Ground 2
236 The Liquidators allege that the primary judge erred in law and in fact in finding that the debt owed to Solarise by Solar Shop was not due and payable as and from 22 May 2011, but instead was subordinated to the debt due to Westpac by Solar Shop. The Liquidators contend that the primary judge ought to have found that Solar Shop was insolvent on and from 30 April 2011, or alternatively, 22 May 2011. The significance of the latter date is obvious. The link between the former date and the Solarise Debt becoming due and payable on 22 May 2011 is based on the Liquidators' argument concerning the application of a "forward looking" test of insolvency, although that argument is not raised in this particular context in the notice of appeal.
237 The Liquidators' first allegation relates to the construction of the Solarise Loan Agreement and the Subordination Deed.
238 First, the Liquidators allege that on the proper construction of the Solarise Loan Agreement and the Subordination Deed when read together, the obligations of the parties under the Subordination Deed were to, and did, come to an end as at 22 May 2011 in the event that, as at that date, each of the five conditions identified in cl 8.1 of the Subordination Deed were met, and Solar Shop was thereby permitted (by the Subordination Deed) and required (by the Solarise Loan Agreement) to pay the Solarise Debt to Solarise. Further and in the alternative, they allege that on and from 22 May 2011, "Subordination Default" as defined for the purpose of cl 8.1.5 of the Subordination Deed was not to include a failure by Solar Shop to make payment of the balance of the Solarise Debt after that date.
239 The Liquidators allege that the primary judge should have construed the Subordination Deed and the Solarise Loan Agreement together to come to the aforesaid conclusions in that:
(1) by the terms of each of the Solarise Loan Agreement and Schedule 1 to the Subordination Deed, the whole of the Solarise Debt was permitted and required to be repaid by 22 May 2011;
(2) the only occasion on the facts for the subordination springing into effect after 22 May 2011 was the failure of Solar Shop to pay Solarise the Solarise Debt when it was due, and permitted to be paid, on 22 May 2011; and
(3) it is an uncommercial construction of the combined effect of the Solarise Loan Agreement and the Subordination Deed that Solar Shop could and must pay the Solarise Debt on 22 May 2011, but if it did not do so that very day, then Solar Shop would achieve a deferral of its liability to pay for an indeterminate period merely by its own default in making that payment when due.
240 Further, or in the alternative, the Liquidators allege that the primary judge ought to have found that there had been an abandonment of the Subordination Deed on and from the entry into the 2010 Facility Agreement between Westpac and Solar Shop on 19 October 2010. They allege that, objectively viewed, Westpac, Solar Shop and Solarise by their conduct manifested an intention that the Subordination Deed would not continue to have application after the entry into the 2010 Facility Agreement in substitution for the May 2009 Business Finance Agreement, the effect of which was that the pre-existing debt owed by Solar Shop to Westpac was to be increased by $10 million. They allege that Westpac, Solar Shop and Solarise negotiated as to the continued applicability of the Subordination Deed to the 2010 Facility Agreement and by their dealings, each manifested an intention that:
(1) the continued operation of the Subordination Deed was dependent upon agreement as between them for a variation to extend the operation of the subordination to the new, increased facility; and
(2) the waiver of the condition of the 2010 Facility Agreement that a new subordination arrangement be agreed with Solarise manifested the intention of each of Westpac, Solar Shop and Solarise that thereafter the Subordination Deed was at an end.
241 The Liquidators allege that it was the common and objectively manifested understanding, reflected in Westpac's correspondence in response to a request for permission to enter into an agreement containing the terms, that the Subordination Deed ceased to have effect following the entry into the 2010 Facility Agreement. They allege that the interest payments conformed to a proposed loan agreement, and were not an objective manifestation that the parties considered that the Subordination Deed remained operative.
242 In ground 3 of their notices of contention, the Respondents allege the following with respect to the primary judge's finding that the Subordination Deed had not been abandoned:
(1) the primary judge should have found that the Liquidators did not prove that the employees of Westpac, on whose conduct they relied to establish the abandonment or abrogation of the Subordination Deed, had the necessary authority;
(2) the primary judge should have also found that the Subordination Deed could only be abandoned or abrogated by written deed of all parties and no such deed was entered into (cll 13 and 18); and
(3) in the alternative to (2), the inclusion of those clauses (cll 13 and 18) in the Subordination Deed was an additional basis for concluding that there had been no abandonment or abrogation.
243 Finally, the Liquidators allege that further and alternatively, the primary judge ought to have found that the Westpac correspondence in response to a request for permission to enter into the 2011 Solarise Agreement containing the certain terms constituted Westpac's consent to the payment by Solar Shop of the Solarise Debt upon demand. The 2011 Solarise Agreement was a proposed agreement between Solarise, Solar Shop, Mr Mourney and Harbert to cover the position after 22 May 2011. Westpac was not a proposed party. The primary judge said that it was not clear whether the 2011 Solarise Agreement was executed by all parties. His Honour did find that it was executed by at least Solar Shop and Harbert.
244 In summary, the notices of appeal raise three issues under Ground 2. They are as follows:
(1) the construction issue, namely, whether the subordination came to an end on and after 22 May 2011;
(2) the abandonment issue, namely, whether the Subordination Deed was abandoned in or about October 2010; and
(3) the approval issue, namely, whether in or about May 2011 and acting under cl 8.3 of the Subordination Deed, Westpac approved Solar Shop's repayment of the Solarise Debt.
245 We turn now to the reasons of the primary judge. We have already briefly outlined those reasons (at [36]-[42] above). It is now necessary to examine those reasons in greater detail.
246 With respect to the construction issue, the primary judge considered whether the Subordination Deed operated to make the Solarise Loan subordinate to the Westpac Debt only to 22 May 2011.
247 The primary judge noted the link between the Solarise Loan Agreement and the Subordination Deed. The Solarise Loan Agreement provided the subject matter for the Subordination Deed. Furthermore, by cl 15 of the Subordination Deed, Westpac acknowledged that it had received unexecuted copies of the Solarise Loan Agreement and the Share Buy-Back Agreement, and by cl 16 both parties acknowledged that the Subordination Deed would prevail in the event that there was any inconsistency between the Subordination Deed and the Solarise Loan Agreement. The primary judge considered that there was, therefore, an extent to which the Solarise Loan Agreement and the Subordination Deed can be read together. However, the primary judge did not consider that there was any basis for concluding that the Subordination Deed incorporated the two year Subordination Period contained in the Solarise Loan Agreement. In fact, there were a number of matters which indicated that the subordination, which is the subject of the Subordination Deed, was more extensive than (and inconsistent with) that contained in the Solarise Loan Agreement.
248 The matters upon which the primary judge relied are as follows. First, the Subordination Deed made it clear in cl 4.2 that the debt under the Solarise Loan Agreement was subordinated to the Westpac Debt until the Westpac Debt had been paid or satisfied in full, or the debt under the Solarise Loan Agreement was repaid with the written consent of Westpac. The primary judge noted that cll 5, 6 and 7 expanded the subordination by excluding payment to, recovery by or assignment of the debt under the Solarise Loan Agreement by Solarise, "so long as any of the Westpac Debt remains outstanding".
249 Secondly, the primary judge expressed the view that the Amortisation Schedule to the Subordination Deed did not, by the provision for Permitted Payments, alter that position. Clause 8.1 of the Subordination Deed authorised, but did not require, Solar Shop to make the Permitted Payments. Clause 8.2.2 makes it clear that Solar Shop may not make a capital payment on the date specified and provides that it may make such a payment at any time following the unpaid capital payment date subject to conditions. The primary judge considered that, in light of the permissive "may" in cll 8.1 and 8.2.2, the apparently imperative "will" in the notes to the Amortisation Schedule did not have that quality. The primary judge said that it was not to be expected that an obligation of this kind would be imposed by a note to the schedule setting out Permitted Payments. Furthermore, the first note in the Amortisation Schedule states that Solar Shop may, but is not obliged to, make capital payments on the dates of payment.
250 Thirdly, the primary judge said that it was not readily to be supposed that when Westpac was negotiating the May 2009 Business Finance Agreement, it sought subordination for a two year period only. His Honour considered that it was more realistic to suppose that Westpac sought to have the subordination continue until its debt had been paid, save and except that Permitted Payments could be made at times when the conditions in cl 8.1 were satisfied. Westpac was not a party to the Solarise Loan Agreement and it never signified its agreement to the two year Subordination Period referred to in that agreement. That arrangement was one made between Solar Shop, Solarise, Mr Mourney and Harbert only. The primary judge considered that the express mention of the two year Subordination Period in the Solarise Loan Agreement, and the absence of any reference to such a limitation period in the Subordination Deed, suggested that the parties to the latter were deliberately departing from such a limitation.
251 Finally, the primary judge said that the inconsistency clause in the Subordination Deed was significant. The inconsistency clause was cl 16. It provided that, to the extent of any inconsistency between the Subordination Deed and the Solarise Loan Agreement, the Subordination Deed shall prevail. His Honour considered that there was an inconsistency between the indefinite period of subordination contemplated by cll 5, 6 and 7 of the Subordination Deed, on the one hand, and the two year Subordination Period contemplated by the Solarise Loan Agreement, on the other. In those circumstances, the Subordination Deed prevailed.
252 The primary judge concluded that, whilst Solar Shop was authorised to make the Permitted Payments which would have had the effect of the loan being repaid by 22 May 2011, it was not required to do so. It followed that the parties contemplated that the Solarise Debt may continue past 22 May 2011. The primary judge held that as Solar Shop did not make the Permitted Payments to Solarise before 22 May 2011, it could thereafter make a payment only with Westpac's prior written consent. That consent could not, by reason of cl 8.3 of the Subordination Deed, be unreasonably withheld or delayed.
253 In the circumstances, the primary judge concluded that this basis (i.e. that the Solarise Loan was subordinated to the Westpac Debt only to 22 May 2011) for the claim that the Solarise Loan was due and payable on 22 May 2011 failed.
254 With respect to the abandonment issue, the primary judge noted that the Liquidators submitted that each of Westpac, Solar Shop and Solarise from the time of entry into the 2010 Facility Agreement, proceeded on the basis that the Subordination Deed was no longer operative. The Liquidators relied upon events within Westpac in 2010 and July 2011, and upon a course of dealings between Westpac, Solar Shop and Solarise from May 2011 onwards.
255 Before the primary judge, the Liquidators relied on an unsigned internal Westpac memorandum dated 15 October 2010 in which the authors, identified only as "Relationship Manager", "Analyst" and "Portfolio Manager", sought approval for amendment to the conditions to the then proposed Facility Agreement on the basis that the Solarise Loan will no longer be subordinated to Westpac. The primary judge set out a passage from the memorandum. He noted that the memorandum included an extract from Westpac's legal department which indicated a belief that the Subordination Deed referred only to amounts owing under the May 2009 Business Finance Agreement and would not extend to amounts advanced under the 2010 Facility Agreement. The extract from the legal advice also set out three options which his Honour set out in his reasons.
256 The primary judge noted that there was no evidence that a copy of the internal memorandum was ever provided to Solar Shop or Solarise and considered that it was unlikely that that would have occurred. Nor was there any evidence before the Court of a response from Westpac management to the recommendation, let alone an indication, that management accepted the premise to the recommendation, that is to say, that the Solarise Loan would not be subordinated to advances under the 2010 Facility Agreement.
257 The primary judge noted that the Liquidators relied on the fact that a condition precedent to the tranche F advance was that the terms of the Subordination Deed (or the amendments required to it) be satisfactory to Westpac, both in form and in substance. They submitted that as there had been no amendment to the Subordination Deed and no new deed, Westpac must, at least impliedly, have waived compliance with this condition and that this was consistent with acceptance of the "do nothing" recommendation in the memorandum dated 15 October 2010. The Liquidators also relied on the fact that Westpac had not challenged Mr Mourney's assertion when, on 26 July 2011, Mr Steele informed Mr Tanner that Mr Mourney considered that the Subordination Deed was no longer applicable. The primary judge inferred that this was because Mr Tanner had called for and reviewed the internal memorandum of 15 October 2010.
258 The primary judge noted that the Liquidators also relied on a course of dealings in 2011 to demonstrate that Solarise, Solar Shop and Westpac regarded the Subordination Deed as no longer operative. We will not at this stage set out the seven matters identified by the Liquidators.
259 The Liquidators put to the primary judge that, in these circumstances, it should be inferred that Westpac, Solarise and Solar Shop had manifested a common intention no longer to be bound by the Subordination Deed.
260 The primary judge said that the subjective intention or understanding of the unidentified authors within Westpac of the memorandum dated 15 October 2010 was not relevant. The matter was to be assessed objectively and there was no express evidence that the views of the authors were ever adopted by Westpac management, let alone communicated to Solar Shop or Solarise.
261 The primary judge said that no inference of a mutual intention that the Subordination Deed should no longer be operative should be drawn. Even if Westpac had that understanding, the corresponding understanding could not be attributed to either Solar Shop or Solarise. The primary judge noted that all that the unidentified authors reported was that Solarise was not prepared to sign any further documents which may weaken its position and that it was resistant to revisiting the Subordination Deed "to capture the whole of the new facility arrangements" or to amending it "to capture those facilities which were under the [2009 May Business Finance Agreement] but not the new facilities".
262 The primary judge accepted that it can be inferred that Westpac waived the requirement for any amendment to the Subordination Deed. However, that circumstance did not suggest in an objective way a common contemplation that the Subordination Deed in its unamended form should cease to be operative. The primary judge considered that the evidence that the parties conducted themselves on that basis was at best slight, and, to the contrary, there was some objective evidence that Solar Shop at least continued to regard the Subordination Deed as being applicable. The primary judge noted that Solar Shop made payments of interest to Solarise on 13 January 2011, 14 April 2011 and 20 May 2011 and that these dates were at intervals and very close to the dates specified in the Amortisation Schedule in the Subordination Deed. This suggested, according to the primary judge, that Solar Shop regarded the Subordination Deed as being in operation. The primary judge said that it was also significant that after 22 May 2011, Solar Shop sought Westpac's consent to it making payments to Solarise. The primary judge said that that seemed to be consistent with an understanding on its part that the Subordination Deed continued to be applicable, although his Honour accepted that that conduct may also be attributable to Solar Shop's understanding of its obligations under the 2010 Facility Agreement.
263 The primary judge concluded that there was no evidence of a "long-continued ignoring of the contract on both sides". Rather, the primary judge noted that the evidence was more consistent with a view at least by Solar Shop, and probably Solarise and Westpac, that the Subordination Deed continued to be applicable to the extent to which it was capable of doing so.
264 With respect to the approval issue, the primary judge noted that cl 3 of the 2011 Solarise Agreement was in the following terms:
[3] Acknowledgement of liability for Debt
[3.1] Solar Shop acknowledges and agrees that pursuant to the Loan Agreement, on and from 22 May 2011 Solar Shop is liable to pay Solarise on demand the whole of the principal sum of A$5,178,682.13 (Debt), together with interest accrued to 22 May 2011 pursuant to the Loan Agreement of A$43,132.04, on 22 May 2011.
[3.2] Nothing in this agreement shall be taken to limit or postpone Solar Shop's liability or Solarise's rights pursuant to the Loan Agreement as acknowledged and agreed by the preceding subclause.
265 Mr Tanner at Westpac was provided with a copy of the 2011 Solarise Agreement on 20 May 2011 and asked by Mr Thornton to "advise if you/Westpac have any issues and are happy to support".
266 Mr Tanner's response on 23 May 2011 to that request was as follows:
I confirm that Westpac is not a party to the attached proposed Agreement.
Whether Solar Shop decides to enter into this Agreement with Solarise Pty Ltd and Russell Mourney is a matter for the directors of Solar Shop who must consider the ability of Solar Shop to comply with any obligations under the Agreement.
As you are aware, Solar Shop's facilities with Westpac are currently under review and we reiterate that all requirements under [the] current Facility Agreement dated 19 October 2010 must continue to be met during this period of review.
267 The primary judge rejected a submission by the Liquidators that Mr Tanner's email of 23 May 2011 constituted, for the purposes of cl 8.3 of the Subordination Deed, a consent by Westpac to Solar Shop entering into the 2011 Solarise Agreement, including its agreement to the terms providing for repayment of the Solarise Loan on and from 22 May 2011 upon demand.
268 First, the primary judge said that the consent to which cl 8.3 refers relates to payments by Solar Shop in connection with the Solarise Debt, not consent to Solar Shop entering into an agreement containing a term that the Solarise Loan will be repayable on demand. Secondly, the primary judge did not consider that Mr Tanner's response could be regarded as a "consent" of the requisite kind. The email from Mr Thornton to Mr Tanner of 20 May 2011 had not in terms sought Westpac's consent and Mr Tanner did not frame his response in such terms. Instead, he pointed out that the decision whether to enter into the agreement had to be made by Solar Shop itself. The primary judge considered that, in context, Mr Tanner appeared to have been declining to proffer advice to Solar Shop about the appropriateness of the 2011 Solarise Agreement. Finally, the primary judge said that there was nothing in the circumstances objectively considered which indicated that Mr Tanner was intending, by his response, to alter Westpac's position under the Subordination Deed. The primary judge concluded that Westpac had not given a relevant consent pursuant to cl 8.3 of the Subordination Deed.
269 We turn now to outline briefly the submissions of the parties on the appeals.
270 With respect to the construction issue, the Liquidators submit that the primary judge should have found that on the true construction of the Solarise Loan Agreement and the Subordination Deed, when read together, the subordination regime came to an end on 22 May 2011 because, as at that date, the five conditions in cl 8.1 of the Subordination Deed were satisfied, thereby permitting (in the case of the Subordination Deed) and requiring (in the case of the Solarise Loan Agreement) Solar Shop to pay the Solarise Loan, in turn, extinguishing the subject matter of the subordination.
271 The Liquidators submit that irrespective of whether the subordination regime continued, Solar Shop had the ability to make the "Permitted Payments", which meant that it could (in the case of the Subordination Deed) and must (in the case of the Solarise Loan Agreement) repay the entirety of the Solarise Loan on 22 May 2011, and cl 8.2.2 of the Subordination Agreement permitted Solar Shop to repay the entirety of the Solarise Loan after 22 May 2011, even if Solar Shop defaulted in repayment of that sum on 22 May 2011.
272 The Liquidators submit that it follows from these propositions that the primary judge erred in not finding that the repayment of the balance of the Solarise Loan became due and payable on 22 May 2011. In particular, the primary judge erred in finding that: (1) Solar Shop was authorised, but not required, to pay the Solarise Loan on 22 May 2011; and (2) thereafter only permitted to make the payment of the Solarise Loan with Westpac's consent.
273 The Liquidators refer to cl 8 of the Subordination Deed which provides that Solar Shop could make payments to Solarise in reduction of the Solarise Loan, namely, the Permitted Payments. The making of such payments, which would have resulted in the Solarise Loan being completely repaid by 22 May 2011, were conditional upon the five matters referred to in cl 8.1 being satisfied. Each of those matters were, in fact, satisfied. In particular, there was no subsisting "Subordination Default". With respect to para (b) of the definition of "Subordination Default" (that is, "(b) the Borrower's failure to pay any Westpac Debt or Solarise Loan when due or within any applicable grace period"), there was no payment default under the Westpac Debt, leaving only a failure to pay any Solarise Debt when due as "the possible trigger for subordination springing into existence as a block to making a permitted payment". The primary judge made no finding of any "Subordination Default", nor that any of the conditions in cl 8.1 of the Subordination Deed (which precluded the making of the Permitted Payments) had occurred.
274 As the primary judge found, Solar Shop was authorised under the Subordination Deed to make payment of the entire Solarise Loan balance by 22 May 2011. However, the primary judge went on to hold that because Solar Shop did not make the Permitted Payments before 22 May 2011, it could thereafter make a repayment only with Westpac's prior written consent.
275 The Liquidators submit that this finding was the product of two related errors by the primary judge.
276 First, the finding that Solar Shop was authorised, but not required, to make the Permitted Payments misapprehends the interrelationship between the Solarise Loan Agreement and the Subordination Deed. The Solarise Loan Agreement required Solar Shop to repay the Solarise Loan on the repayment date of 22 May 2011. The Liquidators submit that the very nature of a subordination arrangement is that the senior debtholder will limit or constrain the repayment of the junior debtholder. The obligation otherwise to repay the junior debtholder is not found in the instrument of subordination, but in the terms of the junior debt itself which in this case is the Solarise Loan Agreement. Once it is accepted that the Subordination Deed authorises Solar Shop to repay the entirety of the Solarise Loan, there was no need for it to "require" Solar Shop to pay the entirety of the Solarise Loan.
277 Secondly, and relatedly, having found that Solar Shop was authorised to pay the entirety of the Solarise Loan on 20 May 2011, cl 8.2.2 of the Subordination Deed then permitted that payment to be made at any time after it had been a Permitted Payment, provided that the conditions set out in cl 8 were satisfied. The primary judge addressed this clause in terms that were like the approach already identified, namely to address whether the obligation to make the catch up payment was mandatory or permissive. By 22 May 2011, cl 4.1 of the Solarise Loan Agreement required the repayment of the Solarise Loan. There is no finding by the primary judge that the conditions in cl 8.2.2 were not satisfied. Notwithstanding that, there remains a need to construe para (a) of cl 8.2.2, namely, the proviso that the conditions in cl 8 are satisfied. That is a reference to the conditions in cll 8.1 to 8.1.5 respectively. The Liquidators submit that cl 8.3, which speaks of obtaining Westpac's written consent, is not such a condition, because it only operates on its own terms where the relevant payment is not a Permitted Payment: by contrast the essence of cl 8.1 and the catch up payments under cl 8.2.2 is that these are Permitted Payments, not otherwise requiring Westpac's consent.
278 The Liquidators submit that it remained then for the Court to be satisfied that there was no "Subordination Default" occasioned by the failure to repay the Solarise Loan on 22 May 2011 (notwithstanding that there is no finding that there was such a default). The Liquidators submit that, in accordance with the strict language of cl 8.1.5, a failure to pay any Solarise Debt when due constitutes a "Subordination Default". The Liquidators submit that this strict construction is irreconcilable with cl 8.2.2 because, notwithstanding that a catch up payment is permitted under cl 8.2.2, the proviso in para (a) of cl 8.2.2 could never be satisfied if the failure to make a Permitted Payment on time thereafter precluded the satisfaction of the condition in cl 8.1.5. The Liquidators submit that the very occasion for the making of the catch up payment under cl 8.2.2, namely, a failure to make a Permitted Payment on time would thus preclude the clause from having any operation. The Liquidators submit that the only workable construction so as to give cl 8.2.2 any field of operation, is to give primacy to the specific language of cl 8.2.2 and to permit a catch up payment where the conditions of cl 8.1 are satisfied other than the need for the catch up payment itself. The Liquidators submit that this avoids the commercial absurdity that the Solarise Loan was repayable on 22 May 2011 and permitted to be repaid by that date under the Subordination Deed, but (immediately) thereafter only capable of being enforced by Solarise should Westpac consent.
279 The Liquidators submit that the Solarise Loan balance was repayable on 22 May 2011 under the Solarise Loan Agreement, and not precluded under the Subordination Deed and that remained the position after 22 May 2011.
280 The Liquidators submit that if this finding is made, Solar Shop had insufficient means to repay the Solarise Loan as at 22 May 2011 and it was insolvent by that date. Furthermore, such a finding would sustain a finding of insolvency as at 30 April 2011 because of the requirement to adopt a forward looking test.
281 With respect to the construction issue, the Respondents submit that the Liquidators do not expressly challenge any of the reasons given by the primary judge for coming to the conclusion that as Solar Shop did not make the Permitted Payments to Solarise before 22 May 2011, it could thereafter make a repayment only with Westpac's prior written consent. The Respondents submit that the Liquidators now challenge the primary judge's conclusion on a different basis to that which they had advanced at trial without ever confronting the primary judge's clear reasons.
282 The Respondents submit that the Liquidators appear to identify two errors in the primary judge's reasoning. The Respondents say the first error alleged appears to be that the primary judge found that the Subordination Deed authorised, but did not require, Solar Shop to make the Permitted Payments and that the primary judge somehow misunderstood or misapprehended the relationship between the Solarise Loan Agreement and the Subordination Deed. The Respondents submit that this first alleged error is wholly misconceived. They submit that it relies on a sentence in the primary judge's reasons taken out of context and does not attempt to grapple with any of the reasons given by his Honour.
283 The Respondents submit that the Liquidators' reliance on the primary judge's statement that the parties contemplated that the Solarise Debt may continue past 22 May 2011 was directed to answering the issue the primary judge identified of whether the Subordination Deed operated to make the Solarise Loan subordinate to the Westpac Debt only to 22 May 2011. They submit that the primary judge's observations at [96] (set out below at [314]) are directed to answering the question of whether the Subordination Deed incorporated the two year Subordination Period contained in the Solarise Loan Agreement. The Respondents submit that the primary judge answered that issue correctly by deciding that the Subordination Deed continued to make the Solarise Loan subordinate to the Westpac Debt beyond 22 May 2011 in circumstances where the Permitted Payments were not made to Solarise before 22 May 2011. They submit that the primary judge's conclusion that while Solar Shop had been authorised to make the Permitted Payments which would have had the effect of repayment of the Solarise Loan by 22 May 2011, it was not required to do so, supported the conclusion that the parties contemplated that the Solarise Loan was not repaid in full by 22 May 2011. That conclusion was supported by the matters which indicate that the subordination for which the Subordination Deed provided was more extensive than (and inconsistent with) that contained in the Solarise Loan Agreement.
284 The Respondents submit that there was no error by the primary judge. The statement by the primary judge that while Solar Shop had been authorised to make the Permitted Payments which would have the effect of repayment of the Solarise Loan by 22 May 2011 it was not required to do so, was directed to whether the Subordination Deed prohibited the repayment of the Solarise Loan (or any amounts outstanding) after 22 May 2011 absent Westpac's prior written consent under cl 8.3.
285 The second alleged error of the primary judge that the Respondents say is alleged by the Liquidators was in not concluding that, having found that Solar Shop was authorised to repay the Solarise Loan on 20 May 2011, cl 8.2.2 of the Subordination Deed permitted Solar Shop to repay the Solarise Loan at any time after 22 May 2011, provided that the conditions set out in cl 8.1 of the Subordination Deed were satisfied. The Respondents submit that the primary judge did not make this error for the following six reasons.
286 First, the Respondents submit that the argument depends on the repayment of the Solarise Loan after 22 May 2011 being a Permitted Payment as defined in cl 8.1 of the Subordination Deed. They submit that any payments made to Solarise after 20 May 2011 in repayment of the Solarise Loan are clearly not Permitted Payments and therefore require, as the primary judge found, Westpac's prior consent under cl 8.3.
287 Secondly, they say the argument ignores cl 4.2 of the Subordination Deed which, as the primary judge found, stipulated that except for Permitted Payments, and subject to the Deed, the subordination continued until the Westpac Debt had been paid in full, or until the Solarise Debt had, with Westpac's written consent, been repaid in full. Again, given the repayment of the Solarise Loan after 20 May 2011 was not a Permitted Payment, it required Westpac's prior written consent under cl 8.3.
288 Thirdly, it ignores cll 5, 6 and 7 of the Subordination Deed. For example, by cl 5 of the Subordination Deed, Solar Shop agreed, among other things, that without the prior written consent of Westpac and "for as long as any of the Westpac Debt remains outstanding", it would not make any payment in or towards the satisfaction or discharge of the Solarise Debt, other than the Permitted Payments.
289 Fourthly, there is no warrant to read, as the Liquidators do, the reference to the conditions set out in cl 8.2.2(a) as a reference to the conditions contained in cl 8.1 only. Clause 8 plainly includes cl 8.3 which requires Westpac's prior written consent for any payments to be made by Solar Shop "in connection with the Solarise Debt … which are not Permitted Payments".
290 Fifthly, the Respondents submit that the purpose of cl 8.2.2 is to permit catch up payments to be made on or before 20 May 2011. It is consistent with Westpac's commercial interests. Subject to the conditions in cl 8.1 of the Subordination Deed being satisfied, Westpac permitted Solar Shop to repay the Solarise Loan (and make interest payments) within two years. In the event that the Solarise Loan was not repaid within two years, Westpac reserved to itself an opportunity to consider, in light of the financial position that the company was then in, whether to permit the repayment. The Respondents submit that this is hardly "commercial absurdity".
291 Sixthly, and in any event, the Respondents say that the Liquidators have not proved that each of the conditions in cll 8.1.1 to 8.1.5 were satisfied as at 22 May 2011. Clause 8.1.5 was not satisfied because, on the Liquidators' own case, there was a failure to pay the Solarise Debt and, therefore, a failure to satisfy cl 8.1.5 of the Subordination Deed. The Liquidators contend that cl 8.1.5 of the Subordination Deed should somehow be read down because the strict language of cl 8.1.5 is irreconcilable with cl 8.2.2. The Respondents submit that that is not the case and that the language of cl 8.1.5 is wholly consistent with the primary judge's finding that the Solarise Loan could only be repaid after 22 May 2011 with the written consent of Westpac under cl 8.3. As to the Liquidators' submission that the primary judge made no findings of any "Subordination Default" or that any of the conditions in cll 8.1.1 to 8.1.4 of the Subordination Deed which precluded the making of a Permitted Payment had not been satisfied, the Respondents submit that the reason the primary judge made no such finding is because he was not asked to and he did not need to. They submit that this is because the contentions now advanced by the Liquidators were not made to the primary judge.
292 Finally, the Respondents submit that even if the primary judge's finding is overturned and the Solarise Loan was due and payable on 22 May 2011, the Liquidators have not discharged their onus to establish that Solar Shop was unable to meet such a liability.
293 With respect to the abandonment issue, the Liquidators submit that the Subordination Deed had been the subject of mutual abandonment between Westpac, Solarise and Solar Shop in October 2010 and prior to entry into the 2010 Facility Agreement. They pointed to the following matters as relevant to the context in which the issue of abandonment should be determined. In May 2009, Solar Shop undertook a share buy-back, acquiring the totality of the shares then held by Solarise. The payment of the proceeds of that sale were deferred and the monies were to be repaid under the terms of the Solarise Loan Agreement and regulated by the Subordination Deed. At the time Solar Shop undertook the share buy-back and entered into the Solarise Loan Agreement and the Subordination Deed, Westpac and Solar Shop were parties to the May 2009 Business Finance Agreement. Under the May 2009 Business Finance Agreement, Solar Shop's principal banking facility was an overdraft facility of $3 million. By the Subordination Deed, Solarise agreed to subordinate the repayment of the Solarise Loan to the interests of Westpac, which, at that time, reflected that overdraft, a $100,000 credit card account, a $300,000 equipment loan and three banker's undertakings (letters of credit) of about $4.3 million. In October 2010, a time at which Solarise and its principal, Mr Mourney, no longer had an interest in Solar Shop, the company undertook a further buy-back of the Ferraretto's shares requiring further borrowings from Westpac of $10 million. The further borrowings undertaken by Solar Shop to fund the 2010 buy-back were reflected in the 2010 Facility Agreement which, according to the Liquidators, restated and replaced the earlier Facility Agreements.
294 The Liquidators submit that shortly before the 2010 Facility Agreement was entered into, Westpac through Solar Shop sought that Solarise enter into new subordination arrangements given that the facility arrangements were being substantially modified, including by the advance of a new $10 million bill facility. Westpac had assessed that it needed to get an amendment to this Subordination Deed for it to be valid given the change in facilities. The Liquidators refer to the Westpac memorandum dated 15 October 2010. The authors of the memorandum refer to Westpac's legal advice and statements therein that the options of having the Subordination Deed revisited to capture the whole of the new facility arrangements, or amending it to capture those facilities which were under the May 2009 Business Finance Agreement, but not the new facilities being contemplated now, had been met with strong customer resistance on the basis that it would most likely delay the process substantially and, in any event, Solarise may simply refuse to deal with the matter at all. The authors acknowledge that by not getting an updated Subordination Deed, which it appeared Westpac could not get anyway, Westpac was essentially accepting that the Solarise Loan of $5 million "will no longer be subordinated formally to us". In the memorandum, the authors seek credit approval for the following:
(i) Amendment or approval conditions as vendor Loan no longer to be subordinate to Westpac.
295 Credit approval was given as is evident from the fact that the new loans contemplated by the 2010 Facility Agreement as settled on 19 October 2010, that is to say, four days after the memorandum. The primary judge inferred that Westpac must have waived the requirement for any amendment to the Subordination Deed. This, the Liquidators submit, reveals an inconsistency in the primary judge's finding. The primary judge found that there was no evidence of a response from Westpac management to the recommendation, "let alone that it accepted the premise to the recommendation, that the Solarise Loan would not be subordinated to advances under the 2010 Facility Agreement" (at [122]) and that there was no express evidence that the views of the authors of the memorandum were ever adopted by Westpac management (at [128]). The Liquidators submit that it is a compelling inference that that waiver flowed directly out of the explicit application to credit for a waiver of the approval conditions to reflect that the Solarise Loan was no longer to be subordinated. The Liquidators further submit that the primary judge erred in deciding that the internal Westpac memorandum was only evidence of Westpac's subjective view of the need for further subordination and not of that which is expressly recorded, namely tripartite negotiations between the parties to the Subordination Deed "which were premised on the assumption that the then extant subordination regime would be at an end if the new facility agreement was entered into if no agreement for variation was reached".
296 The Liquidators submit that the Court should find the following:
(1) Westpac, Solar Shop and Solarise negotiated in October 2010 in a tripartite fashion, for the entry into a fresh Subordination Deed or amendments to the Deed;
(2) the occasion for these negotiations was an acceptance that the Subordination Deed would be invalid unless amended, given the increase of $10 million in the Westpac facilities;
(3) Solar Shop and Solarise were not prepared to agree to vary the subordination arrangements such that they would apply to the increased facilities; and
(4) Westpac acceded to the position of Solar Shop and Solarise, accepting that the Solarise Loan will no longer be subordinated following the entry into the revised Westpac facilities in October 2010.
297 The Liquidators further submit that the subsequent conduct of each of Westpac, Solar Shop and Solarise through 2011 reflects an inferred agreement that the subordination of the Solarise Loan was at an end. In this context, the Liquidators referred to the following:
(1) on 4 March 2011, Westpac wrote to Solar Shop advising it that its continued financial support was contingent on Solar Shop renegotiating the Solarise Loan. The Liquidators submit that this would be "entirely unnecessary" if the Solarise Loan was subordinated;
(2) during April and May 2011, Solar Shop engaged in discussions with Solarise about extending the time for repayment of the Solarise Loan. Solarise was pressing for repayment on or shortly after 22 May 2011 without regard to any restrictions on repayment through subordination;
(3) Westpac did not indicate any objection to Solar Shop to the 2011 Solarise Agreement which contained an acknowledgement of the Solarise Debt as being payable on demand;
(4) throughout May 2011 and thereafter, Westpac was corresponding with Solar Shop in respect of the Solarise Loan in a context where it was accepted that Solarise wanted and was entitled to repayment of the Solarise Loan after 22 May 2011 without any reference to subordination;
(5) on 20 May 2011, an internal Westpac Credit Approval Summary recorded under the heading "Background" the result of meetings between Westpac and Solar Shop in terms that reflected a mutual understanding that the Solarise Loan was not subordinated. The summary recorded the bank asking Solar Shop to advise how it would negotiate a deferment of the vendor loan repayment due in late May;
(6) on 26 July 2011, Solar Shop updated Westpac concerning Solarise's position in terms that made it explicit that Solarise felt free to enforce the Solarise Loan Agreement unconstrained by the Subordination Deed which was not thereafter challenged by Westpac; and
(7) the primary judge's inference that Westpac's decision not to challenge Mr Mourney's contentions because the officer called for and reviewed the 15 October 2010 memorandum does not detract from, but militates in favour of, conduct that evinces an inferred agreement that the subordination of the Solarise Loan was at an end.
298 The Liquidators submit with respect to conduct potentially consistent with the continuation of the Subordination Deed that the primary judge erred in concluding that the interest payments identified suggested that Solar Shop considered the Subordination Deed was still operative when, in fact, those payments were required on those dates under cl 5.3(c) of the Solarise Loan Agreement and insofar as the primary judge held that the seeking of Westpac's consent to payments to Solarise after 22 May 2011 was consistent with the understanding that the Subordination Deed remained on foot, that was to overlook the discussions between Westpac and Solar Shop on or around 20 May 2011.
299 The Respondents submit that the Liquidators have not even sought to prove the authority of the Westpac employees on whose conduct they rely to abandon or abrogate the Subordination Deed. They submit that this is fatal to the Liquidators' contention given the power to enter into the Subordination Deed on behalf of Westpac was granted to its attorney and there is no evidence that any of the Westpac employees had such authority to agree to discharge the Subordination Deed. The Respondents further submit that the abandonment of the Subordination Deed is contrary to the Deed itself and, in particular, cl 13 which provides that the Deed and all rights of the lenders and all obligations and duties of the borrower continue in full force and effect until payment in full of the debts despite any action which a lender or the borrower may take or refrain from taking. In addition, the Subordination Deed provides that it can only be amended by written deed of all parties. The Respondents submit that a finding of abandonment should not be inferred. The most that can be inferred is that the parties were prepared to move forward on the basis of their existing arrangements. The Subordination Deed and the Solarise Loan Agreement continued to operate on their terms and continued to permit the payment by Solar Shop to Solarise of capital and interest payments.
300 With respect to the abandonment issue, the Respondents addressed each of the seven matters raised by the Liquidators. First, they point out that it is clearly not the case that the renegotiation of the Solarise Loan would have been entirely unnecessary if the loan was subordinated. After 22 May 2011, Westpac could not unreasonably withhold or delay its consent to any proposed repayment of the Solarise Loan. As such, it was in Westpac's commercial interest to require Solar Shop and Solarise to enter into a negotiated payment schedule over a period of time.
301 Secondly, the fact that Solarise was pressing Solar Shop for repayment of the Solarise Loan on or shortly after 22 May 2011 goes nowhere. Again, despite Solarise's position, Westpac's consent was required for Solar Shop to make any such repayment.
302 Thirdly, the Respondents rely on the primary judge's finding that Mr Tanner's response cannot be regarded as a consent of the requisite kind.
303 Fourthly, the Respondents do not accept the characterisation of the communications in May 2011. They submit that, in any event, it is difficult to see the relevance of these communications in May 2011 to the contention that the Subordination Deed was abandoned in October 2010, particularly in light of the matters referred to above.
304 Fifthly, the Respondents submit that the file note does not reflect a mutual understanding that the Solarise Loan was not subordinated. The fact that Westpac asked Solar Shop to negotiate a deferment of the loan repayment was in its commercial interest given it could not otherwise reasonably withhold or delay its consent to the repayment of the Solarise Loan.
305 Sixthly, the legal opinion and correspondence with Westpac were not in evidence and Mr Mourney was not called as a witness in the proceedings. The Respondents submit that it is therefore difficult to see how the submission that Westpac did not challenge the fact that Solarise felt free to enforce the Solarise Loan Agreement unconstrained by the Subordination Deed could be given any weight at all and highlights the problem of seeking to prove an inferred agreement in this way.
306 Seventhly, the Respondents submit that the inference does not militate in favour of an inferred agreement.
307 Finally, with respect to the approval issue, the Liquidators submit that Mr Tanner's response to Solar Shop's email dated 19 May 2011 was written consent by Westpac to repayment of the Solarise Loan for the purpose of cl 8.3 of the Subordination Deed. That is particularly so when Mr Tanner's response dated 23 May 2011 is considered in the context of the discussions between Westpac and Solar Shop on or around 20 May 2011.
308 The Respondents submit that the primary judge's finding is correct. They submit that there is no rational basis to suggest that Mr Tanner had the requisite authority to give such consent. They submit that, in any event, it is difficult to see where the contention goes in circumstances where the proposed 2011 Solarise Agreement was not executed by Solar Shop and Solarise. As we have said, the primary judge found that it was unclear whether the agreement was executed by all parties. It was executed by Solar Shop and Harbert.