907 At the commencement of paragraph 85 of their report, Mr Bryant/Mr Halligan reiterate 'That the quality of information available may have a significant effect on the resulting values. This is because the value is highly sensitive to changes in the estimates of the capitalisation rate and the maintainable earnings . . .'
908 Mr Bryant/Mr Halligan state in paragraph 86:
'Mr Hardy's estimate of the adjusted net profit for the year ended 30 June 1990 is 0.173million. By adjusting sales revenue in accordance with management forecasts, he further adjusts the adjusted net profit of 0.173million upwards by 0.141million to 0.314million, which he then takes as the maintainable earnings. Hence Mr Hardy's value of 1.571million for the business includes an amount of 0.706million (i.e. 0.141million divided by his capitalisation rate of 20%) that is dependent on the accuracy of management's forecasts of future sales. In other words, about 45% (i.e. 0.706million divided by 1.571million) of the assessed value is based on management forecasts. Mr Hardy clearly places a high degree of reliance on those forecasts. However, as we have earlier explained, it is our opinion that the evidence, such as it is, shows that management were not reasonably accurate forecasters and that it is, accordingly unreasonable to rely on the forecasts.'
909 Here again the divide between the respective experts emphasises the question of the forecasts and their reliability.
910 In paragraph 87 of their report, Messrs Bryant/Halligan say:
'In our opinion, on the basis of the information available, the value of the business appears to have been in the range of 0.272million to 0.226million using the method of capitalisation of maintainable earnings. This should be viewed in the context of the fact that the business only made a net profit before tax in 1988, and that for 1989 it made a net loss of 0.214million and for 1990 it recorded a net loss of 0.888million. The business was, in fact, unprofitable. After making many adjustments, we estimate that the net loss converts to a small maintainable earnings of about 0.068million. When valued at capitalisation rates of 25% and 30%, the value falls in the range of 0.72million to 0.226million. We note, however, that the business was sold for a total 0.691million in what we understand were arms-length transactions (although we note that we have not seen any documentary evidence of the transactions). The total consideration of 0.691million probably represents, partly or wholly, the value of the stock, plant and equipment sold. Accordingly, in our opinion, the value of the business in May 1990 was probably about 0.691million and there is no evidence we have seen to suggest that the value exceeded that amount.'
911 Mr Bryant/Mr Halligan point out in paragraph 89 that Mr Hardy's opinion implicitly assumes that all of the loss he has calculated is caused by alleged damage to the reputation of the business and its alleged forced sale. They state that Mr Hardy does not consider the possibility that the loss, if any, was partly caused by other factors. In this regard they note that the liquidator of NRS attributed the failure of the company to a number of causes including 'for example, a poor grain and seed harvest in late 1989 resulting in lower than expected sales'. Notwithstanding this, Messrs Bryant/Halligan state that in their opinion the reasonable value of the business, based on the information available, did not exceed the sale proceeds of 0.691million and that there is no loss to NRS. They also express the view that Mr Hardy should have taken into account the taxation consequences to NRS of realising a capital gain on the sale of its business.
912 In paragraph 91 of their report Mr Hardy/Mr Halligan note that the liquidator had reached agreement, subject to obtaining approval from the Bank, for the sale of the plant, equipment and stock of the Moree branch to Currabubula Holdings for about 0.075million - in which regard they refer to the liquidator's report to creditors of 15 August 1991. They then say 'Mr Hardy has not taken into account the proceeds from this sale in his calculation of the loss. If the sale did occur then the loss, if any, in respect of NRS should be reduced by 0.075million'.
913 In terms of the very close attack on Mr Hardy's report, based upon his letter of 31 January 1990 and Exhibit 'D5', to my mind Mr Hardy's evidence should be accepted, namely that he was not performing a valuation at the time, and that in asking the company for details of operating plans, budgets and valuations, he was seeking information which he plainly did not have. An arbitrary assessment for audit purposes is not a valuation.
914 It seems to me important to note that Mr Bryant fairly conceded that one of the many items which a valuer would have liked to know, but which was information not available to himself or Mr Halligan, was detail of the position of the business in relation to its reputation in May 1990 in the market place. Likewise, as he accepted, it would be important to know in valuing a business, how its customers and suppliers regarded it. [See transcript 572]
915 As I have said, the Bryant/Halligan report from time to time expresses quite frankly that the authors understanding of particular items is limited. This is often because little explanation of these items is given in the accounts. One such item referred to in paragraph 71 is for example the opinion of Mr Bryant/Mr Halligan that an adjustment should be made to Mr Hardy's schedules in relation to 'wool press rental'. Mr Bryant/Mr Halligan expressed the opinion that an adjustment in respect of wool press rental requires to be made; "wool press rental should . . . be removed as being non-recurring or abnormal and not connected to the core business". However, they express the view that the value of the wool press itself should be added to the valuation obtained by capitalising earning, which they say they are unable to do 'as we do not have any details of the wool press and do not know its value (we assume that the value of the wool press would be small relative to the value of the business).'
916 Under cross-examination on this paragraph, Mr Bryant accepted that he had never valued wool presses. He was asked why it was:
'. . . that you assumed the value would be relatively small? You don't know whether it is a very expensive machine or a very cheap machine?
A. I think I am right in saying that the income that it appears to have generated is not great, but I will [not] [the word not is obviously a mistake which should not be in the transcript] say that I am not an expert in valuing wool presses.'
917 On the issue of Mr Hardy's reliance upon management forecasts, he was closely cross-examined. The cross-examination included the following:
'Q. Mr Hardy, would you agree that as a general principle a prudent valuer should only take some account of management forecasts where management has a successful record of forecasting?
A. If that's desirable, but that opportunity is not always available.
Q. Well, in your reports have you set out any examination of past forecasts of management here and examined management success rate?
A. No, but in preparing my figures I had regard to -
Q. The question is whether you've got anything in your reports about that Mr Hardy?
A. About?
Q. Whether in your reports you have set out any analysis of the extent to which management forecasts have been proven correct or incorrect?
A. No. I didn't put anything in my reports to that effect.
Q. Well, that is an essential part of the reasoning of a prudent valuer, isn't it, to show that there has been a testing of the reliability of management forecasts?
A. You've got to understand my reasoning for formulating the conclusions I did here.
Q. Well, do you agree with my proposition or not?
Q. [The above question commencing "Well, that is an essential part" was then put again]?
A. It is part of the consideration.
Q. It is a critical part of a prudent valuer's reasoning isn't it?
A. It depends on the circumstances. it is part of what I do.
Q. Do you say that you weren't able to do it in this case?
A. There is a limited track record of testing managements' budgets against the actual results because the business was cut off in its prime .
Q. But you have read Arthur Anderson's report in this matter have you not?
A. Yes I have.
Q. And Arthur Anderson sets out such a comparison of managements' forecasts and the actual results don't they?
A. Yes. They do.
Q. And you have put on some four reports since that Arthur Anderson report and you haven't seen fit to in any way join issue with what Arthur Anderson said about that, have you?
A. I differ with the degree of emphasis that Arthur Anderson put on historical results versus my considerations in this matter. I think they put too heavy a reliance on historical results and given the limited time that this business has operated I think there are other considerations that need to have weight as well. [T 322-323]
918 Mr Hardy was then asked questions in relation to Arthur Anderson reports suggesting an error of 110 percent as between budgeted and actual results to 31 December 1989. In being asked about the margin of error, he was asked:
'That margin of error is a matter that was highly relevant to take into account when deciding whether or not to have regard to the budgeted sales figures; wouldn't you agree?
A. It's one of the elements that are taken into account but, as I said to you before, Arthur Anderson generally place greater emphasis on historical results and the limited management projections that were done for this company than I have done.' [T 324]
919 Mr Hardy 's further evidence was as follows:
'Q. You weren't surprised in those circumstances that Arthur Anderson did suggest that a higher degree of emphasis be placed on the historical figures rather than the projections . . .?
A. Well, I was a little surprised that Arthur Anderson placed so much emphasis on historical results and didn't look to what that business might have done in the market place.
Q. Well, you hadn't done any other analysis of comparing budgeted and actual results such as is contained at the top of page 11 of Arthur Anderson's report have you?
A. No.
Q. Well, if that is the only information the valuer has as to the reliability of budgeted figures a prudent valuer would be driven to the historical rather than the projected figures wouldn't he?
A. No. Driven - you would have regard for it. I am not sure driven is the right word. I go back to - perhaps because of my understanding of what happened for this business and these businesses in the market place specifically I was more prepared to rely upon management projections than what Arthur Anderson were.
Q. Let me just give you the opportunity to explain Mr Hardy. How can you rely upon company projections when an analysis of the budgeted and actual results to the last completed period showed an error of 110 percent?
A. What I actually did in my sales projections . . .
A. The way - what I used was - sorry - the sale projections that I used in my figures were calculated by - I took - I looked for the first six months of the year where there was actual of 1990 year where there was actual trading took place. I think in the case of the sales revenues the actual sales were 85 percent of the budgeted sales. When I looked at how we would determine what should have been the sales results for the 1990 year. I took management projections and discounted them by a similar sum. So I had regard to what took place actually and I discounted the management projections by a similar sum and the reason I did that is because the management projections indicated quite correctly from my knowledge that the second half of the year should have been a higher sales period than the first half.
Q. And why do you say that?
A. Because of the pattern of trading if you like on a rural company, generally the sales are concentrated in the second half of the year a little more than the first half.'
[T 325]
920 At transcript 325 to 326 Mr Hardy gave evidence that he had not assumed, prior to February 1990, that the company was 'sailing along quite splendidly' but assumed 'that the business was in its infancy. We had a situation where there were four retail outlets. Two had only been operating for about two years and two for only eighteen months. I took the view that there were certain specific results on the board, that the company was very much in a what I would call, an embryonic stage as far as it's development was concerned and its - yes.'
921 To my mind, Mr Hardy took a justifiable position in terms of going back to his own understanding of what had happened for the business and similar businesses in the market place in his assessment of the reliability of management projections. His answer at transcript 325 line 20 and following included the fact that he had taken management projections and discounted them and the reasons for this.
922 It is clear from his evidence that he took into account the number of retail outlets and how long they had been operating and the specific results which had been obtained and the embryonic stage that the company was in at its infancy.
923 At transcript 326, Mr Hardy also referred to the state of the rural economy as being tough in the early 1990's and the outlook for rural merchandising being quite good for 1991 as being matters he took into consideration.
924 Mr Hardy's knowledge in relation to the affairs of the company and the rural economy and the failure of the defendant to make good, to my mind, any particular fundamental misconception in the approach taken by Mr Hardy. My view of Mr Hardy in the witness box, a close examination of the respective reports and a close consideration to the respective contentions as to the respective merits and demerits of the respective reports has led me to the view that Mr Hardy's assessment should be preferred. At the end of the day the question of valuation principle and application is, as all parties seem to accept, ultimately a judgmental issue. To my mind and having observed him in the witness box, Mr Hardy should not be assessed as having done otherwise than his best to give an objective opinion as to the valuation of the subject businesses. At the end of the day it was he who had the 'on the ground' advantage in familiarity with the operation and trading results of the Group to be in the best position to value the business. I reject the submission that his evidence ought be rejected as unreliable by reason of his past association with the Paola Group. I was impressed by his frankness and candour in giving evidence. He is accepted as a creditworthy witness whose evidence is reliable and whose views were given honestly.
925 In the result in my view, the value of the NRS business in June 1990 on a going concern basis, was $1.6million. The actual value realised, having been $691,000, this was $909,000 under fair value. This is the measure of the loss caused by the Bank's breach of contract. The loss suffered by NRS by reason of the breach of contract was clearly not too remote. The test renders a defendant liable for those losses which are of a type that the defendant should (or a reasonable person in the defendant's position would) have realised were sufficiently likely to result from the breach of contract, in the light of the information available to the defendant when the contract was made, so as to make it proper for the court to hold that the losses flowed naturally from the breach or that losses of that kind ought to have been within the contemplation of the defendant at the time the contract was made. [ Hadley v Baxendale (1854) 9 Exch 341; [1843-60] All ER Rep 461; 156 ER 145; Koufos v C Czarnikow Ltd (The HeranII) [1969] 1 AC 350 at 385; per Lord Reid. See also Wenham v Ella (1972) 127 CLR 454 at 471-2; per Gibbs J; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667; per Wilson, Deane and Dawson JJ; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 98-9; per Brennan J; Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 at 363-6; per McHugh JA.]
926 Here, the full extent of the loss suffered by NRS flowed according to the 'usual course of things' from the breach. The loss was of a type that the Bank should, or a reasonable person in the Bank's position would, have realised was 'not unlikely to result' from the breach in the light of the information available to the Bank when the contract was made, so as to make it proper to hold that the costs flowed naturally from the breach. Wenham v Ella at pages 471-472 per Gibbs J; Burns v MAN Automative (Aust) Pty Ltd at page 667 per Wilson, Deane and Gaudron JJ; Simonius Vischer & Co v Holt and Thompson [1979] 2 NSWLR 322 at page 363 per Samuels JA; Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 at 315 per Glass JA and at 364 per McHugh JA. The Bank well knew of the Group's plan to sell NRS. In mid January 1990 the Group had informed the Bank that following the hoped for sale of the jet aircraft, NRS was the 'next asset in line' to be sold. Hence, the first limb of Hadley v Baxendale was satisfied. But does Currabubula have a right to recover in respect of loss to it? To this subject I now turn.
Currabubula Holdings' Rights to Recover Damages
927 In Gould v Vaggelas (1985) 157 CLR 215, Gibbs CJ, cited Prudential Assurance Co Ltd v Newman Industries Ltd [No 2] [1982] Ch 204 at 210; as authority for the following elementary proposition:
'A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and therefore, the person in whom the cause of action is vested.'
928 Gould involved a husband and wife ('the Goulds') being induced by misrepresentations to purchase, on behalf of a company to be formed and controlled by them (ultimately being Gould Holdings Pty Ltd), a tourist resort on terms which included the transfer to the vendors of valuable property and a mortgage back to the vendors to secure the balance of the purchase price. The three components of the purchase price of $2,315,000 were:
Deposit $5,000
Cash on completion $957,000
Mortgage back to the vendors $1,352,500
929 The parties agreed that the obligation to pay cash on completion be met by the transfer, by Mrs Gould, of a Gold Coast shopping centre for $300,000 and the sale by Mr and Mrs Gould to the vendor companies of the issued capital in Talle Downs Pty Ltd for a net consideration of $657,500. Talle Downs owned a shopping centre at Palm Beach.
930 After two years of unprofitable trading, the company defaulted. The vendors exercised their power of sale as mortgagees to recover a deficiency and sued Mr and Mrs Gould as guarantors. The Goulds counterclaimed for damages for deceit. The liquidation had no funds with which to take proceedings against the vendors.
931 The issue of damages was complicated by a number of considerations including the fact that Gould Holdings was not a party.
932 The trial judge sought to determine a figure which would in practical terms, restore the Goulds to the position they would have occupied if there had been no fraudulent misrepresentations and no acquisition of the resort. Gibbs J summarised the trial judgment on this issue as follows:
'The learned trial judge rejected a claim by the Goulds for damages for losses sustained by Gould Holdings in the course of trading and for the decline in the value of their shares in that company. He was clearly right in doing so. There were four elements in his award of $1,427,500. First, he assessed at $733,212.12 the true value, as at the date of sale, of the property sold by the Goulds under contracts made on 29 October 1975 and treated by the contract for the sale of the South Molle Island Resort made on that date as cash paid on completion of that contract of sale. Secondly, he assessed at $266,273 the value of property mortgaged by the Goulds to banks and sold either by the mortgagee or by the Goulds themselves under pressure from the mortgagee. Until July 1977, when one of the vendor companies, South Molle Pty. Ltd. ("South Molle"), entered into possession under its mortgage, Gould Holdings continued to trade, and to enable it to do so it was necessary to raise capital for repairs, improvements and working capital. In order to raise the money the Goulds gave personal guarantees - the dates on which they were all given do not appear very clearly from the evidence, but some were given in February 1976, and it has not been established that Connolly J. was wrong in thinking that all the guarantees to the banks were given in or about that month. These guarantees were supported by the mortgages of the properties which the Goulds lost when the banks took action under the mortgages. Thirdly, the learned trial judge allowed $27,983 which represented the amount which remained owing by the Goulds under the guarantees which they had given to raise money for Gould Holdings. Fourthly, having rounded off the total of the three preceding amounts to $1,227,500, he added $200,000 by way of interest.' [157 CLR at pages 224-225]
933 His Honour then dealt with the first item of damage, giving reasons for the holding that the loss which the Goulds had in fact suffered of $733,212.12, was a direct consequence of the fraud and holding that the Goulds were entitled to recover that amount by way of damages.
934 Gibbs CJ then continued:
'Once it is held that the carrying on of the business was a direct consequence of the inducement, and was not the result of a supervening cause such as the Goulds' unreasonable decision to continue trading, it must follow that the respondents are entitled to recover also the second and third items of damage which Connolly J. assessed. The direct consequence of buying the resort was that Gould Holdings had to procure the necessary funds to enable the business to carry on and for that purpose to obtain the necessary guarantees from the Goulds. It was foreseeable that this would occur. For the reasons I have given, it cannot be held that it was unreasonable to give the guarantees. Further, as I have said, the right of action against Gould Holdings which the Goulds obtained in return for giving the guarantees can be regarded as valueless. ' [157 CLR at page 228] [Emphasis added]
935 Brennan J (as his Honour then was) said at page 253:
'The question raised by the appeal is the measure of the Goulds' damages. They did not purchase the resort. Can they recover damages except through the company which suffered loss as the purchaser? The Goulds cannot sue in their own names for the company's loss (Prudential Assurance Co. Ltd. v Newman Industries Ltd. [No. 2]); they can recover only the loss suffered by them in acting upon the fraudulent misrepresentations which Mr. Vaggelas made. They did not act upon those representations by becoming the purchasers of the resort but by forming the company, by providing it with funds to complete the contract to purchase the resort and by guaranteeing the company's borrowings needed to improve the resort and provide working capital. No doubt it was a matter of indifference to the Vaggelas interests whether the Goulds chose to buy the resort personally or by forming a company to be the purchaser, but the terms of the contract show that the formation of the company to complete the purchase and conduct the resort was contemplated by the parties. The representations were calculated to induce the Goulds either themselves to buy or to form a company to do so and, in the latter case, to provide to or procure for the company the funds it would need to complete the purchase of the resort and to conduct the resort. It is the loss, if any, suffered by the Goulds in acting in this way which is recoverable in this action. The Goulds' loss is the loss suffered by a creditor of the company which, apart from its cause of action in deceit, is worthless. ' [Emphasis added]
936 It is clear that in the present case Currabubula Holdings cannot recover damages merely because of its interest as one of three shareholders in Paola Holdings, which was in turn the intermediate holding company of ABE Holdings, which held the issued shares in NRS. This is not necessarily to accept that a company can never recover damages in respect of the diminution of the value of it's shares in a wholly owned subsidiary. [Cf George Fischer , (Great Britain) Ltd v Multi Construction Ltd [1995] 1 BCLC 260; Fosters Brewing Group Ltd v Elliott (Unreported, Supreme Court of Victoria, 10 August 1995, Beach J)]
937 In George Fischer , the plaintiff was the holding company of a number of wholly owned operating subsidiaries. Multi Construction Limited which was the defendant, entered into a contract with the plaintiff to install equipment at the subsidiary which sold the products of the other operating subsidiaries of the plaintiff. The equipment installed by the defendant was defective and the plaintiff claimed damages for, inter alia, the loss of sales and increased operating costs of its subsidiaries caused by the defendant's negligence. The plaintiff claimed that those losses, although suffered directly by its subsidiaries, were suffered indirectly by it and that it's losses were measured by the loss of a profit to its subsidiaries. The defendant argued that such losses were not recoverable since a shareholder suffered no recoverable loss by diminution in the value of his shareholding or reduction in distributions to him as a member of the company. The trial judge held in favour of the plaintiff. An appeal was dismissed. The Court of Appeal (Glidewell, McCowan LJJ and Sir Michael Kerr) held that the plaintiff had an unquestioned right of action against the defendant for breach of contract and was entitled to claim damages for the loss caused to its operating subsidiaries.
938 Importantly, evidence had been adduced at the trial to the effect that a £1 loss to the subsidiary company as a result of a breach of contract would result in a £1 loss to the balance sheet or profits of the holding company, unless some other extraneous factor produced a different result. The judge accepted this evidence as admissible and as proving the plaintiff's loss. [See Glidewell LJ at 269]
939 The critical evidence given by the expert was as follows:
'Every £1 loss in a subsidiary company represents £1 loss in GF (Great Britain), since each of these companies is 100 percent owned by GF (Great Britain). GF (Great Britain) is therefore entitled to the whole of the profit earned by a subsidiary. Thus, if the profits of a subsidiary are reduced by £1, the value of GF (Great Britain's) investment in the subsidiary is also reduced by £1. This remains true whether the profits of the subsidiaries are distributed to GF (Great Britain) by way of dividend or whether they are retained within the individual subsidiaries own working capital. It is by virtue of this relationship within the Group companies that I have included the subsidiaries' losses in my quantification of the claim for damages. ' [1995 1 BCLC at 268]
940 Currabubula's case is very different to that dealt with in George Fischer. Currabubula called no evidence to the effect of a particular quantifiable loss to NRS as a result of breach of contract resulting in a particular quantified loss to the balance sheet or profits of Currabubula as one of the ultimate shareholders.
941 I do not see Currabubula as having, by reason of its indirect shareholding in NRS any locus standi which would permit it to recover in respect of the loss suffered by NRS following the so-called fire sale of its businesses.
942 To my mind, Currabubula has an entirely discrete locus standi permitting it to recover in respect of the losses sustained by NRS. Currabubula was a party to the agreement with the Bank, constituted by the facility agreement. NRS was also a party to that agreement. The Bank owed joint and several contractual obligations under the facility agreement to Currabubula and to the other borrower companies. Currabubula was a co-promisee, as was each of the Group borrower companies, in respect of the Bank's joint and several obligations to observe and not to breach any of the express or implied terms of the facility agreement. The Court's holding that the Bank breached the obligation imposed upon it by an implied term of its contract with the Paola Group to give reasonable notice in the event that it determined to vary its customary mode of providing general banking services, and in particular the finance facility to the Group and failed to comply with all the requirements which such obligation embraced [see paragraph 752], carries with it an entitlement in Currabubula, to recover in respect of loss or damage suffered by Currabubula by reason of the Bank's breach of contract. This is of course providing that it is able to establish that the loss or damage was caused by the Bank's breach and that the loss or damage was not too remote.
943 The loss suffered by Currabubula by reason of the Bank's breach of contract was not too remote. This is a question of fact. It was always plain to the Bank that the security it was taking from Currabubula extended to borrowings by any of the companies in the Group. It must always have been clear to the Bank that in the event that any breach of contract by the Bank would lessen the value of any assets held by any of the Paola Group of Companies which also secured the loan to the Bank, each other of the Paola Group of Companies, and in particular bearing in mind its substantial asset base, Currabubula Holdings, if and when called upon in terms of the interlocking network of guarantees and securities, would suffer a loss equivalent to the amount of such lessening in value of other Group Companies' assets. This is what occurred here. Given the particular unusual circumstances and virtual certainty that Currabubula, as the 'asset rich' branch of the Paola Group, would be called upon to meet Group indebtedness, Currabubula's loss may well be described as having flowed according to the 'usual course of things' from the breach of contract. This is a matter which is not altogether clear. However, bearing in mind the terms of the Group's communications to the Bank of its financial position, difficulties and proposals, clearly evidenced by the Bank's contemporaneous notes, it was, it seems to me, clearly loss which may reasonably be supposed to have been in the contemplation of both parties at the time the February 1990 facility agreement was entered into, as the probable result of the breach. Hence the second limb of Hadley v Baxendale was certainly satisfied. Currabubula in my judgment, suffered a loss in the sum of $909,000, and this because the business of NRS was sold at undervalue. Had the business been sold at market value, NRS would have been obliged to and would have paid that full purchase price to the Bank to procure a discharge of the securities encumbering NRS. In consequence, Currabubula would have had to pay $909,000 less than in fact it was obliged to pay in reducing the Group indebtedness owed to the Bank. A Group indebtedness heavily secured over Currabubula assets.
944 I turn next to deal with the claims pursued qua Durhambone East, Durhambone West, Gabo and U-Bix.
Durhambone East
945 Mr Paola conceded in cross-examination that he decided for business considerations related to the financial position of his Group, to sell Durhambone. [T 180.17]
946 At transcript 208, he gave the following evidence under cross-examination:
'Q. . . . was it your view in the middle of 1990 that Durhambone needed to be sold in order to produce money for the company to enable it to continue trading - when I say 'company', I mean your Group?
A. Yes.
Q. Because I suggest to you, quite apart from commitments to the bank, there were other expenses and commitments that the group had that it was your view the group could not fund out of prospective cash flow?
A. Yes.
Q. And from your point of view therefore, in mid 1990 the sale of Durhambone was imperative?
A. It certainly became that way, yes.
Q. Well it became that way by mid 1990, didn't it?
A. Yes, it did.
Q. And not only imperative, but urgent?
A. It became urgent.'
947 In or prior to September 1989, Mr Paola had arranged for a video to be taken of Durhambone referable to the prospective sale of it. Dalgety's were appointed as agents for sale in September 1989. Elders, the primary agent, was appointed to handle the sale in the second half of 1989 and commenced advertising the property for an auction to be held in February 1990.
948 In mid January 1990 Mr Paola told Mr Booth that his strategy was to reduce bank debt to less than $5 million 'as soon as possible' and that assets would be realised until that was achieved. [PX 850]
949 Tested as to what time frame he had in mind, his evidence was:
'. . . our budget was to achieve that during the calendar year. Our objective was to achieve it as soon as possible. I felt that it could be done by some time shortly after the mid-year.' [T 95]
950 A further auction date for 4 April 1990 was fixed for the auction. Due to heavy rains that auction date was postponed to 27 May 1990. As at 1 May 1990 Mr Paola advised the Bank that whilst some interest had been shown, no worthwhile offers had as yet been made. Mr Terrey wrote to the Bank on 7 May 1990 also stating that it was not expected that the property would sell and adding: 'However, it is our commitment that this property be sold as soon as possible, ensuring that a realistic price is attained, avoiding at all costs a 'fire sale'. To this end, confidence in the Group's overall financial position will need to be restored in the market place, particularly the country areas'. [PX 1308]
951 In the result there were no bids at the auction of 25 May 1990. Mr Paola however negotiated with interested purchasers after the auction. [T 78.35]
952 At transcript 176-177 Mr Paola gave the following evidence under cross-examination:
'Q. And the fact is, Mr Paola, that unless Durhambone could be sold quickly, looking at the position in April 1990, you saw the group getting itself into a wholly unacceptable financial position later in the year.
A. This was our projection.
Q. Just try to concentrate on the question, if you could.
A. I am.
Q. All right. Well, I'll put it again. In April of 1990 your state of mind was that, unless Durhambone could be sold promptly, the group would get itself into a wholly unacceptable financial position later in the year?
A. It would - the state of mind was that -
Q. I'd prefer you to say whether or not the proposition put to you is an accurate one.
A. Not entirely accurate.
Q. It's partly accurate, is it?
A. Partly accurate.
Q. What part is accurate?
A. It's accurate that we had these payments coming due, but the pressure was not so great because the vendors concerned I was confident those payments could be delayed. And we had a desire to meet those commitments on time.
Q. For the group to get to a position where it required some amount of approximately $10.8 million in bank debt in November 1990 would have been a wholly unacceptable position in your view, wouldn't it
A. Well, the bank debt would never have got to that.
Q. If it had gone to that, you would have regarded that as wholly unacceptable, wouldn't you?
A. I would have regarded it as unacceptable, yes, but it would never have gone to that; it couldn't go to that.
Q. You say that because you don't think the bank would have advanced any more money; is that right?
A. Well, I couldn't refinance because of the problems and the State Bank certainly wasn't going to go beyond the 7.5.
Q. And that means, doesn't it, Mr Paola, that for the group to be in a position where it needed $10.8 million in bank debt would have been wholly unacceptable because it just simply wasn't going to be available, as you believed it?
A. At what point in time?
Q. In April of 1990 your state of mind was that there just wasn't going to be available something over $10 million in bank facility later in the year?
A. Without the sale of Durhambone, yes.
Q. And the sale of Durhambone, in your mind, was therefore imperative, I suggest?
A. By that time, the sale of Durhambone was starting to become more important, yes.
Q. It was imperative in your view, wasn't it?
A. It was getting that way, yes . I'm sorry, it was imperative because of the pressure we had from the bank to sell it.
Q. It was imperative because, unless it was sold, you'd need more bank debt than was available from the bank; that right, isn't it?
A. Well, yes, to a certain extent that's right.' [Emphasis added]
953 Although Mr Paola in the following question and answer appears to have sought to qualify the answer emphasised in the above passage, Mr Paola's evidence as a whole satisfies me that he had seen the sale of Durhambone as urgent from 1989 and that by mid 1990 he saw it as fast becoming imperative to achieve a sale. Without such a sale he realised that, bearing in mind the indebtedness to the Bank and the interest commitments, the Group's financial position would be intolerable. The view Mr Paola had was that the property had to be sold to permit the Group to continue trading. It was Mr Paola's considered view that absent such sale, the Group could not fund out of it's prospective cash flow, it's commitments to the Bank and it's other expenses and commitments.
954 I accept the Bank's submission that the sale of Durhambone was a business decision made by Mr Paola as a result of the financial circumstances of the Group.
955 The plaintiffs' case is that the Bank placed relentless pressure on the Group to sell Durhambone. The Bank, as I understood it's case, does not deny that it pressured the Group to sell Durhambone. Mr Booth conceded this in terms at transcript 512.47. The Bank asserts however that on all the evidence the Bank did no more than press Mr Paola to do that which he had been promising to do since 1989. The Bank's case is further that on no view could it be said that any breach of contract committed by it in February 1990 (assuming for the argument that such breach took place), caused the Durhambone sale.
956 To my mind, the Bank's submissions should be accepted as having substance. The whole of the evidence requires to be viewed when determining the delicate balance in issue - was the Group pushed into the sale by reason of the Bank's freezing decision, or did it sell for it's own commercial reasons? Commercial reasons which importantly included the pressing contractual obligation to repay $1.5million of the facility by 31 May 1990. In my judgment, the evidence establishes that albeit in an environment of sustained pressure from the Bank to sell Durhambone, Mr Paola did not sell by reason of the Bank's breaches of contract earlier referred to, nor by reason of a call-up by the Bank of the facility. In fact what happened was that Mr Paola recognised that there was a pressing need to reduce the Group's indebtedness to the Bank both to honour the term of the facility which required the end of May reduction, and to alleviate the Group's overstretched financial situation. An overstretched financial situation which in Mr Paola's personal view was simply intolerable and had to be redressed. Hence the pressure from the Bank cannot be read as flowing from or caused by the Bank's breaches of contract, nor as a 'withdrawal of the facility', nor as equivalent to a calling up of the facility.
957 An important integer involves the time span. In my judgment, Mr Paola believed that the sale of Durhambone was urgent as far back as 1989 but did not sell the property until mid 1990 because he wished to ensure that he took the time necessary to ensure that he achieved the best price in the prevailing market.
958 An integer in the equation is the absence of any action by the Bank to call up the debt. Such pressure as was exerted was not causally connected to the Bank's February 1990 breach of contract which I have held took place.
959 The fact that, in my judgment, NRS received $909,000 less than it would otherwise have received upon the sale of NRS, does not convert the sale of Durhambone into a sale caused by the Bank's breach of the implied contractual term. Even had the plaintiffs received the additional $909,000 upon the sale of NRS, that would have been far from achieving the reduction in Bank debt below $5 million that in Mr Paola's view was necessary.
960 It is true that Mr Paola's evidence at transcript 92, in relation to his strategy to reduce bank debt to less than $5 million during the first half of 1990, outlined to the Bank in early 1990, was that from February to June 'the plan of reduction . . . swung out of [his] control. The management of the Group was lost. The strategies were to react to events'.
961 In my judgment, the evidence does not support the submission that it was the Bank's breach of contract which caused the sale. The market had been carefully and exhaustively tested over a long period of time. The sale did however take place in an environment of continued pressure by the Bank that the sale occur and that the Group meet the market. And it did take place in an environment in which the Group was known to be in severe financially straitened circumstances. But the suggestion of Mr Paola having lost the management of the Group 'due to the Bank's breach of contract' is rejected. Not only did Mr Paola fail to give evidence that if the proceeds of sale of NRS had been $900,000 higher, he would not have sold Durhambone East, but he in fact gave evidence that in June 1990 he was asking Dalgettys to submit an offer from him in excess of $1.1 million relating to two pastoral properties, in a context of putting properties together for possible sale. This does not bear out the suggestion of 'reacting to events', or a loss of all control.
962 The case in relation to Durhambone East has not been made out.
963 Were I to be wrong in my decision that the case in relation to Durhambone has not been made out, it would be necessary to reach a finding as to the proportion of the total purchase price of 'Durhambone East' attributable to the land content of the sale. This is a matter upon which the parties were divided. Upon a close examination of the subject sales, Mr Spackman gave evidence that the proportion of the total purchase price of Durhambone East attributable to the land content, was in the range of $4.26 and $4.36 million. [See his analysis on page 6 of his second report.] The parties addressed on the basis that this evidence should be regarded as attributing $4.3 million to the land content.
964 In Mr Spackman's first report, he had defined a forced sale as 'the estimated amount that a property should exchange for at the date of valuation between an anxious vendor and an unmotivated buyer after limited exposure to the market'. Those forced sales he said, are generally associated with a mortgagee seeking to recover outstanding loan amounts after taking possession of a property, or may well be a sale to wind up a partnership or family situation.
965 In the case of Durhambone, he applied variable discount factors with approximately 10% in times of better marketing conditions or after the market had dropped and settled with a 15% drop in uneasy or poorer marketing conditions. His calculations were set out on pages 36 and following of his first report. In relation to Durhambone East, his calculations recorded as at 27 July 1990, a market value of $4,760,000 and a forced sale value of $4,050,000.
966 The complications in relation to working through what was the land content of the Durhambone East sale are because the sale involved, in addition to the sale of land content, sale of plant, equipment and the payment of a 'crop preparation' fee to Currabubula. Detail of the agreement between the purchasers and Currabubula and between Currabubula and Limthono Pty Limited are recorded in the Deed dated 21 July 1990 between relevant parties. [PX 4/1444]
967 In the absence of the plaintiffs having adduced any evidence to contradict Mr Spackman's adjusted figures for the land component of Durhambone, it seems to me necessary for the Court to accept Mr Spackman's adjustments in relation to the land content of that sale. Hence, in my judgment, any loss which may have occurred in relation to the sale of Durhambone East, would have to take into account the component of the total purchase price which is properly to be allocated to the purchase of the land and the improvements at the figure $4.3 million. Accepting Mr Spackman's market value at $4,760,000, the loss on a 'forced sale' basis becomes $460,000.00.
968 Mr Spackman did in his second report, give evidence that valuation is, by its very nature, imprecise and that therefore there is a degree of margin and to the effect that the net result of the sale of Durhambone East falls within an acceptable margin of his valuation figures - this being, on his evidence, generally within 10 percent, possibly more in a poor declining market. He notes that the sale took place at a time of market uncertainty as prospects for wheat and wool, two of the major influences on the Merrywinebone/Rowena property markets, were deteriorating and eventually dropped dramatically after the sale and did not improve again for at least six years.
969 In those circumstances, Mr Spackman's evidence would suggest that no loss was sustained on the basis here of any 'forced sale'. As this was the only valuation evidence called, it seems to me that it must be accepted.
970 I note that although the plaintiffs did not call evidence from a valuer in contradiction of Mr Spackman's report, the plaintiffs sought to rely on a bank valuation [Exhibit PX 2/710], being a valuation of Durhambone by Mr Miller at $10 million, excluding plant and equipment, which valuation was dated 16 November 1989.
971 The plaintiffs' reliance upon that valuation runs into grave evidentiary difficulties. The $10 million figure in 1989 related to the whole of Durhambone and without valuation evidence in this regard, it cannot be translated into a 1990 figure qua Durhambone East.
972 Further, there was no attempt made by the plaintiffs' counsel in cross-examination to contradict Mr Spackman in terms of putting this 1989 valuation to him and suggesting that it was inconsistent with his valuation or indicated that the value in July 1990 should be different to that which Mr Spackman had stated it was in his report.
Different Considerations Raised as Between the NRS and the Durhambone East Sales
973 The sale of NRS and the sale of Durhambone East on the evidence, raise quite different considerations. The circumstances in which the sale of NRS took place and the loss of confidence in NRS as a business have a real and obvious and direct connection with the Bank's breach of contract. On the other hand, the sale of Durhambone, has no such real, obvious or clear connection with the Bank's breach of contract. I regard the sale of Durhambone on the evidence, as a necessary event bearing in mind the Paola Group's financial position recognised from late 1989 and becoming steadily more urgent and critical into mid-1990.
Durhambone West
974 The plaintiffs' claim here is that, had the Bank not exerted the pressure it did on Currabubula, Durhambone West would have been sold in one lot with Durhambone East. The basis for the claim is that Durhambone West was actually sold on 16 June 1994 for a purchase price of $1.304 million to the Harris Family. The plaintiffs submit that Mr Spackman's comment as to that value was that it appeared to reflect 'a distressed market as well as reflecting the very poor climatic conditions at the time of sale'. The plaintiffs point out that Mr Spackman's valuation did not provide a valuation for Durhambone West as at July 1990. The plaintiffs submit that Mr Spackman's valuation of Durhambone West in May 1989, was $2.5 million market value or $2.250 million on a forced sale basis.
975 In consequence, the plaintiffs submit that the pressure to sell Durhambone East which is said to have led to a splitting of the Durhambone aggregation, prima facie caused the Group not to recover the proper value of Durhambone West as it was in May 1989, even giving some discount for the change in the rural economy between that time and July 1990.
976 I reject the submission that the sale of Durhambone West was caused by the Bank's breach of contract. It had been proposed to sell the whole of Durhambone from late 1989/early 1990. It was not the Bank's breach of contract which caused the splitting of the Durhambone aggregation. The factors earlier referred to which led to the sale of Durhambone East were the same factors as led to the splitting of the Durhambone aggregation.
977 I accept the defendant's further submission that there is no evidence to support the claim to a 'forced sale' loss. The Court is unable, in the absence of evidence, to fix some figure to give 'some discount for the change in the rural economy between May 1989 and July 1990'. The Court cannot, in the absence of evidence, extrapolate from a May 1989 valuation of $2.5 million to some other valuation at July 1990.
978 In any event, I reject the plaintiffs' claim that the breach of contract caused any loss on the sale of Durhambone West. The chain of causation breaks down at threshold because I do not accept the proposition that the pressure to sell Durhambone was the cause of the splitting of the Durhambone aggregation. Mr Paola had to sell Durhambone for reasons earlier set out, as a business decision as a result of the financial circumstances of the Group and in a context in which it was necessary for Durhambone to be sold promptly or the Group would get itself into a wholly unacceptable financial position later in the year. That was the reason why the splitting occurred.
Gabo
979 The plaintiffs' loss claimed on the sale of Gabo, derives from the fact that it was sold on 30 August 1991 for $3.5 million, including the then growing crops. The submission is that even on Mr Spackman's figures, this was below the fair market value which he found to be $3.9 million as at 30 August 1991. Accordingly, the plaintiffs submit that since the sale of Gabo was required by the Group in order to meet the demands of the Bank to repay the facilities, due to the shortfall in the sale of Durhambone East and the inability to sell Durhambone East and West as an aggregation, the plaintiffs pursue an entitlement to $400,000 for the sale of Gabo. The plaintiffs note again that in valuing Gabo, Mr Spackman excluded plant, equipment and growing crops.
980 This property had been on the market since at least February 1991. The Bank's actions of which the plaintiffs' complain occurred in February 1990. In my judgment, it cannot be said that the Gabo sale was caused by the Bank's breach of contract in February 1990 or by the events of February 1990.
U-Bix
981 The plaintiffs' claim here is that refusing to allow Currabubula to take $390,000 from the proceeds of sale of Durhambone East, breached the Bank's promise that it would provide the financial accommodation promised in February 1990 up to $8.5 million for as long as was desired by the Group, subject to the limitations set out in the agreement.
982 The case is that the sale of Durhambone East was the result of a breach of contract by the Bank. That this was a continuing breach still operative in August and September 1990, which breach was comprised of the Bank failing to advance further funds and to honour the facility agreement.
983 The plaintiffs submit that the Court should categorise the refusal to provide the $390,000 sum from the proceeds of sale as a breach of the facility agreement.
984 To my mind, the U-Bix claim fails at threshold. Durhambone was part of the security furnished by the Group to the Bank to cover indebtedness of any of the Group companies. Where the secured creditor is approached to release any part of the security to the mortgagor, absent the secured creditor being paid out in its entirety upon the sale of the subject property, the secured creditor has a contractual entitlement to retain the whole of the proceeds of realisation of the portion of the security released. In substance, the mortgagor must be seen as simply requesting a variation to the contract. The mortgagee has no obligation to agree to such a request. The defendant was within its contractual entitlement in agreeing to release Durhambone East from its bank of security properties if, and only if, the whole of the proceeds of Durhambone East were paid to the Bank in partial discharge of the antecedent indebtedness. That the Bank here agreed to some small segments of the net proceeds of the sale of Durhambone East being made available to the Group, is simply a reflection of the Bank's entitlement to make that concession.
985 Hence, I accept the defendant's submission that the agreement between the parties contained an express condition that the facilities would be secured by registered mortgages over Durhambone; that Durhambone was by far the most valuable asset securing the facilities; that the plaintiffs could only obtain a variation to the agreement if the Bank consented to the variation; and that where the variation sought by the plaintiffs was the discharge of those mortgages, the Bank was entitled to impose a condition on its agreement to the variation, which required all the proceeds of sale of Durhambone to be paid to it.
986 Thus the refusal by the Bank to release the sum of $390,000 was not a breach of contract.
987 Even if the refusal to release the moneys had been a breach of contract, the plaintiffs face insuperable obstacles to success on the U-Bix claim.
988 I accept the Bank's submission that the losses claimed by the plaintiffs here do not come within either branch of the rule in Hadley v Baxendale (1854) 9 Exch 341.
989 Mr M.J. Lorimer, a Director of Grant Samuels & Associates, who is an investment banker and corporate adviser, gave evidence that from June 1991 to June 1993 the price of the U-Bix shares had risen rapidly. On 28 June 1991, the share price was $2.00 per share. On 28 June 1993, trading closed at a price of $9.35 per share, this representing an increase of 467.5% over the two year period or approximately 216% per annum.
990 On his evidence, by comparison the New Zealand Share Market did not grow as quickly. The NZSE40 Capital Index represented approximately 97% by market capitalisation of all the companies listed on the New Zealand Stock Exchange. The movement on that index, on Mr Samuel's evidence, is widely quoted and generally accepted as approximate for the movement in the New Zealand Sharemarket. On Mr Lorimer's evidence, on 28 June 1991 the NZSE40 Capital Index closed at 1,434.98 and on 28 June 1993 closed at 1667.54. This represents an increase of 15.9% over the same two year period or less than 8% per annum.
991 On Mr Lorimer's evidence, he having practiced as a merchant banker for at least 15 years including practice in the field of investment advice, the movement in the share price of U-Bix was exceptional and demonstrably well outside any expectation that the shares would rise in value through general market conditions. Mr Lorimer's evidence was:
' Based upon my knowledge and experience, it is my opinion that a buyer of shares in U-Bix in 1990 would have had no reason to expect that the share price would increase at an annual rate 27 times that of the market as measured by the NZSE capital index.'
992 In my view, the lost profits could not be said to 'arise naturally' from the failure to release the subject funds.
993 Damages for lost profit on share transactions, in particular of the magnitude of $20 to $30 million, I accept could not have been within the contemplation of any party at the time the facility agreement was entered into. There is no evidence or allegation of any communication between the parties which would then attract the second limb of Hadley v Baxendale .
994 The claim in respect of U-Bix shares is a claim for deprivation of a commercial opportunity. Damages must therefore be quantified by reference to the Court's assessment of the prospects of success of that opportunity. [ Sellars v Adelaide Petroleum NL (1994) 179 CLR 332] The alleged commercial opportunity was the opportunity to buy and sell U-Bix shares and to realise a profit.
995 The factors which have to be taken into consideration in determining whether or not the shares would have been purchased, include the following:
(i) There was clearly no concluded agreement, or even an agreement in principle, as at the time of the Durhambone East settlement in early September. The letter of 12 September 1990 [PX 1614] shows that there were still unresolved matters. Mr Paola could not, at transcript 197.40, shed any light on what they were. Moreover, the vendors were still enquiring about Mr Paola's companies' credit. The upshot was, I accept, that a straight out sale was ruled out. [PX 1726]
(ii) The vendor first offered the shares for sale at New Zealand $1.90 when they were selling on market for New Zealand $1.45.
(iii) The vendor then in November 1990, offered an option to purchase the shares at New Zealand $2.00 when they were selling on market for New Zealand $1.30.
(iv) The offers made by the plaintiff in 1991 to purchase the shares were consistently less than their market value.
(v) The owner of the shares stated that it would only sell for a price that was equivalent to the market value. [PX 1945]
(vi) The owner of the shares did not sell until an offer was made by the Maori Development Corporation, equivalent to the market value. As the Development Corporation had been Mr Paola's partner in the purchase negotiations, I accept that it should be assumed, in the absence of evidence being called from the Development Corporation, that Mr Paola had the opportunity to join in the final and successful bid at New Zealand $2.00 but declined to do so because the price was too high.
996 I further accept the Bank's submission that the factors which would have to be taken into account concerning a sale of the shares, assuming they had been purchased by the plaintiffs, would include the following:
(i) There was no evidence at all that Mr Paola had the intention to or would have sold the U-Bix shares whilst the market price was high, or at all. The fact that evidence was not led from Mr Paola on this topic gives rise to the inference that he could not have given evidence that would have assisted his case. In those circumstances, I accept that it cannot be concluded that he has established that there was any, or at least any significant, prospect of earning the type of profit he claims on the sale of the U-Bix shares. Such material as there is, suggests I accept, that he was going to be a long term investor. The contention that he would have sold while the market price was high has been entirely left in the realm of speculation.
(ii) The evidence does not establish that the holding costs of the shares would have been met from dividends alone. The existence of any firm arrangement for the payment of consultancy fees was not proved.
(iii) I do not accept that the plaintiffs have proved that there would have been dividends/consultancy fees sufficient to take up rights, issues and the like.
(iv) The reason assumed by Mr Hardy but not supported by evidence from Mr Paola, for the sale of shares - was that Mr Creighton was to resign and that a new capital raising was to be put into effect. The Paola Group relied upon Mr Paola's contention that he had a close relationship with Mr Creighton who was the Chief Executive of U-Bix and who sought Mr Paola's advice on company matters. Mr Paola's case was that he was aware in early 1993 that Mr Creighton was planning to leave the company as this was announced in the June 1993 Annual Report. This was a reason why, according to Mr Hardy's report, Mr Paola would have sold the shares in the relevant period. To my mind, the evidence does not sustain the proposition that Mr Paola would have sold the shares for reasons relating to Mr Creighton. Had Mr Paola purchased the subject shareholding, no inference can be drawn that Mr Creighton would have resigned anyway, Mr Paola on this hypothesis being on the Board, and their relations being good.
(v) The turnover of shares was approximately $2.5million each six months and if an additional $3.5million shares had been sold within any six month period, it would have led to share prices being considerably lower.
997 There is further difficulty in relation to the U-Bix claim. The losses would in any event, only be available to Currabubula and Paola Holdings, the latter having become a party to the proceedings by the 29 September 1997 order, after the expiration of the limitation period.
998 The negotiations were being carried on by Mr Paola on behalf of a company to be formed. That company, Leman Pty Limited, was acquired as a shelf company on 14 September 1990 when 99 of the issued shares were transferred to Paola Holdings and the remaining share was transferred to Currabubula Holdings on trust for Paola Holdings.
999 I accept the Bank's submission that any cause of action in relation to a loss of opportunity to make a profit on the U-Bix shares arose on 4 September 1990 when the Bank, in its letter, unequivocally refused to release the $390,000 sum from the proceeds of sale of Durhambone. That request had been made by Currabubula (as the owner of Durhambone), and if the failure to release those funds was a breach of the agreement with the Bank, then Currabubula was the party entitled to damages. As it acquired 1% of Leman Pty Limited, any damages to which it would be entitled would only be 1% of what would otherwise have been payable by way of compensation.
1000 I accept the Bank's submission that the refusal to release the funds having taken place on 4 September 1990, any cause of action which Paola Holdings may have had, would have expired on 4 September 1996 which was before Paola Holdings was added as a plaintiff and would therefore be statute barred.
1001 The Bank also submitted that the Paola Group had not made good on the evidence the proposition that the refusal by the Bank at the beginning of September 1990 to release $390,000 to the Group was the reason why the subject shares could not be purchased. In this regard, the Bank relied upon the evidence that immediately after the sale of Durhambone had been completed, Mr Paola's solicitors had continued to negotiate for and work on the documentation for the sale of the U-Bix shares and that, as Mr Paola conceded, he would not have continued to incur legal costs if he had not thought he could obtain the necessary funds. [T205.5] The Bank also relies upon the evidence that Mr Paola continued to negotiate for the purchase of the shares throughout the remainder of 1990 and up to the middle of 1991. To my mind, there is substance in the Bank's submission that this conduct by Mr Paola is inconsistent with his assertion that the refusal by the Bank to release the $390,000 to him at the beginning of September 1990 was the reason why he could not purchase the shares. It is unnecessary however for the reasons earlier given that I reach a decision on whether as a matter of fact Mr Paola had the funds available for the deposit. He had of course recently purchased a property 'Cassels' for $200,000 which was not secured to the Bank. [T 199.1] That property may have been available to sell or mortgage in order to raise funds. Also, Mr Paola did concede that as late as September 1990, there was scope for additional security to be taken over Gabo.
1002 For all these reasons, the claim in respect of the U-Bix shares fails.
Loss of Opportunity to Refinance
1003 The plaintiffs assert that loss of opportunity to refinance may be claimed where the Bank had no right to freeze the facility, or if it be found that it did have such a right, that there was either a binding contractual provision or alternatively, an estoppel to the effect that the plaintiffs would be granted time to refinance.
1004 To my mind, the plaintiffs' claim to loss of opportunity to refinance fails, there being no evidence to the effect that the freezing of the accounts prevented any opportunity to refinance or prevented any refinancing. Hence, the claim to damages for 'loss of opportunity' simply fails at a threshold level. Had Mr Paola been in a position to give evidence that the freezing of the accounts had prevented refinancing, no doubt such evidence would have been given.
1005 It is convenient to turn next to the Defamation case.
Dealing with the Case in Defamation
1006 In paragraphs 40 and 41 of the amended summons, Currabubula Holdings seeks damages for defamation. No claim is made on this cause of action by any other company.
1007 Until the final day of the hearing, the amended summons had relied upon only one bank statement, issued to Currabubula Holdings, bearing the notation 'in liq' upon it. That statement was said to relate to account number 00183734 and to have been published on 14 February 1990. At the conclusion of the hearing on 22 February 1999, leave was granted to Currabubula Holdings to amend the second schedule to the amended summons by deleting the reference to the 14 February 1990 statement and by substituting references to seven bank statements issued to Currabubula Holdings on account number 29-0674-00 said to have been published on 21, 23 and 28 February 1990 and on 7, 14, 21 and 28 March 1990.
1008 Currabubula Holdings also presses its claim in relation to the publication of other bank statements issued to NRS, ABE Holdings and Pyojit.
1009 The statements in question are:
NRS (Gunnedah) - Account 670983.00 - statement for 16 February 1990
NRS (Narrabri) - Account 690181-00 - statements for 16 and 23 February and 2, 6 March 1990
NRS (Tamworth) - Account 290420-00 - statements for 16 February and for 7, 14 and 21 March 1990.
ABE (Holdings) - Account 29-0674-00 - statement for 21 February 1990
Pyojit - Account 64113900 - statements for 15 and 22 February 1990
1010 The Bank does not dispute the sending of the statements. They were received at the general office in Tamworth of NRS. This was the general office of NRS. It was also the general office at which Mr Plante worked and from which, as Group Secretary, he carried out his responsibilities on behalf of Group companies. The Bank routinely communicated with Group companies by sending correspondence and facsimiles to this office. The 1 February 1990 facility letter was, for example, sent to this office. The primary method of communication adopted by the Bank and the Group was by using facsimile. [T482-483] It will be recalled that Mr Giblet had picked up a handful of statements, all of which had the 'in liq' notation. Ms Hamblin gave evidence which I accept that Mr Taylor, Mr Thornhill and Ms Sykes as well as herself looked at the statements. There was only the one facsimile machine in the fax room which 'was in the centre of the office'. Her evidence was that this was an area where, all the paperwork went to because a lot of faxes namely orders, were received and sent. Her evidence was that the statements 'were always to be left there'.
1011 The Bank then submits that the only persons who saw the bank statements were Paola Group employees, each of whom knew or could be expected to know or be told, that the company was not in liquidation. The Bank submits that Mr Paola could have sought written confirmation from the Bank that it was the loan, rather than the company which was in liquidation, if he considered the statement created a difficulty. In those circumstances, the Bank submits that it was unlikely in the extreme that Currabubula would suffer any harm as a result of the publication and that the Bank is entitled to the defence under section 13 of the Defamation Act .
1012 The Bank then relies upon the fact that ABE Fax had in 1989, been placed in receivership which the Bank suggests is similar to liquidation and had its corporate title noted accordingly. The Bank submits that Mr Paola's proposal of 12 February 1990 would have resulted in similar steps in relation to ABE Holdings. These, the Bank submits, did not appear to cause Mr Paola or his Group any concern and yet the Bank submits they were clear indications to all who became aware of them, both inside and outside the Group, of insolvency within the Group. The Bank's submission is that in the light of Mr Paola's lack of sensitivity to these, the Bank could not reasonably have been expected to contemplate that marking bank statements which were purely for the Group's use with an indication that the loans were in liquidation, would cause Currabubula to suffer any harm.
1013 It is common ground that the statements complained of had the notation 'in liq' at the foot of the balance column of each statement. Examples of statements complained of are included as Appendix 10 to this Judgment.
1014 In a number of instances, the statements were addressed to the secretary of the company in whose name the account was operated. In some instances, the statements were addressed to 'the proprietors' of the company in whose name the account was operated. In certain instances the statements were addressed 'the directors' of the company in question. In a number of cases, the words 'Please hold statements' or 'Hold statements' appeared in the box showing the addresses, as in:
'The Secretary
Northern Rural Services Pty Ltd
Please Hold Statements
Gunnedah Branch NSW 2030'
1015 The imputations said to arise from the sending of the bank statements are:
(1) that Currabubula was insolvent and
(2) that a liquidator had been appointed to Currabubula - paragraph 40 of the second further amended summons.
1016 Currabubula alleges that it suffered loss of business reputation and loss of cash flow and dividend income and a reduction in the value of its shareholding in Paola Holdings.
1017 The plaintiffs' submission is that the sending of the statements had a significant effect on the fortunes of the Paola Group. Mr Paola's evidence at transcript 144 to 146 has already been set out in the judgment. He had never seen 'in liq' on a bank statement before and was stunned by reading those words on the bank statements. He said to those whom he spoke about the statements that the company was not in fact in liquidation. Mr Giblet, as has already been mentioned, said to Mr Paola: 'Anyone can see you are in liquidation and that the Bank does not lie'. [T 55]
1018 Ms Hamblin's evidence in relation to being shown the bank statements has also been set out. As soon as she saw the bank statements, she believed that the company was in liquidation. The statements seemed very confusing to her and to her observation Mr Plante appeared as confused as she was. She counted 'the trouble starting' when the bank statements came out with the words 'in liq' on them and people started looking elsewhere for employment. She gave evidence that she had not observed any difficulties with the NRS business insofar as she was involved in answering telephones or otherwise, prior to the bank statements arriving with the 'in liq' notations. Mr Taylor recalled staff morale and confidence in the business of NRS being 'further damaged' when, in the day or so after he was notified of cheques being dishonoured, the bank statements were sent to NRS with the 'in liq' notations on their face. Employees such as Mr Plante said to him: "NRS shouldn't be in liquidation" and Mr Taylor, following receipt of the bank statements and recognising that cheques had been dishonoured, said to all of the staff: "It looks like it's all over, I suggest you all get another job if you can. The company is in liquidation ". Mr Taylor, as a result of the bank statements and the dishonouring of cheques, formed the view that NRS was in fact in liquidation and that the business had ceased.
1019 These reactions to the notations and the evidence of what then occurred are relevant to questions of causation and loss. The Court itself decides, however, whether the words used convey the imputations alleged.
1020 The essential elements of the tort of defamation are that defamatory words, of and concerning the plaintiff, have been published to third parties. I accept the plaintiffs' submission that there is little doubt that, if the words otherwise can bear the meaning that NRS, for example, was bankrupt or in liquidation, then this was defamatory, as it imputes a lack of business acumen to the entity.
Shepherd v Whittaker (1875) LR 10 CP 502; Aspro Travel Ltd v Owners Abroad Group plc [1995] 4 All ER 728.
1021 It is of course the case that with regard to a company 'it is impossible to lay down an exhaustive rule as to what would be a libel on [it]. Cf Lord Esher M R in South Hetton Coal Co Ltd v North-Eastern News Association Ltd [1894] 1 QB 133 at page 139.
1022 At page 142, Lord Esher makes the point that it is clear that a corporation at common law may maintain an action for a libel by which its property is injured.
1023 Lord Esher goes on to make the point that statements may be made with regard to the mode of carrying on business of a firm or company, such as to lead people of ordinary sense to the opinion that the firm or company conducts their business badly and inefficiently. If so, his Lordship says: 'the law will be the same in their case as in that of an individual, and the statement will be libellous'.
1024 At page 141, Lord Esher makes the point that the words complained of must attack the corporation or company in the method of conducting its affairs, must accuse it of fraud or mismanagement, or must attack its financial position.
1025 Kay LJ in South Hetten at page 145, makes the point that the property or business of a trading corporation may be injured by defamatory statements, whether written or oral. Also that a trading corporation has a trading character, the defamation of which may ruin it:
'If, for example, an individual, a private partnership, or a corporation were carrying on a trading business, and someone wrote and published an untrue statement that they were insolvent, or any other statement which might destroy their credit or paralyse their business, it is obvious that such a statement, if untrue, would be a libel.'
1026 It is not necessary for the statement to be defamatory that there be any further imputation or implication that the directors are trading improperly whilst the company is insolvent or have contributed in some way to the company's insolvency. As Schiemann LJ observed in Aspro :
' . . . it can be defamatory to say of a man that he is insolvent or cannot or will not pay his debts or has delayed paying his debts . . . This is so notwithstanding that it requires no ingenuity to contemplate circumstances in which a man's insolvency is not attributable to any fault on his part . . . such an allegation would tend to injure a man's credit which the law protects as part of his reputation. ' [1995 4 All ER at 733]
1027 The Bank submits that the placing of the words 'in liq' underneath the balance of the account, as opposed to alongside the name of the company, makes plain that the natural and ordinary meaning of the words as here used, was that the loan, and not the company, was in liquidation. In short, the Bank submits that the material does not convey the imputations alleged and is not defamatory.
1028 On my finding, the words used convey each of the imputations complained of. The question is one for the Court's determination. An ordinary reasonable reader would come to the conclusion that both imputations were conveyed by the publications. Had this been a case with a jury, my finding would have been that it was clearly open to a jury to hold that reasonable persons would understand the words complained of in a defamatory sense.
1029 The bank statements were formal documents issued to the companies in question. In finding that the words used convey the imputations complained of, I rely upon the ordinary natural meaning of the words 'in liquidation' as used in relation to a company. As to the placement of the notation on the statements, I note that there is no natural tethering of the notation to the figures shown in the 'balance' column, nor necessarily to that column itself. The bank statements appear to have been prepared by a Bank employee instructed to include the words 'in liq' upon the bank statements, the instruction having been carried out by a prominent capitalised notation placed at the logical end of the five columns dealing with 'Date', 'Particulars', 'Debit', 'Credit' and 'Balance'.
1030 In relation to the question of the publishing of the statements, the Bank's submission is that there was no evidence of publication beyond the persons in the relevant Group offices. Currabubula on the other hand, submits that the statements were relevantly published to the staff of the companies who received the faxes as there was no attempt, it is said, to mark the letters as being confidential or private to, for example, the Board. In this regard, Currabubula Holdings cites Pullman v Walter Hill & Co [1891] 1 QB 524 at 527 where Lord Esher MR said :
'The first question is, whether, assuming the letter to contain defamatory matter, there has been a publication of it. What is the meaning of "publication"? The making known the defamatory matter after it has been written to some person other than the person of whom it is written. If the statement is sent straight to the person of whom it is written, there is no publication of it; for you cannot publish a libel of a man to himself. If there was no publication, the question whether the occasion was privileged does not arise. If a letter is not communicated to anyone but the person to whom it is written, there is no publication of it. And, if the writer of a letter locks it up in his own desk, and a thief comes and breaks open the desk and takes away the letter and makes it's contents known, I should say that would not be a publication. If the writer of a letter shows it to his own clerk in order that the clerk may copy it for him, is that a publication of the letter? Certainly it is showing it to a third person; the writer cannot say to the person to whom the letter is addressed, "I have shown it to you and to no one else". I cannot, therefore, feel any doubt that, if the writer of a letter shows it to any person other than the person to whom it is written, he publishes it . If he wishes not to publish it, he must, so far as he possibly can, keep it to himself, or he must send it himself straight to the person to whom it is written. There was, therefore, in this case a publication to the type-writer.' [Emphasis added]
1031 Pullman involved a libel contained in a letter respecting the plaintiffs, two of the members of a partnership, written on behalf of the defendants, a limited company, and sent by post in an envelope addressed to the firm. The writer did not know that there were other partners in the firm. The letter was dictated by the managing director of the defendants to a clerk, who took down the words in shorthand and then wrote them out in full by means of a 'type-writing machine'. The letter thus written, was copied by an office boy in a copying-press. When it reached its destination, it was in the ordinary course of business opened by a clerk of the firm, and was read by two other clerks. The Court of Appeal, reversing the judgment of the trial judge, held that the letter must be taken to have been published both to the plaintiffs' clerks and the defendants' clerks and that neither occasion was privileged.
1032 In dealing further with the question of publication, Lord Esher said:
'The letter was not directed to the plaintiffs in their individual capacity; it was directed to a firm of which they were members. The senders of the letter no doubt believed that it would go to the plaintiffs; but it was directed to a firm. When the letter arrived it was opened by a clerk in the employment of the plaintiffs' firm, and was seen by three of the clerks in their office . If the letter had been directed to the plaintiffs in their private capacity, in all probability it would not have been opened by a clerk. But mercantile firms and large tradesmen generally depute some clerk to open business letters addressed to them . The sender of the letter had put it out of his own control, and he had directed it in such a manner that it might possibly be opened by a clerk of the firm to which it was addressed. I agree that under such circumstances there was a publication of the letter by the sender of it, and in this case also the occasion was not privileged for the same reasons as in the former case . . .' [Emphasis added]
1033 Lopes LJ said, inter alia:
'The first question is whether there has been any publication of the alleged libel. What is meant by publication? The communication of the defamatory matter to a third person. Here a communication was made by the defendants' managing director to the type-writer. Moreover, the letter was directed to the plaintiffs' firm and was opened by one of their clerks. The sender might have written "Private" outside it, in order to prevent its being opened by a clerk. The defendants placed the letter out of their own control, and took no means to prevent its being opened by the plaintiffs' clerks . In my opinion therefore, there was a publication of the letter, not only to the typewriter, but also to the clerks of the plaintiffs' firm . . . ' [Emphasis added]
[1891 1 QB at 529]
1034 Theaker v Richardson [1962] 1 WLR 151, was a case where the plaintiff and the defendant were both members of their local district council and candidates in an imminent council election. As a result of ill-feeling between them, the defendant wrote an abusive letter to the plaintiff in highly defamatory language. The letter was typed by the defendant, placed in a manilla business envelope and sealed by gumming down the flap, which was further secured with Sellotape. The envelope was addressed to the plaintiff in her married name with the addition of the appellation 'Coun.' before the word 'Mrs'. The defendant himself put the letter through the letter-box of the house where the plaintiff lived with her husband and married daughter. Shortly afterwards the plaintiff's husband entered the house, saw the letter on the mat and opened it, thinking it was an election address.
1035 Harman LJ said:
'A number of cases on publication was cited to us but each obviously depends on its own facts and no one is very pertinent to the instant case. In the leading case, Delacroix v Thevenot , the plaintiff's success depended on the facts that the libel was addressed to his place of business and that the defendant knew that a clerk employed there read his master's letters. To a similar effect are Pullman v Hill & Co and Gomersall v Davies, . . . In Huth v Huth the publication was said to be to the butler who opened the letter out of mere inquisitiveness, and the claim failed because this was a breach of the butler's duty not to be anticipated by the defendant. In Sharp v Skues the jury answered in the negative a question as to the knowledge on the defendant's part of the likelihood of the letter being opened by a clerk or partner of the plaintiff's. Lord Cozens - Hardy M.R. said this:
"It would be a publication if the defendant intended the letter to be opened by a clerk or some third person not the plaintiff, or if to the defendant's knowledge it would be opened by a clerk; but the jury had negatived this in the clearest terms, and under these circumstances it was impossible to hold that some act done by a partner or a clerk of the plaintiff by his direction and for his own convenience when absent from the office could be a publication by the defendant under circumstances which the jury have found, in answer to question 2, the defendant knew could not possibly happen".
[1962 1 WLR at page 157]
1036 Harman LJ continued at page 157:
'It thus appears that the answer to the question of publication of a liable contained in a letter will depend on the state of the defendant's knowledge, either proved or inferred , of the conditions likely to prevail in the place to which the liable is destined.' [Emphasis added]
1037 In the present case it was customary for the Bank to communicate with the subject Group by facsimile. I infer that the Bank would assume that the facsimile machine in the main office to which the bank statements were sent, would be manned by employees and not necessarily by the secretary or directors of the relevant company.
1038 On the Bank's submissions, the evidence shows that the bank statements were seen only by Mr Paola, who knew that the company was not in liquidation; by Mr Taylor who was told by Mr Paola and by Mr Plante that the company was not in liquidation; by Mr Giblet who was told by Mr Paola that the company was not in liquidation, by Mr Terrey, by Mr Plante who was familiar with liquidations and 'all things meant by liquidations' and who, on the Bank's submissions, presumably knew that the company was not in liquidation and by Ms Hamblin who the Bank submits 'knew that the company was not in liquidation which was confirmed to her by Mr Plante'.
1039 Hence, the Bank submits that except for Mr Terrey, the evidence shows that the persons who saw the statement either knew that the company was not in liquidation or were told by its senior executives that it was not in liquidation.
1040 The Bank then submits that there is no evidence that there was any publication of the defamatory material beyond those persons and importantly that there is no evidence of publication or republication to creditors, suppliers or the community.
1041 I reject this submission. I have generally dealt with the factual issue above. The quotation set out in paragraph 812 above, is taken from Ley v Hamilton (1935) 153 LT 384 at page 386, a defamation case where Lord Atkin stated that 'It is precisely because the "real" damage cannot be ascertained and established that the damages are at large. It is impossible to track the scandal . . .'.
1042 The Bank submits that publication was extremely restricted and that there is no evidence of damage, either special damage or otherwise and that no damages should therefore be awarded for defamation. I note in particular in relation to the submission that publication was limited, Mr Hardy's evidence in relation to the rapidity with which such news travels in country areas and to the evidence given by Ms Hamblin. Damages are dealt with below.
1043 I turn to examine the defences relied upon.
1044 Section 13 of the Defamation Act (1974) NSW provides:
'It is a defence that the circumstances of the publication of the matter complained of were such that the person defamed was not likely to suffer harm' .
1045 The section was generally examined by Moffit P in Chappell v Mirror Newspapers Ltd (1984) AustTortsR 80-691 and later by the Court of Appeal in King & Mergen Holdings Pty Ltd v McKenzie (1991) 24 NSWLR 305.
1046 In Chappell , Moffit P said:
'The quality of the circumstances of the publication must be the factor which renders it unlikely that the person defamed will suffer harm. Whereas a defamatory imputation is actionable per se, without damage (s 8-9), so that a defendant cannot defeat an action even if he were able to prove that there was no actual damage, the defence under s 13 is directed entirely to the circumstances of the publication. It does not change the general law so the defendant can raise an issue on the probabilities whether there is in fact harm caused to the person defamed. The issue is directed to the quality of the publication in respect of its proneness to cause harm. The words of s 13 are "was not likely to suffer harm" and "did not suffer harm" (meaning "probably did not suffer harm"). The quality of the circumstances of the publication determines at the moment of publication whether it is or is not actionable . Actionability does not depend upon an inquiry as to what thereafter happens and in particular whether or not harm in fact probably resulted from the publication. The defence depends entirely on the causative potency of the circumstances "of the publication" to produce immunity from harm. Hence it is not sufficient to establish a s 13 defence that a defendant merely proves "in all the circumstances" that it is unlikely the plaintiff will suffer harm and even less that the plaintiff has not in fact suffered harm. To regard s 13 as providing a defence in either of these cases would in a practical sense destroy the fundamental concept of the law of defamation earlier referred to. There would be substituted in any action for defamation no more than a rebuttable presumption of fact that damage flows from a defamatory imputation.' [At page 68947]
Moffit P went on to discuss the purpose and operation of the section:
The apparent purpose of s 13 and its predecessors, despite some difference in their terms and application, was to give a defence to and hence discourage actions for trivial defamation.
This will arise in particular where there is a limited publication. This will more often be the case where the defamation is oral but will sometimes extend to a written defamation. Examples of written defamatory imputations of trivial impact published by letter or circular to a limited or particular class of persons can be readily thought of.
. . . there should not be substituted for the circumstances "of the publication" the circumstances "concerning the defamatory imputation" or "concerning the person defamed". Further, the circumstances are "of" the publication and not "concerning" the publication. The word "of" more directly ties the circumstances to the acts of publication. "The circumstances of the publication" must admit some context, but that context must be such as will serve to define the circumstances of the publication and their relevant operation in relation to the likelihood of harm. There cannot be admitted under their umbrella circumstances which are not related to the publication. The second matter is that the circumstances as defined by the section must be the factors which operate to establish that the person defamed is not likely to suffer harm. The words "such as" require this causal relationship to exist in order that the defence be made out. This causal relationship is not established if it is other circumstances, not part of the context of the circumstances of the publication earlier referred to, which have to be relied on to produce likely immunity from harm, if such likely immunity would not have existed without these extraneous circumstances.' [At page 68, 947-8]
1047 In King & Mergen the defendant had relied on s 13 on the ground that the defamatory material was published to persons previously aware of its contents. The defendant submitted that, as a result, those persons to whom the material was published would not have taken a different view of the plaintiff after publication and so he was not likely to suffer harm as a result of the publication. The Court of Appeal considered that the defence should have gone to the jury on this basis. Mahoney JA (with whom Clarke JA and Meagher JA agreed on this point) stated:
. . . the question considered and decided in Chappell's case was the meaning of "the circumstances of the publication . . ." and what was decided was that those circumstances did not include the fact that, prior to the publiction, the plaintiff already had a bad reputation. In the present case, the defendants did not suggest - at least there was no agreement at the trial - that the plaintiff, before publication of the notice, had a bad reputation. The nub of the defendants' case was that, prior to the publication, the persons to whom the defamatory matter was published already knew the material that was contained in the notice. The contention was that, because of this, they would not have thought differently of the plaintiff after the publication and so he was not likely to suffer harm.
On this approach, the defendants' case under s 13 went to (to adapt the language of Moffitt P) "some quality concerning" the persons to whom the defamatory matter was published and not "some quality concerning" the plaintiff of whom it was published. Section 13 was therefore available in this case
Mahoney JA then went on to consider whether this distinction as made in Chappell was a valid one:
As, I think, the learned trial judge indicated by his judgment, a distinction of this kind is a fine distinction. His Honour adverted to the fact that a plaintiff's "bad" reputation will consist of or at least involve what other persons think of him: see, eg, Plato Films Ltd v Speidel [1961] AC 1090 at 1131-2, per Lord Radcliffe. Therefore, harm to his reputation is likely to be suffered insofar as something is published to persons which may lead them to think less of the plaintiff. That, at least in part, is true. And, the argument suggests, there would be incongruity in providing a defence under s 13 where there will be no harm because the publishee knows beforehand what is published but in not providing a defence where, as it is inferred, the publisher already has a bad view of the plaintiff.
But, if there be such incongruity, it arises not from the terms of s 13 but from presuppositions as to what ought to be the defence available to a defendant. Section 13 might have provided that there was a defence if "in all the circumstances" the person defamed was not likely to suffer harm from the publication. In such a case, his prior bad reputation would be proved to show that he was not likely to suffer harm from the instant imputation. But, as Moffitt P pointed out in his judgment, the section did not so provide. It provided a defence only where, by reason of more restricted matters, viz, the circumstances of the publication, the plaintiff was not likely to suffer harm. If the restricted nature of the defence be recognised, then there is, in my opinion, no such incongruity. And, accordingly, the principle established by Chappell's case does not apply where that which the defendant suggests as the basis of the s 13 defence, viz, what the publishers already knew, falls within what, as Moffitt P explained, is the meaning of "the circumstances of the publication" . . . As I have indicated, Chappell's case decided that the s 13 defence exists only where the fact that the plaintiff "was not likely to suffer harm" arose because of "the circumstances of the publication . . .". And, in addition, it held that the pre-existing bad reputation of the plaintiff was not one of "the circumstances of the publication . . .".
In my opinion, Chappell's case was correctly decided in respect of each of these matters. As a matter of statutory construction, it is I think clear that it is to be by reason of the circumstances of the publication that the plaintiff was not likely to suffer harm, for the purposes of the defence. There is no reason requiring departure from the ordinary meaning of the section.'
1048 The Section 13 defence fails. The circumstances of the publication into the facsimile machine situate in the main office manned by sundry employees likely to read the bank statements were clearly not 'such that the [companies] defamed were not likely to suffer harm'. If there be any pre-existing indications of cash flow difficulties and/or of the holding back or even dishonour of some cheques, these matters were not 'circumstances of the publication'. The defence runs when 'by reason of the circumstances of the publication the plaintiff was not likely to suffer harm'.
1049 Section 22 of the Act provides:
'(1) Where, in respect of matter published to any person:
(a) the recipient has an interest or apparent interest in having information on some subject,
(b) the matter is published to the recipient in the course of giving to him information on that subject, and
(c) the conduct of the publisher in publishing that matter is reasonable in the circumstances,
there is a defence of qualified privilege for that publication.
(2) For the purposes of subsection (1), a person has an apparent interest in having information on some subject if, but only if, at the time of the publication in question, the publisher believes on reasonable grounds that that person has that interest.
(3) Where matter is published for reward in circumstances in which there would be a qualified privilege under subsection (1) for the publication if it were not for reward, there is a defence of qualified privilege for that publication notwithstanding that it is for reward.'
1050 The Bank submits that at the time it sent the bank statements to Currabubula Holdings (restricting its submission in this way as it asserts that it is Currabubula alone which pursues this cause of action), it believed that Currabubula had an interest in knowing both the existing balance in its account and that the account was in liquidation. The Bank asserts that this belief and its conduct in providing the information on the premise of this belief, was reasonable. The bank therefore claims the defence of qualified privilege in s22 above. [Defendant's overview submissions, paragraph 52]
1051 In Theophanous v Herald & Weekly Times Ltd (1993-94) 182 CLR 104 at 138, the majority of the High Court (Mason CJ, Toohey and Gaudron JJ) made clear that reasonableness is a question of fact in the circumstances.
1052 In Morgan v John Fairfax & Sons Ltd (No. 2) (1991) 23 NSWLR 374, the Court of Appeal considered at length the statutory defence of qualified privilege, and in particular, the requirement set out in subsection (1) (c), that the publisher's conduct be reasonable in the circumstances.
1053 Hunt A-JA, with whom Samuels JA and Mahoney JA agreed, set out the following propositions to be proved by the defendant in relation to the 'reasonableness requirement':
'(1) The conduct must have been reasonable in the circumstances to publish each imputation found to have been in fact conveyed by the matter complained of. The more serious the imputation conveyed, the greater the obligation upon the defendant to ensure that his conduct in relation to it was reasonable. Of course, if any other defence (such as truth or comment) has already been established in relation to any particular imputation found to have been so conveyed, it is unnecessary to consider the reasonableness of the defendant's conduct in relation to the publication of that particular imputation.
(2) If the defendant intended to convey any imputation in fact conveyed, he must (subject to the exceptional case discussed in Barbaro's case, and perhaps also that discussed in Collins v Ryan) have believed in the truth of that imputation.
(3) If the defendant did not intend to convey any particular imputation in fact conveyed, he must establish:
(a) that (subject to the same exceptions) he believed in the truth of each imputation which he did intend to convey; and
(b) that his conduct was nevertheless reasonable in the circumstances in relation to each imputation which he did not intend to convey but which was in fact conveyed.
If, for example, it were reasonably foreseeable that the matter complained of might convey the imputation which the jury finds was in fact conveyed, it will be relevant to the decision concerning s 22(1)(c) as to whether the defendant gave any consideration to the possibility that the matter complained of would be understood as conveying such an imputation, as will be his belief in the truth of that particular imputation and what steps he took to prevent the matter complained of being so understood: Evatt v John Fairfax & Sons Ltd at 13-14; Makim v John Fairfax & Sons Ltd (1990) 5 BR 196 at 209; see also Wright v Australian Broadcasting Commission at 712 (whether the defendant "knew whether he was likely to convey a misleading impression"); Austin v Mirror Newspapers Ltd (at 362) (Privy Council).
(4) The defendant must also establish:
(a) that, before publishing the matter complained of, he exercised reasonable care to ensure that he got his conclusions right, (where appropriate) by making proper inquiries and checking on the accuracy of his sources;
(b) that his conclusions (whether statements of fact or expressions of opinion) followed logically, fairly and reasonably from the information which he had obtained;
(c) that the matter and extent of the publication did not exceed what was reasonably required in the circumstances; and
(d) that each imputation intended to be conveyed was relevant to the subject about which he is giving information to his readers.'
1054 Hunt JA then says at page 388:
'It is necessary to keep in mind that each of the matters referred to in par (4) are relevant to the reasonableness of the defendant's conduct; they do not raise questions independently of that issue.'
1055 In this way, s22(1)(c) is directed not at the extent of the interest of the recipient in knowing the truth, but to the reasonableness of the defendant's conduct in publishing the particular matter (Hunt A-JA at 389 in reference to the decision in Wright v Australian Broadcasting Commission [1977] 1 NSWLR 697).
1056 The basis of the plaintiff's argument is that given Currabubula already knew that the account had been placed in liquidation, on the prior advice of the Bank, it was unnecessary, and I infer unreasonable, for the Bank to then fax the bank statements to the general office area. [Plaintiff's overview submissions, para 217]
1057 In my view, proposition (3) as put forward by Hunt A-JA, which is relevant to these facts, has not been made out by the Bank. Whether or not the Bank intended to convey the imputations which I have found were in fact conveyed, the conduct of the Bank in publishing the matter was unreasonable in the circumstances.
1058 Further, to my mind, it is not open to the Bank to assert that as the statements were confidential, the Bank could not foresee that their contents would be made available to any persons other than senior officers of Currabubula Holdings. [Defendant's overview submissions, para 52]
1059 As I have previously set out, the statements were not marked 'confidential' and the Bank took no steps to ensure that the statements were not published to any persons other than those Senior Officers.
1060 In my view, the conduct of the Bank in publishing the matter was clearly unreasonable in the circumstances. The words used having conveyed the imputations pleaded, the Bank's conduct in all the circumstances was unreasonable. Use of the words 'in reduction' would have been a different matter.
1061 It is then necessary to focus upon the precise dates of the bank statements issued to Currabubula.
1062 It is to be recalled that the first statement issued to Currabubula with the notation upon it was published not on 15 or 16 February 1990, but on 21 February 1990. The statements published on 15 and 16 February were in respect of Pyojit (statement for 15 February); NRS Tamworth, Narrabri and Gunnedah (statements for 16 February).
1063 To my mind, it cannot be said that the publishing prior to 21 February 1990, of bank statements with the offensive notation addressed to companies other than Currabubula, conveyed qua Currabubula, the imputations alleged, namely that Currabubula itself was insolvent and/or that a liquidator had been appointed to Currabubula.
1064 The publishing of those earlier bank statements which conveyed the imputations alleged in respect of those companies, namely that they were insolvent and/or that a liquidator had been appointed to them, would have been actionable at the suit of those companies. However, only the publishing of the 21, 23 and 28 February and 7, 14, 21 and 28 March 1990 bank statements conveyed the imputations alleged in relation to Currabubula.
1065 It is perhaps a close question whether or not the publishing of the bank statements bearing the offensive notation here addressed to companies other than Currabubula, conveyed qua Currabubula, the imputations alleged, namely that it was insolvent and/or that a liquidator had been appointed to it. There was no imputation pleaded to the effect that the publication of the bank statements, bearing the offensive notation addressed to companies other than Currabubula, conveyed an imputation 'that Currabubula conducted its business badly or inefficiently'. The confined mode of pleading the imputations here seems to me to lead to the conclusion which I have referred to above, namely that Currabubula was defamed only upon the publishing of the bank statements in respect of itself.
1066 Hence, only in respect of the publications of the 21, 23 and 28 February and of the 7, 14, 21 and 28 March statements can Currabubula claim to have suffered damage.
1067 There was, however, no specific evidence devoted to examining what loss flowed from the publishing of the Currabubula statements, as opposed to the detailed evidence of what followed the publishing of the earlier bank statements.
1068 Here again the matter is not, in my view, to be looked at in isolation. The first statement was sent to Currabubula on the Wednesday following the 15th/16th [Thursday/Friday], close of the previous week. Currabubula was a shareholder of Paola Holdings. The shares in Currabubula were held by Mr and Mrs Paola who, together with Currabubula, held shares in Paola Holdings. The Group was plainly a closely held Group, usually referred to as the Paola Group.
1069 In my judgment, the Group as a whole suffered damage by reason of the publishing over a period of weeks, of the bank statements bearing the offensive notations.
1070 Currabubula suffered loss because the defamatory utterances occurred in respect to it, at a time when the news in respect of the Group and/or Mr Paola 'going bust', was rapidly circulating and now embracing Currabubula proper.
1071 Had the bank statements relating to Currabubula's account been published on 15/16 February 1990 and had all the Group Companies in respect of whom similar bank statements had been received on 15/16 February sued in defamation, the defamation case would have been a very different one. The difficulty here lies in determining what damages Currabubula alone is entitled to recover in respect of the bank statements published on the later date. As I have said, no specific evidence was adduced to examining what loss flowed to Currabubula by reason of the publishing of the later statements concerning it. This may well have been because throughout the hearing, the plaintiffs appear to have believed that a bank statement concerning Currabubula was sent on 14 February 1990. This was corrected on the last hearing day when the mistake was realised.
1072 The facts thus require scrupulous examination in terms of assessing Currabubula's claimed entitlement to damages. Some questions of the principles going to assessment of damages which were not addressed in submissions, require to be addressed. Again, this is probably because it was only at the last moment that the amendment to the pleading was made. In my view, it is appropriate to give the parties an opportunity to address submissions on the question of the precise relief to be granted in respect of the defamation cause of action in light of the Judgment.
1073 Before leaving the defamation cause of action, one further matter should be emphasised.
1074 I have set out above the reasons for my finding that Currabubula has locus standi to recover in respect of losses incurred by it caused by the sending of the 'in liq' statements. If that finding be incorrect, then the plaintiffs' case must be considered in contract only and as devoid of the cause of action in defamation. The plaintiffs do not become disentitled in their contract case from relying upon the fact of the sending of the 'in liq' statements as part of the matrix of fact which took place. It does not follow from the fact that the plaintiffs do not plead the sending of the 'in liq' bank statements as an independent breach of contract, that the sending of the statements is not to be regarded as an integer in the chain of events which followed by reason of the Bank's breach of contract. All that follows if the defamation cause of action is not made out is that no relief may be granted for any commission of that tort. The reactions, as a factual matter, of a group of employees and managers and of others, upon learning of the sending of the 'in liq' statements, remains part of the plaintiffs' breach of contract case. The statements become simply one of the modes adopted by the Bank to communicate it's decisions to it's customer group. That the 'in liq' notation was interpreted by many who saw or heard of the bank statements as signifying that the Group and/or NRS had gone into liquidation, is simply an event which is sufficiently proximate to the breach of contract to enable the plaintiffs to rely upon the matter as a step in proving their loss caused by the contractual breach.
The plaintiffs claim that the Multi-Option Facility was not provided to the plaintiffs so that there was a denial of the facility
1075 In so far as the plaintiffs' claim was put as a failure by the Bank to provide the Multi-Option Facilities to the plaintiffs and a consequential denial of the facility, the Bank submitted that there was no denial of the facility in any fashion and that alternatively if there was a denial of the facility, there was a justification for that denial.
1076 Mr Ryan had submitted that credits had come into the Number One accounts and that the plaintiffs were not permitted by the Bank to draw against those credits. Mr Macfarlan's response was to point to the vast bulk of credits as having come into the Number Two accounts then being available to be drawn against. The only exception to that, Mr Macfarlan pointed out, was the two amounts of $50,000 which had come in from the receiver and had been deposited into the Number One accounts.
1077 Mr Macfarlan pointed out that to 'flesh out' the plaintiffs' submission, it would be necessary to say that the plaintiffs were denied the ability to draw on those particular two deposits. His submission was that this could not be so because the Bank made it clear that it would transfer any deposits to the Number Two accounts and that that was done upon request. In this regard, Mr Macfarlan relied upon Mr Paola's evidence in cross-examination at transcript page 150 to the following effect:
'Q. Mr Paola, I directed you to the heading document on page 1204, and the question I want to put to you is to suggest to you that as at the beginning of March 1990 and in fact throughout 1990, you believed that the facility described in the letter of 1 February 1990 from the Bank was available to your Group?
A. I believe so yes.
Q. Then 1210 please in the bundle. Do you recall that there was a deposit made to the account of Currabubula that had been in existence for some time which was the subject of a request for a transfer to the Number Two account, the new account at Currabubula?
A. Yes I recall that.
Q. And that request was complied with?
A. Yes it was.
Q. And you understood that if there were any such deposits to the old accounts then it was open to your Group to contact the Bank and arrange for their transfer to the new ones?
A. Yeah, with some difficulty.
Q. Well there wasn't any difficulty in having this transfer effected, was there?
A. There was some difficulty yes.
Q. What was the difficulty?
A. Oh several arguments on the phone.
Q. It was done immediately the request was made in writing wasn't it?
A. It was done once the request was put in writing yes.'
[T 156]
1078 The Bank submitted that there was an absence of any evidence of any request made for a drawing which was denied.
1079 Hence, in relation to the plaintiffs' submission that credit was denied, Mr Macfarlan's response was that the Bank's obligation was to provide $8.5 million worth of credit and to do so at the customer's option in different forms. As Mr Macfarlan pointed out, Exhibit D36 does demonstrate that credit was provided as to the $8.5 million subject only to the qualification as to part of the deposits from the receivers. As to those deposits from the receivers, the Bank's submission is that it was well understood that it was possible to have the Bank transfer the deposits to the Number Two accounts and to draw on them.
1080 In short, the $8.5 million was fully drawn from the Number One accounts and that, as Mr Macfarlan submitted, was the full extent of the credit to which the plaintiffs were entitled. His further submission was that the plaintiffs were entitled to come and go with other funds which they had and that this in fact occurred.
1081 The ABE Fax account, it should be recalled, was not a newly frozen account but had been frozen for some time when the company had gone into receivership in the previous year - PX 1166.
1082 Hence, Mr Macfarlan submitted that there was no denial of the $8.5 million credit - this was always provided to the plaintiffs. And as to the Multi-Option Facility - Mr Macfarlan's submission was that it was available also and was indeed exercised by a conversion of the $7 million in March 1990 to a term loan.
1083 To my mind the issue tendered may be answered in terms of the facts. The Bank did not in fact call up the facility. Outside of requiring the $1million reduction provided for by the Facility Letter, the Bank did not demand that it be repaid by a specified date. The Bank clearly placed considerable pressure upon the Group to reduce its indebtedness and to do so post haste, but it did not call up the facility. The Bank did, however, refuse to allow the proceeds of securities sold to be treated otherwise than in permanent reduction of Bank debt. [See for example Letter of 4 May 1990 PX 1305, 1306] The breaches of contract found do not include a calling up of the facility.
Dealing with the Events of Default
1084 Mr Macfarlan made plain that the Bank only relied on the allegation that an Event of Default under the facility agreement had occurred if the Court was to hold contrary to the Bank's submissions, that the Bank had terminated or withdrawn the facility by its mid-February 1990 conduct. In that circumstance, the Bank's submission was that any such termination or withdrawal of the facility was justified. The Bank does not assert that it relied in later months on the occurrence of any events of default to terminate the facility and further does not assert that it withdrew the facility after mid-February 1990. The Bank did however seek to put forward in part, an explanation of its mid-year attitude concerning the sale of Durhambone, that the Bank had the view that an event of default had or may have been committed, and that it was for that reason, concerned and expressing views, about the financial position of the Group.
1085 It is clear from the judgment that the Court has made no finding that the Bank terminated or withdrew the facility in mid-February 1990 or thereafter.
1086 In those circumstances, it may be unnecessary to determine whether an event of default took place prior to the February 1990 communications from the Bank to the Group. In deference, however, to the submissions made, I set out hereunder my findings in that regard.
1087 In my view, an Event of Default occurred when ABE Holdings, by the letter of 13 February 1990, notified the Bank that 'the directors of the company have determined that the company is insolvent'. [PX 1110] I do not see the statements made by Mr Paola at the 12 February 1990 meeting that 'if [the Bank] don't like the idea of putting ABE Holdings into receivership we won't do it. Currabubula will give it the support it needs', as affecting the position. The letter was sent in unequivocal terms. No binding letter of comfort had been executed by Currabubula. Whether or not Mr Paola may have intended to cause Currabubula to execute a binding letter of confirmation, depending on the Bank's attitude to the Group's proposal, has no material relevance to that issue. In fact Mr Paola, at transcript page 133, accepted that all he intended to suggest at the meeting was that the support previously provided by Currabubula at it's discretion, would be continued.
1088 In my view, a further Event of Default occurred when, under cover of the letter of 13 February 1990 [PX 1100], the letter from Ferrier Hodgson of the same day [PX 1101] was sent to the Bank. The Ferrier Hodgson letter states: 'This statement was prepared in discussions with company officers and from the financial statements as at [31 December 1989]'. ABE Holdings and Paola Holdings had in common the company officers who conducted the negotiations on behalf of the Group with the Bank.
1089 Accordingly, the statement that the $4.454million debt owed by Paola Holdings to ABE Holdings was not recoverable, was an admission by Paola Holdings and ABE Holdings that Paola Holdings could not pay its debts.
1090 I note that Mr Diamond under cross-examination at transcript page 231, conceded that a reader of the Statement of Position which had accompanied the Ferrier Hodgson letter, could reasonably come to the conclusion that the view was being expressed by the document that Paola Holdings was worthless. Likewise, Mr Hardy at transcript 370, conceded under cross-examination that a reader of the letter and it's attachments would be entitled to conclude that the author of the Statement of Position had taken a view that Paola could not repay it's loan and was worthless.
1091 I further accept the Bank's submission that circumstances had arisen which would have given reasonable grounds for an opinion to have been reached by the Bank:
(i) That there had been a material adverse change in the 'financial condition' of ABE Holdings;
(ii) That there had been a material adverse change in the 'financial condition' of Paola Holdings; and
(iii) That there had been a material adverse change in the 'financial condition' of the Paola Group of Companies.
1092 Whether such an opinion was in fact reached by a Bank Officer is a different question.
1093 The two letters from ABE Holdings and Ferrier Hodgson of 13 February 1990 expressly acknowledge, it seems to me, that ABE Holdings was insolvent.
1094 I note that on page 2 of the Corporate Finance Group's submission, [PX 721] relating to the application for the additional facilities, it was stated that the purpose of those facilities was for 'funding increased working capital requirements as a result of the ongoing liquidation of ABE Fax Pty Limited'. Page 5 of the same submission [PX 724] indicates that the fact which precipitated the application for the increase in facilities was the obligation that Mr Paola had undertaken personally to guarantee the repayment of a debt of $1.65million which was owed by ABE Fax to Okura, and Mr Paola's desire to have this obligation discharged by ABE Holdings. On page 6 of the same submissions [PX 725] it is anticipated that the total amount of additional debts which the companies in the Paola Group would incur as a result of the winding up of ABE Fax would be $2 million.
1095 The application was for a general increase in the multi-option facility although it appears that most of the additional funds were to be made available to ABE Holdings. The Bank points out and I accept, that by February 1990 ABE Holdings was the largest borrower from the Bank and had received the majority of the $3.2 million which had been advanced by the Bank at the end of 1989 and the beginning of 1990. It was against this background, that the Bank was informed on 12 February 1990, that notwithstanding the apparent receipt of a large proportion of the additional funds of $1.7 million, ABE Holdings was insolvent and could not pay its own debts, still less the debts of ABE Fax which it had guaranteed. At the same time, the correspondence received from Ferrier Hodgson [PX 1101] indicated that Paola Holdings was solvent.
1096 In those circumstances, I accept the Bank's submission that there had been an obvious 'material adverse change' in the 'financial condition' of ABE Holdings, Paola Holdings and the Paola Group of Companies generally. I do not, however, accept that the Bank had any or any reasonable grounds for believing that its overall securities would not amply cover the Group's indebtedness.
1097 I accept the Bank's submission that, even if the above events are not sufficient to constitute a 'material adverse change' in the financial condition of the borrowers, they do amount to 'reasonable grounds' that such a change may have occurred.
1098 I do not accept that the Bank has proven that it in fact formed the opinion in February 1990 that an event of default had occurred. Mr Booth at transcript 396 when asked whether he had turned his mind to the question of whether the Group had admitted an Event of Default in relation to the facility, gave an answer reading: 'Can I say I would have done?' At transcript 396 he accepted that he had no actual recollection and at transcript 396 called it 'more instinct than practice - it would have been my first reaction'.
1099 When pressed, Mr Booth said at transcript 397 as follows:
'Q. Can you recall whether you formed any view at the time about whether there had been an event of default?
A. Yes, I can form a view. We would have been, in your (sic) minds, aware of an event of default. We were considering an option . . .'
1100 Finally at transcript page 398, Mr Booth was asked what was the event of default which he had formed the view had occurred, and his answer was: 'The events were two, material adverse change being one, the second being the admission of insolvency of ABE Holdings'.
1101 It was on his evidence, the insolvency of ABE Holdings which he thought had repercussions for the entire Group that gave rise, in his view, to a material adverse change. [T 398]
1102 On my findings, Mr Booth did not recall either reading the Events of Default list in the 4 September 1987 letter, or considering the same at all and had no actual recollection of concluding that an Event of Default had occurred. This is entirely consistent, it seems to me, with the documents produced by Mr Booth and the Bank at the relevant time and subsequently. No document in evidence records the formation of any such view, notwithstanding it's significance in the circumstances. Mr Booth, I accept, was a prolific note-taker and diarist and yet failed to record this, one would think seminal event, in the Bank's relationship with the Group.
1103 I reject Mr Booth's evidence that he formed a view that Events of Default had occurred at the relevant time. His several attempts to reconstruct a basis from which he might be able to infer that he 'would have' formed such a view, were weak in the extreme and fell far short of satisfying the Court that such a view was reached at the time.
1104 It is necessary also to refer to Mr Swinburne's evidence. In his statement of 7 May 1998, He furnished a reason for the 'freezing' of the accounts that made no reference to the formation of a view that an Event of Default had occurred. [Paragraph 15] In none of his three statements did he say that he formed such an opinion at any relevant time. However, in oral evidence at transcript 531.15 he was asked whether he had turned his mind to the issue and his answer was that he did, forming the view that 'notification of insolvency was a serious event. And I then sought advice within the Bank as to what course of action I should follow'.
1105 Mr Swinburne's evidence was that he 'felt' it was an Event of Default.
1106 Plainly, the advice that Mr Swinburne sought was from Mr Stenhouse. His supplementary statement dealt only with the 'freezing' of accounts where a customer stated it was insolvent. His statements do not record any consideration of the question of the existence of an Event of Default. There is no evidence from him about any consideration of the material adverse change issue.
1107 I do not accept that Mr Swinburne in fact formed an opinion that an Event of Default had occurred. Rather, he sought advice about the statement made at 12 February 1990 that ABE Holdings was insolvent.
1108 These events took place some ten years ago. Whilst Mr Booth and Mr Swinburne may be accepted as giving evidence of what they now believe to have then occurred, their evidence is rejected in the light of all of the evidence before the Court and particularly bearing in mind the material which had appeared in their statements, their cross-examination and my view as to the probabilities in the circumstances.
1109 It will also be recalled that under the sub-heading 'Other', the facility letter of 1 February 1990 provided:
'All other terms and conditions as described in the Bank's letters of offer dated 18 November 1988 and 4 September 1987 are to continue to apply unless the provisions herein are inconsistent. In such case the provisions herein shall prevail.'
1110 The 4 September 1987 letter had included under the sub-heading 'Representations and Warranties' the words:
' The borrowerss [sic] represent and warrant to the Bank as of the date of this letter of offer: . . .
- That there has been no material adverse change in the business, assets or condition of the borrowers since the original application for finance facilities by the borrowers; and
- the borrowers further represents [sic] and warrants that all statements made and documents provided in, or in connection with, the application to the Bank for the facilities specified in this Letter of Offer and all representations which the Borrowers have made or may (during the continuance of the Facilities as outlined in this letter of Offer) make to the Bank as to its financial position are true and fair.
1111 The same letter includes under the heading 'Covenants' the following:
'The borrowers have not, at the date as of which they most recently prepared annual accounts, have [sic] any liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) nor were there at that date any unrealised or anticipated losses arising from commitments entered into by the borrowers which were not disclosed or reserved against'.
1112 To my mind, these representation and warranties were repeated in the letter of 1 February 1990. In my judgment, the admission of ABE Holdings' insolvency and the implicit admission of Paola Holdings' insolvency were material adverse changes in the 'business assets or condition of the borrowers' and thus, the representation to the effect that there had been no material adverse change, was either incorrect when made, or became incorrect during the term of the facility.
1113 I accept the Bank's submission that another material adverse change was the fact that it appeared that Currabubula was no longer prepared to support the Paola Group of Companies. Until the end of 1989, the accounts for all companies (except ABE Fax) had been prepared on the basis that the Group was a going concern, thus implying that Currabubula Holdings would support each company. Mere discretionary support to be exercised at the option of Currabubula, I accept, would not have been enough. As the accounts were prepared on a 'going concern' basis, they were consistent only with the existence of a commitment of support from Currabubula. Currabubula had indicated to the auditor however, that it would not provide support for those companies (PX 1024) and this had the effect of throwing those companies into insolvency (T 362.5).
1114 I further accept the Bank's submission that the accounts which had been provided to the Bank, and on which the Bank's consideration of the application of the facilities had been made [PX 720-732], failed to disclose liabilities and losses. The Bank's letter of offer of 1 February 1990 was not accepted until some days after 1 February, by which time the Group had the letter from the company's auditor of 31 January 1990 [PX 1034]. That letter makes clear that it was then expected that the companies would lose $1.044 million in the 1990 year rather than 'break even' as had been indicated by the material presented to the Bank [PX 724].
1115 In those circumstances, the Bank's case that Events of Default had occurred by mid-February 1990, is made out. As I have indicated earlier, this finding is not strictly necessary, bearing in mind the reasons for judgment earlier given.
1116 There remain a number of discrete matters which may be dealt with fairly shortly.
Crop Preparation Payments
1117 The sale of Durhambone East involved, in addition to the sale of the land, the sale of plant, equipment and the payment of a 'crop preparation' fee to Currabubula. The complaint made by the plaintiffs is that amounts paid in respect of crop preparation, stock and plant totalling some $1.6 million, were not secured by any of the security instruments held by the Bank in respect of the land - see the equitable mortgage and floating charge given by Currabubula to the Bank.
1118 The short answer to the plaintiffs' claim is the same answer as has been given in paragraphs 984 and 985 above. When the plaintiffs sought a variation to the agreement with the Bank which had included an express condition that the facilities would be secured by registered mortgages over Durhambone, the Bank was entitled to require, as in fact on analysis it did, that such conditions as it sought to impose in consideration for agreeing to that variation be complied with. One such condition was that the amounts paid for crop preparation, stock and plant be paid to the Bank in discharge of the overall indebtedness.
The Estoppel Claim
1119 It is again not strictly necessary to deal with this claim as the plaintiffs have succeeded in establishing the relevant breaches of contract. The Bank had no legal right without notice, to freeze the Group's accounts. The plaintiffs have succeeded on their implied term case in contract in this regard.
1120 Had the estoppel case been required to be determined, to my mind the case was not made out. The representations were too imprecise to ground an estoppel. A statement in late 1988 or early 1989 that there was 'not much likelihood' that the Bank would withdraw its facilities without giving Mr Paola notice, gives no context and plainly does not address anything like all of the circumstances which would have to be addressed, to give the representations sufficient precise content upon which the plaintiffs could seek to ground an estoppel. Nor am I persuaded that the plaintiffs relied upon these statements as pleaded.
The 6 September 1990 Deed of Release
1121 The plaintiff have not established that this Deed of Release was executed by reason of duress and illegitimate pressure from the Bank. For the reasons earlier given in the judgment, I do not consider that illegitimate pressure was used by the Bank which induced Currabubula to enter into the Deed of Release. Currabubula, by Mr Paola, was well aware of the commercial necessity that Durhambone be sold and the requirements of the Bank that the Deed of Release be executed, did not go outside of the bounds of matters which the Bank was entitled to require as a condition of discharging a security - here Durhambone.
The Bank's 'Final Arrangement' Claim
1122 The Bank's claim, summarised in the Judgment at paragraph 12, is rejected. No submissions were ultimately addressed by the Bank on the issue. The facility was plainly in place for relevant purposes as at the date of the Bank's breaches of contract held to have taken place.
The Plaintiffs' Claim Relating to the June 1992 Mortgage
1123 In the light of the above reasons, this claim [see Judgment paragraph 40 (vii)] is not made out.
Short Minutes of Order and Further Submissions
1124 The proceedings will be relisted for further submissions in relation to any specific claims which either party contends have not yet been dealt with, such as interest, including claims for interest charges unnecessarily incurred, for submissions in relation to costs and for the making of final orders.
I certify that paragraphs 1 - 1124
and additionally Appendices'1' to '10' inclusive
are a true copy of the reasons for judgment
herein of The Hon. Justice Einstein