Commonwealth Bank of Australia v Ian Robert Clapham; Byron Bay Holdings Pty Ltd v Commonwealth Bank of Australia

Supreme Court of NSW|2015-08-12|Before: Darke J

Introduction

The central concern of these two proceedings is the acquisition by Yarralumla Holdings Pty Limited ("Yarralumla") of a macadamia farm, Clan Macadam, in late 2005. Yarralumla is a company associated with Mr Ian Clapham and his wife, Ellen. They are the sole directors of, and shareholders in, the company. In July 2005 Yarralumla was appointed the trustee of the Clapham Family Trust. Under the trust deed dated 25 July 2005 Mr and Mrs Clapham were named as beneficiaries of the trust.
In June 2010 Yarralumla participated in a transaction whereby it retired as trustee of the trust, and another company associated with the Clapham family, Byron Bay Food Company Pty Ltd (later known as Byron Bay Holdings Pty Ltd), was appointed as trustee in its place. The transaction also involved a purported transfer of the trust fund to the new trustee. At the time of the transaction, the property of Yarralumla was under the control of receivers and managers. Yarralumla subsequently went into, and remains, in liquidation. It is not a party to these proceedings.
The Commonwealth Bank of Australia ("the CBA") provided finance to Yarralumla for the acquisition of Clan Macadam, and also for the earlier acquisition of a smaller macadamia farm known as Brooklet Farm. The security taken by the CBA included real property mortgages over Clan Macadam and Brooklet Farm, and a property at MacMasters Beach owned by Mr Clapham. Mr and Mrs Clapham also gave personal guarantees.
Following the acquisition of the farms, there was a very substantial reduction in prices of macadamia nuts. Yarralumla experienced difficulty in meeting its obligations. In about mid-2007 Mr Clapham placed the MacMasters Beach property on the market, and a temporary further advance of $250,000 was arranged with the CBA.
The MacMasters Beach property was not sold until mid-2008. In the meantime, a request for a further advance of $180,000 was declined. Yarralumla's financial situation was not able to be revived and it defaulted under the terms of the finance.

Outline of Mr Clapham's evidence

Five affidavits sworn by Mr Clapham were read, and he was extensively cross examined.
It is clear that Mr Clapham became a successful man with considerable business experience. He did not complete an electrical engineering degree, but by the age of 25 he had established his own business as a business development consultant. In the years that followed, Mr Clapham obtained extensive international business experience. Amongst other things, he obtained experience in relation to the conduct of due diligence. In the 1990s Mr Clapham had a senior role with Optus Vision with responsibilities including in the areas of sales, marketing, information technology systems, finance and logistics. He was thereafter the Chief Executive Officer - Asia Pacific for Irdeto Access. In that position Mr Clapham played a role in the development of new business in India, China and South Korea. In 2005, Mr Clapham was providing consulting services to Active Optics Pty Limited, a company in respect of which he was a major shareholder. Mr Clapham's role was to lead the commercialisation of the company's digital camera software products.
In the mid-1990s, Mr Clapham had briefly looked into the macadamia industry in New South Wales, but he and Mrs Clapham decided not to move to the Northern Rivers Area until their children had finished school. In about 2004 Mr and Mrs Clapham, in consultation with their children (some of whom were still at school), decided that they would move to the North Coast of New South Wales to escape city life and be close to Mrs Clapham's elderly parents. In about December 2004, Mr Clapham began making enquiries into the macadamia nut industry in the Ballina area. Mr Clapham deposed that he was "a strong advocate of doing my homework before making any business decision and as such set about the task of researching the macadamia industry and in particular, how foreign markets could be developed". Mr Clapham further deposed that: Prior to moving north, I investigated ways that I might be able to leverage my family's wealth in order to provide us with the opportunity to generate a regular income. I sought opportunities for adding value to an existing business through my business contacts and experience in international business development…… I knew that if I could understand and apply the macadamia farming techniques, I could make sure that I was not getting ripped off by employees. Further, I knew my years of international business experience and contacts would permit me to develop new value-added products and make inroads into new key markets such as India and South Korea for selling the macadamias and generate better income for macadamia production than the average farmer.
Mr Clapham soon began looking for a suitable property. Between December 2004 and September 2005 he inspected at least twenty properties. Mr Clapham conducted "serious investigations" into five or six of them, and had horticultural consultants inspect some. Mr Clapham had discussions with at least eight people with expertise in macadamia nuts and the farming of macadamia nuts.
By late February 2005 Mr Clapham had joined the Australian Macadamia Society ("AMS"). Mr Clapham went to the AMS website from time to time when he was doing research on the industry. He obtained technical papers and contact details of various technical consultants. The website contains information concerning macadamia nut prices, including historical prices. Mr Clapham denied that he saw any such information on the website until after a large fall in prices had occurred in 2007. He agreed that Mr Chapman had told him in 2005 that the website contained technical and financial material.
In about late February or early March 2005, Mr Clapham approached Graham Smith, an accountant in Lismore who reputedly had a number of macadamia farmers as clients. Amongst other things, Mr Smith provided assistance to Mr Clapham in creating a template of a financial plan for a macadamia farm. At one stage Mr Clapham asked Mr Smith to provide a copy of a sensitivity analysis he had done on a farm in Dunoon. Mr Clapham deposed that he did not actually retain Mr Smith as his accountant until 2006 or 2007.
Mr Clapham said that at least in the first instance he wanted to find a farm that produced positive cash flows. He agreed that he was looking for a farm of about 7,000 trees, as he had formulated a view that a farm probably needed to be around that size.
Mr Clapham showed some interest in two properties, Alphadale and Wondaree on Friday Hut Road, Bangalow. In respect of each of those properties, Mr Clapham made an offer to purchase for about $2.5 million. Ultimately, contracts were not entered into in respect of either property.
Mr Clapham's first contact with Mr Chapman of the CBA occurred on 6 June 2005 when they had a conversation on the telephone. It appears that the conversation occurred after Mr Chapman left a voicemail message on Mr Clapham's phone.
Mr Clapham's version of the conversation is set out in his first affidavit (at paragraph 19).
This conversation, as is the case with several other but not all of the conversations between the two men, is the subject of a note prepared by Mr Clapham. Mr Clapham claims that in each case the note was made within 24 hours of the conversation, based upon notes of heading points and key facts made by Mr Clapham during the relevant conversation itself. The CBA mounted a substantial attack upon that claim. It was put to Mr Clapham that he made the notes well after the events of 2005. Mr Clapham denied that suggestion. I will return to this issue later in these reasons.
In the interests of brevity I will not set out the entirety of Mr Clapham's version of this conversation (or any of the other conversations relied upon). It is sufficient to note the following in relation to Mr Clapham's version of the conversation of 6 June 2005: 1. Mr Clapham said that he was looking for a reasonably sized macadamia farm with between 7,000 and 12,000 trees, close to the coast; 2. Mr Clapham said that he was looking to spend up to $2 million but may be prepared to spend more for a really profitable farm; 3. Mr Chapman said that the CBA had specialised knowledge of the macadamia industry, was the largest bank in agri-finance and by far the biggest lender to the macadamia industry; 4. Mr Chapman said that he had considerable involvement in the industry, owned a macadamia property, had a lot of specialised knowledge of the industry, was closely involved with all facets of the industry, and was an active member of the AMS where he had presented papers at conferences; 5. Mr Chapman said that he had been a long term financial advisor to the macadamia industry and had developed financial plans with and for clients of the bank; 6. Mr Clapham said that was reassuring "because if we do proceed with the purchase of a macadamia property we will need someone we can rely on for industry specific financial advice and a bank that understands the industry"; and 7. Mr Clapham said that Clan Macadam was amongst the farms that had been looked into, but at $4 million it was too expensive, lacked suitable accommodation, and was too far from the coast.
Some, but not all, of those matters are apparently corroborated by Mr Clapham's note.
Mr Clapham and Mr Chapman had a further telephone conversation on 14 June 2005. Mr Clapham's version is set out in his first affidavit (at paragraph 23). According to Mr Clapham he told Mr Chapman that he was having trouble finding a suitable property, for reasons including that the properties were too far from the coast, too expensive or had too few trees. Mr Clapham says that, in response, Mr Chapman suggested that two farms be purchased, "one that suits your lifestyle and the other in a lower cost area with greater production capacity". Mr Clapham says that he told Mr Chapman that he did not want to take any unnecessary risks, and that for now he would stick to looking for one farm. Again, at least parts of Mr Clapham's version are apparently corroborated by a note made by Mr Clapham.
Mr Clapham visited the Northern Rivers area between 16 and 18 June 2005. On that occasion he inspected the Brooklet Farm property in Jorgensens Lane. Mr Clapham found it to be very appealing, with an ideal location, but it had only about 3,000 trees and Mr Clapham saw that there were some problems with the way about half of the trees had been planted.
Mr Clapham then became very busy with the obtaining of private equity finance for Active Optics and did little further in pursuit of a macadamia farm until about mid-August 2005. I note, however, that on 25 July 2005 Mr Clapham established the Clapham Family Trust with Yarralumla as the trustee.
In about mid-August 2005 Mrs Clapham, who had been visiting her parents, went to see Brooklet Farm. She told her husband that she loved it. Mr and Mrs Clapham then discussed the matter further and, despite Mr Clapham's reservations concerning its small size, decided to try to purchase Brooklet Farm which was going to auction on 10 September 2005. Arrangements were made for the property to be inspected by two experts (Messrs Coates and Vimpany). In addition, some "orchard statistics" were obtained, as well as the house extension plans. Building and pest inspections were also arranged. At about the same time the Clapham family home in Carlingford was placed on the market.
Mr Clapham deposed that on about 18 August 2005 he had a further telephone conversation with Mr Chapman. Mr Clapham says that he told Mr Chapman that they were going to try to purchase Brooklet Farm, and that about $400,000 to $600,000 would need to be borrowed. He says that Mr Chapman said there should be no problems with lending the money, and asked for a statement of assets and liabilities, and a financial plan for Brooklet Farm. Mr Clapham says that he asked Mr Chapman about what prices he should assume for the financial plan, and was told to use $3.50/kg for H varieties and $3.80/kg for A varieties. Mr Clapham says that after he suggested that those prices might be a bit high, Mr Chapman said they were reflected in farm gate prices for the past couple of years, there was no sign of a reduction in the foreseeable future, and some farmers were receiving higher prices.
Mr Clapham has no note of this conversation.
Mr Clapham says that he then prepared a detailed financial plan for Brooklet Farm and statements of assets and liabilities. He says that these were sent to both Mr Gollan (of the National Australia Bank, Mr Clapham's existing banker) and Mr Chapman.
The statements of assets and liabilities were sent to Mr Chapman as part of a facsimile sent by Mr Clapham on 6 September 2005. The cover page of the facsimile was in the following terms: Thank you for taking the time to speak with me about the purchase of 61 Jorgensens Lane property. As requested I have attached a Statement of Assets and Liabilities and a letter from my employer (consultancy through my company Yarralumla Holdings). I hope this gives you a good feel about both our net worth and income. We expect to exchange on our Carlingford property for at least $950,000 before Friday. I will email you my projected P & L and Cashflow once I have done a double check on the figures. Please let me know what else you need from me or other people to approve a loan for the above purchase. I look forward to meeting you on Thursday or Friday and discussing both this and the Clan Macadam properties.
The financial analysis concerning Brooklet Farm was sent to Mr Chapman by email on 7 September 2005. Mr Clapham noted in the email that he had wanted to run the analysis by Graham Smith before sending it to Mr Chapman. In cross examination, Mr Clapham agreed that he had spoken to Mr Smith on the telephone for almost half an hour on the afternoon of 6 September 2005.
The financial analysis contained a five year plan which included assumed prices. The prices were expressed as "nut-in-shell" or NIS prices. For the first three years $3.50/kg was assumed for 344 and 741 varieties, and $3.80/kg was assumed for A4, A16, 849 and 741 (sic) varieties. Lower prices were assumed in years 4 and 5. Mr Clapham deposed that he included those lower prices "after brief advice from a local accountant who considered prices might decline somewhat in the 2009-2010 period". In cross examination, Mr Clapham stated that Graham Smith had told him that there may be a softening of prices after three years. He agreed that he accepted that advice, and incorporated it into his financial plans.
Mr Clapham met with Mr Gollan at the Ballina races on 8 September 2005, and was told that there did not seem to be any problem in the way of the National Australia Bank lending the money for the purchase of Brooklet Farm.
On 9 September 2005 Mr Clapham met with Mr Chapman at the Farmarama farming exposition in Alstonville. Mr Clapham says that they had a lengthy discussion, including in relation to his financial analysis. Mr Clapham's version of the conversation is found in his first affidavit (at paragraphs 44 to 51).
The following matters in particular should be noted in relation to that version of the conversation: 1. Mr Chapman complimented Mr Clapham on the quality of his financial plan; 2. Mr Chapman, in response to a query about whether the assumed prices in the plan were accurate, said that "they appear fine" although the expenses may prove to be a bit low; 3. Mr Chapman stated that the plan highlighted the problem of a lack of scale and that a second, larger property would create economies of scale and give greater profitability and a better lifestyle; 4. Mr Chapman stated that the bank would need to review Clapham's financial plans in much more detail and likely add the (MacMasters) beach property as security before it could lend for a second, larger property; 5. Mr Chapman said there were two strategies open to Mr Clapham, one, purchasing only Brooklet Farm or two, purchasing Brooklet Farm and another farm such as Clan Macadam to achieve economies of scale; 6. Mr Clapham said that he was very uneasy about option two, and was leaning towards option one and that Mrs Clapham was strongly in favour of option one, at least until some macadamia farming experience was obtained; 7. Mr Chapman said that obtaining 20 to 40 tonnes of nuts from Brooklet Farm is not viable and more of a nuisance factor, but a second farm would mean around 200 tonnes of crop and hence a strong negotiating position with nut processors, and lower costs per kilogram; 8. Mr Chapman, in response to a query about the macadamia industry, said that it had continued to grow over the past years with no sign of abating as markets were growing, and further said that a processor (Pacific Plantations) had recently offered a five year supply agreement at a minimum of $3.30/kg on the back of a five year deal they had completed in the USA; 9. Mr Clapham said he thought there were a lot of opportunities to value add, but he recognised that he was a new entrant with a lot to learn; and 10. Mr Chapman said that the bank was committed to agriculture and in particular to the macadamia industry because it had proven more reliable than other types of agriculture, and the bank would be there for you if things get tough. Mr Chapman further said that the bank could provide additional working capital to bridge the tough periods, extend the terms of facilities or possibly provide a moratorium on interest payments if cash-flows ever got really tight. Finally, Mr Chapman agreed that the bank would give support and time to restructure if needed.
Mr Clapham made a note of this conversation. The note apparently corroborates parts of what is outlined above.
Mr Clapham deposed that he then set about undertaking financial analysis to determine whether the purchase of a second macadamia property made financial sense.
Although not included in the body of Mr Clapham's first affidavit, it appears from his fourth affidavit that following the meeting with Mr Chapman at Farmarama, Mr Clapham arranged through the selling agent (Mr Lindsay Grant) to meet with one of the owners of Clan Macadam (Mr Albert Hilton) later that afternoon in Lennox Head. At that meeting, agreement was reached on a purchase price of $3.7 million with a settlement date of 20 January 2006. That is to say, agreement was reached as to terms but no binding contract was entered into.
Mr Clapham attended the auction of Brooklet Farm on 10 September 2005. Yarralumla was the successful bidder at $1.625 million. A 90 day completion period was negotiated. Mr Clapham was unable to negotiate for only a 5% deposit.
Mr Clapham deposed that he had a telephone conversation with Mr Chapman shortly after the auction, and informed Mr Chapman that a bank guarantee would be required for the deposit. Mr Clapham says that Mr Chapman told him that it would make it a lot easier for all if the purchase of Clan Macadam was concluded quickly so it could form part of the application to the bank.
On 11 September 2005 Mr Clapham sent an email to Mr Chapman. The email included the following: I really enjoyed meeting you on Friday. Thank you for dedicating so much of your afternoon to our discussion. As I outlined in the voicemail to you yesterday we were successful at the auction for this property…… I bid $1,625,000 for the property which was $25,000 over what I had considered to be my maximum but feel good about the purchase…… Rick agreed to a 90 day settlement but insisted on a 10% deposit……If Rick is immovable about this I will explore the option of the bank guarantee with you…… I would like to change my bank accounts including the existing loan and mortgage on the MacMasters Beach property to the Commonwealth Bank. I would then like to set up the facility we discussed on Friday to facilitate the purchase [of] Jorgensens Lane property and cover some of the working capital. I would like to defer building improvements at this time so there is no need for the facility to cover that cost…… As we discussed I have negotiated an arrangement for the purchase of Clan Macadam. The purchase price is $3.7 million with settlement on the 20th January 2006. The farm costs (which must conform to proper farm management - still to be documented) are to be met by the vendor until the settlement. I have done some extensive financial modelling for Clan Macadam and believe it will provide a considerable positive cashflow. Also in an effort to reduce the need to borrow for working capital I will explore forward purchasing of a portion of the 2006 crop to coincide with the settlement in January. I believe a number of processors are prepared to do this and with in excess of 200 tonne (both properties) I will be in a strong negotiating position. I will send the financial analysis to Graham Smith for a review and then, after taking on his comments, I will send it to you. An information memorandum concerning Active Optics was attached to the email. A copy of a PowerPoint presentation concerning Active Optics was attached to a further email sent by Mr Clapham to Mr Chapman later that day.
On 13 September 2005 Mr Clapham sent a further email to Mr Chapman. This email concerned Clan Macadam. It included the following: I have attached an information sheet (including a list of equipment), a processing report and some pictures for Clan Macadam. I have asked Lindsay [Grant] to provide some more processing reports from last year and a year to date for this year. I spoke with the vendor Albert Hilton (representing the four equal shareholders) last night. He could see no reason that the smaller harvester and some other gear could not be spared as required for the Brooklet property. He explained that the smaller harvester is only used on steep parts and after rain, not as the principal harvester. Albert also thought there would be plenty of opportunity for the staff to assist with the Brooklet farm. There is a full time manager and another person who is essentially a full time casual. Albert also confirmed that they have the capacity to take the nuts from Brooklet into the dehusking as it was designed to take 280 tonne. Albert also put my mind at ease about the tenants in the two houses on the farm as, whilst there is as I suspected no leases, they know that they are on a month to month basis. I also spoke to Ian Vimpany about both farms (he does the nutrition on both). He commented that Clan Macadam was one of the best managed and most consistent performing farms around. He mentioned this as soon as I mentioned I am considering the purchase of Clan Macadam. I was buoyed by this comment as both Alan Coates and Sean Stead have previously made similar remarks. Ian also said that the Brooklet farm is far better than it was three years ago and that it will continue to show good improvement over the next few years. Please contact Lindsay and arrange for your inspection of the farm.
A little later on 13 September 2005 Mr Clapham sent a further email to Mr Chapman. The email was in the following terms: I have added another step in checking my Financial Plan for Clan Macadam prior to sending it to you. As Albert is a Chartered Accountant by trade (previously with KPMG) and been the managing partner of the farm for some time I asked him to check over my plan for obvious shortcomings or oversights. As the vendor he has an obvious bias but he has been forthright in the past helping me understand the operations and nuances of the farm. I will send the figures to Graham Smith while I await a more comprehensive review from Albert. I expect to be able to send them to you tomorrow.
Forwarded with the email was an email from Mr Hilton to Mr Clapham concerning the latter's 2006 forecast. Mr Hilton saw no obvious errors of principle and said he believed that Mr Clapham was being sensibly conservative. Mr Hilton also stated that Mr Clapham had acknowledged that this was no warranty of his figures.
On 14 September 2005 Mr Clapham sent a further email to Mr Chapman. It stated that he had only sent the financial plan to Graham Smith that morning, and was hoping to hear back from Mr Smith soon. Forwarded with the email was another email from Mr Hilton to Mr Clapham which contained further comments about Mr Clapham's forecast.
On 15 September 2005 Mr Clapham sent an email to Mr Chapman which attached a financial plan for Clan Macadam. This financial plan contained the same assumed prices as were contained in the financial plan for Brooklet Farm. Mr Clapham's email included the following: Graham Smith has reviewed the Financial Plan and suggested as a way of being ultra-conservative is to include an amount in the expenses for "Contingency" and to increase the wages component. Following his advice I have added $2,400 (sic) annually ($2,000 per month) for contingency and increased the wages for each year by 20 percent over what I was advised by Albert Hilton is their existing wages bill. That has a flow on effect to Superannuation and Workers Compensation. I have also added the total cost per kilo as a check and that ranges from $1.26 to $1.44 which from all reports is high, especially with the economies of scale we should get with this size farm. Graham's other comment was that it is feasible that prices will fall after three years. I had already accommodated this in my Summary & Assumptions sheet. My vertical integration strategy will be well in place within three years. That strategy will largely shield us from large increases in supply and any downward price pressure due to financial difficulties faced by the processors. I look forward to you (sic) feedback after studying this Financial Plan and your visit to Clan Macadam tomorrow.
It appears that Mr Chapman did inspect Clan Macadam at about this time. Mr Clapham deposed that on about 20 September 2005 he had a telephone conversation with Mr Chapman in which Mr Chapman told him that he was very impressed with the quality of the farm, the health of the trees, and the conduct of the staff. Mr Clapham says that Mr Chapman also said that although there were a few steep areas, overall the trees have good spacing and the canopy is well managed, and there should be no need to make any major capital purchases for a few years.
On 22 September 2005 Mr Clapham sent an email to Mr Chapman which attached information concerning Active Optics, including a business plan and an expenses budget. The email referred to a meeting scheduled to take place at 11:00am on the following day in Mr Chapman's office in Lismore.
Mr Clapham's account of the meeting with Mr Chapman on 23 September 2005 is set out in paragraphs 63 to 78 of his first affidavit. It seems that it was a lengthy meeting, lasting some three hours. Mr Clapham said that he presented the plans for Active Optics on his notebook computer, and that there was also some discussion about the need for a bank guarantee for the Brooklet Farm purchase. Mr Clapham deposed that during the meeting there was a discussion about the financial plan for Clan Macadam which he had sent to Mr Chapman on 15 September 2005. According to Mr Clapham this discussion included the following: 1. Mr Chapman again complimented him upon the quality of the financial plan, and said that the structure and calculations in the spreadsheets would assist in performing sensitivity analysis; 2. Mr Chapman said that with the Clan Macadam property you could expect good capital growth or even potential for future rural/residential sub-division; 3. in the course of a discussion about Mr Clapham's expense assumptions, Mr Chapman said that the expenses looked fine, if not a little high, that there may be room to reduce the per/kg cost of production by implementing some best practices, and there should be some economies by using existing staff to work at Brooklet Farm; 4. Mr Clapham said that he felt that if he could get the financial plans right with Mr Chapman's specialised knowledge then he would not be setting himself up for failure; 5. Mr Clapham asked Mr Chapman what he felt about the prices included in his analysis, given his extensive experience in the economics of macadamia farming. Mr Chapman said that they were fine and that there was "absolutely no reason to expect prices to fall because even during the record crops of the past two years demand continues to outstrip supply"; 6. some sensitivity analysis was then conducted, using Mr Clapham's notebook computer, by substituting some lower NIS prices; 7. one such analysis (using $2.85/kg for H varieties and $3.05/kg for A varieties) resulted in losses for the first four years. Mr Clapham said the results were "extremely alarming", was not something that could be sustained and "if there is even the slightest chance that prices will fall to this level then we definitely should not proceed to purchase the second property". Mr Chapman, in response to a query about whether he thought nut prices were likely to fall and whether anything could be done to mitigate against such a result, said that there was no need to be so alarmed because there is no sign that prices will fall below their current level at around $3.50/kg. Mr Chapman further said that consideration could be given to locking in part or all of the crop with a five year deal with Pacific Plantations at $3.30/kg; 8. another sensitivity analysis was carried out, using $2.45/kg for H varieties and $2.65/kg for A varieties. Mr Clapham says that he was extremely alarmed about the results (which showed substantial losses throughout the five year period), and said he would be an idiot to buy the property if there was any chance of that type of result. Mr Chapman is said to have responded by calling on Mr Clapham to calm down as the figures had only been run as an academic exercise and his alarm was unwarranted, and saying that he was still strongly of the opinion that buying the two properties was the best option and a very sound investment. Mr Chapman then went on to give extensive reasons for his opinion. Mr Clapham says that Mr Chapman's reassurance about the strength of nut prices put his mind at ease; 9. Mr Clapham then asked Mr Chapman what he could do if things did not go as planned, for example if the market dropped or Active Optics was not able to be sold. Mr Chapman said that obvious contingencies would be obtaining additional off-farm income and as a worst case the MacMasters Beach property could be sold to retire some of the debt; 10. Mr Chapman further said that figures such as the $2.45/kg price were used for modelling purposes, he saw absolutely no reason for the price to fall below current prices, and the worst case would be a minor short term reduction to about $3.00/kg NIS; and 11. Mr Chapman then went on to outline the loan facilities the bank would be able to offer.
Mr Clapham made a note of the discussion that took place on 23 September 2005. Again, some but not all of the matters referred to above are apparently corroborated by the note.
Mr Clapham deposed that on the following day he had a conversation with Mrs Clapham about his meeting with Mr Chapman. Mr Clapham says that in answer to his wife's question "what if the prices for macadamia nuts fall" he referred to the various scenarios and "scary" results discussed with Mr Chapman, and then said that Mr Chapman had assured him that for many reasons prices will not fall for many years to come.
On 28 September 2005 Mr Clapham sent updated statements of assets and liabilities to Mr Chapman. The overall net asset position of Mr and Mrs Clapham personally was stated to be in the order of $5.17 million (including the MacMasters Beach property said to be worth $3.5 million) and the overall net asset position of Yarralumla (which owned 2.2 million shares in Active Optics) was stated to be in excess of $1.9 million. On 7 October 2005 Mr Clapham sent the trust deed for the Clapham Family Trust to Mr Chapman.
Mr Clapham deposed that on about 10 October 2005 he had a telephone conversation with Mr Chapman in which Mr Chapman said that he had heard that some other parties were interested in purchasing Clan Macadam. Yarralumla had not by that stage exchanged contracts for the purchase of the property. In order to effect an exchange, Yarralumla needed to put in place a bank guarantee for $370,000. According to Mr Clapham's note of the conversation, Mr Clapham reminded Mr Chapman that they were waiting on the valuations that the CBA required, and Mr Chapman agreed to try to hurry that process along.
On 12 October 2005 Mr Clapham sent an email to Mr Chapman stating that Mr Chapman's "intelligence" about other interest in Clan Macadam had been confirmed. The email also contained a request to Mr Chapman to find out when the valuation would be done, as Mr Clapham needed to determine if he could wait for it before exchanging contracts. The email also referred to Mr Clapham having found two valuations he had mentioned in respect of other macadamia farms. One of those was a valuation of Wondaree undertaken by Allsopp Associates.
On 14 October 2005 Mr Clapham sent a further email to Mr Chapman. He requested Mr Chapman to go ahead and organise the valuations of Clan Macadam and MacMasters Beach, undertaking to pay for the valuations even if the borrowing from the CBA did not proceed. The email also referred to a request from the vendor of Clan Macadam that exchange take place by the middle of the following week.
Also on 14 October 2005, the CBA sent a letter of finance approval to Mr and Mrs Clapham. Approval was confirmed for a $2.5 million Better Business Loan, a $300,000 Business Line of Credit, and a $2.5 million Bill Facility. Each of the facilities was expressed to be interest only for five years. The security was to consist of mortgages over Brooklet Farm, Clan Macadam and the MacMasters Beach property, an equitable mortgage over the assets of Yarralumla, and personal guarantees from Mr and Mrs Clapham. A formal letter of approval (which would include the bank's usual terms and conditions) was to be sent in the following week.
A problem then arose concerning the value of the MacMasters Beach property. It appears that the CBA's panel valuer considered that the property was worth much less than the $3.5 million estimate put forward by Mr Clapham. Mr Clapham was unhappy about the valuation, and the CBA considered obtaining, and ultimately did obtain, a further valuation.
It further appears that the low valuation figure caused difficulties for the CBA in terms of giving final approval for the loans. Mr Clapham was requested to provide independent evidence of his ability to earn income as a consultant. Mr Clapham provided several letters to that effect to the CBA on 10 and 11 November 2005.
On 11 November 2005 Mr Chapman sent an email to Mr Clapham attaching a letter of approval for a $1.6 million Better Business Loan and a $3.75 million Bill Facility, in each case expressed to be interest only for five years. It appears that the approval was based on the MacMasters Beach property having a value of $2 million.
By 16 November 2005 the bank guarantee for the deposit on Clan Macadam was in place, and contracts were exchanged shortly thereafter. Mr John Glynn, solicitor, was acting on the purchase. Mr Glynn was also acting on the purchase of Brooklet Farm.
On 30 November 2005 the CBA sent letters to each of Mr and Mrs Clapham concerning the guarantees they were to give.
Mr Clapham deposed that on 6 December 2005 the CBA's offer of finance for $5.35 million was accepted by Yarralumla. The relevant finance and security documents were executed on about that date.
Settlement of the sale of the Carlingford property, and purchase of Brooklet Farm, took place on about 9 December 2005. Net proceeds from the Carlingford sale of about $846,000 were applied towards the purchase of Brooklet Farm. The balance of almost $775,000 consisted of funds provided by the CBA, which also provided just over $300,000 to discharge the mortgage held by the National Australia Bank over the MacMasters Beach property.
Settlement of the purchase of Clan Macadam took place on about 20 January 2005, using funds provided by the CBA.
Mr Clapham's affidavits contain numerous statements, expressed in various ways, to the effect that in deciding to proceed with the purchase of Clan Macadam, he relied upon what he was told by Mr Chapman. This evidence was admitted (other than in relation to the negligence case - see s 5D(3)(b) of the Civil Liability Act 2002) over the objection of the CBA.
In his second affidavit, for example, Mr Clapham deposed that had Mr Chapman (whom he believed had specialised knowledge and experience of the macadamia industry) not given the advice concerning nut prices referred to in his first affidavit, he would not have caused Yarralumla to purchase Clan Macadam or enter into the loan transactions with the CBA. Mr Clapham similarly deposed in relation to Mr Chapman's advice that buying two properties was the best option and a sound investment. Mr Clapham further deposed that he would not have proceeded with the transaction if he had been told that prices had previously fallen below $2.45/kg NIS, or if he had been told that the CBA had assessed the overall serviceability of the loans as "marginal". In a later affidavit, Mr Clapham deposed that he would not have proceeded to purchase Clan Macadam if he had known various other things about the CBA's internal assessment of the loan applications, including that the CBA rated all agricultural lending as "High Risk". Mr Clapham also deposed that in deciding to proceed with the Clan Macadam purchase, he took comfort from Mr Chapman's assurances about bank support.

Outline of Mr Chapman's evidence

Two affidavits sworn by Mr Chapman were read, and he, too, was cross examined extensively.
In his first affidavit, Mr Chapman deposed that after a period of employment with the Commonwealth Development Bank (1987-1998), he commenced employment with the CBA. Initially he was an Agribusiness Manager at the Lismore Branch. Mr Chapman became a Business Development Manager at the Byron Bay Branch of the CBA in August 2003, and remained in that position until late 2006 when he moved back into the role of an Agribusiness Manager.
In his role as a Business Development Manager Mr Chapman's activities included sourcing new business in primary industries, writing and submitting new proposals for finance, and liaising with customers and the CBA's credit department in relation to such proposals.
Mr Chapman deposed that he had a usual practice of saying certain things when dealing with new customers interested in entering the macadamia industry by purchasing a property. He deposed that the usual practice involved him saying: 1. that it is not the bank's role to advise about the merits of the investment; 2. that the customer should seek independent advice from accountants about the proposed investment; 3. that the customer should speak to other experts in the macadamia industry including consultants and valuers; and 4. that there was a significant amount of material which could be accessed on the AMS website.
Mr Chapman says that he believes he followed the usual practice in his dealings with Mr Clapham, but does not specifically recall any conversation in which he said those things. Mr Chapman no longer has his "field notes" in respect of his dealings with Mr Clapham.
Mr Chapman deposes that in his initial discussion with Mr Clapham in about June 2005 he introduced himself as a Business Development Manager with the CBA and said the bank would be interested in providing finance for the purchase of a macadamia farm. He recalls Mr Clapham mentioning that he was interested in Clan Macadam. Mr Chapman specifically denies some parts of Mr Clapham's version of the conversation.
Mr Chapman says that after the initial discussion he had no further communication with Mr Clapham until early September 2005. He denied that he had a conversation on 18 August 2005 as deposed to by Mr Clapham, in which he suggested Mr Clapham should use certain prices for his financial analysis, and told him there was no sign of a reduction in prices in the foreseeable future.
Mr Chapman deposed that he recalls meeting Mr Clapham at the Farmarama event, but not the detail of the discussion. Mr Chapman denied, however, that he made the three representations alleged (in the original cross claim) at the Farmarama event. He also specifically denies some parts of Mr Clapham's version of the discussion that took place on that occasion, including that he raised the idea of two strategies, and that he suggested to Mr Clapham that he buy two farms. Mr Chapman denies that he said the CBA would be there if things get tough or that there was a possibility of a moratorium on interest payments. He denied that he agreed that the CBA would give support and time to restructure if necessary.
Mr Chapman further deposed that he did not believe that Mr Clapham spoke to him on 10 September 2005 after the auction of Brooklet Farm. Mr Chapman agreed that on about 19 September 2005 he had a conversation with Mr Clapham, as deposed to by Mr Clapham, concerning his inspection of Clan Macadam.
Mr Chapman deposed that he did not recall the details of the discussion that occurred during the meeting on 23 September 2005 at his office in Lismore. Mr Chapman says that he would usually take notes during a lengthy meeting with a customer, and that such notes would have been collated and condensed into the credit application. Mr Chapman did recall looking at the financial material Mr Clapham had prepared, and that he conducted a sensitivity test in relation to income. Mr Chapman recalls that a price of $2.45/kg NIS was used. Mr Chapman thinks that price was used because it represented an average price over a period. Mr Chapman denied that he said it was not possible for the price to go below $2.45/kg NIS and denied Mr Clapham's version of the conversation in so far as it concerned the prices of macadamia nuts and demand and supply (see paragraphs 69, 71 and 77 of Mr Clapham's first affidavit). Mr Chapman says that he never committed himself on prices in any industry, and in relation to macadamias he usually said something to the effect that the commodity price fluctuates within a five to seven year cycle.
Mr Chapman deposed that on about 11 October 2005 he had a telephone conversation with Mr Clapham in which he informed him that the CBA had approved the loan subject to the valuation of the MacMasters Beach property being satisfactory, and Mr Clapham said that he wanted to proceed as quickly as possible as he had heard there were some other buyers around.
Mr Chapman deposed that he wrote the credit application over a number of weeks from 23 September 2005 using information given by Mr Clapham, the field notes he made following meetings with him, generally available information, and his own knowledge of the macadamia industry. Mr Chapman explained that the credit application changed as further information became available.
In his second affidavit, Mr Chapman said that he could now recall some conversations not contained in his earlier affidavits. He stated that his recollection was assisted by Mr Clapham's second affidavit, and further thought given to the preparation of the credit application. Mr Chapman deposed that in one such conversation Mr Clapham said that he wanted to purchase two farms and would need finance.
Mr Chapman also deposed that in another conversation Mr Clapham asked him what he expected to see for future NIS prices, and he responded by saying that he couldn't answer that but there are people who you can speak to. Mr Chapman deposed that it was his standard procedure to never suggest, foreshadow or predict to a customer future NIS prices, apart from the conducting of sensitivity tests to assess loans.
Mr Chapman deposed that at his meeting with Mr Clapham on 23 September 2005 he told him that the bank will sensitise future NIS prices at $2.45/kg when assessing the loan because the CBA assesses ten to fifteen year loan term contracts at that price. Mr Chapman says that Mr Clapham asked him to review his cashflow statements, and he told him that he couldn't advise on them although it appears that the expenses were on the light side. Mr Chapman says that he suggested they be re-worked with Graham Smith.
Mr Chapman went on in his second affidavit to describe in more detail the process he undertakes in compiling the information for and dealing with credit applications. In relation to Mr Clapham's application, Mr Chapman deposed that after he had completed the credit application (referred to as a Credit Application Decision Sheet or "CADS") on 7 November 2005 he submitted it to Mr Michael Clarke, the Credit Manager, for approval. Mr Clarke was not prepared to give his approval. He stated in an email to Mr Chapman sent later that day that "now that the security position is so heavily tanked and we were relying on this as one of a few elements to justify a secondary repayment source…it would be irresponsible of me to continue with this one".
The impaired security position mentioned by Mr Clarke would seem to be a reference to the lower than expected value of the MacMasters Beach property. As explained by Mr Chapman in his second affidavit this caused the Security Cover rating to move from C, which was within normal lending limits, to D. Ratings from D to F meant that there was a portion of unsecured debt. Further, the overall Credit Risk Rating (which ranges from 1 to 8) went down from 4 to 5. Ratings between 1 and 5 were considered to be acceptable lending grades.
Mr Chapman deposed that after receiving Mr Clarke's email he had a conversation with Mr Clapham in which he told him that the bank was "unable to give an approval at this stage". Mr Chapman says that Mr Clapham responded by saying that he could make off-farm income from consultancy work if he had to, and he requested Mr Chapman to have the matter reconsidered.
On 9 November 2005 Mr Chapman sent an email to Mr Clarke requesting that he have one more look at the application. Mr Chapman pointed out in the email that Mr Clapham's ability to obtain consultancy work to replace or supplement the Active Optics income or sale strongly mitigated the uncertainty of such income. It was suggested (based on some earlier year's taxation returns) that Mr Clapham would be able to earn in the order of $300,000 per annum in consulting income. Mr Clarke replied, stating that he was prepared to reconsider the matter, but requested some independent confirmation of Mr Clapham's "re-employability at these types of incomes". Mr Chapman does not recall requesting such evidence from Mr Clapham but it is clear that on 10 and 11 November 2005 Mr Clapham provided the CBA with letters in support of his income earning ability. As noted earlier, a letter of approval was sent to Mr Clapham on 11 November 2005.
In his second affidavit, Mr Chapman also responded to particular parts of Mr Clapham's second affidavit. For example, Mr Chapman deposed that Mr Clapham told him at the Farmarama event that he had already engaged accountants and solicitors. Further, Mr Chapman said that he was able to recall Mr Clapham telling him that he had researched the industry using AMS data from the AMS website, and that he had seen historical NIS prices and production data on the website.

Outline of evidence of other witnesses

The only other witnesses were Mrs Clapham and Graham Smith.
One affidavit of Mrs Clapham's was read. She was briefly cross examined. Mrs Clapham deposed that she played no part in making business decisions or managing the affairs of Yarralumla or the Clapham Family Trust. As a director of Yarralumla, her role was confined to doing some bookkeeping and banking. She said that her recollection of matters relating to the proceedings was vague. She deposed that she is aware that her husband "keeps lengthy notes of his various meetings".
Mrs Clapham deposed that from early 2005 she and her husband inspected a number of macadamia properties. They liked the property owned by John Gillett (Wondaree) which was close to where her parents lived. Mrs Clapham also liked Alphadale, but it was located too far away from her parents. She deposed that her husband inspected Brooklet Farm in about early June 2005. It was located only about ten minutes away from her parents' house.
Mrs Clapham deposed that in about June 2005 she became aware that her husband had been contacted by Mr Chapman. She said her husband told her that Mr Chapman had suggested that as they were having trouble finding a suitable macadamia farm near the coast, they may wish to consider purchasing two macadamia properties. She deposed that she was against the idea of two properties, and that her husband appeared to accept that opinion.
Mrs Clapham deposed that she inspected the Brooklet Farm property, in about early August, and loved it. She deposed that shortly after the auction of the property she was astonished that her husband had again raised the concept of purchasing a second property. She says that she remained against the idea but her husband had become convinced it would be a good idea, saying that Mr Chapman had persuaded him.
Mrs Clapham deposed that after the meeting on 23 September 2005 between Mr Chapman and her husband, he seemed convinced that the purchase of a second farm was a good idea, saying that he and Mr Chapman had spent almost all of the meeting going over "the numbers". Mrs Clapham says that she questioned her husband about what they would do if things went wrong, and he responded by saying that Mr Chapman had assured him that nut prices would not fall for the foreseeable future, that the bank would give support, and said that in the absolute worst case the MacMasters Beach property could be sold.
Mrs Clapham further deposed that despite her serious concerns about purchasing a second property, she received some comfort from what her husband had said concerning Mr Chapman, and from the fact that the CBA approved the finance. She also felt that if things went wrong, Mr Clapham would find a solution. She says that ultimately she went along with her husband's decision to purchase the second farm.
Two affidavits affirmed by Mr Smith were read, and he was cross examined. Mr Smith is a chartered accountant, a partner in the firm WCA Chartered Accountants, formerly known as Wappetts Chartered Accountants, in Lismore. He is also the owner of a macadamia farm.
In his first affidavit he deposed that he had an initial telephone conversation with Mr Clapham in about February 2005 during which Mr Clapham said he was interested in acquiring a macadamia plantation in Dunoon. Mr Smith says that following that call he prepared "a very fundamental outline comprising an income and expenses schedule" for the purposes of having a conceptual discussion with Mr Clapham on macadamia enterprises and the Dunoon property.
Mr Smith deposed that he met Mr Clapham on about 2 March 2005. He described the meeting as not particularly detailed or formal, more of a "getting to know you" discussion.
Mr Smith deposed that he did not undertake any review of the cashflow projections prepared by Mr Clapham in relation to the Brooklet Farm property. He says that he was requested to do so, but declined because the vendor was a client.
Mr Smith deposed that he believes that on 15 September 2005 he met Mr Clapham to discuss his projections for the acquisition of Clan Macadam. He says that he told Mr Clapham to review the expenses, especially wages, and to consider factoring in a contingency allowance. He says that Mr Clapham made extensive references to information he said had been provided by Mr Chapman, including as to the nut pricing used in the projections. Mr Smith deposed that a conversation in the following terms occurred: Smith: "You should consider the possibility that prices could fall in the foreseeable future." Clapham: "Why do you believe that this is a possibility?" Smith: "I do not have a basis for prediction other than that there have been price fluctuations in the past like all commodities." Clapham: "Paul Chapman said that the industry was better structured and that price fluctuation is a thing of the past. Paul also said that there was no likelihood of any immediate downward pressure on nut prices because there are five year supply contracts at $3.00+/kg readily available." Smith: "Irrespective, it is important that you undertake a sensitivity analysis and (sic) the financial impact that a fluctuation in nut pricing may have." Clapham: "I am meeting with Paul Chapman to go through the cashflow projections with him. I will undertake the sensitivity analysis with Mr Chapman given he seems to have a handle on nut pricings."
Mr Smith deposed that he never provided any "formal advice" in respect of the cashflow projections, or concerning the assumptions upon which the projections were prepared.
In his second affidavit, Mr Smith described his understanding concerning prices in the macadamia nut industry. He deposed that "macadamia prices have always been historically volatile" and that "the industry tends to have a price bust every five years".

Nature of the case

The cases of Mr and Mrs Clapham, and BBH, as pleaded, were framed around a number of categories of misleading representations allegedly made by the CBA, either expressly or impliedly. The categories included Price and Market representations (see Mr and Mrs Clapham's Amended Cross Claim at paragraph 88, BBH's List Statement at paragraph 89), Second Property Representations (see Mr and Mrs Clapham's Amended Cross Claim at paragraph 89, BBH's List Statement at paragraph 90), and Worst Case Scenario representations (see Mr and Mrs Clapham's Amended Cross Claim at paragraph 90, BBH's List Statement at paragraph 91).
These categories, which were emphasised in closing submissions, are wholly or almost wholly based upon numerous express representations allegedly made by Mr Chapman, as set forth in Mr Clapham's affidavits.
Another aspect of the pleaded case emphasised in closing submissions was that the CBA engaged in misleading or deceptive conduct by failing to disclose certain concerns it had about the serviceability of the proposed borrowing (see Mr and Mrs Clapham's Amended Cross Claim at paragraph 92, BBH's List Statement at paragraph 93), and thereby impliedly represented that the loans would be serviceable by Yarralumla. The CBA's concerns are evident from its internal assessments and communications about the proposed borrowing.
Before turning to a consideration of what, if any, representations were made by the CBA, it is convenient to record some observations concerning the witnesses.

Assessment of witnesses

Mr Clapham presented as a capable and experienced businessman. Whilst lacking in formal tertiary qualifications, he is plainly an intelligent man. He gave his evidence in a generally confident manner and mostly stood firm in the face of a searching cross examination. He certainly gave the impression that he believed that what he was putting forward was the truth. His evidence is to a degree bolstered by his notes of conversations which, as explained further below, I am prepared to accept were made by Mr Clapham within about a day of each conversation. Nonetheless, the notes have to be considered in light of the fact that they are not strictly contemporaneous with the events they seek to record, but are rather expanded versions of contemporaneous notes, which no longer exist, said to contain heading points and key facts. Moreover, the sometimes narrative or conclusionary form and style of the notes that have survived, and a number of demonstrated errors in those notes, further detracts from the confidence that might otherwise be reposed in them as accurate records or reflections of words actually spoken.
There were at least three aspects of Mr Clapham's evidence which caused me some concern. First, he seemed at pains to play down the significance of Mr Smith's role as a source of information to him, including as to macadamia nut prices. In Mr Clapham's first affidavit Mr Smith was referred to only once, in a brief and understated fashion, and not by name. In the witness box Mr Clapham gave the impression that he recognised Mr Smith's involvement as an impediment to the case against the CBA, and was thus prepared to be less than candid about it. Second, Mr Clapham appeared very keen, particularly in his affidavit evidence, to emphasise the importance of Mr Chapman as the proponent of the "two farm strategy" who guided him towards the purchase of Clan Macadam. However, the evidence (discussed further below) indicates that Mr Clapham had been interested in Clan Macadam for some months, even though Mr Clapham thought it lacked suitable accommodation, and that such interest continued after he and Mrs Clapham had become interested in purchasing Brooklet Farm. The impression was given that Mr Clapham was prone to exaggerate evidence which he thought would assist his case. Third, Mr Clapham appeared particularly defensive when asked about a valuation he had received of the Wondaree property. He volunteered at one point that he might not have received the whole valuation. There was no objective evidence to suggest that Mr Clapham only received part of the valuation. In my view, the suggestion made by Mr Clapham is likely to have been prompted by a concern that page 10 of the valuation contained a table showing nut prices in earlier years at levels much lower than those current in 2005. It was an important part of Mr Clapham's case that he had no knowledge of historical prices. He insisted that he did not see such information on the AMS website, even though it is clear that he did his own extensive research into the macadamia industry and he was directed to the site, by Mr Chapman, as a source of financial material.
For the above reasons, and also because of Mr Clapham's strong personal interest in the outcome of the proceedings, I consider that Mr Clapham's evidence has to be treated with considerable caution where it is not corroborated by contemporaneous documents. Further, having regard to the matters referred to above concerning Mr Clapham's notes, even where his evidence is apparently supported by the notes, it is appropriate to be somewhat circumspect.
Mr Chapman presented as a banker with extensive experience of arranging loans for agricultural borrowers in the Northern Rivers region. He was an impressive witness, notwithstanding that it was clear that he struggled to recall many details of what had occurred in his discussions with Mr Clapham. Mr Chapman seemed to be doing his best to recall what he could, and to give answers to the best of his ability. He was attacked for his explanation of how he was able to remember more details in his second affidavit, but his explanations, whilst not well expressed, appeared to me to be genuine. There is no doubt that Mr Chapman relied to a considerable extent upon what he described as "usual practice", and there is thus a degree of reconstruction rather than actual recollection involved. Nonetheless, Mr Chapman's evidence was generally consistent with the contemporaneous documents, being the written communications with Mr Clapham and the CBA's internal records of the transaction. When confronted with aspects of Mr Clapham's evidence, Mr Chapman seemed to me to give his answers honestly and as accurately as his memory allowed, often after some deliberation. Mr Chapman was prepared to accept a number of aspects of Mr Clapham's version of events, sometimes on matters of central significance to the case. Mr Chapman firmly rejected other aspects of Mr Clapham's version. When he did so I gained the impression that he was giving honest evidence. Mr Chapman has no real interest in the outcome of the case. He was an employee of the CBA when he swore his first affidavit, but not when he swore his second, as his position had by then been made redundant.
I generally accept Mr Chapman's evidence as truthful and, allowing for the passage of time, reliable. I generally prefer his evidence to that of Mr Clapham where there is a direct conflict.
Mrs Clapham was cross examined for only a short time. There is no doubt that she essentially allowed her husband to conduct the dealings with the CBA. She accepted in her affidavit that she had only a vague recollection of the events of 2005. She accepted in cross examination that since that time there had been hundreds of discussions between her and her husband about the case, and she could not rule out that what appears in her affidavit might be recording things that she was told in more recent years. Accordingly, although Mrs Clapham appeared to be trying to give truthful answers, her evidence, particularly about what she says her husband told her in 2005, cannot be afforded significant weight.
Mr Smith should be accepted as a witness who did his best to recall the events of 2005, albeit that he had a tendency to seek to minimise his role, which the documentary evidence suggests he had, as a provider of information to Mr Clapham about macadamia farm costs and macadamia nut prices. That tendency is likely to spring from a desire not to be regarded as an advisor to Mr Clapham in relation to the purchase of the farms, rather than from a desire to assist Mr and Mrs Clapham's case. Subject to that reservation, it appeared to me that Mr Smith was endeavouring to give honest evidence to the best of his ability, and I consider his evidence for the most part to be generally reliable.

Mr Clapham's notes

Before turning to the various conversations between Mr Clapham and Mr Chapman, it is convenient to deal with the challenge made to Mr Clapham's claim that his notes of conversations were made within 24 hours of each conversation. It was put that the notes were produced by Mr Clapham well after the events of 2005, in order to support the case brought against the CBA.
I agree that there are grounds for suspicion about Mr Clapham's claim. He gave evidence to the effect that it was his practice to take notes of heading points or key facts during important conversations. He stated that if the conversation took place at a meeting, the notes were made in a lever file within a leather bound folder he took to meetings. He further stated that if he was at his desk participating in a telephone conversation, the notes were made on a pad kept on the desk. Mr Clapham gave evidence that, on occasions, when he considered it important, he would make a fuller note based on the heading points. He would then discard the earlier note. He further stated that from time to time he would place his notes in a ring binder file.
Mr Clapham agreed that during 2005 he had made notes of conversations with various persons other than Mr Chapman, including officers of the National Australia Bank, and consultants with expertise in macadamia farming. However, the only notes Mr Clapham produced were those pertaining to Mr Chapman.
Mr Clapham explained that for some reason those notes were not placed in or retained in the ring binder file (which he believes may have been lost in the family's move from Sydney to Brooklet Farm in December 2005), but were instead taken out and kept in a manila folder possibly marked "CBA" which he did not find until "much later". He suggested that the manila folder was found at Brooklet Farm "in a box that came from Sydney", after February 2008 when Mr Clapham made his first written complaint to the CBA. The notes had been found by June 2011 when Mr Clapham swore his first affidavit.
That explanation might be considered unlikely, although not entirely implausible. Ultimately, having considered the matter, and bearing in mind the seriousness of the allegation that Mr Clapham is effectively basing his case upon notes apparently made at the relevant time but in fact produced much later, I am prepared, with some hesitation, to accept Mr Clapham's evidence that the notes of the 2005 conversations were made within about a day of each conversation.
I turn now to deal with the various conversations between Mr Clapham and Mr Chapman.

Conversation on 6 June 2005

The first conversation took place over the telephone on about 6 June 2005. It appears that the conversation followed Mr Chapman leaving a voicemail message for Mr Clapham. Mr Chapman had heard that Mr Clapham was interested in acquiring a macadamia farm and wanted to speak to him about the possibility of the CBA providing finance.
Mr Clapham's note of the conversation describes Mr Chapman as an "Agri Finance Manager". Mr Chapman was at that time a Business Development Manager, and he says that he would have introduced himself as such, and not as an Agri Finance Manager. Mr Clapham's note is likely to be erroneous in this respect.
The note also records Mr Chapman as saying that the CBA was the largest Agri Bank in Australia and had the majority share of the macadamia industry. Mr Chapman denied making such statements, and said in cross examination that in fact the National Australia Bank was the largest lender to the macadamia industry. I accept that evidence of Mr Chapman's and conclude that the note is incorrect in this respect too.
The note is also incorrect insofar as it indicates that Alphadale was one of the farms Mr Clapham was then looking at. By June 2005 Mr Clapham was no longer interested in that property. Mr Clapham put that error down to bad grammar or bad writing.
Mr Clapham's version of the conversation as set out in his first affidavit (sworn six years after the conversation) contains a lot of material that is not found in the note. Given that the note was produced reasonably soon after the conversation, it is difficult to accept that any matters not seen as important enough to be noted would nevertheless be recalled in detail so long after the event. It is likely that such additional material is the product of an exercise in reconstruction, undertaken much later when the parties were in dispute, and is thus of doubtful reliability.
The representations alleged to have been made by Mr Chapman during this conversation are set out in Mr and Mrs Clapham's Amended Cross Claim at paragraph 42(a)-42(g) and BHH's List Statement at paragraph 45(a)-45(g). These representations concern the CBA's and Mr Chapman's knowledge and experience of the macadamia industry.
As for the CBA's knowledge and experience, Mr Chapman specifically denies saying that the CBA had specialised knowledge of the macadamia industry. Further, such a statement is not reflected in Mr Clapham's note. I am not persuaded that Mr Chapman made the statement. I have already dealt with the alleged statements about the CBA being the largest Agri Bank with the majority share of the macadamia industry.
As for Mr Chapman's knowledge and experience, I accept that he told Mr Clapham that he owned a macadamia farm at Tregeagle. That is mentioned in the note, and is not denied by Mr Chapman, who accepted in cross examination that he might mention that if speaking to a potential customer looking to buy a macadamia farm. I also think it likely that, as conceded in cross examination, Mr Chapman spoke about his personal involvement in the industry, including his role and activities within the AMS (such as being a member of its Research and Development Committee). However, I am not persuaded that Mr Chapman told Mr Clapham that he had "provided financial and structural advice" to a number of farmers or processors, or that he had "been a long term financial adviser to the macadamia industry and have developed financial plans with, and for, many bank clients and other farmers". I am prepared to accept Mr Chapman's denial in that regard, which was not challenged in cross examination, notwithstanding that Mr Clapham's note suggests that words such as that may have been said. The tenor of Mr Chapman's evidence (which is discussed further below) was that he did not conduct himself as a financial adviser to clients of the CBA (or otherwise), and that even when working through customers' financial plans, that was only for the purpose of assessing applications for finance, including assessing whether the client understood the financial plans. I accept Mr Chapman's evidence to that effect, and do not think that he would have told a prospective client that he was a financial adviser or someone who could assist in the development of a financial plan. Neither do I accept that, in response, Mr Clapham said that "we will need someone we can rely on for industry specific financial advice and a bank that understands the industry".
In summary, only a representation in accordance with paragraph 42(d)/45(d), and a representation to similar effect of that alleged in paragraph 42(e)/45(e), has been established.
Before leaving the 6 June 2005 conversation, I note that Mr Clapham's note records Mr Chapman suggesting that there was a lot of material on the AMS website that can assist with technical and financial considerations. For some reason, that is not included in Mr Clapham's affidavit. He accepted in cross examination, however, that at some stage he had been told by Mr Chapman that technical and financial material could be seen on the AMS website.

Conversation on about 14 June 2005

It appears that another telephone conversation between Mr Clapham and Mr Chapman took place on about 14 June 2005. Mr Clapham says that during this conversation Mr Chapman made the suggestion that he should buy two farms, one to suit lifestyle and another in a lower cost area with greater production capacity. That such a suggestion was made is supported by Mr Clapham's note.
Mr Chapman denies that he made such a suggestion. He said in cross examination that from the outset Mr Clapham was talking about two farms, although he conceded he could not recall exactly when Mr Clapham first mentioned it. Later, Mr Chapman said that on 14 June 2005 Mr Clapham was already looking at two farms. He maintained there was no possibility he was mistaken about that.
In my view it is likely that on 14 June 2005, in his conversation with Mr Chapman, Mr Clapham did mention the possibility of acquiring two farms. Mr Clapham was certainly interested in Clan Macadam by that time. In cross examination he conceded that it was possible he had commenced his financial modelling for Clan Macadam by about 5 June 2005. He accepted that by early September 2005 he had been looking at Clan Macadam for several months. Mr Clapham further accepted that his due diligence for Clan Macadam had been on-going "on and off" since May 2005. It appears that this was occurring in circumstances where Mr Clapham did not regard the property as having suitable accommodation.
As at 14 June 2005 Mr Clapham had made plans to come to the North Coast to inspect more properties. These included Brooklet Farm which, even if a much smaller farm than Mr Clapham thought was needed, was in an ideal location and may have appeared to have suitable accommodation. In these circumstances, there is some reason to think that on 14 June 2005 Mr Clapham may have been contemplating the possibility of purchasing both Clan Macadam and another property. I am prepared to accept Mr Chapman's evidence that, by 14 June 2005, Mr Clapham was talking about two farms as a possibility. I also accept Mr Chapman's denial that he told Mr Clapham on 14 June 2005 that he "should buy two farms".

Conversation on about 18 August 2005

The next conversation relied upon is a further telephone conversation said to have taken place on 18 August 2005. By that time, Mrs Clapham had inspected Brooklet Farm and a decision had been taken to attempt to acquire it at the forthcoming auction.
Mr Clapham says that in the course of the conversation, in which an application for finance to purchase the property was discussed, Mr Chapman requested that a statement of assets and liabilities, and a financial plan for Brooklet Farm, be provided. Mr Clapham further says that he asked Mr Chapman what NIS prices he should assume for the plan and was told $3.50/kg for H varieties and $3.80/kg for A varieties. Mr Clapham goes on to say that Mr Chapman told him that such prices were reflected in the farm gate prices for the past couple of years, said "there is no sign of a reduction in the foreseeable future", and some farmers are this year getting over $3.70/kg for H varieties and over $4.00/kg for A varieties. Mr Clapham has no note of this conversation.
In his first affidavit, Mr Chapman deposes that he does not recall any conversation with Mr Clapham on 18 August 2005. Mr Chapman specifically denies speaking to Mr Clapham about prices in the terms alleged.
It is likely that there was a conversation in the period between mid-August to early September 2005 between Mr Clapham and Mr Chapman about what information was required to be submitted in support of a loan application. The facsimile dated 6 September 2005 from Mr Clapham to Mr Chapman refers to a discussion about the purchase of Brooklet Farm, and a request that a statement of assets and liabilities and a letter concerning Mr Clapham's consultancy income from his work for Active Optics, be provided. The facsimile also refers to Mr Clapham's projected Profit and Loss and Cashflow.
In cross examination, Mr Chapman accepted that there was a conversation in which he asked Mr Clapham for a financial plan and Mr Clapham asked him what prices he should use in his plan. Mr Chapman again denied telling Mr Clapham to use $3.50/kg for H varieties and $3.80/kg for A varieties, although he accepted that there was a discussion about price, and those prices were then recent or current prices (including bonuses) being reported at the time. Mr Chapman agreed that such prices may have been part of the discussion, but denied that he told Mr Clapham they were the prices he should include, or that he advised Mr Clapham on what prices to use. Mr Chapman was not cross examined about the alleged statement to the effect that there was no sign of those prices reducing in the foreseeable future.
The representations allegedly made by Mr Chapman in the 18 August 2005 conversation are set out in Mr and Mrs Clapham's Amended Cross Claim at paragraph 45(a)-45(b) and BLH's List Statement at paragraph 48(a)-48(b). I do not think that either representation was made as alleged.
It is likely that in a discussion about prices, the $3.50 and $3.80 prices were said by Mr Chapman to be current prices. However, I accept Mr Chapman's evidence that he did not go so far as to suggest that such prices should be used in the financial plan. Mr Clapham made no mention, in any of his emails to Mr Chapman, including those of 6, 7 and 15 September 2005, that Mr Chapman was the source of any of the prices used in his financial plans. I further accept Mr Chapman's denial, which was not challenged in cross examination, that he told Mr Clapham that there was no sign of those prices reducing in the foreseeable future.
The $3.50 and $3.80 prices were used by Mr Clapham in his financial analysis of Brooklet Farm, but only in respect of the years 2006 to 2008. Lower prices were used for 2009 and 2010. In selecting those lower prices, Mr Clapham evidently relied upon some advice he had received from Mr Smith who, it seems, considered that prices might decline somewhat in that period. Mr Smith's advice gave Mr Clapham no reason to depart from the $3.50 and $3.80 prices for the earlier years. In cross examination Mr Clapham agreed that Mr Smith held the view that the prices he used for the first three years were okay. It is likely that Mr Smith gave such advice during their lengthy telephone conversation on 6 September 2005, the day before the financial analysis was sent to Mr Chapman.

Meeting at Farmarama event

The next conversation relied upon is the conversation that occurred at the Farmarama event. Mr Clapham and Mr Chapman met face to face for the first time on that day. It was the day before the auction of Brooklet Farm. In the course of the week leading up to the meeting, Mr Clapham sent certain information to Mr Chapman, including his financial analysis for Brooklet Farm. Mr Clapham and Mr Chapman met briefly at an AMS meeting on the morning of 9 September 2005, and they met again, and had a lengthy discussion, in the afternoon.
Mr Clapham's note of this meeting runs to 9 pages. The note correctly records Mr Chapman's title of Business Development Manager. The note indicates that Mr Clapham wanted to know whether the CBA would lend for the purchase of Brooklet Farm, and that he gave an overview of Active Optics and his past business experience. The note also suggests that there was a discussion about two different strategies, one being purchasing Brooklet Farm only with a focus on consulting and Active Optics, and the other being purchasing Brooklet Farm and another farm such as Clan Macadam. The note does not suggest that the strategies were suggested by Mr Chapman.
The note does suggest that there was discussion of economies of scale in relation to the second strategy. It also suggests that Mr Clapham spoke about his ideas for developing overseas markets and value adding, and also his family's financial position. The note further indicates that Mr Clapham raised with Mr Chapman the state of the macadamia industry, and Mr Chapman said it had continued to grow with no sign of abating, and he mentioned that Pacific [Plantations] had offered five year pre-purchases at a minimum of $3.30/kg. The note further indicates that there was some discussion about the CBA and what support it would give "if things got tough". The balance of the note suggests there was a discussion about the sale of Active Optics, Mr Clapham's ability to earn consulting income, the Clapham's existing level of debt, and other matters relevant to the provision of finance, as well as the looming auction.
Mr Clapham's version of the conversation, as set out in his first affidavit, again contains a lot of material not found in the note. For the reasons given earlier in relation to the note of the 6 June 2005 conversation, I regard such material as of doubtful reliability. Nevertheless, Mr Chapman, in dealing with the discussion in his first affidavit, does not specifically deny some of those parts of Mr Clapham's version. He did not, for example, deny that Mr Clapham asked him what he made of Mr Clapham's price and expenses assumptions and whether he thought them accurate, to which he responded by telling Mr Clapham that they appeared fine except the expenses may prove to be a bit low, and the spreadsheet highlighted the problem of lack of scale with a small farm.
It is alleged that numerous representations were made by Mr Chapman during the conversation at Farmarama. The representations are set out in Mr and Mrs Clapham's Amended Cross Claim at paragraphs 45(c)-45(d), 47(a)-47(f), and 51(a)-51(c) and BBH's List Statement at paragraphs 48(c)-48(d), 50(a)-50(f), and 54(a)-54(c).
The representations alleged in paragraphs 45(c)-45(d)/48(c)-48(d) concern prices and the macadamia market.
In cross examination Mr Chapman accepted that there had been a general discussion about prices and offers made by nut processors. Mention was made of the five year supply contracts that were then being offered. Mr Chapman did not accept that he told Mr Clapham that his price assumptions were fine, although he could not deny saying that. Mr Clapham's note does not suggest that such words were said. I am not satisfied that Mr Chapman said something to the effect that Mr Clapham's prices appeared fine.
I think it is likely that, in the course of discussing the macadamia nut industry, Mr Chapman said words to the effect that the industry had continued to grow over past years and there was no sign of it abating. That something like that was said is supported by Mr Clapham's note, and Mr Chapman does not in his affidavit deny that he said those words. In cross examination, Mr Chapman agreed that the proposition that the industry was continuing to grow would have been discussed with Mr Clapham, who had apparently researched the industry extensively. In his affidavit, Mr Chapman denied that he said that the macadamia industry was only 2% of the tree nut industry. I accept that denial, which was not challenged.
It follows from the above that only representations substantially to the effect of those alleged in paragraph 45(d)/48(d) have been made out.
The representations alleged in paragraphs 47(a)-47(f)/50(a)-50(f) concern the idea of purchasing a second property.
Mr Chapman denies that he suggested the two strategies to Mr Clapham. He maintained in cross examination that Mr Clapham raised the possibility of buying Brooklet Farm and a larger farm. I accept the evidence of Mr Chapman on this matter. By early September 2005 Mr and Mrs Clapham were intent on purchasing Brooklet Farm if they could. Whilst Mrs Clapham may well have been opposed to the idea of a second farm, it seems that Mr Clapham was at least open to the idea. His facsimile to Mr Chapman of 6 September 2005 concludes with a statement that he was looking forward to meeting with Mr Chapman and discussing both the Brooklet Farm and Clan Macadam properties. His note of the discussion at Farmarama records that he explained to Mr Chapman that he "was still undecided" about buying Brooklet Farm and another farm such as Clan Macadam. As mentioned earlier, the note does not suggest that the two strategies were suggested by Mr Chapman. I reject Mr Clapham's evidence that Mr Chapman raised the idea of the two strategies, and that he told Mr Chapman that he was "very uneasy" about the idea of a second farm. I also reject his evidence that he did not consider buying two farms until Mr Chapman suggested it.
However, it seems clear that there was a discussion about economies of scale. Mr Chapman accepted that there was such a discussion in relation to Clan Macadam. He agreed that there was discussion about one of the benefits of economies of scale being an enhanced negotiating position with nut processors. He also said that it was Mr Clapham's plan from the outset to have a volume so as to achieve that. However, Mr Chapman denies that he advised or recommended that Mr Clapham buy a second property.
Mr Chapman also denies that he referred to the 20-40 tonnes of nut from Brooklet Farm as "a nuisance factor". In cross examination, Mr Chapman did not accept the view that smaller farms are likely to be less profitable. He said it depended upon the condition of the farm, how well it is run and how well it is mechanised. In his affidavit, Mr Chapman denied that he told Mr Clapham that he would likely find [with Brooklet Farm] that he would do a lot of work for little return, and that a second, larger property would create scale to afford much greater profitability and a better lifestyle.
Mr Clapham's note suggests that Mr Chapman said that the size of crop from Brooklet Farm was not viable and more of a nuisance factor, and that the discussion about economies of scale included Mr Chapman saying that around 200 tonnes of crop would provide a good negotiating position with nut processors.
I am nonetheless prepared to accept Mr Chapman's denial, which was not challenged in cross examination, that he did not describe the Brooklet Farm crop as a nuisance factor. Further, having regard to his answer about the profitability of smaller farms, I do not think that Mr Chapman would have described the crop as not viable. It is likely, however, that the relative sizes of the crops from Brooklet Farm and larger farms such as Clan Macadam would have been mentioned in the course of the discussion, and that statements about the benefits of a large crop (such as an enhanced negotiating position, and more efficient utilisation of machinery) would have been made by Mr Chapman. I accept that Mr Chapman did not in the course of the discussion say anything to the effect that he advised (or recommended) that a second farm be purchased. I further accept that he did not say that a second, larger property would afford much greater profitability and a better lifestyle.
It follows from the above that representations, along the lines of some but not all of those alleged in paragraphs 47(a)-47(f)/50(a)-50(f), were made.
The representations alleged in paragraphs 51(a)-51(c)/54(a)-54(c) concern the provision of support by the CBA.
Mr Chapman agreed that there was some discussion about the CBA, and that this would have been part of his business development role. He agreed that he spoke about the CBA's commitment to all sectors of agriculture, including the macadamia industry. He denied that he said the CBA had a very large share of financing the industry, or that the CBA would be there if things get tough, or said that the CBA would be supportive in tough times. Mr Chapman further denied that he said the CBA might give a moratorium on interest payments if cashflows get tight, and that he acceded to the suggestion that the CBA would give time to restructure if needed. Mr Chapman was prepared to accept that he suggested that the CBA would (subject to assessment at the time) provide additional working capital to bridge the tough periods, or might provide extensions to the terms of facilities.
Again, I accept Mr Chapman's evidence about what he said about the CBA. I appreciate that Mr Clapham's note provides support for parts of Mr Clapham's version of what was said. However, I prefer to accept Mr Chapman's denials rather than rest upon the note. For the reasons referred to earlier, I do not have a high level of confidence in the accuracy of Mr Clapham's notes.
It follows from the above that representations, along the lines of some but not all of those alleged in paragraphs 51(a)-51(c)/54(a)-54(c), were made.

Mr Clapham agrees terms for purchase of Clan Macadam and is successful at auction of Brooklet Farm

After the meeting at Farmarama Mr Clapham made arrangements to meet one of the vendors of Clan Macadam later in the afternoon. At that meeting, Mr Clapham agreed to terms for the purchase of the property for $3.7 million, with settlement to take place in January 2006.
Mr Clapham was the successful bidder for Brooklet Farm at the auction on the following day, 10 September 2005. It appears that after telling his wife the news, Mr Clapham telephoned Mr Chapman and either briefly spoke to him or left a voicemail message for him. Mr Clapham's first email to Mr Chapman of 11 September 2005 refers to a voicemail (of yesterday) and also to having discussed his arrangement for the purchase of Clan Macadam. As that arrangement was not made until after the meeting at Farmarama, the discussion mentioned in the email could refer to a discussion on the telephone, possibly on 10 September 2005. Mr Chapman deposed that he did not believe he had a conversation with Mr Clapham after the auction. In cross examination, however, he seemed to accept that there may have been such a conversation. On either view, it is likely that Mr Clapham would have conveyed, not only that he had been successful at the auction, but also that he had made an arrangement to purchase Clan Macadam. I do not think that anything significant turns on whether Mr Chapman said to Mr Clapham that it would be easier for all if the purchase of Clan Macadam was quickly concluded.

Meeting on 23 September 2005

The next conversation of significance occurred on 23 September 2005 at the CBA in Lismore. By that time, Mr Clapham had sent a deal of further information to Mr Chapman about Active Optics and Clan Macadam, and Mr Chapman had himself inspected the property. Amongst the information sent was Mr Clapham's financial plan for Clan Macadam. Mr Clapham was aware that the submission of such was required as part of the application for finance.
It should be noted that on 11 September 2005 Mr Clapham informed Mr Chapman that he had done extensive financial modelling on Clan Macadam. Further, Mr Clapham informed Mr Chapman that he would be sending his financial analysis to Graham Smith for his review prior to sending it to Mr Chapman.
It appears that the financial analysis was reviewed by Mr Smith. Mr Clapham said as much in his email to Mr Chapman on 15 September 2005. Earlier that day Mr Clapham had attended a meeting with Mr Smith. According to Mr Clapham's email Mr Smith had reviewed the financial plan and made various suggestions. It is likely that, on that occasion, Mr Clapham and Mr Smith had a conversation concerning macadamia nut prices during which Mr Smith spoke about the possibility of fluctuations in prices, and the need to undertake sensitivity analysis. Mr Clapham's email to Mr Chapman also notes a comment made by Mr Smith that it was feasible that prices would fall after three years. It is not clear whether that comment was made at the meeting on 15 September 2005, during their telephone conversation on 6 September 2005, or on some other occasion. In any event, Mr Clapham noted in his email that he had already accommodated that comment in his assumptions, and he further expressed confidence that his vertical integration strategy would be well in place in three years, and it would largely shield him from large increases in supply and any downward price pressure. Mr Clapham said he looked forward to Mr Chapman's feedback.
On either 19 or 20 September 2005 Mr Chapman and Mr Clapham had a conversation which included Mr Chapman giving his views about the attributes of Clan Macadam, which he had recently inspected.
Mr Clapham's note of the 23 September 2005 meeting runs to 8 pages. It appears that there is a mistake on the first page, insofar as it records a request by Mr Chapman for copies of certain documents. The documents had been sent to Mr Chapman by email the day before. Mr Clapham accepted in cross examination that the note may be erroneous in this respect. I note further that the text is incomplete between the foot of page 2 and the top of page 3. It is at that point that the note records that Mr Chapman remarked that there was absolutely no reason to expect prices to fall because demand continued to outstrip demand (sic).
The note goes on to deal with the undertaking of sensitivity analysis of Mr Clapham's financial plan for Clan Macadam. It refers to a sensitivity analysis using prices of $2.85 (presumably for H varieties) and $3.05 for A varieties, and records that the result was alarming. The note suggests there was then discussion about ways to mitigate that, during which Mr Chapman said there should be no need, but it may be wise to obtain a five year deal with Pacific [Plantations]. The note refers to a sensitivity analysis using $2.45 for H varieties and $2.65 for A varieties, which produced alarming results and prompted Mr Clapham to ask whether that was possible "and if so we should definitely not buy Clan Macadam". Reference is then made to a lengthy response from Mr Chapman which was "very reassuring" and which "put my mind at ease". Mr Chapman is noted as speaking about his knowledge of and role in the macadamia industry, before noting various matters such as improvements in marketing and research and development, consistently higher demand than supply, the opening of new markets, and large players now coming into the market.
The note further records some discussion about what could be done if the plan did not go well, including due to softening prices. The note suggests that Mr Chapman spoke about obvious contingencies being the obtaining of additional off-farm income and "as a worst case" the sale of the MacMasters Beach property.
The note then records some discussion about the finance that may be available. The note includes a reference to some calculations suggesting that a five year interest only facility should be obtained and further records Mr Chapman as explaining that the current business model did not permit the repayment of principal.
Mr Clapham's account of what occurred at the meeting, as contained in his first affidavit, again contains a lot of material that is not found in the note. An example is Mr Clapham's testimony that he said to Mr Chapman that it was essential to get a good handle on the financial nuances and risks of the business, and that if he could get the financial plans right "with your specialised knowledge" then he would not be setting himself up for failure. Another example is his testimony that after the $2.45 and $2.65 sensitivity test was done Mr Chapman said it was only done as an academic exercise and Mr Clapham's alarm was unwarranted. So, too, is the testimony that Mr Chapman said he was still strongly of the opinion that buying two properties was the best option and a very sound investment. There are further examples, but I will mention just one more. That is Mr Clapham's testimony that Mr Chapman said that the worst case would be a minor short term reduction in prices if there were a few more record crops. For reasons already referred to, I do not regard such evidence as reliable.
The representations allegedly made by Mr Chapman during the 23 September 2005 meeting are set out in Mr and Mrs Clapham's Amended Cross Claim at paragraphs 43(a)-43(b), 45(e)-45(l), 47(g) and 49(a)-49(b) and BBH's List Statement at paragraphs 46(a)-46(b), 48(e)-48(l), 50(g) and 52(a)-52(b).
The representations alleged in paragraphs 43(a)-43(b)/46(a)-46(b) concern Mr Chapman's knowledge and experience. Mr Clapham deposed that Mr Chapman complimented him on the quality of his financial plan, and later said that because most farmers scribble down a few numbers on a bit of scrap paper, he had to prepare much of the detailed financial analysis. This was not specifically denied by Mr Chapman. Moreover, Mr Chapman accepted in cross examination that he had complimented Mr Clapham on his financial plan, and Mr Clapham's note provides some support for a statement about many (not most) farmers scribbling numbers on scrap pieces of paper. The note does not suggest that Mr Chapman said he prepared detailed financial analysis for farmers. Moreover, that matter was not put to Mr Chapman in cross examination. In these circumstances I am not prepared to accept that Mr Chapman made a representation to the effect of that alleged in paragraph 43(a)/46(a).
I am prepared to accept that Mr Chapman made statements about his knowledge and experience of the industry to similar effect of those alleged in paragraph 43(b)/46(b). These statements were not specifically denied by Mr Chapman, and they also gain some support from Mr Clapham's note. Although this topic was dealt with only generally, and not raised in cross examination in the context of the 23 September 2005 meeting, I think it is likely that Mr Chapman would have made such statements in the context of a general discussion about the macadamia industry. There seems little doubt (and Mr Chapman accepted as much in cross examination) that a general discussion of that nature did take place during the lengthy meeting on 23 September 2005.
The representations alleged in paragraphs 45(e)-45(l)/48(e)-48(l) concern prices and the macadamia market. The representations alleged in paragraphs 49(a)-49(b)/52(a)-52(b) concern the "worst case". It is convenient to deal with these together.
Mr Chapman's first affidavit contained a number of specific denials of statements attributed to him (including the three representations then alleged in Mr and Mrs Clapham's original Cross Claim, which incorrectly placed the meeting as occurring on 12 October 2005). Mr Chapman denied the conversations concerning prices and demand and supply contained in paragraphs 69, 71 and 76 of Mr Clapham's first affidavit. In his second affidavit, Mr Chapman recalled that at some stage Mr Clapham asked him about what he expected to see for future NIS prices, to which he responded by saying that he couldn't answer that but there are people you can speak to. In cross examination, Mr Chapman maintained that he responded in that way. Mr Chapman also deposed in his second affidavit that at the 23 September 2005 meeting Mr Clapham asked him to review his cashflow statements, and he told him that he couldn't advise on that, although the expenses were on the light side. Mr Chapman ultimately accepted in cross examination that he did not say that about Mr Clapham's expenses on 23 September 2005, and that he was wrong about the date of the conversation in that respect. Mr Chapman also deposed in his second affidavit that on 23 September 2005 he told Mr Clapham that the sensitivity analysis involving the $2.45 price was done because that was the way the CBA assessed 10 to 15 year loans.
When cross examined about the 23 September 2005 meeting, and in particular the sensitivity analysis, Mr Chapman explained that the analysis involving the $2.45 price was done as part of looking to see whether the CBA could do a 15 year principal and interest loan. Mr Chapman explained that the sensitivity analysis involving the $2.85 and $3.05 prices was done to test the option of providing funding through a five year interest only loan. Mr Chapman said that sensitivity analysis was done with Mr Clapham, using his model, so as to demonstrate how the CBA would analyse the figures, and also as part of assessing whether the client understood their own cashflows. I note that in the course of his cross examination Mr Clapham stated that the sensitivity analysis was done on the back of a request made by Mr Chapman.
Mr Chapman agreed that the results of the $2.45 analysis showed significant losses each year, and that Mr Clapham said he shouldn't buy Clan Macadam if prices would fall that low. He denied that he said he saw absolutely no reason for the price to fall below the current prices of around $3.50 NIS. Mr Chapman also denied that he said the worst case would be a minor short term reduction if there were a few more record crops; he categorically denied saying that in any case he did not see a drop of more than 10%-15% producing a worst case of $3.00 NIS. He said that he had never in his bank career given a forecast of a commodity price beyond the current season.
Mr Chapman said that the $2.85 and $3.05 sensitivity analysis produced results that were reliant upon off-farm income. He agreed that there was discussion of what could be done to mitigate against the possibility of prices falling to $2.85 and $3.05, and that the five year contracts (of which Mr Clapham was himself aware) were discussed. He agreed that in talking about contingencies, he would have said something such as the obvious contingencies were obtaining additional off-farm income and as a worst case selling the MacMasters Beach property to retire some of the debt.
I generally accept Mr Chapman's evidence concerning the discussion held on 23 September 2005.
It is likely that Mr Chapman was asked to review Mr Clapham's cashflow statements. I accept that Mr Chapman said he could not advise on them. I am not satisfied that Mr Chapman said that Mr Clapham's prices "appeared fine". Mr Chapman denies the conversation and Mr Clapham's note does not suggest that such words were said. Even if Mr Chapman had said such words or similar words they would have to be understood in light of Mr Chapman's statement that he could not advise on the cashflow statements.
Mr Clapham's note provides some support for the contention that Mr Chapman said there was no reason to expect prices to fall. Nevertheless, the note is incomplete and inaccurate at that point, and I would not be prepared to accept it as accurately recording something that was said. It seems clear that there was considerable discussion, at various times during the meeting, about the macadamia industry, including about prices. I do not doubt that in the course of such discussion Mr Chapman would have spoken about the state of the industry as he saw it, and may have spoken in positive terms about the industry. I think it likely that the discussion included references, to similar effect of that recorded in Mr Clapham's note, to matters such as strong demand, the desirability of macadamia nuts, the opening of new markets, the potential for new markets, and entry into the market of large players. However, I accept Mr Chapman's denial that he told Mr Clapham that he saw no reason for prices to fall (or no sign that prices would fall). I consider that Mr Chapman was being truthful when he said that he never gave forecasts of commodity prices beyond the current season. I think that whilst he would have been prepared to engage with Mr Clapham in a wide ranging discussion about the macadamia industry, he would have been astute not to get into the area of giving price forecasts or advice about future prices.
I further accept Mr Chapman's denial that he said the sensitivity analysis using the $2.45 price was only an academic exercise, and I accept his evidence that such analysis was done as part of considering whether a principal and interest loan for a 15 year term might be possible. It seems that, in response to the results of that analysis, Mr Clapham did say something to the effect that if prices would (or perhaps could) fall that low, then he should not proceed to buy Clan Macadam. It further seems likely that in the discussion that followed, Mr Chapman spoke about various aspects of the macadamia industry and, again, may have spoken in positive terms about it. There was also, it appears, discussion about what could be done if things did not go to plan, for example if prices fell. Of course, statements made at the meeting about the industry have to be considered in that context, namely, as part of a discussion in which it was recognised that prices may fall in the future.
I note at this point that in cross examination Mr Clapham conceded that at the 23 September 2005 meeting he knew that there was some chance that there could be a reduction in prices. I would conclude that Mr Clapham was well aware of that possibility. He agreed that he knew from his international experience that the prices of commodities fluctuate, and can be affected by a range of factors. He agreed he had an inkling that any agricultural pursuit could have its ups and downs. He agreed that he did not need Mr Chapman to tell him that agricultural commodity prices went up and down from time to time. Mr Clapham disclaimed any knowledge of historical prices, but I accept Mr Smith's evidence that on about 15 September 2005 he had a conversation with Mr Clapham in which he informed Mr Clapham that he should consider the possibility of price falls in the foreseeable future, given that there had been "price fluctuations in the past like all commodities". Moreover, Mr Clapham undoubtedly undertook a great deal of research into the macadamia industry throughout 2005, and it would be surprising if he had not already obtained information about prices, including historical price levels. Mr Clapham certainly had the means of so informing himself, if he thought it relevant. He had been directed by Mr Chapman to the AMS website which contained financial information including tables showing historical prices. He received a valuation of the Wondaree property that contained a table showing that the average price obtained in 2001 was only $2.51, as compared to $3.99 in 2004. The valuation also contained commentary on the market that included: As with all rural industries, the Macadamia industry experiences its peaks and troughs. It is currently in ascending phase as international and domestic demand for kernel continues. Last season that market demand exceeded production, this settling the scene for the current NIS price levels. It is impossible to predict how long the current high prices will continue.
It is likely that Mr Clapham received the full valuation, and it is likely that he read through it and saw the material about prices.
Mr Clapham maintained that Mr Chapman gave him assurances that the prices of macadamia nuts would not fall in the foreseeable future. Mr Clapham said that Mr Chapman gave him an elaborate explanation as to why there would be no such fall in price. I do not accept that evidence. I prefer to accept Mr Chapman's denials that he provided any forecasts or offered any predictions about prices beyond the current season, including his denials that he said what the worst case for prices would be.
I do accept that Mr Chapman is likely to have said something to the effect that in the worst case the MacMasters Beach property could be sold to retire some of the debt. Such a statement seems to have been made in the course of a discussion about what might be done to mitigate against adverse circumstances. The earning of additional off-farm income was cited as one contingency, and the sale of the MacMasters Beach property was cited as another, which could be availed of in the worst case. Such a statement does not in my view amount to a representation as to what might constitute the worst case. It is little more than a statement that if the worst case occurred, the asset could be sold to reduce the debt burden.
It follows from the above that apart from the making of representations substantially as alleged in paragraphs 45(j)-45(l)/48(j)-48(l), the representations alleged concerning prices and the macadamia market have not been made out.
The representation alleged in paragraph 47(g)/50(g) concerns the idea of purchasing a second property. It is alleged that Mr Chapman said that he was still strongly of the opinion that buying two properties was the best option and a very sound investment. The making of such a statement is not supported by Mr Clapham's note. In his first affidavit, Mr Chapman denied any conversation to the effect that he suggested to Mr Clapham that he buy two farms. He said (and maintained in cross examination) that it was not part of his role to give advice. In his second affidavit he deposed that he never gave advice or recommendations on purchasing properties. I accept Mr Chapman's evidence that he did not make a recommendation to Mr Clapham that he purchase a second property, and did not say to him that a second property would be a very sound investment. It was not put to Mr Chapman in cross examination that he made those statements at the meeting of 23 September 2005. The representation alleged in paragraph 47(g)/50(g) has not been made out.
I should note that in reaching my conclusions concerning what was said at the meeting I have considered Mr Clapham's evidence of a telephone conversation he had with Mr Chapman in about April 2007, after Mr Clapham had received offers from processors to buy at prices as low as $1.40. According to Mr Clapham he reminded Mr Chapman that they had done sensitivity analysis and that Mr Chapman had assured him that there was no chance of prices reaching $2.65. Mr Clapham deposed that he asked Mr Chapman how he was so wrong. Mr Clapham says that in his reply, Mr Chapman said (amongst other things) that he had told Mr Clapham that prices would remain at around $3.50 for the foreseeable future. Mr Clapham's version of the conversation is apparently supported by a note he made. Mr Chapman had little recollection of such conversation.
I have serious doubts about the genuineness of Mr Clapham's note of this conversation. Mr Clapham explained that his notes of his conversations with Mr Chapman had been placed into a manilla folder which had been found at Brooklet Farm "in a box that came from Sydney". Mr Clapham further explained that the manilla folder had not been found until after February 2008. If those explanations are correct the manilla folder would not have contained any note of a conversation in 2007. Presumably, any note of a conversation in 2007 would have been available to Mr Clapham when he composed his letter of complaint to the CBA of 28 February 2008. Mr Clapham said he went looking for his notes before he wrote that letter. Yet the letter, in which it is noted that Mr Chapman failed to foreshadow the industry downturn that commenced in 2006, and refers to him presenting a very positive outlook for the industry, contains no reference to Mr Chapman giving assurances about prices, including that prices would be maintained around a particular level for the foreseeable future. I note further that Mr Clapham made no reference to the April 2007 conversation, or any note of such, in his first affidavit.
In any case, I do not think that much weight can be placed upon an apparently spontaneous telephone conversation that occurred more than 18 months after the relevant events. It is of little assistance in trying to ascertain what is likely to have been said about prices at the 23 September 2005 meeting. I note that it was not suggested to Mr Chapman in cross examination that on 23 September 2005 he nominated $3.50 as a price that would remain for any period, let alone for "the foreseeable future".

Summary of conclusions about alleged representations

My conclusions concerning the alleged representations may be summarised as follows: 1. It has been established that Mr Chapman made a number of representations as to his knowledge of and experience in the macadamia industry, these being: 1. A representation made on about 6 June 2005 as alleged in paragraph 42(d)/45(d) that Mr Chapman owned his own macadamia farm; 2. A representation made on about 6 June 2005 to similar effect of that alleged in paragraph 42(e)/45(e) about his personal involvement in the industry, but not that he had been a financial or structural advisor to the industry or had developed financial plans for farmers in the industry; and 3. Representations made on 23 September 2005 to similar effect of those alleged in paragraphs 43(b)/46(b) about his personal involvement in the industry. 1. It has been established that Mr Chapman made some representations concerning the macadamia market, those being: 1. Representations made on 9 September 2005 substantially to the effect of that alleged in paragraph 45(d)/48(d) about the growth of the macadamia nut industry, although not that the macadamia nut industry comprised only 2% of the total tree nut industry; and 2. Representations made on 23 September 2005 substantially to the effect of those alleged in paragraphs 45(j)-45(l)/48(j)-48(l) about improvements in marketing, the desirability of macadamias, and the entry of large players into the market taking large portions of the supply. 1. It has been established that Mr Chapman made some representations concerning the benefits of larger farms, these being representations made on 23 September 2005 along the lines of some of those alleged in paragraphs 47(a)-47(f)/50(a)-50(f) that economies of scale and larger crops afforded by larger properties (such as Clan Macadam) brought benefits including an enhanced negotiating position with nut processors and more efficient utilisation of machinery. 2. It has been established that Mr Chapman made some representations concerning the provision of support by the CBA, these being representations made on 9 September 2005 along the lines of some of those alleged in paragraphs 51(a)-51(c)/54(a)-54(c) that the CBA was committed to the macadamia industry, that it might (subject to assessment at the time) provide additional working capital to bridge tough periods, or might provide extensions to the terms of facilities.

Did the CBA engage in misleading or deceptive conduct?

I turn now to the question whether the CBA, by the making of those representations, engaged in conduct which was misleading or deceptive or likely to mislead or deceive.
As already noted, emphasis was placed in closing submissions upon the so-called Price and Market representations, the Second Property representations, and the Worst Case Scenario representations. As a consequence of my findings, the Worst Case Scenario representations can be put aside. None of those were made out.
Further, Mr D A C Robertson of counsel, who appeared for Mr and Mrs Clapham and BBH, indicated that the so-called Express Expert Knowledge representations were not said to be false or misleading but were rather matters that gave Mr Clapham comfort that he could rely on what Mr Chapman had to say. To that extent the representations I have found concerning Mr Chapman's knowledge and experience in the macadamia industry may also be put aside.
That leaves the representations I have found concerning the macadamia market, the benefits of larger farms, and the provision of support by the CBA.
I will deal first with the market representations I have found. Mr Robertson placed primary emphasis upon this aspect of Mr Chapman's conduct. I note that Mr Robertson identified certain of the Price and Market representations as representations with respect to future matters, but none of those has been made out. Mr Chapman made representations to the effect that: 1. The macadamia nut industry had continued to grow in past years with no sign of abating and that macadamia nut markets were growing; 2. There had been large improvements in the industry's marketing, which had become much more sophisticated; 3. Macadamias were possibly the most desirable nut; and 4. The five year purchasing contracts was evidence that large players were coming into the market and taking large portions of the supply.
These statements of Mr Chapman's opinions or understandings about the state of the industry were not shown to be in any way inaccurate or unfounded. No suggestions to that effect were put to him in cross examination, or made in closing submissions. The making of those representations was not in my view misleading or deceptive or likely to mislead or deceive.
I have reached the same conclusion in relation to the representations made by Mr Chapman concerning the benefits of larger farms. Mr Chapman spoke to Mr Clapham about the notion of economies of scale (which involves lower unit costs) and said that larger macadamia farms (which produce larger crops) can benefit from such economies in various ways such as an enhanced negotiating position with processors and more efficient utilisation of machinery. None of those statements of opinion or understanding was shown to be inaccurate or unfounded. In closing submissions, Mr Robertson suggested that only the Second Property representation made on 23 September 2005 (see paragraph 47(g)/50(g)) was itself misleading or deceptive. However, I have found that no such representation was made. I further note that Mr Clapham, who apparently had a good understanding of markets and business matters through his own experience, had himself come to the view that a farm with about 7,000 trees would be needed. He accepted in cross examination that Brooklet Farm, with only 3,000 trees, did not fit his ideal.
The representations concerning the provision of support by the CBA were touched upon only briefly in closing submissions. Mr Robertson suggested, based on Mr Chapman's own evidence, that if he had said that the CBA would support the Claphams and give them time to restructure if needed, or said that there might be a moratorium on interest payments, then such statements could be seen as false or misleading. However, I have not found that Mr Chapman said either of those things. The statements I have found were made, concerning the possibility of provision of additional working capital (which in fact occurred in 2007) or extensions to the facilities, were not suggested to be misleading, either to Mr Chapman in cross examination, or in submissions. I note that the representations alleged in paragraph 51/54 were not pleaded to be representations with respect to future matters (see paragraph 98 of Mr and Mrs Clapham's Amended Cross Claim and paragraph 99 of BBH's List Statement). I am not satisfied that the representations made concerning support from the CBA were misleading or deceptive or likely to mislead or deceive.
It is necessary to turn now to consider the case insofar as it is based upon various implied representations, and the failure of the CBA to disclose certain information about the loan application.
Numerous categories of implied representations are identified in the pleading (see Mr and Mrs Clapham's Amended Cross Claim at paragraphs 54 to 63 and BBH's List Statement at paragraphs 57 to 66). Each of them relies to a greater or lesser degree upon the making of some of the categories of express representation, which have been dealt with above. Some of them also rely upon the failures to disclose that are detailed in Mr and Mrs Clapham's Amended Cross Claim at paragraph 53 and BBH's List Statement at paragraph 56.
The failures to disclose (the fact of which is not disputed by the CBA) concern information contained in the relevant Credit Application Decision Sheet (or CADS) and associated internal communications involving Mr Chapman and the Credit Manager, Mr Clarke, in particular Mr Clarke's memorandum of 11 October 2005 and emails exchanged on 7 November 2005 and 9 November 2005.
In closing submissions Mr Robertson explained that the failure to disclose was not in and of itself misleading. Rather, it was misleading to fail to disclose in circumstances where Mr Chapman had made the express representations and undertaken the sensitivity analysis with Mr Clapham, in the course of which he made statements to overcome Mr Clapham's concerns about the possibility of low prices. That is, having engaged in that conduct, it was misleading of the CBA to fail to inform Mr Clapham of its own assessments which were "diametrically opposite" to that represented to Mr Clapham. In that regard, Mr Robertson was evidently referring not only to the Price and Market representations and Worst Case Scenario representations, but also the Second Property representations and the Express Expert Knowledge representations. Mr Robertson submitted that it was a situation like that referred to in Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 at 391 where it was stated by the Full Court of the Federal Court of Australia: A bank may be expected to act in its own interests in ensuring the security of its position as lender to its customer, but it may have created in the customer the expectation that nevertheless it will advise in the customer's interests as to the wisdom of a proposed investment. This may be the case where the customer may fairly take it that to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture.
It is of course necessary to consider this aspect of the case on the basis that only a few of the representations alleged against the CBA have been made out. The representations that have been made out, and the fact that Mr Chapman and Mr Clapham together undertook some sensitivity analysis, have to be considered in the overall context of the dealings between the parties. Where non-disclosure of information is advanced as a basis for a finding of misleading or deceptive conduct, a common and accepted approach is to examine the circumstances as a whole in order to determine whether they give rise to a reasonable expectation of disclosure of some relevant fact or information (see Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 at 41; Miller and Associates Insurance Broking Pty Limited v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 at [16]-[22]; Traderight (NSW) Pty Limited v Bank of Queensland Limited [2015] NSWCA 94 at [185]-[192]).
Viewed broadly, the interaction between Mr Clapham and Mr Chapman took place in the course of dealings between a prospective borrower and a prospective lender. Mr Clapham was, and presented himself to be, a man with extensive international business experience, and not insignificant wealth. He had definite ideas about what he would like to do in the macadamia industry. He had ideas of pursuing value-adding and vertical integration strategies, and making use of business contacts he had made.
In their initial conversation, Mr Clapham told Mr Chapman that the people he was dealing with at his existing bank, the National Australia Bank, did not seem to understand what he was trying to achieve. He also told him that he had thoroughly researched the growing of macadamias and had inspected many properties. Mr Chapman told Mr Clapham that he owned his own macadamia farm, and told him about his role and activities within the AMS. I have not accepted that Mr Chapman said that he provided financial advice to farmers or the industry, nor that Mr Clapham said that he would need someone he could rely on for industry specific advice and a bank that understands the industry.
In early September 2005 Mr Clapham forwarded information to Mr Chapman for the purpose of obtaining a loan for the purchase of Brooklet Farm. He sent a statement about assets and liabilities to Mr Chapman, and proof of his current consultancy income of about $24,000 per month. He then sent his financial analysis for Brooklet Farm to Mr Chapman. He informed Mr Chapman that he had wanted to run the analysis by Graham Smith before sending it to Mr Chapman.
Mr Clapham and Mr Chapman had their first face-to-face meeting on 9 September 2005, the day before the Brooklet Farm auction. Mr Clapham said he and his wife were keen to purchase the property, and wanted to know if the CBA would be willing to lend money for that purpose. During the course of the meeting, there was discussion about the macadamia industry including, as I have found, Mr Chapman talking about the growth of the industry.
On 11 September 2005, after Mr Clapham had agreed to terms for the purchase of Clan Macadam and had been successful at the auction for Brooklet Farm, he sent an email to Mr Chapman. Mr Clapham said he wanted to change his bank accounts, including his existing mortgage over the MacMasters Beach property, to the CBA, and borrow from the CBA to facilitate the purchase of Brooklet Farm. In relation to Clan Macadam, Mr Clapham indicated that he had done extensive financial modelling and believed it would provide a considerable positive cashflow. He further indicated that he would send the financial analysis to Mr Smith for review before sending it to Mr Chapman. As I have found, on about 15 September 2005 Mr Smith did review Mr Clapham's analysis. Mr Clapham also sent further information concerning Active Optics to Mr Chapman to assist him to further understand the business.
In the course of the following week, Mr Clapham sent further information to Mr Chapman about Clan Macadam. The information revealed that Mr Clapham was looking in detail at the attributes of the property, and had spoken to at least three consultants (Messrs Vimpany, Coates and Stead) about it. Mr Clapham again informed Mr Chapman that he would be sending the figures to Mr Smith, after being reviewed by one of the vendors, Albert Hilton. Mr Clapham thought such a review should be done even though he recognised Mr Hilton's "obvious bias".
By email sent on 15 September 2005, Mr Clapham informed Mr Chapman that Mr Smith had reviewed the financial plan and that certain of his suggestions had been incorporated into the plan. Mention was made of a comment made by Mr Smith about the possibility of nut prices falling after three years. Mr Clapham expressed the view that his vertical integration strategy would be well in place by then and it would provide a shield against downward price pressure. Mr Clapham said that he looked forward to Mr Chapman's "feedback".
It appears that when Mr Clapham and Mr Chapman next met, on 23 September 2005, Mr Clapham asked Mr Chapman about what he expected to see for future NIS prices. Mr Chapman gave evidence, which I accept, that he told Mr Clapham that he couldn't answer that. It further appears that Mr Clapham asked Mr Chapman to review his cashflow statements. Mr Chapman gave evidence, which I again accept, that he told Mr Clapham that he couldn't advise on the cashflow statements.
I also accept that sensitivity analysis was carried out at the meeting in order to test whether various finance facilities offered by the CBA may be available, and that Mr Chapman told Mr Clapham that the sensitivity analysis involving the $2.45 price was done because that was the way the CBA assessed 10 to 15 year loans. As Mr Chapman explained, the undertaking of such analysis also served the purposes of showing the client how the CBA would analyse the figures, and helping in the assessment of whether the client understands their own cashflows. Mr Clapham's note indicates that Mr Chapman did some calculations that suggested that a five year interest only facility should be obtained, and that Mr Chapman explained that the current business model did not permit the repayment of principal.
As I have found, there was discussion at the meeting about the macadamia industry, but such discussion did not extend to Mr Chapman speaking about future prices, that is, prices beyond the current season.
Following the meeting of 23 September 2005 Mr Clapham provided further information from time to time in support of the application for finance, such as further statements of assets and liabilities and the trust deed for the Clapham Family Trust.
A man in Mr Clapham's position, with his experience of business, must have known that the CBA would be conducting its own assessment of whether to offer finance for the acquisition of Clan Macadam. He would have appreciated that the CBA would be conducting its assessment for its own commercial purposes. Mr Clapham's answer in cross examination that he didn't see the CBA as being on the other side of the transaction struck me as disingenuous. His note of the 23 September 2005 meeting indicates that Mr Clapham negotiated with Mr Chapman so that the cost of valuations was included in the establishment fee. After the letter of approval of 14 October 2005 was issued, Mr Clapham negotiated for a different mix of facilities.
At no stage did the CBA, through Mr Chapman, agree to give any advice to Mr Clapham concerning the viability of the proposed purchase of Clan Macadam. Indeed, Mr Chapman expressly declined Mr Clapham's verbal requests to advise on Mr Clapham's cashflow statements, or provide views concerning future prices. Moreover, Mr Clapham had access to his own sources of advice (such as Mr Smith) and he informed Mr Chapman of their existence. The present case is far removed from the situation found in Commonwealth Bank of Australia v Smith (supra).
I am unable to see how the circumstances of the interaction between Mr Clapham and the CBA would give rise to any reasonable expectation that the CBA would disclose any details of its own assessment of the proposed finance, even if its assessment included some concerns as to whether it was a satisfactory risk.
I note in this context that after the valuation of the MacMasters Beach property came in at only $2 million, not the $3.5 million put forward by Mr Clapham, he was told by Mr Chapman that the CBA was unable to give an approval at that stage. I accept Mr Chapman's evidence to that effect. I also accept that Mr Clapham thereupon spoke of his ability to earn considerable income from consultancy work, and requested Mr Chapman to have the matter reconsidered. It seems clear that Mr Clapham was thereafter requested to submit independent verification of his ability to earn consultancy income, and Mr Clapham proceeded to obtain letters for that purpose. He agreed in cross examination that he understood the CBA was looking for further comfort in relation to his capacity to earn consulting income. Some of the letters refer to the problem caused by the low valuation, and one mentions that it had the effect of reducing the loan to value ratio for the bank. I infer that Mr Clapham understood that the low valuation was an obstacle in the way of approval of finance and that the evidence of his personal income earning ability was needed in order for an approval to be given.
Having regard to all the circumstances, I do not think that the CBA engaged in any conduct that was misleading or deceptive or likely to mislead or deceive by not disclosing details of its assessment of the proposed finance, including details of its concerns about whether the proposed loan was a satisfactory risk.
The various implied representations pleaded were not the subject of specific submissions in closing address. In any case, in light of my findings above, and my findings concerning the express representations alleged, I do not think that any of the implied representations (or representations to similar effect) have been made out. As pleaded, each of the implied representations rests to a degree upon the making of several express representations which I have found were not made. I have considered whether each of the implied representations should be found to have been made based upon my findings that certain express representations were made. However, having undertaken that task, I have concluded that none of the implied representations have been made out.
For the above reasons, it is my view that Mr and Mrs Clapham, and BBH, have failed to establish that the CBA engaged in conduct that was misleading or deceptive or likely to mislead or deceive. Accordingly, the claims based on contraventions of s 12DA of the Australian Securities and Investments Commission Act (or alternatively s 52 of the Trade Practices Act) must be dismissed.

The case in negligence

The case in negligence was barely touched upon in closing submissions. Mr Robertson referred to the pleadings, and described the case as one of failure to advise. He submitted that the alleged duty did not rest upon notions of vulnerability, but rather the undertaking by the CBA of the role of advisor in circumstances where Mr Chapman had represented that he had particular skills, and would so advise.
The pleadings (Mr and Mrs Clapham's Cross Claim paragraphs 118-123; BBH's List Statement paragraphs 106-111) do not clearly identify the basis upon which it is said that a duty of care arose, and there are some apparent errors in numbering. Nonetheless, they seem to confirm that the duty is alleged to arise in circumstances where the CBA (through Mr Chapman) represented that it would provide expert advice and recommendations to Mr and Mrs Clapham and Yarralumla about the acquisition and viability of macadamia farms and about financial issues associated with the transaction, and further that the CBA knew that Mr and Mrs Clapham and Yarralumla were relying upon them in that respect. It is then alleged that the CBA provided advice in respect of their financial plans, the desirability of purchasing a second property, and the macadamia industry including NIS prices, and did so negligently in various respects.
The particulars of negligence include failing to warn that historical NIS prices were substantially lower than those used in the financial plans, advising in favour of acquiring a second property, failing to advise against the purchase of Clan Macadam, advising that prices would not get as low as $2.45/kg, and failing to advise about the risks of macadamia nut farming.
I do not think that the CBA undertook the role of advisor as alleged. As mentioned earlier, the case is far removed from the situation found in Commonwealth Bank of Australia v Smith (supra). Mr Chapman did not represent that he would provide expert advice and recommendations to Mr Clapham. He declined the requests to advise about Mr Clapham's cashflow statements, and provide his views as to future prices. Mr Clapham must have appreciated that Mr Chapman was not putting himself forward as an advisor on financial matters such as those.
It is true that in the course of the discussions between the two men, Mr Chapman did express views about various aspects of the macadamia nut industry. This must be seen in its proper context, namely, interaction between a prospective lender and a prospective customer. In circumstances where funding for a proposed business venture is being considered, such interaction is likely to involve exchanges of information or views relevant to the proposal. A bank is likely to want to gauge the knowledge, capabilities and experience of the prospective customer. It may also wish to show it has an understanding of the relevant business environment. The prospective customer may wish to gauge the attributes of the bank or its officers, including their knowledge or understanding of the relevant business environment. In engaging in such interactions each side is ordinarily acting in its own interests.
Mr Clapham no doubt took the opportunity, in speaking to Mr Chapman, to ask questions about the macadamia industry. Mr Clapham was keenly researching the industry, and had spoken to a range of people with relevant expertise and experience. Up to a point, Mr Chapman was content to oblige. I appreciate that Mr Chapman had a good degree of knowledge and experience of the macadamia industry, but in imparting his views to Mr Clapham, I do not think that he was speaking as an advisor and I do not think that Mr Clapham could reasonably have seen Mr Chapman as such. Whatever rapport may have developed, I have no doubt that Mr Clapham appreciated throughout that Mr Chapman represented the CBA which was on the other side of the transaction pursuing its commercial interests, as Mr Clapham was pursuing his own. I do not think that a duty of care arose as alleged. Accordingly, the CBA was not obliged to provide advice or warnings to Mr Clapham about macadamia nut prices, risks involved in macadamia nut farming, or other risks involved in the proposed transaction.
Even if the CBA was under a duty of care insofar as it did impart information to Mr Clapham concerning the macadamia industry, it has not been shown that any such duty was breached. No submission was made to the effect that any of the statements I have found were made by Mr Chapman about the macadamia industry were erroneous, or made with a lack of due care. The Civil Liability Act 2002 (NSW) was not addressed at all.
The claims in negligence must also be dismissed.

Unconscionable conduct and Contracts Review Act claims

Mr and Mrs Clapham, and also BBH, pleaded that the CBA engaged in conduct in relation to financial services which was unconscionable within the meaning of the unwritten law, in contravention of s 12CA of the Australian Securities and Investments Commission Act. Mr and Mrs Clapham also pleaded a case for relief under the Contracts Review Act. These cases were not referred to in the Clapham parties' Statement of Issues or addressed by Mr Robertson in submissions (either opening or closing). I said in the course of closing addresses that I would not deal with the claims unless they were addressed. I therefore take these claims to be not pressed.
I will observe that the claims suffered from the obvious difficulty that Mr Clapham, who dealt with the CBA for himself, his wife and Yarralumla, was plainly an experienced businessman well capable of looking after those interests and making worthwhile decisions in those interests. He conducted extensive research into the macadamia industry over a lengthy period in 2005 and he prepared his own financial analysis. He was able to obtain advice and assistance from others (such as Mr Smith and macadamia industry consultants) in relation to the proposed transaction as required. The transaction documents sent to Mr and Mrs Clapham contained a clear recommendation to obtain legal and financial advice. In these circumstances, it is difficult to see how any special disability could be said to exist, or that the CBA took advantage of any such disability, or otherwise acted in a predatory or exploitative manner (see Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25 at [124]).
The unconscionable conduct and Contracts Review Act claims will also be dismissed. It follows that none of the claims of wrongful conduct on the part of the CBA have been made out.

Other matters

The above conclusions are sufficient to dispose of the proceedings, and render it unnecessary to consider various other issues. Those issues include whether the claims made in the BBH proceedings are statute barred, and whether the claims made by way of amendment to Mr and Mrs Clapham's original cross claim should be permitted to take effect from the date that proceeding was commenced (see s 65 of the Civil Procedure Act 2005 (NSW)).
It is also unnecessary to determine whether the claims of BBH fail because of a lack of standing to bring the claims (which were those of Yarralumla, the former trustee of the Clapham Trust), or whether the joinder of Mr and Mrs Clapham as plaintiffs to the BBH proceedings would overcome any such problem. I would, however, add the following observation. Making the assumption that BBH lacked standing to bring the claims, it is doubtful that special circumstances so as to warrant permitting Mr and Mrs Clapham to sue for and on behalf of the trust (see Ramage v Waclaw (1988) 12 NSWLR 84 at 91; referred to in Alexander v Perpetual Trustees WA Limited (2004) 216 CLR 109; [2004] HCA 7 at [55]-[56] and [163]; Lewis v Condon [2013] NSWCA 204 at [107]-[109]) are demonstrated in the absence of any evidence of the attitude of the liquidators of Yarralumla to the bringing of the claims, and without seeking to add Yarralumla as a party.

Conclusion

The Court will order: 1. That the Amended Cross Claim in proceeding 2010/361682 be dismissed with costs; and 2. That proceeding 2013/142385 be dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 November 2015

At a glance

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