Deangrove Pty Ltd v Commonwealth Bank of Australia

the applicantS' case 6 It is common ground that the Guarantee and equitable charge were executed on 3 June 1998, but were dated 12 June 1998, the date of the first drawdown by Deangrove pursuant to the facility. The applicants' case centred on representations said to have been made by or on behalf of the CBA to Deangrove and Mr Jeans at about and shortly after the date the Guarantee and equitable charge were executed, but before the first drawdown. The applicants contend that by reason of the misrepresentations, the CBA:

• engaged in misleading or deceptive conduct in contravention of s 52 of the TP Act; and
• engaged in conduct that was unconscionable in contravention of s 51AC of the TP Act and under the general law. The applicants further maintain that in reliance on the CBA's representations, Deangrove executed the equitable charge and drew down on the facility and Mr Jeans executed the Guarantee. 7 It will be necessary to examine the facts in some detail. At this stage, however, it is enough to note the essence of the applicants' case, recognising that it was perhaps slightly modified in the course of the trial. In his opening, Mr Ireland QC said that the CBA, principally through the conduct of Mr Stephen Cleary, the relationship manager in the Business Banking Centre of the Bank, had "take[n] over the critical negotiations" between Deangrove and a Japanese-based travel company (referred to in evidence as "HIS") for the sale by Deangrove to that company of 36 units in the Cairns Beach Resort. According to Mr Ireland, Mr Cleary had engaged in a "private dialogue" with HIS's Australian solicitors with a view to securing a binding commitment or irrevocable undertaking from HIS or its Australian representative, Mr Yoshio Hayashi, to purchase the 36 units. Mr Cleary had told Mr Jeans that he (Mr Cleary) was satisfied that such a commitment or undertaking had been received and Mr Jeans had relied on that advice. Without Mr Cleary's assurance Mr Jeans would never have agreed to settle Deangrove's purchase of the Holloways Beach site or to draw down funds under the facility. 8 In his final submissions, Mr Ireland emphasised that the CBA's terms of approval for the facility required Deangrove to produce satisfactory evidence of pre-sales of units. It was initially Deangrove's role to fulfil that requirement. But once Mr Cleary embarked on a private discourse with HIS's (or Mr Hayashi's) Australian solicitors, it was reasonable for Mr Jeans to rely on Mr Cleary's assurances that the CBA itself was satisfied that HIS or Mr Hayashi had entered into a binding commitment in relation to the 36 units. 9 Mr Ireland, as I understood him, acknowledged that the applicants cannot succeed unless the substance of Mr Jeans' evidence as to what he was told by Mr Cleary and as to his reliance on Mr Cleary's assurances is accepted. Since on some critical questions the evidence of Mr Cleary and Mr Jeans is in irreconcilable conflict, Mr Ireland agreed that in the end the resolution of the case largely turns on what was said between Mr Cleary and Mr Jeans. That in turn depends on my assessment of their evidence.

a note on legislation 10 The applicants, as I have noted, relied on s 51AC of the TP Act. Section 51AC(1) provides, among other things, that a corporation must not, in trade or commerce, in connection with the supply of services to a person, engage in conduct that is, in all the circumstances, unconscionable. Section 51AC was inserted into the TP Act by the Trade Practices Amendment (Fair Trading) Act 1998 (Cth), Sched 2. Schedule 2 commenced on 1 July 1998, after the relevant events in the present case had occurred. It was therefore not in force at the time the CBA is alleged to have engaged in misleading or deceptive or unconscionable conduct. 11 Section 51AA of the TP Act was, however, in force at the relevant times. Section 51AA(1) provides that a "corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories". It may be that if Mr Jeans' evidence was generally accepted, the applicants could have made out a case for the application of s 51AA, although the provision gives rise to some unresolved questions of construction: see Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18, at [45], per Gummow and Hayne JJ. For reasons that will become apparent, it is not necessary to consider the scope of s 51AA in the present proceedings.

questions of credit 12 Since questions of credit are critical to the outcome of this litigation, it is convenient to record at the outset my impressions of the two key witnesses, Mr Jeans and Mr Cleary, as well as my impressions of Mr Bruce. In my experience, it is not always true that the opportunity to observe the demeanour of a witness is a great advantage to a trial judge: cf Fox v Percy [2003] HCA 22, at [30]-[31], per Gleeson CJ, Gummow and Kirby JJ. In this case, however, I derived considerable assistance from observing Mr Jeans (over a period of four days, with interruptions) and Mr Cleary (for the best part of a day) in the witness box. I have also been assisted by the opportunity to observe Mr Bruce give his evidence:

mr jeans 13 Mr Jeans is an experienced businessman. By 1998, he had some ten years' experience as a property developer and had also owned and operated hotels. He had bought and sold properties since 1978. Mr Jeans also had experience in other businesses, including buying and selling second mortgages and conducting car dealerships. 14 Mr Jeans struck me as a shrewd, but calculating witness. He was often evasive in his responses. He also seemed to me quite frequently to be tailoring his evidence to match what he understood to be the state of the documentary evidence and the case he had to present. When inconsistencies between his recently sworn affidavit and oral evidence were pointed out, for example, he gave the curious response that he must have put what was in the affidavit for a reason and, if it was there, it must have been accurate. On several occasions, his evidence that he could not recall certain events was accompanied by a comment that he wanted to be careful in case the cross-examiner produced a document that contradicted him. My impression was that Mr Jeans was not expressing caution simply out of a prudent desire to give accurate evidence, but in an attempt to ensure that his account of events, whether or not true, could not be falsified by the contemporary documentation. In addition, there were a number of occasions when Mr Jeans contradicted himself, in circumstances suggesting that his evidence was not being given truthfully. For example, in cross-examination Mr Jeans asserted for the first time that he had not executed the equitable mortgage on Deangrove's behalf at the same time as he executed the Guarantee. He appeared to be quite explicit on the point. Upon being pressed, he retreated. The exchange culminated in the following: "Now you say that evidence [that the documents were not executed at the same time] is incorrect?--- Well I am not sure to be honest with you. I am not sure whether they were signed separately to be quite honest with you, or individually. I may have signed them all at the same time, I can't remember." It is difficult to avoid the impression that Mr Jeans made the initial assertion because he perceived some advantage to his case in doing so, but was forced to modify his position in the face of material casting doubt on his assertions. 15 There were other features of Mr Jeans' evidence that reflected seriously and adversely on his credit. In an affidavit sworn on the first day of the trial, Mr Jeans said this: "In 1997 and 1998 I had a practice of carrying with me a 'Spirax' note book and I recorded details of meetings and telephone calls in relation to business matters. I have reviewed my note books which cover the period up to 12 June 1998 and have attempted to check dates and decipher my handwriting in respect of relevant entries in that period relating to the drawdown of finance on 12 June 1998 for the Cairns project. Annexed hereto and marked 'A' is a copy of a typescript of what I believe to be the relevant entries from my note books in respect of the period from January 1998 to 12 June 1998. Where I have not been able to read my handwriting, I have placed a question mark in annexure 'A'. These notes were made at the time of the meetings and conversations to which they refer and accurately reflect the events recorded". (Emphasis added.) The annexed typescript entries included, among many others, entries 33 and 34 for 3 June 1998, the day the security documents were executed, as follows: "33) Signed up docs in reception Steve Cleary left them there for his girl on front desk. Will get him to witness later 34) Wendy Cull [Deangrove's solicitor] called to say will send letter out tomorrow. Bank doing its own arrangements not up to her." 16 In the affidavit to which I have referred, Mr Jeans asserted, for the first time in the proceedings (he had sworn his first affidavit some three years earlier) that the security documents had not been executed by him in Mr Cleary's presence, but had simply been left for him in the reception area. (The Guarantee records that Mr Cleary witnessed Mr Jeans' signature as guarantor.) In his affidavit, Mr Jeans also asserted that Mr Cleary had told him that he was dealing directly with the Japanese businessmen to ensure that they were absolutely committed. In my view, Mr Jeans clearly intended to imply in the affidavit that he had been assisted in his recollection of events by his own contemporaneous notes, including notes 33 and 34. 17 In cross-examination, Mr Jeans conceded that some of the notes in his notebook might have been made later than the date on which they appear. I consider it likely that Mr Jeans was prompted to make that concession by the fact that a number of notes, including entries 33 and 34, are obviously written with a different pen than other entries. Mr Jeans, when making his concession, said that the statement in his affidavit was a "mistake". The relevant passage of cross-examination is as follows: "But in so far as there is an entry that's under a particular day we can take it that that entry was made on that day, is that right?---Not necessarily. It might have been made later. The day the call took place would be correct but I may not have gone through it an[d] filled it in till later. Well you say in paragraph 31 that the notes were made at the time of the meetings and conversations to which they referred. Do you see that?---Well, I recorded the date that they were made at the time the call was [sic] come. I might have filled in some notes later, it was a running file effectively. You say that the notes were made at the time of the meeting?---I understand that. You want to correct that?---That's a mistake, yes. What do you want to correct and make it so that it is true and correct?---Well, they might have been made - I can't put a time on it because I work on those, it's like a moving file. I carry that notebook with me and I make notes on it and that's how I operate. So some of the notes might have been made later than the date on which they appear?---Absolutely. How much later?---I have no idea. Months later?---Could be. Could be months later?---Mm. So in so far as there are entries in these day books, we can take it that some of these entries could well have been made months later than the date on which they purport to bear?---Well, a lot depends. You see--- Is that right?---Well, that could be correct, absolutely, yes. They could have perhaps been made years later, could they?---I don't know about years later, but months later. A year later?---I just don't know, I couldn't tell you. I've no idea." 18 Later in his cross-examination, Mr Jeans acknowledged that he understood that entries 33 and 34 were important in relation to issues to be decided in the case. Mr Jeans also acknowledged that he had added the entries after the relevant events when he "felt it was appropriate to jog my memory". Indeed, he accepted that it was possible that he had made the entries at some time after 10 August 2001. In any event, I am prepared to infer that it is very likely that entries 33 and 34 were made after the proceedings were commenced against the CBA in March 2000. (I draw the inference both from Mr Jeans' evidence and from the fact that in response to a request from his then solicitor in February 2000 for a transcript of all diary entries relevant to the case, Mr Jeans did not include entries 33 and 34.) 19 Mr Jeans denied that he added the entries to mislead the Court because (he said) at that stage "they weren't in evidence". I am very dubious about that explanation. But whatever Mr Jeans' motives may have been for adding the entries, I am satisfied that when he swore his affidavit of 17 March 2003 he was well aware that many important entries in his notebooks had been added long after the relevant events. I am also satisfied that he was endeavouring to create the false impression that all the annexed notes were transcripts of contemporaneous records and that his recollection had been refreshed from such records. 20 Another matter reflecting adversely on Mr Jeans' credit was his evidence in response to suggestions that he might have been expected to protest to the CBA about correspondence that did not accurately reflect the facts as he then understood them. Mr Jeans accepted that, on his version of events, certain letters written by the CBA to him on Deangrove in August and September 1998, were inconsistent with representations previously made to him and even "outrageous". He also accepted that there was no record in correspondence during this period of his having protested about the CBA's conduct. 21 I found Mr Jeans' explanation for this curious state of affairs singularly unconvincing. He said he was trying to avoid an acrimonious situation, but that he was sure he would have spoken to Mr Cleary about his concerns. Yet, as Mr Jeans acknowledged, there was no reference in his notebook to the substance of any such conversation (although there were brief references to the fact of conversations having occurred). Mr Jeans' explanation as to why he did not make any record of the substance of the conversations was as follows: "Assuming, if it be the fact that there is nothing up until this point, September in your notes of conversation to Mr Cleary to that effect, is there some reason why you wouldn't record that?---Probably because if it is not in there I probably wouldn't have discussed it with him on a - how would I refer it - on an aggravated type situation, I'd probably say to him, Hey, what's all this about and he would say whatever he might say and then I'd write a letter because I was satisfied with whatever he said and I wouldn't necessarily record that. I might put, Spoke to Steve Cleary but I might not put the full content of what was said because I might speak to him about four or five different things but that being one. I should have taken more notes. I'm getting better at it." 22 I do not accept that explanation. It does not address satisfactorily why, even if Mr Jeans were reluctant to confront the CBA at this stage, he would not have recorded in his own "running file" the substance of the complaints he said he made to Mr Cleary. Mr Jeans is certainly astute enough to have appreciated the significance of making such a record. My strong impression is that Mr Jeans realised in the witness box that he had failed to protest to the CBA in August-September 1998 as might have been expected and that he gave an untrue explanation for that failure. 23 In my view, except where Mr Jeans' evidence was against his interests, was non-contentious or was independently corroborated, his evidence should be treated with extreme caution.

mr cleary 24 Mr Cleary commenced employment with the CBA in 1976, apparently immediately after completing school. For the first ten years he was employed in the branch network and from 1986 to 1990 he was engaged in commercial and corporate lending in various branch offices and in head office departments in Sydney. From 1990 to 1995, he was a branch manager at a number of suburban branches. From 1995 until about September 1998 he was relationship manager in the Business Banking Centre ("BBC") of the CBA at George and Market Streets, Sydney. In this role he was responsible for managing a portfolio of commercial clients. His duties included assessing credit proposals, structuring facilities and negotiating terms and conditions. From February to September 1998, Mr Cleary was the CBA's relationship manager for Deangrove, reporting to Mr Peter Mitchell, the team leader of the BBC. 25 It must be said immediately that Mr Cleary presented as a witness very differently than might have been expected for a manager of his experience and with his responsibilities. In cross-examination he appeared to have considerable difficulty in following not especially complex questions. He claimed, for example, that he was unsure as to whether he knew in March 1998 what take out finance was, despite the CBA's facility approval letter to Deangrove of 2 March 1998 (which was signed by Mr Peter Hocking, the Manager, Commercial Lending) requiring "Irrevocable offer letter(s) from a lender(s) committing to takeout at a 55% LVR [loan valuation ratio] for all units remaining unsold on completion…". Mr Cleary's recollection of some significant events was also imperfect. Moreover, he acknowledged in his evidence that he had failed in a number of important respects to comply with internal bank directives governing procedures to be followed in relation to the taking of guarantees. Among other things, he had not ensured that the guarantors had an opportunity to obtain legal advice prior to executing the guarantees and had not made a record that certain documents had been given to the guarantors, as the procedures required. He also signed documentation to the effect that all conditions of the loan approval for Deangrove had been complied with when, on his own account, they had not been. 26 Mr Ireland, not without some justification, characterised Mr Cleary's demeanour and answers as those of an "ingénue". He submitted that I should find that it was simply not plausible that a manager of Mr Cleary's experience and responsibilities could not remember important things, such as whether he had received and read particular memoranda relating to the Deangrove facility. Nor was it plausible that Mr Cleary did not fully understand the terms of the CBA's letter of approval of 2 March 1998, the very facility he was responsible for implementing. Mr Ireland also invited me to reject Mr Cleary's evidence that he had not given consideration to whether Deangrove had any assets prior to its acquisition of the Holloways Beach site on 12 June 1998. 27 While listening to Mr Cleary's evidence I was struck by many of the matters to which Mr Ireland referred in his submissions. Nonetheless I formed the clear impression that he was endeavouring to give a truthful account of events as he recalled them. It seemed to me that Mr Cleary had genuine difficulty in following questions put to him. In part, at least at the beginning of his evidence, this may have been attributable to nervousness, but it mainly reflected what might fairly be described as Mr Cleary's lack of commercial sophistication. I recognise that it is surprising that a person occupying his position should have experienced the difficulties he did, but I think that says more about Mr Cleary's apparent suitability for the position he occupied than his credit. I reject the submission that in essence Mr Cleary was pretending to be less commercially aware than he was. 28 I have given careful consideration to the other criticisms made of Mr Cleary. They warrant his evidence being scrutinised carefully. But having heard them, I think he did have an imperfect grasp of some of the concepts that he should have been familiar with. I accept his evidence, for example, that in March 1998 he had an imperfect understanding of take out funding notwithstanding that he had seen documentation which, if he had examined it carefully, would have made it clear what take out finance was. I also accept that he had not directed attention, before Deangrove drew down funds on 12 June 1998, to whether the company had assets independently of the project it proposed to undertake. 29 I have been troubled by Mr Cleary's failure to conform to the CBA's internal directives and his willingness to sign forms inaccurately certifying that all conditions of Deangrove's lending approval had been met. I have concluded, however, that Mr Cleary's failings demonstrate carelessness, albeit of a serious kind, in the discharge of his responsibilities rather than dishonesty. While Mr Cleary's conduct reflects poorly on his performance as a bank officer, I do not think that it affects his credibility as a witness. In response to questioning, he readily and openly acknowledged his failings and did not attempt to minimise the significance of his conduct. I do not think that Mr Cleary, in contrast to Mr Jeans, was attempting to mislead the Court. 30 This is not to say that there was no element at all of reconstruction in Mr Cleary's evidence. In particular, I think the probabilities are that, despite his denial, Mr Cleary did receive on or about 2 March 1998, a copy of a memorandum dated 27 February 1998 from Mr Hocking and Mr Hastie of the CBA's "Mobile Sales Force" to Mr Roams of Lending Services. On 2 March 1998, Mr Cleary received a memorandum from Mr Hocking referring to recent discussions and enclosing copies of "our memorandum to Lending Services and approval letter". It is difficult to know what the enclosed memorandum could have been if not the memorandum of 27 February 1998. Mr Cleary was unable to suggest an alternative. However, I think that Mr Cleary was genuinely mistaken about not having seen the memorandum of 27 February 1998 and I do not think it reflects adversely on the overall reliability of his evidence. The letter of 27 February 1998, as will be seen, contained a reference to take out finance. The finding that Mr Cleary had probably received that letter, however, does not alter the conclusions I have already expressed concerning his credit. 31 My assessment of Mr Cleary is that he was endeavouring to be a truthful witness. There may have been some matters on which his recollection was faulty, and in several respects his oral evidence qualified his affidavit evidence. Nonetheless, in general, I think that his evidence was reliable. 32 There were a number of points on which the evidence of Mr Cleary was directly in conflict with that of Mr Jeans. Where there was such a conflict on any matter of substance, in general, in the absence of reliable contemporaneous documentation suggesting otherwise, I prefer Mr Cleary's evidence.

MR BRUCE 33 At all material times, Mr Bruce was the sole director of John Bruce & Partners Pty Ltd ("JBP"), an architectural firm. In a brochure published by JBP, Mr Bruce described himself has having had "over 30 years experience in the Australian architectural scene" and as possessing a "vast store of architectural and planning knowledge". Mr Bruce had a business relationship with Mr Jeans that pre-dated the events giving rise to this litigation. According to the brochure, Mr Jeans represented "the interface between The JBP group's traditional architecture and planning skills and the pro-active project structuring and funding roles it seeks to provide". 34 Mr Bruce commenced giving evidence on the sixth day of the trial. At that stage, he was a cross-respondent to the CBA's cross-claim, but had appeared throughout the trial unrepresented. Mr Ireland QC, who appeared for Mr Jeans, completed his cross-examination of Mr Bruce on the sixth day of the hearing. At the end of that day, the cross-examination of Mr Bruce by Mr Bell, who appeared with Mr McLure for the CBA, was incomplete. 35 On the seventh day of the hearing Mr Rundle of counsel announced an appearance for Mr Bruce. After some argument as to the course of the trial, Mr Bell completed his cross-examination of Mr Bruce. The following day, counsel for the CBA and Mr Bruce informed the Court that the proceedings between their respective clients had been settled. 36 Mr Bruce's evidence contradicted certain aspects of Mr Jeans' evidence and supported Mr Cleary's version of events. Specifically, Mr Bruce confirmed Mr Cleary's evidence that a meeting had taken place on 3 June 1998 at which all three had been present. Mr Bruce acknowledged that, at that meeting, he had signed his guarantee in Mr Cleary's presence, but he claimed that he had left the meeting before Mr Jeans executed any security documentation. Mr Bruce maintained this position notwithstanding that, on his evidence, Mr Jeans had been at the meeting for at least half an hour. 37 In general, where Mr Bruce's evidence and that of Mr Jeans is in conflict, I prefer the former. For the most part, the conflict generally related to issues in respect of which Mr Bruce had no obvious motive to give false evidence. On these issues, his evidence appeared to be reliable. However, I do not accept that he left the meeting of 3 June 1998 before Mr Jeans executed the Guarantee. At that point in the proceedings, Mr Bruce was endeavouring to amend his pleadings to take advantage of a claim, made by Mr Jeans for the first time in the course of his evidence, that Mr Jeans had not in fact executed the Guarantee. Whether by a process of innocent reconstruction or otherwise, I think that Mr Bruce was incorrect when he testified that he was not present at the meeting when Mr Jeans executed the Guarantee.

events leading to the execution of the security documents

A Proposal For Finance 38 Deangrove was incorporated on 14 February 1997 to serve as the vehicle for the acquisition of land at Holloways Beach and the development of a resort there. At all material times, Mr Jeans was the sole director and shareholder of Deangrove. 39 Prior to Deangrove's incorporation, Mr Jeans held discussions with Mr Milott, an officer of NZI Securities Ltd ("NZI"), which owned the Holloways Beach site through a subsidiary, General Accident Insurance Pty Ltd. Those discussions indicated that NZI was prepared to sell the site if the price was suitable. Shortly thereafter, Mr Jeans held discussions with Mr Bruce, the principal of JBP with a view to undertaking the project on a "50/50 basis". As I have noted, Mr Jeans had an existing business relationship with JBP. Some of the documentation provided by Mr Jeans to the CBA at an early stage suggested that Mr Bruce may have been a director of Deangrove, but in fact he never occupied such a position. 40 Mr Cleary first met Mr Jeans in mid-1996, when they were introduced by Mr Peter Hocking, a member of the CBA's Commercial Sales Force (referred to in evidence as the "Mobile Sales Force"). The role of the Mobile Sales Force was to obtain new business for the CBA and then to refer the customer to the appropriate banking centre for management. Mr Hocking had known Mr Jeans for over 20 years. 41 In about August 1997, Mr Cleary became the CBA's relationship manager for Vanmeld Pty Ltd and Megesy Pty Ltd, two companies with which Mr Jeans was associated. After that time, facilities were made available through the CBA to Vanmeld Pty Ltd and other companies with which Mr Jeans was associated, including JBP. 42 In late 1997, Mr Jeans on behalf of Deangrove, sought finance for the project from a number of potential lenders. By this time, the proposal was to build 73 one bedroom units and a manager's unit on the Holloways Beach site, together with ancillary facilities. In November 1997, Deangrove obtained a valuation from Herron Todd White ("HTW"), showing a gross realisation figure of $10,950,000, based on an average value for a fully furnished unit of $150,000. By this time, Deangrove had also received confirmation of an agreement with a builder, B M Culley and Associates Pty Ltd ("Culley"), for a building contract, including funding costs, for a price not exceeding $6,147,000. 43 Deangrove's proposal to the CBA was appraised in a submission to the Lending Services Division in December 1997. The submission was prepared by Mr Hocking and Mr Hastie, a business analyst employed by the CBA. The chief manager of Lending Services at that time and throughout 1998 was Mr Dennis Roams. 44 The submission recorded the purpose of the finance proposal as follows: "To finance construction of a unit complex known as 'Cairns Beach Resort' located at … Holloways Beach, Cairns…. The development will consist of 73 one bedroom holiday units, 1 one bedroom managers unit, office/open reception area and basement car parking in four separate buildings…. The project cost is $8.0M consisting of construction costs of $6.15M (including interest costs of $0.18M) and land acquisition costs of $1.85M. The land is currently owned by General Accident Insurance who will transfer its title to Deangrove upon receipt of bank guarantee for $1.85M which will be satisfied on issuance of statutory certificates of completion. Sponsors equity contribution comprises Harvey World Travel Investments Ltd (valued CBA client) involvement in providing 20 pre-sales and, upon practical completion the provision of a rental guarantee of 7% for three years on all unsold units which will service CBA's residual debt pending full clearance, six months after completion." 45 At the time the submission was prepared, Mr Hocking and Mr Hastie appear to have believed that both Mr Jeans and Mr Bruce were directors of Deangrove. On that basis the securities that were to be taken by the Bank included the following:

• a registered mortgage over the land subject to confirmation of a valuation showing an "on completion" value of $10.4 million;
• a standard facility agreement;
• unlimited guarantees from Mr Jeans and Mr Bruce;
• a registered equitable mortgage by Deangrove over all its assets, including full access to 10% deposit paid by purchasers;
• a fixed price construction contract, subject to a tripartite agreement between the CBA, Deangrove and Culley;
• a completion bond executed by Culley in favour of the CBA for the equivalent of 10% of the proposed construction cost;
• a registered mortgage over the proposed lease by Harvey World Travel of the unsold units, with a 7% rental guarantee to be paid to the CBA; and
• a charge over the security deposits which were to be lodged with the CBA, presumably by purchasers of units. 46 The "main covenants" were to include the following:
• 20 pre-sales of units in the development to Harvey World Travel and a further 14 "pre-sales";
• the pre-sales were to be at no more than 5% below list price with unconditional contracts exchanged and 10% deposits paid; and
• the CBA was to be satisfied that the pre-sales were on an arm-length's basis. 47 The submission noted that upon completion 100% of the net sale proceeds would be applied to meet CBA's performance guarantee and construction finance facility. The submission calculated, apparently on the basis of the HTW valuation, that 34 pre-sales would equal $5.1 million, that is 63.57% of the debt of $8 million due to the CBA. The CBA's sensitivity analysis concluded that under a "foreclosure scenario", if 20 of the 34 pre-sales failed to eventuate, list prices of the remaining units would have to be discounted by 31% before the CBA incurred a principal loss. 48 Under the heading "Policy Issues", the submission recorded the following: "The financial position of Deangrove stand alone would not meet CBA's normal credit criteria but is partially mitigated by the involvement of [Harvey World Travel] committing to 20 pre-sales and providing a guaranteed rental return of 7% for 3 years…. Additionally, prior to drawdown of facilities, the CBA can be provided with an irrevocable offer letter to takeout any residual debt 6 months after completion." 49 The submission noted that "key issues" included:
• the willingness of Harvey World Travel, said to be the largest provider of Sunlover and Qantas holidays to the North Queensland market, to commit to 20 pre-sales prior to draw down of the facility;
• the fact that the CBA would be represented by its own quantity surveyor administering the building contract arrangements; and
• the proven track record of Messrs Bruce and Jeans who had successfully completed numerous developments. On this basis, the submission recommended approval of a bills discount facility of $6.15 million and a bank guarantee of $1.85 million, a total of $8 million. 50 In a memorandum dated 30 December 1997, Mr Roams raised a number of questions regarding the proposal. He was, however, careful to say that the queries were not intended to suggest that "there is not a deal here". The objective was to ensure that the CBA was not holding an excessive risk. 51 Mr Roams identified several "anomalies" in the HTW valuation. He pointed out that the valuation had been prepared on the basis that all units were to be sold to Harvey World Travel. He asked whether this was still the case. He also pointed out that the HTW valuation valued the land "as is" at $1.175 million and asked how a delayed settlement could value the land at $1.85 million. Mr Roams suggested that it would be better to offer a cash funded facility to facilitate a lower purchase price for the land, noting that a premium of $675,000 for delayed settlement was harsh. Mr Roams suggested further discussion on these matters. 52 The contemplated discussions apparently took place on 31 December 1997. On 7 January 1998, Mr Hocking prepared a memorandum designed to clarify a number of matters. The memorandum set out details of the proposed involvement of Harvey World Travel. The memorandum repeated the recommendation that facilities totalling $8 million should be provided to Deangrove.

Approval of the Facility 53 On 9 January 1998, Mr Roams authorised approval of a "heavily qualified approval letter". In his memorandum, he noted that it was now proposed that the first 20 pre-sales should "emanate from" Harvey World Travel franchisees. He considered this to be acceptable. However, a condition of approval was to be the firm pre-sale of at least 14 units to other investors, that is a total of 34 pre-sales. 54 On 13 January 1998, the CBA issued a letter to Deangrove (addressed to Mr Jeans and Mr Bruce as directors) confirming approval of facilities totalling $8 million to assist with the development of the Cairns Beach Resort. The approval letter included the following provisions:

• a bank guarantee to be provided to the vendor of the Holloways Beach land;
• a bills discount facility for $6.15 million, to cover projected building costs and capitalised interest;
• the term of the facility was thirteen months, to accommodate a seven months construction phase and a six month period for sales of units or refinance of the residual debt;
• a variety of bank fees, including a "front end fee" of $50,000 and an "exit fee" of $100,000 payable from first settlement proceeds; and
• the pre-sales were to be at a price no more than 5% below list price, with unconditional contracts exchange and 10% deposits paid. There was no reference in this letter to "take out finance" as a condition of the loan. 55 On 3 February 1998, Mr Jeans, on behalf of Deangrove, confirmed that the facility offer from the CBA was "generally acceptable". The letter stated that "to further improve the bank's end position, we are now in the process of finalizing full take-out of all units at completion date which will fully retire the CBA's exposure". In evidence, Mr Jeans was equivocal as to whether he intended this to be a reference to take out finance (that is, refinancing of the unsold units at practical completion). He ultimately conceded, however, that he probably did tell the CBA during February 1998 that he proposed to obtain take out finance.

An Interim Unsecured Advance 56 On 4 February 1998, Mr Hocking granted approval for temporary accommodation of $100,000 to cover "short term architectural and consulting fees". The request for accommodation was expressed to be "pending formalisation of security documentation". Mr Roams was informed of Mr Hocking's decision and endorsed the following comment on Mr Hocking's memorandum: "Deangrove Pty Ltd is a special purpose company which has been incorporated to undertake a residential development at Cairns Qld. I would be reluctant to provide the facility sought until we receive confirmation of acceptance and signing of security documents. However, approval has been given and is noted." 57 I note that Mr Ireland relied on the terms of Mr Roams' endorsement to attack Mr Cleary's evidence that he had not been aware that Deangrove was a single purpose company brought into existence for the Cairns Beach Resort project and had no assets of its own. There is no doubt that Mr Cleary should have been aware of these matters but, as I have indicated, I accept his evidence that he was not so aware prior to June 1998.

The Second Facility Letter 58 On 27 February 1998, Mr Hocking wrote to Mr Roams seeking changes to the credit approval of 13 January 1998. The memorandum advised Mr Roams that Deangrove had negotiated a cash purchase price for the site of $1.4 million, in lieu of $1.85 million, and thus the total facility was to be reduced by $445,000, to $7.55 million. Deangrove was now to provide 15 pre-sales contracts for an aggregate amount not less than $2.25 million, assuming an average sale price of $150,000 per unit. 59 Under the heading "Exit Risk", the memorandum noted that Harvey World Travel had declined to provide a guarantee for interest cover. It continued as follows: "In order to provide an absolute exit position for CBA, Deangrove is arranging to provide an irrevocable take out commitment from either BankWest or National Mutual, which will provide takeout at a 55% LVR [loan valuation ratio] for all units remaining unsold on completion of the project. Importantly, the Lender committing will rely on HTW valuation criteria, consistent with our valuation arrangements." Mr Hocking provided a "Worst Case" calculation which assumed no sales, other than the 15 required pre-sales, during the construction phase. On this basis, allowing for "Proposed Take Out" of $4.79 million, the residual debt was calculated to be $510,000 secured by a mortgage over the manager's unit, an office and reception area, together with a charge over managerial rights. Mr Roams approved the changed arrangement. 60 On 2 March 1998, the CBA notified Deangrove that it had approved reduced facilities totalling $7.55m to accommodate the changes to the previous credit approval. The letter was signed by Mr Hocking, but I find that Mr Jeans was aware that Mr Hocking himself did not have authority to approve the variation. 61 The letter was to similar effect as the earlier facility letter of 13 January 1998, but included a number of differences (in addition to a reduction in the amount of the loan):

• the "exit fee" was reduced from $100,000 to $25,000;
• the number of unit pre-sales was reduced from 34 to 15; and
• the letter included the requirement of an irrevocable offer letter from a lender committing "to takeout at a 55% LVR for all units remaining unsold on completion of the project". 62 On 2 March 1998, the same day as the second facility letter was sent, Mr Hocking sent to Mr Cleary the memorandum to which reference has already been made ([30] above). The consequence of that memorandum was that management of Deangrove's account with the CBA passed to Mr Cleary. However, as Mr Jeans knew, Mr Cleary had no authority to approve variations to the facility. 63 On 8 April 1998, Deangrove accepted the CBA's offer.

Increase in Unsecured Advances 64 Mr Cleary was on leave from 9 to 24 April 1998. On 15 April 1998, Mr Langley, an assistant manager who was responsible to Mr Cleary, recommended to Mr Savell of Lending Services an increase in temporary accommodation for Deangrove from $100,000 to $250,000. The increase was said to be for Deangrove's partners, JBP and Vanmeld Pty Ltd. The memorandum noted that the offer in the facility letter of 2 March 1998 had been accepted and a part payment establishment fee of $10,000 had been made. The memorandum also noted that "[f]ull take out arrangements have been finalised". Mr Savell, whose authority was apparently co-extensive with that of Mr Roams, granted approval in the following terms: "Discussed with Peter Hocking & James Langley. All major items relating to loan approval conditions have been complied with. Chances of proposal not proceeding to funding are considered remote. Increase of $150,000 to $250,000 as advance payment to architect and consultant is approved". 65 The basis for Mr Langley's acceptance that full take out arrangements had been finalised was information supplied by Mr Jeans. On 6 April 1998, Mr Jeans received a conditional offer of a loan facility of $1.6 million offer made on behalf of a financier. It appears that a copy of this offer was not provided to Mr Hocking, but he was told about it by Mr Jeans and the financier's solicitors wrote a separate letter to the CBA on 21 April 1998 confirming the offer. A copy of a second offer of facilities totalling $2 million was transmitted by Mr Jeans to Mr Hocking on 15 April 1998. On 21 April 1998, Mr Hocking reported to Mr Savell that Deangrove had "obtained takeout commitments from two solicitors for a total of $3.6 million, with takeout criteria being 55% of on completion valuation, as predicated in the last approval memorandum. This takeout position assumes that a maximum of 58 units (after pre sale of 15) remain unsold after the 32 week construction period."

Negotiations with the Japanese Interests 66 By this time, Mr Jeans had entered into negotiations with Mr Hayashi, representing the Japanese company HIS, in relation to two transactions. The first involved the acquisition by Mr Jeans and his associates of 36 units in an existing development known as the "Neptune Resort" owned by HIS. The second was the purchase by HIS or associated interests of 36 units in the Cairns Beach Resort. Mr Jeans suggested in a letter to Mr Hayashi of 15 April 1998 that the purchase of those units proceed by way of put and call options so as to avoid stamp duty costs in the event of resale by the purchaser. In mid to late April 1998, Mr Jeans travelled to Japan for negotiations with Mr Hayashi and Mr Sawada concerning HIS's proposed purchase of the 36 units. 67 Upon his return to Australia, Mr Jeans told Mr Hocking that he had "been able to get a commitment from this giant Jap travel company to buy 36 units". He also said that "[t]his all but gets us out of the facility except for $400,000". Mr Hocking told Mr Jeans that it would be necessary to "check out this company to see if it can settle and who they are". Mr Hocking asked Mr Jeans to get financial details on the company. Mr Hocking's memorandum of 21 April 1998 recorded that the CBA had been advised that day that "there is a strong likelihood of a Japanese travel company, well known to Harvey, giving a commitment to acquire 36 units. We do not at this stage seek to rely on this eventuality." 68 Mr Hocking's memorandum also noted that Deangrove had negotiated a reduction in the purchase price of the Holloway's Beach site to $1,150,000, that is $250,000 less than the price previously advised. In fact the sale was to be for a consideration of $1,150,000 plus a unit in the development to the value of $180,000. It is not clear whether the CBA was ever told of the additional consideration for the sale, but nothing turns on this for present purposes. 69 Mr Savell accepted the further diminution in the takeout position (resulting from takeout finance being limited to $3.6 million, leaving a residual debt of $1.45 million after allowing for $2.25 million in 15 pre-sales). He warned, however, that "no further changes in respect to take out will be accepted. Please ensure you monitor presales." 70 As Mr Jeans acknowledged in his evidence, the offer of $2 million in take out finance lapsed on or about 21 April 1998 since he had taken no steps by then to accept the offer or to pay the required fees. He also acknowledged that Deangrove had never been in a position to satisfy the conditions of that offer because the lenders required evidence that Harvey World Travel had entered into a binding lease of the 73 units in the development. He further acknowledged that he had taken no steps to accept an offer of an additional $1.6 million in take out finance, made on 6 April 1998, which lapsed at 5 pm on the fifth business day after that date. 71 I should interrupt the narrative to observe that at some stage prior to the security documents being signed on 3 June 1998, Mr Jeans told Mr Bruce, effectively his partner in the venture, that take out finance was in place and Mr Bruce acted on that belief when he signed his guarantee. In September 1998, when Deangrove had experienced difficulties with the CBA, Mr Jeans wrote to Mr Savell asserting that prior to Deangrove entering into any arrangement with Mr Hayashi "it had sufficient take out funding to satisfy the special conditions of the CBA". Mr Jeans' explanation for this statement was that he believed that he could have caused the offers of finance to be reinstated. There was, however, no evidence to support Mr Jeans' assertion that he could have reinstated the officers of finance and I regard his statements to Mr Bruce and Mr Savell as misleading at the time they were made. 72 To return to the narrative, on 29 April 1998, Mr Jeans provided Mr Hocking with a copy of a balance sheet and other information relating to HIS. While Mr Ireland submitted that this was evidence that the CBA had made its own inquiries about HIS as a purchaser of units in the Cairns Beach Resort, the covering letter from Mr Jeans made it clear that the information was being provided in connection with a foreshadowed application by Mr Jeans and others to purchase units in a development by HIS at Broadbeach known as "Neptune". 73 At some time in May 1998, Mr Jeans, according to evidence not challenged in cross-examination, had a conversation with Mr Hocking to the following effect: "Hocking: Tony, I have now heard back from our overseas desk. It would appear that HIS is very substantial and would be acceptable to the Bank in terms of a commitment to acquire the 36 units and its ability to fulfil its obligation under such an arrangement. Jeans: Well Peter, what do I have to do now? Hocking: What will happen now is that I will be passing this whole transaction over to your business management centre at the corner of Market and York Street. Peter Mitchell's outfit and your current relationship manager, Steve Cleary, will run with it. Jeans: Well, it would seem to me that the best route to ensure that you get what you want is for the Bank to negotiate directly with Hayashi on the terms and conditions required to satisfy the Bank that Hayashi is committed unconditionally to the purchase of the units. Hocking: That's a good idea, and I will talk to Peter Mitchell and Cleary about that. Jeans: Well, it would seem to me that the Bank would do a better job of ensuring that the commitment is there and it would get paid rather than me running to and fro trying to get the agreement over the line. Hocking: Leave it to me, I'll get it fixed."

Preparation of Security Documents 74 On 22 April 1998, whilst Mr Cleary was still on leave, Mr Langley prepared a request to the CBA's Loan Processing Centre for urgent preparation of documentation. The request indicated that documents were required by 28 April 1998. The facility summary attached to the request noted that Deangrove had a temporary excess of $187,744, being the amount due under the unsecured advance previously approved. 75 The request noted that a "W4" was still to be obtained from Deangrove and its directors. This was a reference to an "Acknowledgment and Consent/Nomination to Receive Notices/Proof of Identity" form which all borrowers and third party security providers and guarantors were to sign. Bank officers were required to verify the signature of each individual on the W4. A photocopy of the verified W4 was to be sent to the Loans Processing Centre at the same time as a request was made for the preparation of documents for credit facilities. It was common ground that the CBA did not follow this procedure in the case of the Deangrove facility and that no W4 form was ever completed in respect of the Deangrove advance. 76 Mr Cleary returned from leave on 24 April 1998. On 30 April 1998, the CBA received correspondence from HTW addressing some questions raised concerning their valuation of the Cairns Beach Resort. HTW confirmed that they had assessed the gross realisation value of the property at $10,950,000. However, they had assessed the "in line" value at $7,200,000. 77 On 1 May 1998, Mr Cleary and Mr Langley received a requisition from a Conveyancing Officer at the Loan Processing Centre. The requisition advised that a number of matters had to be clarified before the request for documentation could be processed. Among other things, the requisition asked whether the security providers were "vulnerable" for the purposes of the CBA's "Code of Banking Practice - Third Party Mortgagors & Guarantors". That document defined "non-vulnerable guarantors" to include a director or shareholder of the debtor company. All guarantors who were not classified as "non-vulnerable" were classified as "vulnerable". By these definitions, Mr Jeans was a non-vulnerable guarantor, while Mr Bruce was a vulnerable guarantor. The requisition noted that if no response was received by 7 May 1998, the file would be returned to the BBC. 78 On 5 May 1998, Mr Langley wrote to Mr Hocking and Mr Hastie, recording that the Loan Processing Centre was "having a lot [of] trouble in preparing the documents for Deangrove". Mr Langley continued: "We feel that you would have a better idea concerning the security as you prepared the submission". The letter suggested that if further information was required, contact could be made either with Mr Langley or with Mr Cleary. 79 Between 5 May 1998 and 2 June 1998, there were a number of conversations between Mr Jeans, on the one hand, and Mr Hocking and Mr Cleary, on the other. Some of these conversations related to documents required by the CBA, although the evidence did not explore the content of the conversation in detail. In any event, on 2 June 1998, Mr Hocking told Mr Jeans that the documents for the Holloways Beach project would be ready that day.

The Question of Urgency 80 Mr Cleary gave evidence that Mr Jeans was pressing for settlement of the land purchase. It was put to Mr Cleary in cross-examination that the CBA and Mr Cleary himself considered that there was a pressing need, in May 1998, for the security documentation to be executed as soon as possible. The suggestion was that, because the limit of unsecured accommodation for Deangrove had been increased from $100,000 to $250,000 in April 1998, the CBA and Mr Cleary were very anxious to complete the documentation so as to eliminate the risk that the CBA would be left exposed to an unsecured advance to a company which had no significant assets. 81 It is true that on 22 April 1998, Mr Langley (in the absence of Mr Cleary) sought the preparation of urgent documentation to enable the security arrangements to be completed. However, I think that, to the extent that the completion of the transaction was regarded at that time or later as urgent, the pressure came from Mr Jeans rather than the CBA or Mr Cleary. By 30 April 1998, the builder was seeking payment of over $650,000 from Deangrove and the company had incurred substantial additional liabilities in connection with the project. A payment schedule prepared on 22 May 1998 showed that Deangrove had incurred costs exceeding $1 million, over and above the purchase price for the land. Mr Jeans acknowledged in evidence that by 3 June 1998 he had determined to proceed with the development as soon as possible. Mr Bruce's evidence confirms that Mr Jeans wanted the guarantees signed as quickly as possible, so that the funds could be released by the CBA. 82 Mr Cleary denied that he was anxious to ensure that the security documentation was executed as soon as possible. His explanation for his apparent lack of interest in the documentation, in essence, was that the responsibility for the unsecured advance rested with the person who had approved it within the CBA (Mr Savell) and not with him (Mr Cleary). In my view, this explanation is convincing. It fits in with what I assess to be Mr Cleary's perception of his responsibilities within the CBA.

EXECUTION OF SECURITY DOCUMENTS AND SUBSEQUENT EVENTS

Execution of the Documents 83 As Mr Bell summarised the position, there was a direct and irreconcilable conflict between the evidence of Mr Cleary and that of Mr Jeans concerning the circumstances surrounding the execution of the Guarantee by Mr Jeans and of the equitable mortgage by Mr Jeans on behalf of Deangrove. In the end, however, the significance of the conflict was confined to questions of credit. Nonetheless, the issue should be addressed. 84 Mr Jeans' evidence, given in the affidavit sworn on the first day of the hearing, was that at 2 pm on 3 June 1998, at Mr Cleary's request, he went to the CBA's offices in Sydney and was provided with security documentation, including the Guarantee. He signed the documents in the reception area, where Mr Cleary had left them for him. Mr Cleary was not present and did not witness Mr Jeans' signature on the documents at that time. Mr Jeans had no conversation with Mr Cleary when he signed the security documents. It should be noted that this affidavit was the first time Mr Jeans had suggested that Mr Cleary had not witnessed the Guarantee. 85 In his oral evidence, Mr Jeans said that he had no idea whether he signed the equitable mortgage on 3 June 1998 at the same time as he had signed the Guarantee. Later, he said that he thought he had signed the equitable mortgage at a different time. When pressed with whether that evidence was correct, he said "I couldn't guarantee it". Later still, he said that he could not recall whether he had signed both the documents together. 86 Mr Cleary's version was that on 3 June 1998, Mr Jeans signed a number of documents, including the Guarantee and the equitable mortgage, in Mr Cleary's presence. The signing took place in a meeting room at the CBA's premises. Mr Cleary witnessed the execution by Mr Jeans of the Guarantee, as was recorded in the document itself. 87 Mr Bruce's evidence was that there was a meeting at 2 pm on 3 June 1998 in a meeting room at the CBA's premises attended by Mr Bruce and Mr Jeans. He was able to place the meting on that date because it was his birthday. While Mr Jeans had arrived at the meeting late, both Mr Jeans and Mr Cleary were present when he (Mr Bruce) signed his guarantee. Mr Bruce said that, by the time he left the meeting, Mr Jeans had not executed the Guarantee, although Mr Jeans remained in the room with Mr Cleary. Mr Bruce acknowledged that he had remained in the meeting room for about one hour, of which only some fifteen minutes was required for him to sign his guarantee and associated documentation. 88 Mr Jeans' evidence was supported by entry No 33 in his diary for 3 June 1998. For the reasons I have given, I place no weight on that entry supporting his version of events. I do regard it as of some significance that, as I have noted, Mr Jeans made no suggestion that Mr Cleary was not present when the Guarantee was executed until he (Mr Jeans) swore his affidavit on the first day of the trial. Moreover, Mr Jeans' evidence on the subject was, in important respects, vague and contradictory. 89 Mr Bruce's evidence is inconsistent with Mr Jeans' claim that no meeting was held on 3 June 1998 at which Mr Cleary was present. To this extent, Mr Bruce's evidence supports Mr Cleary's evidence. Mr Bruce's evidence is, however, inconsistent with Mr Cleary's contention that Mr Bruce was present when Mr Jeans executed the security documentation. As I have already said, as between Mr Cleary and Mr Bruce on this issue, I prefer Mr Cleary's evidence. At the time he gave his evidence, Mr Bruce was endeavouring to amend his case to claim that Mr Jeans had never signed the Guarantee and that, in consequence, Mr Bruce was relieved of his obligations as co-guarantor under the guarantee that he had signed. I think that Mr Bruce, perhaps innocently, reconstructed events at the meeting so as to leave open the possibility that Mr Jeans had not executed the Guarantee. On Mr Bruce's account, there was ample time for Mr Jeans to have executed the security documentation in Mr Cleary's presence. 90 It is true, as Mr Ireland pointed out, that Mr Cleary failed to follow procedures laid down by the CBA that required a contemporaneous diary note to be made of a number of matters associated with the execution of the Guarantee and other security documentation. This, however, was not the only respect in which Mr Cleary failed to follow the CBA's procedures. Whatever it may say about Mr Cleary's attention to procedural requirements laid down by the CBA, I do not think it casts doubt on his evidence. It is one thing not to follow a bank's procedural requirements; it is quite another for a bank officer to attest falsely that he has witnessed a signature. No reason was ever suggested as to why Mr Cleary might have been prepared to do such a thing. In any event, for the reasons I have given, I prefer Mr Cleary's evidence to that of Mr Jeans. Accordingly, I accept Mr Cleary's evidence as to the circumstances in which the security documentation came to be executed.

Communications Relating to the Put and Call Options 91 A key question is whether certain conversations alleged by Mr Jeans to have taken place with Mr Cleary between about 3 and 5 June 1998 in fact occurred. Before addressing that question, I shall refer to the written communications, or communications supported by contemporaneous documentation, that took place at about this time. 92 On 3 June 1998, Mr Cleary had a telephone conversation with Ms Cull, Deangrove's solicitor. Ms Cull's diary note of the conversation with Mr Cleary reads as follows: "Deangrove P/L - has an issue needs to resolve by settlement. One condition was certain amount of pre-sales. Approval on basis contracts exchanged before settlement. Cleary wants Hyashi contract, and list of lot Nos & [undertaking] to exchange after settlement by Deangrove." 93 The likelihood is that this conversation came about because Mr Cleary advised Mr Jeans that in the absence of 15 pre-sales supported by binding contracts, the first financial covenant in the approval letter of 2 March 1998, would not be satisfied. Mr Jeans then took it upon himself to ask his solicitor to contact Mr Cleary and to approach Mr Hynes, Mr Hayashi's solicitor, to obtain documents that would satisfy the CBA that pre-sales would take place. This view is supported by a diary entry by Mr Jeans of 3 June 1998, which appears to be contemporaneous, saying "get Wendy Cull to call". It is also supported by a letter written on 3 September 1998 by Mr Jeans to Mr Cleary, when difficulties had arisen with the CBA, in which he set out his version of the circumstances leading to the drawdown. Mr Jeans said that based on advice from Mr Hocking, he "asked the company's solicitors in Queensland, Attwood Marshall [with which firm Ms Cull was associated] to approach HIS' solicitor for the purpose of providing a document to the Commonwealth Bank to fulfil the terms and conditions required by the bank to achieve draw down and avoid the necessity of us entering into the take out facility. Some short time later I was advised by Mr Hocking that the bank was in receipt of a letter of undertaking which irrevocably committed HIS Travel to 36 units and on this basis he had got Mr Les Saville [sic] of the Commonwealth Bank to accept these sales in preference to the take out facility put forward by the company." 94 On 4 June 1998, Mr Cleary received a letter from Ms Cull. The letter, addressed to "Dear Steve", was as follows: "Herewith, a Contract the terms of which are identical to each Contract to be signed by Yoshio Hyashi. Mr Hyashi is to purchase 36 lots as listed in the attached schedule. My client, Deangrove Pty Ltd, undertakes to execute Contracts. I have spoken to Robert Hynes, solicitor for Mr Hyashi, and he confirms that his client will execute put and call option Contracts requiring him (or a transferee) to settle each Contract within 14 days of registration of the plan." 95 On the same day, Mr Hynes, Mr Hayashi's solicitor, and Ms Cull had a telephone conversation. The notes made by each were in evidence. They indicate that Ms Cull told Mr Hynes that the CBA would be satisfied with a letter from Mr Hayashi confirming that there would be a put and call option to purchase 36 units in the Cairns Beach Resort. She also said that she needed a letter for the CBA in order to get finance approved. 96 At about 5.37 pm on 4 June 1998, Mr Cleary received a letter sent by facsimile from Mr Hynes as follows: "We have to hand a copy of Wendy Cull's facsimile transmission to you of 4 June 1998. We are currently obtaining our client's instructions in relation to this matter and expect to be in a position to write to you to confirm those instructions by tomorrow. Subject to receiving those instructions we understand that the agreement is as set out by Mrs Cull save that our client will be purchasing through a company and that the contracts will be the subject of put and call options. We will contact you further as soon as we have confirmed our client's instructions." A copy of this letter was sent to Ms Cull. 97 Mr Hynes sought instructions from Mr Hayashi in a letter also dated 4 June 1998. This letter included a draft letter to be sent by Mr Hynes to the financiers of the Cairns Beach Resort. Mr Hynes' letter included the following paragraph: "You should ensure that the details contained in the letter [are] true and accurate in all respects as the bank will be relying upon these representations when providing finance for the development. Accordingly if the representations are in any way inaccurate the bank may well have actionable rights against you." Mr Hayashi duly approved the draft letter. 98 In accordance with Mr Hayashi's instructions, Mr Hynes sent the letter to Mr Cleary by facsimile at 12.37 pm on 5 June 1998. The letter read as follows: "We act on behalf of Mr Yoshio Hayashi. Our client has instructed us to confirm that he will be entering into a Put & Call Option for contracts for the purchase of 36 units in the [Cairns Beach Resort] development upon the following base terms: a. The purchasing entity will be a company determined by our client; b. The consideration for the grant of the Put & Call Options will be 10% of the purchase price upon the contracts and will be offset against the purchase monies required to be paid pursuant to the contracts in the event of the exercise of the Option." 99 On 9 June 1998, Mr Cleary submitted a memorandum to Mr Roams. It noted that one of the financial covenants in the approval letter of 2 March 1998 required 15 unit pre-sales. The memorandum continued: "This client has approximately 55 purchasers for the 73 units, however contracts can not be exchanged as our client has not exchanged nor settled the purchase of the land. Our client plans to exchange and settle the land purchase simultaneously. Therefore they are not able to exchange contracts on the sale of the individual units until they complete the purchase of the land. We have been provided with evidence that 36 units are to be sold. Solicitors for our client and the purchaser have undertaken to exchange contracts with settlement within 14 days of registration of the plan. … Our client has requested that settlement for the land purchase occur as soon as possible, preferably Wednesday 10th June." The first paragraph in this extract reflects Mr Cleary's belief that Deangrove could not enter into binding commitments to sell units before it owned the site and thus it was not possible (as the approval letter had contemplated) for the pre-sales to be conditional only on settlement of the purchase of the land. The second paragraph, as Mr Cleary accepted in his evidence, referred to the letter of 4 June 1998 from Ms Cull and that of 5 June 1998 from Mr Hynes. 100 It is clear enough that Mr Cleary appreciated that the financial covenant in the approval letter of 2 March 1998, requiring 15 pre-sales conditional only on settlement of the land purchase, could not be met. Accordingly, he was proposing to Mr Roams that settlement of the land purchase take place with CBA advancing funds, on the basis that the CBA had been provided with evidence that "36 units are to be sold", that exchange would take place on settlement of the purchase, and that settlement was to occur within 14 days of registration of the plan. 101 Mr Roams replied that the initial proposal contemplated that the land would not be purchased until practical completion. It was this that gave rise to the first financial covenant which required the pre-sales to be unconditional, except for a condition that settlement of the land purchase had to occur within 60 days of practical completion. He stated that "[a]t this point" settlement should not proceed until the condition in the approval was satisfied. 102 Mr Cleary sent a further memorandum to Mr Roams at 3.24 pm on 10 June 1998. The memorandum is as follows: "Our client proposes to purchase the property for $1,150,000 with a cash settlement to occur on 12 June 1998. Subsequent sales for the individual lots will occur immediately after the settlement of the purchase. We have received an undertaking from the solicitor acting for our client to this effect. This undertaking is supported by the solicitor acting for the purchaser of 36 individual units. We therefore recommend that this position be accepted and approval given to settle the land purchase." Mr Roams responded at 4.39 pm the same day with a faxed note approving settlement on this basis, but asking that Mr Cleary ensure that exchanges of contract occurred within 14 days of settlement. 103 On the same day, 10 June 1998, Mr Cleary signed a "Settlement Instructions" form instructing the settling branch to pay $1,150,827 to Ms Cull. Mr Cleary certified that "all terms and conditions of the loan approval have been met" and that "properly executed documents…are held". 104 On 12 June 1998, the CBA advanced the funds required for settlement of the purchase of the Holloways Beach site. 105 On 24 June 1998, Mr Cleary forwarded to the Sydney Loan Processing Centre of the CBA the various security documents, rather than the Tripartite Agreement which was yet to be executed by the respective parties. Mr Cleary stated in the covering memorandum that "[a]ll other conditions of approval have been met". 106 This account of the communications involving Mr Cleary, Mr Hynes and Ms Cull is consistent with Mr Cleary wishing to satisfy himself that there was sufficient evidence of a commitment both from the Japanese interests and Deangrove in relation to the sale of 36 units to justify a recommendation to Mr Roams that approval be given to fund the purchase of the Holloways Beach site, notwithstanding the financial covenant in the approval letter requiring 15 pre-sales. The documentation does not suggest that Mr Cleary negotiated with Mr Hayashi or his solicitor with a view to securing a binding commitment on which Deangrove could rely. There is nothing to indicate, for example, that Mr Cleary ever spoke directly to Mr Hynes or to Mr Hayashi about the form of the latter's commitment to purchase the 36 units in the Cairns Beach Resort. On the contrary, a letter sent by Mr Hynes to Mr Cleary on 30 September 1998 clearly implies that the two had not previously spoken. As I have noted, the initiative for arranging the documentation was taken by Mr Jeans and his solicitor, Ms Cull. It was Ms Cull who contacted Mr Hynes to secure an appropriate letter from her client to satisfy the CBA. 107 Mr Ireland sought to take comfort from the fact that the only copy of the letter of 5 June 1998 appears to have been sent to Mr Cleary, who was therefore in "sole and privileged possession of the terms of the facsimile and uniquely in a position to judge whether it comprised a binding commitment on the part of the Japanese interest[s]". However, the existence of the letter was not a secret. A letter of 10 June 1998, from Ms Cull to Mr Cleary, indicates that she was aware that Mr Hynes had confirmed an agreement by the HIS companies to purchase the 36 units. Ms Cull's letter, which was preceded by a telephone conversation between Ms Cull and Mr Hynes (as well as a conversation between Ms Cull and Mr Cleary) is as follows: "Mr Jeans has asked me to write to you. I confirm, as we have discussed, that Deangrove Pty Ltd has irrevocably undertaken to execute and exchange contracts for sale of lots in the proposed building at Holloways Beach immediately after settlement of purchase of the site. You have already received confirmation from the solicitor for HIS/Watermark that nominees of the HIS companies have agreed to purchase thirty-six (36) lots in the proposed plan. That agreement is in writing and is irrevocable. Contracts have been prepared and will be exchanged forthwith upon settlement of the purchase of the land." 108 Ms Cull received a copy of Mr Hynes' letter of 5 June 1998 on 18 June 1998, when Mr Hynes faxed a copy to her. I would infer, therefore, that she had not seen a copy of the letter prior to 18 June 1998. Nonetheless, I would also infer that she had become aware, by 10 June 1998, at least in very general terms, of the contents of the letter. Although I think it has little bearing on the issues in the case, I think the likelihood is that Ms Cull would have passed on to Mr Jeans on or shortly before 10 June 1998 such information as she then had about the letter.

The Disputed Conversations and the Question of Reliance 109 The conversations that Mr Jeans claimed to have occurred were set out by him in his affidavit as follows: "33. On or about 3 June 1998 I had a telephone conversation with Steven Cleary in words to the following effect: Cleary: 'Tony, I have been having difficulties getting an acceptable commitment from the Japanese. The Bank will not move forward until it is absolutely satisfied that the Japanese are committed and that that commitment ensures that when the units are completed they will be paid for. This is the Bank's exit strategy. As you will not be providing the take-out funding it is essential to have these sales in place.' Myself: 'I fully understand. That is why I suggested to Peter Hocking that you do it and I am relying on you to ensure that it all happens. I do not want to proceed unless the way is clear.' Cleary: 'I will let you know when…' … 36. On or about 5 June 1998 I had a further telephone conversation with Mr Steven Cleary in words to the following effect: Cleary: 'Tony, we now have got what we need from HIS. They want to do this on a put and call basis and have agreed to give an irrevocable undertaking to the Bank to enter into as a put and call and their solicitor, Robert Hynes, is confirming this to the Bank. I then have to get it signed off by Denis Roams and we can go ahead and settle.' Myself: They can't get out of it can they?' Cleary: 'No, the Bank has them tied up.' Myself: 'I don't want a problem as I will let the take-out finance go.' Cleary: 'No, we don't need the take-out finance if Roams signs off on this. This replaces this.' Myself: 'Okay, I am relying on you.' … 38. On 9 June 1998 I rang Steve Cleary about obtaining the letters from the solicitors to Mr Hyashi satisfactory to the Bank and we had a conversation in words to the following effect: Cleary: 'I have now received correspondence from the solicitors for the Japanese client confirming their instructions to give an irrevocable undertaking as to the purchase of the 36 units by way of an unconditional Put and Call.' Myself: 'Does this mean that this satisfies the need to take out funding?' Cleary: 'I have to get it signed off by Denis Roams but I don't anticipate a problem.' Myself: 'Well if you're happy I am happy.' 39. In that or a further conversation Mr Cleary said to me words to the following effect: 'The problems with the Japanese undertaking have been sorted out and I will get it ticked off. I am expecting a fax and if we get that the matter will proceed to settle this month.' 40. My records show that I had at least two telephone conversations with Steven Cleary on 9 June 1998. In one of them words were said to the following effect: Myself: 'When will we be able to settle?' Cleary: 'Tomorrow should be okay. We are getting the tripartite agreement sorted out. The Bank has sorted out everything with the Japs. The Bank is happy with the documents.'" 110 Mr Jeans also gave evidence that he would not have agreed to settle on 12 June 1998 (when the CBA advanced moneys to enable the purchase of the Holloways Beach site to take place) if he had not believed that the CBA was satisfied with the arrangement it had with Mr Hyashi concerning the put and call option in relation to the 36 units and that a binding commitment was in place with Mr Hayashi for the sale of 36 of the apartments in the development. 111 Mr Cleary, for the most part, denied that he had conversations with Mr Jeans in these terms. He explained his concern with the arrangements between Deangrove and Mr Hayashi on the basis that by early June, Mr Jeans was pressing to proceed with settlement of the land purchase. According to Mr Cleary, Mr Jeans told him that Deangrove had 55 purchasers for the 73 units at the Cairns Beach Resort, including the 36 units to be sold to Mr Hayashi. Upon reviewing the approval letter of 2 March 1998, Mr Cleary formed the view that a number of the conditions to the approval letter could not be fulfilled until Deangrove acquired the Holloways Beach site. In particular, he did not see how pre-sales of units could be conditional only on settlement of the land purchase. Mr Cleary said his understanding was that Deangrove needed to acquire the land before it could commit to pre-sales. 112 In his affidavit, Mr Cleary accepted that he had a conversation with Mr Jeans on 3 June 1998 in relation to the signing of the security documents, but denied the conversation alleged in par 33 of Mr Jeans' affidavit reproduced in [109] above. In particular, Mr Cleary denied acknowledging that Deangrove would not have to provide take out funding. Mr Cleary denied the conversations recounted in pars 36 and 38. He also denied the substance of par 39 and denied saying (as alleged in par 40) that "[t]he Bank has sorted out everything with the Japs". Mr Cleary accepted that he may have told Mr Jeans that everything had been sorted out, but said that the conversation occurred in relation to Mr Roams' approval for the settlement to proceed (as it did on 12 June 1998). 113 In cross-examination, Mr Cleary acknowledged that he wanted both sides of the transaction relating to the 36 units to speak as to their commitment and that he would not have made a recommendation to Mr Roams to proceed to settlement unless he had evidence of that commitment. He also made this concession: "You were satisfied were you not that what you saw there [in the letter of 5 June 1998] represented a binding commitment on the part of the Japanese interests?---Yes I would have. That was what you told Mr Jeans around that time on the telephone wasn't it?---I don't recall speaking to him about that. But you might have done?---I might have." 114 In his own cross-examination Mr Jeans initially maintained that Mr Cleary had told him in early June that he (Mr Cleary) had negotiated terms "that irrevocably bound the Japanese to acquiring 36 units on the terms and conditions which we had previously discussed, i.e. the 10 per cent deposit, the 10 per cent discount, 36 units etcetera". Moreover, according to Mr Jeans, Mr Cleary had done this without reference to Mr Jeans. 115 Later in his evidence, Mr Jeans modified his position. Mr Jeans gave evidence that Mr Cleary had not said that he (Mr Cleary) had negotiated a binding commitment from Mr Hayashi. Rather, Mr Cleary had advised Mr Jeans that the CBA had received satisfactory arrangements "between commitment from Mr Hayashi, or Mr Hynes his solicitor, that enabled it to proceed". The following exchange then took place: "Does that mean that he did not tell you in June 1998 that he had negotiated a binding commitment from Mr Hayashi?---No, he didn't negotiate with Mr Hayashi. He was negotiating with Mr Hynes. He told me that he had negotiated an arrangement that was satisfactory to the bank to enable it to settle. He required a certain type of commitment and whatever that commitment was he had obtained it, that was satisfactory to the bank. And so he didn't suggest to you that it was binding legal commitment?---Absolutely it was a binding legal commitment otherwise the bank wouldn't have entered into it. So, are you saying that he did tell you in June 1998 that he had negotiated a binding legal commitment?---I don't say he said those words. He said to me that he had obtained from Mr Hayashi a document or an undertaking that was satisfactory to the bank that would give the bank sufficient comfort to enable it to settle. My understanding of that from my previous discussions with Mr Hocking is that the take out funding would not be necessary providing the bank was in a position to satisfy itself that the purchaser of the 36 units had an irrevocable undertaking to acquire those units and most importantly have the capacity to settle at the end of the period when it was due." 116 In my opinion, the first part of Mr Jeans' last answer encapsulates the substance of what Mr Cleary said to him in early June 1998. Mr Cleary wished to be satisfied that both Deangrove and Mr Hayashi or his associates were committed to the purchase of the 36 units since he (Mr Cleary) had formed the view that the requirement of 15 pre-sales could not be fulfilled until Deangrove acquired the land. Mr Cleary wished to be satisfied of these matters in order to make a recommendation to Mr Roams that the settlement proceed in accordance with Mr Jeans' wishes notwithstanding no contracts had been (or could have been) exchanged. Mr Cleary was concerned only about the position of the CBA. He was not in any sense negotiating with Mr Hayashi or Mr Hynes on behalf of Deangrove. Indeed, except for receiving the letter of 5 June 1998 from Mr Hynes, Mr Cleary had no direct contact in June with either Mr Hayashi or Mr Hynes. 117 In substance, Mr Cleary said to Mr Jeans, as was the fact, that Mr Hayashi's solicitor had provided a document that satisfied the CBA that the sales of the 36 units in the Cairns Beach Resort would go ahead, thereby providing the CBA with sufficient comfort to proceed to drawdown of funds under the facility. Except to the extent that a communication to this effect is consistent with Mr Jeans' account of the alleged conversations, I reject that account. In particular, Mr Cleary did not tell Mr Jeans that the CBA had "tied up" Mr Hayashi or HIS, or that he (Mr Cleary) had negotiated commitments from the Japanese interests. I also reject Mr Jeans' evidence that he told Mr Cleary that he was relying on Mr Cleary or the CBA to "ensure that it all happens" - that is, to secure an irrevocable undertaking or commitment from Mr Hayashi or his solicitors to proceed with the purchase. Mr Jeans knew perfectly well that Mr Cleary's concern was to be satisfied that the CBA was sufficiently protected that he could make a recommendation to Mr Roams that settlement could proceed. Mr Jeans also knew (as he acknowledged in his evidence) that in order for there to be a binding agreement between Mr Hayashi (or HIS) and Deangrove, there had to be a written contract embodying the essential terms of the agreement. I find that Mr Jeans did not rely on anything said by Mr Cleary in early June 1998 in relation to whether Mr Hayashi or his associates were obliged to purchase the 36 units. Mr Jeans' decision to proceed with the transaction was made independently of the communications that took place between himself and Mr Cleary in early June 1998. 118 I have reached these conclusions, in part, for the reasons I have already given for preferring Mr Cleary's evidence over that of Mr Jeans. Other factors have also influenced me. They include the following:

• In cross-examination, Mr Jeans agreed that Mr Cleary had not said on 3 June 1998 that he had been having difficulty getting a satisfactory commitment from Mr Hayashi. Mr Jeans also agreed that Mr Cleary had said nothing about take out finance on 3 June 1998. This evidence was inconsistent with what Mr Jeans asserted in par 33 of his affidavit. While Mr Jeans later in his evidence attempted to retrieve the position, his attempt was unconvincing.
• Mr Jeans could point to no contemporaneous diary notes supporting his account. Moreover, he put forward his account of the conversations only in an affidavit sworn on the first morning of the hearing, despite having sworn detailed affidavits much earlier in the proceedings.
• On Mr Jeans' account, he told Mr Cleary on 5 June 1998 that he would let the take out finance go. Yet at that time, no current offer to provide such finance was in place, Mr Jeans having allowed the offers to lapse some time before.
• As I have already found, by 3 June 1998 Deangrove had incurred very substantial expenses in connection with the project and Mr Jeans was determined to proceed with the development as soon as possible. Moreover, at that time Mr Jeans was confident that Deangrove would be able to sell all the units in the development. He had every reason to proceed to settlement regardless of whether the CBA pronounced itself satisfied that the sale of the 36 units to Mr Hayashi or HIS would go ahead.
• Mr Jeans acknowledged that until the end of May 1998, he had been conducting negotiations with Mr Hayashi on behalf of Deangrove. Moreover, as I have noted, he acknowledged that at the end of May 1998, he believed that any arrangement with Mr Hayashi would need to be documented in a written contract before there would be a legally binding commitment. The documentary evidence shows that, after completion of the purchase of the Holloways Beach site, negotiations continued between Mr Jeans and his solicitor, Ms Cull, and Mr Hayashi and his solicitor, Mr Hynes. Ultimately these negotiations broke down. Nothing in the documentation points to a hiatus during which Mr Cleary took over negotiations from Mr Jeans or endeavoured to secure a binding commitment from Mr Hayashi or Mr Hynes by dealing directly with them. It is difficult to reconcile Mr Jeans' conduct after 12 June 1998, and his admission concerning the need for a written contract, with his asserted belief that Mr Cleary had negotiated or secured a binding commitment from Mr Hayashi or HIS, or his claim that he had relied on Mr Cleary's representations to settle the purchase of the Holloways Beach site.
• A file note of Ms Cull's, dated 29 July 1998, records the following: "Tony - going to see Steve Cleary. Only realised this morning Bank has irrevocable undertaking by HIS". This note suggests that Mr Jeans realised only on that day that what Mr Hayashi's solicitor had sent to the Bank on 5 June 1998 could be regarded as an irrevocable undertaking. This may be because he did not see the letter until 29 July 1998. Alternatively, he may have seen the letter earlier, but came to the realisation only when Ms Cull gave him advice as to the legal effect of the letter. Be that as it may, it would be curious for Mr Jeans to realise only on 29 July 1998 that the letter constituted an irrevocable undertaking when his evidence was that on 9 June 1998 Mr Cleary had said that he had received confirmation of an irrevocable undertaking from "the Japanese client".

When Did Mr Jeans See the Letter of 5 June 1998? 119 There was conflicting evidence as to when Mr Jeans first saw the letter of 5 June 1998. Mr Bruce initially gave evidence that some days after he signed his guarantee Mr Jeans produced the letter and said this: "This should make the Bank happy. This is the most important thing I have achieved to date. This means that both the Bank and Deangrove are virtually off the hook. Maybe we can look to making a few bob ourselves now." Later, Mr Bruce said that he thought he saw the letter "within a week or so" of 3 June 1998, but he could not say whether it was before or after 12 June 1998. Mr Jeans said that he did not see or know the terms of the letter until August 1998. 120 I have already found that Ms Cull was likely to have become aware, by 10 June 1998, of the existence of Mr Hynes' letter of 5 June 1998 and of its contents, at least in general terms, although she did not receive a copy of Mr Hynes' letter until 18 June 1998. I think it likely that Ms Cull would have passed on to Mr Jeans before 12 June 1998 whatever knowledge she had about Mr Hynes' letter. In view of the equivocal nature of Mr Bruce's evidence and the fact that Ms Cull did not receive a copy of Mr Hynes' letter until 18 June 1998, I am not prepared to find that Mr Jeans saw a copy of the letter before 12 June 1998. That, however, does not affect the findings I have made. On the contrary, if Mr Jeans had believed that Mr Cleary had negotiated or arranged for Mr Hynes to provide a document irrevocably committing Mr Hayashi or HIS to the purchase of 36 units from Deangrove, I find it difficult to accept that Mr Jeans would have waited until late July or August (as he claimed) or even until 18 June 1998 (when Ms Cull received the copy from Mr Hynes) to obtain a copy of the letter. It would have been uppermost in his mind, not least in order to establish a strong negotiating position with Mr Hayashi.

Mr Hocking 121 Mr Hocking was not called by either party. In the absence of a challenge to Mr Jeans' evidence on the point, I have found that in May 1998 Mr Jeans and Mr Hocking had a conversation, as recorded in [73] above. In that conversation, Mr Jeans suggested to Mr Hocking that the CBA should "negotiate directly with Hyashi on the terms and conditions required to satisfy the Bank that Hayashi is committed unconditionally to the purchase of the units". Mr Hocking said "Leave it to me, I'll get it fixed". 122 That conversation supports Mr Jeans' case, to the extent that it shows that he contemplated direct negotiations between the CBA and Mr Hayashi, suggested that course to Mr Hocking and Mr Hocking indicated support for the proposal. I have taken that conversation into account in making the findings to which I have referred. Had it not been for that conversation, for example, I would have said, based on my observation of Mr Jeans and Mr Cleary in the witness box, that it was extremely unlikely that Mr Jeans would have contemplated allowing Mr Cleary to undertake negotiations on Deangrove's behalf directly with Mr Hayashi or his solicitor. Since the conversation with Mr Hocking did take place, I accept that in May 1998 Mr Jeans contemplated that someone within the CBA might undertake direct negotiations with Mr Hayashi or Mr Hynes. 123 But the fact that the conversation took place does not demonstrate that Mr Jeans' suggestion was taken up by the CBA. The critical question is what actually happened between Mr Cleary and Mr Jeans in early June 1998 and what dealings Mr Cleary had with Mr Hayashi and Mr Hynes. I am satisfied for the reasons that I have given that Mr Cleary did not negotiate directly with Mr Hayashi and that the letter of 5 June 1998 from Mr Hynes was obtained at Ms Cull's request to satisfy the CBA that the sales of 36 units would go ahead so as to enable the CBA to proceed to settlement. I am also satisfied that, despite Mr Jeans' conversation with Mr Hocking, Mr Jeans never relied on anything Mr Cleary said about the document obtained from Mr Hynes in order to proceed to completion of the purchase of the Holloways Beach site. 124 Mr Ireland submitted that I should feel more comfortable about drawing inferences adverse to the CBA's case by reason of Mr Hocking's failure to give evidence. However, Mr Hocking left the employ of the CBA by August 1998. Moreover, he had known Mr Jeans for over 20 years and swore two affidavits for the applicants in these proceedings (neither of which was read). In these circumstances, I do not think that the CBA's failure to call Mr Hocking is the occasion for the application of the so-called rule in Jones v Dunkel (1959) 101 CLR 298. Even if it were, it would not change my findings, which are based on an evaluation of the evidence given by Mr Jeans and Mr Cleary and an assessment of the contemporaneous documentary evidence.

Waiver Of Take Out Finance 125 There was conflicting evidence as to whether and, if so, when CBA waived the financial covenant requiring Deangrove to put in place take out finance for the project. Mr Jeans' position was that the CBA, through Mr Hocking and Mr Cleary, had waived the requirement for take out finance prior to 12 June 1998. He said that the waiver was linked to the CBA's satisfaction that Deangrove and Mr Hayashi were committed to the sale of the 36 units in the Cairns Beach Resort. 126 There is nothing in the documentation submitted to Mr Roams prior to 12 June 1998 to suggest that the requirement of take out finance had been waived or proposing that it should be waived. Mr Cleary denied discussing with Mr Jeans waiver of the take out finance requirement prior to settlement. He acknowledged, however, that it would have been untruthful for him to certify that all conditions of the loan approval had been met (as he did on 10 June 1998 and again on 24 June 1998) if take out finance had not been obtained unless the requirement had been waived. He said that he had been told by Mr Hocking that the condition had been waived, but that this did not occur until mid to late June 1998. Mr Cleary also said that he may have assumed, on the basis of Mr Langley's memorandum of 15 April 1998, that Deangrove had satisfied the requirement, although he frankly acknowledged that he could not recall whether he had proceeded on that assumption. 127 There are other documents that bear on the question. On 24 July 1998, Lending Services prepared a "Compliance and Monitoring Memorandum" concerning the Deangrove account. The memorandum noted, among other problems, that "the irrevocable offer letter from a lender for the unsold units has not been obtained". On 4 August 1998, Mr Cleary prepared a diary note addressing the concerns raised by lending services. The diary note includes these passages: "My understanding was that all loan conditions were either met or variations agreed to, prior to settlement of the land purchase on 12 [June] 1998. This office sought assistance from Mr Hocking to ensure that all conditions were in order. … The condition regarding irrevocable offer letter from a lender is also unsatisfied. This office was advised by Mr Hocking and subsequently confirmed by the client that this condition was waived by NSW Lending Services. … The confusion may be due to the fact that pre-sales have increased from 15 to 55. We will need to obtain the amount of 55 pre-sales (approximately $4.5m) and seek further approval variation." 128 A handwritten notation on the diary note (not Mr Cleary's) records the following suggestion: "Given the number of non-compliant issues with this 'approval' it would be appropriate to get the Mobile Lending Team involved with a view to negotiations with the debtor to resolve. [Please] contact Head of the MLT to ascertain their attitude". Another notation records that "MLT would prefer not to be involved due to the departure of Mr Hocking…". 129 On 10 August 1998, Mr Cleary sought Mr Roams' consent to several variations to approval conditions. These included the following: "Contracts for 55 units are to be exchanged prior to 12 August 1998. The contracts to be unconditional other than practical completion of the building. When details of these pre sales are confirmed, recommend we waive the requirement of an irrevocable offer letter to refinance residual borrowing. No further funds to be released until this requirement is satisfied". Mr Roams approved this proposal. 130 In a letter of 3 September 1998 to Mr Cleary, Mr Jeans asserted that, just prior to drawdown on 12 June 1998, Mr Hocking informed him that if he could provide documentation that satisfied the CBA that HIS was capable of fulfilling its obligations and would irrevocably commit to the purchases, the necessity to put in place the take out facility would be waived. Some time later, according to Mr Jeans' letter, he was advised by Mr Hocking that the CBA was in receipt of the letter of undertaking which irrevocably committed HIS to 36 units and on that basis Mr Savell had accepted these sales in preference to the take out facility. From this evidence, Mr Jeans identified discussions with Mr Hocking as the basis for his (Mr Jeans') belief that take out funding would not be necessary in view of the arrangements with Mr Hayashi or HIS. 131 I think the likelihood is that Mr Hocking did have some discussions with Mr Jeans prior to 12 June 1998 in the course of which they discussed the possibility of the CBA waiving the condition relating to take out finance. Mr Jeans was aware, however, that Mr Hocking had no authority to waive the conditions of lending approval. Mr Cleary firmly denied that he had said to Mr Jeans, prior to 12 June 1998, that the take out finance would not be a requirement because of the Japanese deal to acquire the 36 units. I accept that denial. I see nothing improbable in Mr Hocking raising the question of take out finance with Mr Jeans, but the matter not being discussed between Mr Cleary and Mr Jeans. Apart from matters to which I have referred, Mr Cleary left a number of matters to Mr Hocking, who had had a long relationship with Mr Jeans.

CONCLUSION 132 The factual foundation for the applicants' case is wanting. On the basis of the findings I have made, in substance the only representation made by Mr Cleary to Mr Jeans was that Mr Hayashi's solicitor had provided a document that satisfied the CBA that the sales of the 36 units in the Cairns Beach Resort to Mr Hayashi (or HIS) would go ahead, thereby providing the CBA with sufficient comfort to proceed to draw down of funds under the facility. That representation was true. In any event, the representation played no part in the decisions by Mr Jeans or Deangrove to execute the security documents (an event which pre-dated the representation) or to draw down funds under the facility or to complete the purchase of the Holloways Beach site. Mr Jeans made those decisions quite independently of anything he was told about the CBA's satisfaction with the evidence provided to it that Deangrove and Mr Hayashi would proceed with the sale of the 36 units in the development. 133 Contrary to the applicant's case, Mr Cleary did not take over negotiations with Mr Hayashi or his solicitor. Nor did he embark on a "private discourse" with them to secure their commitment to purchase 36 units in the resort. 134 The case was conducted without close reference to the pleadings. However, I should make it clear that the applicants have failed to make out their pleaded case. Mr Cleary did not represent to Mr Jeans that the CBA itself would ensure that Mr Hayashi was committed to the purchase. He did not represent that Mr Hayashi had given an irrevocable undertaking to the CBA to enter a put and call option or that the CBA had rights which it could and would enforce directly against Mr Hayashi or HIS. Nor did Mr Cleary represent that the problems with the Japanese undertaking had been sorted out or that Mr Hayashi could not get out of the commitment as the CBA had the Japanese interests tied up. 135 The findings I have made also remove the foundation for any case based on unconscionability. Mr Cleary, as Mr Jeans appreciated, was seeking to be satisfied that the sales of the 36 units would go ahead in order to make a recommendation to Mr Roams that the draw down of funds should proceed. The process was undertaken with the co-operation of Mr Jeans and his solicitor. Nothing Mr Cleary said or did influenced Mr Jeans to change the course on which he had decided. Contrary to a submission made on Mr Jeans' behalf, nothing Mr Cleary did took it out of Mr Jeans' hands to pursue his dealings with the Japanese interests as he saw fit. The CBA's handling of this transaction may not have been a model of orderly decision-making and meticulous observance of procedures, but it did not involve unconscionable conduct. 136 It follows that the application must be dismissed. 137 In view of the conclusions I have reached, no defence has been shown to the CBA's cross-claim. The CBA has proved the amounts due under the equitable mortgage and the Guarantee. Accordingly, judgment should be entered for the CBA against Deangrove and Mr Jeans in the sum of $4,749,813.30, being the sum of $4,672,379.71 due as at 1 April 2003, together with interest at $1,683.34 per day thereafter. 138 As the parties wish to be heard on the question of costs, I shall make directions for the filing of written submissions on that issue. I certify that the preceding one hundred and thirty-eight (138) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Counsel for the Respondent: Mr A Bell with Mr D McLure

Date of Hearing: 17, 18, 24, 25, 26, 31 March; 2, 3, 7 and 8 April 2003