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

Commonwealth Bank of Australia v Renstell Nominees Pty Ltd [2001] VSC 167 - VSC 2001 case summary — Zoe

[5]

(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.

[11]

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.

[14]

(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.

[22]

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.

[106]

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.

At a glance

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Judgment (183 paragraphs)

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Cases Cited (5)