Bride & Anor v Australian Bank Ltd & Ors [2000] WASC 116

Bride & Anor v Australian Bank Ltd & Ors [2000] WASC 116 | Case summary | Zoe

[31]

8 The claims are for damages and other relief in respect of events which befell the business and the land, especially in 1984 and their subsequent sale pursuant to securities held by the Bank. It is Mr and Mrs Bride's case that it was in their capacities as trustees of the Trust that they owned and conducted the business and owned some of the land and suffered the loss and damage alleged. The defendants deny this, asserting the business was owned and conducted by Mr and Mrs Bride in partnership, not as trustees of the Trust and that material parcels of the land were owned in partnership not as trustees of the Trust. Mr and Mrs Bride have not sued as partners. As partners they have no standing in these proceedings. In earlier proceedings, in their capacities as partners, Mr and Mrs Bride did seek unsuccessfully to recover damages and secure other relief against the Bank and Peat Marwick Mitchell for what were in substance the same causes of action; see Bride v Peat Marwick Mitchell [1989] WAR 383 and Bride v Australian Bank Ltd and Stewart, unreported; Fed C of A (French J), 26 July 1988, and on appeal Bride v Australian Bank Ltd and Stewart, unreported; Fed C of A (Beaumont, Burchett and Lee JJ); 5 December 1988 who upheld the decision of French J. A primary reason for the failure of these actions is that in 1984, shortly after the main events which are central to these actions, Mr and Mrs Bride were declared bankrupt on their own petition. The bankruptcy was conducted on the basis that the business was conducted by Mr and Mrs Bride in partnership, not as trustees of the Trust. In fact the Trust was identified as a creditor of the partnership. Whether or not that was correct in fact, any right of action Mr and Mrs Bride might have had as partners in respect of the business had vested in their trustee in bankruptcy pursuant to the Bankruptcy Act 1966 (Cth). By virtue of s116(2)(a) of the Bankruptcy Act, however, a right of action which a bankrupt may have as trustee for another does not vest in the trustee in bankruptcy. Hence, it is only in their capacities as trustees of the Trust that Mr and Mrs Bride now pursue these claims.

[53]

23 Until 1982 Mr and Mrs Bride conducted all relevant banking with the Rural and Industries Bank at Katanning (the "R&I Bank). It seems that then, as was the case until 1984, there was little or no attempt to differentiate for banking purposes between the various capacities and activities of Mr and Mrs Bride. Apart from some limited use of accounts with the Bank from late 1982 onward which were in the name of two companies, the usual practice was for one operating account to be used for most purposes. Despite a suggestion to the contrary in Mr Bride's evidence, I am satisfied the main operating account used by Mr and Mrs Bride with the R&I Bank was conducted in the names of E J & W M Bride or Mr and Mrs E J Bride. This was so from the days of the bakery until at least January 1981. A statement for July 1979, ie after the oatmilling venture of the Oatmilling Co of Katanning Pty Ltd had been purchased, shows that to have been the case at that time and it was in January 1981 that the Katanning manager of the R&I Bank first proposed an account name of E J & W M Bride as trustees of the Trust. That was proposed because of the terms of a government guaranteed loan of $200,000 which had been secured. As will appear later under the influence of a Mr Moran this had been sought by Mr and Mrs Bride in their capacities as trustees of the Trust and the government correspondence and approval was in those terms. The Manager of the R&I Bank at Katanning took steps to ensure the account used for the lending was in the name of the party the government had agreed to guarantee. It is to be noted, however, that a Bill of Sale by way of security granted by Mr and Mrs Bride on 5 May 1981 over the goodwill plant stock etc of the business in favour of the R&I Bank to further secure this $200,000 loan was entered into by "Edward James Bride Master Baker and Wendy Margaret Bride Married Woman ... carrying on or about to carry on in partnership at Katanning the business of Oat Millers and Stock Feed Producers (hereinafter called "the said business" or sometimes "the partnership") under the style or firm name of "Oatmilling of Katanning".

[76]

38 There are other relevant matters to which I will return later when dealing with the ownership of the business, but it is necessary at this point to consider, in particular, the Guarantee and Indemnity executed by Mr and Mrs Bride on 26 March 1982. While it is well capable of supporting the view that the application to the Bank for finance must have been by Mr and Mrs Bride in their capacities as trustees of the Trust, the matters just identified, in particular, in my view suggest it would have been highly unlikely that the application would have been made in their capacities as trustees of the Trust, especially because their then belief as to the ownership of the business was to the contrary. Clearly, Mr Bride spoke to Mr Freemantle or some other officer following receipt of the letter of 5 March 1982 and clarified that the Oatmilling Co of Katanning Pty Ltd had no role in the business. I also accept from the evidence that the Bank did not have an established and efficient system in respect of loans and securities in place at the time. The Bank was newly established and new staff were finding their way. This application was somewhat unusual for the Bank at the time because of its size and nature, and from a security viewpoint because of the complicated and obscure internal arrangements of what was at times referred to as the Bride Group, ie the variety of property holdings, commercial enterprises and private activities of Mr and Mrs Bride and the Trust. These internal arrangements were and are made the more difficult to understand because Mr Bride commonly disregarded or neglected to observe the distinctions, especially in correspondence, and because of the use of only one banking account for most operating purposes. While there is no entirely satisfactory explanation for the recital in the Guarantee and Indemnity, I am persuaded it is more probably than not that when the issue of securities were considered by the Bank's securities staff, and instructions were given to the Bank's solicitors by a member of the Bank's staff, a degree of confusion remained and the proprietorship of the Oatmill land on which the mill was constructed was regarded as determinative of the appropriate parties to provide the guarantees which earlier and mistakenly it had been contemplated would be provided by the directors of the Oatmilling Co of Katanning Pty Ltd. One effect of this is that questions arise, which are considered later, as to the effectiveness of the Guarantee and Indemnity as no moneys were in fact advanced to "the Customer" identified in it. As will appear, the answer to this may lie in the definition in the document of "the Customer".

[81]

43 It is also the effect of the evidence of Mr Freemantle and of Mr Bride, in my finding, that once it was made clear to Mr Freemantle that there was no incorporated entity which would be conducting the business, ie after the Bank's letter of 5 March 1982, he took the view that this was unsatisfactory both from the Bank's view point and that of Mr and Mrs Bride. This accorded with the opinions of Mr Duncan and Mr Fitzgerald. It also suited Mr Moran as it was his experience that he had difficulty in his approaches for governmental assistance for the business because it was not incorporated. Mr Freemantle proposed that two companies be formed, one to own and conduct the oatmilling division of the business, and to become the borrower for that purpose, and the other the stockfeed division. Mr Bride accepted the desirability of this, no doubt encouraged by his advisers, but prevailed on Mr Freemantle and secured his agreement to the delay of the transfer of assets to the two companies, to save incurring duty on the transfers at that time as finances were then tight and the planned development of the business still had far to go before full production and income could be achieved. The issue became one of some controversy. I will record my finding that no such division and transfer of the assets and liabilities of the business to the companies ever occurred. Had this occurred when Mr Freemantle first proposed it many of the issues which have been pursued in this litigation would have been avoided. What did occur, however, is that two companies were formed by Mr and Mrs Bride so as to be ready to implement Mr Freemantle's proposal. They were Bride Foods Pty Ltd and Swan Stock Foods Pty Ltd. The former was intended for the oatmilling division of the business, and the latter for the stock feed division. The latter was incorporated on 12 August 1982. There is some uncertainty on the evidence whether the former was incorporated at the same time or earlier in March 1982. Mr Duncan was the initial Secretary and Mr and Mrs Bride the Directors of both companies. In further preparation for the implementation of Mr Freemantle's proposal, later in 1982 Mr and Mrs Bride applied for and the Bank opened accounts in the names of each of the companies, funds being transferred to these accounts as required from the established borrowing of Mr and Mrs Bride. The Bank also took securities over the assets of both companies on 21 December 1982, and the two companies also joined in a Guarantee and Indemnity which is undated but which was stamped on 30 December 1982 and which I infer was also executed on 21 December 1982. This essentially repeats the terms set out earlier of the Guarantee and Indemnity of Mr and Mrs Bride dated 26 March 1982.

[87]

49 With this in mind at some time during 1982 Mr Bride located and agreed to purchase another block of land in Katanning, but removed from the Oatmill land, which he regarded as suitable for the location of the pelletized sheep food plant. This was the Stockfeed land. It became his plan to locate all stockfeed production on this site. The evidence is incomplete and unsatisfactory as to this acquisition. Mr Bride says this is because his records were taken by the receivers and managers and have not been returned and cannot now be located. Be that as it may, there is no written record or other evidence apart from a brief assertion by Mr Bride that he agreed to purchase the Stockfeed land, he says as early as April or May 1982, on what terms and with what funds is not established. It was not until March 1983, however, that the transfer to Mr and Mrs Bride was signed by the vendors. After further delay the transfer was registered on 31 October 1983. At the same time mortgage no C646218 was also registered. This had been granted by Mr and Mrs Bride in favour of the Bank on 27 June 1983. It secured the Stockfeed land. Neither the transfer nor the mortgage identified Mr and Mrs Bride as acting in their capacities as trustees of the Trust, but it is Mr Bride's evidence that this was the case and that the missing documents would have shown this to be so. Mr Bride also relied on the assertion that the Stockfeed land was acquired with Trust money. This, however, seemed to be linked to his evidence that it was the Trust that had borrowed from the Bank, part of the borrowings being used for the purchase of the Stockfeed land. As it is my finding that the borrowing was by the partnership rather than the Trust this contention has lost its force; indeed it tells against Mr Bride's contention. It is also the case that at the time, in the accounts, Mr Duncan treated the purchase of the Stockfeed land as an acquisition by the partnership, not of Mr and Mrs Bride as trustees of the Trust, and that remained the case until August 1984. I am satisfied that at the time Mr and Mrs Bride were aware of this and there is no evidence that this was ever queried by them. As will appear, when a brief was revised in mid 1984 by Mr Hordern for Mr Bride for the purpose of seeking fresh finance, it treated the Stockfeed land as an asset of the partnership, whereas the Oatmill land was treated as an asset of Mr and Mrs Bride as trustees of the Trust. This was also the basis on which the Stockfeed land was dealt with in the bankruptcy of Mr and Mrs Bride. Given Mr Bride's understanding of the role originally intended for the Trust it might have been expected that the acquisition of the Stockfeed land would have been for the Trust. As will appear, however, Mr Duncan had proposed in February 1983 that the Stockfeed land not be acquired by the Trust. He had in mind a movement toward establishing the two divisions of the business in the two companies as had been planned. Although this did not happen, that proposal suggests that there was fresh thinking about the use of the Trust at least by the time of the execution of the transfer of the Stockfeed land in March 1983. Having regard to these various matters I am not persuaded on the evidence that the Stockfeed land was purchased by Mr and Mrs Bride in their capacities as trustees of the Trust. In my finding the registered title and the accounts prepared by Mr Duncan reflected the true position.

[91]

53 Considerations such as these led, in February 1983, to the Bank proposing and Mr Bride agreeing to a review of the structure and performance of the business. A firm of Chartered Accountants, Hungerford Hancock and Offner - later KMG Hungerfords - ("Hungerfords") was retained for this task. The Bank had previously used the firm for work of this nature. Much of the investigation was undertaken by a Chartered Accountant Mr Stewart under the direction of a partner. A report was prepared and delivered to the Bank in April 1983. In light of the evidence before me there are some curious aspects of the work of Mr Stewart and the report which eventuated. I will not deal with these in detail. Mr and Mrs Bride, in their capacities as trustees of the Trust, much later unsuccessfully brought proceedings against both Mr Stewart and Hungerfords in respect of these and other matters. The action against Mr Stewart was in this Court being CIV 2041 of 1990. Mr Stewart obtained an order for summary judgment which was upheld on appeal; see Bride & Anor v Stewart [1999] WASCA 116. There were also proceedings against Hungerfords in this Court and the claim was dismissed after trial. The appeal from Murray J's decision was dismissed on 14 July 1994 following a five day hearing; see Bride v KMG Hungerfords, unreported; FCt SCt of WA; Library No 940353; 14 July 1994. So it is that in the present action against the Bank, having failed in respect of the April 1983 report against its actual author, Mr Stewart, and the firm retained to provide it, Hungerfords, Mr and Mrs Bride now seek to place some reliance on this episode against the present defendants. Other considerations aside, a problem with this is that it is sought to rely on this episode in factual support of the pleaded claims arising from subsequent events in 1984 on the apparent basis that Stewart and Hungerfords were acting in some way as agent of the Bank or in conspiracy with the Bank or some of its officers. The evidence reveals, in my finding, that the firm was retained and reported as independent consultants. Nothing in the nature of an agency is established. There is no direct evidence of a conspiracy; the essence of the case of Mr and Mrs Bride is that the nature of the contents of the report are so wrong and perverse that a plan to deliberately harm the Brides is the obvious inference, and by virtue of the Bank's role in introducing Hungerfords and Mr Stewart and a review of those who stood to benefit and of their subsequent conduct, there is enough to identify the Bank through its officers as parties to this conspiratorial plan. For reasons discussed in more detail shortly, it is my finding that there is no evidence to support a finding that there was any such form of conspiracy concerning the report or its consequences.

[92]

54 Against that background I will mention briefly some aspects of what occurred. For a reason which is not directly revealed by the evidence, for the purposes of the report Mr Stewart had the Perth office of Birds Chartered Accountants prepare a set of accounts to reflect the position on the basis that the business was divided and transferred to the two companies Bride Foods Pty Ltd and Swan Stock Foods Pty Ltd. The absence of any evidence from Mr Stewart or any other source as to the reason for this leaves an element of uncertainty as to why this was done. At the same time, however, the Katanning office of Birds Chartered Accountants continued with their ordinary accounts in respect of the business and the other affairs of Mr and Mrs Bride on the basis that the business was owned by Mr and Mrs Bride in partnership and this continued until the receivers and managers were appointed in August 1984. The contention for Mr and Mrs Bride is that the accounts prepared in Perth for the April 1983 report of Hungerfords were deliberately misleading, so as in part to create an entirely false understanding of the ownership of the business in the companies to the detriment of the interests of the Trust and later the unsecured creditors of the business. It is also contended this was done in part at least to cover a deficiency, which it is said was then perceived by the Bank in the Guarantees and Indemnities held by the Bank by way of security, ie those dated 26 March 1982 and 22 December 1982, as these extended to the two companies and the Trust it is contended, but not to the partnership. Further, it is the case for Mr and Mrs Bride that the April 1983 report falsely presented the condition and prospects of the business as well as it's ownership as part of a plan of Mr Stewart, with or without officers of the Bank, and others eventually to wrench control of the business from Mr and Mrs Bride, either for Mr Stewart or other interests with which he or officers of the Bank were connected or might introduce, to the loss of the Trust and unsecured creditors of the business.

[121]

79 The Bank also proposed and secured Mr Bride's concurrence to the appointment in July 1983 of Hungerfords to provide additional part-time financial monitoring in relation to the business. This is clear from a letter from Hungerfords to the Bank dated 8 July 1983. This work was undertaken under the direction of a partner Mr De Crespigny, but for the most part the work was performed by Mr Stewart who also attended the monthly meetings. The way in which this work was performed by Mr Stewart was the subject of much friction between him and Mr Bride at the time. Together with reports of Mr Stewart made to the Bank from July 1983, this has been the subject of much evidence. There is no doubt Mr Bride resented controls and decisions of Mr Stewart with respect to the nature and timing of expenditure and other matters and disagreed with his views. Without detailing these issues and the evidence it is enough that I record that I am unable to accept that it reveals that Mr Stewart in this period from July 1983 until June 1984 was acting in some conspiracy or collusion with the Bank of the nature previously identified to harm the business or with a view to wrenching control of the business for the Bank or others. I note that in this time Mr Stewart made some limited use of the company cheque accounts mainly for the purchase of raw materials. This may have been undertaken with a view to providing some hedge against creditors of the business who were becoming a significant problem as payment of their accounts had constantly to be deferred because of cash flow problems. These comments should not be understood as revealing that I find no fault with Mr Stewart's conduct between July 1983 and June 1984. While the only evidence before me is all from the viewpoint of Mr Bride and those associated with him, and the circumstances might prove to have a different dimension if evidence from another viewpoint were available, what I have heard indicates some aspects of Mr Stewart's conduct to be strange indeed and not readily explicable. What is critical, however, is that his conduct has not been shown to be conduct of the Bank or for which it is responsible.

[136]

94 Between 19 and 23 June 1984 Mr Fitzpatrick wrote many letters dealing with matters arising from the 18 June meeting and other business affairs. These included letters to Mr Stewart dealing with aspects of his terms of appointment and role as Chief Executive. A deal of time was spent at the hearing over these letters and over the question whether Mr Fitzgerald's retainer had been terminated by Mr Bride before these letters were written. My impression of Mr Bride's evidence on this point, including his cross-examination, left me with the impression, however, that he accepted that on 18 June 1984 he had agreed to appoint Mr Stewart and that after some general discussion at the meting of the role of Mr Stewart and the terms of the appointment it was left to Mr Fitzgerald to give effect to what was proposed. Mr Bride's real objections about the letters of Mr Fitzgerald appeared to be the terms in which the role of Mr Stewart and his conditions of appointment were expressed, rather than that Mr Fitzgerald had written at all, and the failure of Mr Fitzgerald to send Mr Bride copies of these various letters. Mr Bride saw in this that Mr Fitzgerald had changed allegiances and was in truth working for the Bank and in collusion with Mr Stewart. Mr Bride then seized on a letter written by Mr Fitzgerald very much later, in response to a professional disciplinary complaint by Mr Bride, in which Mr Fitzgerald said he had ceased to act for Mr Bride on 18 June 1984. Just how Mr Fitzgerald came to write this is not made clear from the evidence of Mr Bride or Mr Fitzgerald. It may well have been a simple mistake as Mr Fitzgerald looked back to events then well past. On the other hand the content of the letters sent by Mr Fitzgerald after the 18 June 1984 meeting, including the matters to which Mr Bride makes express objection which I've mentioned, leave me with the impression of a solicitor tidying up a number of matters in connection in particular with the affairs of the business, in what was then perceived by Mr Fitzgerald to be the best interests of the business and of Mr and Mrs Bride. There were many letters written in those days. In part this was due to the nature of the issues and changes arising from the 18 June 1984 meeting but, in part also, this was due to a decision by Mr Fitzgerald that he would cease to act for Mr Bride because of the extent of his unpaid fees and the continuing failure of Mr Bride to pay them, a matter which they discussed before and after the 18 June 1984 meeting.

[145]

103 It had already become apparent to Mr Bride and Mr Moran, in my view of the evidence, that a different and more extensive source of funding for the business would be necessary if Mr Bride was to be able to keep creditors of the business at bay, finish the development of the two mills, achieve planned production volumes and quality, and be able to trade on for a sufficient time to obtain financial relief from the trading income which Mr Bride still hoped would prove sufficient to enable the business to become viable. Ideally, one source of finance could be found sufficient to enable ties to be cut with the Bank altogether. Alternatively, a source prepared to provide partial funding would enable the Bank's exposure to be reduced and also provide the additional funding which was obviously needed. While it is Mr Bride's evidence that he believed even in June, July and August 1984 that the Bank would continue to provide the funds be needed to carry on until he could achieve sufficient trading income, it is difficult to accept that this was so. The considerable difficulty experienced, at least since July 1983, in obtaining adequate funds from the Bank must have been obvious. It had been increasing in that time. The very stringent controls over expenditure and development exercised by the Bank not only were extremely irksome to Mr Bride, they were eloquent of the Bank's attitude that it was no longer prepared to stand by and let Mr Bride conduct the business as he and his wife wished when so much money was at risk. The absence of funds from the Bank sufficient to meet the strong demands of trade creditors of the business, and the deteriorating relationship between Mr Bride and Bank officers especially during June and early July, could only have made it evident that Mr Bride could have no confidence in obtaining additional finance from the Bank or in its continued forbearance with the existing borrowing. Mr Bride's conduct at the time is also indicative of his true appreciation of the Bank's position. In June or July 1984 Mr Bride and Mr Moran commenced or renewed efforts to find another source of funding for the business. The brief which had been prepared in 1981 by Mr Hordern, when a source of funding other than the R&I Bank was being sought ie when the Bank agreed to advance $1.7m, was revised and updated. From the evidence two sources were approached by Mr Bride. These were a Mr Fermanis who was a finance broker and Rothwells Bank. The brief identified a need for $4.0m. It is to be noted from this brief, that those efforts to secure other finance for the business in 1984 were made on the basis that the business was conducted by Mr and Mrs Bride in partnership on the Stockfeed land owned by themselves, and on the Oatmill land owned by the Trust.

[153]

111 The essence of Mr Bride's evidence is that when the business, stock and goodwill of The Oatmilling Co of Katanning Pty Ltd was purchased he simply failed to consider and to put in place proper accounts and the other structures for the business. As I understand his evidence, he accepts that he knew at the time, although he says he gave the matter inadequate thought, that on Mr Duncan's return a month or so after the purchase from a holiday, Mr Duncan established the accounts and maintained them thereafter on the basis that the Trust owned the Oatmill land, and therefore came to own the permanent buildings constructed on it, but on the basis that the oatmilling and other plant and the manufacturing and trading functions of the business were owned and conducted by Mr and Mrs Bride in partnership, as had been their bakery, and that the partnership paid to the Trust a rental for its use of the Trust's land and buildings. He was also aware that when the Stockfeed land was acquired Mr Duncan dealt with it in the accounts on the basis that it was an asset of the partnership as were the buildings and plant that were established on the Stockfeed land. Each year Mr Bride was well aware, in my finding, as was Mrs Bride, that the annual accounts of the partnership, the Trust and the other joint and several activities of Mr and Mrs Bride were prepared by Mr Duncan on this basis. Those accounts were accepted by them in their respective capacities each year and matters such as personal remuneration, income tax returns, loans as between them in their different capacities including the Trust, and distributions from the Trust to their children, were determined by them in consultation with Mr Duncan on the basis of the accounts prepared and maintained to their knowledge in this way. The business name Oatmilling of Katanning was registered and used by Mr and Mrs Bride in connection with the business until August 1984 and thereafter in their bankruptcies. Indeed, Mr Bride's evidence is that at these times and until 1989 it was his belief that the partnership did own and conduct the business so that Mr Duncan's accounts from 1979-1984 reflected Mr Bride's then belief. Mr Bride did indicate that at times he was unsure or confused about the various capacities in which aspects of the differing activities, including the business, of what he regarded as the Bride Family Group, were undertaken, but in my appreciation of his evidence this did not ever displace the belief which he held from 1979 until 1989. For example, he says he reflected on this issue deeply before completing the declaration for his bankruptcy. In the event, however, he was prepared to commit himself to the declaration and its supporting documents which reflected the belief I have identified.

[157]

115 There are difficulties with Mr Moran's opinion. In particular, it assumes that the oatmilling business established by Mr and Mrs Bride was the same business that had been carried on by the Oatmilling Co of Katanning Pty Ltd. While that may have been so it was not necessarily so. It was a matter for Mr and Mrs Bride to determine, in one or more of their different capacities, how and by whom the business they established as oatmillers and stock feed producers should be owned and conducted. The Trust had acquired the former venture in 1979. But its trading activity ceased altogether. Its plant was dismantled and removed to the Oatmill land where it was re-constructed with improvements and significant modifications. When production was commenced from the Oatmill land in May 1980, the position revealed by the evidence is consistent with a fresh start, a new venture. The evidence certainly does not establish that the business of the Oatmilling Co of Katanning Pty Ltd simply continued under new ownership. Because it was Mr and Mrs Bride's decision, whether as trustees of the Trust or as partners or in both capacities, how their business should be owned and conducted it is necessary to consider their state of mind. While it is Mr Bride's evidence that he didn't really give this issue due thought at the time, it is also the effect of his unequivocal evidence that he and his wife understood and believed at the time that they were acting in partnership in the ownership and conduct of the business. It was the evidence of Mr Duncan that when he returned from his holiday just after the purchase from the Oatmilling Co of Katanning Pty Ltd he sought to determine what structure should be established for this new venture of Mr and Mrs Bride. While he says he may not have sighted the actual agreement for purchase, he seems to have learned of the breakup of the purchase price for goodwill, plant, etc, and while he may not have received clear direction from Mr Bride he did consult him and established the accounts, in my finding, according to what he understood to be the intention of Mr and Mrs Bride, which was that they should conduct the business in partnership so continuing the pattern established with the bakery. I am further satisfied that what Mr Duncan did with the accounts was well known at the time by Mr and Mrs Bride and they did not question this. Indeed it had been the way in which they had traded in the bakery and it was, in my finding, in accordance with their understanding of how they should conduct the oatmilling venture.

[173]

131 Mr Bride had an entry in his diary re the meeting of 8 August 1984 but in cross-examination he confirmed that he had no note of Mr Freemantle saying there was no threat of foreclosure or the like. Significantly, Mr Moran did not recall the words which Mr Bride was confident were said by Mr Freemantle as to no threat of foreclosure. He could not remember exact words but he did recall words to the effect that the service was to keep the paperwork right and that the Bank intended to work towards sorting the whole thing out. While such words, if they reflect what was said, might possibly be understood to offer some support for a proposition that Mr Freemantle did not make an unqualified demand and that the Bank was at least contemplating continuing financial support, they are ambiguous to say the least. That recollection is to be contrasted in both words and clarity of meaning with Mr Bride's recollection of Mr Freemantle's words. Not only was Mr Moran unable to confirm Mr Bride's recollection, he did agree that it was his view at the time that the appointment of a receiver was the only available solution to Mr Bride's position. In those circumstances it is more likely than not, in my finding, that Mr Freemantle's recollection and note are reliable as to the attitude taken by Mr Moran at the meeting. Mr Bride, in cross-examination, also recalled Mr Moran saying that creditor pressure would be intolerable within the next week, and also that when the possibility of refinancing was raised it was said, perhaps by Mr Moran, that it would take some 12-14 weeks to restructure the business and creditors wouldn't wait that long without a more formal arrangement. Mr Bride also recalled Mr Anderson saying that in his view only a receiver and manager would work. It was also said by Mr Bride at the meeting that he intended to terminate Mr Stewart's appointment. He recalls Mr Freemantle saying that was up to him. In my view this trend of conversation is not consistent with a commitment by the Bank at the meeting to continue to provide finance or to provide time to arrange refinance, and not to foreclose.

[177]

135 Mr Bride also gave evidence that he had approached Rothwells Bank and had been told by an officer of Rothwells, a Mr Ruthven, that Mr Walsh of Rothwells had approved $2.2m finance for the business on the basis that the Bank should provide the balance. This evidence did not indicate what that balance might be. The brief I notice, sought finance of $4.0m. While Mr Bride believed he had a diary note and a written application to Rothwells to support this, neither came into evidence. This evidence was given in the context that Mr Bride had received this advice confirming the availability of part finance, albeit requiring the Bank to continue to provide substantial finance, before the meeting of 8 August 1984 so that this finance was then "in the pipeline" as Mr Bride told the meeting of creditors. However, later in cross-examination Mr Bride confirmed that he had been in error in this and he had no recollection and no note except on 29 August 1984 which was that Mr Ruthven told him that Mr Connell of Rothwells had said that $2.5m would be available. Mr Ruthven, he said, had told him this having been informed by Mr Walsh. There was also evidence of a Mr Lucas who in 1984 had been employed with Mr Walsh and Mr Ruthven by L R Connell & Partners which administered the Perth office of Rothwells Bank. It was Mr Lucas' evidence that neither Mr Walsh nor Mr Ruthven then had authority to approve loans of this nature. That was then Mr Lucas' role for smaller loans and Mr Connell's for larger loans, however he was personally aware of any commitments made by Rothwells and was not aware of any commitment to provide $2.5m as indicated by Mr Bride. Mr Walsh died shortly after these events and Mr Connell has since died. Mr Ruthven recalled an approach by Mr Bride, whether to Rothwells or Mr Connell is not clear, but he put this as in April or May 1984 which is more in keeping with Mr Freemantle's recollection. Mr Ruthven inspected the business' premises and prepared a report. Mr Walsh later told him this was approved in principle. Mr Ruthven did not understand, however, that Mr Connell was to advance any finance. His recollection was that Mr Connell was to act as an intermediary for a fee and that the Australian Bank itself was to provide the finance. He could not recall the amount.

[183]

141 There was, however, error and confusion about notices of these appointments. In fact, notices of appointment of Mr Young and Mr Anderson pursuant to all the Bank's securities, including the two real estate mortgages and the securities granted by the two companies, were served at the premises of Mr and Mrs Bride at Katanning on 9 August 1984 by Mr Anderson and by Mr Adams an accountant employed by Peat Marwick Mitchell who was acting for Mr Young and Mr Anderson, and they were actually handed to Mr Bride the next morning 10 August 1984 by Mr Adams. The receivers and managers purported by Mr Adams to enter into possession on 9 August 1984 of all secured assets of and relating to the business including the Oatmill land and the Stockfeed land. It is possible that the receivers and managers acted to enter into possession of the secured assets on 9 August 1984, including the land other than the Oatmill land and the Stockfeed land, but the evidence as to this is lacking in detail and I am unable to come to a finding that possession was taken on that day of any land other than the Oatmill land and the Stockfeed land. As indicated there had been no appointments pursuant to the real estate mortgages which secured respectively the Oatmill land and the Stockfeed land so that the notices of appointment of receivers and managers pursuant to those mortgages were not correct but were, in my finding, acted on by Mr Adams on behalf of Mr Young and Mr Anderson. Written notices of default pursuant to the real estate mortgages were received by post by Mr and Mrs Bride on 11 August 1984. They too were dated 9 August 1984. No notice was ever given to Mr and Mrs Bride, however, of the appointments of receivers and managers pursuant to the two real estate mortgages which were actually effected on 22 August 1984. By these circumstances Mr and Mrs Bride were led to believe, and in my finding did believe, that Mr Young and Mr Anderson had been appointed as receivers and managers pursuant to the two real estate mortgages on 9 August 1984 and in my finding they continued in this belief until 1994 when, only after much persistence by Mr and Mrs Bride, documents were discovered which alerted them to the fact that the appointments of receivers and managers pursuant to the real estate mortgages had not been made on 9 August 1984.

[186]

144 I will first deal with these issues. In so doing I will concentrate on the two Bills of Sale by way of Security dated 24 August 1983 and 23 March 1984. I should note that all securities had been upstamped in March 1984. Both Bills of Sale secured money then, and in the future to be, advanced to Mr and Mrs Bride in their partnership capacity. Both were executed as Deeds so no question of consideration need be considered. The Bank submits that although it was unnecessary for Mr and Mrs Bride to have been in default when notice of demand was given, they were in fact in default because of the non-payment of interest in particular on 25 January, April and July 1984 as agreed pursuant to the Bank's letter dated 14 December 1983. Given that the Bank had always capitalized interest and had not suggested any other course on 25 January, April or July and took no action when payment was not made on these dates, it seems to me it had waived the payments of interest which were due on those dates so that there was no default when the demand for payment was made on 8 August 1984; Barns v Queensland National Bank Limited [1906] HCA 26; (1906) 3 CLR 925. The moneys secured by those Bills of Sale, ie principle interest charges etc, were payable on demand and such demand was made on 8 August 1984. Mr and Mrs Bride did not and could not satisfy that demand and were therefore in default, when the Bank acted pursuant to those Bills of Sale to appoint the receivers and managers on 9 August 1984. Further by cl 23 of the Bill of Sale dated 24 August 1983 and cl 21 of that dated 23 March 1984 the Bank was entitled to appoint a receiver and manager "although no default shall be made". Expressly, by those clauses, this could be done "without notice to the Mortgagor" and "notwithstanding the waiver of any previous default". Both Bills of Sale expressly provide for the appointment of "one or more receivers and managers" and further each (like the other securities including the real estate mortgages) contain interpretative provisions that words in the singular include the plural. Hence, in my view, there is no substance in the proposition than the Bank could only validly appoint one person as a receiver and manager. Insofar as it is contended that the receivers and managers acted only in respect of the two companies that is not born out in fact. Having considered the relevant evidence, in particular of Mr Young, Mr Adams and Mr Bride, on this issue and having considered the documentary evidence as to the receivership, I am satisfied that at all material times, out of caution, the receivers and managers purported to act in all possible capacities, ie with respect to the affairs of Mr and Mrs Bride as partners, and as trustees of the Trust, and in respect of Bride Foods Pty Ltd and of Swan Stock Foods Pty Ltd. I am satisfied and find, therefore, that they did at all material times on and from 9 August 1984 in fact act in respect of the affairs of Mr and Mrs Bride in their capacity as partners and therefore in respect of their ownership of the business.

[202]

155 With respect to the contention of Mr and Mrs Bride that the service of the notices of appointment pursuant to the real estate mortgages dated 9 August 1984 was an act of deliberate deception by the Bank and the receivers and managers I make the following observations and findings. It is clear from some of the documents that the Bank's solicitors were engaged in the preparation of some of the necessary documents. Whether the solicitors prepared the notices, or Peat Marwick Mitchell, is not revealed. There was a letter from the Bank to Mr Anderson on 9 August 1984 which enclosed appointments under the "Bills of Sale and Mortgage Debentures". This letter foreshadowed that "s 108 notices re mortgages and your subsequent appointment to be served and given to you respectively hopefully tomorrow". While the letter could have been more clearly expressed it's effect is that the Bank drew attention to the lack of appointment pursuant to the real estate mortgages at that time. It also suggests the non-appointment pursuant to the real estate mortgages was because of the need for notices under s 108 of the Transfer of Land Act. There were prepared, completed and posted by the Bank or its solicitors to Mr and Mrs Bride on the same day notices of default pursuant to s 108 of the Transfer of Land Act in respect of the two real estate mortgages. In the case of Mortgage C337514 by its terms an appointment could not be made until the default in payment had continued for 14 days. Under Mortgage C646218 that period had been reduced to one day. I am persuaded that it had been intended that the appointments under these two mortgages should be made at a later time after service of written notices. As indicated earlier there was no need, however, for the receivers and managers to be appointed pursuant to the real estate mortgages to empower them to enter the Oatmill land and the Stockfeed land to take possession of the secured assets of the business and to conduct the business on the land.

[221]

170 The question remains whether the statement of claim may fairly be seen to raise a claim in trespass against Peat Marwick Mitchell. By the paragraphs noted earlier from the statement of claim, and despite the particular context of some of those paragraphs, it may be accepted that the allegations of fact raised by the statement of claim include that there had been a purported appointment of the receivers and managers in respect of the Trust's land on 9 August 1984 and notices of that appointment dated 9 August 1984 had been given; but there had been no valid appointment, nor was there an entitlement in the Bank to appoint the receivers and managers in respect of the land, on 9 August 1984, and the Bank's entry into possession of the Trust's assets was unlawful. The allegation of an unlawful entry into possession may be accepted as adequately raising a claim in trespass as indicated by the Indorsement to the Writ, but there is difficulty with the pleading in par 18 that it was the Bank's entry into possession that was unlawful. There is no distinct pleading of the receivers and managers unlawfully entering into possession. It was, however, clear at all times from the plaintiff's opening and throughout the evidence that it was not alleged that there was any distinct entry into possession by the Bank relevant to this issue. The only unlawful entry into possession of the Trust's land relied on was that effected on 9 August 1984 by Mr Adams acting for the receivers and managers. Yet in the statement of claim against the receivers and managers the allegation is pleaded that this entry was an entry by the Bank. The case which the pleading sought to advance was clearly, in the circumstances, that the entry into possession by the receivers and managers was effected on behalf of the Bank. The pleading may be said to have the effect of disguising and not putting clearly a material element of the case the plaintiffs sought to advance, rather than there being a failure at all to plead the material element. There is a further deficiency at least in form if not substance in that the allegations in par 20.6 and par 20.7 were not expressly related to par 18. This deficiency is also clearly a product of the lack of legal representation as at all times it was manifest that this was the case being pursued by Mr and Mrs Bride.

[232]

179 I am unable, however, to agree with this line of contention. With respect to Mortgage C646218 it has not been shown by Mr and Mrs Bride that the Stockfeed land it secured was purchased by them in their capacities as trustees of the Trust or that the mortgage was entered into by them in those capacities. Its terms, therefore, were apt to secure moneys advanced to them as partners in respect of their business. Mortgage C337514, insofar as it secured the Oatmill land, was in respect of land owned by Mr and Mrs Bride in their capacities as trustees of the Trust. By the terms of the mortgage, however, they were also mortgagors in their individual ie their non-trustee capacities, and both as individuals, and as trustees, as "mortgagor" they covenanted with the Bank to repay the "secured obligations". The meaning of that phrase was amplified by cl 7(b) of the mortgage to mean all principal moneys interest and charges, "principal moneys" in turn being by cl 7(e) all sums in which the "mortgagor" is liable to the Bank on any account whatever. Further, it expressly includes inter alia liabilities to the Bank under any present or future guarantee and indemnity as well as under any agreement. This mortgage, like all the other securities in issue, is executed as a Deed so no question of consideration arises. Also by way of a Deed, on the same day that they executed mortgage C337514, Mr and Mrs Bride granted to the Bank a Guarantee and Indemnity. In their capacity as trustees of the Trust, they were described in the Guarantee as "the Customer". As "Guarantors", however, Mr and Mrs Bride guaranteed to the Bank the payment of all sums of money and damages which "the Customer" may be or hereafter become liable to pay to the Bank on any account whatever. By cl 3 "Customer" is defined to include inter alia each of them where there is more than one, and it is provided that the Guarantee extends to their joint and several liabilities. The definition expressly further provides "Where any Customer is a Trustee the expression includes the Customer whether in its personal capacity or in its capacity as a Trustee". Thus by the definition of Customer, this Guarantee and Indemnity extended not only to sums of money advanced to Mr and Mrs Bride in their capacities as trustees of the Trust, but also in their personal capacities both joint and joint and several.

[237]

184 Much of the evidence as to Mr Stewart's involvement in the business on and from 18 June 1984 has been canvassed already. It is my finding that this establishes that Mr Stewart was engaged by Mr and Mrs Bride on 18 June 1984 in the capacity of Chief Executive of the business. This was agreed in my finding by Mr Bride during the meeting at the Bank on that day. Mr Stewart was also present and accepted the appointment, although the evidence shows he was reluctant to do so. In my finding the nature of his role and of the terms of his appointment were discussed in general terms but the detail was left by Mr Bride to Mr Fitzgerald to resolve with Mr Stewart, which they did. These were set out by Mr Fitzgerald in correspondence with Mr Stewart. Mr Bride had been extremely reluctant to agree to the appointment because of his resentment of any interference in the business, his dislike of Mr Stewart and because of the contemplated scope of Mr Stewart's role which, at the insistence of the Bank, was to include full responsibility for the day to day management of the business with Mr Bride to concentrate on sales. Despite this reluctance, Mr Bride agreed. In my finding he did so because he then accepted the reality that if he did not do so the Bank would be unlikely to continue to provide further finance or to continue to forebear in respect of repayment of the capital and interest. Mr Stewart commenced his new role within a day or two of 18 June 1984 but, on 27 June 1984, on the advice of Mr Campbell-Smith, Mr Bride dismissed Mr Stewart. On the same day, however, he agreed to Mr Stewart's reinstatement in the business because Mr Hancock of the Bank had made it clear that if Mr Stewart was dismissed the Bank would act immediately to appoint receivers and managers. On 3 July 1984 the continued employment of Mr Stewart by Mr Bride was discussed further by Mr Bride and Mr Hancock and as a consequence on 6 July 1984 a further letter prepared by Mr Bride's new solicitor setting out different terms and identifying a much more restricted role in the business for Mr Stewart, was sent by Mr Bride to Mr Stewart. These terms were accepted by Mr Stewart. I find that from 6 July 1984 to 8 August 1984 the employment of Mr Stewart in the business by Mr and Mrs Bride was on the basis set out in the letter of 6 July 1984. On 8 August 1984, following his meeting with Mr Freemantle, Mr Bride dismissed Mr Stewart once again.

[238]

185 The evidence also establishes that for much of this period Mr Stewart adopted a practice of providing what may be called reports of progress and developments in the business to the Bank, although it is the evidence that this was not at the Bank's request and Mr Stewart was asked by Mr Hancock to stop doing so. As indicated earlier, there is also the arrangement between Mr Gole and Mr Stewart for Mr Stewart to receive a 5per cent commission on any permanent reduction in the level of borrowing for the business. There is also a suggestion but no satisfactory direct evidence, that in this period Bank officers may have given the impression to governmental officers responsible for grants to businesses that the Bank was really in practical control of the business. The evidence of Mr Bride of this period also suggests a variety of conduct in the business by Mr Stewart which, at the least, would suggest a deliberate course to cut expenditure, including the cessation of part-completed construction work, even though this involved the reduction of production levels, and the dismissal of some staff. Viewed from Mr Bride's perspective many of these decisions of Mr Stewart were perverse and extremely harmful to the business as Mr Bride envisaged it should be conducted. Mr Bride's perspective, however, failed to have regard to the reality of the position of which, in my finding, he was aware although he may not have been inclined to face up to it fairly and squarely. The position was that by 18 June 1984 the capital borrowing had reached the limit of $3m agreed by the Bank in December 1983, More money was required to complete the planned works on the mills even though they should have been completed within the $3m. In addition the interest charges had been capitalized, they were not being paid as had been agreed. The Bank was not prepared to provide further finance or to continue to forebear without a close monitoring of the expenditure and performance and then only on a restricted basis to enable Mr Stewart to asses and readjust the operations of the business in search of a basis on which it might perform more satisfactorily and to report. Without improved performance by the business any expectation that the Bank would continue to provide finance for completion of all capital works and to improve the plant was an unrealistic expectation by Mr Bride. In my view, the position had been reached and was made clear on 18 June 1984 that unless the financial performance of the business was improved the Bank's continued financial support could not be expected, and that in the Bank's view improved financial performance required different management from that which Mr Bride had provided. Hence, the role of Mr Stewart, in the short term and, if improvement proved achievable, the foreseen role of a new Chief Executive of the business.

[274]

201 With respect to the skill and application of the receivers and managers, and their day to day management of the business, it became clear from the evidence that Mr Bride could not accept the reasonableness and appropriateness of any strategy or decision which differed from his own idea of what should have been done. His strategy would have been to continue, as he had over the years until June 1984, to try to achieve the largest possible production from all aspects of the oatmill, muesli plant and the two types of stockfeed production ie maximum shifts and maximum staffing. To his way of thinking, not only should this have been the strategy of the receivers and managers, but to this end they should have continued also to improve and develop the plant to overcome the deficiencies that had been identified by Mr Benschop in his report so that greater production could be achieved. He was, and remains, confident that everything that could have been produced would have been sold, although the reality of that expectation is not established. He still clings to the idea deep down that the business would have traded out of its financial difficulties and that it should have been managed with that objective. Missing, in my finding, from this is any realistic appreciation of the actual trading performance of the business to that time, the actual production levels that had been achieved, the deficiencies in plant design, efficiency and reliability identified by Mr Benschop, and the further capital and operating financial support that would have been required to continue to follow such a strategy. In particular, there was and remains, in my finding, a failure to make any realistic appreciation of the extent of the existing indebtedness of the business, and of the need in any realistic financial planning to take account of the need to service the indebtedness, as well as any further capital and operating funding that was required, and to make provision for the repayment of that indebtedness. In my finding Mr Bride's appreciation of the then financial position of the business in and following August 1984, as it had been before then, focussed on his planned production levels and sales even though he had consistently failed to achieve his expectations, on an over optimistic appreciation of the level of return the business would achieve from such production and sales, and a blind-spot about the need to service borrowings and make capital repayments. In his view interest on borrowings was, it seems, merely something that could continue to be capitalized, and further borrowings should have been accepted by the Bank because that was the way to achieving maximum production, and with maximum production somehow the business would fall into financial health and be able to meet all its obligations.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (337 paragraphs)

Bride & Anor v Australian Bank Ltd & Ors [2000] WASC 116 (12 May 2000)

Parties

Legislation Cited (2)

Cases Cited (19)