Commonwealth Development Bank of Australia Pty Limited & Anor v Claude... [2002] NSWSC 965 | Case summary

Commonwealth Development Bank of Australia Pty Limited & Anor v Claude... [2002] NSWSC 965 | Case summary | Zoe

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RW Cameron, ARR Vincent (Defendant 50062/00, Plaintiff 50072/00) COUNSEL : AG Bell, DA McLure (Plaintiff 50062/00, Defendant 50072/00) DL Williams (Murray Smith & Scott Kershaw, 3rd Defendants 50072/00) MC Griffith & Co (Defendant 50062/00, Plaintiff 50072/00) SOLICITORS : L E Taylor Solicitor (Plaintiff 50062/00, Defendant 50072/00) Corrs Chambers Westgarth (3rd Defendants 50072/00) CATCHWORDS : Contract - Banker and Customer - Loan facilities - Guarantee - Claim that CDBA and CBA acted unconscionably in dealings concerning facilities granted by both banks - Claim that CBA knowingly interfered with loan facility granted by CDBA with intention of procuring breach of facility - Alleged undisclosed decision to decline application for further accommodation - Alleged unconscionable conduct in delaying communication of suggested decision to decline further accommodation - Obligation to act in good faith - Alleged unconscionable conduct - Alleged misleading and deceptive conduct - Farm Debt mediation - Alleged unconscionable conduct in relation to holding of mediation - Claim to set aside Heads of Agreement reached during mediation on the ground of vitiating factors including alleged duress in terms of suggested threats to appoint receiver unless Heads of Agreement entered, in terms of emotional state of customer representative participating in mediation and other matters. Commonwealth Banks Act 1959 (Cth) Commonwealth Bank Sale Act 1995 (Cth) LEGISLATION CITED : Family Provision Act 1982 (NSW) Farm Debt Mediation Act 1994 (NSW) Trade Practices Act 1974 (Cth) ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Blomley v Ryan (1956) 99 CLR 362 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 CASES CITED : David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Hudson Resources Ltd v Australian Diatomite Mining Pty Ltd [2002] NSWSC 314 Jones v Dunkel (1959) 101 CLR 298 Louth v Diprose (1992) 175 CLR 621 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Overlook v Foxtel [2002] NSWSC 17 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tymshare Inc v Covell 727 F2d 1145 (1984) DECISION : Claims by banking parties upheld. Claims by borrower parties not made out. Short minutes of order to be brought in.

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(c) that GCC was in default of its obligations to the first and second defendants in respect of the loans. · By clause 2 of the Heads of Agreement the plaintiff confirmed the validity of the securities and acknowledged that the securities secured the plaintiffs' obligations under the Heads of Agreement and continued to secure the plaintiffs' obligations to the first and second defendants in respect of the loans. · By clause 4 of the Heads of Agreement the plaintiffs agreed that except as provided for in the Heads of Agreement, the loans would continue on the same terms and conditions as previously approved or varied by the first and second defendants. · By clause 6 of the Heads of Agreement the plaintiffs agreed to repay the loans on or before 1 March 1999. · By clause 7 of the Heads of Agreement the plaintiffs agreed that if the loans were not repaid by 1 March 1999 or if there was a default under the Heads of Agreement, the first and second defendants could commence proceedings against the plaintiffs in the Supreme Court of New South Wales for the debt, and, in that event, the plaintiffs would consent to the entry of judgment for the debt. · By clause 8 of the Heads of Agreement the plaintiffs unconditionally agreed that if the first and second defendants commenced legal proceedings pursuant to clause 7 of the Heads of Agreement the plaintiffs would not contest the proceedings and if the plaintiffs attempted to do so, the Heads of Agreement might be pleaded by the defendants as a bar to any defence that might be raised. 6 The case pursued by CDBA and the Commonwealth Bank is that: · on or about 12 April 1999 the first and second defendants agreed with the plaintiffs to extend the time for repayment of the loans pursuant to the Heads of Agreement until 4.00 pm on 28 May 1999. · The plaintiffs failed to repay the loans by 4.00 pm on 28 May 1999 in accordance with the Heads of Agreement as varied on or about 12 April 1999. · the plaintiffs are not entitled to plead as against the first and second defendants the matters raised in the second amended summons. The Loans 7 The subject loans were in the first instance as follows: · A fixed loan from CDBA OF $3 million ["the fixed loan" or "the CDB loan"]: [The charter of the CDBA had been one which empowered it to grant loans for commercial purposes where the lending criteria of other lenders could not be met.] · A loan from CBA comprised of what was effectively an overdraft facility ["the overdraft facility" or "the CBA loan"]. 8 The initial terms of the fixed loan and of the overdraft facility were varied from time to time. 9 The loans were guaranteed by Mr Claude Cassegrain who is the first plaintiff in the Cassegrain proceedings. Securities including real property mortgages, floating charges and equitable charges were given by the second, third and fourth plaintiffs in those proceedings which were subsidiaries of the holding company. The precise details are recorded below.

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'In the event of default in payment of any one or more of the instalments of principal and/or interest... the accommodation shall at the option of the Bank immediately become payable and the Bank may thereupon demand payment of all monies owing by the applicant/s to the Bank and in the case of a loan not yet drawn or only partly drawn may decline to make any further portion thereof available to the applicant/s'; · initially, the loan was to be paid in seven instalments of $615,200 each August with the balance due by August 2003; · by letter dated 30 July 1997 from CBA to GCC, time for repayment was varied, so that the first instalment was required to be paid in August 1998 with the balance due by August 2004; · It is common ground that the instalment due in August 1998 was not paid; · as at 30 September 2002, the amount due under the loan, including interest, was $433,210.34. · Repayment of the CDB loan was guaranteed by Mr Cassegrain deed dated 18 October 1995. · The CDB loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates Pty Limited ("Clos Farming Estates") and by registered equitable mortgages over the assets of GCC, Clos Farming Estates, and Le Clos Sancrox Pty Limited, ("Le Clos Sancrox"). · The first instalment was not paid in August 1998. · By the heads of agreement entered into following the Mediation and dated 11 November 1998, the Cassegrain parties agreed to repay the CDB loan by 1 March 1999 ("Heads of Agreement"). The CDB loan was not repaid by that date. The heads of agreement included the following terms: '7. ...If the Loan is not repaid on or before 1 March 1999 or if there is a default under this agreement the Bank may commence proceedings against the Farmer and the Security Providers in the Supreme Court of New South Wales for judgment for possession of the Property and Default Judgment for the Loan debt. In this event the Farmer and Security Providers will consent to the entry of judgments for possession of the Property and the Loan debt...

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(iii) 'application for finance' dated 24 April 1997 signed for GCC; · the loan was repayable on demand, but in any event by no later than 30 June 1998; · it is common ground that the loan was not repaid on 30 June 1998; · as at 30 September 2002, the amount due under the CBA loan, including interest, was $774,102. · Repayment of the CBA loan was guaranteed by Mr Cassegrain by deed dated 24 April 1997. · The CBA loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates and by registered equitable mortgage over the assets of GCC, Clos Farming Estates, Le Clos Sancrox and Endwise Holdings Pty Limited ("Endwise"). · By the Heads of Agreement, the Cassegrain parties agreed to repay the CBA loan by 1 March 1999. The CBA loan was not repaid by that date. · By letter dated 12 April 1999, CBA agreed to extend the time for repayment to 28 May 1999. The CBA loan was not repaid by that date. · On 15 June 1999, Smith and Kershaw were appointed as receivers of the Cassegrain parties, pursuant to securities. · By letters to the Cassegrain parties dated 6 April 2000, CBA demanded payment of $551,294.56, being the amount owing by GCC under the CBA loan at that date. · CBA seeks a judgment in the banks proceedings for $774,102.45 plus interest from 1 October 2002 against GCC, Clos Farming Estates, Le Clos Sancrox, and Endwise and Mr Cassegrain. The central complaints of the Cassegrain parties 15 Without limiting the precise ambit and terms of the relevant pleadings which require to be referred to for the detail, it may be said that the central complaints made by the Cassegrain parties in both sets of proceedings are apparently as follows: · that the Banks acted unconscionably by delaying the communication of their decision to decline an application to reschedule the loans before 30 June 1998; · that the Banks acted unconscionably after the default in the CBA facility; 16 Again without limiting the ambit or reach of the extensive and grave allegations made by the Cassegrain parties, it is convenient to note the emphasis put during the opening address on the fact that the provisions of the Commonwealth Banks Act 1959 had provided: · that the functions of the CDBA were - "to provide finance for the purpose of establishing, acquiring or carrying on businesses… in cases where in the opinion of the [CDBA], the provision of finance is desirable and the finance would not otherwise be available on reasonable and suitable terms and conditions ";

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19 A further issue concerning the CDBA/CBA connection arises in respect of the circumstance that the Commonwealth Bank Sale Act 1995 [assented to on 16 December 1995] ["the 1995 Act"] repealed section 71 of the 1959 Act [which had established the CDBA] and repealed sections 72, 73 and 74 [which had respectively identified the functions of the CDBA, the matters to be considered by the CDBA in providing finance and the powers of the CDBA], and proceeded to make provision for converting the CDBA into a company under the Corporations Law. Prior to the 1995 Act the management of the CDBA had been prescribed by section 80 of the 1959 Act which had empowered the board of directors of the CBA to make a determination designating a position in what was described as "the Commonwealth Bank's Service" (constituted, pursuant to section 88 by officers appointed by the CBA, whose terms and conditions of employment were to be determined by the CBA). In the absence of such a determination or during any period when no such determination was in force, the managing director of the CBA was to manage the CDBA. Where such a determination was in force, the person occupying or performing the duties of a position in the Commonwealth Bank's Service designated by such a determination, was, under the managing director of the CBA, to manage the CDBA [section 80, 1959 Act]. 20 In those circumstances the CBA up until the 1995 Act, as a matter of fact and pursuant to the above regulated regime and relevant instruments (including a private treaty between the CBA and the Commonwealth), had by relevant officers, effectively run and administered the business and affairs of the CDBA. The position which followed after the enactment of the 1995 Act was different in that the CDBA had effectively been converted into an entirely different vehicle and its previous charter, stipulated for in section 73 of the 1959 Act, and its functions, stipulated for in section 72 of the 1959 Act, had now disappeared. Loans which the CDBA had made remain valid contracts but no further applications for loans could be made to the CDBA which had become the Commonwealth Development Bank of Australia Limited ["CDB Ltd"]. CDB Ltd could not undertake any increase in its on or off balance sheet exposure through provision of additional loans. Effectively the position was that any application for a variation to an existing facility, which had previously been granted by the CDBA, could only be dealt as described in exhibit D1 which is appended to the judgment and is dated 23 September 1996. 21 A new "DevBank" commenced to operate as a division of CBA but the "not otherwise available" aspect of the CDBA's previous charter disappeared. The new DevBank, as before, was to operate efficiently in accordance with commercial principles and was held out as still primarily having regard to prospects ahead of security. 22 The Cassegrain parties pleading in relation to this issue left a great deal to be desired. However during final address inconsistent submissions were put to the court, first asserting that the CBA had never had any authority or power whatever to vary the CDBA facility, and secondly asserting that, whilst it had authority or power to vary the CDBA facility, its conduct was unconscionable and/or lacking in good faith and or unreasonable for the reason that what was said to be a dimensional change in the anterior functions of the CDBA [see section 72 1959 Act] and in the anterior matters to be considered by the CDBA in providing finance [see section 73 1959 Act], was said not to have been communicated to the Cassegrain parties in their dealings with the CBA. 23 Whilst the pleading seems to me to be confined to an allegation that the CBA knowingly and intentionally brought about a breach of the CDBA loan by so dealing with the holding company in terms of treating with its restructuring application in manner such that the loan had to be brought within the parameters of acceptable commercial lending criteria "or be got rid of" [whatever this last expression may mean], the case for reasons which follow, fails both as pleaded, and if this be open on the pleadings, as put in final address. Even at this early stage it is appropriate to note that the loan was not a loan by CBA and its purpose must then be perceived as having been "to get rid of" a loan made by another entity, albeit administered by the CBA. No such motive was established on the evidence. The second amended summons in the Cassegrain proceedings 24 The second amended summons is poorly pleaded. It is prolix and it is not a simple matter to draw out of the pleading the specific causes of action pursued. They appear to be the following:

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Unconscionability in terms of period of notice of pending default · A claim in relation to a late June 1998 communication by the second Defendant to the holding company that particular extensions of repayment dates which had been sought following representations by CBA as to loans on offer in the holding company's category, would not be granted and that unless the overdraft facility was repaid in full by 30 June 1998 the holding company would be in default and that the Commonwealth Bank of Australia would then be at liberty to exercise its rights under the securities held by it. The claim is that the period of notice was in all of the circumstances unconscionable [second Amended Summons paragraphs 13 - 16] [The matters as pleaded is generally as follows: · End of November/end of December 1997- the second defendant is said to have assumed the management and control of the first defendants loan portfolio · The second defendant by its State Senior Manager (Mr R. Perkins) and others is said to have in the course of a function conducted by the second defendant: (a) represented to the fifth plaintiff -that the second defendant had a number of $5 million loans on offer in the first plaintiff's category at a lower interest rate than that applied by the first defendant to the first plaintiff (b) represented that the first plaintiff could qualify for such a loan if it applied to restructure its loan arrangements to fit in with the second defendant's lending criteria. Paragraph 13] · February 1998 - the first plaintiff, pursuant to the said representation is said to have applied to the second defendant to restructure its arrangements in the following three respects:- (a) to increase the CBA overdraft facility it had by $350,000 to $1.1M; (b) to reschedule the clearance date of the overdraft from 30.06.1998 to 30.10.1998; and (c) to extend the due date for the first payment on the CDB $3M loan from August 1998 to August 1999; [paragraph 14] · February 1998 until 25 June 1998- The second defendant is said to have delayed telling the first plaintiff that it would not be continuing with the first plaintiff as its customer until 25 June 1998, when the second defendant is said by its senior manager G.P. Wilmott, to have orally informed the first plaintiff's officer, S. Lloyd, that: - the extensions aforesaid would not be granted - unless the overdraft facility was repaid in full by 30 June 1998, the first plaintiff would thereby be in default and the second defendant be at liberty to exercise its rights under the securities held by it. [Paragraph 15] Breaches of obligations to act fairly and in good faith · An allegation that the CDBA and the holding company by having become parties as lender and borrower to the loan contract and the loan facilities became subject to mutual obligations to act fairly and in good faith the one to the other to ensure that: (a) normal standards of honesty were adhered to ; (b) each would co-operate to achieve the objects of the loans contract; (c) neither would act in a manner substantially to nullify the bargained objective or benefit contracted for; (d) the equitable right of redemption by the first plaintiff would not be improperly defeated, and in respect thereof the first plaintiff would have- (i) full opportunity to redeem; and (ii) full opportunity to show cause.' [Each of these obligations is said to have been breached by the CDBA by itself and by its agent the CBA] Knowing and intentional interference with loan contract · an allegation that the CBA following the enactment of the Commonwealth Bank Sale Act 1995 from a date not known by the Plaintiffs but continuing up through to 30 June 1998, knowingly interfered with the loan contract made between the holding company and the CDBA with the intention of procuring the holding company to become in breach thereof by failing to discharge the overdraft facility before 30 June 1998. Misleading or deceptive conduct · an allegation that between December 1997 and June 1998 the Commonwealth Bank of Australia was in breach of section 52 of the Trade Practices Act 1974 in engaging in conduct which was misleading or deceptive to the prejudice of the Plaintiffs. [Summons paragraph 34(c)(5)] 25 Other circumstances upon which the plaintiffs rely in the summons [paragraphs 17 - 22] are put in the following terms: "The circumstances included the following matters:- · between them, the first defendant and the second defendant held all the security that the plaintiffs and their directors could provide; · the first plaintiff was able to borrow sufficient moneys as to pay out the overdraft of $750,000.00 and to meet the august 1998 repayment on the $3M loan from a private lender subject to the provision of security; · otherwise the first plaintiff was unable to borrow moneys sufficient to pay out the overdraft of $750,000.00 unless and until it obtained a position where it could satisfy the more stringent lending requirements of the lenders other than those of the first defendant; · such a position could not be obtained within a period of 18 months and in the interim the loan commitments were to be met as follows- · Oceania Agriculture Pty Limited ("Oceania"), a wholly owned subsidiary of the first plaintiff borrowed the amount of $750,000.00 and on lent it to the first plaintiff to repay the overdraft; · Oceania and the fifth plaintiff provided the payment of $612,500.00 due in August 1998 in respect of the loan of $3 million from their respective own resources; · Oceania was able to meet the relevant lending requirements- from its own cash flow; with supporting security from the fourth plaintiff a land owning wholly owned subsidiary of the first plaintiff; · the time required for the lenders due diligence and valuations concerning Oceania, the fourth plaintiff and the fifth plaintiff was about 14 weeks. · Between February 1998 and 25 June 1998 - by 11 March, the second defendant had decided to refuse the first plaintiff's application to increase the overdraft and for extensions of time but did not communicate that latter decision to the first plaintiff until 25 June 1998; · on 27 March 1998, the second defendant requested that the first plaintiff provide it with extensive financial information on a progressive basis concerning the application for restructure and variation and represented that the collation of the information would take some time and would require a revaluation of the group's assets; · on 8 April the second defendant by its senior manager and manager met with the managing director of Oceania to further discuss the progress of the extension application; · on 21 April the second defendant advised the first plaintiff on the fact and cost of the valuation advised in the letter of 27 March 1998; · on 1 May the second defendant advised the first plaintiff that its loan accounts were to be transferred to a new accounting system; · on 15 June the second defendant unbeknown to the plaintiffs placed the first plaintiffs account in the hands of its asset recovery unit; · on 25 June the second defendant orally advised the first plaintiff that it required the overdraft facility to be cleared in full by 30 June 1998; · on 26 June the second defendant advised the first plaintiff that it was sending two investigative accountants to review the first plaintiff's business and strategic plans and, if appropriate, to develop strategies to maximise recoveries. · The first plaintiff provided the information sought by the second defendant and refrained from pursuing alternative sources of finances so as to avoid default in the belief that the second defendant was considering the first plaintiff's application for extensions on its merits and would have delivered a timely response if the application was to be declined. · By failing to have notified the first plaintiff of its decision of 11 March 1998 to decline the application, the first plaintiff was irredeemably prejudiced and prevented from avoiding the default that occurred on 30 June 1998 in the failure to have paid out the overdraft facility of $750,000.00. · Further, after taking over the lending portfolio of the first defendant the second defendant altered the basis upon which the first defendant loaned moneys to the first plaintiff and without notice to the first plaintiff that it would be in a position so to do, placed the first plaintiff in default of its lending contract with the first defendant before the due date for payment of the first payment fell due. · In the premises, where the first plaintiff as the holding company of the second, third and fourth plaintiffs became in default and under threat of receivership on 30 June 1998, the ability of the said plaintiffs to have borrowed money thereafter was negatived and the plaintiffs' property exposed to the risk of forced sales. Particular allegations of breach of obligation as pleaded to act fairly and in good faith 26 The allegations of breach by CBA by itself and by its agent the Commonwealth Bank of Australia are put [paragraph 34A(2)] in the following terms: (i) failure to have warned the first plaintiff that the Commonwealth Bank Sale Act, 1995 had adverse consequences to the first plaintiff namely that the second defendant could not or would not take over the first plaintiff as a customer on the same terms and conditions as the first defendant;

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Up to then, the Group's banker was the Colonial State Bank. The GC & Co Group's debt to it was about $1.4 million. It needed further $1.5 million to fund Stage 1 and to fund expected revenue shortfalls from the vineyard management fees. That led to the Commonwealth Development Bank ("CDB") loan." [paragraphs 7- 14 from the statement of Mr Cassegrain of 6 July 2000] 36 Both Mr Cassegrain and his siblings held shares in Expressway Spares Pty Ltd ["Expressway Spares"] in 1988 and 1989. Expressway Spares had for many years carried on business near Port Macquarie as a dealer in parts for motor vehicles, plant and equipment. Its main banker in 1998 was the Colonial State Bank. Expressway Spares owned 100 percent of Cassegrain Vineyards Pty Ltd which in turn owned Cassegrain Winery at Port Macquarie. 37 Expressway Spares owned 100% of the shares in Cassegrain Tradition Pty Ltd. 38 In 1998 and 1999 Mr Cassegrain and all of his siblings held shares in the holding company. 39 The second and third plaintiff's had been involved during the second half of the 1980s in projects known as the 'Clos Farming Projects' which involved the investors taking an interest in small vineyard areas with the annual produce of those vineyards sold to Cassegrain Vineyards Pty Ltd. 40 The fourth plaintiff owned land which was used in connection with the tea tree farming project which project was managed by Oceania Agricultural Ltd. 41 Mr Cassegrain was not in 1998 or 1999 a director of Oceania Agricultural. The directors of that company were Mr Murtagh, Mr Lloyd, Mr Glover and Mr Liddy. 42 Yet another company, Clos Farming Management Ltd in a sub contract arrangement was involved in the management of Clos Farming Estates Pty Ltd and Le Clos Sancrox, managing the vineyards. The board of management of Clos Farming Estates were from Le Clos Sancrox. 43 Another of the companies which had an involvement in the tea tree project was a company called Agricultural and Rural Finance Pty Ltd in respect of which company Mr Cassegrain was not a director. 44 Verdun Vineyards Estates Pty Ltd was 50 percent owned by the holding company and 50 percent by Clos Farming Management Ltd. Its directors were as at 1998, Mr Curly, Mr Angus, Mr Liddy and Mr Rock. Verdun Vineyards had been formed expressly to purchase vineyard development blocks repossessed by the Colonial State Bank. It procured an approved $500,000 facility from the National Australia Bank for the purpose of purchasing 13 lots from the Colonial State Bank. [Transcript 132,133] Relevant proceedings in which Mr Cassegrain or family interests were involved 45 Mr Cassegrain gave evidence to the following effect in relation to such proceedings: · That in 1996 four of his brothers and sisters brought proceedings against him, his sister Anne-Marie and his mother in the Federal Court. One of the complaints made in those proceedings was that he was conducting the affairs of Expressway Spares in a manner that was oppressive to the applicants. The family disputation attracted publicity. In September 1996 a mediation was conducted. Mr Cassegrain participated in the mediation which did lead to an agreement which was unable to be consummated. · In late 1997 a second mediation of the family dispute in the Federal Court was conducted by the Hon John Clarke QC. Questions arose in respect of Heads of Agreement which Mr Cassegrain, in giving evidence under cross-examination, said comprised a document negotiated between counsel and the respective solicitors and which had not resulted from the mediation. Mr Cassegrain sent a copy of those Heads of Agreement to the Commonwealth Bank in early April 1998 advising that he was seeking specific performance of the Heads of Agreement because of the further dispute which had arisen. · By June 1999 Mr Cassegrain's mother had passed away leaving him and his sister Anne-Marie as executors of her estate. His mother had also held shares in Expressway Spares and after her death control of those shares passed to him and Anne-Marie as executors. Complexities arose with respect to the Heads of Agreement which Mr Cassegrain described as follows: "The Heads of Agreement included a clause that my siblings were able to obtain finance. We were advised that the bank had approved the finance and therefore the lawyers started to document the details of the Heads of Agreement. The Heads of Agreement included my mother selling her land and buildings occupied by Expressway Spares to Expressway Spares. My siblings and their lawyers approached the State Bank - I beg your pardon, my siblings and their lawyers approached my mother's lawyer and asked that there be a variation to the Heads of Agreement. The variation that they requested was that rather than the land and buildings over which Expressway Spares was operating be sold to them personally. My mother agreed to that scenario on the condition that she would also retain an equitable interest in the land and buildings as the land and buildings were to be paid for by Expressway Spares. The siblings decided that they do not want our mother to have an on-going interest in the land and buildings occupied by Expressway Spares. They reapproached the bank and asked the bank to make the approval for finance conditional and to retract the approval. The bank then retracted the approval for finance to perform the Heads of Agreement and when the time came for the confirmation of the Heads of Agreement, we were then advised that they were not going to perform because the bank had withdrawn the funding. We then asked for specific performance. The judge decided that because the finance was no longer approved, that we could not rely upon the Heads of Agreement and the Court case continued. Q. So drawing all those threads together, the effect of all that was these Heads of Agreement to which I have been drawing your attention were never consummated?

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A. That's correct." [Transcript 44] The relevant dealings relied upon by the plaintiffs Evidence given by Mr Read - Initial Loan 46 Mr Read gave evidence that he had been an officer in the CDBA up to 4 July 1997. He had opened the Port Macquarie office of the CDBA in 1985 and had had several conversations with Mr Cassegrain from that point in time on. He had dealt with an application for loan by the holding company. 47 He had carried out the investigation in about 1995 for the loan and had put up a submission to head office. His understanding of the charter of the CDBA was that loans had been approved on prospects of success and could not be declined only on the basis of lack of security. Prospects of success had focused upon inspections of the property, analysis of income that could be generated and the particular circumstance is as to whether the loan appeared to be able to be serviced over a reasonable period of time. He gave a detailed explanation of certain aspects of the circumstance that in 1996 the existing CDBA cease to be owned by the federal government and became owned by the Commonwealth Bank of Australia. As a result of the change existing loans were to be quarantined in a separate company which he believed had been the Commonwealth Development Bank of Australia Ltd. His understanding was that the loan conditions applying to such facilities would continue unchanged and he presumed that this would have been the case in relation to see $3 million facility to the holding company. New facilities were thereafter dealt with by a business known as Dev Bank operating as a trading arm of business banking division of Commonwealth Bank of Australia. 48 It is necessary to follow the further timeline closely in order to understand the sundry allegations of wrongdoing by the plaintiffs. It is however clearly unnecessary to chronicle all of the evidence before the court comprising inter alia many folders of correspondence and notes. The issues especially throw up a focus on certain events which are dealt with in the judgment. Hence the evidence disclosed the following relevant events: 04.10.95 49 CDBA lends Cassegrain $3 million - payments due each August, commencing August 1997 and balance by August 2003 ('the CDB loan'). 18.10.95 50 First guarantee executed in respect of the CDB loan. August 1996 51 Mr Cassegrain gave evidence that in approximately August 1996 he received a copy of the CDBA customer magazine [PX 1/122 and following]. This document importantly included at PX 1/127 and 1/130, detail of what was referred to as "the new DevBank, operating as a division of Commonwealth Bank, Australia". At PX 1/127 a series of questions and answers were included in which the following was to be found:

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Murray: No. They will send the file up when they have looked at it." [Sub-paragraphs (a) - (h) of paragraph 31 from statement of Mr Cassegrain of 6 July 2000] 62 Mr Lloyd gave evidence that the proposal to restructure the facilities was prompted by Mr Cassegrain, who said to him on returning from a function hosted by CBA to mark its takeover of CDB, "I have had positive discussions with Dale Murray (the Area Manager of Business Banking for the CBA). He said the Bank is looking to restructure CDB facilities. He thinks we should apply for a restructure of the facilities under the CBA and it could be an opportunity to apply for an increase if we need one" or words to that effect. [Evidence admitted only as evidence of the conversation and section 136 limiting order made accordingly] 23.02.98 63 Cassegrain provides Dale Murray of CBA with proposal for restructure of loans. Early 1998 - Evidence of Mr Wilmott 64 Mr Wilmott gave evidence that in about early 1998 the Lending Services Division had a "credit management unit" ["CMU"] and a "credit approvals unit". When an application for loan was made the loan was processed depending upon the credit rating of the customer. If the credit rating of a customer was satisfactory, the submission would go to the credit approvals unit which would review the credit rating, confirm that it remained a satisfactory credit and would consider the request for finance. If the application was from a customer who already had a weak credit rating, the application would come through to the CMU which then, within limits (in the same way as the approval unit), had authority to approve the application. If the application was approved it would revert to the money lending business banking centre or the branch for further administration, depending upon the point of origin of the application. If however it was a credit management unit file CMU would respond directly back to the customer. If an application was rejected by CMU then, if it had the management and control of the file, it would respond directly back to the customer. If CMU had the control of the file but not necessarily the management of the file, CMU would convey that decision back to the centre or branch and they would convey the decision to the customer. [Transcript 290-292] 65 Mr Wilmott gave evidence that where the approvals unit had given an assessment which resulted in an unsatisfactory rating, and the control of the file was migrated to CMU for further assessment, decision-making and control, if required, an attempt would be made to so treat with the matter by CMU. He in fact had the capacity to review the file and to deem whether an approval of the credit that had been originally sought or possibly a variation of the terms of any approval was warranted on the information held at that time. Insofar as CMU had a function of developing a strategy to protect the bank against loss resulting from the event of default, in terms of the Cassegrain circumstance at the time he became involved with the file, he simply had insufficient information to make a decision on whether the request for finance should be approved and he therefore confirmed the original decision taken by credit approvals unit as one which should stand. [Transcript 293] 66 Mr Wilmott did not accept that the CDBA was a lender of "last resort". Its charter permitted it to grant loans where a customer could show that an application had been declined by one only of the trading banks, and not necessarily by all of them. [Transcript 294] 67 Mr Wilmott was closely cross-examined upon exhibit D1 already described dealing with the integration of CDBA into the Commonwealth Bank lending portfolio and treating with new and increased lending in respect of previous CDBA facilities. Mr Wilmott's evidence at transcript 300-304 - included that lending policies in respect of new or increased loan applications from CDBA facility customers were to be assessed under the existing CBA policy and that he was aware of the instructions as to new and increased lending. Importantly his evidence as to the final 'Restriction' instruction was that these loans were not to be rewritten as CBA loans but to continue as the instruction directed - that is a CBD (now CBD Limited) loans. [Transcript 305] 5 March 1998 68 On 5 March 1998 an internal bank memorandum was received by CMU from the approvals unit advising that given the uncertainties surrounding the long-term viability of the tea tree oil industry, the lack of information concerning the Cassegrain group/family and the overall financial structure and the current family dispute, it would not be prudent to increase the banks exposure at the time so that the application had been declined. [PX 2/338] The same memorandum advised that further contact would be made in due course but that in the interim the applicants were not to be informed of the referral to CMU. Mr Wilmott gave evidence that:

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A. Whether it would be to approve more finance or to take recovery action. [Transcript 314] 23 March 1998 77 Mr Wilmott's internal memorandum of 23 March 1998 addressed to the Business Banking Centre [DX 4.246-4.252] is appended to this judgment. He was closely cross-examined on this document. His evidence was that what he was doing when he prepared the memorandum was outlining the history of the file because a lot of the documents were missing having been subpoenaed by the Court in the family dispute. [Transcript 310] 78 The document is an important one because it covers a number of aspects explaining the banks approach up to that point in time and in coming months. Reference is made to the steps in terms of the application to vary facilities. Reference is made at 4.249 to approval having been given to the $750,000 application in March 1997 "on the understanding that if the sale to investors was not successful, the company would sell sufficient assets to clear the loan by 30 June 1998". 79 Reference is also made to the prospectus which had been issued in April 1997 and was to close on 9 April 1998. During the course of his further cross-examination Mr Wilmott referred, on more than one occasion, to the significance of the prospectus in terms of operating cash flows. His later evidence was to the effect that because of problems within the Taxation Office and other matters it had become necessary for the further prospectus to issue and that there were clearly perceived difficulties which continued in terms of being in a position to estimate what cash flow might follow success in terms of the prospectus offerings. 80 His evidence included the following [given by reference to some notes of Ms Wilmott DX 317,318 and his own note DX 4.319. In re-examination it became clear that the scenarios referred to on DX 4.319 related to the document PX 2/409-411]: "HIS HONOUR: At 4.317, at the top of the page, there is a triangle "very little" triangle "to little" submission. The triangle refers to differences between the two prospectuses. Are you telling us then that there were definitely, as you recall it, two prospectuses? One originally for April and then a later one? A. There was an original prospectus issued in '97 and that provided certain funds into Oceanic. Then they proposed to issue another prospectus in April of '98 to raise further funds for Oceanic.

[142]

"I spoke to Geoff Wilmott, a senior manager of the CBA in Sydney, on or about 25 March 1998 and I recall that the conversation was cordial and he did not raise any concerns about the Bank's exposure to GC & Co. Much of the conversation was devoted to explaining to him the businesses of the GC & Co Group. I do not recall the precise reasons he gave for the Bank declining the temporary overdraft increase,…. It was of no concern to us that the bank had declined the overdraft increase as we had already arranged to borrow privately from the Terps' and I believe the bank was going to restructure our loan to a more favourable basis. I also recall that in this discussion the request for an extension of the payment dates of the CBA overdraft and the CDB payment was discussed. I recall that Wilmott said words to the effect that "We are happy to consider that proposal but we will need some additional information from you". By letter dated 27 March 1998, the CBA detailed the information it wanted. The list was quite extensive but we responded as quickly as we could by forwarding the information sought progressively as it became available." [Paragraph 16 of the statement of Mr Lloyd of 4 July 2000] 95 Under cross-examination Mr Lloyd could not recall whether or not during the course of this conversation Mr Wilmott had confirmed that the decision to decline the $350,000 increase in the overdraft limit had been reached. [Transcript 170] Arrangement to forward material progressively 96 He did recall that he confirmed to Mr Wilmott in the course of this conversation that the holding company was seeking an extension of time to repay its overdraft and to meet its first instalment under the CDBA facility until 30 October 1998. He also recalled that Mr Wilmott said in response, that the bank was prepared to consider the proposal to defer the dates without commitment but that the bank would require further information. Certain communications then took place but at this point in time he was advising Mr Willmot that the balance of the material which the banks needed, was going to be forwarded to him progressively. More detailed evidence of Mr Wilmott 97 Mr Wilmott gave evidence by statement that the conversation was part of a conference call at which Ms Whiting and he were present. He denied having said "we are happy to consider the proposal". His evidence by statement was that he said to Mr Lloyd: "the Bank is prepared to consider your proposal to defer the dates for expiry of the overdraft facility and payment of the instalment of the term loan, without commitment, but we will require further information from you". His handwritten notes went into evidence comprising the record of the conversation which he and Ms Whiting had made for the file. The notes were contemporaneous by Ms Whiting and made by Mr Wilmott immediately thereafter. 98 Under cross-examination in relation to when the subject proposal was made by Mr Lloyd, Mr Wilmott's evidence was that it was made in the conversation with Mr Lloyd of about 25 March. Mr Lloyd had not written to him so that Mr Wilmott responded to Mr Lloyd's telephone call and outlined what he believed to be the customer's request. [Transcript 329] 27.03.98 99 Letter CBA [Mr Wilmott] to Oceania Agriculture Ltd:

[147]

As discussed, to enable this application to be progressed, the Bank would appreciate your arranging for the following information to be provided: [followed by detailed requests for financial statements, management accounts, cash flow budgets and other matters]" [pages 2 et seq] [Emphasis added] 100 Mr Lloyd under cross-examination accepted that essentially page 1 of this letter was consistent with his recollection of his telephone conversation of 25 March with Mr Wilmott. [Transcript 170] 101 The letter further dealt with the anxiety of the Bank to obtain revaluations of the security properties, the fact that collation of the information sought would take some time and that the co-operation of other parties would be needed to provide certain data. 102 In being cross-examined in relation to this document Mr Wilmott gave evidence that to the best of his recollection, during his discussions with Mr Lloyd on 25 March, the Cassegrain group sought rescheduling to 30 October of the expiry date of the overdraft. An extension of the CDBA term instalments to commence from 30 October rather than on 6 August 1998 was confirmed in discussion on 25 March. [Transcript 325] His recollection was that the relevant application was one which the business banking centre at Port Macquarie had been aware of and what had happened was that the overdraft having been declined for the additional $350,000, the customer sought reconsideration, not of that same application for the $350,000 addition to the overdraft, but had sought that the bank defer the repayment dates for both the overdraft and the term loan instalments. The approvals unit had declined this and Mr Wilmott had confirmed that decision. [Transcript 326] 103 The 27 March 1999 document PX 2/369 is an important document and is also appended to this judgment. It is important because it identifies a number of requests from the Bank which required to be complied with in order for the application to be progressed. At the commencement of those requests one finds the sentence:

[269]

"We are not interested in talking about compromising or reducing the debt." 157 There was then a discussion about an extension of time and after discussion, in terms of an initial offer of an extension of one month Mr Burgess agreed to the end of February. 158 Mr Lloyd recalled that Mr Burgess said to Mr Cassegrain in his presence, words to the effect "This is the bank's final position. You either sign the agreement or we will immediately appoint receivers. Take it or leave it". Under cross-examination his evidence was that Mr Burgess had said that Mr Cassegrain either sign the document or the bank would appoint receivers on the following day. 159 Mr Lloyd gave evidence of a conversation [allowed in part as S.72 exception to hearsay rule] which he had with Mr Cassegrain who said to him words to the effect that he was very worried about being asked to forgo his legal rights but felt that he did not have any choice other than to sign. 160 He recalled reading the first of a number of notices sent pursuant to the Farm Debt Mediation Act [Exhibit PX volume 2/521]. This document [at PX 2/52 5-527] sets out considerable detail in terms of an explanation under the general heading "What is Mediation?". A copy of the document is appended to this judgment. 161 Mr Lloyd had read this. He appreciated from it than mediation was a cooperative problem solving process designed to help the parties to a dispute find constructive solutions. He believed that he had appreciated that from a commercial perspective, mediation was an extension of the usual commercial process of negotiating an agreement. He appreciated that an independent third party chosen by the disputing parties would facilitate the negotiation by the parties of a resolution of the dispute. 162 He appreciated from reading the document: · that the role of the mediator, amongst others things, was to assist the parties "systematically to isolate the issues in dispute"; · that the role of the mediator was "to develop and explore options for the resolution of the issues in dispute"; · that the role of the mediator was to assist the parties to reach a consensual agreement to accommodate their needs and interests; · that the remedies available at mediation were "unlimited"; · that the mediator would not impose a solution on the parties but may assist in the generation of options for settlement; · that the mediator would not coerce the parties into agreement nor make decisions for them; · that the mediator would not give legal advice nor direct the parties' decisions based on the mediator's interpretation of the law; · that one of the fundamental principles of mediation was that parties properly informed of their rights and fully prepared for negotiation could reach agreements which could satisfy their needs; · that a feature of mediation was that it was a voluntary and confidential process; · that a mediation would not be binding on any party unless and until agreement was reached; · that mediation was conducted without any prejudice to any legal rights which the parties may have; · that if mediation was unsuccessful, other means of dispute resolution might be used or continued; · that the mediator would open the mediation by making a short statement explaining the mediation process and his role; · that the aim of the private session was to enable the mediator to explore any underlying issues and to ensure that the parties were content with this process; · that the parties if an agreement was reached would be asked to sign the agreement which might form the basis of a more formal legal document. 163 Mr Lloyd on number of occasions in the course of giving his evidence, and very specifically in giving his evidence in relation to what occurred at the mediation said, that he could not recall matters which were being put to him by the cross-examiner although he could not deny that those events had occurred. He could not specifically recall but did not deny that Mr Cassegrain had said that he wanted nine months more for the refinancing. 164 The evidence included:

[337]

The prospects of refinancing between March 1998 and 30 June 1998 Evidence given by Mr Terp 186 Mr Terp gave evidence that he was the Business Manager for his family business [essentially being his parents] and associated companies and that he and his family and the Cassegrain family had had a strong business relationship for many years. 187 In the early part of January 1998 he had spoken to Mr Cassegrain indicating that his group were reasonably cashed up and looking for well-secured investments and had made an inquiry as to whether Mr Cassegrain needed to borrow any money for his businesses. The response had been in the negative and Mr Cassegrain had said that the Commonwealth bank was helpful and looking after him. 188 In approximately March 1998 Mr Cassegrain asked him for a short-term loan of $550,000 which he had no hesitation in agreeing to advance. At the same time he had stated that if Mr Cassegrain needed additional funds he should not hesitate to ask as such funds could be advanced provided security was properly documented. He would need a few weeks notice if it was for a large sum. Mr Cassegrain had said that he did not expect to be needing any more funding as they would have a lot of cash in October. Mr Cassegrain had said that the bank was working on a restructuring proposal at that time and that he had a good long-term relationship with the bank. [Conversation allowed as evidence only of the conversation and section 136 limiting order made accordingly] 189 The $550,000 loan was advanced and was secured by first registered mortgage over real property owned by Mr and Mrs Cassegrain. This was a dairy property purchased by them in September 1996 for approximately $1.3 million. The advance was to be repaid in early April 1999. It was repaid before it was due. The mortgage provided that the principal sum was not too exceed at any time, 65% of the mortgagees' valuation of the subject property during the course of the term of the loan or any extension. The mortgage was expressed to be collateral to a Deed of Loan of the same day between Oceania Agriculture Limited as borrower and Mr and Mrs Cassegrain as mortgagor.

[341]

Q. Yes? A. We could have sold some land, some of the 25 acre lots. There was - we had many alternatives to meet the 750,000 …" [Transcript 34] 192 Mr Cassegrain later gave the following evidence under cross examination: · That his reference to the $500,000 facility had been a reference to the facility granted to Verdun Vineyards; · That any decision by Verdun Vineyards to draw that money down and then on-lend it to the holding company would require the approval of the board of directors of Verdun Vineyards, he not being a member of the board; · That the 25 acre lots to which he had referred were lots 27, 17, 22 and 16 in deposited Plan 255774 and were part of what had been described as "area 13 land"; · That it was his firm view in 1998 and 1999 that area 13 land should not be fragmented [his words were that this would be a "fatal mistake"] and that an appropriate purchaser needed to be sought to purchase the land in one line; · That in March 1998 he had not made any arrangements with anyone for the sale of any part of the area 13 land; · That the tea tree project was a project that was being managed by Oceania Agriculture Pty Ltd which controlled the development program for that project and that he was not a director of Oceania Agriculture; [Transcript 133,134] 193 The "25 acre lots" part of "Area 13" were part of the Banks' security and were not likely to be available to raise or to raise sufficient finance between March and June 1998. 194 As to the possible loan from Mr Terp, it emerged that the loan made in April 1998 was by his parents to Oceania Agriculture Limited. The loan was secured by a first registered mortgage over a dairy property owned by Mr and Mrs Cassegrain valued at $1,300,000. The mortgage provided that the loan must not exceed 65% of the mortgagee's valuations. The Terp family was only prepared to lend provided such a loan was adequately secured in the way in which this loan was secured. There is no evidence that any such further security was available. Sundry attempts to refinance 195 There was substantial detail before the court of sundry attempts by the Cassegrain interests to refinance over extended periods of time. It is unnecessary to set out this detail. It included at the least that:

[343]

196 Further evidence concerned negotiations carried on through Ms Di Bain and others which brought the group by early 1999 into contact with possible lender's including Banana Coast Credit Union and Wealthy & Wise Advisory Services Pty Ltd. 197 Notwithstanding the evidence given by Mr Cassegrain to the effect that he had had many options of raising money had he been aware that the banks were not going to roll over the $750,000 overdraft at the time when it was due to be repaid, that evidence is not accepted as reliable. The whole of the groups circumstances at the material times, including the nature of the land, the interlocking securities, the extremely significant problematic family disputations as to the proper way forward for the groups businesses and apropos the appropriate restructuring of funding arrangements, the disparate options in terms of the viable development management of the lands, and the circumstance that Mr Cassegrain was not on the board of several of the companies including Verdun Vineyards, when seen in the light of the failure of the group to obtain finance during the relatively extended periods of grace granted by the Banks as between the end of June 1998 and the appointment of receivers in June 1999, combine to strongly suggest that Mr Cassegrain's optimism was by no means necessarily justified. Reliability of witnesses Mr Cassegrain 198 Mr Cassegrain was not a reliable witness. The reasons for this finding include the following: · He clearly compromised the independence of his recollection of events by discussing with Mr Lloyd their joint recollections. The evidence which he gave was effectively coloured in that way. He did not think that he had been counselled against or having discussed this matter with his lawyers. [Transcript 59-60] · At moments when the matter was of real significance he tended to prevaricate and to avoid accepting matters put to him in cross-examination which were plainly consistent with contemporaneous documents. · He had clearly spent a number of years engaged in a number of disparate pieces of litigation with family members. In my view this tended to mean that he had difficulty in recalling precisely which stage was involved with different aspects of the pending litigation and particularly how these matters interacted with the issues were litigated in the current proceedings. There was very particularly a concerted refusal to accept that problems in obtaining refinance were radically affected by ongoing family disputes, although there was the clearest contemporaneous evidence that this had been the case. He had clearly been required to wage a litigious war, whether in an offensive or defensive way on several fronts over an extended period of time. That experience had a great deal to say in terms of how the problems in terms of refinancing had first arisen and remained endemic · His recollection was shown to be faulty in a number of areas of significance. He clearly had difficulties with recollecting material aspects of the mediation as for example: - he could not recall the document shown to him which represented the opening address given by Mr Walsh which had been handed to him on the morning of the mediation. [Transcript 67.15]

[345]

when first asked, he could not recall having handed out a number of documents to the bank at the mediation. [Transcript 67.34] · In his affidavit of 5 February 2001 [paragraph 14] he had given evidence that at the time he was involved in court proceedings including attending court as executor & trustee defending the challenge to his late mothers will by four of his siblings. · Under cross-examination however he could not recall whether he was actually attending court or counsel nor whether the Family Provision Act proceedings were in court for hearing at the time [Transcript 76.50]. He believed however that he was fully involved in this issue at the time that he had the mediation. [Transcript 77.25] · an important part of his case concerned his allegation that at a meeting of 7 July 1998 bank officers told him that there was an existing default under the CDBA facility. He had however, on or about 13 July 1998, read a letter addressed to the holding company of that date which had included the following: "Unless mutually agreed with you beforehand, CDB farm debt mediation invitation will issue upon default under the Term Loan facility. " [PX 2/531] He accepted that the letter was completely inconsistent with his contention of having been told on 7 July that there was an existing default under the CDBA facility and gave evidence that this was not something which he had recognised at the time that he read this letter. [Transcript 50.30] · His evidence in relation to the 7 July 1998 meeting had generally been set out in his statement of evidence of 6 July 2000 in paragraph 40. This was an important conversation dealt with in the affidavit. Under cross-examination however he said that he had made a mistake and had omitted to record that Mr Walsh and Mr Burgess had told him that it would make no difference if he paid the $650,000 installment due under the CDBA facility. Hence he sought to correct paragraph 40 and could not recall why he had omitted this. The evidence in this regard was as follows:

[364]

Q. Are you quite sure on that? A. Certainly your Honour. [Transcript 183] [Emphasis added] Evidence of Mr Lloyd 200 The evidence of Mr Lloyd was by definition compromised by his discussions with Mr Cassegrain about their joint recollections. Hence adjudicating his evidence as reliable has this endemic difficulty. It has to be said that but for this problem I was impressed with his demeanour and his frankness. Certainly his evidence is accepted as reliable in relation to Mr Cassegrain having told him that he had never attended a mediation; 201 In relation to the evidence given by Mr Lloyd as to his absolute certainty that Mr Burgess had said at the mediation that if the agreement was not signed receivers would be appointed the next day, it is necessary to take into account the effect of Mr Lloyd and Mr Cassegrain having had close discussions in relation to their recollections. But for this circumstance which, whilst in every particular case requiring to be carefully examined, it seems to me in this case and taking all of the evidence into account, to require that the court relevantly discount their respective evidence on certain material issues, it may well have been far more difficult to reach a finding as to whether or not, in the events which occurred, the court could be satisfied on the probabilities that the threat to appoint receivers the next day was made. However taking into account the endemic difficulty thrown up by the joint approach by Mr Lloyd and Mr Cassegrain in terms of their recollections and statements and taking into account the firm position taken by Mr Burgess and by Mr Wilmott to the effect that no such statement was made, the Cassegrain parties have not proven on the balance of probabilities that the statement was so made. Having said that I am entirely satisfied that during the course of the mediation reference was made to securities and to the enforcement of securities and it is likely that on the evidence, receivers were mentioned. However Mr Burgess having attended numerous mediations and having given evidence that it would take several weeks to obtain a section 11 Certificate, it seems to me that the probabilities are clearly against his having made a threat which could never have been carried out and more importantly which it was not necessary to make. The threat of receivers and of taking relevant action under the securities, hung generally over the whole of the dealings between the banks and the Cassegrain parties at material times and particularly during the mediation. General discussion about securities and the parties respective positions was unexceptional. Whilst I accept that by the time he gave evidence in the witness box Mr Lloyd had come to sincerely believe that a threat to appoint receivers on the following day had been made at the mediation, I am unable for the above reasons to accept this evidence on the balance of probabilities. Evidence of Mr Fermanis 202 The evidence of Mr Fermanis is accepted as reliable. His credit was not placed in issue. Evidence of Mr Terp 203 The evidence of Mr Terp is accepted as reliable. His credit was not placed in issue. His evidence however does not establish on the balance of probabilities that in the circumstances any further advance would have been made by his family group on application by the Cassegrain group during the months leading to the 30 June 1998 default unless adequate security had been then provided. The evidence does not establish on the balance of probabilities that such security would have been released in order to permit repayment of the CBA advance by 30 June 1998, nor to permit repayment of the CDBA advance.

[384]

Q. Now what happened at the mediation that caused you to arrive at that state of awareness that you are referring to? A. I went in to the mediation on the understanding - as I considered the mediation as a matter of formality; and I went to it by having a break from another court matter that I was involved in, concerning the family and the - I made it known. I said words to the effect that everybody who was in attendance, you know, I apologised for the fact that I was drained out and very tired and that I was - effectively here in presence, but my mind was elsewhere." [Transcript 35] 228 The allegations put in terms of vitiating factors in relation to the mediation do not stand the test of a close examination of what actually occurred and indeed is accepted by Mr Cassegrain as having occurred at the mediation. During cross-examination, Mr Cassegrain accepted the following propositions which were put to him and which, to my mind, make plain that his engagement in the mediation was both coherent as well as logical as well as of utility in terms of a continued campaign to gain time in obtaining refinance as and wherever practicable and possible: · That he was trying to buy as much time as possible from the banks so that his restructuring plans could have a chance at success. [[Transcript 68 - 69] · That what was put to him initially was a period of extension up to approximately one month namely until mid January 1999. [Transcript 69] · That his position was that he wanted 9 or more months. [Transcript 69] · That he was strongly arguing that his company would be able to be refinanced. [Transcript 70] · That he could not deny that the mediator had said that the difference between the parties as to the date for repayment was their only difference but that it was a crucial one. [Transcript 72] · That he was aware because the mediator had read out clause 5 of the agreement, that this provided for a cooling off period of 14 days during which time the agreement could be rescinded. [Transcript 74] · That by signing the mediation agreement he had at least extended the time for repayment until 1 March 1999. [Transcript 77] · That after the mediation, Mr Fermanis was successful in obtaining refinancing for the Expressway Spares facility is with the Colonial State Bank. [Transcript 77] 229 Importantly Mr Lloyd gave evidence that as he apprehended it, there was something positive in terms of the result that was achieved at the mediation: "we achieved a three month or four month period of time in which to sort our position out." 230 It is convenient to deal with the remaining Heads of Agreement issues seriatim by reference to the numbered paragraphs earlier set out [cf paragraph 30]: · (iii) There is no substance in this complaint. The banks were entitled to invoke the mediation provisions of the Farm Debt Mediation Act at the material time. There was nothing illusory in the indulgence granted by the banks. · (iv) The courts finding is that the word "technicality" was used. In truth this statement does not bespeak a closed mind. Indeed the mediation, as Mr Lloyd readily accepted, had a beneficial result for the Cassegrain interests who procured a material time extension. As to the allegation that Mr Walsh stated that the mediation was a formality, this was denied by Mr Walsh who was not challenged on any of this evidence in cross examination. Furthermore, in circumstances where this was Mr Walsh's first mediation it is inherently unlikely that Mr Walsh would have stated that he regarded the process as a formality. Mr Burgess also denied ever stating that the mediation was a formality or being aware that anyone else had made such a statement and was not cross-examined on this evidence. Mr Lloyd did not claim that any statement had been made that the mediation was a formality in either of his statements. Mr Cassegrain's evidence to the contrary is not accepted as reliable

[387]

· (vii) This allegation whilst given the closest of scrutiny by the Court, is ultimately not made out on the evidence. Mr Cassegrain had been involved in innumerable court issues and hearings over an extended period of time involving members of his family and lawyers. He had participated in mediations. The world of commerce and the enforcement of contractual obligations continue notwithstanding, inter-family litigious forensic steps. Whilst a particular circumstance may be envisaged where a person was forced to participate in a mediation literally being wrenched out of a witness box and into a mediation room and hence being unable to properly treat (or be expected to be able to treat) in any way shape or form with the mediation, that was not, on the evidence, remotely this case. I accept as reliable the evidence given by Mr Burgess to the effect that the occasion when Mr Cassegrain broke down in terms of crying was when pointed questions were addressed to him with as to whether there was a resolution of the family dispute insight, obviously a problem area of great sensitivity. No case has been made out of emotional strain and disturbance to the extent of a finding of unconscionable conduct in the banks having been prepared to participate in the mediation. See in particular the evidence of Mr Walsh which establishes that nothing was said during a time when Mr Cassegrain had been 'a bit teary' and that the matter had passed possibly following an adjournment to allow Mr Cassegrain to compose himself. Mr Cassegrain had not become emotional again to the same degree. The mediator was an independent party. The authority issued a section 11 certificate which could only be issued if it were satisfied that a satisfactory mediation in respect of the farm debt had taken place. · (viii) In terms of the finding that all that occurred was a general threat of receivers and of taking relevant action under the securities and that there was no threat to appoint receivers on the following day, this allegation of unconscionable conduct fails at a factual level. Neither of the parties to the mediation was a babe in the woods. Significantly it is also to be noted that Messrs Burgess, Walsh and Lloyd all knew that any action to enforce the securities could not be taken until a section 11 certificate had issued. Realistic discussion of options which either side may have had could only be expected during a mediation. On the findings of the court this is all that occurred. Indeed the whole of the background and context in which the mediation was taking place by definition concerned a degree of great anxiety in the Cassegrain parties as to the next step which may be taken by the banks. · (ix) This allegation in the events which happened is unexceptional. [See (viii)] 231 Moreover it is particularly significant that the acknowledgements, admissions and promises to be found in the recitals to the Heads of Agreement and in the body of the document were made in a context in which, on the evidence, the Cassegrain parties believed that they had a cause for complaint in relation to the manner in which the rescheduling application had been declined [Transcript 179] and claimed that they considered that the banks alleged conduct in asserting a cross default under the CDBA facility was "outrageous". [Transcript 47]. 232 Further the evidence establishes that the whole focus of the negotiations at the mediation concerned the time frame for refinance. This was in a context in which Mr Cassegrain did not dispute that the Bank was owed the money that it claimed: [Transcript Mr Cassegrain, 68, 69, Mr Lloyd, 193] Indeed, the mediator at one point stated that the difference in date was the only difference between the parties but that it was a crucial difference and that if agreement could not be reached on the date he would have to set aside the mediation as one in which no agreement was reached.

[388]

233 There is further no substance in the plea of the equitable set-off whereunder Mr Cassegrain asserts that he neither knew nor intended at the time that by executing the Heads of Agreement he would waive and forfeit his alleged equity to rely upon other defences. Heads of Agreement reached in a mediation have considerable significance. A cooling off period was allowed. Whilst a case may arguably succeed in terms of a vitiating factor such as was here suggested, this was not, on the evidence, such a case. This allegation fails by reason of the general holding concerning there having been no material misrepresentations, or conduct at the mediation, of a character such as to vitiate the Heads of Agreement. The entry of the parties into the Heads of Agreement was unexceptional. Significance of finding as to Heads of Agreement 234 The finding that the entry of the parties into the Heads of Agreement was unexceptional and is not vitiated by any wrongful conduct of the banks in terms of the pleaded unconscionable conduct, in effect mandates, as it seems to me, the banks success in relation to all issues of alleged misconduct in these proceedings (outside of the receivership issues which are no longer live). And for the reason that the Heads of Agreement were entered into after this alleged misconduct was said to have been engaged in. 235 Whether or not I be correct in this view, bearing in mind the manner in which the hearing was conducted, it is convenient to treat also with the allegations of anterior misconduct. As will be apparent from the reasons which follow, those allegations are of no substance. Hence even if the Heads of Agreement might in a proper case be set aside on the basis of a mistake concerning one's curial rights, which case would have to be remarkable indeed, this was not such a case. The allegation of unconscionable conduct by delaying communication of a decision to decline an application to reschedule the loans The suggested "decision" 236 There is no substance in this allegation. This allegation fails on the facts. It largely rests on Ms Whiting's computer note already referred to. Whilst of course she did not give evidence and even taking it as read that the rule in Jones v Dunkel should be taken into account [noting that the point was not taken by the Cassegrain parties and that the rule may very well be here inapplicable], the pervasive consideration relates to the part which Ms Wilmott played as account manager. Whilst this may have been her opinion at the time in question the evidence which is accepted as reliable is that the relevant decision was not one for her [Transcript 308]. And it was only her opinion that was being expressed. The whole of Mr Wilmott's evidence which is accepted as reliable is inconsistent with a finding of fact to the effect than the note by Ms Whiting proves that a decision had been taken in late March 1998 by the proper officer within the bank to the effect that additional finance to complete development would not be considered. No such decision was proved. No such decision may be inferred. No such decision was made by Mr Wilmott, or being made elsewhere, communicated to him. His actions belied the taking of any such decision. The suggested delay in communicating a decision 237 I am satisfied from the evidence that the period leading up to early June 1998 was one during which quite plainly a number of requests for further information from the Cassegrain interests continued to be the subject of staged piecemeal responses. This is made clear from the contemporaneous correspondence and for example from the cross-examination of Mr Lloyd [Transcript 174 - 177]. Hence there is a clear explanation as to how it came about that the Banks investigation and decision on a final basis was only reached during June. The 'conspiracy' theory that this was only paying 'lip service' to a cast iron 'decision' to play along with the Cassegrain parties and to bring down the guillotine at the eleventh hour, was not made out. The months preceding 25 June are not replete with any indication of particular haste by the Cassegrain parties in furnishing information expeditiously. Additionally some files had been the subject of subpoena. Whilst they now suggest that they had been misled as to their prospects, the evidence simply does not establish this proposition at a factual level. Optimism as to prospects is a subjective thing. In this case the banks level of anxiety at the family disputes had been obvious over some time and had been the subject of communications. I accept as reliable the evidence given by Mr Burgess that the occasion during the mediation when Mr Cassegrain broke down in terms of crying was when pointed questions were being addressed to him about whether there was a resolution of the family dispute insight which matter was clearly not able to be resolved short term. [Transcript 356]. The communication of the decision so close to the 30 June deadline was the product of the need for the bank to reach a decision on an informed basis. I reject on the evidence the submission that this has been shown on the balance of probabilities to have been a concerted and deliberate action intended to bring the Cassegrain parties into default. Causation 238 In any event and even if the bank had engaged in the suggested form of unconscionable conduct, the Cassegrain case fails at a causative level. The evidence did not establish on the balance of probabilities that had the banks immediately, as for example during March 1998, communicated what was suggested as having been an irrevocable and firm and immovable decision not to allow the restructuring, the Cassegrain interests would have been able to obtain the necessary refinancing to enable the overdraft facility to be repaid on 30 June 1998 or to enable the first instalment of the fixed loan to be paid by August 1998. The allegation that the banks wrongfully claimed that there was a default in the CDBA facility as a result of the default in the CBA facility 239 This allegation is not made out on the evidence. Further it is inconsistent with the contemporaneous legal advice [PX 2/488A] to the effect that default by the mortgagor under its securities with CBA did not create a "cross default" under the CDBA securities enabling CDBA to enforce its securities. The Bank's contemporaneous documents clearly demonstrate that Messrs Wilmott, Walsh and Burgess did not believe that default of the CBA loan would constitute a default of the CDB loan. Specifically: · The Bank's internal memorandum dated 15 June 1998 raised the question of whether default of the CBA loan would also constitute default of the CDB loan; · Mr Wilmott's file note of his telephone conversation with Mr Lloyd dated 25 June 1998 noted that he had not suggested to Mr Lloyd that default of the CBA loan would constitute default of the CDB loan and that he would not assert as much in his letter to Mr Lloyd without confirmation from the Legal Department. Ms Heatherington of the Bank's legal department gave advice in the memorandum dated 25 June 1998 that default of the CBA loan would not constitute default of the CDB loan; · Mr Wilmott's letter dated 26 June 1998 does not suggest that default of the CBA loan would constitute default of the CDB loan; · the Farm Debt Mediation Act notices issued on 7 July 1998 (PX 521 - 527) and 26 August 1998 (PX 572 - 574) only relate to default of the CBA loan; · In response to a letter from Mr Lloyd proposing that the parties also mediate the CDB loan, Mr Burgess responded in a letter dated 13 July 1998 that: 'Unless mutually agreed with you beforehand, CDB farm debt mediation invitation will issue upon default under the Term Loan facility.' · The Farm Debt Mediation Act notice in respect of default of the CDB loan was not issued until 3 September 1998 when it was in fact in default; · Mr Lloyd agreed that the implication in the Bank's letter of 13 July 1998 was clear; · Clearly Mr Burgess did not believe that the CBA loan would constitute default of the CDB loan. As Mr Walsh's superior, it is most improbable that Mr Burgess would have permitted Mr Walsh to assert what is alleged by Mr Cassegrain, when he (Mr Burgess) regarded this to be incorrect. 240 The most likely explanation is that either or both of Mr Cassegrain and Mr Lloyd formed the incorrect conclusion that default of the overdraft would be default of the CDB loan. Mr Cassegrain gave evidence that Mr Lloyd informed him of this very matter and Mr Lloyd accepted that he believed default of the CBA overdraft would be default of the CDB loan, but does not suggest that he was told this by any officer of the Banks. The alleged strategy to procure a default in the CBDA facility 241 As has already been made clear, this is simply not made out on the evidence. Essentially the banks submissions are adopted in what follows. 242 The basic facts in relation to the changes that occurred in respect of the Commonwealth Development Bank in 1996 are as follows: · in 1996 the CBA purchased the Commonwealth Government's shareholding in the Commonwealth Development Bank; · existing CDB business prior to 1 July 1996 was quarantined in a company structure, Commonwealth Development Bank of Australia Limited; · the loan conditions applying to quarantined loans continued unchanged; · if existing clients wanted more money or made new applications, these would be assessed by the business known as "Dev Bank" within the business banking division of CBA - see exhibit D1; · existing quarantined loans which were "troublesome and impaired assets" were not to be moved out of CDB Limited into the CBA. There were taxation implications in relation to this and the instruction in Ex D1 meant that these loans were not to be taken out of CDB's loan book and put onto CBA's loan book: Evidence of Mr Wilmott. [Transcript 298, 290, 300, 303] 243 It is clear that the Gerard Cassegrain & Co existing loan of $3 million from the Development Bank continued to be dealt with under its existing loan conditions, which continued unchanged. The loan was not transferred to the Commonwealth Bank of Australia. 244 The Cassegrain parties failed to establish any of the alleged breaches of obligation to act fairly and in good faith to ensure that:

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(ii) full opportunity to show cause.' 245 The whole of the exercise from late 1997 and onwards involved a question of restructuring existing loans in an environment in which it was clear that the CBA was to look at any proposal. Mr Cassegrain had received the CDBA customer magazine which had made clear that if existing clients wanted more money, assistance would be given to all viable applications within the Business Banking Division of the CBA. Any early discussions in relation to restructuring were plainly expressly dependent upon the particular proposal which would be advanced and would clearly have to be assessed. There was no question of the CBA taking over the holding company "as a customer on the same terms and conditions as [CDBA]". The exercise involved an application for a restructure of the facilities under the CBA. And the Cassegrain case fails in the central allegation that the underlying intent of either or both of the banks was to remove the instant CDBA term loan [which is alleged to have been clearly seen as already a troublesome or impaired asset ["TIA"], out of CDBA and into CBA for the purpose of bringing about a default in such account. This most serious allegation that there was a "deliberate policy" to remove from the loan books of the CDB this or any existing CDB quarantined loans, is not made out on the evidence. To the contrary the evidence before the court was that the former quarantined book would run down over time which simply amounts to lending facilities running their regular course over time. The proposition that the 'deliberate policy' was conceived and carried out by reason of CBA'S anxiety about it's and CDBA'S securities or about becoming accountable to shareholders, is rejected as not made out on the evidence. On analysis the case involved an application to the CBA for a new loan with additional parameters (as to amounts and as to repayment dates) against an anterior background of a CDBA facility which, unless consensually terminated upon refinancing, would run full term. 246 There is no substance in the allegation that there was a "knowing and intentional course of conduct" by the banks or either of them to cause or bring about a breach of the CDB loan. The evidence does not bear out this grave allegation. In so far as the matter is related to the claim that the Banks asserted to the Cassegrain parties that a default in the CBA overdraft automatically brought about a default in the CDB facility, it is clear that from the documents that as late as June 1998 Mr Wilmott did not know if a default in the CBA facility would produce a cross default in the CDB facility and needed confirmation from Legal Department The advice was only obtained on 26 June 1998 and clearly indicated that a default with CBA did not create a "cross default" under the CDB securities. This chronology of events is inconsistent with the alleged strategy to procure a default in the CDB facility. And the evidence of the witnesses simply does not on the balance of probabilities establish any such knowing and intentional course of conduct. Asset Recovery Unit 247 There is no substance in the complaint that the account had been placed into the hands of the asset recovery unit without notification to the Cassegrain parties. Mr Wilmott clearly explained that the CMU simply had a continuing role to monitor and as appropriate had every entitlement to approve loans which had been referred to it. The CMU having the management during the relevant months of overseeing the administration of the loan some pleaded not carry with it a decision that no accommodation chord or would be granted to the Cassegrain interests. To the contrary its role was to very carefully indeed scrutinise the information which was forthcoming in order to decide whether or not the accommodation should be provided or recovery steps taken. 248 Nor is there any substance in the complaint concerning the access given to investigating accountants. Breach of section 52 of the Trade Practices Act 249 The allegation of breach of section 52 of the Trade Practices Act having taken place between December 1997 and June 1998 is not pleaded with any particulars but the matter has simply been litigated in terms of the otherwise conduct complained of in the second amended summons, generally concerning the dealings between the Cassegrain parties and the banks over the material period. This is an allegation pressed against the CBA. It fails for reasons otherwise given in this Judgment and it is unnecessary that it be separately dealt with. Those reasons make plain that no misleading or deceptive conduct within the meaning of section 52 has been established. Those reasons also deal with causation. The alleged repayment of the CBA facility 250 The Cassegrain parties have a further defence which is that the CBA debt has been discharged in full from moneys advanced to the principal debtor by Oceania Agricultural Limited, and the proceeds of sale of properties over which the guaranteed debt was secured. The particulars of the defence as pleaded are as follows:

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06 April 1999 Deposit (Oceania) $250,000.00 13 April 1999 Deposit (Oceania) $43,000.00 13 May 1999 Deposit (Oceania) $43,000.00 10 Jan. 2000 Deposit from sales- Lot 49 Sancrox Rd $126,036.77 Lot 27 Bushland Dr $143,946.44 Lot 53 Bushland Dr $421,553.06 14 Jan. 2000 Deposit re deposits on above sales $36,433.83 251 There is no dispute that the first three payments referred to in the particulars were credited to the account of GCC with the CBA: ($250,000 on 6 April 1999, $43,000 on 13 April 1999 and $43,000 on 13 May 1999). 252 As to the three payments alleged to have been made on 10 January 2000 in the particulars, the last two amounts referred to are incorrect. The proceeds of sale of Lot 27 Bushland Drive were in fact $134,946.44 and the proceeds of sale of Lot 53 Bushland Drive were in fact $241,553.06. 253 The three amounts (126,036.77, $134,946.44 and $241,553.06) were credited to the account of GCC with the CBA on 10 January 2000 (this is confirmed by the account statement which is annexure "B" to Mr Watson's affidavit of 2 October 2002). 254 The deposit in relation to the above sales of $36,433.83 was credited to the account of GCC with the CBA on 14 January 2000, this being the last payment referred to in the particulars. The fact that this amount was credited on that date is confirmed by bank statement which is annexure "B" to Mr Watson's affidavit of 2 October 2002. 255 Mr Watson's undisputed evidence was that amounts credited on 10 and 14 January 2000 were mistakenly credited to GCC's account with CBA because he had overlooked the priority arrangement between CBA and CDB. The mistakes were: · An application of certain funds to the CBA loan when the CDB loan had priority; · Application of certain funds to the CDB loan derived from a property over which only the CBA had taken security. 256 The priority arrangement is set out in annexure "A" to Mr Watson's affidavit sworn 2 October 2002. It reflects the arrangement about which GCC had been notified as part of the facility agreement between GCC and CBA: [see the approval letter dated 2 April 1997 at PX Vol 1 pp 151-156, and specifically at 156 under paragraph numbered (Q) and Mr Watson's evidence at Transcript 8.37-51.] This arrangement also reflected the priorities arising as a matter of law in any case, as a result of CDB being the first registered mortgagee of the land in question. 257 When Mr Watson realised that the CDB had priority he reversed the credits on 27 January 2000 (as is confirmed by the bank statement which is annexure "B" to his affidavit sworn 2 October 2002). 258 In July 2000 it came to Mr Watson's attention that Lot 53 Bushland Drive secured only the CBA loan and not the CDB loan. Accordingly, on 10 July 2000 he arranged for $260,679.31, being the total proceeds (ie by now including the deposit which had come in) of the sale of Lot 53, to be debited against GCC's account with the CDB and credited to GCC's account with CBA. This is also confirmed by the bank statement which is annexure "B" to Mr Watson's affidavit. 259 Hence in each case the mistake was corrected by debiting the amount incorrectly paid and by crediting the account to which the money should have been paid. 260 There is simply no substance in the allegation by the Cassegrain parties that in these circumstances the CBA debt was discharged and the Guarantee which had been given by Mr Cassegrain, accordingly discharged. 261 In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the following propositions were clearly enunciated: · A rule precluding recovery of moneys paid under a mistake of law does not form part of the law in Australia · A payer is prima facie entitled to recover moneys paid under a mistake if it appears that the moneys were paid in the mistaken belief by the payer that he was under a legal obligation to pay them or that the payee was legally entitled to payment · In order to recover, a payer does not have to prove "unjustness" over and above the mistake · It is a defence to a claim to recover money paid under a mistake that the payee has adversely changed his position in reliance on the payment 262 There is no pleaded allegation in either suit that the banks are estopped from correcting these mistakes. No evidence was adduced from any of the Cassegrain parties that they were either misled or relied upon the mistakes or changed their position. 263 The submission advanced by the Cassegrain parties was that the priority agreement, which is annexure "A" to Mr Watson's affidavit, was ineffective because the CBA was both "the Bank" and "the Mortgagee" in the priority letter. This is clearly a typographical error which would be cured by the insertion of the word "Development" between the words "Commonwealth" and "Bank" in the first line of the letter. The letter was written to the CDB and with that typographical correction the document makes perfect sense. If the assertion of ineffectiveness had been raised at an appropriate time by the Cassegrain parties then an application could plainly have been made to rectify the document. 264 More importantly, this submission by the Cassegrain parties overlooks the fact that even if the letter of priority did not exist, the priority position would be identical. The CDB was the first registered mortgagee in respect of the relevant security properties. As first registered mortgagee it was entitled to priority to the extent of its advance plus interest and other charges even if there had been no express priority arrangement. 265 In these circumstances, it was correct as a matter of law, even disregarding the letter of priority, to credit the amounts obtained on realisation of the securities other than Lot 53 to the CDB and to credit the realisation on Lot 53 to the CBA. This was the ultimate position after the original errors had been corrected. 266 In all of those circumstances there is no substance in the claim that the CBA debt was discharged following these payments and the identified initial accounting entries and later reversals. Short minutes of order 267 The proceedings will be stood over for the purpose of the parties bringing in short minutes of order and for submissions as to costs to be taken.

Commonwealth Development Bank of Australia Pty Limited & Anor v Claude George Rene Cassegrain; Gerald Cassegrain & Co Pty Limited & Ors v Commonwealth Development Bank of Australia Pty Limited & Ors;

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Judgment (396 paragraphs)

Legislation Cited (5)

Cases Cited (12)

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