v Armstrong (1976) AC 104
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Jones v Dunkel (1959) 101 CLR 298
Robertson A, "The Circumstances in which Silence can Constitute Misleading or Deceptive Conduct" (1991) Queensland Law Society Journal, February.
ANTHONY CHRISTOPHER WILLIAMS, EUNICE ELIZABETH KELLY, PRESEARTH PTY LTD & NOMMACK (No 198) PTY LTD v COMMONWEALTH BANK OF AUSTRALIA & Ors
No NG 898 of 1992
Tamberlin J
Sydney
20 October 1995
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) No. NG 898 of 1992 GENERAL DIVISION )
BETWEEN: ANTHONY CHRISTOPHER WILLIAMS
First Applicant
EUNICE ELIZABETH KELLY
Second Applicant
PRESEARTH PTY LTD (ACN 003 402 166)
Third Applicant
NOMMACK (NO 198) PTY LIMITED
(ACN 003 107 659)
Fourth Applicant
AND: COMMONWEALTH BANK OF AUSTRALIA
(ACN 123 123 124)
Respondent/Cross Claimant
PRESEARTH PTY LIMITED
First Cross Respondent
NOMMACK (No 198) PTY LIMITED
Second Cross Respondent
ANTHONY CHRISTOPHER WILLIAMS
Third Cross Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 20 OCTOBER 1995
REASONS FOR JUDGMENT
Nature of Proceedings
The application claims damages, under the Trade Practices Act and for negligence in relation to a failure by
the Commonwealth Bank of Australia (the "Bank") to advance a loan in
the total amount of $3.4 million to the third and fourth applicants for the
purpose of acquiring properties at 4-4A, 6-8 and 10-18 Gertrude Street,
Arncliffe ("the properties") over the period from 16 June 1989 to
about May 1990. There is also a claim for breach of contract. In addition, a
further claim is made that the Bank acted in an unconscionable manner
in relation to the obtaining of a letter from the applicants bearing date 16
June 1989, to the effect that loan funds were no longer required to purchase
properties situated at 6-8 and 10 Gertrude Street, Arncliffe.
The Parties
Mr A C Williams
Mr A C Williams, ("Williams") is the first applicant. He is also a director of the third applicant. He agreed in about August 1987 with Mr V W Kelly, ("Kelly"), a real estate agent, to commence a joint venture using the third and fourth applicants as the vehicles for the joint venture with the intent of purchasing, consolidating and selling the properties at a profit following development consent or redevelopment.
Mrs E E Kelly
Mrs E E Kelly ("Mrs Kelly") is the mother of Kelly. She has had considerable experience in relation to running a Real Estate Agency and associated book-keeping work. Over a period of about 23 years she and her husband developed a successful real estate business. Her husband died in January 1987.
To enable the real estate venture proposed by the third and fourth
applicants to proceed, Mrs Kelly advanced the sum of $170,000 to the joint
venture on 20 March 1989. This was in
respect of a deposit on the properties 12-18 Gertrude Street, Arncliffe. She
also advanced moneys for the purchase of 4-4A
Gertrude Street, on 31 March 1989 in the sum of $57,700 being the deposit on
the property.
Presearth Pty Ltd
Presearth Pty Ltd ("Presearth") is the fourth applicant. It was a shelf company purchased by the first applicant, Williams, for the purpose of forming a joint venture company in relation to premises at Gertrude Street, and 4-8 Princes Highway, Arncliffe. Williams is a director and shareholder of this company and effectively controls it.
Nommack (No 198) Pty Ltd
Nommack (No 198) Pty Ltd was another shelf company which was purchased by Kelly for the purpose of forming the joint venture. He is a director and shareholder of that company and it is effectively controlled by him.
These companies were selected for the venture in about August 1987.
The Commonwealth Bank of Australia
The Commonwealth Bank of Australia is the respondent. It is also a cross-claimant in the proceedings for moneys outstanding under securities granted by it to the first, third and fourth applicants.
Mr D J Seymour
Mr D J Seymour ("Seymour") is an officer of the Bank. From September 1987 to May 1991 he was a Corporate Loans Officer at the North Sydney branch of the Bank. He had at that time been employed by the Bank since June 1977. Prior to working at the North Sydney branch he was a Loans Assistant Officer with the Bank at two other branches over a five year period. He therefore had considerable experience in relation to the making of loans by the Bank. From 7 June 1977 onwards he had dealings with Kelly who was the principal of various companies which had credit accounts with the Bank.
Mr Richard Branson
Mr Richard Branson ("Branson") is a Senior Manager of the Bank. One of his functions is the seeking for approval to the making of loans to customers of the Bank from the New South Wales Branch's Administration Corporate Lending Services section.
Ms Megan Carlin
Ms Megan Carlin is a Valuer employed by the Bank in the Property Valuation Division ("PVD") section of the New South Wales Branch's Administration.
As at mid-1989 she had obtained the necessary qualifications, but did not have a great deal of practical experience.
David John Nelson
Mr David Nelson ("Nelson") is a qualified Valuer, who was retained to carry out a valuation of the premises, 4-10 Gertrude Street, Arncliffe, on behalf of the applicants.
The Applicants' Case
The applicants allege that in August 1987 they entered into a joint venture agreement for the purpose of developing properties at 4-18 Gertrude Street, Arncliffe inclusive ("the site"). They resolved to consolidate the properties as one site, obtain development consent and then onsell. The negotiations and preparation for consolidation, it is said, took place between late 1987 and early 1989. It is further alleged that between 31 March 1989 and 20 April 1989 the corporate applicants had exchanged contracts on the properties which constituted the site and had paid a total of $303,700 in deposits. There were a number of separate owners of the premises which made up the site.
On or about 20 March 1989 Mrs Kelly lent the sum of $170,000 to the corporate applicants as a deposit on 12-18 Gertrude Street. On 31 March 1989 she loaned a further amount of $57,700 being the deposit on 4-4A Gertrude Street. The deposits were lent on a short term basis to be returned upon the making of a loan by Resi State-Wide Corporation Limited ("Resi"), which later became the Bank of Melbourne.
In early 1989 the corporate applicants obtained initial "approval" from Resi to purchase the site subject to satisfactory valuations by the mortgagee, the provision of mortgage guarantee insurance and the lender's board of directors approval of the advance. There were also reservations of rights by the lender to defer settlement.
In March 1989 the corporate applicants began negotiations with Seymour of the Bank's North Sydney office. On 30 May 1989 the Bank through Seymour orally approved a Bills Discount Facility of $3.4 million to purchase the site. This was confirmed in writing by a letter dated 30 May 1989, sent by fax on 1 June 1989.
It is said that between 30 May 1989 and 14 June 1989 the respondent made the following representations:
1. That the loan had been approved and was not subject to any further valuations being acceptable to the Bank.
2. That settlement in respect of 4-4A and 12-18 Gertrude Street was to be effected on 16 June 1989.
3. That the remainder of the advance was to be made during the 12 month period following May 1989.
4. That the valuations provided by the applicants were in fact satisfactory to the Bank.
5. That additional security offered by the applicants was satisfactory.
It is alleged that the corporate applicants accepted the "offer" made by the Bank in its letter dated 30 May 1989, and agreed to pay fees in relation to such offer. It is therefore said that the Bank was contractually bound to the corporate applicants to ensure settlement of all properties, comprising the proposed site and to lend the sum of $3.4 million in respect of the purchase of these properties.
On 14 June 1989 two days before settlement of the purchase of 4-4A and 12-18 Gertrude Street the Bank stated it would not lend the full amount of $3.4 million and in fact lent only the sum of $2.4 million.
It is also alleged that on about 16 June 1989 the Bank orally represented that it would complete the original loan of $3.4 million to fund the purchase of 6-8 and 10 Gertrude Street, Arncliffe, the outstanding properties, when appropriate zoning changes, then before the Council, were gazetted.
On about 21 July 1989 it is alleged that the corporate applicants were able to obtain the sum of $1.25 million to complete the purchase of the site and had agreed with the Bank that it would fund the remaining $770,000 once zoning changes were gazetted. It was anticipated that the site would be redeveloped as a hotel which was contrary to the then existing zoning.
On or about 21 July it is said that the Bank through Seymour represented that it would agree to this transaction.
In about October 1989 it is said that the Bank, through Seymour, represented that the lending facility would proceed pursuant to the zoning change.
Between June 1989 and October 1989 the corporate applicants say that they had paid additional funds to rearrange the dates for settlement.
In January 1990 the Bank, in the course of a discussion with Messrs Seymour and Branson, refused to make the further advance as represented and only permitted an extension of the existing facility to accommodate accruing interest.
It is alleged that as a result of the representations and breach by the Bank, of its initial agreement to lend moneys for the purchase of the site in an amount of $3.4 million, there was a breach of s 52 of the Trade Practices Act (1974). This is said to be comprised by the making of a representation that the loan of $3.4 million would be advanced and then later, 2 days prior to settlement, indicating that a lesser sum, only $2.4 million, would be advanced on the basis of the valuations obtained by the Bank. It is said that the Bank remained silent between 30 May 1989 and 14 June 1989 in circumstances where the Bank had a duty to inform the applicants that it was not satisfied with the valuations which had been provided to it. By failing to inform the applicants that the Bills Discount Facility of $3.4 million was "subject to" valuations, it is further said that the silence of the Bank amounted to a representation that the Bills Discount Facility was satisfactory when it knew that this was not the case. It is said that by entering into a subsequent agreement with the applicants and representing that the funds to complete the purchase of the site would be forthcoming after zoning changes, there was misleading conduct. Furthermore, the representation on 21 July 1989 that the applicants would receive $770,000 to complete the purchase of the site was misleading in circumstances where the Bank failed to comply with this representation. In addition, it is alleged there were further representations that finance would finally be provided to the applicants on 8 December 1989, in circumstances where the Bank subsequently failed to provide such finance by that date, or to enter into any arrangement that would enable the applicants to obtain additional finance from independent financiers. As a result, there are alleged a number of matters in the form of negligence arising from breaches of an alleged duty of care couched in substantially the same terms as the breaches alleged in relation to the Trade Practices' claims.
In relation to the allegation of unconscionable conduct, the applicants say that the Bank acted unconscionably on 16 June 1989 in requiring a letter from the applicants stating that funds were no longer required for the purchase of properties situated at 6-8 and 10 Gertrude Street, Arncliffe. It is claimed that the Bank took advantage of the need of the applicants for the funds by threatening that it would not provide funds for settlement on 16 June 1989, unless such letter was provided. The unconscionable conduct, is said, in part at least, to arise from the exercise of undue influence and duress over the applicants at a time when there was total inequality of bargaining power between them.
In relation to Mrs Kelly it is said that the Bank knew at all material times that she was providing deposits on the two properties and that she relied on the Bank's representations and conduct for recovery of the deposits. It is said that the Bank represented that such deposits would be refunded to Mrs Kelly on the first date of settlement, being 16 June 1989. Alternatively, it is said that Seymour represented to Mrs Kelly that the loan of $3.4 million was to proceed and at no time advised her of any objection by the Bank to valuations of the properties which constituted the sites. As a result, it is alleged that Mrs Kelly lost the sum of $227,700.
The Defence to the Further Amended Statement of Claim, basically denies, or does not admit the allegations, and or qualifies the allegations.
In answer to the whole of the allegations the Bank claims that it was not liable to provide any financial accommodation in excess of $2.4 million to the applicants, and that any loss was not caused by any act or omission of the Bank. It is also said that the provision of finance to the extent of $2.4 million was the subject of expressed consent by the applicants as set out in the letter of 16 June 1989 and by reason of that letter and subsequent conduct of the applicants, the applicants are estopped from making the allegations and obtaining the relief sought.
There is a cross-claim by the Bank against the first, third and fourth applicants for moneys outstanding to the Bank under the mortgages and other security documents. This cross-claim is disputed in the sense that the allegations are not admitted or denied. The applicants claim a set-off in the amount of the damages arising from the alleged breaches of s 52 and the other claims. The evidence establishes the amounts due and the due giving of the necessary Notices to ground the cross-claim, so that essentially the defence to the cross-claim is by way of set-off of the amounts claimed in the application.
Factual Background
In July and August 1987 Kelly and Williams discussed a joint venture which involved the consolidation, purchase and development of properties 4-8 Princes Highway, and 4-18 Gertrude Street, Arncliffe. The vehicles for the joint venture were two shelf companies, Presearth and Nommack referred to earlier.
An option was obtained over the Princes Highway site on about 18 December 1987. This option expired on 17 December 1988.
Negotiations were undertaken in early 1989 for the purchase of the Gertrude Street properties. On 20 March 1989, payment of a part deposit on 12-18 Gertrude Street was made and contracts were exchanged on that date. On 31 March 1989 contracts were exchanged on premises 4-4A Gertrude Street, and a part deposit of $57,700 was paid to the vendors. These deposit moneys were lent to Presearth and Nommack by Mrs E Kelly, the mother of Victor Kelly.
During March 1989, negotiations with Resi were carried out on behalf of the two companies, by Mr Honeysett of Randall Nutt and Associates Pty Limited ("Honeysett"). He confirmed that he would arrange funds to purchase all the properties at 4-18 Gertrude Street, and that there would be no problem with the loan.
In late March 1989 discussions took place between Kelly and Seymour during which Kelly was invited to submit a formal line application to the Bank.
In late March 1989, Seymour, on behalf of the Bank advanced Nommack $56,000 as an unsecured overdraft.
On 19 April 1989 a formal loan application was submitted to the Bank by Kelly on behalf of the two companies. The application was expressed to be for the purchase of properties situated at 4-18 Gertrude Street. The amount sought was $2.9 million plus capitalisation of interest. The application was for a total loan facility on a drawdown basis commencing from April 1989 and maturing on or before 1 April 1990. The cash flow chart attached to the application indicated that an amount of $1.879 million was required in May. In June this amount was to be increased to $2.412 million and in July by a further sum making up the total to $2.98 million. Finally the cash flow chart indicates that in December 1989 further amounts would be required taking the total to $3.302 million.
Valuations were furnished with the application letter of 19 April. These were prepared by "Equity Real Estate" and were as follows:
"Properties to be Purchased: Current Valuations:
( Securities ) $
4-4AGertrude Street, Arncliffe 987,000
6-8 " " " 935,000
10 " " " 398,000
12-16 " " " 2,100,000
18 " " " 675,000
Sub-total 
$5,095,000"
There was a reference to additional securities which were as follows:
"Additional Securities:
( If required )
Properties: Current Valuations:
$
27 Darling Street, Glebe 285,000
218-219 Nebula Street, Noosa Heads 150,000
Lot 352-58 Dyers Road, Bowraville 240,000
31 Macdonald Street, Vaucluse 1,500,000
Sub-total
$2,175,000
Full Total
$7,270,000"
The letter stated that the purpose of the loan was to finalise the purchase of the subject properties which "are all now the subject of exchanged contracts with settlements commencing from 19 May 1989". Another objective was to maximise the value of the land by gaining development approvals for its optimum use and to sell the properties for their market value in accordance with the development approvals as a package with the minimum price as set in the current valuations and existing approvements. The Bank was told that architects had completed comprehensive plans and specifications which had been lodged with the Council for a Hotel-Serviced Apartment Complex. This was said to be awaiting applicable zoning changes to the land under a Local Environmental Plan. It was anticipated that a decision would be given on the development application for a similar application within the next four to six months. It was stated in the letter of application that clearance of the loan was achievable without any consent to the development application as the properties were saleable in their present state and current zoning, for the sum of $5.095 million as set out in the valuations referred to.
The total net income anticipated in respect of the properties was expressed to be $232,743 per annum.
The total loan facility including accumulated interest at the rate of 21% compound was an amount of $3.408 million.
In fact, the development application was dated 3 February 1989. There is a Council stamp on it giving the date of receipt as 8 March 1989. The development application was for a three to four star hotel consisting of 255 rooms together with a serviced strata complex of 140 apartments. It was made, not only, in respect of premises 4-18 Gertrude Street, but also, 4-8 Princes Highway, Arncliffe.
The valuation furnished by Equity Real Estate to the Bank related to 4-4A Gertrude Street, 6-8 Gertrude Street, 10 Gertrude Street, 12-16 Gertrude Street, and 18 Gertrude Street.
On 20 April 1989 an exchange of contacts took place in relation to 6-8 Gertrude Street, Arncliffe.
The Loan application was received by the Bank on 28 April 1989.
On 28 April 1989, a company Telado Pty Ltd, ("Telado") wrote to Kelly in relation to premises 4-18 Gertrude Street, Arncliffe. That letter reads as follows:
"Further to our discussions with yourself on the 19th April, 1989 we have appraised the holding of land at Gertrude Street, Arncliffe and submit a firm offer to purchase same, for the sum of five million, five hundred thousand dollars ($5.5 million).
We realise at this point in time you have no intention of selling but we wish to advise that the offer submitted will remain open, up to and including the 30th June, 1989, on the basis of the present status of all current leases, subject to the following terms and conditions:
Address of Properties: 1. 4/4a Gertrude Street, Arncliffe
6/8 Gertrude Street, Arncliffe
10 Gertrude Street, Arncliffe
12/18 Gertrude Street, Arncliffe.
2. 10% Deposit payable on exchange of
contracts and deposited in an
interest bearing account in both
parties' names and the interest
to be shared equally and adjusted
on settlement.
3. The balance of purchase monies
payable in cash on completion.
4. Settlement to take place within
120 days after the date of exchange
of contracts.
5. On settlement, vacant possession
will be required in respect to
properties situated at 4/4a Gertrude
Street, Arncliffe. The remaining
properties will be subject to
existing tenancies.
6. Purchasers Name: Telado Pty. Limited
Registered Office: Level 2/2 Grosvenor
Street, Bondi Junction. 2022
7. Solicitors: Coombes, Lucas & Co.
Attention: Mr Nick Coombes
293 Victoria Road, Marrickville."
It was signed by a director of Telado.
On 12 May 1989 Honeysett wrote to Kelly in relation to an application for a loan of $3.214 million. The security was expressed to be 4-18 Gertrude Street, 27 Darling Street, Glebe and 31 Macdonald Street, Vaucluse. The letter stated that the application for the advance "has been approved in principal (sic), subject to the conditions contained in the amended letter of offer for your acceptance."
A letter from Resi to Honeysett of 12 May 1989 indicated that the application was for an advance of $2.7 million increasing to approximately $3.214 million. Resi advised that they would consider the application to assist in the purchase of a commercial and residential property at Arncliffe and re-finance an existing mortgage on residential property at Vaucluse. Interest was to be at 17.5% promptly paid, otherwise 21.5%. The loan was for one year. There were a number of conditions but an important provision was that the loan was subject to:
"1. Satisfactory valuation report being received for the lender's appointed valuer with a fair market value for mortgage purposes no less than $6,482,000 ..."
On 15 May 1989 Seymour recommended approval by the Bank of the application by Kelly in the sum of $3.4 million including capitalised interest by way of a Bill Facility. The diary note attached a copy of the proposal from Kelly. Seymour stated that the proposed security was more than sufficient to allow capitalisation of interest for a 12 month period and the overall position was considered satisfactory.
On 18 May 1989, Branson, the senior manager of the North Sydney Branch, signed an internal Memorandum to the NSW Branches Administration of the Bank, Corporate Lending Services, recommending approval of a Bill Discount Facility of $3.4 million. He was the superior of Seymour.
Branson's Memorandum noted that the purpose was to assist to complete the purchase of five properties at Arncliffe for $2.9 million approximately and provide reimbursement of $250,000 to Nommack for loans provided to the venture.
The Memorandum recounts that in 1987 the principals of the applicant companies obtained options to purchase the properties at 4-18 Gertrude Street, Arncliffe for a total of $2.9 million and they have since exercised the options. The companies were formed essentially with the intention that they would be the purchasers of the property in a joint venture basis. Following settlement it was the companies' intention to fully examine the uses to which the sites could best be put including construction of a hotel or motel, with a retail and office component; a warehouse complex or a combination of a motel/office complex with refurbishment of existing industrial buildings on some of the present sites. Reference was made to an offer to purchase the properties at $5.5 million held by the companies. Attention was drawn in the Memorandum to the letter of 28 April from Telado. The Memorandum records that the directors of the two companies expected that by 31 March 1990 they would be in a position to dispose of the total site with the appropriate approvals, but if not obtained, they would be prepared to sell the properties individually for the current values. Branson recorded that this proposal might not normally be viewed favourably but the security offered suggested that there should be no risk in providing the accommodation. He used the values arrived at in the valuations attached to his Memorandum, suggesting a total worth of the securities of $6.88 million and a gross borrowing of $3.4 million. The proposed borrowing was therefore, in his view, an acceptable risk to the Bank.
A Memorandum of the Bank from Mr Flynn to Mr Harvey recommends that the
proposal should be approved although the proposition "could be regarded as a speculative property development proposal". A number of reasons are set out which are
said to warrant the recommendation, including the facts that the applicant
company principals are existing clients; that options to purchase were obtained
in late 1987 and only recently exercised, that the values far exceed the
purchase prices and that it was said an offer to purchase the properties at a
price of $5.5 million was held. Mr Harvey approved the recommendation "on
the basis submitted and subject to confirmation by PVD of property values at
the figures nominated." Also on that date there was an internal
Memorandum from Mr T Harvey, described as Senior Manager to North Sydney
Branch, which stated:
"We have approved a B/D/F of $3,400,000 on the basis submitted and subject to :
. Confirmation by PVD of property values at the figures nominated.
Please provide control documents in due course.
Valuations and Financial Statements are returned herewith."
There is a handwritten note that this was received on 30 May 1989. There is a further note by Branson which states:
"Pls arrange valuations as soon as possible."
On 30 May 1989 Seymour sent a Memorandum to PVD stating that Corporate Lending Services have approved a $3.4 million Bills Discount Facility subject to the Valuation Office confirming valuation as stated in the application. A copy of the application was enclosed, together with the approval and independent valuations (Equity Real Estate Valuations) with a recommendation by Seymour that these "independent valuations" should be adopted.
On or about 30 May 1989 there was a telephone conversation with Kelly, during which Seymour advised Kelly of the loan approval. Seymour states that he said words to the effect:
"Approval is subject to the Bank obtaining satisfactory valuations on the security properties."
This statement is denied by Kelly, he says that no reference was made to the Bank obtaining satisfactory valuations. Seymour said that he had an invariable practice of stating that approval of loans was subject to the Bank obtaining satisfactory valuations on security properties.
On 30 May 1989 Branson, the Senior Manager, wrote to Kelly, the relevant parts of that letter are:
"APPLICATION FOR ADVANCE - PRESEARTH PTY LIMITED
AND NOMMACK (NO 198) PTY LIMITED
We are pleased to inform you that the Bank has approved a Bills Discount Facility of $3,400,000 (gross) to assist (sic) complete the purchase of 5 commercial properties at 4-18 Gertrude Street Arncliffe NSW and provide reimbursement to Nommack for loans provided to the venture.
The loan is subject to the Bank's usual terms and conditions generally, for loans of this type, and in particular to the following:
Term of Advance: 1 year from date of approval.
Individual bills are to be drawn for a minimum term of 14 days and a maximum term of 180 days.
Repayments: Interest will be capitalised for the term of the advance with full clearance at the end of that time.
Interest Rate: The interest rate will be determined on the day of actual drawdown of each bill, at the rate appropriate to bills of similar amount and tenor. The rate obtained will be fixed for the term of the bill.
Security: Security must be to the Bank's satisfaction and will comprise :-
1. Registered mortgage by Presearth and Nommack over 5 commercial properties at 4-18 Gertrude Street Arncliffe.
2. Registered mortgage by T C Williams over 27 Darling Street Glebe.
3. Registered mortgage by T C Williams over 31 MacDonalds Avenue Vaucluse NSW
4. Guarantee by V W Kelly
Adequate insurance cover must be maintained on all security properties during the term of the loan.
...
Facility Fee of 1% per annum, calculated on the total amount of the approval, will be charged half yearly in advance. The initial fee of $17,000 will be debited to your account or deducted from the face value of the bill, two months from date of approval or on implementation of the facility, whichever occurs the earlier.
.....
We would like to emphasise that funds will not be released until security documentation has been completed. In this regard we will contact you when the relative documents are ready for signing.
Prior to the maturity date of each bill, you will be contacted to arrange rollover costs and sign new bill forms.
We are pleased to have been able to assist you with this finance, if you have any enquiries, please contact David Seymour on 925 9516."
It is common ground that on 1 June 1989 Kelly telephoned Seymour and said words to the following effect:
"We've decided to accept your offer."
Seymour accepts that Kelly may have said to him at about this date, that and contracts had already been exchanged on 4-18 Gertrude Street, with time of the essence clauses, so that it was essential that there should be no delay.
On 1 June 1989, Kelly wrote to Seymour as follows:
"We wish to confirm in relation to the abovementioned loan approval and in particular our cash flow forecast chart. (copy enclosed) as follows:-
Draw required on the 15th June:-
Balance of purchase monies
4-4a Gertrude St, Arncliffe : ($ 489,300)
Balance of purchase monies
12-18 Gertrude St, Arncliffe : ($1,558,019)
Reimburse Westpac Bank
On account T. Williams
31 Macdonald St, Vaucluse : ($ 235,000)
Reimburse Nommack P/L : ($ 101,041)
Total draw required June
as per cash flow chart ($2,383,360)
Note:
Applicable stamp duty as shown in Cash flow Chart for the months of May and June has been paid by Nommack (No.198) Pty. Ltd. for the sum of $119,060
Security available for the month of June:-
Deeds and Registered Mortgage over
31 Macdonald Street, Vaucluse : $1,500,000
Deeds and Registered Mortgage over
27 Darling St Glebe : $ 285,000
Deeds and Registered Mortgage over
4-4a Gertrude Street, Arncliffe : $ 987,000
Deeds and Registered Mortgage over
12-16 Gertrude Street, Arncliffe : $2,100,000
Deeds and Registered Mortgage over
18 Gertrude Street, Arncliffe : $ 675,000
Total security : $5,547,000
Draw required on the 31st July:-
Balance of purchase monies
6-8 Gertrude Street, Arncliffe : ($487,000)
Reimburse Nommack P/L : :($ 53,000)
Total draw required July
as per Cash Flow Chart ($540,000)
Additional security available for the month of July:-
Deed & Registered Mortgage over
6-8 Gertrude Street, Arncliffe $ 935,000
Draw required for the month of December:-
Balance of purchase monies
10 Gertrude Street, Arncliffe : ($168,525)
Additional security available month of December:-
Deed and Registered Mortgage over
10 Gertrude Street, Arncliffe $ 398,000
SUMMARY
Particulars Debits Securitys
$ $
June 1989 : (2,383,360) 5,547,000
July 1989 : ( 540,000) 935,000
December 1989 : ( 168,525) 398,000
Rental income credited : 225,611
Interest debited : ( 541,863)
Total debit as per
Cash Flow Chart : (3,408,137) 6,880,000
We trust the above information is adequate. If further details are required, please contact the writer on 550-3899."
Seymour said that he cannot recall receiving that letter on or about 7 June 1989 but he may have done so. I find that this letter was received by Seymour on or about that date.
On 2 June 1989 the Manager of PVD sent an inter-office memorandum to Seymour acknowledging the request for valuations of 27 Darling Street, 31 Macdonald Street, Vaucluse and 4-18 Gertrude Street, Arncliffe, in which the estimated time to complete given was three weeks from that date. It will be recalled that the date indicated for drawdown and settlement by Kelly in his letter of 1 June 1989 was 15 June, so that in the normal course of events, the valuations would not have been confirmed, made or checked, until the expiration of three weeks, namely on about 23 June 1989. Despite Seymour being aware of this timetable no steps were taken by him to expedite the preparation and furnishing of the valuations, which in his view, were regarded as essential for the loan of $3.4 million to proceed.
On 6 June 1989 the solicitors for the joint venture, Bowen and Gerathy, wrote to Seymour giving particulars of title in relation to 4-4A Gertrude Street, and 12-18 Gertrude Street. The letter indicated that their searches and inquiries had been completed and were satisfactory and that they were ready to settle.
On 7 June 1989 Kelly wrote to Seymour, providing particulars of title in relation to properties at 17 and 27 Darling Street, Glebe. Seymour denies seeing this document whilst at North Sydney Branch and says that the first time he saw it was May 1994. As the property at 27 Darling Street, Glebe was one of the security properties referred to in the "approval" letter of 30 May 1989, and the letter from Kelly dated 1 June 1989, my conclusion is that this letter was received by the Bank on, or about 7 June 1989.
The next step in the history is that on or about 14 June 1989, North Sydney Branch received a call from Ms Carlin of PVD, to the effect that the Bank's valuers could not support the valuation supplied by Kelly.
The shortfall in the valuations was substantial. The valuations estimated by North Sydney Branch for the properties at Vaucluse, Glebe and Gertrude Street, amounted to $5.45 million, whereas the PVD valuation was $4.585 million. The PVD valuations would result in a 74.1% lending margin, whereas the Bank's policy was for 70%. On the Bank's valuations 70% of $4.585 million would only permit a loan of $3.2 million.
On 15 June Ms Carlin sent a Memorandum to Seymour enclosing her valuation after taking into account those provided by Equity Real Estate. In her memorandum she stated that she could not "support the market analysis" of the Equity Real Estate valuations. She also referred to the present zoning stating that:
"A Draft Local Environmental Plan dated 31 October 1988 has been submitted by Rockdale Municipal Council to the Minister for Planning to change the zoning to "Special Industrial 4(d)"".
and that the plan was currently on exhibition and aimed to encourage the establishment of tourist accommodation and "clean" industry. She stated that if the zoning change was adopted and in force, PVD would "recast the valuations" in line with the proposed rezoning. I take this to mean that a new appraisal would be made which would take into account any change in valuation as a result of the zoning change. The rezoning was essential if the type of development proposed by the joint venture was to proceed.
On or about 15 June Seymour called Kelly. This was said to have been on loudspeaker in Kelly's office, when Williams and Mrs Kelly were with him.
Seymour stated that the valuations had not come in at a level sufficient to support the original loan approval. The versions of this conversation differ, but I accept that Kelly expressed disbelief. Seymour indicated that he could not advance the amount referred to in the letter of 30 May. Kelly insisted that all the funds be advanced as the deal was to purchase all the properties and amalgamate them. Kelly offered to produce some updated valuations by Robertson and Robertson. These were sent through to the Bank. They valued 12-16 Gertrude Street at $1.45 million, and 18 Gertrude Street, at $500,000. These were examined by PVD, together with an executed lease in respect of 4-4a Gertrude Street. However, Ms Carlin was not prepared to change her valuations on the basis of these valuations. The Bank did reconsider its security position and although it was not prepared to advance the sum of $3.4 million on the basis of the valuations provided, it proposed to Kelly an advance of sufficient funds to settle 4-4a and 12-18 Gertrude Street. This would amount to an advance of $2,724,651.00. As a condition of so doing the Bank required a letter from Kelly on behalf of the joint venture, which relevantly reads as follows:
"We wish to confirm our conversation this day in respect to the abovementioned properties as follows:-
Funds are no longer require (sic) for the purchase of the subject properties as approved by your goodselves on the 30th May 1989.
Arrangements have been made with the Vendors for settlement of same. However, should we required (sic) your assistance we will submit a new application for your Bank's consideration."
The letter was signed by Victor Kelly.
Settlement details record that settlement of the purchase of 4-4a and 12-18 Gertrude Street, took place on 16 June 1989.
Kelly alleges and Seymour denies that, on 16 June 1989, Seymour agreed to enable the settlement to proceed on condition that he would agree to provide the balance of the funds for the purchase of the remaining properties in Gertrude Street, when the zoning changes came through. After this conversation Kelly instructed the solicitors to proceed with settlement.
On 16 June 1989 the Bank attended settlement and advanced a net amount of $2,374,949.88 to complete the settlement of the properties. A facility fee was charged on the original loan approval of $3.4 million equating to 0.5%. Kelly says that he then tried to raise funds to finalise settlement of the properties at 6-8 and 10 Gertrude Street, which would enable them to accept Telado's offer prior to its expiration on 30 June 1989, but he could not raise the funds and that offer expired.
It is common ground that the letter requested by Seymour and Branson to the effect that funds were no longer required for the purchase of the subject properties was not received by the Bank prior to 27 June 1989.
After settlement the securities over the Gertrude Street, Vaucluse and Glebe properties were registered.
In the latter half of June and during July negotiations were carried out by Kelly and Williams for the purchase of 10 Gertrude Street, on new terms and conditions, with settlement to take place on or before 27 July 1990, over a year later and they made arrangements to extend the time for settlement on 6-8 Gertrude Street.
In about mid-July 1989 further negotiations took place between Kelly and Resi for the sum of $1,250,000 for a 3 year term.
On or about 18 July 1989, Seymour was informed by Kelly that arrangements had been made to refinance a portion of the Bank's debt through a broker in Melbourne. Seymour asked for a copy of any loan approval and Kelly indicated that he would send it next week.
On 20 July 1989 Resi indicated that it would "consider" an application to assist to refinance existing borrowings from the Commonwealth Bank.
On 21 July 1989, Kelly said he spoke with Seymour, which is denied, and he informed Seymour that the refinance of properties 12-18 Gertrude Street, for the sum of $1.25 million would reduce the present loan facility and that Williams and Kelly would then require the $770,000 from the Bank to purchase the properties at 6-8 and 10 Gertrude Street, Arncliffe as agreed prior to settlement on 16 June 1989. Seymour is alleged to have said that, that would be in order as long as the rezoning was in place. This is denied by Seymour.
At about that time Kelly renegotiated the settlement time on 6-8 Gertrude Street, from 31 July 1989 to 29 September 1989.
On 18 July an internal memorandum by Seymour recorded that the Bank's valuations would not provide support on margins if twelve month's capitalisation is allowed. He recorded that:
"Victor Kelly is fully aware of the Bank's policy and our lending margins and to improve the CBA's position, he has made arrangements to refinance a portion of the debt through a broker in Melbourne and has applied for a loan of $1.25 million against 12-18 Gertrude Street at 10.5 fixed. The funding date for this loan would be 13 September 1989. A copy of the loan approval would be forwarded to this office next week."
He concluded that the new position should easily allow capitalisation of interest for the remaining term of 270 days. Branson, his superior, requested him to review the position again by 31 August 1989 in a handwritten note to the above Memorandum made on 20 July 1989.
On 22 August 1989 Kelly wrote to Seymour in relation to 12-18 Gertrude Street, confirming that he was arranging a loan for $1.250 million from Resi to discharge the existing mortgages over the above properties. He stated that settlement was expected on 14 September 1989 so as to coincide with the rollover of the existing Bank bills. He stated that if settlement did not take place on 14 September, then he authorised the Bank to rollover the current Bank bills for a further 14 days at which time settlement should take place. There was no mention in this letter of any further advance from the Bank.
On 31 August Seymour again reviewed the account as directed by Branson and stated that rezoning had been gazetted by the Council and expressed the view that this would improve the value of the properties. He did not intend to obtain revaluation at this stage. He recorded that rollover of the facility was due on 14 September 1989 when the debt position should be reduced by $1.2 million, leaving a residual balance of $1.290 million.
On 21 July 1989 contracts were exchanged with Mrs Butler in respect of 10 Gertrude Street, for a purchase price of $215,000. On 31 July 1989 contracts were exchanged in respect of premises 6-8 Gertrude Street, for a purchase price of $530,000.
On or about 7 August 1989 the subject land was rezoned to Industrial 4(d) Special (Service and Technology) which permitted tourist accommodation and facilities and industries including advanced technology and airport related development. The permitted uses included hotels, motels and office activities. The land is within a designated flood prone area which affected the levels which could be inhabited.
On 14 September Kelly on behalf of the joint venture authorised Honeysett to proceed with his application and to request Resi to proceed with searches and enquiries as to title.
Kelly said that during October he had numerous discussions with Seymour with respect to the Bank providing the balance of the funds to allow them to complete their purchase. It is said that Seymour on these occasions indicated there would not be any problem as long as the new zoning is in place. This is denied by Seymour.
Kelly and Williams renegotiated the settlement time on 6-8 Gertrude Street, from 29 September to 31 October 1989.
On 24 October Kelly wrote to Honeysett to vary the original loan application to Resi. Kelly stated that there were further discussions with Seymour which indicated that it would not be a problem for the Bank to provide further funds to finalise the purchase of 6-10 Gertrude Street. These are denied.
On 8 November 1989 Kelly wrote to Seymour confirming that the zoning had been changed. However, he did not request or require the advance of any further funds, but sought a reappraisal from the Bank of the value of the premises 4-18 Gertrude Street in the light of the rezoning.
On 20 November 1989 a Memorandum from Seymour to PVD states:
"We refer to your memorandum under reference, and advise that due to the lower than expected valuations, we were unable to fully fund approved finance. We are now looking to fund the balance of the loan, however this will be subject to revaluations."
This is consistent with an intention by Seymour to advance the further funds subject to revaluations but it does not go so far as to indicate that there is any commitment to do so. Indeed, the language "we are now looking to fund the balance" rather suggests that he considered the proposal as a possibility rather than being bound to advance the moneys.
On 6 December 1989 a development application bearing the date 1 December 1989, was lodged with Rockdale Council, seeking development approval for a tourist three star hotel comprising 165 rooms on premises on 4-8 Princes Highway and 4-10 Gertrude Street Arncliffe. A development consent subject to a number of detailed conditions was issued on 31 July 1990. This approved a tourist hotel complex on 4-8 Princes Highway and 4-10 Gertrude Street, Arncliffe. Some of these conditions on their face were quite onerous, including a requirement for 116 off-Street car spaces (condition 5); all floor levels below the 1:100 year flood level including the basement car parking area should be adequately protected from flooding to the reasonable satisfaction of the Council (condition 10); all habitable floors must be constructed above the 1:100 year flood level (condition 11) and the height of the building was required to be in accordance with the development control plan that is RL 13 metres (condition 44).
On 8 December 1989 Seymour said that he sent a letter to the Bank requiring the balance of the purchase moneys, as shown on the spreadsheet, of $770,000, to complete the purchase of 6-10 Gertrude Street. The Bank said that it never received such a letter. It has searched its files and there is no record of it. Moreover, there is no record of any reference to it in later correspondence, nor is there any assertion by Kelly or Williams referring to such a letter in any oral conversations or discussions. Accordingly, in view of the foregoing considerations, I am not satisfied that the letter was received by the Bank, or indeed, that it was ever sent.
Kelly said that as a contingency he negotiated a joint venture with the owner of 4-8 Princes Highway. This joint venture was to develop the site along with 4-10 Gertrude Street, Arncliffe.
On 13 December 1989 the Bank debited the account of Presearth and Nommack with $17,000, representing the half-yearly Facility Fee at the rate of 0.5% for a Discount Bills Facility of $3.4 million.
In a Memorandum dated 15 December 1989 from PVD to Seymour, Mr McKenzie of PVD and Mr Allan, a registered Valuer of the same division, expressed the view that as a result of the zoning restrictions, the Bank could only value the properties on an individual basis and in terms of their individual existing uses. They valued the properties at 4-4a Gertrude Street in the amount of $465,000; 12-16 Gertrude Street at $1,360,000 and 18 Gertrude Street at $350,000. They considered that the clients' opinion of property value when they purchased the property in June 1989 was excessive. Having considered the change in zoning, they considered it almost impossible to give effect to it until such time as ownership of all the necessary property was vested in the clients, so that approval could be gained from the Council to undertake the redevelopment.
In a Memorandum dated 20 December 1989, Susan Clain ("Clain") for the Chief Manager, recorded that the combined outstanding debt was $2,695,843 which represented 68.7% of security as per the revaluation of 15 December 1989. She stated that the debt could increase by $51,657 maximum to bring the position in line with the 70% loan to value maximum. Accordingly, the Memorandum stated that the facility fee and the interest thereon of approximately $20,000, due when rolled over in another 14 days, could be capitalised to the Bill, but subsequently rollovers would exceed the margin. It stated that if they were allowed to draw the full $3.4 million, the lending margin would be 86.6%. She recommended that additional security be sought if the capitalisation of interest be allowed to continue.
The position as at 20 December 1989, according to the Bank's records, was that the indebtedness to the Bank had grown to within 1.3% of the maximum margin. Interest could be allowed to accrue on that amount for a short period of time. On the Bank's margin of 70% there could be no question of allowing the drawdown of a further amount to take the advances up to the sum of $3.4 million.
Kelly had renegotiated the settlement time on 6-8 Gertrude Street, from 15 December 1989 to 15 January 1990.
Having received the Report from Messrs McKenzie & Allan, Mr Haysom, Manager of Loans, noted that:
"1. Facilities to be covered on (or in excess of) N/L/M - 70% basis. ie. $5,450,000 at 70% $3,815,000 against valuations achieved $3,925,000 at 70% $2,747,500.
2. Initial valuation estimate of $4M (Security 1) (4-18 Gertrude Street) was based upon the further acquisition of properties 6-8 and 10 Gertrude Street.
3. Properties 12-18 Gertrude Street are to be refinanced via loan of $1.25M at 10% ...."
The reference to the refinance of the $1.25 million was to the payment which the Bank understood would be paid to it from the advance made to Kelly and Williams by Resi.
Mr Haysom, stated that should the refinance not proceed, the Bank presently had the scope to carry additional interest and associated charges of $68,500 and he therefore recommended that the Bill may be rolled over for a further 14 days and that charges could be capitalised.
Branson made an interim review which is recorded in a Memorandum of 28 December 1989.
This records that the Bank approved a Bill Discount Facility of $3.4
million pursuant to an application of 18 May 1989 by the North Sydney Branch to
the central lending service,
subject to confirmation by PVD of property values at estimated figures. It records
that the Facility was implemented on 16 June 1989 at $2.490 million and as
purchases of two of the five Gertrude Street, Arncliffe properties were to be
deferred for up to 12 months it was possible, at that time that the balance of
funds would not be needed for their acquisition. It records that the
indebtedness in relation to the advance of $2.49 million had grown to
$2,723,572 by late December 1989.
At 28 December 1989 it appeared to the Bank that refinancing would not occur but clarification was to be sought. The position at that time was that the existing accommodation of $2,723,572 was just covered by the securities but it was questionable whether the Bank should use a 70% margin for the Vaucluse house property because the valuation of that property was on a land value basis. Branson considered that the future of the borrowing was not particularly good, given the state of the current real estate market and high interest rates. It was thought there was little scope to capitalise interest further. An interview was suggested.
A meeting took place between Kelly, Williams, Branson and Clain on 16 January 1990. There was discussion about the purchase of 6-8 and 10 Gertrude Street, and the lodgment of the development application for the tourist hotel which included the Princes Highway site. It was said that approval was expected by the end of February. Branson stated that the Bank was generally concerned about its exposure on the properties and needed to be satisfied as to servicing capacity. Kelly indicated that Presearth and Nommack had arranged to refinance part of their borrowings, which would include mortgage insurances from Sun Alliance. They referred to "proposed finance" from Resi for $1,250,000 over three years with a low start interest rate. They stated they would "prefer not to refinance on this basis" as they did not want a three year fixed term loan. They had in mind a quick resale after development approval. Reference was made to the Bill of $2.738,000 maturing on 18 January 1990. The Bill was to be grossed up to $2,747,000 with the remainder of the discount being debited to the related account. It was stated that sufficient funds were currently held in the account for this purpose. Branson noted this and asked Clain to prepare a memorandum for consideration of additional accommodation, "to see the borrowers through to 31 May 1990 as a result of the discussions".
On 18 January 1990 Kelly wrote to Branson, enclosing the latest financials of Presearth and Nommack. They enclose a spread sheet showing their position as at 18 January, 1 February, 1990 and anticipated position in respect to operating the Bills Discount Facility to 31 May 1990. He stated that to operate the Facility to 31 May 1990 depended on the Bank's acceptance of the Robertson & Robertson valuations, with respect to properties 12-18 Gertrude Street. The differences between the two valuations came to $340,000. The Robertson & Robertson valuation was therefore substantially in excess of the Bank's valuation. Kelly enclosed a copy of the development application for the three star hotel complex of 165 rooms.
My understanding of this recommendation is that it was to provide additional accommodation in respect of the accruing interest but not any further advance of the amount of $770,000, as suggested by the applicants.
It is significant that in the discussions recorded by Clain there is no reference to Kelly or Williams requiring, demanding or insisting on any advance in respect of any balance of loan, agreed to be provided. Having regard to the financial straits in which they found themselves as at late January 1990, one would clearly have expected such a demand to have been strongly pressed by them.
Kelly states that after receiving the letter signed by Branson on 5 January 1990, he telephoned Seymour and protested that there was no mention of the "new loan arrangements". He said that he asked to know why Seymour had not formally acknowledged the arrangement to proceed with the purchase of 6-10 Gertrude Street, Arncliffe. This is denied by Seymour. Moreover, I am satisfied from an examination of the Bank's records that Seymour was on annual leave between 20 December 1989 and 15 January 1990. During that period the Presearth/Nommack account was passed to Clain.
In view of the Memorandum of Clain, and the employment records, I find that the alleged telephone conversation of 5 January 1990 did not take place.
Kelly said that on 24 January 1990 he received a formal approval from Randall Nutt & Associates Pty Limited ("Randall Nutt") and then telephoned Seymour stating that Presearth and Nommack urgently required the funds to settle on 6-18 and 10 Gertrude Street, whereupon Seymour is alleged to have said that the Bank would not lend this amount of money but they would extend the facility to accommodate accruing interest and release funds for him to market the properties for sale. Kelly said he then protested that Seymour was reneging again. On 31 January Kelly received a letter from Mr Haysom, the acting senior manager of the Bank, North Sydney, referring to discussions between Kelly, Branson and Clain, stating that the Bank had approved a rearrangement of the existing Bills Discount Facility to a maximum limit of $2,932,000 (gross) to continue with the capitalisation of interest relating to the existing facility.
A diary note of 21 February 1990 by Seymour records that Kelly had requested that additional funds of $53,000 be allowed to be drawn to enable Presearth and Nommack to refund moneys owing to certain companies and enable wages to be met pending sale of the properties on or before 31 May 1989 (sic 1990). It was pointed out that total proposed borrowing of $2.985 million would represent 76% of freehold security.
Kelly said that in February 1990 he and Williams met with Branson and Haysom of the Bank and requested sufficient funds to purchase 6, 8 and 10 Gertrude Street. He said the conversation ran as follows:
Kelly:
"We need the funds. It is imperative to us. We have approval from Randall Nutt & Associates to reduce our debt and urgently require the funds to complete our purchase of the middle properties. Dick, it's virtually impossible to sell something you don't own. Be reasonable. If you advance the funds you will decrease your loan ratio by increasing the securities and at the same time fulfilling your original agreement, mate."
Branson:
"Sorry Victor the Bank will not advance additional funds."
This is not the language one would normally expect of persons who are asserting rights under a binding agreement in circumstances where they are in dire need of urgent funds in order to achieve the balance of funds agreed to be made. The wording is tentative, conditional and in the nature of a request rather than an insistence on any rights under an alleged earlier agreement which might have been expected if such an agreement had existed. Moreover, all that was available from Randall Nutt as at February 1990 was a notification from Resi in relation to 12-18 Gertrude Street, that it would consider the application to assist to refinance borrowings on numerous detailed conditions being satisfied. This proposal was not pursued after the discussion with the Bank.
The reference in the above conversation to "fulfilling your original agreement" suggest that either a new agreement had been made or that the "original" agreement was not being pursued. There is no reference to any assertion of a right to an advance based on such agreement.
Thereafter, the properties were marketed by Presearth and Nommack but without success.
On 29 October 1991 and 27 May 1992 notices under s 57(2)(b) of the Real Property Act (1900) were served on the applicants. On 15 September 1992, Coopers and Lybrand were appointed as receivers of income from 4-4A and 12-18 Gertrude Street.
Credit of Witnesses
Before proceeding to consider the different factual accounts it is appropriate to express my views as to the credit of the main participants.
Generally, I did not form the view that any of the witnesses were
consciously giving false evidence. Rather, inconsistencies arose largely as a
the result of the lapse of time as a result of a strong tendency in the
witnesses to
reconstruct situations in a manner favourable to the cases being propounded on
each side.
Kelly
Kelly was the principal contracting party on behalf of the applicants in relation to the proposed transactions. He made no notes or records of any of the critical telephone conversations, nor did he register or make any written protest as to the actions or omissions of the Bank.
He gave evidence that all telephone calls were placed on a loud speaker so that they could be heard by his mother and Williams when they were in the office. Although Seymour expressed some doubt about this I am prepared to accept that this in fact occurred.
Kelly of course has a substantial financial interest in the outcome of these proceedings as does his mother.
The circumstances relating to the Telado offer of 28 April 1989, as set out in the letter to Kelly of that date, are in my view suspect as to their genuiness. No attempt was made by the applicants to call anyone to confirm the letter or to otherwise substantiate the price of $5.5 million set out in the letter as being a firm bona fide offer. There was no evidence as to the financial resources of Telado or its ability to raise the necessary funds. The letter has all the hallmarks of having been procured for the purpose of supporting the valuations suggested by Kelly. It will be recalled that although the letter to the respondent bank seeking finance was dated 19 April 1989 it was not delivered until about late April 1989. It was therefore a rather convenient coincidence that the Telado letter was dated 28 April 1989.
Taken at face value the applicant could have made a large short-term profit in a matter of a few months without any complications. It is surprising to say the least in the light of the importance attached to the Telado offer in the Further Amended Statement of Claim and in Submissions as to Damages, that no witness was called to verify this offer as being genuine.
Another incident which indicated that some caution needed to be exercised when considering the evidence of Kelly is the affidavit evidence to the effect that arrangements were made to settle the subject properties within a time context of March to early April 1989. This has been demonstrated by the evidence to be untrue.
There is further doubt as to whether Kelly's assertion that Nommack and Presearth had exercised the options and exchanged contracts in respect of 4-18 Gertrude Street by 20 April at the latest, can be accepted because, for example, the only contract for the sale of 10 Gertrude Street signed by the vendor is dated 21 July 1989. Likewise, the contract for the sale of numbers 6-8 Gertrude Street, executed by the vendor is dated 31 July 1989. In a statutory declaration made by Williams seeking a refund of stamp duty in 1990, reference is made to the contract in respect of 10 Gertrude Street as having been made on 31 July 1989.
In addition, there is the important conversation which Kelly asserts he had with Seymour on about 5 January 1990 where he allegedly said "there is no mention of our new loan arrangements" and he asked for an explanation as to the reasons and also as to why the Bank had not formally acknowledged the arrangements to proceed with the purchase of 6-10 Gertrude Street. This conversation and these assertions related to the important letter of 8 December 1989 which the Bank stated it had not received. However, Bank records clearly show that Seymour was on leave in the period from 20 December 1989 to 15 January 1990.
In general, Kelly impressed me as a witness who was not strong on detail and who reconstructed the factual situation so as to accord with the most favourable view of the case being made by the applicants.
Mrs Kelly
Again Mrs Kelly did not have the benefit of any written record of conversations with Seymour which she said she overheard. Nor did she have the benefit of any notes made by Williams or Kelly.
She was extremely supportive of her son's position and indeed agreed that she had discussed he son's evidence before signing her affidavit which was substantially in the same terms as that of Victor Kelly. However, she maintained that she had a strong independent recollection of events. She is, of course, a party to the proceedings and has a strong financial interest in the outcome. This must be taken into account.
Again in relation to the evidence of Mrs Kelly I prefer to rely on the documents and surrounding circumstances rather than on recollections or reconstructions of conversations which took place five to six years ago.
Mr Williams
Once again, he made no notes nor did he have the benefit of any written records to refresh his recollection.
He also showed a strong tendency to reconstruct which is not perhaps unusual in the circumstances. His recollection was by no means clear, detailed or definite in relation to the events and discussions. Moreover, he tended to leave the financial arrangements to Kelly who was the principal moving force in the negotiations.
Although the applicants produced a contract for sale of No. 10 Gertrude Street duly executed by the purchasers dated 20 April 1989, the statutory declaration of September 1990 seeking a refund of stamp duty makes no reference to that contract. It appears that no duty was paid on it. The refund claim is in respect of a contract dated 21 July 1990. This is inconsistent with the position propounded by Kelly to the effect that settlements were in place as at about 20 April 1989.
Mr Seymour
Mr Seymour had the benefit of bank records which are consistent,to a large extent, with the vital conversations in contest.
The probabilities also support his version of events.
It is pointed out that he admitted to telling a lie when he said in his Memorandum of 20 November 1989 that the Bank was "looking to fund the balance of the loan". The rather limp reason he gave for this assertion was that he wanted to get the revaluations carried out for Kelly as soon as possible but that this was not done with a view to providing additional funds. He claimed that it would assist the obtaining of valuations more quickly if he said that it was for a loan when it was not.
This admission does detract to some extent from the credibility of Seymour, but it does not cause me to reject his evidence as to what was said in conversations with Kelly, in view of the fact that his version is, in my opinion, backed up with other supportive circumstances and records. I accept that evidence.
I do not accept his oral evidence that because he was not a valuer he did not appreciate whether a rezoning would affect value of land. Given his experience and training over a number of years and despite the fact that he was not a valuer, he must have formed some view as to whether zoning would either increase or decrease value. Indeed, his protest of ignorance in relation to this matter sits uneasily with his diary note of 31 August 1989 wherein he records:
"Rezoning has now been gazetted by council, which will improve the value of the properties..."
Issues for Decision
First Issue - Offer of Finance - Was it Conditional?
The first question which requires determination is whether the offer of finance by the Bank was subject to confirmation by the Bank of the valuations submitted by Presearth and Nommack and acceptance of those valuations as providing the Bank with a satisfactory margin of security. This question in turn requires a primary finding of fact as to whether Seymour informed Kelly or Williams that the Bank's offer of finance was subject to acceptable valuations.
Although it is arguable that the letter of 30 May 1987, in requiring that security be to the Bank's satisfaction, could be read as indicating that the valuation of the properties was a condition precedent to the making of the loan, I do not think that the letter, on a fair reading, can be said to communicate that requirement, although it is not necessarily inconsistent with such a statement having been made orally.
The letter nowhere refers to valuations. The section dealing with "SECURITY" simply describes the properties which are to comprise the security but is silent as to valuations.
To resolve the conflict on this issue, it is necessary first to look at the records and documents which came into existence from April to May 1989.
It is also useful at this stage to summarise briefly the evidence as to this conversation. Kelly said that on 30 May 1989, Seymour called him. The call was on a loud speaker. Seymour is alleged to have said that Branson, a senior manager of the Bank, had approved the loan funds and that Branson had not signed the approval letter yet, but it would be okay and that he would sign the approval letter the following day.
On 1 June 1989 Kelly said he received the Bank's written offer by facsimile. He called Seymour back on the same day, stating that they had decided to accept the offer of loan funds on the basis of the terms and the amount offered. Seymour denied this version. He says he stated that Branson had approved the loan funds and that he followed his invariable practice and said to Kelly words to the effect:
"Approval is subject to the Bank obtaining satisfactory valuations on the security properties."
Kelly's version of the conversations of 30 May and 1 June are supported by Williams and Mrs Kelly. Although Seymour had expressed some doubts as to whether the loud speaker was in fact registering his conversation, I accept the evidence of Kelly, Williams and Mrs Kelly that the loudspeaker was used. I do not accept that their versions of what was said were accurate recollections given the time lapse and the absence of records. However, there is no reference in these conversations, as testified to by the above deponents, on behalf of the applicants, that there was any mention of the approval being subject to satisfactory valuations or any words to a similar effect.
The two conversations in contest occurred about five years before the deponents swore their affidavits in chief in these proceedings in which they purport to set out in detail the language used. The disputed phrasing is short but significant. Given this, it is instructive to first look at the wider context in which the conversations took place and second to any documentary evidence and finally the subsequent conduct of the parties.
The context in which the conversations occurred was one where the
participants did not foresee any difficulty with the Bank being satisfied that
the value of the properties would meet
the Bank's requirements so as to enable the advance to be made. The applicants
were elated that the loan had been approved on what they considered to be more
favourable terms than those offered by Resi.
Detailed questions as to the terms and conditions would probably not have been raised by the applicants on 30 May. However, they may have wanted to know in broad terms what the conditions were. Their reaction on that date would have been one of satisfaction that the Bank had "approved" the funds. Accordingly, if the acceptability of the valuations had been raised it was not a matter which would have been likely to have registered with them as being important at that time. This observation applies equally to the discussions on 1 June 1989. Approval of the valuations would more likely than not, in my view, have been taken for granted by the applicants at that time. If they had been told at that time that the loan approval was subject to confirmation of existing valuations or the making of any further valuations, it is not a matter which would have been likely to impress itself on their memory.
In looking at the probabilities from Seymour's viewpoint, as at both 30 May and 1 June 1989, I consider it likely that he too then assumed that the loan would finally be approved and that the valuations would meet the Bank's requirements.
It is clear in the present case that the adequacy of the valuations was, from the Bank's perspective, of greater significance than in the usual run of applications for loans. This was not a case where the applicant companies had any track record of earnings. Nor was it a case where the rental from the secured properties would meet the capitalised interest payment. Nor was it a case where the applicant companies had present assets commensurate with the loan sought.
In his diary note of 15 May 1989, Seymour refers to the poor balance sheets of the companies and by way of explanation points out that they were only formed in late 1987 for the sole purpose of purchasing the Arncliffe properties. It must have been obvious to him that the adequacy of the property valuations to secure the advance of $3.4 million was therefore of central importance.
His Memorandum of 18 May 1989, to Corporate Lending Services, under his initials, but signed by the Senior Manager, Branson, gives the Bank's estimate of the security as $5.45 million. This Memorandum states that the estimated rental for the security properties of $220,000 would fall far short of the expected interest cost of $540,000 and that the directors would be prepared, if approvals were not obtained, or if all the properties had not been acquired at the expiration of twelve months, to sell the properties individually for their then current value. He was acutely aware that the application was not one which would normally be favoured by the Bank. The Memorandum records that:
"While a proposal such as this might not normally be viewed favourably, the security offered suggests that there should be no risk in providing the accommodation....we have substantially discounted the suggested values and arrived at an estimate of $5.45 million... which, at a 70% margin, would support a borrowing of some $3,800,000, still somewhat in excess of that sought. We consider it unlikely that formal valuations by the CBA would result in a total of below about $5,450,000." (Emphasis added)
Again the emphasis is on the importance of security and the safety afforded by the 70% margin. The reference to the Bank's "formal valuation" is important because it indicates that "formal" as opposed to "cursory" or "off the cuff" valuations were the norm.
This reference to further examination of value is taken up in the internal Memorandum in reply from Mr Harvey, Senior Manager of NSW Administration to Seymour, on 29 May 1989, which reads:
"We have approved a B/D/F of $3,400,00 on the basis submitted and subject to :
. Confirmation by PVD of properties values at the figures nominated.
Please provide control documents in due course.
Valuations and financial statements are returned herewith." (Emphasis added)
There is then a note in handwriting by Branson on the Memorandum which appears to have been made on 30 May 1989 which reads:
"Pls arrange valuations as soon as possible."
There is then a further note:
"requested 31/5/89"
An internal Memorandum dated 30 May 1989 directed to NSW Branches Administration Property Valuation Department records:
"Corporate Lending Services have approved a $3.4. million Bills Discount Facility subject to your office confirming valuation as stated in our application.
Copy of our application, CLS approval and independent valuations are attached." (Emphasis added)
The letter sent on 30 May 1989 by Seymour under the signature of Branson informing Kelly that the Bank had approved a Bills Discount Facility of $3.4 million is not inconsistent with a requirement to provide satisfactory valuations. Under the heading "Security" in that letter which is expressed to be one of the terms of the approval it is stated that security will be to the Bank's satisfaction and will comprise the seven properties listed, together with the guarantee by Kelly. There is no reference in this to valuations although it is stated that funds would not be released until security documentation had been completed.
A Memorandum dated 2 June 1989, written to Seymour from one of the Bank's valuers, Peter Street, records a request for valuation on behalf of Presearth and Nommack of premises 27 Darling Street, Glebe, 31 Macdonald Street, Vaucluse and 4-18 Gertrude Street, Arncliffe. The estimated time to complete the valuation was ticked in a box on the form with the description "three weeks".
In June 1989 Kelly wrote to Seymour in relation to the security properties, namely 27 Darling Street, Glebe. Seymour denies ever having received this letter and there was no copy on the Bank's files. Seymour denies any conversation on 7 June relating to the matters referred to in this letter. However, the letter refers to "our conversation this instant". Contained in the letter are details of sale prices of other properties in Darling Street which are clearly directed to providing details of comparable sales relevant to making or confirming a valuation of 27 Darling Street. The cross-examination of Kelly records:
"Q. .... Now, if valuation ceased to be a feature in your mind as of - that is a valuation by the Bank of any of the security offered - by 1 June, can you explain how it came about that you had given Mr Seymour information which from the document would assist in the valuation of this piece of security?
A. I was surprised when David phoned me and wanted details in regards to this property. So I supplied him with the details in regards to this property. He said to me, my recollection is,
"We've only got problems with one property, 27 Darling."
Q: Did you express your surprise to him when he telephoned you?
A: I think so.
Q: What did you say to him about your surprise?
A: I can't recall the precise words, but I was surprised.
Q. Did you not say to him, look why do you want this information?
A. Well no, I had assumed they were checking up on the valuations.
Q. Did not this point clearly to the fact that the Bank was still in the course of valuing for its own internal purposes?
A. Look I don't, I can't answer that, all I know is that they wanted some additional information on 27 Darling Street to add to the valuations that they already had.
......
Q. Did you convey your surprise to Mr Seymour?
A. I can't recall, but I conveyed it to him, I just got - I got him the information." (Emphasis added)
This evidence is inconsistent with the basic position taken by Kelly
that as from 1 June 1989 he had acted on the express representation and
understanding that there was no qualification on the approval to the advance on
the basis of security valuations being adequate or to be confirmed to the
Bank's satisfaction. The conversation, on his version, disclosed to him that
there was a problem with this particular valuation. He did not protest at this
nor did he challenge the
suggestion of there being a problem in relation to valuations. He simply
furnished the information as requested. This does not sit easily with his
asserted understanding that the valuations had all been accepted and that the
loan was ready to be implemented, subject to formalities such as the signing of
securities. It is clear from the conversation and the letter that the Bank was
still taking steps to check the
valuations furnished.
Another difficulty with the evidence of Kelly on this issue is that in the whole of the evidence there is no document which records any written protest to the effect that "valuation is not or was an issue" or that "the loan is not conditional on valuations." Kelly does not refer to the 30 May conversation, nor to the 1 June conversation, nor the 30 May letter received on 1 June in order to register a protest against the Bank's failure to honour its obligations, or to set the record straight.
When Seymour said on about 14 June that the Bank's valuations of the properties did not produce a figure sufficient for the advance of $3.4 million, the only assertion by Kelly was that the Bank should have established the value of the properties in the first instance and not just two days before settlement. Rather than being a complaint that the advance was not subject to confirmation or to satisfactory valuations, the protest is to the effect that the Bank should have let them know earlier that the position was not satisfactory. This in my view lends support to the conclusion that the approval was made subject to valuation or confirmation of valuations and this was previously conveyed to Kelly on or about 30 May 1989.
Having regard to the above material, I am satisfied that Seymour did, in or about June 1989, state to Kelly that the loan approval was subject to the Bank's acceptance of the valuations furnished, in order that there was, in the Bank's view, an adequate lending margin to justify the advance of $3.4 million.
I find the offer of the loan was expressed to be made subject to further satisfactory valuations and that there was no misrepresentation to the applicants on the part of Seymour or the Bank as to the conditional terms of the approval.
Contract
In relation to the claim in contract, my conclusion is that the letter of 30 May 1989 together with the conversations between Seymour and Kelly during the period from 30 May to 1 June, and the acceptance by Kelly on 1 June did give rise to an agreement to advance the sum of $3.4 million. However, it was a condition precedent of the performance of that agreement that the advance was to be made subject to satisfactory valuations. This term arose from the oral conversations referred to above.
The Bank did not make any representation that the valuations provided by the applicants were satisfactory. It is clear that they were not so regarded by the Bank. The Bank was not required to treat them as satisfactory to it.
Nor do I consider that there was any representation on behalf of the Bank that any additional security offered by the applicants was or would be satisfactory. Nor was there any representation express or implied that the Bank would inform the applicants prior to 16 June 1989 that the valuations were not satisfactory.
The Second Issue - 14-16 June 1989
The principal representation alleged in relation to this time-frame is as follows:
"16. On or about 16 June 1989 the respondent orally represented that it would complete the original loan of $3.4 million to fund the purchase of 6-8, 8 & 10 Gertrude Street Arncliffe when the appropriate zoning changes then before Council were gazetted."
In substance the evidence of Kelly, is that on 14 June, Seymour broke the news that the Bank's valuations of the properties did not produce a figure sufficient for the loan amount required and that the Bank could not advance the funds to which it had agreed. In response Kelly asserts he expressed incredulity in that Seymour knew the urgency of the transactions from the beginning and should have established the value of the properties in the first instance and not simply two days before settlement. He says he insisted on all the funds being advanced as the deal was to purchase all properties 4-18, and amalgamate them into a single site and onsell them. Seymour said he could and would only advance about $2.4 million.
The applicants allege that Seymour agreed that if Kelly proceeded with settlement, the Bank would provide the balance of funds for the purchase of 6-10 Gertrude Street Arncliffe when the zoning changes come through "within the next couple of months". Later on that day, Seymour is alleged to have required a letter from the corporate applicants stating that they did not require the funds in relation to the purchase of 6-10 Gertrude Street Arncliffe. This was to be furnished prior to the Bank attending settlement on 16 June. Seymour is said to have required the letter so that settlement could take place and then a new loan application could be submitted for the balance of the funds and "it would be all right". Seymour is said to have required the letter as a condition of settlement taking place for the five Gertrude Street properties, 4-4A and 12-18. Kelly asserts that he said "it sounds like you're trying to blackmail us ". However, he agreed to furnish such a letter.
Seymour confirms that he said that the Bank could go to settlement on the five properties and would advance the sum of $2.4 million, but the Bank needed a letter stating that the corporate applicants would not require funds from the Bank to purchase 6-10 Gertrude Street. He says Kelly expressed dissatisfaction with that but he agreed to furnish such a letter.
The letter of 16 June 1989 is referred to earlier in these reasons. The oral evidence of Kelly was that the letter dated 16 June 1989 was not in fact sent until four or five weeks after that date. Kelly's affidavit says that the letter was sent about five weeks later, after Seymour had telephoned on numerous occasions and required the letter. In the last of these conversations, Kelly alleges that Seymour said:
"Dick Branson keeps asking for that letter, and if you want the (sic) keep on the good side of Dick you better send it right away or else."
Kelly said that he then sent the letter.
The first question of fact is whether Seymour represented that the Bank would complete the original loan of $3.4 million when zoning changes were gazetted.
Based on my conclusion in relation to the terms of approval, namely that
the loan was subject to satisfactory valuations, there was no reason for
Seymour to make a promise that the balance of the $3.4 million would be
advanced on rezoning of the land. Indeed, it would be unlikely that Seymour
having
been instructed not to advance the sum of $3.4 million on the properties in
question, would then represent that whatever the extent of its effect on value
of a zoning change the balance would be advanced. Seymour was not a valuer and
he would not be able to quantify any increase in the value
of the security as a result of zoning changes. Moreover, as at mid-June it was
not known with precision what specific constraints or conditions would be
imposed on any possible future development approval, so that it was impossible
to consider its valuation impact. Further, it is clear that in accordance with
the Bank's normal procedures, any further advance would be dependent upon PVD
(not Seymour) re-evaluating the impact of the zoning when the details were
proclaimed.
In addition, as at 16 June 1989 Seymour was no doubt keenly aware, with the benefit of hindsight, of the "conservative" approach taken by PVD and also of his excessive earlier optimism in relation to the security value being $5.45 million. In these circumstances it is likely that he would have been, to say the least, reluctant to commit the Bank to advance the further amount, in the order of $770,000, without further input and confirmation from his superiors and PVD.
In his evidence in chief, speaking of the discussion on 16 June, Kelly states that Seymour said:
"No Victor, but give us a letter first so settlement can take place and then you can submit a new loan application for the balance of the funds. It will be all right. The zoning will be changed and you can submit valuations from Robertson & Robertson and I am sure they will be accepted. We won't have the same problem this time, I assure you." (Emphasis added)
Referring to this paragraph in cross-examination of Kelly, the transcript records:
"Q. Did you not understand Mr Seymour and even on your own version to be saying to you then, (a) the application should be made after the rezoning?
A. I understood that.
Q. (b) That you have to make an application for funds?
A. Yes.
Q. And (c) although he was confident that if Robertson & Robertson's valuations were submitted, the loan would be accepted, he was not promising you that in that event you would actually get the money?
A. Not as a promise but he definitely intimated it.
Q. Yes an intimation not a promise. You nod your head you mean yes?
A. Yes."
Mrs Kelly agrees with the first two of the above questions and answers, but not with the balance. Williams also gave evidence that he overheard the above telephone conversation.I accept Kelly's version set out above.
The above evidence indicates that it was made clear that a further application was necessary and that it was not simply a formal matter of requesting the balance of an already approved advance. There is no written evidence that the corporate applicants ever asserted any right to be paid the balance of the $3.4 million pursuant to any agreement or modification of any agreement.
It is true that the "letter" of 8 December 1989, (which the Bank denies receiving), from the corporate applicants to Seymour "required" the balance of purchase moneys of $770,000 to complete the purchase of the premises 6-10 Gertrude Street. However, even this letter does not refer to any agreement or promise, although it is cast in terms of "requiring". I am not satisfied that this letter was ever received by the Bank. Its records do not disclose it. There is nothing in any subsequent correspondence or records relating to it. Nor is there any oral assertion made with respect to it by the applicants. It is simply not referred to by either side, which supports the conclusion that it was not received and never sent. However, even taking the letter at its face value, there is no reference to any obligation or agreement on the part of the Bank to advance the further moneys. The wording is consistent with the position that the Bank had made it clear that an application had to be made for further funding and that any such application was subject to the discretion of the Bank.
There is a Memorandum from Seymour to NSW Branches Administration PVD dated 20 November 1989, in which reference is made to the fact that due to the lower than expected valuations, the Bank was unable to fully fund approved finance and that it was looking to fund the balance of the loan. However it records that such funding would be subject to revaluations. The language used in this Memorandum is inconsistent with any previously existing firm commitment on the part of the Bank to advance the balance regardless of whether satisfactory valuations could be obtained. First it is made clear that to fund the balance of the loan, valuations were necessary. Second, reference to "looking to fund" is more consistent with a fresh application, than honouring a pre-existing commitment.
The broad thrust of the correspondence from July 1989 onwards between the corporate applicants and the Bank is directed to obtaining revaluations to justify the margin necessary to meet the interest capitalisation commitments on the advance of $2.4 million rather than being directed to obtaining the balance of an agreed loan of $3.4 million.
Having regard to the above, I am not satisfied that any misleading representation or promise was made by Seymour or the Bank to advance the balance of the $3.4 million upon zoning changes being gazetted.
Duress and Unconscionability
The letter of 16 June 1989 which was sent to the Bank four or five weeks after its date on Kelly's evidence, reads as follows:
"Ref:1085(p)
16 June 1989
Attention: David Seymor (sic)
Commonwealth Bank of Australia,
4th Floor,
Cnr Miller & Berry Street,
North Sydney N.S.W. 2060
Dear David,
Re : 6-8 Gertrude Street, Arncliffe
: 10 Gertrude Street, Arncliffe
We wish to confirm our conversation this day in respect to the abovementioned properties as follows:-
Funds are no longer require (sic) for the purchase of the subject properties as approved by your goodselves on the 30th May 1989.
Arrangements have been made with the Vendors for settlement of same, However should we required (sic) your assistance we will submit a new application for your Bank's consideration.
Kind regards.
Yours faithfully,
Tyson Cooper & Slade
Victor Kelly.
(Director)"
Taken at face value this letter is clearly inconsistent with the
allegation by the corporate applicants that there was a firm subsisting
representation, after 16 June 1989, for the advance of the balance of funding
up to $3.4 million. Viewed from a contractual standpoint it prima facie points to a variation or
waiver of any claim of the corporate applicants under any original agreement.
Taken as a representation it is
an acknowledgment that the applicants accept the necessity for a new
application for the Bank's consideration. It is also a clear representation,
taken again on face value, that no further funds will be required by the
applicants from the Bank.
It is said by the applicants that the Bank procured this letter in an unconscionable manner. The particulars given are as follows:
"1. The Respondent demanded a letter from the Applicants stating that funds were no longer required for properties situated at 6-8 and 10 Gertrude Street Arncliffe, when it knew that such a representation was untrue.
2. The Respondent took advantage in procuring such a letter by exercising undue influence and duress over the Applicants at a time when there was a total inequality of bargaining power between the Applicants and the Respondent in favour of the Respondent.
3. Demanding unreasonably such a letter and representations to be made by the Applicant under threat by the Respondent that it would not attend settlement on the remaining properties on 16 June 1989.
4. Procuring consent by the Applicant (sic) of the Respondent's new terms and conditions after it had breached the initial agreement to lend funds in the sum of $3.4 million by demanding the said letter and exercising the inequality of bargaining power over the Applicants by the Respondent in favour of the Respondent."
In the light of earlier findings that the arrangement was subject to
satisfactory valuations, the Bank was entitled to
refuse to advance the funds. However, the Bank was prepared to, and did advance
the sum of approximately $2.4 million to enable settlement of the properties to
take place on 16 June. On the Bank's valuations the security was simply not
sufficient to satisfy its standard margin requirements. In these circumstances,
the Bank was entitled to strike a new arrangement with the applicants and it
was not obliged to proceed with a commitment (assuming there was one) for $3.4
million, or indeed to advance any further money at all.
It is common ground that the Bank required a letter stating that the applicants would not require funds from the Bank to purchase 6, 8 and 10 Gertrude Street. This was a condition of the Bank proceeding to advance funds to settle the five properties on 16 June. There was no breach in my view of the initial agreement to lend funds in the sum of $3.4 million. Nor did the Bank exercise any inequality of bargaining power over the applicants in relation to this letter. At the time when the letter was required the applicants had retained solicitors to act for them in relation to the transactions. Apart from the oral statement allegedly made by Kelly on 16 June to the effect that the Bank was trying to blackmail them there is no written evidence or written protest whatsoever to the effect that the Bank had treated them unfairly and had blackmailed them or had used duress or undue pressure.
In fact, the Bank did proceed to settlement without the letter. It was not received until about five weeks after the date it bears. In this period the applicants had ample time to reconsider their position, seek legal advice and lodge a protest or take steps to confront the Bank with the alleged unconscionable conduct and refuse to furnish the letter. Yet nothing of this nature occurred and the letter was written. There was nothing unconscionable in the Bank's conduct given the time lapse and ability to take legal advice. In addition, the applicants were experienced in business and I cannot see that they were placed under any "special disability" in furnishing the letter. See Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 474; Louth v Diprose (1992) 175 CLR 621 at 626-632, 633-634.
Any suggestion of duress in requiring the letter must be rejected as a result of the lapse of time. Five weeks after the date of settlement, when the letter was actually sent, it is difficult to see that any duress or pressure arising from the circumstances of and surrounding 16 June was still operative. The passage of time must have diminished, if not extinguished the effect of any alleged pressure. There was ample time for the applicants to consider their position, and decide whether they consented to it. They had already received a loan advance to the extent of $2.4 million. Cf. Barton v Armstrong (1976) AC 104; Amadio (supra) at 627. There can be no suggestion that the will of the applicants was overborne at this time.
The Bank's requirement that the applicants furnish a letter prior to settlement, stating that they would not require funds from the Bank to purchase 6-8 and 10 Gertrude Street and this was fully satisfied by the second paragraph of the letter of 16 June.
The oral evidence of Kelly was that he spontaneously added the third paragraph, which had not been requested by the Bank, to the effect that arrangements had been made with the Vendors of 6-10 Gertrude Street, for settlement of those properties, but should the applicants require the assistance of the Bank they would submit a new application for consideration.
Since this paragraph was added to the letter sent four or five weeks after the event, it seems to me highly unlikely that the letter resulted from any operative undue influence or duress or unconscionable conduct.
Conclusion
Accordingly, the evidence leads me to conclude that there was no duress, unconscionable conduct or undue influence on the part of the Bank or its agents in relation to the letter dated 16 June.
Other Matters
Having reached the conclusions which I have set out above, it is not necessary for me to consider a number of other matters which were raised in the course of the hearing. However, I will briefly set out my conclusions in relation to those other matters.
Arrangement on or about 21 July 1989
It is alleged that the corporate applicants on or about 21 July 1989, agreed with the respondent to fund the remaining $770,000 upon gazettal of zoning changes and that on about 21 July 1989, the Bank through Seymour represented that the Bank would agree to funding the remaining $770,000.
On 18 July 1989 Bank records disclose a Memorandum prepared by Seymour, in which Seymour refers to the security value of $3,840,000. It states that Kelly is fully aware of the Bank's policy and the lending requirements and lending margins. It records that in order to improve the Bank's position Kelly made arrangements to refinance a portion of the debt through a broker in Melbourne and that he had applied for a loan of $1.25 million against 12-18 Gertrude Street Arncliffe. There is no suggestion in this Memorandum of any further advance. The letter of 20 July 1989 makes no definite commitment and simply states that "the Bank of Melbourne will consider the application to assist" in an advance of $1,250,000.
Kelly in a letter dated 22 August 1989 refers to recent discussions and refers to a loan currently being arranged from Resi to discharge existing mortgages over 12-18 Gertrude Street, Arncliffe. Again there is no reference to any further advance from the Bank. A further Memorandum of 31 August 1989 by Seymour refers to rezoning of the premises by Council in the form of a gazette notice which "will improve" the value of the properties. Again there is no suggestion of any further advance in this Memorandum. The recommendation therein relates to the rollover of a Bill for a further 90 days with interest being capitalised. On 30 August 1989 a letter is written by the solicitors for the corporate applicants referring to earlier correspondence and advising that their clients only wish to discharge their liability to the Bank in relation to the properties 12-18 Gertrude Street. Again, there is no reference to any further advance of $770,000. As referred to earlier, there has been no evidence in written form of any of the applicants protesting about the failure of the Bank to deliver or to comply with the alleged representation by Seymour as to the balance of the advance. Kelly gave evidence that there were only two promises and that these were in May and in June and that the 16 June promise had to be fulfilled by 8 December. There was no suggestion in this evidence that an additional representation was made in July.
My conclusion on this matter is that no misrepresentations were made on or about this time in this respect by or on behalf of the Bank.
Negligence.
In view of the findings which I have made above the applicants have not persuaded me that there is any claim made out under this head.
In my view, it was made clear to the applicants that the loan was subject to a condition precedent namely that the valuations had to be satisfactory to the Bank. Having made that clear there was no breach by the Bank of any alleged duty of care to the applicants. The Bank simply acted on the basis of this condition on 16 June 1989 when it refused to advance the full $3.4 million because that sum was not justified by the valuations of the Bank having regard to its lending margins.
Mrs Kelly
In my opinion Mrs Kelly's claim cannot succeed. There was no reliance by her on the bank's conduct or representation. The Bank did not make any misrepresentation to her, nor did it give any unconditional promise to make the advance without the critical condition that it was subject to valuations being acceptable. Further, in oral evidence Mrs Kelly indicated that she had made her decision to advance the deposit moneys to the corporate applicants on 20 and 31 March 1989 prior to hearing any discussion with Seymour, (which took place around 12 May 1989), in relation to the advance of moneys by the Bank. She said that in making her decision to commit her moneys, she relied solely on her son's feasibility; the valuations by Equity Real Estate and the discussions between her son and Williams. Mrs Kelly did not rely in making her advance on any misleading or deceptive conduct by the Bank. Nor did the Bank contract with her or breach any duty of care to her.
Silence
It is alleged that the Bank engaged in misleading or deceptive conduct because it remained silent, between 30 May 1989 and 14 June 1989 when the Bank had a duty to inform the applicants, that it was not satisfied with the valuations that had been provided to it and informing the applicants by way of subsequent correspondence, that the Bills Discount Facility was "subject to" valuations. In addition, it is alleged that by its silence the Bank represented that the Bills Discount Facility agreement was satisfactory when it knew that this was not the case.
In order to succeed on the ground of misleading or deceptive conduct arising from silence it is necessary to show that the silence taken in the circumstances and factual matrix surrounding the transaction, was misleading or deceptive. The authorities indicate that it must be established that the circumstances were such as to give rise to an expectation in a reasonable person that certain matters would be disclosed. In the present circumstances there is no evidence that Seymour was aware until 14 June 1989 that the valuations were unsatisfactory to the Bank. Immediately he became aware of the views of Ms Carlin from PVD he contacted the applicants and informed them of the position. Thereafter he did everything within in his power to persuade his superiors that the loan should proceed.
In these circumstances it cannot be said that Seymour acted in any misleading or deceptive way.
Indeed, the evidence indicates that, Seymour, up to 14 June 1989, entertained no doubt that the applicant's valuations as evaluated or modified by North Sydney Branch would be acceptable to the Bank. There is nothing deceptive or misleading arising from silence in relation to the conduct of Seymour or the Bank during this period.
Whilst some criticism may be levelled at the Bank for not processing the valuations furnished to it more quickly, I do not consider that this amounts to misleading conduct. It is true that at least on or about 6 June the Bank was aware that the matter was to be settled on 15 or 16 June. Nothing was done by Seymour or Branson to expedite the obtaining of this valuation and it seems to have occurred purely by chance that on 14 June Ms Carlin notified Seymour that the valuations were not acceptable or insufficient. The request for the valuations made on 31 May and the response of 2 June indicated that PVD believed they had until 22 June to provide the valuation.
Notwithstanding the fact that the Bank did not press for an earlier determination of the valuation from PVD, I am not satisfied in all the circumstances that there was any deceptive or misleading conduct, either expressly, by silence, conduct or otherwise arising from the delay in informing the applicants and Kelly that the valuations were unacceptable.
The authorities suggest that in order for silence to constitute a misrepresentation it is necessary for the person remaining silent (Seymour) to have averted to or deliberately refrained from, making a disclosure of a matter which he or she thought ought to be disclosed. In the present case there is no such evidence so far as Seymour or anyone else in the Bank is concerned. See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 42; Andrew Robertson, "The Circumstances in which Silence can Constitute Misleading or Deceptive Conduct" (1991), Queensland Law Society Journal, (February) 21.
Jones v Dunkel - Mr Branson
It is pointed out by the applicants, that one of the principal participants on behalf of the Bank was not called to give evidence. This was Branson, who was the Senior Manager, of the North Sydney Branch. I have taken this into account in the light of the principle enunciated in Jones v Dunkel (1959) 101 CLR 298. However, in the circumstances of this case I do not consider this omission to be of significance.
The direct discussions and communications were between Seymour and representatives of the applicants and not with Branson. The first discussions with Branson were in February 1990 when Williams and Kelly had a meeting with Branson and Mr Haysom seeking an advance of sufficient funds to complete the purchase of 6-10 Gertrude Street. All that Branson is alleged to have said is that the Bank would not advance additional funds.
In these circumstances this consideration does not cause me to depart from the conclusions expressed above.
Reliance
The applicants fail on the question of reliance on the basis that the letter dated 16 June and sent five weeks later terminated the Bank's commitment. The Bank had provided sufficient funds to enable the purchase of 4-4a and 12-18 Gertrude Street to proceed and they were the only properties ready for settlement as at 16 June 1989.
Damages
I do not consider that the applicants have proved that the damages ultimately suffered arose as a result of the Bank's actions or omissions.
No development consent was obtained until 13 December 1990 and even this consent was subject to a number of open-ended and stringent conditions requiring consolidation of all lots; car parking; geo-technical reports and drainage. There was no evidence as to whether these conditions could readily be met and what the cost of meeting them would be.
Copies of "The N.S.W. Realty Auctioneer" between November 1989 and June 1990 were tendered. These publications indicated that "real estate" was in a severe downturn by November 1989 and this continued through to 1990. By June 1990 it was stated that "auction clearances were at their low point" and were "typical of a credit squeezed real estate market in distress conditions". Mr David Nelson formerly of Robertson and Robertson, Real Estate Agents and Valuers, and now practising on his own account as David Nelson and Partners Pty Limited, provided an historic valuation of 4-18 Gertrude Street, on the basis that they were consolidated and sold as one lot and had developmental approval for a serviced apartment hotel containing 164 rooms. After looking at other hotel sales and making appropriate adjustments his conclusion was that the value of the site on a consolidated basis with development consent was $4.6 million.
His report was heavily qualified and in my view of no weight. His valuation was made as at 1 May 1990 when there was no certainty of any development consent to any specific proposed development. At the outset the report stresses that Nelson was not provided with any costing or potential income to allow for an in depth feasibility study to be carried out and that given the constraints based on the preparation of the report, he has relied on a room rate based on sales. He also points out that the site is subject to flooding although there has been no flooding since 1978.
In my view, this valuation is of no practical use in estimating the market value of the site in the absence of any detailed feasibility study or detailed costing.
More importantly, the applicants never purchased 6-10 Gertrude at all nor had the Council lane been closed so as to permit of a consolidation of the site.
In these circumstances and in the light of the depressed state of the real estate market as at May-June 1990, I am not satisfied that the properties were worth more than the price paid.
For reasons given earlier I consider that the Telado offer cannot be given any weight in appraising the value of the properties in the absence of any supportive evidence or testimony.
I am not satisfied that the losses would not have been suffered in any event as a result of the deep general slump in the real estate market.
Cross-Claim
The defences raised to the cross-claim were that it was not admitted or denied. It was denied that any amount was due by any of the cross-respondents. It was admitted that the moneys claimed had not been paid. In addition, the Defence alleges that any moneys due by the cross-claimant as a result of the application for damages are to be an equitable set off in relation to the amounts alleged to be due to the Cross-Claimant.
On the evidence before me I am satisfied that the Bank has established its case on the cross-claim and as I have concluded that the application should be dismissed, I find for the Bank on the cross-claim and I am prepared to grant the relief sought therein.
Conclusions
For the reasons given above I am of the view that the application should be dismissed with costs. The cross-claim should be allowed with costs. I direct the parties to provide Short Minutes to give effect to these Reasons for Decision.
I certify that this and
the preceding eighty (80)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 20 October 1995
Counsel for Applicants/Cross Respondents: Mr R F Greenwood QC
Mr D E Baran
Solicitors for Applicants/Cross Respondents: Hovan & Co
Counsel for Respondents/Cross Claimants: Mr R C Allaway QC
Mr D R Fredericks
Mr M Walsh
Solicitors for Respondent/Cross Claimants: Shaw McDonald
Date of Hearing: 10,11,12,13, & 14 July 1995
Date of Final Written Submission: 29 August 1995
Date Judgment Delivered: 20 October 1995
