Commonwealth Bank of Australia v Renstell Nominees Pty Ltd [2001] VSC 167

8. The securities upon which the Bank sues may be summarised as follows:

(1) An instrument of equitable mortgage dated 30 March 1983 entered into between the fourthnamed defendant, Renbet Investments Pty Ltd ("Renbet") and SBV under which Renbet agreed to pay to SBV forthwith upon demand following default the moneys thereby secured.

(2) A registered all moneys mortgage L128081S dated 29 June 1984 granted to SBV by Renstel over certain parcels of land included in the Elizabeth Street complex.

(3) An instrument of guarantee dated 29 June 1984 given to SBV by Mr and Mrs Stella under which they jointly and severally guaranteed the payment of all moneys then or thereafter which were to become owing or payable to SBV by Renstel.

(4) Instruments of guarantee given to SBV dated 29 June 1984 by each of the corporate defendants under which they guaranteed the payment of all moneys then or thereafter which were to become owing or payable to SBV by Renstel.

(5) A registered all moneys mortgage L128082P dated 29 June 1984 granted to SBV by the secondnamed defendant Meyrick Court Pty Ltd (formerly called AR Stella & Partners Pty Ltd) over a further parcel of the land included in the Elizabeth Street complex.

(6) A registered all moneys mortgage L304126V dated 24 September 1984 granted to SBV by Mr and Mrs Stella over the land situate at and known as 56 Meyrick Crescent, Rosanna being the land described in Certificate of Title Volume 8500 Folio 930 ("the Stella Mortgage").

(7) A registered all moneys mortgage L304127S dated 24 September 1984 granted to SBV by Renstel over the property situate and known as 3/33 Parker Street, Anglesea being the land described in Certificate of Title Volume 9122 Folio 280 ("the Renstel Mortgage").

(8) A registered mortgage L895563X dated 9 September 1985 granted to SBV by Renbet over the land situate at and known as 129-135A Upper Heidelberg Road, Ivanhoe being the land described in Certificates of Title Volume 8788 Folios 176, 177 and 179.

(9) A registered mortgage N786824L dated 17 October 1988 granted by the fifthnamed defendant, Stella & Son Industries Pty Ltd over the land known as Kentucky Park situate at the corner of Plenty Road and Masons Lane, Mernda being the land described in Certificate of Title Volume 9792 Folio 483.

(10) A registered mortgage P060844X dated 24 February 1989 by the thirdnamed defendant, Stella & Son (Builders) Pty Ltd over certain land at Springvale.

(12) Two cross-guarantees and indemnities dated 23 February 1989 and undated, respectively, given to SBV by each of the defendants whereby they guaranteed to SBV the payment of all moneys owing or payable to SBV from time to time by the principal debtor as therein defined on any account whatsoever and agreed to indemnify SBV against loss arising from the provision of banking and financial accommodation to Renstel and the corporate guarantors.

14. The Bank also sues upon three facilities or loan agreements. The first is a loan made by SBV to Mr and Mrs Stella in or about August 1984 under which SBV agreed to and did lend to them $128,000 ("the Stella Loan"). This loan is secured by the Stella Mortgage.

17. At the same time, August 1984, SBV agreed to lend to Renstel a home loan of $34,700 on certain terms including terms that Renstel would grant a first mortgage to the Bank over the land at Anglesea ("the Renstel Loan"). This mortgage was duly granted and is the security referred to in paragraph [3(7)] above.

20. A further agreement, and one which attracted a great deal of attention at the trial, was a facility agreement made between SBV and Renstel in a letter signed by the parties dated 14 October 1988 under which SBV agreed to provide financial and banking accommodation to Renstel in the form of an overdraft not exceeding $1M and a bill facility not exceeding $10M with a right to request the Bank to convert this bill facility to a term advance. This facility agreement was varied on three occasions: by letter dated 22 February 1989, by letter dated 30 August 1989 and by letter dated 27 October 1989. For present purposes, these variations are not relevant otherwise than that they increased the bill facility from $10M to $12M. I shall refer to the facility agreement, as amended, as "the facility agreement".

23. On 1 January 1991 SBV merged with CBA and the latter became entitled to enforce the facility agreement and the other agreements and securities to which I have referred.

26. As I have mentioned, the Bank on 17 January 1991 demanded payment of the overdraft and on 22 January 1991 payment of the bills. The Bank says that, as a consequence of Renstel's breaches, each of the other defendants became liable to pay the sums due and it became entitled to possession of the security properties. Demands for payment of $12,117,790.68 directed to these defendants were made on 21 February 1991. No payment was made in response or at all. Notices requiring possession of the security properties were given to the mortgagors on 25 February 1991. Of the security properties this litigation concerns only the land at Anglesea and the land at Rosanna. The other security properties have been sold by the Bank under its mortgagee's power of sale.

30. The pleadings in this case are very complicated and, in the case of the defence and counterclaim, barely comprehensible. At the commencement of the trial they comprised a second further amended statement of claim dated 30 April 1999 and further amendments to it filed on 29 October 1999; the defendants' amended defence filed on 24 April 2001 and their amended counterclaim filed on 23 April 2001; and an amended reply and defence to counterclaim filed on 10 August 2000. In the course of the trial I was told by counsel that these documents, which occupy some 270 pages of the Court Book, did not contain some of the issues which the parties wished to have determined and that many of the contentions and issues which the pleadings contain are in fact no longer pressed or are conceded. The parties, therefore, joined in asking me to determine only those issues which emerged in the trial as live issues. Accordingly, on 11 May 2001, day 11 of the trial, I gave leave to the defendants to file a second amended defence and counterclaim which raised their real contentions and issues. This document was a complete rework of the previous defence and counterclaim. By way of further clarification of their position, counsel for the defendants, on 14 May, in the course of their final address, handed to me yet a further document entitled "the Stella Parties Basic Case", setting out in summary form what issues they wished to raise in the proceeding. I have had regard to these last two documents in particular in identifying the issues below. It is convenient, too, that I record at the outset that the parties were agreed that the quantification of the damages sought by the defendants in their counterclaim should not be the subject of the trial. I was asked to determine all questions raised by the Bank in its claim and those relating to liability in the counterclaim including the existence of causation between this liability and the damages claimed by the defendants. Towards the conclusion of the trial, however, it became apparent that causation could not conveniently be determined independently of my making findings as to the nature of the damages alleged and whether, contrary to the Bank's assertion, any loss at all had been suffered. Accordingly, the issue of causation was withdrawn from the trial.

33. The formal allegations made by the Bank were not in dispute. These were those relating to the making of the loans, the entering into the various agreements, the giving of notices calling up the debts and requiring possession of the security properties, the non-payment of principal and interest and the retention of possession of the security properties. As I have mentioned, the event which triggered all of this was the Bank's cancellation of the overdraft facility on 16 January 1991 and its calling up of the Renstel overdraft account on the following day. The Bank's case is that it was entitled in its discretion to call up the overdraft as it did, alternatively that its right to do so arose by reason of a breach by Renstel of the facility agreement. The breach relied upon was the failure or inability of Mr and Mrs Stella to pay to the Westpac Banking Corporation interest then due on an overdrawn account in their name with that Bank.

36. I was told that the fundamental point of contention, therefore, was whether the Bank was on 16 January 1991 entitled summarily to cancel the overdraft facility and to call up the Renstel overdraft. If the Bank was not entitled to do this, as the defendants contended, then the overdraft remained on foot, at least until it expired on the termination of the facility. This being the case, the Bank ought to have rolled over the bills on 18 January 1991 debiting the overdraft account with the costs and charges of so doing and to have continued to do so until the facility expired or until the overdraft limit of $1M was reached. The consequence of this is that Renstel and the Stellas would not have been in default under the mortgages when the Bank made demands for possession of the Rosanna land and the Anglesea land so that the present claims for possession of those properties must fail. This in essence was the defendants' case. Their argument directed to the non-entitlement of the Bank summarily to call up the overdraft facility in the absence of breach depended upon four alternative contentions:

(1) The document embodying the facility agreement should be rectified to reflect the previous agreement of the parties that the facility was to be an interchangeable two year evergreen facility, subject to satisfactory annual review. This pre-agreement is said to have arisen from a conversation on 20 September 1988 and by implication from a number of matters including the terms of the previous facility agreement of July 1987.

(2) Alternatively, there were implied terms of the facility agreement that, absent default:

(a) the Bank would not cancel the overdraft facility until or unless the facility as a whole expired and then only upon notice of cancellation effective on the date of expiration;

(b) the Bank would not cancel the overdraft facility otherwise than upon reasonable notice which, in the circumstances, was one year;

(c) the Bank would not cancel the overdraft facility otherwise than upon an exercise of its discretion reasonably and in good faith;

(d) the facility would be reviewed once only each year by 30 April or soon thereafter and that the Bank would promptly notify the customer in writing if it elected to terminate the facility in one year's time (partly in writing and partly implied);

(e) unless the Bank so notified the customer the facility would automatically be extended for one further year.

The summary calling up of the overdraft facility was a breach of these terms as a result of which CBA was not entitled to demand payment of the overdraft and Renstel was not obliged to make any payment in response. In their Basic Case document, the defendants express this consequence a little differently. The Bank by these breaches is precluded and estopped from relying upon the breaches by the defendants in not meeting the Bank's demands. This preclusion and estoppel arises from the Bank's implied obligation to do all things reasonably necessary to give to its customer the benefit of the facility agreement; from an application of the prevention principle; and from the principle that denies to a contracting party the right to rely upon its own breach of contract.

(3) The Bank is estopped from asserting that the overdraft facility was separate from the bill facility as part of the evergreen facility and that the overdraft was cancellable without notice at the discretion of the Bank. This estoppel is said to arise from the common assumption of the parties to the contrary effect between 14 October 1988 and 30 July 1990. In their Basic Case this assumption was said to be that the overdraft was to be available during the currency of the facility agreement.

(4) The alternative basis for estoppel was that the Bank made certain representations upon which the defendants relied to their detriment. These representations as they appear in paragraph 39I of the defence are as follows:

(a) prior to the defendants signing the 1988 facility agreement the Bank made representations in terms of the pre-October 1988 agreement referred to in (1) above;[1]

(b) on 16 November 1988 Jeffrey Ewen Franklin, the SBV officer in control of the account, at a cocktail party told Mr Stella that the overdraft was only cancellable on default;

(c) by letter dated 19 March 1990 the Bank represented that the facility agreement was for a two year $13M interchangeable facility which was on an evergreen basis.

42. The alternative basis offered by the Bank for its entitlement to cancel the overdraft facility was that there had occurred an event of default in the facility agreement inasmuch as Mr and Mrs Stella had failed to pay interest on their overdrawn Westpac account. Four of the corporate defendants, but not Renstel, as well as Mr and Mrs Stella held accounts with the Westpac Bank in January 1991. Four of these accounts were overdrawn so that the aggregate net indebtedness on all five accounts was about $125,000. Interest had fallen due which the five Westpac customers had failed to pay. Pursuant to the terms of the facility agreement CBA was entitled to cancel the facilities without prior notice upon the happening of any of a number of events of default. In paragraph 55 of its statement of claim the Bank asserted a large number of breaches. Eventually, however, it relied only on the non-payment of the Westpac interest as constituting one of two stipulated events of default, namely:

"(d) if the Guarantors are unable to pay any of their debts ...; (g) ...if the Group fails to perform any of its obligations under either of the Facilities or any other facility."

"Guarantors" is defined in the facility agreement as Mr and Mrs Stella. Their non-payment of interest to the Westpac Bank was, therefore, an event of default. "The Group" is defined to include the guarantors.

47. The defendants' answer was to dispute that the non-payment of the Westpac interest was an event of default and, alternatively, to assert that this inability or failure to pay the Westpac interest was due to the wrongful conduct of the Bank inasmuch as one of its officers, Craig John McDonald, without any right to do so, refused to permit Renstel to use the available funds in the Renstel overdraft account to be used to make the necessary payment to Westpac.

50. In their counterclaim, these allegations were repeated by the defendants as a foundation for claims for damages. In summary, the defendants alleged that the conduct of the Bank constituted a breach or breaches of the facility agreement; negligent misstatements on various dates on and in October 1988, 16 November 1988, 22 March 1990, 19 March 1990 and 11 October 1990; breach of warranty arising out of the October 1988 representation and unconscionable conduct. Next, it is said that, when the Bank sold the security properties as mortgagee under a power of sale which it did not have, it thereby converted the proceeds of sale and is liable to account for its wilful default. Finally, it is said that four of the security properties were sold as a consequence of the breach by the Bank of the facility agreement and at less than their market value. In addition to damages, the defendants contend that as a consequence of this, the obligations of the mortgagor under the mortgages held by the Bank over the Rosanna land and the Anglesea land have been discharged and these encumbrances should be removed from the titles.

54. The Bank alleges that the facility agreement was wholly in writing and was contained in a letter of offer from SBV dated 14 October 1988 which was executed by the customer and the guarantors on 17 October 1988. It says that it agreed in this document to provide banking and financial accommodation to Renstel consisting of a bill facility and an overdraft facility. In their defence the defendants admit entering into an agreement "whereby SBV would continue to provide banking and financial accommodation to Renstel by, inter alia, increasing the amount of existing facilities from $4M to $11M". Their case is that the facility agreement provided them with one interchangeable two year evergreen facility subject to annual review and that the evergreen nature of the facility extended to the overdraft. The letter of 14 October 1988, however, provides otherwise. The document in fact creates two facilities: a $10M bill facility and a $1M overdraft facility, facilities which are not interchangeable. It provides that the Bank at its discretion reserves the right to cancel the overdraft facility and that the bill facility is available on a two year evergreen basis subject to satisfactory annual review.

57. I have summarised in paragraph [11] above the contentions of the defendants offered in support of their case that the overdraft facility, like the bill facility was or ought to be taken to be an interchangeable two year evergreen facility subject to satisfactory annual review. Many of these contentions depend upon things said and done before the facility agreement was entered into. It is to these things that I shall now turn.

60. Before I turn to this I wish to make two general observations about the evidence on this matter, and generally, at the trial. The events occurred more than 10 years ago. The passage of this time has inevitably eroded the recollections of all witnesses. In the case of the Bank officers, the events when they occurred were probably not of great significance, being routine steps in the handling of an unexceptional account. In many cases they told me that they had no recollection of the events other than by reference to contemporaneous documents being letters, internal memoranda and diary notes. I do not treat their evidence as less reliable for this. Rather the contrary, although I approach with caution documentation of this kind emanating from the Bank in and after late 1990 when the interests of the parties began to diverge. The reliability of the evidence of the defendants' principal witnesses, Mr Stella and Leon Joseph Whiting, his accountant, and secretary of all of the corporate defendants was also affected by the passage of time and by their failure to keep contemporaneous notes of meetings and conversations which they described. In their case, however, the events were likely to be more memorable because they were significant transactions for them. The events of January 1991 were particularly devastating for Mr Stella. One witness described him as going into a state of severe shock when the Bank called up the overdraft and Mr Stella himself told me that he was, in April 1991, suffering mental confusion which continued for some three years thereafter. The evidence of these witnesses, even so, was very reliant upon contemporaneous correspondence including the Bank's discovered internal documents. I approach their evidence with caution to allow for the possibility of their reconstructing events to justify and explain their present predicament. For all of these reasons I have examined the evidence as a whole to test the reliability of each of the witnesses and have tended to reject evidence, even uncontradicted evidence, which is contrary to established contemporaneous fact or which I consider for some other reason inherently improbable.

63. The second general observation concerns the manner in which the evidence in chief in this case was given. On 10 August 2000 Ashley J directed that the parties file outlines of the evidence of each witness to be called at trial. The Bank responded to this by filing witness statements which were tendered in evidence when adopted by the witnesses. The defendants, generally speaking, filed documents each entitled "Statement of Expected Evidence". These, too, were tendered as evidence in chief when adopted. A very large part of this evidence was non-contentious. Some parts, however, dealt with disputed conversations and other matters seriously in issue. It emerged when many of the witnesses were giving oral evidence that the confidence with which they made assertions of fact in their statements was misleading. Sometimes they were mere repetitions of memoranda or other documents; sometimes the witness was obviously speculating or reconstructing; sometimes the manner in which the witness adhered to the written word caused me to have little confidence that this represented a truthful recollection. In many cases the statements, surprisingly, repeated verbatim corroborative passages from other witness statements. All of this meant that I did not have the benefit of a spontaneous account in evidence in chief of the witness's recollection or lack of it. This is, I regret, often the consequence of the witness statement procedure.

67. Mr Stella is by profession an architect and, since 1967, a builder. In 1972 he moved into the area of property development. By the early 1980s, when the events with which I am concerned began to occur, his business was considerable and his assets growing. Notwithstanding his entrepreneurial activities, Mr Stella continued his architectural practice from premises at Ivanhoe.

70. He became a customer of SBV in 1983 when he transferred some of his accounts from the Westpac Banking Corporation which had long been his banker. His involvement with the SBV grew over the next five years as did his business, his assets and his company structure. During this period the Bank from time to time granted to him or his companies overdraft and other facilities the terms of which were recorded in written offers signed by the Bank and acceptance of which was acknowledged by execution of the document by the customer and other parties. There are in the Court Book many such documents recording facility agreements before October 1988. These are an undated letter offering to grant the Stella loan in August 1984, a letter dated 5 September 1984 relating to the Renstel loan, and letters dated 22 July 1985, 23 January 1986, 6 February 1987, 31 July 1987 and 17 August 1988.

73. The facility provided by the Bank in July 1985 was for an overdraft of $200,000 cancellable at the Bank's discretion and a $3M term advance. The January 1986 facility provided for "a standby interchangeable term advance/bill of exchange and discount facility in addition to the existing overdraft and term advance facilities". The February 1987 facility was in similar terms. It in fact provided two facilities: the first was a term advance and/or an overdraft and/or a bill of exchange acceptance and discount facility not to exceed the lesser of $3M or 70% of the Bank's valuation of specified security properties. This was, in effect, an interchangeable facility in the sense that the customer might select the type of facility from the three options, provided that the overdraft limit could not exceed $450,000. The overdraft itself was cancellable at the Bank's discretion. The term advance option was to be repaid on or before 31 December 1988. The second facility was a standby term advance and/or bill of exchange acceptance and discount facility. This, too, was an interchangeable facility with a limit of $1M.

76. The July 1987 facility was a single interchangeable term advance facility/bill of exchange acceptance and discount facility and overdraft facility with an aggregate limit of $4M. The overdraft facility was limited to $450,000 which was cancellable at the discretion of the Bank. Notwithstanding this, the letter of offer provided that all three facilities were to be "available for two years from acceptance of this letter of offer, subject to annual review by the Bank on or before 31 December". It was put on behalf of the defendants that this was an example of the insertion by the Bank into its facility agreement of a formal or "boilerplate" clause regarding cancellability of the overdraft which was of no effect or that it was superseded by the two year term applicable to all facilities. It is not necessary that I resolve this apparent inconsistency between the two provisions of the 1987 facility agreement.

79. By August 1988 Mr Stella and his companies held assets which were noted in the Bank's internal records as follows: a showroom and office block at 618/640 Elizabeth Street, Melbourne valued at $7.8M, an arcade of seven shops at 135 Upper Heidelberg Road, Ivanhoe valued at $2.5M and seven "factoryettes" at Abbott Street, Fairfield valued at $2.3M, all of which were mortgaged to the Bank in support of the July 1987 facility. Mr Franklin, at this time Senior Manager Corporate Banking with the SBV, controlled the Stella accounts. He was assisted in this task by Brett Robert Perry, a manager in Corporate Banking, and Thomas Andrew Crothers, an Accounts Manager, each of whom answered to him as their superior. All of these three bank officers gave evidence, Mr Crothers as a witness for the defendants.

82. In mid-1988 Mr Stella had decided to enlarge his commercial activities by purchasing the old Stegbar site in Springvale for $1.825M and a 310 acre property at Mernda for $1.7M, each for redevelopment. The Mernda purchase was due for settlement on 16 October 1988; the Springvale purchase not until late January 1989. For the purposes of these purchases Mr Stella on 25 July 1988 sought from the Bank an extra $1.25M to complete the Mernda purchase and a guarantee facility to secure the outstanding deposit for the Springvale purchase. Mr Franklin recommended the giving of the bank guarantee and this was agreed to by the Bank by letter of offer dated 17 August 1988 which was accepted on 19 August. The Bank's response to the application for a further $1.25M was its letter of offer dated 14 October 1988. By this document, which became the facility agreement, the Bank offered to give a facility or facilities totalling $11M. How this came about is somewhat obscure because Mr Stella and Mr Whiting said that, except for one meeting, they did not recall any contact with the Bank on the topic after the application for further facility was lodged in July.

85. Mr Stella spoke of this one meeting which was held at the Bank at 10.30 am on 20 September 1988. This was a short meeting at which he said he collected some cross-guarantees which the Bank required to be executed. Present on this occasion with Mr Stella were Mr Whiting, Mr Franklin, Mr Perry, and Mr Crothers. Of these five persons, none but Mr Stella and Mr Whiting mentioned this meeting in his witness statement. These two men swore in their witness statements that the additional funding was then discussed. They added, in identical terms, that "we discussed that the increased facilities should be given on the same basis as the previous facilities, namely, for two years subject to annual reviews". In cross-examination, Mr Stella said that he did not recall this matter being discussed at all. Mr Whiting said that he did not recall the detail of what was discussed and later "we must have discussed funds, why else would we go to the bank?". Mr Perry and Mr Crothers were not asked about the meeting at all.

88. After the meeting there occurred a conversation which was much relied on by the defendants. Mr Stella said that he was accompanied to the lift by Mr Franklin. Mr Perry and Mr Crothers were further behind with Mr Whiting. Mr Stella said that he enquired of Mr Franklin the progress of his loan application. His witness statement records Mr Franklin making the following response:

"Mr Franklin told me that the letter was coming and that it would be an evergreen facility. I queried whether this meant a revolving line of credit and Mr Franklin said it did."

Mr Whiting's witness statement corroborated this conversation.

93. Mr Franklin said he did not recall such conversation but he conceded that it was possible that it occurred. Neither Mr Crothers nor Mr Perry were asked about it. Mr Whiting who had steadily maintained the existence of the exchange between Mr Franklin and Mr Stella, accepted in the witness box that he was not privy to the conversation but that Mr Stella had told him about it afterwards.

96. This conversation assumed considerable importance at the trial. It provided a substantial basis for the rectification claim. It was not mentioned, however, in the earlier defences where rectification was sought. It was, even on Mr Stella's account, a passing reference on an informal occasion. The significance, as things turned out, of Mr Franklin's statement lies not in the fact that the facility, broadly speaking, was to be evergreen as it proved to be, but that the overdraft component also had this characteristic. With considerable misgiving, I find on the balance of probabilities that Mr Stella's account of this conversation is correct.

100. This was the first mention of an evergreen facility in the dealings between the Bank and the defendants. The expression "evergreen" in this context has a technical meaning in banking circles and I received evidence as to its meaning in the phrase "a two year evergreen facility subject to satisfactory annual review". Bank facilities are normally granted for a fixed term after which they are renegotiated. Where they are evergreen they continue indefinitely until terminated by a decision of either party. In Professor Rosenberg's Dictionary of Banking, the expression "evergreen credit" is defined as "a revolving credit free of a maturity day, but giving the Bank the opportunity once each year, to convert into a term loan". This was, broadly speaking, the meaning adopted by all of the bank witnesses, leaving only two small but important details in controversy. All these witnesses said that an evergreen facility of the kind described in this case was one which lasted for two years but, at the end of the first year, the Bank might upon review elect to terminate it at the end of the then current year. In the present case, where such a facility was granted in October 1988 with an annual review commencing 30 April 1989, this would mean that the Bank might, upon that review, terminate the facility effective 30 April 1990. If the review was satisfactory the facility would extend to April 1991, and so on. So much was not in dispute.

103. The first point of contention was as to the effect of the circumstance where the Bank, upon an annual review, made no decision that the review was not satisfactory or that it had elected to terminate or, having made such a decision failed to inform the customer. The evidence of Mr Perry was that, in such a case, the facility would be taken as automatically terminating, that is the facility would be extended only where the Bank expressly said so. The view of the other banker witnesses was that, in such a case the facility would be taken as having been extended, that is, if the Bank determined to convert the facility from an evergreen facility to one terminating at the end of the current two year period, it must so elect and inform its customer. This latter interpretation is consistent with the definition in the Dictionary of Banking. It is consistent with the description of the facility as evergreen but subject to qualification. For what it is worth, it is consistent with the manner in which the Bank acted on its 1989 review where it gave to the customer no notice that the facility was extended or not extended. I conclude, therefore, that the position is that the facility continues on unless and until the Bank informs its customer upon an annual review that it is no longer evergreen, that is, it will terminate at the end of the then current year.

106. The second point of dispute was whether it was possible in banking terms to speak of an evergreen overdraft facility. Mr Franklin and Mr McDonald were of opinion that an overdraft was always cancellable by the Bank so that an overdraft is never evergreen. This was not the opinion of Mr Newland or Mr Crothers. To my mind, this is a matter which must depend upon the terms of the facility agreement rather than upon any banking practice. It may be common that an overdraft is cancellable at the discretion of the Bank, but where the facility provides otherwise this right of summary cancellation may be lost.

110. The next event of significance is the letter of offer of 14 October 1988. It emerged from a memorandum of recommendation to the General Manager Corporate Banking dated 11 October 1988 prepared by Mr Crothers and signed by Mr Franklin. Mr Crothers said that the bank practice was that he would prepare at the same time a draft letter of offer in anticipation of the approval of the recommendation. The recommendation was that the Bank offer to Renstel a $12M "interchangeable overdraft/Term Advance/Bill of Exchange Acceptance & Discount Facility with a fixed rate option ($5M max) (maximum overdraft facility $1M)" as well as the continuance of the performance guarantee. As to repayment the memorandum recommended that the offer be a "two year evergreen facility with annual review. Repayment source from future property trading and/or refinance". The draft letter of offer was not retained by the Bank and was not in evidence. Neither of these documents was issued to the customer.

113. Three things happened after this memorandum was prepared. First, the interchangeable facility was reduced by Mr Franklin's superior from $12M to $11M; second, the structure of the facility was changed so that the overdraft of $1M became a free-standing facility; and third, a condition preventing Renstel or its associates from undertaking further secured borrowing was changed.

116. There are in evidence two copies of the 14 October letter of offer which was issued following the acceptance of Mr Franklin's recommendation. The documents both reflect the first change: they record that the aggregate facility is to be $11M, presumably in addition to the performance guarantee as approved by the senior bank lending officer. The third change was made on 17 October 1988. Mr Stella said that he collected from the Bank two copies of the letter of offer on the morning of that date. There was some urgency for the settlement of the Mernda purchase was due later that day. He read the letter of offer at Mr Whiting's office and noted the constraint upon further secured borrowing. He telephoned Mr Franklin and negotiated a change in this term, amended the letter in terms of the agreed modification and initialled the change. This initialled copy was produced from the custody of Mr Stella and became Exhibit 12. Both copies of the letter of offer were returned to the Bank. In circumstances which are not clear, the executed letter was retyped in part to incorporate the third change and this amended document which was produced by the Bank and became Exhibit 11.

119. Both copies of the letter of offer, too, show the overdraft as an independent facility cancellable not on an evergreen basis, but at the discretion of the Bank. Mr Crothers said that this, the second change from the 11 October accepted recommendation was made at the last moment in order to save stamp duty for the customer. Mr Franklin had little, if any, recollection of how the change came about but he told me it would not have been done without consultation with the customer. This, he said, was the normal bank practice. Some support for Mr Crother's account is to be had from an internal bank memorandum dated 21 October 1988 which was prepared by him to "tidy up" the paperwork to enable the letter of offer as accepted to conform with the lending officer's approval. This memorandum draws attention to the second and third changes to the offer approved under the 11 October memorandum and states with respect to the second change that "due to timing constraints on the day and in the best interest of the client, the approved $11M Interchangeable Facility was restructured and replaced by a $10M Bill Facility with Fixed Rate Option/Term Advance Option and $1M Overdraft Facility..." and setting out the reasons for this change. Mr Stella said that, prior to the acceptance of the offer he knew nothing of any such change and that he did not note any change to the structure of the facility when he read the letter before accepting the offer. He said that the change was brought to his attention some days after 17 October when Mr Franklin telephoned him to advise him of it and of the reasons for it. It is apparent that the change was made before the letter of offer was typed on 14 October and issued to the customer.

122. The question, therefore becomes whether this change was made at the time without any consultation with Mr Stella, as he says, or whether it was done with his knowledge and approval, as Mr Franklin surmises. I am satisfied that Mr Franklin's account is more likely and I so find. I reach this conclusion for a number of reasons. Mr Franklin impressed me as a careful and conscientious man. Mr Stella, on the other hand was in many respects anxious to shift the blame for his present difficulties to the Bank. His account of this matter was unconvincing. He made no complaint at the time about the Bank's conduct in acting without his authority. It will be recalled that the total facility was, before 14 October, reduced by $1M. It is likely that this was brought to his attention before the letter of offer was sent because he made no complaint about this. Finally, the letter of offer itself in its opening sentence speaks of "recent discussions" and a "rearrangement of existing facilities". I find, therefore, on the balance of probabilities, that Mr Franklin spoke to Mr Stella shortly before the preparation and issue of the letter of offer telling him of the first and second changes and that Mr Stella accepted these and the reasons offered for them. The letter, when he read it on 17 October, contained no surprises in these respects inasmuch as it reflected his understanding of what the Bank offered and what he was prepared to accept.

125. It is convenient to deal at this point with an incident which followed shortly after 17 October 1988. Mr Stella told me that sometime after signing the facility agreement he was concerned about the cancellability of the overdraft clause in the letter of 14 October 1988. I interrupt myself to observe that this may be inconsistent with his evidence that this feature of the letter had escaped his attention when he signed it on 17 October and that the first inkling he had had that the Bank saw the overdraft as not being part of one evergreen facility was not until January 1991. In any event, a month later, on 16 November 1988 he attended a cocktail party at the Bank. He spoke to Mr Franklin about his concern and was comforted to be told "Don't worry about; it will never happen unless you are in default". Mr Franklin said he did not recall such a conversation. Accepting that some such exchange took place, I am not prepared to conclude from its terms and its circumstances that it was of a kind which could create or affect legal relations between the parties.

129. On the facts as I have found them, there is no substance in the rectification claim which I have summarised in paragraph [11(1)]. I am not satisfied that the passing reference on 20 September to the forthcoming facility either alone or in conjunction with the prior dealings between the parties amounts to a pre-agreement of the kind contended for. The terms of his 11 October internal memorandum suggest that Mr Franklin then expected the facility to be wholly interchangeable and wholly evergreen, but this was changed. At the time the written agreement was signed there was no reason to conclude that the document had any effect other than to record the contractual intent of the parties as it then stood.

133. I can now deal with the five terms which are said to be included in the facility agreement. I start from the evident fact that the letter of 14 October was executed by the parties on the basis that it recorded their agreement. The possibility of inferring terms which are not contained in the document is very limited.

The Term as to Cancellability of the Overdraft

137. The first term, alleged in paragraph 39E(a) of the defence, is the following:

"SBV would not cancel the overdraft until or unless (absent an event of default) the facility as a whole expired and then only on giving prior notice of cancellation effective on the date of expiration."

This is said to be implied in order to give business efficacy to the facility agreement and from nine facts which were known to SBV at the time. I accept that each of these facts was known to SBV. Nevertheless, I decline to find the implied term because it is contrary to an express term in the facility agreement that the overdraft facility is cancellable at the Bank's discretion. Furthermore, it is apparent from the evidence that it is not necessary to give business efficacy to the facility. Desirable, from the customer's point of view, it might be, but not necessary. It may be that the fact that one component of the facility is cancellable at the Bank's discretion renders the attractiveness of the evergreen nature of the balance of the facility illusory as was accepted by Mr McDonald, the senior manager in charge of the account in 1990 to 1993. All of the banker witnesses, except Mr Crothers and Mr Newland, accepted that, even when an evergreen facility is granted, the overdraft is always understood by the Bank as cancellable at will. This is, of course, not determinative of the issue in this case, but it shows that the contrary is not necessary to give business efficacy to the general facility. Mr Crother's experience of evergreen facilities was, in any event, very limited.

143. The second implied term, contended for in paragraph 39E(b) of the defence, was as follows:

"SBV was entitled to cancel the overdraft at the discretion of SBV upon the giving of reasonable notice."

It was accepted on behalf of the Bank that the customer was entitled to reasonable notice when the Bank called up the overdraft. By this it is meant that the customer should have time sufficient to put in place the mechanics of payment of the amount of the overdraft. There is in this context no question that the insufficiency of the notice affects the validity of the demand; the principle merely dictates that no security may be enforced until this time has expired[2]. In this case, the overdraft facility was cancelled late on the afternoon of 16 January 1991. The notice to pay $281,393 was given on the following day. Further demands for payment followed. I was told by counsel that it was not for some weeks that the Bank set about appointing agents. But the evidence showed that no step to enforce the 17 January demand by calling upon the securities or otherwise was taken until the notices of 21 February 1991. The present proceeding to recover the overdraft and to enforce the securities was not commenced until 17 February 1994. It could hardly be contended that Renstel had not by 1994 had sufficient time to obtain the funds to satisfy the 17 January demand with respect to the overdraft. In these circumstances, the customer has had abundant time to comply.

What was put on behalf of the defendants was that there were in fact two requirements for reasonable notice involved here. The first was the notice required before the overdraft facility might be cancelled, and the second was the notice requiring payment of the overdraft amount. The notice referred to in the Bunbury case was the second notice. It was put that the period of the first notice was, in the circumstances, 12 months. The requirement for such a notice was again said to be implied so as to give business efficacy to the facility agreement.

149. The starting point for a consideration of this submission must be the terms of the written contract itself. This provides that "in addition to its rights under the Events of Default... the Bank at its discretion reserves the right to cancel the Overdraft Facility". It is, of course, possible for the parties to agree upon any terms as to the cancellation of an overdraft facility and this they have done in this clause. The submission of the defendants seeks to avoid this by accepting that the Bank may in its discretion without reason cancel the overdraft but, that it must give to the customer 12 months' notice of its intention to do so. The consequence of the Bank's failure to give this notice, as described by counsel for the defendants in their final address, was that the cancellation of the overdraft facility was an improper exercise of power so that, for contractual purposes, it had not occurred. No authority was cited in support of this proposition. In their pleading the position is put a little more conventionally as giving rise to an entitlement to damages for breach of an implied term.

152. In Williams and Glyn's Bank Ltd v Barnes[3] Ralph Gibson J was faced with a similar argument where an increased overdraft had been agreed to by a bank on a temporary basis in order to permit payment by the customer to holders of certain bills on their maturity. The last of the bills was due on 8 February 1974. There were elsewhere in the facility documentation indications that the parties contemplated that the overdraft should have some duration. His Lordship was of opinion that these matters indicated that the parties had intended to depart from the usual position that an overdraft was liable to be called up summarily by the bank. He said this:

"The express words used in the contract necessarily require, in order to give business efficacy to this agreement, that the lending thereby agreed was not repayable on demand; and the facility could not be cancelled at any time by the Bank. I am confident that, if the Bank had been asked at the time, it would have acknowledged that such was the case. That term, restrictive of the Bank's right to recall its money, which I regard as demonstrably necessary, and reasonable, is firstly that it could not withdraw until the last Cornhill bills were paid on 8 February 1974 - because that it had agreed to do - and, further, it could not terminate the facility or claim repayment for `a reasonable time' after notice. That reasonable time is to be estimated, and is made necessary, by the arrangements which the Bank, by its agreement of the facility, caused NDH to make. NDH took whatever risk there was in paying the bills at once instead of choosing not to pay and facing receivership and liquidation. NDH did not take what other steps might have been open to it to borrow the money elsewhere. NDH incurred substantial costs. In order for the business purposes of the facility to be preserved the Bank was required in my judgment to give such notice as would permit NDH to explore the possibility of actions such as borrowing elsewhere, and of selling sites, or parts of its undertaking... Determination of the right period of notice is not necessary for disposal of this case. I would be very surprised if the period could be shown to have exceeded one month."[4]

Although these remarks were obiter and his Lordship's discussion of the circumstances giving rise to the implication of terms may not reflect the Australian position as laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[5], they have been referred to by text writers[6] and by Australian courts[7] as authority for the proposition that the banker and customer may expressly[8] or impliedly[9] agree that an overdraft is not cancellable on demand.

157. While it is possible for the parties to agree impliedly that the overdraft might not be at call, it is not sufficient in order to establish such an implication that the customer shows merely that the overdraft was to be used in order to trade in a particular commodity[10]. It must appear that the parties intended that the overdraft was to be used for a particular purpose which necessarily entailed its being available for a period of time. In the present case Renstel obtained the overdraft for the purpose of developing and selling land under an agreement which expressly stated that it was not expected that the overdraft should be a permanent feature of Renstel's working capital. Indeed, the letter of 14 October 1988 records the expectation of the parties that there will be days when the company will have surplus day to day funds so that on those days the overdraft account would be in credit.

160. I conclude, therefore that the overdraft facility might be cancelled by the Bank at its discretion and that the debt thereupon become immediately due provided that the debt is not payable and the Bank is not entitled to enforce its security and any other rights until the customer has sufficient time to set in train the mechanics of payment.

163. In any event, in the Williams and Glyn's Bank case, the submission put on behalf of the customer ultimately failed because, at the time the overdraft was called up, the facility agreement contained an express term that the overdraft was repayable on demand. The same result must follow in the present case for the same reason.

167. The third implied term alleged on behalf of the defendants in paragraph 39E(c) of the defence was that, where the Bank reserves to itself the right to cancel an overdraft at its discretion, this right may be exercised only reasonably and in good faith. Leaving to one side what is meant in the context of this contract by the expression "reasonably and in good faith", it was submitted on behalf of the Bank that this implied term had no role to play in the case where the contract authorised the Bank to call up the overdraft upon demand. It was submitted that the cases relied upon by the defendants impose this requirement only where the contract required the party to give consideration to and to exercise a discretion as to the matter. Reference was made to Renard Constructions (ME) Pty Ltd v Minister for Public Works[11] where such an implied duty was imposed upon the principal to a building contract exercising its contractual power to take over the whole or part of the work or cancel the contract for default. This decision has been followed by the Court of Appeal in New South Wales in Alcatel Australia Ltd v Scarcella[12] and by Finn J in the Federal Court in Hughes Aircraft Systems International v Airservices Australia[13] following an extensive examination of the authorities and literature. In this Court a number of decisions of single judges have accepted the same principle[14]. Faced with this line of authority, I accept that the decision of the Bank whether to cancel the overdraft facility in the present case is subject to the same qualification.

171. The fourth term, alleged in paragraph 39F(a) of the defence, was that:

"The facility would be reviewed once each calendar year by 30 April in that year, or as close to that date as possible, and SBV would promptly notify the borrower in writing if it elected to terminate the facility in one year's time;"

This term is said to be partly in writing and partly to be implied. The written component is the October 1988 facility agreement itself.

176. I do not accept that the facility agreement contains such a term. The structure of the facility as it appears in the letter of offer is that there will be an annual review on 30 April each year. It says nothing of other reviews. The duty of the Bank on such an annual review, if it decides to terminate the evergreen nature of the facility, is to advise the customer of that decision. It may be that it should conduct the review and so advise the customer within a reasonable time and that if it does not do so the evergreen facility will automatically be extended. In the context of the present case it is not necessary that I go further.

180. This term is alleged in paragraph 39F(b) of the defence. I have concluded that, as a matter of construction of the expression used in this contract, where the Bank does not advise the customer that the facility is no longer to be evergreen or that it will terminate, the facility will automatically be extended for a further year. In the present case, this means that, if the Bank did not so advise the defendants following its 1990 review, the evergreen facility would be automatically extended until April 1992.

185. The facility agreement remained in place between 17 October 1988 and 16 October 1990. It appears to have been conducted, by the Bank at least, in a fairly relaxed style. The first annual review which was to take place on 30 April 1989 occurred some months later. The Bank's internal memorandum of 8 August 1989 shows that it was undertaken in conjunction with an application by the customer for an increase in the facility of $2M to provide working capital. The review of the account appears to have been lost in the consideration of this application for an increase. There is no record of any decision that the review was or was not satisfactory. No communication of any such decision was made to the customer.

188. The second annual review due on 30 April 1990 was handled in much the same style. The Bank's internal memorandum dated 30 July 1990 records as an explanation for the delay that the receipt of financial information had been delayed and that further valuations of security properties had to be obtained. Mr Franklin's recommendation in that memorandum, that the facility be extended for a further period with the account to be next reviewed in April 1991 subject to certain conditions, was countersigned by the Acting Assistant General Manager, a Mr Trott, on 1 August 1990. For some reason, it took about two and a half months for the review to be considered and dealt with by higher management. The letter to the customer giving effect to this decision is dated 11 October 1990. Its terms are such that there was considerable debate before me as to whether it conveyed as the decision of the Bank that the review was satisfactory or that it was unsatisfactory or even whether it conveyed any decision at all.

191. Meantime, throughout 1989 and 1990 Mr Stella's companies were weathering the difficult economic times of those days. It is clear that they were experiencing considerable difficulties in selling the developed properties and that, in early 1990, values began to fall. Hence there was little income at a time when holding costs, including bank interest, were high. Notwithstanding these difficulties, it is clear that, at least until October 1990, Mr Franklin was supportive of Mr Stella and his group.

194. During this period, October 1988 to October 1990, the facility agreement was varied three times. On 22 February 1989 there was a variation of the corporate guarantors as a response to Mr Stella's decision that the Springvale property should be purchased by Stella & Son (Builders) Pty Ltd as trustee for the Rosalie Trust. This variation is of no consequence for my purposes.

197. In August 1989 Mr Stella sought and obtained an enlargement of the bill facility from $10M to $12M to enable Renstel to capitalise the existing facility and to complete the Springvale development. The Bank's letter of 30 August 1989 in which the variation was offered was expressed as effecting specific amendments to particular terms of the 14 October 1988 letter of offer. It continues that "all other terms and conditions of the Bank's Letter of Offer dated 14 October 1988 and subsequently amended by the Bank's Letter of Variation dated 22 March 1989, will remain unchanged". This is evidently a reference to the variation letter of 22 February 1989.

200. The third variation made on 27 October 1989 was another change in the detail of the facility. It was made to enable the appropriate Stella company to discharge in part the Bank's security upon sale of properties. This letter again confirmed in other respects the pre-existing facility agreement.

203. On 7 December 1989 Mr Stella and Mr Whiting went to the Bank taking with them a letter dated 6 December 1989 together with a number of annexures. Mr Stella thought that the bank officers present at the meeting on this day were Mr Newland, Mr Perry and possibly a Mr Bencic. It was apparent by this time that Mr Stella's selling program was not going well and the expectations of his property consultants were not favourable. He wanted to know what would be the attitude of the Bank to a request for additional funding to support the group in the event that insufficient sales were achieved in the future. He was keen to avoid having to sell his properties at an undervalue.

206. As for the 20 September 1988 meeting, the discussions at this meeting are not significant for my purposes. More important is what happened thereafter. Again, Mr Stella said he walked with Mr Franklin to the lift after the meeting. In his witness statement Mr Stella says what then happened:

"I mentioned to him [Franklin] the advice from Mr Carmichael [property consultant] to sell the Elizabeth Street and Ivanhoe properties. Mr Franklin frowned and said to me that the Bank would not look kindly on that move as the Elizabeth Street property was `the jewel in the crown' of the Group's assets. He then said that the Bank could terminate the Group's facilities if we did so. I did not therefore pursue the sale of the Elizabeth Street or Ivanhoe properties."

210. Mr Whiting spoke of a similar conversation but said that it occurred during the meeting. Mr Franklin said that he could not recall any such conversation and added that it was not something that he would have said to a customer.

213. Senior counsel for the defendants described this conversation as a side issue and I will not dwell upon it. It is, however, a instructive piece of evidence in the context of this case. Let me say immediately that I reject the evidence of Mr Stella and Mr Whiting. I accept that Mr Franklin at this time was aware of the adverse consequence to the Stella Group of a sale of the Elizabeth Street property with the consequent loss of income rental. He noted this on 14 March 1990 at the foot of a memorandum of that date. I do not, however, accept that he threatened Mr Stella with termination of the facility agreement if the property was sold. Indeed, he accepted and even supported the sale of the property in early 1990 and thereafter. The fact is that Mr Stella did not sell Elizabeth Street and he was reluctant to do so at the prices available in 1990. This, in hindsight, was an unwise decision. His account of the "jewel in the crown" conversation is merely an attempt on his part to shift the responsibility for this to the Bank. Mr Whiting, as on other occasions, was prepared to support him.

216. Mr Whiting's letter of 6 December 1989 which was given to the Bank at the meeting on the following day was followed up by another letter from him dated 2 March 1990. Mr Stella said that he did not see this letter before it was sent. I reject this. Mr Whiting said he discussed the content with Mr Stella and this is consistent with their relationship generally. By this time Elizabeth Street was in the hands of an agent for private sale. The letter concludes with the following paragraph:

"Although committed to the selling program outlined above the group wishes to maintain its presently approved borrowing limit for the time being. Naturally it is understood that the actual amount available to be drawn down at any stage will depend upon the securities held by the bank at that time. A review of the group's future needs will be undertaken when sales have been effected and the next projects selected."

This statement, especially the second sentence, is in stark contrast to the position adopted by Mr Stella at trial.

221. In response to these letters the Bank undertook a further review of the account which is recorded in the memo of Mr Newland and Mr Perry dated 14 March 1990. They recommend that, subject to valuations, the Bank insert three new conditions in the facility agreement. First, that drawings under the facility be limited to 66 2/3 percent of the aggregate value of securities held with an absolute limit of $13M; second, that the Bank have the right to request further valuations of securities; and, third, that fresh property acquisitions be subject to bank approval. Mr Franklin approved these recommendations subject to an immaterial matter. His handwritten comments to his subordinate, Mr Perry, includes the following point to note:

"(i) The bill facility is available on a two year evergreen basis subject to annual review ie current expiry date is arguably April 1991."

225. This approved recommendation including the conditions found their way into a letter from the Bank to Mr Stella dated 19 March 1990 of which much was made by the defendants. First, the letter contains the following statement:

" Existing facilities The existing facilities amounting to an aggregate of $13,000,000.00 are available on a two year `evergreen basis' subject to satisfactory annual review by the Bank as detailed in our letter of offer dated 14 October 1988. Accordingly, the facilities are currently available until 30 April 1991. The Bank will undertake a further review in April upon receipt of the Group's annual financials and updated cash flow projections, with the view to extending the term for a further period."

It was emphasised on behalf of the defendants that this passage speaks of a single evergreen facility of $13M, not two facilities only one of which was evergreen, as the Bank contends was the true position.

230. Second, the imposition of the three conditions to which I have referred are said on behalf of the defendants to be an impermissible imposition of terms beyond those of the facility agreement. The letter was followed by a telephone call between Mr Perry and Mr Whiting in which Mr Perry concluded by stating that the Bank remained supportive of Mr Stella but emphasised the need for asset divestment. This is an important letter since it provided a substantial basis for the defendants' estoppel arguments to which I shall return.

233. As I have mentioned, the date for the 1990 review came and went. It was not until 31 May 1990 that Mr Whiting forwarded to the Bank the financial statements of the group for the year ending June 1989. The 1990 Annual Review completed by Mr Franklin and Mr Trott and dated 30 July 1990 recommended an extension of the facility. The recommendation was passed up the line to Michael Alan Leonard, presently a general manager of CBA. Mr Leonard marked his recommendation "approved" but subject to five conditions and on the basis that there be a further review by 31 December 1990.

236. This was followed by the Bank's letter to the customer dated 11 October 1990 which was handed to Mr Stella at the conclusion of a meeting held at the Bank on 18 October 1990. This is an important letter for it is the only suggested communication to the customer of the Bank's decision to terminate or not the evergreen account following the 1990 annual review. I have concluded that, unless the Bank makes a decision following an annual review that the account is not satisfactory and the facility should be terminated and communicates that decision to the customer, the facility is automatically extended[15]

. I am satisfied that the Bank made no such decision and did not communicate any such decision to the customer in this letter.

241. It is true that the letter expresses the Bank's concern about the exposure of the Stella Group to the property market and about the decline in net worth of its assets. This also carried with it the Bank's concern about its own exposure to loss from this account. As the values of the securities declined, so too its risk of loss upon realisation was increased. At the same time, the lack of sales meant that the accruing interest and charges on the facility added to the debt. If things continued the debt would be at its $13M limit by the end of 1991. This was the position as it appeared from Mr Whiting's cash flows provided to the Bank on 5 June 1990, assuming the cash flow deficit projected to 31 March continued. At the same time, the Bank's revised valuations showed that it held securities worth only $16.34M so that, assuming no further diminution in value, the ratio between facility and security would, at the end of 1991, be approximately 80 percent.

244. Accordingly, in its letter of 11 October 1990 the Bank responded to the situation in a way that was commercially understandable and typical of bank behaviour in such a case, but which had no regard to the terms of the facility agreement. The Bank foreshadowed a further review of the account by 31 December 1990 and required the customer to supply financial information for the purpose; it required the customer to provide a financial strategy assuming no sales could be achieved in the short term; and it increased its interest rates and some, but not all, of its charges to compensate for its increased risk. These requirements differed from the terms of the facility agreement and the Bank was not entitled to insist upon them. But insist it did and, naturally enough, the customer was in no position to resist. This letter was delivered at the meeting on 18 October 1990 at which the need for realisation of properties to reduce debt was emphasised to the customer. At this meeting, too, Mr Stella was told that the Bank would be scrutinising his operating expenses.

247. The Bank's conduct from about this time is relied upon by the defendants in support of their contention that the Bank acted unreasonably, not bona fide and unconscionably in cancelling the overdraft facility.

250. By 12 November 1990 the bill facility of $12M was fully drawn and the overdraft stood at only $4,648 against the limit of $1M. With the securities valued at $16.34M the security ratio was an unacceptable 73.47 percent and there was every prospect that the ratio would get worse. About this time, too, Mr McDonald assumed control of the Stella accounts, replacing the more indulgent Mr Franklin. At this time, too, there came into existence a file note dated 12 November 1990 prepared by one Lindsay Eaton. Mr Eaton was not called as a witness. He was, according to Mr McDonald, "one of the people in the group that I was responsible for". The subject of Mr Eaton's memorandum is expressed to be this:

"Review of Letter of Offer and security documentation for the above [Renstel] to establish if an event of default could be triggered so that SBV could control property sales. Reference to Andrew Berezdesky for opinion."

254. Mr Berezdesky was an in-house lawyer of the Bank. Following consultation with this lawyer, Mr Eaton noted that there was no security ratio covenant in the letter of offer and that no event of default was then triggered. Renstel was in breach of the term that required financial statements to be provided within 120 days. Mr McDonald wrote therefore to Mr Stella on 20 November a fairly stiff formal letter requiring financial statements within the stipulated period. These were provided one week later on 27 November 1990.

257. On the same day, 20 November 1990, Mr McDonald wrote again to Mr Stella in the same tone, directing the customer to implement two procedures immediately. The first was to provide a rental schedule so that the Bank could see that all rentals were paid into the overdraft account. The second was to provide each week a list of cheques to be drawn on this account in the following week with explanations. This monitoring procedure would be directed to ensuring that only payments of a critical nature would be made.

260. The Bank had no contractual or other right to impose such a regime on its customer. Mr McDonald justified the monitoring requirement as ordinary business practice. He described its operation as merely supervisory rather than directive in the sense that the Bank might veto a particular cheque. It was as part of this procedure that Mr Stella said that his payment of the Westpac interest was vetoed.

263. The non-payment of this interest was mentioned at a meeting at the Bank on 4 December 1990. The notes of the meeting prepared by Mr Perry record the mention in the following terms and he confirmed its accuracy in his evidence:

"He [Stella] has met with Westpac and has advised that he is no longer able to meet the interest on its $120,000 overdraft facilities."

Present at this meeting, apart from Mr Stella and Mr Perry, were Mr Stella's son Anthony James John Stella, known as Anthony Stella, Mr Stella's cousin Antonio Stella, a dentist who is called Tony Stella, Mr Whiting and Mr McDonald. The principal topic of the meeting was the unsuccessful sales program of the Stella Group. By this time the overdraft had risen to about $200,000 and the Bank was becoming anxious. Mr Stella said that by this time "things were getting testy". He disputed, however, the accuracy of the note as to the Westpac interest.

268. The two bank witnesses set out their account of the meeting in their witness statements which they verified on oath. These accounts are in identical terms. This is remarkable. It is even more remarkable that the accounts each contain in sub-paragraph (a)(1) the same evident error. In terms of their reliability as witnesses this adversely affects my impression of them. When they were asked about the meeting it became apparent that neither of them had any real recollection of it. As I have mentioned, 10 years after the event this is not surprising. What is surprising was that they were asked to verify and did verify a statement which was clearly not their own. The contemporaneous record, however, remains.

271. Mr Stella said that at this meeting he told those present that the Bank had caused a default situation with Westpac as a result of its refusal to permit the funds in the overdraft account to be used to pay the Westpac interest. Mr Whiting's account was confirmatory of this statement. Mr Anthony Stella did not recall anything said on the topic. Mr Tony Stella was not called. When Mr Stella's version was put to the two bank witnesses they professed no recollection.

274. Mr Perry's note cannot be a correct statement of the fact as to the non-payment of the Westpac interest. According to this witness, the man who implemented the cheque monitoring procedure, no cheque was vetoed as part of the process; it was merely to inform the Bank about the customer's use of the overdraft account. What use the Bank was to make of this information was never clear. The terms of Mr McDonald's letter of 20 November and those which follow suggest a more active role was envisaged and in fact implemented. At the time of the 4 December 1990 meeting the available funds in the overdraft account were many hundreds of thousands of dollars. It is simply not correct to say that Mr Stella was "no longer able to meet" the Westpac interest. Mr Perry's note is one of those documents which the Bank produced for its internal consumption at this time and which, to my mind, were directed to recording a version of events which the writer would like to have existed. It is not a document I would rely upon. In short, I find on the balance of probabilities that, early in December 1990, Mr Stella informed Mr McDonald or Mr Perry of his intention to draw a cheque on the overdraft account to pay the Westpac interest and that he was told by Mr McDonald that he was not to do so. He complied with this instruction and on 4 December 1990 he complained about the predicament which it created for him and his companies with the Westpac Bank.

277. I am satisfied, however, that among the matters discussed at the meeting were the courses open to Mr Stella. None of them was attractive. The Bank declined to give him a moratorium. He was concerned that the alternative of a forced sale of his assets would achieve nothing. The Bank representatives sketched out a proposed course of conduct for the Stella companies and the meeting concluded on the basis that the Bank would write a letter confirming its proposed arrangement. It is apparent that by 4 December, if not before, Mr McDonald had decided to terminate the facility agreement and to liquidate the Stella debt if at all possible.

280. Mr Perry then set about preparing a memorandum dated 7 December 1990 reviewing the existing Stella facilities and developing "a strategy plan in order to achieve recovery of outstanding debt". The document is instructive in that it contains on the third page under the heading Repayment Arrangements a false statement whose effect, if not its intent, was to give to his superiors an inaccurate and misleadingly optimistic account of the Bank's failure to terminate the evergreen facility following the 1990 annual review. It was simply false to state that the Bank had declined to extend the expiry date of the facility beyond 30 April 1991. Later in the memorandum various options for the Bank are considered and rejected, including that of manufacturing an event of default under the facility agreement through "the total withdrawal of the overdraft facility". The recommended course of action involved the continuance of support subject to stringent supervision with a further review and assessment by 30 April 1991. Mr Leonard, the superior officer to whom the recommendation was directed, declined to approve it. His view was that the Bank should not support any further funding and that a recovery strategy approval should be obtained from the Credit Committee. On 17 December 1990 the Assistant General Manager directed Mr McDonald to redraft the memorandum for submission to the Credit Committee. This is the memorandum of 20 December 1990 which recommended that, subject to legal opinion, the overdraft facility be withdrawn or an event of default (if any) be exercised and that there be sent a letter of demand in relation to outstanding moneys. I mention in passing that this internal bank document, also prepared by Mr Perry, contains under the heading Repayment Arrangements an even more inaccurate statement as to the results of the 1990 annual review. He wrote "At the annual review in April 1990, the company was advised that the expiry date was not extended beyond 30 April 1991". The credit committee adopted the recommendation on 28 December.

283. What now remains to be told is how this decision of the Bank and Mr Stella's companies were executed. The bill facility of $12M was fully utilised with the bills being rolled over every 30 days in two bundles of $6M. The rollover dates in January 1991 were the 4th and 11th of the month. The bills that fell due on 4 January were rolled over for seven days only so that their maturity coincided with the balance of the bills on 11 January. On that day the two bundles of bills to a total value of $12M were again rolled over, again for only seven days, maturing on 18 January. It was said on behalf of the defendants that these seven day periods were not authorised by Mr Stella or Renstel. Mr Stella said that his permission was not sought to reduce the term of the bills from 30 days. Mr Perry and Mr McDonald were unable to say that this change had been effected with Mr Stella's authority. No document of authority to this effect was produced other than the Bank's general power of attorney dated 17 July 1989 to effect rollovers in accordance with the customer's written instruction. There appears to have been no such written instruction. I find that the Bank made the change without the express authority or instruction of its customer, Renstel.

286. It is apparent from the documentation of early January 1991 that Mr Stella apprehended that the Bank would soon move and take possession of the securities. And at a meeting at the Bank on 16 January 1991 the Bank did move. Present were Mr Stella, his son Anthony Stella, his cousin Tony Stella, Tony Cometo a solicitor and Mr Whiting. On behalf of the Bank were Mr McDonald, Mr Perry, Graeme Charles Fuller, a manager in Corporate Banking and Philip Jones, a solicitor and member of the firm Molomby & Molomby. The only event in the meeting of present interest is that Mr McDonald announced that the Bank would be withdrawing the Renstel overdraft facility at the close of the meeting. A letter to this effect was handed to Mr Stella before the meeting began and a copy was sent to Renstel by fax at 5.15 pm on the same day.

289. As I have mentioned at the outset, a formal demand for payment of $281,393 being the overdrawn balance of the overdraft account was sent on behalf of the Bank by Molomby and Molomby on 17 January. At noon on the following day, 18 January 1991, the Bank sent to Renstel by courier a request for payment of the rollover cost of the $12M bills which had then fallen due. A demand for payment of the face value of the matured bills was sent on 22 January 1991. No payment in response to any of these demands was made.

293. Two distinct types of estoppel were suggested on behalf of the defendants: estoppel from a common assumption of the parties between 14 October 1988 and 30 July 1990; and an estoppel in pais arising out of a number of representations; some pre-dating the facility agreement in October 1988, the representation of Mr Franklin at the cocktail party on 16 November 1988 and that contained in the Bank's letter of 19 March 1990.

296. The common assumption asserted in the first type of estoppel was that all the facilities granted in the facility agreement were interchangeable, and that the overdraft facility like the other facilities was granted on a two year evergreen basis subject to satisfactory annual review. The assumption is alleged to have been continued up to 30 July 1990. This date was explained by counsel for the defendants on the basis that it was about this time that those in the Bank responsible for the Renstel account adopted a different and more severe approach than their predecessors.

299. There is absolutely no substance in this submission. I am satisfied that at all times Mr Stella was aware that the overdraft facility stood apart from the other facilities. I reject his evidence to the contrary as inconsistent with the events as I have found them relating to the making of the facility agreement. He may have hoped that the Bank would treat the overdraft facility as interchangeable and evergreen like the other facilities, but I reject the suggestion that he proceeded on an assumption to this effect. Reliance was placed on internal Bank memoranda during this period as showing this to be the assumption of the Bank. The difficulty with this aspect of the submission is that there are other memoranda where a different view is expressed. In any event, even those memoranda relied upon by counsel for the defendants make it clear that there is no interchangeability between the two facilities. It is true that they refer generally to the facilities all as being evergreen but this must be understood against the background of a belief generally held by these officers that an overdraft is never evergreen.

302. The second type of estoppel is based upon the representations to which I have referred. The bases of the misrepresentations made before 17 October 1988 are the same as that for the pre-agreement. I have in paragraph [37] above rejected the submission that the pre-agreement was entered into. For the same reasons I am not satisfied that the evidence shows a clear and unequivocal representation such as is required to raise the suggested estoppel[16]. The same may be said of the conversation at the cocktail party on 16 November 1988.

305. The letter of 19 March 1990 stands in a different light. I have set out the relevant portion of it at paragraph [63] above. Nothing is said in it about interchangeability. The statement as to the evergreen nature of the existing facilities is qualified by the reference in the same sentence to the 14 October 1988 letter.

308. In any event, I am not satisfied that Mr Stella relied on this statement to his detriment in the sense required. In his witness statement he says that following receipt of this letter he intended to have removed from the facility agreement the term giving the Bank the right to cancel the overdraft facility on demand. If his belief was as he now contends, it would not be necessary for this to have been done. His explanation for not pursuing the matter following this letter I found unconvincing. I reject his statement that he was induced by the letter not to seek alternative finance in early to mid 1990.

311. I am not satisfied that the right of the Bank to cancel the overdraft at its discretion is affected by any estoppel.

315. The primary position of the Bank was that the overdraft part of the facility was liable to be called upon at any time for whatever reason at the Bank's discretion. I have rejected the submissions of the defendants that any such right should be overridden by the provisions in the facility agreement as to its evergreen nature. The document in which this agreement is recorded does not so provide and I have declined to infer in it a term to this effect. I have concluded, too, that the Bank is not estopped from adopting such a position. It remains, therefore, for me to consider the two remaining arguments raised against the right of the Bank to terminate the overdraft facility as of right.

319. In fact the Bank in January 1991 approached the termination of the overdraft in two steps. First, at the meeting of 16 January 1991 it informed its customer that the overdraft facility was withdrawn immediately. Having in this way removed any impediment to the requirement of payment of the debit balance in the overdraft account it did so by letter on 17 January 1991. Again, the terms of this demand were such that the sum became payable immediately.

322. Having regard to the conclusions which I have reached in paragraphs [45] and [46] above there is no substance in this point.

326. Much was made of this point in evidence of the events following October 1990. It will be recalled that Mr Eaton in his memorandum of 12 November 1990 spoke of "an event of default could be triggered" and that Mr McDonald and others in their strategy memorandum of 7 December 1990 considered and rejected the option of "manufacturing" an event of default through the total withdrawal of the overdraft facility.

329. In the course of their final address counsel for the defendants raised a number of matters as indicating a lack of bona fides or reasonableness in the Bank's conduct in January 1991. It is convenient that I set them out for they do not appear in the defence:

(a) the long delay in the Bank's approval or not of the facility upon the 1990 annual review;

(b) the wrongful imposition of credit conditions for the continuation of the facility in October 1990;

(c) Mr Leonard's recommendation on 14 December 1990 that the Credit Committee approve a recovery strategy was made without his having looked at the facility agreement and without his enquiring as to how the facility had been conducted by the parties over the preceding two years;

(d) the misstatements of fact as to the non-approval of the account upon the 1990 annual review which appear in the 7 December and 20 December internal memoranda;

(e) Mr Leonard and Mr McDonald set in train the strategy to cancel the overdraft facility at a time when there were legal doubts about their right to do so. They therefore set up a situation in mid-January 1991 where multiple defaults became available;

(f) the unauthorised rolling over of the bills for seven days only so that they fell due on 18 January 1991;

(g) the wrongful refusal of the Bank to permit the overdraft funds to be used to pay the Westpac interest;

(h) the peremptory cancellation of the overdraft on 16 January.

335. It was put on behalf of the defendants that these matters showed that the Bank on 16 January 1991 "acted without proper regard to the rights of [the defendants] and in circumstances where its own conduct precluded [the defendants'] enjoyment of [their] contractual rights without justification", to adapt the words of Rolfe J in Hungry Jack's Pty Ltd v Burger King Corporation[17].

338. In considering this submission it is necessary to have regard to the following matters. First, the Bank was, as I have found, entitled as a matter of contract to call upon the overdraft facility at its discretion. In the exercise of its discretion it was entitled to have regard to its own legitimate commercial interests even if they were inimical to those of Renstel. It is apparent that by the end of 1990 the Bank saw its interests as being served by terminating an arrangement with Renstel which had every prospect of causing it to suffer loss. As things then appeared it was apparent that Mr Stella was unable to liquidate the security assets so as to reduce the debt and the Bank's exposure to loss. It was reasonable for the Bank to foresee that Renstel would continue to use its overdraft facility until it reached the $1M limit, probably by August 1991, at a time when the Bank's exposure was very great having regard to the expected decline in the value of the securities. It was to my mind reasonable for the Bank to seek, it if were possible, to terminate the facility. Accepting, as I do for present purposes, that it was contractually lawful for the Bank to call up the overdraft facility on 16 January, the facts relied upon to create a scenario of unreasonableness and mala fides lose much of their significance.

341. The long delay in finalising the 1990 annual review is not shown to be relevant to this scenario. The imposition of the conditions in October is to my mind explicable as the conduct of bank officers who were concerned, as far as possible, to keep the Stella Group afloat. The fact that Mr Leonard and Mr McDonald acted on the advice of those officers who were familiar with the account is in no way sinister. The misstatements by those officers about the effect of the 1990 annual review were directed more to protecting themselves from criticism rather than to harming the Stella Group. The fact that there was, perhaps, uncertainty about the right of the Bank to call up the overdraft facility without default by the customer takes the matter no further. The unauthorised reduction in the rollover periods for the bills loses much significance when it is appreciated that a default in paying the overdraft debt was inevitable following demand. The wrongful refusal to permit the customer to use its funds to pay the Westpac interest was not relied on at the time it occurred as a basis for the cancellation of the facility. The peremptory cancellation of the overdraft facility was lawful and has not been shown to be in any way abnormal.

344. I mention, too, the suggestion, which was not pressed in final submissions, that CBA raised a $4M specific provision for doubtful debts arising out of the Renstel account. In the course of the trial it appeared to be suggested that this was in some way engineered to enable CBA to make a claim on the State of Victoria under the merger agreement between it and SBV. Nothing came of this and it was not shown to have anything to do with this case.

347. I conclude that there is no substance in the submission that the cancellation of the overdraft facility on 16 January 1991 was in any way vitiated by any want of reasonableness or good faith.

351. In my opinion, the Bank was not on 16 January 1991 entitled to cancel the overdraft facility or to terminate the facility or to terminate the facility agreement for default. I have, in paragraph [12] above, set out the Events of Default (d) and (g) relied on by the Bank. As things stood on 16 January it cannot be said that Mr and Mrs Stella were unable to pay their debts. They had access to the unexhausted portion of the $1M Renstel overdraft. Event of default (d) has not been made out.

354. An event of default (g) arises when a member of the Stella Group merely fails to perform its obligation under "either of the Facilities or any other facility". Mr and Mrs Stella fall within the definition of the Group. The word "Facilities" is defined in the 14 October 1988 letter to mean the specified facilities granted in that letter. The remainder of the expression "any other facility" in the context in which it is found, including event of default (f), means any other facility granted by SBV. Non-payment under the Westpac facility is therefore not an event of default.

357. In any event, this non-payment of Westpac interest, even if it were an event of default, was not available to the Bank since I am satisfied that it was a consequence of the unjustified direction by the Bank that the available overdraft funds might not be used for the purpose.

361. I turn now in the light of the preceding conclusions to deal with each of the Bank's claims.

365. Having spent so much time considering the arguments of the defendants, it may be surprising that I observe, as I do, that they have little, if anything, to do with this claim. The Bank's entitlement to possession arises under the Renstel Mortgage granted by Renstel on 24 September 1984 to secure the Renstel Loan, a home loan of $34,700. This loan and the security for it is not part of the facility agreement.

368. There is no doubt that Renstel has defaulted under its obligations under this Renstel Loan and the Renstel Mortgage. The last quarterly payment was made on 31 December 1990. In paragraph 74 of the defence the defendants say that any such breach was caused by the conduct of CBA as alleged in paragraphs 57 and 61 of that pleading so that CBA is precluded from relying upon such breach. Paragraph 57 contains allegations that CBA was in breach of the terms of the facility agreement by demanding immediate repayment of the overdraft on 16 January 1991, by giving no notice of cancellation and by not exercising its cancellation power reasonably or in good faith. Paragraph 61 alleges that the unauthorised reduction of the rollover terms of the bills. I will not repeat my conclusions as to these matters. The vice in the defence to this claim runs deeper than this. I do not accept that the acts of the Bank in January 1991 with respect to the facility agreement had any bearing upon the legal obligation of Renstel under a separate agreement and its default under that agreement two months later.

371. The Bank's 14 day demand on Renstel for payment of the outstanding balance of $46,316.32 owing was made on 21 October 1993. It was not satisfied. The balance as at 24 April 2001 was $90,944.83. On 19 April 1994 the Bank made a further 14 day demand upon Renstel under the Renstel Mortgage for payment of the amounts then owing under the overdraft account and the bill facility, a total of $5,093,657.20. This demand, too, was not satisfied. Renstel remains in possession of the mortgaged property.

374. The Bank's claim to possession of the Anglesea land is made out.

378. The claim of the Bank for possession of the Rosanna land arises out of the Stella Mortgage granted by Mr and Mrs Stella in September 1984 to secure the Stella Loan, a home loan of $128,000.

381. The last payment under the Stella Loan was made on 31 December 1990.

384. The same defences to this claim were raised in opposition to the claim for the Anglesea land are raised again. They must receive the same fate. The Bank's 14 day demand on Mr and Mrs Stella for payment of the outstanding balance of $169,705.57 owing was made on 21 October 1993. It, too, was not satisfied. The balance as at 24 April 2001 was $328,105.14. Mr and Mrs Stella remain in possession of this mortgaged property.

387. The Bank's claim to possession of the Rosanna land is made out.

391. It will be apparent from what I have written that Renstel is liable to pay the present amount due under the overdrawn account. The amount due as at 24 April 2001 was $718,201.72.

394. Under the cross-guarantees and securities each of the other defendants is equally liable for this sum.

398. Likewise, it will be apparent from what I have written that Renstel is liable to pay the present amount due under the bill facility for the unpaid bills. The amount of this indebtedness as at 24 April 2001 was $10,661,470.31.

401. Under the cross-guarantees and other securities each of the other defendants is equally liable for this sum.

406. It was put, correctly in my view, that the evergreen facility was extended following the 1990 annual review to 30 April 1992. It is said in paragraph 130 of the counterclaim that the Bank was in breach of the facility agreement in nine respects. I accept that it was in breach inasmuch as, without authority, it rolled over the bills for only seven days in January. It was no breach of any term of the facility agreement that the Bank carried out a further review of the account in December 1990 or that the 1990 annual review was not completed until October. I reject the remaining breaches alleged in these paragraphs for reasons previously set out.

410. Five statements of the Bank are said in paragraph 133 of the counterclaim to have been negligently false. The first, which was said to have been made in October 1988 was that "the evergreen facility was a two year interchangeable $11 million dollar facility which included a $1M overdraft facility, subject to satisfactory annual review". No such statement was made. The second was Mr Franklin's statement at the cocktail party on 16 November 1988 which is said to be that "the overdraft was only cancellable upon default". He did not say this. What he did say was not said in circumstances giving rise to a duty of care.

413. The third and fourth statements were not shown to be false. The third was that the 1990 annual review was satisfactory. I have found that the Bank did not make or communicate any decision that it was unsatisfactory[18]. The fourth was that there would be an annual review in April 1991. I am satisfied that, in the course of a telephone conversation on 22 March 1990 Mr Perry told Mr Whiting that a matter which he had raised following the 19 March 1990 letter would be addressed at the April 1991 review. This was a statement made at a time when the evergreen facility was on foot and was not due to expire before April 1991, and then only if the 1990 annual review was not satisfactory. This review had not been commenced, nor was it due to take place for another month. The pleading says that Mr Perry's reference to the April 1991 review amounted to a representation "that there was at least a year to run on the facility". I do not see this as an available inference from or consequence of what was said. In any event, the circumstances in which the statement was made do not give rise to a duty of care with respect to that statement.

416. The final statement pleaded is that "as at 19 March 1990 the evergreen facility was a two year $13M interchangeable evergreen facility, subject to annual review"." This statement fastens upon a passage from the letter of 19 March 1990 which I have set out in paragraph [63] above. The representation, as pleaded, is an accurate summary of part only of that passage. The omission of the last phrase, however, distorts the effect of the letter. I would not conclude that the whole of the passage bears the meaning contended for. In any event, in the context in which the letter was sent, no duty of care arises with respect to the passage. There is no known reliance or assumption of responsibility as is required for the existence of a duty of the kind contended for.

423. What is alleged in paragraph 140 of the counterclaim is that Mr Franklin in October 1988 warranted the truth of the first of the alleged misstatements referred to in paragraph [117] above. I reject this claim. No such statement was made and, further, the circumstances attending the making of the facility agreement were not such as to give rise to an inference that the truth of any such statement was warranted by the Bank.

427. The allegations as to this basis of this claim are made in three short paragraphs of the counterclaim which I set out in full.

"143. At the time of entering into the evergreen facility the counterclaimants under their long-standing existing SBV facilities were financially dependant upon SBV. 144. As a result of the matters alleged in paragraphs 39A-39K, 57, 61 and 133-138 hereof CBA acted unconscionably in cancelling the Renstel overdraft and making the demands referred to in CBA's statement of claim herein. 145. As a result of CBA's unconscionable conduct the counterclaimants have suffered loss and damage."

431. As to paragraph 143, there is no evidence to support this conclusion. It is true that in October 1988 the Stella Group enjoyed the support of the Bank. It was never suggested, however, that they might not have returned to the Westpac bank or to any other financial institution if they or SBV decided to discontinue existing arrangements.

434. Paragraph 144 picks up a number of the earlier allegations. Paragraphs 39A - 39K include the allegations giving rise to the claim for rectification, those as to the five terms of the facility agreement and those upon which the suggested estoppels were based. Paragraph 57 contains the allegation that the Bank on 16 January 1991 exercised its right to determine the overdraft facility without sufficient notice and that it did not do so reasonably and in good faith. Paragraph 61 deals with the change in the terms of the bills in January 1991. I have expressed my conclusions on these matters.

437. Counsel on behalf of the defendants relied upon passages as to the meaning of unconscionability and its effect in a banking case made by Davies J in Parras Holdings Pty Ltd v Commonwealth Bank of Australia[19]. His Honour there pointed out that what is required to establish unconscionability is the superior bargaining power of one party vis-à-vis the special disadvantage of the other and, further, that the advantaged party unfairly or unconscientiously took advantage of its position. The cancellation of the overdraft facility and the making of the consequent demands in this case are therefore said to have been acts of the advantaged party which were an unconscientious or unfair abuse of this advantage.

440. Having regard to the conclusions which I have reached on the constituent ingredients of this claim, it is plain that it must fail. There is nothing unconscionable in the Bank calling up its overdraft to protect its interests where the customer had agreed that it might do so.

444. This claim is made in paragraphs 146-149 of the counterclaim. As pleaded, the claim asserts that, for various reasons, the Bank was not entitled to take possession of and sell the security properties. Its receipt of the proceeds of these realisations and its application of them in reduction of the Renstel liabilities amounts to a conversion for which it is liable to account.

447. No authority was cited in support of this claim nor was it developed in argument. It presupposes a chain of events which I have not accepted as a matter of fact or law. I reject the claim.

451. This claim which appears in paragraphs 150-155 of the counterclaim is that Renstel and Mr and Mrs Stella are entitled to an order that the Renstel Mortgage and the Stella Mortgage be discharged. The basis for this is not easy to understand although the facts upon which it rests are straightforward.

454. The Bank has sold all but two of the eight security properties. Five of these properties were sold between June 1991 and November 1991 pursuant to the power of sale under the various mortgages. It is then said that the prices obtained were substantially less than their market value in 1996. Since the sales were made as an ultimate consequence of the breaches by the Bank of the facility agreement culminating in the cancellation of the overdraft facility on 16 January 1991, the defendants seek damages. This is understandable, although such a claim must fail since most of the breaches have not been made out. I am not concerned with causation or quantum.

457. These are the allegations in paragraphs 150-153. Then follow the following paragraphs:

"154. As a result of the matters alleged in paragraphs 150 to 154 hereof the obligations of Renstel under the Renstel mortgage and of Mr and Mrs Stella under the Stella mortgage have been discharged. 155. Renstel and Mr and Mrs Stella are entitled to an order that CBA discharge the Renstel mortgage and the Stella mortgage."

461. It was never explained how this consequence followed from the facts alleged in the earlier paragraphs. It was not deal with in final addresses. It does not readily appear to me how the claim is put. I reject it.

465. The claim of Renstel and Mr and Mrs Stella to restrain CBA from selling the land at Anglesea and the land at Rosanna presupposes a conclusion that no moneys are owing under the Renstel Mortgage or the Stella Mortgage as any sum that may be owing should be offset by damages payable by CBA to them. The prospect that the counterclaims should amount to the sums due under these mortgages is so remote that the injunctive relief must be refused.

A. Judgment for the plaintiff against firstnamed defendant for possession of the land described in Certificate of Title Volume 9122 Folio 2809.

B. Judgment for the plaintiff against the eighth and ninthnamed defendants for possession of the land described in Certificate of Title Volume 8500 Folio 930.

C. Judgment for the plaintiff against each of the defendants in a sum representing the amount owing under the Renstel Loan, the Stella Loan, the bill facility and the overdraft facility.

D. On the counterclaim declare that the plaintiff was in breach of the terms of the facility agreement on 4 January and on 11 January 1991 when it rolled over certain bills to a total value of approximately $12M otherwise than in accordance with the written instruction of [Renstel].

474. I will hear counsel further as to the precise terms of the judgments which should be pronounced in the light of the findings which I have made, as to the present amount of indebtedness and as to whether and how the hearing as to causation and quantum arising from the breach which I have found should be dealt with. I will also hear counsel further on the question of costs.

[1] Paragraph 39I(a) contains an evident error which was corrected in final address.

[2] Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491 at 502-3.

[3] Noted at [1981] Com LR 205.

[4] [1981] Com LR 205 at 210.

[6] Paget's Law of Banking, 11th ed, 1996 at p. 180; Elinger & Lomnicka, Modern Banking Law, 2nd ed, 1994 at p. 581.

[7] See Parras Holdings Pty Ltd v Commonwealth Bank of Australia [1998] FCA 682 at [23], per Davies J.

[8] Titford Property Co Ltd v Cannon Street Acceptances Ltd, unreported, QBD, Goff J, 22 May 1975.

[9] Williams and Glyn's Bank Ltd v Barnes [1981] Com LR 205.

[10] Bank of New Zealand v Winfield, unreported, SC (Qld), Ryan J, 8 November 1990, BC 9002891.

[11] (1992) 26 NSWLR 234 at 255, per Priestly JA.

[12] (1998) 44 NSWLR 349.

[13] [1997] FCA 558; (1997) 76 FCR 151.

[14] Alucraft Pty Ltd (In liq) v Grocon Ltd, unreported, Smith J, 22 April 1994 (noted at 11 BCL 20); Commonwealth Bank of Australia v Milder Elfman Szmerling Krycer Pty, unreported, 18 February 1998, at 55, per Hansen J; Kilpatrick Green Pty Ltd v Leading Synthetics Pty Ltd, unreported, 5 June 1998, at 25, per Gillard J; Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 at [120], per Byrne J; Lines MacFarlane & Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000] VSC 368, at [510], per Nathan J.

16] Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491 at 502.

[17] [1999] NSW SC 1029 at [273].

[19] unreported, Fed Ct, 24 October 1997 at [97] - [98].