Commonwealth Bank of Australia v Aspenview Productions and Ors [2001] VSC 444

Commonwealth Bank of Australia v Aspenview Productions and Ors [2001] VSC 444 - VSC 2001 case summary — Zoe

[8]

On 6 October 1997 it was further ordered that the plaintiff have leave to amend its statement of claim. Pursuant to the amended statement of claim the plaintiff alleged that by an agreement in writing dated 1 November 1989 the plaintiff agreed to grant to Whiteboards of Australia financial accommodation and that on 2 November 1989 the defendants, Alexander McLean, Peter O'Brien and Darrel Drieberg, executed and gave to the plaintiff a guarantee in writing whereby they jointly and severally guaranteed to the plaintiff payment of all moneys due and payable by Whiteboards of Australia to the plaintiff. It was alleged that on or about 2 October 1991, pursuant to the guarantee, the plaintiff gave to the defendants, Alexander McLean, O'Brien and Drieberg, a written demand for payment of the amount outstanding by Whiteboards of Australia as at 2 October 1991 and that such defendants had refused or neglected to pay the amount outstanding to the plaintiff. The plaintiff claimed against the defendants, Alexander McLean, O'Brien and Drieberg (notwithstanding that judgment had been entered against O'Brien and Drieberg), payment of the sum of $152,088.27 together with interest then accruing. The plaintiff further alleged that at all material times Alexander McLean and Lana McLean were the registered proprietors of and in possession of land described in Certificates of Title being Volume 9956 Folio 761, Volume 9956 Folio 762, Volume 9956 Folio 763 and Volume 9956 Folio 764. The properties the subject of those Certificates of Titles are situate at 1 Alfred Street, Prahran ("the Prahran Property"). The property described in Certificate of Title 9956 Folio 761 is known as Unit 1, 1 Alfred Street Prahran ("Unit 1"). The property described in Certificate of Title Volume 9956 Folio 762 is known as Unit 2, 1 Alfred Street, Prahran ("Unit 2"). The property described in Certificate of Title Volume 9956 Folio 763 is an accessory unit to Unit 1 and referred to as Unit 3. The property described in Certificate of Title Volume 9956 Folio 764 is an accessory Unit to Unit 2 and referred to as Unit 4. The plaintiff alleged that by a mortgage in writing dated 10 December 1986 the defendants, Alexander McLean and Lana McLean, for valuable consideration, granted to the plaintiff a mortgage over the Prahran Property and that pursuant to the terms of that mortgage Alexander McLean and Lana McLean agreed to pay to the plaintiff on demand all moneys then or thereafter payable to the plaintiff by Aspenview Productions Pty Ltd ("Aspenview Productions"), Alexander McLean and Lana McLean or any of them either alone or on joint or partnership account or on any other account and whether as principal or surety and, further, to pay to the plaintiff all moneys the payment or repayment of which Aspenview, Alexander McLean and Lana McLean or any of them had guaranteed or may thereafter guarantee to the plaintiff. The plaintiff alleged that by notice in writing dated 12 August 1996 it demanded repayment by Alexander McLean and Lana McLean of the moneys secured by the Prahran Property mortgage, but that in breach of the mortgage they had failed, refused and neglected to pay the sums outstanding and secured by that mortgage. The plaintiff alleged that it was entitled to possession of the Prahran Property pursuant to the terms of the mortgage. Further, the plaintiff alleged that by a caveat dated 6 December 1991 and lodged at the Office of Titles the fifth defendant, Krystyna Masluk, had claimed an equitable estate in fee simple of that part of the Prahran Property described in Certificates of Title Volume 9956 Folio 762 and Volume 9956 Folio 764 (Units 2 and 4) on the grounds that she was the transferee of that property and, further, forbidding registration of any person as a transferee of such part of the Prahran Property. It was alleged by the plaintiff that the fifth defendant, Krystyna Masluk, did not have the interest or any interest in the Prahran Property as claimed by her or alternatively, if she was entitled to the interest claimed, that interest was postponed to the interests of the plaintiff under the terms of the Prahran Property mortgage and that it was adversely affected by that caveat. The plaintiff further alleged that Krystyna Masluk was in possession of Units 2 and 4 of which it was entitled to possession.

[10]

By her defence in those proceedings, Krystyna Masluk admitted lodging the caveat in respect of the property being Units 2 and 4, she denied that she did not have the interest alleged in Units 2 and 4, she admitted that she was in possession of that property but denied that the plaintiff was entitled to possession of the same. She further alleged that in or about August 1988 she and Alexander McLean and Lana McLean agreed that in consideration of her selling her property at 17 Written Avenue, East Brighton and using the proceeds of the sale of the property to contribute to the purchase by Alexander McLean and Lana McLean of the Prahran Property and to the sub-division and renovation costs of that property they would transfer Units 2 and 4 to her. She alleged that it was a term of the agreement which she had with Alexander McLean and Lana McLean that the agreement would be subject to the plaintiff's consent and to the plaintiff agreeing to a proposed sub-division of the Prahran Property (into four units) and providing to her clear title of Units 2 and 4. She alleged that in or about August 1988 Alexander McLean informed the plaintiff that she wanted to purchase free of all encumbrances Unit 2 following a strata sub-division of the Prahran Property and requested the plaintiff's consent to the same. She alleged that in or about mid-August 1988 the plaintiff represented to Alexander McLean that it would consent to the agreement and that it would be prepared to discharge its mortgage over the proposed Unit 2 to enable registration of a transfer of that unit and accessory Unit 4 to her and that on or about 28 August 1988 Alexander McLean and Lana McLean informed her of that which the plaintiff had so represented to Alexander McLean. She alleged that acting on the faith of the representation of the plaintiff she signed a contract of sale of her East Brighton home on or about 26 September 1988; that she agreed with Alexander McLean and Lana McLean to pay $160,000 towards the purchase of the Prahran Property; that on or about 24 November 1988 she paid $13,000 towards the renovation of the Prahran Property; that in December 1988 she moved into Unit 2 of the Prahran Property; that on 9 February 1989 she paid $160,000 being the purchase of a two thirds interest in Units 2 and 4 of the Prahran Property and that during the period from January to April 1989 she paid $7,000 in cash for work to be done to complete Unit 2 of the Prahran Property. It was further alleged by Krystyna Masluk that in or about mid-1989 Alexander McLean informed the plaintiff that she had paid her two thirds share in Units 2 and 4, that in or about late June 1989 the plaintiff informed Alexander McLean that the title for Unit 2 would need to be released so that the transfer to her could be completed, and requested Alexander McLean to let it know when the title was required as the plaintiff would then arrange for a discharge of the mortgage in respect of Units 2 and 4. Krystyna Masluk further alleged that on 7 December 1989 an application for approval of strata sub-division for the Prahran Property was lodged and that the plaintiff made available the Certificates of Title relevant to the Prahran Property and thereafter the strata sub-division was approved and registered. Further, Krystyna Masluk alleged that the plaintiff had refused when requested to make available a discharge of its mortgage over Units 2 and 4 of the Prahran Property. She alleged that the plaintiff was estopped from denying that she was entitled to be registered as the proprietor of Units 2 and 4 of the Prahran Property. By its reply to the defence of the fifth defendant the plaintiff denied that it had any dealings with Krystyna Masluk and alleged that if there was any arrangement to the effect, as contended for by her, such arrangement did not constitute an enforceable agreement. Further, the plaintiff alleged that if it did state that it would be prepared to discharge its mortgage over the proposed Units 2 and 4, to enable registration of the transfer to Krystyna Masluk, the statement made was to the effect that the plaintiff was prepared to do that, provided that the value of the security retained by the plaintiff at the time of the discharge was in excess of the amounts of money then secured by the mortgage and was sufficient to satisfy the plaintiff's security requirements. The plaintiff further alleged by its reply that Krystyna Masluk had failed to take steps to obtain the discharge of the mortgage insofar as it related to Units 2 and 4 when her entitlement arose, promptly or at all, that she permitted the plaintiff to continue to provide banking accommodation in reliance upon the mortgage over the whole of the land the subject of the mortgage and that Krystyna Masluk was guilty of laches and delay in failing to act or to promptly act to obtain a discharge of the mortgage. Further, the plaintiff by its pleading, alleged that Krystyna Masluk did not pay any sums to Alexander or Lana McLean to obtain any interest in Units 2 and 4 and that the purported transfer of two thirds of their interest in Units 2 and 4 to Krystyna Masluk was in consideration of natural love and affection of her.

[11]

By their amended defence and counterclaim, Alexander McLean and Lana McLean, while not admitting that Alexander McLean had entered into a guarantee guaranteeing payment to the plaintiff of Whiteboards of Australia's debts, further alleged, in the alternative, that in or about October and November 1989 the plaintiff represented to the defendant, Alexander McLean, that the guarantee to be given by him to the plaintiff in respect of the indebtedness of Whiteboards of Australia would be limited to one-third of the indebtedness of Whiteboards of Australia to the plaintiff by reason that the plaintiff would also obtain guarantees from O'Brien and Drieberg which would cover their potential exposure of the indebtedness of Whiteboards of Australia to the plaintiff. They alleged that such representations were false and untrue as known to the plaintiff, that they were made to induce Alexander McLean to execute the guarantee and in reliance on the same he was induced to enter into the guarantee. They alleged that the plaintiff was estopped from enforcing the guarantee against Alexander McLean save to the extent of one-third of the alleged debt owing by Whiteboards of Australia. They further alleged that in or about July 1988, Alexander McLean, on behalf of himself and Lana McLean, informed a manager of the plaintiff, Murray, that Krystyna Masluk was considering selling her home and wished to live in part of the Prahran Property which was to be the subject of a strata title sub-division and, that she would do so on the basis of purchasing a unit or major interest therein and, that he asked the manager would the plaintiff agree to release Units 2 and 4 from the mortgage should Krystyna Masluk decide to live with him and his family. It is alleged that the manager, Murray, informed Alexander McLean that at the relevant time the plaintiff would release the title of the property for the purpose of a strata title sub-division being registered and that he would make arrangements for the discharge of the mortgage insofar as it related to Unit 2. Alexander McLean and Lana McLean alleged that acting on the faith of such representations they agreed that in consideration of Krystyna Masluk selling her property at East Brighton and using the proceeds of sale to contribute towards the purchase of the Prahran Property they would transfer to her proposed Units 2 and 4 from the same and that they informed Krystyna Masluk of these matters. They alleged that acting on the faith of such representations Krystyna Masluk sold her property in East Brighton and from the proceeds of sale contributed to the purchase of the Prahran Property and, further, made payments towards renovation, in particular, of Unit 2. It was further alleged by Alexander McLean and Lana McLean that on informing the manager of these matters the manager of the plaintiff confirmed the agreement to release, as security under the mortgage, title to proposed Units 2 and 4 that they carried out substantial renovations and alterations to the Prahran Property, that the plaintiff made the relevant Certificates of Title available for the strata sub-division to be approved and registered and thereafter the manager confirmed that the security under the mortgage was to be restricted to Unit 1 (which would include Unit 3), but the plaintiff had refused to release the title to enable Krystyna Masluk's interest in Units 2 and 4 to be registered and it had refused to discharge the mortgage insofar as it related to Units 2 and 4. The defendants, Alexander and Lana McLean, alleged that the plaintiff was estopped from enforcing the mortgage save in respect as it related to and provided security for a housing loan to Alexander and Lana McLean and security for advancements to Aspenview Productions insofar as it related to a business known as St Martins Garage. Alexander McLean and Lana McLean alleged that the plaintiff was estopped from enforcing the mortgage save for those limited securities, that it would be unconscionable for the plaintiff to enforce the mortgage save in respect of such secured indebtedness. They denied that the plaintiff was entitled to possession of the Prahran Property. Further, by counterclaim, they alleged that the plaintiff was estopped from recovering against them any sum more than one-third of the alleged debt of Whiteboards of Australia. Alexander McLean and Lana McLean sought orders that the guarantee be set aside, in the alternative a declaration that the plaintiff was estopped from enforcing the guarantee save as to one-third of the alleged liability of Whiteboards of Australia, and a declaration that any sum owed by Whiteboards of Australia to the plaintiff was not the subject of the mortgage. Further, Alexander McLean and Lana McLean sought a declaration that the plaintiff was estopped from enforcing the mortgage save in respect of the property being Units 1 and 3 of the Prahran Property. By its reply the plaintiff joined issue with the defence and counterclaim of Alexander McLean and Lana McLean.

[12]

Proceedings 8085 of 1993 were commenced in this Court by the plaintiff against Aspenview Productions (trading as St Martin's Garage), Alexander McLean and Lana McLean. Those proceedings were commenced by a writ filed on 18 August 1993. By order of a Master made 6 October 1997, Krystyna Masluk was joined as a fourth defendant to the proceedings and leave was granted to the plaintiff to amend its statement of claim. By the plaintiff's further amended statement of claim, made pursuant to leave granted on 5 February 1999 and on 2 March 2001, the plaintiff alleged that pursuant to an agreement made on 21 November 1986 between the plaintiff and Aspenview Productions it agreed to provide financial accommodation to Aspenview Productions from time to time and, pursuant to the agreement, it continued to grant accommodation under an overdraft account being account number 3170-120-375 (the first account), that it continued to grant an increase accommodation under account number 3170-132-173 (the second account) and it opened account number 3170-146-647 (the third account) and that at the request of Aspenview Productions it lent moneys to it from time to time and performed work and labour and incurred expenses in relation to the operation of such accounts. The plaintiff alleged that as at 11 December 1992 Aspenview Productions was indebted to it under these accounts in the total sum of $176,096.86 and that on that day by notice served on Aspenview Productions it demanded payment of that sum, but that in breach of the agreement Aspenview Productions refused, failed and neglected to pay the sum owing to the plaintiff. The plaintiff further alleged that at all material times Alexander McLean and Lana McLean were the registered proprietors of and in possession of the Prahran Property and by the mortgage dated 10 December 1986 for valuable consideration they granted to the plaintiff a mortgage over that property. Again, the plaintiff alleged, as previously referred to, that the mortgage was an "all moneys" mortgage and that by its terms, Alexander McLean and Lana McLean agreed to pay to the plaintiff on demand all moneys which they or any of them had agreed or thereafter agreed to pay to the plaintiff whether as a principal or a surety. The plaintiff in these proceedings alleged that pursuant to the provisions of the Transfer of Land Act 1958 it had demanded repayment by Alexander McLean and Lana McLean of the moneys secured by the mortgage over the Prahran Property, that they had failed and neglected to pay the same and that it was entitled to possession of the Prahran Property. They further alleged that although serving notice on Alexander McLean and Lana McLean for payment of the sum of $176,096.86 as due and owing by Aspenview Productions they had failed and neglected to pay that sum. The plaintiff further made allegations against the fourth defendant, Krystyna Masluk, relating to Units 2 and 4 of the Prahran Property, of the same nature and kind as referred to in the other proceedings. Against Aspenview Productions the plaintiff claimed payment of the sum of $191,636.39 together with interest accruing. Against Alexander McLean and Lana McLean it sought an order for possession of the Prahran Property and payment of the aforesaid sum, and against Krystyna Masluk it sought a declaration that any interest that she had in the land being Units 2 and 4 was postponed to the interest of the plaintiff, or alternatively, an order for removal of the caveat and possession of the land being Units 2 and 4.

[14]

By the further amended defence and counterclaim of Aspenview Productions, Alexander McLean and Lana McLean, amended pursuant to leave granted during the course of the trial on 14 March 2001, they admitted that Aspenview Productions had maintained the aforesaid accounts with the plaintiff. They alleged that from mid-1988 and thereafter a substantial proportion of the funds advanced to Aspenview Productions, to the knowledge of the plaintiff, was used to pay expenses relating to the establishment and conduct of the business of Whiteboards of Australia, which business was formerly part of a stand-alone business conducted by Aspenview Productions and known as "Whiteboards Office and Domestic". They alleged that in or about March 1988 Alexander McLean for and on behalf of Aspenview Productions had discussions with Murray a manager of the plaintiff at its South Yarra branch during which Murray was informed that Aspenview Productions was selling its business "Whiteboards Office and Domestic" to the company Whiteboards of Australia which company was to be owned as to 50% by a company (the shareholding of which was to be held as to 75% by him and Lana McLean and as to 25% by O'Brien and Drieberg), 331/3 % by an investment company which would invest $133,000 and as to 162/3 % by a guarantee company. They alleged that Alexander McLean informed the manager that the purpose of setting up the guarantee company was to ensure that his potential liability would be limited to one-third. It was alleged that Alexander McLean informed the manager that Aspenview Productions would continue to run and conduct the business, St Martin's Garage, that he was concerned that moneys expended in establishing and conducting Whiteboards of Australia would, as directed by the plaintiff's manager, be borne initially by them and then by Whiteboards of Australia following its incorporation. It was further alleged that Alexander McLean informed the manager that they had very little experience in business finance. By this further amended defence it was further alleged that the manager for and on behalf of the plaintiff advised Alexander McLean that he was very experienced in arranging and conducting the finance of businesses such as Whiteboards of Australia and that after Whiteboards of Australia was incorporated the plaintiff would arrange procedures and transactions necessary for effecting a transfer of the amount expended by Aspenview Productions in establishing and conducting the Whiteboards of Australia's business to an account in the name of Whiteboards of Australia which would limit Alexander McLean's exposure to that of one-third of the debt of Whiteboards of Australia. It was alleged that in reliance on the representations made by the plaintiff, Aspenview Productions expended substantial sums of money, pursuant to accommodation provided by the plaintiff, in establishing and conducting Whiteboards of Australia's business. It was further alleged that in reliance on the representations made by the manager, Murray, Aspenview Productions by Alexander McLean in conjunction with O'Brien and Drieberg caused bank accounts to be established with the plaintiff and caused Whiteboards of Australia's banking business to be conducted through such accounts and that Aspenview Productions expended moneys provided by financial accommodation provided by the plaintiff to it to fund the conduct of Whiteboards of Australia's business until 17 May 1990. It was alleged that contrary to the representations of the manager, Murray, made on behalf of the plaintiff it failed and refused to take measures to effect a transfer of the debt from Aspenview Productions to Whiteboards of Australia notwithstanding that the defendants and Whiteboards of Australia requested the plaintiff to do so.

[16]

As to the title to and possession of Units 1 and 3, and Units 2 and 4 of the Prahran Property, the alleged acquisition by Krystyna Masluk of an interest in Units 2 and 4 and the rights for her to be registered as the proprietor of the same and to have possession of the same, the first, second and third defendants pleadings in these proceedings were much the same as in the other proceedings referred to. Alexander McLean and Lana McLean alleged in these proceeding that they held Units 2 and 4 of the Prahran Property on trust for Krystyna Masluk. Further, Alexander McLean and Lana McLean alleged that the plaintiff failed to disclose to them that by the terms of the mortgage any debt of Alexander McLean under any security that he might enter into with it would affect the rights of Lana McLean under the mortgage and so affect her obligations to the plaintiff pursuant to the mortgage. It was further alleged by Alexander McLean and Lana McLean that by the plaintiff failing to disclose this matter to them and that, in consequence of representations made by the plaintiff's manager, they acted to their detriment in that they executed the mortgage, signed Letters of Acknowledgment of the debt of Aspenview Productions to the plaintiff and failed to recover from Whiteboards of Australia moneys owing to Aspenview Productions and transferred Units 2 and 4 to Krystyna Masluk. The defendants, Alexander McLean and Lana McLean, alleged that in the circumstances as existing it would be unconscionable to permit the plaintiff to enforce the mortgage save in respect of that referred to as "the secured indebtedness" which they identified as a housing loan to Alexander McLean and Lana McLean and as security for the business of Aspenview Productions so far as it related to the garage business conducted by it. It was further alleged on behalf of Lana McLean that subsequent to her executing a Letter of Acknowledgment of the debt of Aspenview Productions a servant or agent of the plaintiff fraudulently altered that document. By this pleading the defendants denied liability to the plaintiff and by way of counterclaim they sought a declaration that the plaintiff was not entitled to enforce the mortgage, save in respect of the property being Unit 1 and accessory Unit 3 of the Prahran Property, or alternatively a declaration that the plaintiff was estopped from enforcing the mortgage save and in respect of that property. It was further sought by way of declaratory relief that it be ordered that the plaintiff is estopped from recovering from Aspenview Productions any moneys which constituted expenditure by it in the establishment and conduct of the Whiteboards of Australia's business during the period 1987 to May 1990. Further, by such pleading, the defendants sought a declaration that the plaintiff was estopped from exercising any right under the mortgage in relation to Units 2 and 4 of the Prahran Property.

[40]

On 1 July 1987 Fairweather recorded in a diary memo concerning the Aspenview Productions account that the overdraft balance exceeded the limit for that account. The memo recorded the conversation that Fairweather had with Alexander McLean in which Alexander McLean informed him that although the account was under pressure the business was running well and that the "last month" was the best ever with a turnover exceeding the previous peak by $4,000. In the course of that conversation Alexander McLean informed Fairweather that he had been channelling funds from St Martin's Garage into the "Whiteboards business" which was said "to be booming". The "Whiteboards business" as referred to at this time was the business being conducted at this time separate from the motor car garage business being conducted by Aspenview Productions. By this business Alexander McLean was manufacturing and selling whiteboards. It was the predecessor of Whiteboards Australia. The business was conducted by Alexander McLean using moneys generated and made available, in part, to Aspenview Productions. McLean informed Fairweather that debtors currently stood at $50,000 but those funds were generally expended for working capital as soon as received. Fairweather said that, in substance, Alexander McLean was informing him that he did not have any money to reduce the overdraft account. At that time it was decided by Fairweather that as Aspenview Productions had been banking with the plaintiff for 11 years and that the plaintiff was well secured it had agreed to the excesses, subject to an excess interest rate being paid with respect to the overdraft debt which exceeded $8,000, and the third party mortgagors consenting to the peak debt of $58,623 and the mortgage being "up-stamped" to cover the peak debt and that there was paid an establishment fee of $50.00. On 3 July 1987 the directors of Aspenview Productions, Alexander McLean and Lana McLean, were advised of the decision made by Fairweather. Forms were enclosed in the letter for signing and sealing and returning to the plaintiff's office at South Yarra as soon as possible. That which was sought was the consent of Aspenview Productions to a temporary increase of the overdraft facility to $14,752 causing the total debts of it, to the plaintiff, at that time, to be $58,623. On 23 October 1987 a letter was written by the relieving manager of the South Yarra branch requesting the directors of Aspenview Productions to sign and seal the documents previously sent to them and to return them to that office as soon as possible. On 11 November 1987 a diary note was made by Richard Cullen, a bank officer, that he had seen Alexander McLean in the banking chamber and that McLean had said that he wanted to speak to Fairweather, on Fairweather's return, to increase the overdraft facilities on a permanent basis.

[42]

On 26 November 1987, in consequence of Fairweather having an interview with Alexander McLean, Fairweather completed a "Preliminary Application for Company and Business Advances", with respect to Aspenview Productions, whereby the overdraft limit was to be increased from $8,000 to $25,000 thereby limiting the excess on the overdraft account of Aspenview Productions to $4,961. On that document the small business loan then existing was noted to be a debit amount of $32,389 and that sought was to remain the same. In the document Fairweather noted that the security was the existing mortgage by the directors of Aspenview Productions, Alexander McLean and Lana McLean, over the "two apartments" being the Prahran Property. He noted that the owners estimated the value of the same to be $300,000. In a further part of that document Fairweather recorded his discussion with Alexander McLean in which sought an increase of the overdraft limit of Aspenview Productions from $8,000 to $25,000, "acting on advice from his accountant". Fairweather recorded that he was told by Alexander McLean that the turnover for the 1987/88 financial year was estimated at $250,000 and that the financial statements for the year 30/6/87 were not yet available and did not look like being finalised until "Jan/Feb next year". He further noted that he was told that the financial statements were expected to disclose a small loss similar to the previous year and this had been part of a strategic plan for taxation purposes. It was noted that Fairweather said to Alexander McLean that the profit history and past account conduct did not instil confidence from a banking viewpoint, which he acknowledged, but that Alexander McLean went on to demonstrate "profitability" by detailing "expenditure" which included, $6,000 spent on renovations to the "second apartment" which would be shortly rented and which would return $180 per week; stock for "Whiteboards Pty Ltd" being purchased during the year at a cost of $60,000; and additional machinery costing $12,000 being also purchased. It was also recorded that Alexander McLean informed Fairweather that $53,000 had been repaid from the original $60,000 Commonwealth Savings Bank loan, which had been approved in November 1986 and which had been "given priority on accountant's advice as repayments are an after tax expense". Fairweather noted that at that time, all in all the business account had financed approximately $130,000 of outside activities and that this had caused a "hardcore" content of the overdraft account. Fairweather recorded that following his discussion with Alexander McLean he was prepared to accept that on face value, "in view of the future potential of the connection". He noted further that he had been informed that the McLeans had "sold a 49% interest in "Whiteboards" to a joint venture and that this should yield $300,000 over the next three years" and "$100,000 of this being due in 12 months time". Fairweather further noted that he was informed by Alexander McLean that in the meantime excesses above $25,000 would be cleared, the home loan of $7,000 would be repaid from the sale of a motor vehicle which would net $11,000 with payment arranged on 7 December 1987. Fairweather noted that "CBA will then gain first mortgage position which will strengthen an already strong aspect". Fairweather further noted, after interpreting abbreviations made by him, that an increased overdraft limit of $17,000 was approved taking the total commitment to $64,350 on the bank's usual terms and conditions and subject to the temporary excess over the formalised arrangement of $25,000 being cleared by 8/12/87 from the proceeds of a motor vehicle sale; the limit $25,000 being respected at all times and the financial statements for year ending 30/6/87 being produced by February 1988 at the latest at which time a usual review was to be undertaken.

[43]

On 3 December 1987 a letter was written by the plaintiff under the name of Fairweather to the directors of Aspenview Productions, Alexander McLean and Lana McLean confirming the plaintiff's apparent to increase the overdraft account of Aspenview Productions by $17,000 from $8,000 to $25,000. It stated that the approval was on the plaintiff's usual terms and conditions and subject to, inter alia, the security consisting of the "existing mortgage by AJ and LD McLean over their property at 1 Alfred Street, Prahran". That letter enclosed forms to be executed by Alexander McLean and Lana McLean. The letter requested that they be signed and sealed where appropriate and returned to the plaintiff's office. By a note on the copy letter retained by the plaintiff it was noted that the forms sent to Alexander McLean and Lana McLean were returned on 4 January 1988. Fairweather identified the forms that were sent to Alexander McLean and Lana McLean as a request by Aspenview Productions to increase the overdraft facility from $8,000 to $25,000 resulting in the approved facility to be made available by the plaintiff to Aspenview Productions being $62,350 and a certificate pursuant to s. 230(8)(a) of the Companies (Victoria) Code, together with a further covering letters. The covering Letters of Consent in part stated that each of Alexander McLean and Lana McLean, prior to signing the documents, should satisfy themselves that they fully understood the full nature and extent of their liabilities to the plaintiff and that they should obtain legal or other advices if they were uncertain as to their positions. The documents received by the plaintiff at its South Yarra branch from Alexander McLean and Lana McLean were the certificate pursuant to the Companies Code which was signed by each and dated 24 December 1987, a Letter of Acknowledgment dated 4 January 1988 signed by Alexander McLean acknowledging that the plaintiff had granted or may grant from time to time to Aspenview Productions accommodation permitting it to incur liabilities to the bank not to exceed $62,350 secured by the mortgage dated 10 December 1986 over the property, "situated at 1 Alfred Street, Prahran" and a like Letter of Acknowledgment signed by Lana McLean and dated 4 January 1988. Each of the last two documents bore the stamp of the plaintiff indicating that the document was received by the plaintiff at its South Yarra branch on 4 January 1988. There was also received by the plaintiff at its South Yarra branch on 4 January 1988 the letter addressed to the plaintiff bearing the common seal of Aspenview Productions and signed by each of Alexander McLean and Lana McLean whereby Aspenview Productions requested the plaintiff to increase its accommodation to $62,350 and which also contained the consent of each of Alexander McLean and Lana McLean to the increase of such facility to be secured by the aforesaid mortgage dated 10 December 1986.

[46]

In cross-examination Fairweather agreed that Alexander McLean and Lana McLean were third party mortgagors of the debt of Aspenview Productions and, as such, were guaranteeing, to the plaintiff, the debt of Aspenview Productions. As to Letters of Acknowledgment sought by and obtained by the plaintiff from the third party mortgagors, he said that the purpose of obtaining such letters was to have an acknowledgment from the company that it was seeking to borrow certain amounts of funds and also it provided consents of the guarantors that they were aware that the security that they had already provided to the plaintiff would, in fact, support the increase in borrowing. He agreed that the consent of the guarantors was required before he had a "transaction". He agreed that before picking up the Court Books in preparation for the trial he virtually had no memory of what had occurred in the years in respect of which he had given evidence. He said that in the late 80s he was aware of the policy known as ICES, which was the acronym for "Individual Commitment to Excellence in Selling". Fairweather said he did not see himself as a sales person. The witness said that he was aware that there was an account in the name of "Whiteboards" but he had no idea what the operation of "Whiteboards" was all about. He said that he and McLean did not discuss the operation of "Whiteboards" other than the fact that he had spent a lot of money in setting it up. The witness said that he was in the habit of recording conversations that he had with a client and that any document that he returned to the bank over the counter during the day the first thing the officer would do would be to go and put the letter received stamp on it. Fairweather further said that although he had no recollection of introducing Murray to Alexander McLean, he could not exclude the possibility that he did in fact introduce McLean to Murray. The witness said that he did not discuss anything about "Whiteboards" with Murray and of that he could be positive because he knew nothing about "Whiteboards" and that he had nothing to discuss. Fairweather further said that he had no recollection of a discussion between himself, Murray and McLean concerning Drieberg. Further, he said that he had no recollection of a meeting in which McLean explained that a report, regarding the future of "Whiteboards", was being prepared and that he would bring it and show it to Murray when it had been prepared.

[47]

The witness, Bernard Murray, gave evidence that he was employed by the plaintiff from 1968 to June 1994 and that at the time of giving evidence he was employed as a "mobile lender" for the company, Members Equity. He said that he was the manager of the plaintiff's South Yarra branch from February 1988 to July 1991 and that when he took over from Fairweather they probably went through most of the loan accounts but he could not precisely say that he discussed anything about Aspenview Productions with Fairweather. He said that he could not recall a meeting with Alexander McLean and Fairweather and himself in which he was introduced by Fairweather as a person who had special financial knowledge. When asked whether he was a person with a special financial knowledge he replied, "No. I was a bank manager with no special financial knowledge apart from being able to operate accounts and run accounts at a branch". He said he did not recall Fairweather telling McLean, in his presence, that he was going to help McLean with financial advice regarding his business interest generally. He said that he did not recall Fairweather saying in a meeting with McLean that he would help McLean with an entity called "Whiteboards". He said that he could not remember having a meeting with McLean shortly after Fairweather left, and McLean giving to him a report about "the Whiteboards business". He said that if that had happened the report would be on the file. It should be noted at this point, as a matter of time sequence, that Whiteboards of Australia commenced to operate in July 1988. There was produced a letter dated 2 September 1988 from Murray to the secretary of Aspenview Productions drawing attention to the fact that the overdraft account was in debt to the amount of $32,458.05 which exceeded its limit of $25,000. The letter made suggestions as to how the accounts of the company could be rearranged. In a diary note made by Murray on 11 January 1989 it was recorded that the overdraft debt of Aspenview Productions, trading as St Martin's Garage, had peaked at $48,537 on 23 November 1988. On 12 January 1989 Murray wrote to Aspenview Productions addressing the letter "Dear Mr and Mrs McLean". The letter referred to a discussion had in November when it had been indicated on behalf of the company that the debt would be within normal limits by November and suggesting that either the small business loan be increased or adequate funds be placed in the overdraft account to allow it to operate within the approved limit. Murray said that to this point of time he had not been informed by Alexander McLean that "there was something they had to affect the security of the mortgage at 1 Alfred Street Prahran" (the Prahran Property). On 10 March 1989 Murray wrote to Alexander McLean and Lana McLean requesting that they call at his office to discuss the clearance of the excess on the overdraft account. On 16 March 1989 Murray made a diary note of a telephone conversation had that day with Alexander McLean. The diary note recorded that McLean had advised that the garage had $47,000 outstanding and that it was expected that 70% would be received over the next four months and that all accounts were being closed and that they were moving to credit cards which would improve their cash flow. The note also recorded that he was informed by McLean that there was $30,000 due to him from "Whiteboards Pty Ltd", that he was to meet with the other directors the following Monday and that he was hopeful that those funds would be received progressively over the next two to three months. The note recorded further that Alexander McLean was reluctant to increase the overdraft but was happy for the account to be reduced within the order of three months. The note further recorded, as a comment by Murray, "We are well secured and will allow to stand at the present time and will keep a watch on it through the daily Reference Report". On 15 June 1989 Murray wrote a letter to Aspenview Productions directed to Alexander McLean and Lana McLean stating that the overdraft account was then in debt to the sum of $48,489 and requesting them to contact the office to discuss the matter. On 30 June 1989 a "Diary memo" was made by Murray relating to a lunch meeting he had the previous day with Alexander McLean. It recorded that they had discussed a number of things including excesses on the account. It recorded that Alexander McLean was well aware of them and had advised that a lot of funds from the business had been used to do renovations to his property at "Alfred Street, Prahran". The memo further recorded, "They now have two properties on the title and one has been sold to his mother and the other one they will retain themselves. Strata title will be carried out shortly and the value of each property is in the vicinity of $300,000". The memo further recorded that Alexander McLean had requested that $55,000 be transferred from the business account to a small business loan with interest only for 12 months, that the existing small business loan be allowed to run as it was and that the approved advance limit of $25,000 be allowed to continue which, if agreed to, would give a total commitment of $102,317. Murray noted on the memo that at that stage "Security is U/M [unregistered mortgage] by directors over the property mentioned above and we have an extended valuation figure of $180,000 with Normal Lending Margins $126,000. At this stage until we receive Strata Plan we will not revalue the property". Murray recorded, "Please fund this loan as soon as possible". The memo further recorded that McLean discussed "the Whiteboards situation" and that he had informed Murray that it currently banked with the National Australia Bank, that they were very unhappy with the service they were getting, that the business was starting to proceed along "very nicely" and that they expected to have a turnover of somewhere in the vicinity of $2.5M in the next financial year. The reference to Whiteboards at this point must be a reference to Whiteboards of Australia. Further, the memo recorded that McLean would like Murray to meet the other directors with a view to transferring that account to the Commonwealth Bank and said that if that was successful possibly one of the other directors would transfer his account also as he was unhappy with the National Australia Bank. Murray said that he did remember having lunch with McLean, that a number of things were discussed at the lunch, and that, subsequently, the diary note had been made. Murray said that before the meeting he knew nothing about Whiteboards of Australia. Murray gave evidence that with respect to the sale of one of the Prahran properties to the mother of Lana McLean, the bank would have to approve the release of the title and that had not been sought at that stage. On 6 July 1989, Thurgood, the acting manager of the plaintiff's South Yarra branch, wrote to Aspenview Productions, a letter addressed to Alexander McLean and Lana McLean, informing them that the bank had approved a small business loan of $55,000 to clear the excess on the overdraft account. The letter set out the terms on which the loan had been approved. The letter made provision for Alexander McLean and Lana McLean to sign the same agreeing to the terms and conditions set out in the letter. The security as referred to in the letter was, "Security already held by the bank in connection with advances to yourselves". At that time the security held by the bank was the unregistered mortgage over the Prahran Property. The letter further noted that the advance would not be made available until "security documentation has been completed".

[61]

On 27 April 1990 Wilson, on behalf of the manager of the South Yarra branch of the bank, wrote to Alexander McLean and Lana McLean, with reference to Aspenview Productions, requesting their early attention to the matter referred to in the letter of 5 April 1990. There was produced and tendered in evidence a diary note of Murray dated 2 May 1990 concerning Aspenview Productions - St Martin's Garage and Whiteboards of Australia. The diary memo recorded that the overdraft account of Aspenview Productions, which had a limit of $25,000, was overdrawn having a debit balance of $49,599 and that the small business loans were in order providing the payments were being made. The security noted against the overdraft account was an "unregistered" third party mortgage by Alexander McLean and Lana McLean, "$180,000". The diary memo relevant to Whiteboards of Australia showed a limit of the loan account of $25,000 being overdrawn to the amount of $60,729. The security noted was a guarantee, unsupported, unlimited. The memorandum recorded that Murray had had a number of discussions with Alexander McLean regarding the excesses on both accounts and that he had made arrangements to visit the business premises of Whiteboards of Australia in Moorabbin. Further, on 9 May 1990, Cullen wrote to Alexander McLean and Lana McLean concerning Aspenview Productions - St Martin's Garage - referring to previous correspondence and requesting their urgent attention to the return of the consent forms that had been forwarded to them originally. A further diary memo of Murray dated 11 May 1990 was tendered which set out the financial position of Aspenview Productions - St Martin's Garage - and Whiteboards of Australia showing that Aspenview's overdraft account, with a limit of $25,000, was overdrawn then to $50,926 and the Whiteboards of Australia account with a limit of $25,000 was overdrawn then to $62,198. The memo recorded the visit of Murray to the factory premises of Whiteboards of Australia at which Alexander McLean and O'Brien were present. The memo recorded that excesses on the account were discussed and that O'Brien suggested that the bank take a registered equitable mortgage over the business. It further recorded that O'Brien was also the accountant for St Martin's Garage and excesses on that account were able to be discussed. Further, the memo recorded -

[122]

As to the guarantee provided by the three directors of Whiteboards of Australia it was put to Murray that he knew that at the time that he sent out the Whiteboards of Australia guarantees, for approval, the guarantee was an unsupported guarantee because there was no real estate involved. The witness said that there was no real estate involved for Drieberg and O'Brien but the bank could have attached any security in the name of Alexander McLean to the Whiteboards of Australia debt. He was asked whether any documents were sent to Lana McLean to sign in relation to the Whiteboards' facility at any time. He replied, "No not that I know of". The witness said that until the guarantees were obtained the mortgage supported Aspenview Productions but under the guarantee that security could also support the debt of Whiteboards of Australia. He agreed that Lana McLean had not signed any guarantee in respect of Whiteboards of Australia. He said she had executed the unregistered mortgage over 1 Alfred Street and to his knowledge Lana McLean had never been notified of any liability to Whiteboards of Australia up to 2 May 1990. Murray said that in the ordinary course of events she would not be notified as to that liability. Murray agreed that Alexander McLean was a guarantor of the debt of Whiteboards of Australia and that the situation was that if there was any increase in the facility made to the borrower the consent of the guarantor was required. Counsel for the defendants informed Murray that Alexander McLean would give evidence that at a time when he initially refused to sign the guarantee providing security for the debt of Whiteboards of Australia, that he, Murray, said to him, "We don't have guarantees that limit each director's liability to one-third". Murray agreed that that was the sort of thing that he would have said to McLean. Murray denied informing Alexander McLean that although the guarantees did not limit his liability to one-third, having regard to the fact that the directors, O'Brien and Drieberg, were people of substance, that in the wash up of things he would only ever have to pay one-third because of their asset situation.

[127]

Richard Cullen who was formerly employed by the plaintiff was called as a witness on behalf of the plaintiff. By reference to an inter office memo dated 1 February 1990, Cullen said that it was a directive to the lending support division to register the mortgage over the Prahran Property. He said that it was to be registered before the sub-division of that property went through. Through this witness the certificates of strata title sub-division re: Units 1, 2, 3 and 4 of 1 Alfred St, Prahran (the Prahran Property) were tendered. On each title the plaintiff's mortgage was noted as an encumbrance. On the titles of Unit 2 and Unit 4, the unit and accessory unit occupied by Mrs Masluk, the caveats lodged by her were noted. From the certified copy of title, being the parent title to the Prahran Property, there is to be seen that the mortgage given to the Commonwealth Savings Bank of Australia by Alexander and Lana McLean was registered on 30 December 1986 and discharged on 10 December 1987 and, further, that the mortgage to the plaintiff was registered on 9 February 1990. That latter mortgage signed by Alexander McLean and Lana McLean and dated 10 December 1986 carried stamps of the Stamp Duties Office Victoria increasing the amount provided by it as collateral security for advances made by the plaintiff. It was on 20 February 1990 that Cullen for the manager wrote to the solicitors for Alexander McLean and Lana McLean sending to them their application to register the strata plan signed by the plaintiff's Attorney, as had been requested by such solicitors. The solicitors for Alexander McLean and Lana McLean had sought to lodge the application for registration of the strata plan into the dealing of the plaintiff but at the time that that was done the mortgage had been registered on the parent title so that it was necessary for the solicitors to obtain from the bank the title to the Prahran Property in order that application could be made to register the strata title. Accordingly, in sequence the mortgage given by Alexander McLean and Lana McLean to the plaintiff was registered on the parent title before the strata title was registered.

[129]

Cullen identified the "Letter of Acknowledgment" which was sent to Alexander and Lana McLean by the letter of 17 May 1990 as that which had been executed by Alexander McLean acknowledging that the bank may grant accommodation to Aspenview Productions from time to time in the sum of $122,230. The document as signed by Alexander McLean bore the date "14.6.90" and also bore the "received" stamp "18 Jun 1990". The security identified in the schedule to that document and as typed as part of the document was "mortgage dated 10/12/86 over property at 1 Alfred Street Prahran". The document sent to Lana McLean via the letter 17 May 1990 was in the same form. The witness was taken to the Letter of Acknowledgment bearing the date "14/6/90" signed by Lana McLean which, although in its contents was the same as that signed by Alexander McLean and dated "14.6.90", was completed in handwriting including the mortgage set out in the schedule being "mortgage dated 10/2/86 over property at 1 Alfred St Prahran". Cullen gave evidence that that was not the original document that he had sent to Lana McLean. He said that he did not specifically recall her coming into the branch. He said that he had signed the document as a witness to the signature of Lana McLean and that it bore the "received" stamp 27 July 1990. Although saying that he did not specifically recall Lana McLean coming into the branch he said that he witnessed her signature and before it was signed the document had been completed and that he had made no alterations to the document under the word "schedule" after Lana McLean had signed it. He further gave evidence that prior to Lana McLean signing it he advised her that, because it was a third party security, if she was unsure of what she was signing that she should take it and get independent advice, legal or otherwise before she signed it but if she was happy and understood the nature of the document she could sign it in front of him and he would witness the signature. The witness was taken to the note signed by him which was in part in type and part completed in hand. He said that that note had been signed by him after Lana McLean had signed the Letter of Acknowledgment. This undated note is that referred to and set out in paragraph 52 of this judgment. It was put to Cullen that Lana McLean was going to give evidence that she did not sign the document in front of him and that he was not a witness to her signature. He said that that was incorrect and that he had witnessed her signature. He said that he did not put his signature to anything that was not already there or that he had not witnessed. He said that the document was complete when Lana McLean signed it and the only thing that was done after it being signed was the receipt stamp was put on the document. Cullen was adamant that he had witnessed the signature of Lana McLean to the document stating that he was certain that he had witnessed her signature.

[130]

Cullen was cross-examined by counsel for the defendants. He said that he could not specifically recall the events of 27 July 1990, but he could see by the "received" stamp on the document that that was the date that he had witnessed Lana McLean's signature. He said that from his observation of documents he had deduced what had happened on that day. He agreed that he had no specific recollection of witnessing Lana McLean signing the document. He agreed that on occasions he had explained the meaning of documents to customers and that he went through the bank's policy and procedure and described what the documents entailed and what it meant by signing particular documents. He was asked what was the function of a "Letter of Acknowledgment". He replied "....that they understand that the documents that are held as security secure advances to whatever the dollar amount was placed on those documents." He agreed that on the Letter of Acknowledgment signed by Lana McLean bearing date 14/6/90 and also bearing the "received" stamp 27 Jul 1990 that the amount stated was $122,230. He agreed that the letter sent to Lana McLean on 1 June 1990 requesting her to sign and return the Letter of Acknowledgment was addressed - "Re: Aspenview Productions Pty Ltd". He agreed that the Letter of Acknowledgment signed by Lana McLean again had in writing within the body of the document that it was acknowledged that the bank had granted or may grant from time to time accommodation to Aspenview Productions. The witness further agreed that when on 17 May 1990 he wrote to O'Brien "re: Whiteboards of Australia Pty Ltd" enclosing a Letter of Acknowledgment for execution "in relation to excesses in the overdraft limit for the abovementioned". He agreed that the letter advised that the securities held supporting "debts" was, as to "Aspenview Productions Pty Ltd trading as St Martin's Garage", the "registered first mortgage by Alexander McLean and Lana McLean over the property at 1 Alfred Street, Prahran" and, that, as to Whiteboards of Australia, the securities identified were "unlimited guarantees by Alexander John McLean, Peter Leslie O'Brien and Darrel Stephen Drieberg". He agreed that by that letter it was his intention to set out the security supporting the Aspenview Productions' debt and the security supporting the Whiteboards of Australia debt and that the Whiteboards' debt was supported by the unlimited guarantees. He agreed that it was his intention by sending that letter to show that the Alfred Street property supported the Aspenview Productions' debt and the guarantees supported the Whiteboards of Australia debt.

[147]

Alexander McLean said that when Fairweather introduced Murray to him he introduced him as a man that could give financial advice in terms of business set ups and things like that. Alexander McLean said that Fairweather explained to Murray that he and his wife, Lana, had a patent for the Whiteboard process and it was really quite an exciting invention. He said that Murray said that it was a great idea and that he should look towards the development of the business because the potential was incredible. Alexander McLean said that shortly after first meeting Murray he had a further meeting with him and explained to Murray that Drieberg and O'Brien had prepared a document which gave the concept of the new entity of Whiteboards of Australia. He said that he gave to Murray a document that he had received from O'Brien as to the proposed structure of Whiteboards of Australia which concept included a trading company, an investment company and a guarantee company. He said that he explained that the concept was that a guarantee company would be set up and, by it, each director would be exposed only to one-third of the debt of Whiteboards of Australia. Alexander McLean gave evidence that Murray looked at the structure and a diagram demonstrating the proposed company structure and that Murray said to him that it was an excellent idea, that it was terrific, and that it was quite a clever set up. He said that Murray said to him that, on the face of it and from what was being presented, "where could you go wrong". Alexander McLean said that he said to Murray that he required advice, independent from Drieberg and O'Brien, and that he wanted to know, from someone that had experience with financing a business, whether, what the other two were saying was actually able to be done. He said that he had told Murray that he had not made an arrangement with O'Brien and Drieberg. He said that he told Murray that he was relying on his advice, at that point, as to whether the things said by O'Brien and Drieberg could be done and, if so, whether, in his opinion, he felt it was a good process. Alexander McLean corrected one piece of earlier evidence and said that it was the second meeting that he had with Murray that he showed him the business plan. He said that at this meeting Murray said that he had had a lot of experience with finances to businesses, that he had seen a lot of business structures in terms of how they were put together and how he was asked to look at ways of financing them.

[152]

Alexander McLean said that at the meeting with Murray in July/August 1988 he gave to Murray a copy of the "prospectus" for Whiteboards of Australia as had been put together by O'Brien. He said that when he showed the "prospectus" to Murray he said to him that the process was set up so that each held one-third share in the guarantee company and that their exposure was one-third. He gave evidence that at this meeting with Murray when he gave to him a copy of the "prospectus" he told Murray that Mrs Masluk wanted to purchase the upstairs unit and he wanted to know whether they could actually sell her that part of the property to Mrs Masluk. He gave evidence that Murray said to him that there was no problem with that at all. He said that he had discussed with Murray that they were going to "strata title" the property. He said that he was able to recall that he discussed this with Murray at this time, July/August 1988, because it was Lana's birthday on 23 August and on that occasion they told Mrs Masluk that at the meeting he had had with Murray, Murray had said it was okay and they could go ahead with her purchasing the second unit and that it could be released. Alexander McLean said that they had the title to the Prahran Property and that he had discussed with Murray that he wanted to strata title the property. He was asked, "Did you have any discussion at this time about the mortgage over the whole of 1 Alfred Street?" Alexander McLean replied, "Well that was the point of asking his advice because at that stage we knew that there was a mortgage over number one and I had to have his answer as to whether that was we could do that and that would be okay to be done because if he said that couldn't have been done then we'd have had to have approached it in a different way". He was again asked, "Did you discuss what would happen to the mortgage over 1 Alfred Street?" He replied, "We discussed that we would - once Mrs Masluk had taken - purchased the above premises - the number two unit that we would have no real rights on number two so we could only the only property we would have would be number one - apartment, 1 Alfred Street".

[159]

Alexander McLean said that he received the letter from the plaintiff bank dated 9 October 1989 addressed to Whiteboards of Australia re "application for finance" in which it was said that the bank had approved an overdraft with a limit of $25,000 to assist with the working capital of Whiteboards of Australia. The letter said that the advance was subject to the bank's usual terms which included - "security is to be to the bank's satisfaction and is to comprise - guarantee unlimited as to amount by Alex McLean, Darrel Drieberg and Peter O'Brien". Alexander McLean said he did not understand what the security aspect of it was. When asked what Murray said to him he replied - "He told me that all the directors were exposed to the full amount of the loan and I expressed to him that that wasn't what we'd been agreeing to and the whole process of setting everything up was that I would only be liable for one-third of the debt. And he said that it was bank policy at that time and there wasn't anything he could do about it". Alexander McLean said, further, that, nearing the end of the conversation, Murray said, "Well, look, let me just go and revisit the assets and liabilities of the other directors and I'll get to you." Alexander McLean said that he received a further letter in the same terms and still dated 9 October 1989, that he spoke to Murray and asked him about the security aspect of the document. When asked what did Murray say Alexander McLean replied - "He said, no, he'd taken steps to secure or get - he got securities for - from the other directors which would put my position where I was only liable for one-third of the debt". McLean continued and said that he put to Murray that he was telling him that in the worst scenario where they had to pay the debt he would only be liable to pay one-third and that Murray said to him, "Yes, that's correct". Alexander McLean said that Murray further said to him that with O'Brien being a chartered accountant and a professional and Drieberg being a financial adviser their reputations were precious things and that, "even in a joint and several scenario we would take from all three people at any rate equally so that you would still only be liable for one-third of the debt and they would be keen to protect their reputation and not allow anything to happen to them in terms of recovery of debts". He said that this conversation was just before 30 October 1989 and that on the assurance that Murray had taken securities on the debt he was happy to go ahead and sign the document and to get the other directors of Whiteboards of Australia to sign the same.

[170]

In the course of the evidence of Fairweather the preliminary application for company and business advances completed by him dated 26 November 1987 was tendered. Part of the document included notes taken by Chapman of the meeting he had with Alexander McLean when he had called to seek an increase in the overdraft limit from $8,000 to $25,000 for Aspenview Productions . As part of the notes, Chapman had recorded that Alexander McLean told him that $6,000 was spent on renovations to "second apartment" and this "will shortly be rented which will return $180.00 pw". In answer to questions put in cross-examination Alexander McLean said he would not have told Fairweather that. He said that he did not remember spending any money in terms of renovations to the "apartment" from Aspenview Productions' money. He said he would not have spent $6,000 of Aspenview Productions' money towards the renovation of the "apartment". He said that in his opinion that was totally and completely untrue. In the notes of Fairweather it was further recorded that Alexander McLean had told him that "Stock for Whiteboards Pty Ltd (manufacturers of notice, pin boards etc) was purchased during the year at cost of $60,000..." He said that he did not tell Fairweather that. The note of Fairweather also said that he had been told, "additional machinery costing $12,000 was also purchased". Alexander McLean said he did not tell that to Fairweather. He said that he did not tell him that he had spent those amounts of money. The note of Fairweather also recorded that Alexander McLean had told him that $53,000 had been repaid from the original $60,000 Commonwealth Savings Bank housing loan approved in November 1986. McLean said that he did not tell him that. When asked whether that was the case he said that counsel should ask that question of his wife as she was the one in charge of the housing loan. When it was put to him that the mortgage showed that the mortgage, with respect to the housing loan, had been discharged in December 1987, McLean again said that the question should be referred to his wife as she was the one in charge of that. When asked where the $53,000 would have come from he said they had an investment which was a gift, a wedding present, and it could have come from that but again his wife should be asked about the matter.

[184]

As to the Sale of Land document Lana McLean said that she did not receive the document or letter and that she was given it by Murray on 12 July 1990. She said that on that day she and her husband attended at the bank to keep the appointment her husband had made. She gave evidence that when she and her husband entered Murray's office he was seated on the opposite side of the desk. She said that at the time she was upset and that she said to Murray that she was left to pay the wages at St Martins Garage because her husband was at "Whiteboards" and she could not work out what the earnings were for "Whiteboards" and what related to the "Whiteboards" debts in "Aspenview". She said that she informed Murray that it was vital for her understanding to run the books that the debt be transferred immediately because it was impacting on how she could manage the business of "Aspenview". She said that she further said to Murray that the Garage was small and couldn't carry the debt any longer. She gave evidence that she asked Murray how soon could the "Whiteboards" debt in "Aspenview" be transferred to "Whiteboards". She said to that Murray replied that the documents were pretty well "tied up", "completed" and "the transfer would happen in a matter of weeks". Lana McLean further said that she spoke to Murray about her mother's "apartment" and that she expressed concern that it took so long to get the transfer of the debt organised and said that she wanted assurance that immediately the strata and other legal documents had been finalised they would be able to secure the release of the upstairs "apartment", that is, Unit 2, debt free. She said to this Murray said that they should advise her mothers solicitors that that would happen as soon as they completed the documents and to tell them that he, Murray, would arrange directly with them for the release of the title. She said that they were about to leave when Murray said that there was one last document that needed to be signed in order to tie up the paper work for the transfer of the "Whiteboards'" debt out of "Aspenview" and that he explained that it was a "Sale of Land Act" document. Lana McLean gave evidence that Murray presented the document to them and that he said that, "this is a Sale of Land Act document that you need to sign, it's the last document. You need to sign it to tie up the paperwork for the transfer of the Whiteboards debt out of Aspenview". She said that having read the document she said to Murray, "We've just been speaking about Rita's apartment and you're aware we've sold it so I can't possibly sign a document in relation to apartment 2". She gave evidence that Murray read it and said, "Oh yes that's true", to which she said, "The only property that we would have by way of ownership to sell or not sell is apartment 1". She said that she would be happy to sign it if it was corrected to read, "apartment 1, 1 Alfred Street Prahran".

[208]

As to the first matter it was submitted that that which was relied on by Aspenview Productions were representations said to have been made by Murray in March 1998. It was submitted that although it was claimed that Aspenview Productions sold to Whiteboards of Australia the business of Aspenview Productions, Whiteboards of Australia and Domestic, that no document was produced to evidence such sale and that the evidence of Fairweather was that in November 1997, Alexander McLean told him that the sale had occurred by then, that is, before Murray came to the South Yarra branch of the plaintiff and before Whiteboards was incorporated on 5 May 1998. It was submitted that in such circumstances, it was improbable that in February 1988, when Alexander McLean had dealings with Murray, he sought his advice on the establishment of Whiteboards of Australia and acted on his advice. It was submitted that Alexander McLean was dealing with O'Brien, his accountant, and there was no reason to distance himself from O'Brien and seek and rely on advice said to have been proffered to him by Murray. It was submitted, on the evidence, that it was improbable that Fairweather represented to Alexander McLean that Murray possessed the capability contended for by Alexander McLean, as he did not know Murray. It was submitted that when the "prospectus" of Whiteboards of Australia is compared to the company structure and shareholding of the company when it was incorporated that that alleged to have been spoken to Murray and represented in the prospectus did not accord one with the other. This is so. It was submitted that as an example of this no "guarantee company" was ever established. It was further submitted that there could be no agreement on behalf of the plaintiff to transfer a debt in Aspenview Productions owed to the bank, to Whiteboards of Australia, unless the plaintiff held accounts for both companies and that at least at the outset when Whiteboards of Australia was formed its banker was not the plaintiff but the National Australia Bank. It was submitted that although it was alleged that Murray agreed, on behalf of the plaintiff, to transfer debts owed to the plaintiff from Aspenview Productions to Whiteboards of Australia it could not be concluded, on the evidence, that Whiteboards of Australia agreed to that. It was submitted that for such an agreement to be operative, the agreement of Whiteboards of Australia was an essential step. It was further submitted under this head that insofar as Alexander McLean, on behalf of Aspenview Productions, had any claim against Whiteboards of Australia for "setting up costs", which may constitute the basis of having debts owed to the plaintiff transferred from one company to the other, there was no satisfactory evidence to establish the amount of the moneys or costs incurred by Aspenview Productions on such exercise or that by expending moneys, with respect to this matter, Aspenview Productions increased its overdraft commitment to the plaintiff. Further, it was submitted that as the foundation of the contention made by Aspenview Productions and Alexander McLean that the plaintiff could not recover against them that part of the debt due to the plaintiff to be transferred from Aspenview Productions to Whiteboards of Australia, as it would be unconscionable and unjust to do so, it could not be concluded that Alexander McLean was in a position of special disadvantage to the plaintiff. It was submitted that this was to be seen from the fact that while working for Pitstop Motors, he had incorporated Aspenview Productions to split his income or wage and when he commenced to make whiteboards, he had applied for and obtained a patent with respect to the Whiteboards made by him. It was submitted that these matters demonstrated that he was aware of the ways of business and that it could not be said that he was in a position of special disadvantage to the bank. It was submitted that the claim made on behalf of Aspenview Productions and Alexander and Lana McLean under this head should be rejected.

[215]

(a) that the court should accept and find that Alexander McLean was introduced to Murray by Fairweather and was introduced in terms, which represented that Murray had considerable business experience and that he could assist Alexander McLean with respect to business matters;

(b) that the court should find that before the birthday of Lana McLean in August 1988 and during or about July or August 1988, Alexander McLean told Murray that he wanted to transfer Unit 2 of the Prahran Property to Mrs Masluk and that Murray said that there would be no problem with that at all;

(c) that the court should find that before the meeting between Alexander McLean and Murray on 29 June 1998, they had discussed together the transfer of Unit 2 of the Prahran Property to Mrs Masluk;

(d) that the court should find and conclude that from the records of the plaintiff's South Yarra branch particularly from or about 12 July 1990, that the plaintiff accepted that the property, secured by the mortgage, entered into between Alexander and Lana McLean on 10 December 1986 with the plaintiff, was limited to Unit 1 of the Prahran Property and did not include Unit 2;

(e) that it should be found that Murray represented to and agreed with Alexander McLean to transfer part of the debts of Aspenview Productions to the plaintiff to the account of Whiteboards of Australia, which caused Alexander McLean to agree to increase the facilities provided by the plaintiff to Aspenview Productions knowing that they would be transferred to Whiteboards of Australia, where Alexander McLean would be responsible pursuant to a guarantee provided by him to the plaintiff for one-third only of the debts of Whiteboards of Australia to the plaintiff;

(f) that it should be accepted and found that at the time that Murray became manager of the South Yarra branch of the plaintiff in February 1988, Fairweather knew about "Whiteboards" and had known of "Whiteboards" since 26 November 1987;

(g) that the court should accept and find that the plaintiff represented to and or agreed with Alexander McLean that by entering into the guarantee dated 2 November 1989, by which he guaranteed to the plaintiff payment of Whiteboards of Australia debts to the plaintiff, that Alexander McLean would be responsible only for and bear the obligation to meet one-third of Whiteboards' debts to the plaintiff;

(h) that the court should find that the Sale of Land document dated 12 July 1990, was altered by Murray in the presence of Alexander McLean and Lana McLean and that it was signed by each of them in the office of Murray and in his presence;

(i) that the court should find that the Letter of Acknowledgment dated 14 June 1990, bearing the "received" stamp date 27/7/90, was not signed by Lana McLean in the presence of Cullen;

(j) that it should be held by the court that before Alexander McLean and Lana McLean executed the mortgage dated 5 December 1986, the plaintiff owed a duty to each of them to draw to their attention cll. 1 and 3 of the mortgage and explain the operation and how such clauses may operate and that, in particular, it should be held that the plaintiff was under a duty to draw these matters to that attention of Lana McLean and explain the operation of them to her;

(k) that it should be held by the court that the plaintiff, in breach of its duty to each of Alexander McLean and Lana McLean, failed to draw to their attention these clauses of the mortgage with the consequence that it should be found that it would be unconscionable to enforce such clauses so as to cause the mortgage to be security for the guarantee entered into by Alexander McLean on 2 November 1989, whereby he guaranteed to the plaintiff payment of the debts of Whiteboards of Australia to the plaintiff;

(l) that it should be concluded and found by the court that at the time that Lana and Alexander McLean entered into the mortgage with the plaintiff dated 10 December 1986, it was not within the contemplation of the parties, nor was it the intention of the parties, that the mortgage would provide security, other than for the debts of Aspenview Productions, to the plaintiff;

(m) that it should be held by the court that when Alexander McLean and Lana McLean entered into the mortgage with the plaintiff to secure the debts of Aspenview Productions to the plaintiff, it was not within the contemplation of the plaintiff and Alexander McLean and Lana McLean that any guarantee entered into by Alexander McLean to provide security for payment of debts to the plaintiff for any person other than Aspenview Productions would result in or cause the mortgage provided by Lana McLean to provide security for the obligation of Alexander McLean pursuant to such guarantee;

(n) that it should be concluded by the court that it is unconscionable to enforce the mortgage against Lana and Alexander McLean other than for the debts of Aspenview Productions to the plaintiff.

[221]

In the circumstances of these proceedings, by entering into the mortgage on 10 December 1986, the debtor, as provided by its terms, was Aspenview Productions of which they each had knowledge of its day-to-day activities. That mortgage replaced the former mortgage granted by them to the plaintiff to provide security for the debts of Aspenview Productions, which former mortgage was over their previous home at Rae Street, Fitzroy. There can be no suggestion, in my view, that the principles enunciated and referred to by Gibbs CJ and Mason J were breached by the plaintiff in any way in the circumstances of this case. In my view, there was no obligation or duty cast on the plaintiff to draw attention to Alexander and/or Lana McLean to the "all moneys" clauses contained in paragraphs 1 and 3 of the mortgage, the failure of which could lead to the setting aside of the mortgage. On the facts of this case, in my view, it cannot be concluded that Alexander and Lana McLean, in entering into the mortgage were under a serious misapprehension as to the terms and effect of clauses 1 and 3, that the plaintiff was aware of that fact and that it set about to ensure that Alexander and Lana McLean would not become aware of the effect of such clauses before they entered into the mortgage. Even if Alexander and Lana McLean were under a misapprehension as to the effect of clauses 1 and 3 of the mortgage, there is no evidence, that any conduct on behalf of the plaintiff relevant to the execution of the mortgage as would entitle Alexander and Lana McLean in equity to have the mortgage set aside: see Taylor v Johnson[4]. The submissions made on behalf of the defendants did not go so far as suggesting that such should occur in this case. Further, in my view, in cannot be said in the circumstances of this case that either Alexander or Lana McLean were under a "special disability" in dealing with the plaintiff, such that it would be unfair or "unconscientious" for it to procure and accept their assent to the mortgage in circumstances where attention was not specifically drawn to clauses 1 and 3 or in which they were not invited to take independent advice before executing the document - Commercial Bank of Australia Ltd v Amadio[5].

[250]

There were a number of documents produced from the file of the plaintiff relevant to the time during which Murray was the manager of the plaintiff's branch at South Yarra which recorded that the security held by the plaintiff with respect to the debts of Aspenview Productions was Unit 1 of the Prahran Property. An example of such a document was the memorandum completed by Murray and dated 24 August 1990. Again another is the direction dated 3 September 1990. Notwithstanding the Letters of Acknowledgment signed by each of Alexander and Lana McLean and dated 14 June 1990 I am satisfied that in July or August 1988 Murray did inform Alexander McLean that Unit 2 would be released. I am satisfied that as a result of Alexander McLean's conversation with Murray in July or August 1988 and before 23 August 1988 Mrs Masluk was told of this matter and thereafter she proceeded to sell her home in Brighton. Although the signed transfer by Alexander McLean and Lana McLean to Mrs Masluk was not tendered in evidence, I am satisfied that Lana and Alexander McLean agreed to sell and did sell a two-third interest in Unit 2 and accessory Unit 4 of the Prahran Property to Mrs Masluk. I accept her evidence that she paid to Alexander McLean and Lana McLean $160,000 and also paid a further $20,000 towards the renovation of Unit 2. Notwithstanding it was referred to in evidence that the transfer of part of the interest of Alexander and Lana McLean to Mrs Masluk recorded the consideration as being "for love and affection" I am satisfied that the aforesaid sums were paid by Mrs Masluk to Alexander McLean and Lana McLean for the purchase of a two-third interest in Unit 2 together with a like interest in accessory Unit 4. Before the sale of the major portion of the interest in Unit 2 and accessory Unit 4 of the Prahran Property to Mrs Masluk they owned this property. It, in part, secured the debt to the plaintiff. I am satisfied that in selling a major interest in the property to Mrs Masluk, Alexander and Lana McLean acted on the representation and promise made by Murray which was, in substance, that they could sell this property to Mrs Masluk and that the property would be released from the mortgage. To the extent that Alexander McLean and Lana McLean sold a substantial interest in Unit 2 and accessory Unit 4 to Mrs Masluk disposing of part of the assets which they had and would otherwise have continued to hold and which they would have as a resource in the conduct of their business and private affairs, they acted to their detriment.

[251]

It was the promise of the plaintiff by its agent, Murray, to permit part of the property held by the plaintiff, by way of security, to be sold to Mrs Masluk which encompassed the discharge of the plaintiff's mortgage over that property that was the root and cause of Lana and Alexander McLean selling a major portion of their interest in that property to Mrs Masluk. The promise or representation of Murray, as to the release of part of the property held by the plaintiff from the security of the mortgage, was a promise as to a future event. The fact that such was the case does not prevent the principles of estoppel being applied in such circumstances - Waltons Stores (Interstate) Ltd v Maher and Anor[15] and Commonwealth of Australia v Verwayen[16]. In the manner in which this issue was conducted during the trial no distinction was made between Alexander and Lana McLean selling and transferring to Mrs Masluk the whole of their interest in Unit 2 and accessory Unit 4 of the Prahran Property and them selling and transferring to her two-thirds of their interest in that property. The issue as contested in this case was whether Mrs Masluk paid for the purchase of an interest in Unit 2 and accessory Unit 4 and whether the plaintiff, in the circumstances, is estopped from enforcing the mortgage held by it and registered on the title of such properties. Accordingly, I do not seek to draw any distinction between these matters in this case. In the circumstances of this case I am satisfied that the plaintiff is estopped from enforcing the mortgage insofar as it relates to Unit 2 and accessory Unit 4 of the Prahran Property. I am satisfied that Mrs Masluk has an estate and interest in the property being Unit 2 and accessory Unit 4 of the Prahran Property as the purchaser of two-thirds interest in those units which supports the caveat lodged by her and recorded on the title with respect to those properties. Alexander and Lana McLean are entitled to receive from the plaintiff a signed discharge of the mortgage entered into by them with the plaintiff insofar as it relates to and has been registered on the title to Unit 2 and accessory Unit 4 of the Prahran Property in order that they may lodge a transfer of two-thirds of such property to Mrs Masluk.

[256]

I next turn to the claim by the defendants, Aspenview Productions, Alexander McLean and Lana McLean, that it would be unjust and unconscionable for the plaintiff to recover against them the entire amount of the debt owed by Aspenview Productions to the plaintiff as the plaintiff had agreed to transfer to Whiteboards of Australia a considerable part of Aspenview Productions' indebtedness and increasing indebtedness to the plaintiff, it being recognised and accepted by the plaintiff that facilities, provided by the plaintiff to Aspenview Productions, were used by it to meet costs incurred in the setting up and conducting of Whiteboards of Australia. Murray had little recollection of this matter, although he said he could recall a discussion about making a loan of $100,000 to Whiteboards of Australia to clear the debts of the McLeans. I accept the evidence of Alexander McLean that there were discussions had by him with Murray seeking to have the plaintiff transfer part of Aspenview Productions' debt to the plaintiff to Whiteboards of Australia and that at times Aspenview Productions, by Alexander McLean, agreed to the increase of facilities provided by the plaintiff to Aspenview Productions in order to meet debts incurred by Aspenview Productions in the establishment and conduct of Whiteboards of Australia. It was in consequence of such discussions that on 1 November 1990 the plaintiff offered to provide to Whiteboards of Australia a Bill Discount Facility of $100,000 to "repay $100,000 to Alexander McLean to reduce the debt on St Martin's Garage". Although there was produced and tendered a document signed by Lana McLean, Drieberg and O'Brien which purported to accept the offer not only was there no agreement reached between the directors of Whiteboards of Australia, Alexander McLean, O'Brien and Drieberg as to this matter, but there was positive disputation between O'Brien and Alexander McLean and Drieberg and Alexander McLean as to this offer proceeding. That this was so is evident from letters passing between O'Brien and Alexander McLean and Drieberg and Alexander McLean to which I have previously referred. Eventually the offer was withdrawn by the plaintiff to Whiteboards of Australia and the matter proceeded no further. Other than a reference to this amount, on the evidence before the court, no calculation could be made as to the amount of any debt of Aspenview Productions which may be said to be attributed to Whiteboards of Australia.

At a glance

Court

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Before

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Judgment (289 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (7)