(1) Fast Financial Solutions Pty Ltd v Crawford and Battye

Supreme Court of NSW|2011-12-16|Before: Mr P, Barrett J

Donald - Plaintiff Mr P T Newton - First, Second and Third Defendants (1) ERA Legal - Plaintiff LAC Lawyers Pty Ltd - First Defendant Hartcher Reid - Second Defendant (2) Cross-Claim: Hartcher Reid - Cross- Claimant ERA Legal - First Cross-Defendant LAC Lawyers Pty Ltd - Second Cross- Defendant (3) LAC Lawyers Pty Lgd - Plaintiff ERA Legal - First, Second and Third Defendants File Number(s): (1) 2009/00291593 (2) 2009/00291593 (3) 2009/00288580

Background and proceedings 1The Putty Road is a remote country road running from Singleton in the north to Windsor in the south, a distance of about 173 kilometres. The property of some seven hectares at the centre of these proceedings is at Garland Valley in the Yenko National Park about 68 kilometres from Singleton. 2The property has a frontage to the Putty Road and was, at material times, the site of a roadhouse consisting mainly of a diner or cafe, a retail store that also sold petrol and an adjoining residential unit. These occupied only a small portion of the seven-hectare site. Other parts were used for other purposes, including as a camping ground and for the staging of performances. 3It is convenient to refer to the land and buildings just described as "the roadhouse" and to the seven-hectare site (the title to which is under the Real Property Act 1900) as "the Garland Valley property". 4These reasons relate to two proceedings heard together, with evidence in each being evidence also in the other. The parties are Garland Valley Holdings Pty Ltd ("GVH"), its two directors and shareholders (Howard Charles Fitz Crawford and John Richard Battye) and Fast Financial Solutions Pty Ltd ("FFS"), a moneylender.

The facts in outline 5Before describing the proceedings and the issues they raise, I shall sketch relevant factual background. 6Mr Crawford and Mr Battye met at the Royal Easter Show in 2006. They had several subsequent meetings and discussed the possibility of going into a commercial venture together. Mr Battye was interested in acquiring a rural property and it appears that Mr Crawford's interest also lay in that direction. Mr Crawford told Mr Battye that he had commercial experience, including a property development. There are references in the evidence to Mr Crawford having worked as a security officer or security guard. Mr Battye had spent his working life in the Commonwealth public service in clerical roles. Shortly before meeting Mr Crawford, Mr Battye had inherited the house in suburban Sydney owned by his mother and occupied by him and her until her death. Upon settlement of the sale of the house in September 2006, Mr Battye received proceeds of $481,241.53. 7By that time, Mr Crawford and Mr Battye had agreed to undertake a venture the first element of which was acquisition of the Garland Valley property. A typewritten agreement prepared by Mr Crawford (with handwritten insertions made by him) was signed by both Mr Crawford and Mr Battye and is dated 23 June 2006. It recites an agreement of the two persons "to purchase a freehold business known as Half Way Roadhouse situated at Putty Road, Putty for the purpose of deriving an income from the hereinbefore said business". Then follow an acknowledgement that Mr Crawford "has paid his share to date in full and included any options, chattels, goods or monies for the purchase of the hereinbefore said freehold business in full satisfaction of his contribution"; and an acknowledgement that Mr Battye "has paid a contribution of two thousand five hundred dollars towards his fifty percent share and agrees to satisfy the balance of four hundred and ninety seven thousand five hundred dollars owing on his fifty percent share on settlement for his property at [address]". The property thus referred to was the house property Mr Battye had inherited from his mother. 8Mr Crawford and Mr Battye later arranged the formation of GVH and the purported establishment of a trust of which GVH was the trustee. The company was registered on 10 October 2006 but the deed supposedly executed by GVH which ostensibly established the trust is dated 1 October 2006. There is nothing to suggest that it was signed otherwise than on the date it bears. Mr Crawford and Mr Battye held the shares in GVH in equal proportions and were the only directors. A family trust established by each of the individuals (they themselves being the respective trustees of those trusts) is represented as holding 50% of the interests in the purported trust of which GVH was supposedly the trustee. There is no evidence of the establishment of any such family trusts but it is accepted that Mr Crawford and Mr Battye were equal owners. 9On 1 November 2006 (three weeks after it had come into being), GVH entered into a contract for the purchase of the Garland Valley property and a separate contract entitled "Contract for the sale of business" referring to a business described as "Roadhouse" and to premises described as "Putty Road, Garland Valley". The purchase prices were $318,000 and $62,000 respectively - a total of $380,000. The vendor under each contract was Jarrod Ingledew. The purchases were completed in December 2006. 10Mr Crawford undertook the negotiations that led to the acquisition. It was he who instructed solicitors. He took these steps with the knowledge and consent of Mr Battye. 11There is in evidence a handwritten document dated 21 June 2006 headed "Ninety (90) day option" which begins: "Paid five thousand dollars deposit on Half Way Roadhouse, Putty Road, Putty with the full price being five hundred thousand dollars plus one painting for the hereinbefore said Half Way Roadhouse" 12The document is signed by Mr Crawford and one Doug Page and purports to create a ninety-day option for the purchase of the roadhouse. On the back appear the following words above Mr Page's signature and the date 1 November 2006 (the date of the two contracts with Mr Ingledew): Paid all Money's [sic]. Balance owing $342,000." 13There is some dispute as to which of the men identified the Garland Valley property as a desirable proposition. Mr Crawford says that it was Mr Battye while Mr Battye's evidence tends to portray Mr Crawford as the instigator (and Mr Crawford himself says that he knew it to be on the market for $647,000). Nothing turns on this. It is agreed that the two of them drove together from Windsor to inspect it. Mr Battye accepts that Mr Page was present when they arrived and Mr Battye understood him to have an involvement in the business or the property or both. Mr Crawford's evidence is that Mr Page was a part owner of the business or, at least, had an interest that had to be purchased. Mr Battye, although not aware of precise details, understood that Mr Ingledew and Mr Page between them owned whatever needed to be acquired to operate the roadhouse. Mr Battye provided $2,500 in June 2006 which he understood was applied towards an option fee. 14After GVH had completed the acquisition of the Garland Valley property and the roadhouse, Mr Crawford based himself at the roadhouse and conducted the roadhouse business. Mr Battye accepted in cross-examination that Mr Crawford worked up to twelve hours a day, seven days a week, albeit with staff to help him. Mr Battye never played any active role in the day-to-day roadhouse operations. He lived at Glen Innes, several hours' drive away, and visited the roadhouse only occasionally - about every month or six weeks on average. 15Mr Battye spent time searching out rural possibilities that might be pursued by himself and Mr Crawford. He was interested in merino sheep. He says that he presented several proposals or ideas to Mr Crawford but that none found favour with Mr Crawford. 16Mr Crawford, for his part, was also considering possible new fields of endeavour. Reference was made in the course of the evidence to cattle breeding possibilities and to visits by Mr Crawford to Thailand in that connection. Mr Crawford spoke of money being spent on a deposit for embryos. 17In December 2007, Mr Crawford and Mr Battye entered into a handwritten agreement prepared by Mr Crawford. A document that appears to contain part only of the agreement is in evidence. Mr Crawford is referred to as "Party A" and Mr Battye as "Party B". The operative parts read: (i) Party A and Party B acknowledge that they each contributed equally towards the purchase of The Halfway Roadhouse situated at XXXX Putty Road, Garland Valley, NSW, 2330. (ii) Party B acknowledges that since the date of purchase that Party A has contributed significantly more to the operation of the hereinbefore said roadhouse in terms of labour, renovations and outgoings. (iii) Party B agrees that a sum of not less than $A250,000-00 has been contributed by Party A and that Party A is entitled to recover that sum from any monies received before any disbursements are made to Party B. [apparently missing sheet or sheets] subsequent to the sale of the site known as The Halfway Roadhouse. (vii) Party A agrees to occupation of the south end of the site and Party B to the north end of the site and that neither party will extend any buildings beyond the centre of the property in a north south direction such centre demarcation to be determined by land area. (viii) Party B acknowledges that Party A has made a significant contribution to the site above the contribution by Party B. All monies further expended by Party A will be reimbursed by Party B [indecipherable] to a maximum of $100,000-00." 18From February 2008, operation of the roadhouse was taken over by Mr and Mrs Lamb, Mr Crawford's brother-in-law and sister. They paid rent. Mr Crawford received the rent. This was with Mr Battye's knowledge and concurrence. 19Some months later, Mr Crawford took steps towards the obtaining of short-term loan finance for GVH. He told Mr Battye (and Mr Battye accepted) that funds were needed in connection with a development proposal for the Garland Valley property involving a company called Defined Garden Artistry Pty Ltd ("Defined Garden") and the possible establishment of a mini-golf operation. Mr Crawford gave evidence of discussions he had had with a company experienced in the design and construction of mini-golf courses. He put into evidence an "overview" document provided by that company with broad estimates (not specific to the Garland Valley property) of costing of the order of $1.1 million. 20Mr Crawford's own account of the reasons for seeking finance are stated in his affidavit: "Shortly prior to, but around the time of the loan from Fast Financial to GVH, Battye and I spoke and said words to the effect: a. I said: 'We need this money to keep progressing and have a buffer to pay sundries as they arise. Everyone wants to be paid for work done. We have new tenants and I want to expand this place with the nursery and then the Golf Course. b. He said: 'Yes, but make sure any lender knows about your plans'. c. I said: 'I will let you know how it goes'." 21There is no suggestion in the evidence of either individual that there was an urgent or pressing need for loan finance and no indication of the reason why it was considered necessary to obtain finance for a term of only three months and on the onerous terms that actually applied (see paragraph [24] below). 22A loan was ultimately provided by FFS to which GVH was introduced by a finance broker. Mr Giussepe Morello is the sole director of FFS. He is also an officer of an associated finance provider, Nationwide Capital. Both companies carry on business at the same address in Crows Nest. 23It is not disputed that Mr Crawford and Mr Battye, acting as directors of GVH, executed for GVH a loan agreement dated 31 October 2008 the parties to which were FFS as lender and GVH as borrower, together with Mr Crawford and Mr Battye. The individuals were described in the agreement as guarantors but, while they did guarantee payment by GVH, the guarantees were not contained in the loan agreement. The individuals joined in that agreement only to acknowledge "the particulars, the terms and conditions of the Advance to Borrower", that is, GVH. 24The principal sum referred to in the loan agreement was $330,000. It was expressed to be repayable three months after the date of the advance. An establishment fee, other fees and charges and interests for the full term of three months were payable at inception. The effective rate of interest was 4 per cent per month - a very high and, from a borrower's viewpoint, very disadvantageous rate according to commercial standards prevailing at the time. 25The guarantees of Mr Crawford and Mr Battye were given through two separate documents, one executed by each of them in favour of FFS. Each such document is entitled "Deed of Guarantee and Indemnity", is dated 31 October 2008 and extends to the whole of the indebtedness of GVH to FFS. 26Another document executed by GVH in favour of FFS and dated 31 October 2008 is a deed of charge. That document created a charge over the whole of the assets and undertaking of GVH and, in the usual way, was expressed to operate as a fixed charge in respect of certain items and a floating charge in respect of the remainder. The charge secured all moneys from time to time owing by GVH to FFS. 27A Real Property Act mortgage was granted by GVH to FFS over the Garland Valley property. This too is dated 31 October 2008 and secured all moneys from time to time owing by GVH to FSS. Separately, Mr Crawford granted to FFS a mortgage of land at Windsor owned by him. This stood as third party security for GVH's indebtedness. As FSS knew, Mr Crawford's Windsor property was already subject to a registered mortgage in favour of St George Bank. 28No moneys were advanced by FFS on 31 October 2008. A few days later, on 3 November 2008, FFS's solicitors wrote to GVH referring to the "proposed advance by FFS to Garland Valley Holdings Pty Limited of $330,000" for which documents had been executed on 31 October 2008. The letter continued: "We confirm that as a result of the valuation on the primary security property coming in at less than anticipated, the amount being advanced is to be reduced from $330,000.00 to $220,000.00. In the circumstances the amount available at settlement will be reduced to $176,000.00. With the exception of the above, all other terms of the loan remains the same. Please confirm that the above change in the terms of the loan are acceptable to you and that you authorise the advance proceeding by signing a copy of this letter and returning it to this office." 29FFS sent separate letters to each of Mr Crawford and Mr Battye, also dated 3 November 2008. Each such letter referred to "the proposed advance by FFS to Garland Valley Holdings Pty Limited for which you are Guarantor" and continued: "We confirm that you signed the loan and security documents on 31 October 2008 in relation to a proposed advance of $330,000.00 to $220,000.00. The amount available at settlement will be reduced to $176,600.00. With the exception of the above, all other terms of the loan remains the same. Please confirm that the above change in the terms of the loan are acceptable to you and that you authorise the advance proceeding to the Borrower by signing a copy of this letter and returning it to this office." 30FFS's original willingness to advance $330,000 was based on a certain view or assumption about the value of the Garland Valley property. That, in turn, was based on a valuation prepared by a valuer on Mr Crawford's instructions and provided by him to FFS. The letters of 3 November 2008 - which, in effect, invited the borrower and the guarantors to agree to a reduced loan of $220,000 - followed receipt by FFS of a lower valuation made by a valuer commissioned by it. 31A copy of the letter of 3 November 2008 to GVH, signed by both Mr Crawford and Mr Battye as directors, was returned to FFS's solicitors, as were a copy of the letter to Mr Crawford signed by him and a copy of the letter to Mr Battye signed by him. GVH and the two guarantors thus provided to FFS the confirmations sought by the letters of 3 November 2008. 32The net amount made available by FFS to GVH was $176,600. This represented the revised principal sum of $220,000 less the fees and charges already mentioned and prepaid interest on $220,000 for the three-month term. The $176,600 was transferred, in amounts of $100,035 and $76,635, on 3 November 2008 and 4 November 2008 respectively, to an account at St George Bank designated "Howard Crawford". 33The FFS loan was repayable by GVH on 3 February 2009. GVH did not pay on that day or at all. In exercise of powers created by its security, FFS appointed receivers. This happened on 18 February 2009. 34In early August 2009, the roadhouse was destroyed by fire. The roadhouse had been insured by the receivers and, on or about 29 December 2009, they received insurance proceeds of $320,000. The receivers later sold the Garland Valley property, including its remaining improvements. The net proceeds of sale were $150,674.44. Mr Morello gave evidence that St George Bank, the first mortgagee of the Windsor property owned by Mr Crawford, had taken steps to enforce its security and that nothing was expected by FFS from the second mortgage held by it.

The claims 35I come now to the claims made in the two proceedings. 36In one proceeding, GVH sues FFS and the receivers appointed by it. The central allegation is that FFS engaged in unconscionable conduct as against GVH and that, on that account, the court should intervene to prevent reliance by FFS on what would otherwise be its legal rights of recovery in respect of the loan and associated moneys. 37In the other proceeding (in fact, the first in time), FFS sues Mr Crawford and Mr Battye under their guarantees. They defend by reference to the matters of alleged unconscionability already mentioned. 38Mr Battye filed a cross-claim in the second-mentioned proceeding. He sues Mr Crawford, GVH and FFS. He says that Mr Crawford should be found to hold $650,341 upon a constructive trust for Mr Battye; and that the sale of the Garland Valley property effected by the receivers appointed by FFS was "invalid". Mr Battye maintains that Mr Crawford owed him a fiduciary duty and breached that duty. In relation to FFS, he says that FFS never in fact advanced funds to GVH under the loan agreement and associated documents of 31 October 2008, as varied on 3 November 2008; or, if it did, that the proceeds were taken by Mr Crawford in further breach of the fiduciary duty owed by him to Mr Battye.

Issues involving FFS 39As originally constituted, the proceedings raised a number of matters of alleged unconscionability on the part of FFS. As ultimately argued, however, they involved only two relevant allegations, one made by GVH as plaintiff in the proceeding commenced by it and the other made by Mr Crawford by way of defence to the action brought against him by FFS under his guarantee. The issues, in these respects, are: (a) whether FFS engaged in unconscionable conduct, as against GVH, by refusing to allow GVH to obtain registration under the Real Property Act of a lease between GVH as lessor and Defined Garden as lessee, thereby preventing GVH from obtaining replacement finance to enable it to repay the FFS loan when due; and (b) whether FFS engaged in unconscionable conduct, as against Mr Crawford, by (i) sending to St George Bank a false document asserting authority for a second mortgage of Mr Crawford's Windsor property in favour of FFS; (ii) reducing the amount to be lent by FFS to GVH after the loan agreement and securities had been executed.

Unconscionability - the principles 40The allegations of unconscionable conduct are advanced - both offensively and defensively - by reference to both general law principles and statutory provisions. The relevant principles of equity are those often associated with Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 and apply where one party to a transaction unconscientiously takes advantage of an opportunity placed in that party's hands by the circumstance that the other party is at a special disadvantage in dealing with the first party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect the second party's ability to conserve his or her own interests (this formulation is taken from the judgment of Kitto J in that case, at CLR 415). 41The statutory provisions relied upon are s 51AA and s 51AC of the Trade Practices Act 1974 (Cth) (because the relevant events pre-dated 1 January 2011, it is that legislation, rather than the Australian Consumer Law , that is relevant). 42The essential nature of the conduct with which those and similar statutory provisions are concerned was recently explained by the Court of Appeal (Allsop P; Bathurst CJ and Campbell JA concurring) in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291] as follows: "Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the CRA [ie, Contracts Review Act 1987] are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances."

FFS's conduct - the Defined Garden lease 43With that authoritative guidance in mind, I turn to GVH's allegation of unconscionable conduct on the part of FFS in relation to a proposed lease to Defined Garden. 44GVH alleges in its statement of claim that, in or about July 2008, GVH entered into a lease or licence with Defined Garden over part of the Garland Valley property. GVH further alleges that it was a condition precedent to the lease or licence with Defined Garden taking effect that GVH would obtain registration thereof. GVH then says that, in or about December 2008, GVH sought from FFS production of the certificate of title for the Garland Valley property to enable registration of the lease to Defined Garden; and FFS refused to produce the certificate of title to allow that registration. 45In a request dated 30 June 2009, the solicitors for FFS sought particulars of the lease or licence referred to in this part of GVH's statement of claim. In their reply dated 2 September 2009, GVH's solicitors identified the relevant lease by enclosing what was said to be a copy of it. 46The enclosure consisted of two pages which appear to be the first two pages of a document dated 21 December 2008 headed "Commercial Lease" prepared on a printed form (carrying the notation "Issued by the Real Estate Institute of NSW") in which blank spaces had been completed in handwriting. The date 21 December 2008 appears in handwriting. GVH and Defined Garden are expressed to be lessor and lessee respectively. The two pages do not include any place for execution by either lessor or lessee (there are, however, unidentified initials or signatures at the foot of each of the two pages). Nor do the two pages include provisions on numerous matters one would expect to see covered in a form of lease prepared by a body such as the Real Estate Institute. It is reasonable to infer (and I find) that the two pages sent by GVH's solicitors with the letter of 2 September 2009 are a copy of part only of what may have been a lease executed by both GVH and Defined Garden. For the moment, I proceed on the assumption (it can be no more) that a fully executed lease existed and that its first two pages were in the form thus put into evidence. 47The subject property was described on the first of those pages as "portion land Halfway Roadhouse as defined licence". The term was stated as: "(3) three years plus (3) three year option to a maximum of (15) years commencing on the fifteenth (15 th ) January 2009 and ending on the fifteenth (15 th ) January 2009". 48If one assumes that the end date should have been stated as 15 January 2012 rather than 15 January 2009 (which was the stated commencing date), the document may be taken to be a lease of some part of the Garland Valley property for a term of three years from 15 January 2009 with an option for the lessee to renew. The anomalous wording relating to the option, set out in the above extract, may be clarified to some extent by the following provision: "Subject to condition 33 of this lease the landlord/agent offers a renewal for a further term of 3 + 3 + 3 + 3 years." 49It seems tolerably clear that the lease of 21 December 2008 was intended to operate as a lease for a term of three years commencing on 15 January 2009. Because its term did not exceed three years, s 53(1) of the Real Property Act did not apply. That section is as follows: "When any land under the provisions of this Act is intended to be leased or demised for a life or lives or for any term of years exceeding three years, the proprietor shall execute a lease in the approved form." 50The fact that the lease contained a provision under which the lessee might, at its option, renew did not cause it to acquire the character of a lease "for any term of years exceeding three years". This is because, as Asprey JA explained in 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193 at 199, "the exercise of an option for the renewal of a lease is a grant of a fresh lease for a new term", so that the inclusion of the option does not serve to increase the term of the lease itself. 51The inclusion of the option did, however, have ramifications under s 42 of the Real Property Act the effect of which, as relevant to the circumstances at hand, is that the registered proprietor holds free from all unregistered interests except (among others): "a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected: Provided that: (i) the term for which the tenancy was created does not exceed three years, and (ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years." 52If the term of the lease of 21 December 2008, aggregated with the additional term provided for by the option, exceeded three years, absence of registration of the lease meant that, although under s 53(1) registration was not necessary to create a leasehold estate binding on GVH as lessor, a transferee from GVH who became registered as proprietor might well take free from that leasehold estate. 53It is significant that, although GVH alleges in its statement of claim that the lease to Defined Garden of which it wished to obtain registration was granted in or about July 2008 - that is, before the creation of the mortgage in favour of FFS - the lease actually identified in response to the request for particulars is the printed form document completed in handwriting that carries the date 21 December 2008, that is, almost two months after the creation of the FFS mortgage. Mr Crawford referred in his evidence to various leases and licences to Defined Garden but identified only two: the lease of 21 December 2008 already mentioned and an earlier document dated 1 July 2008. The document of 1 July 2008 is, however, obviously irrelevant. It is a licence agreement in favour of Defined Garden executed by Mr Crawford himself in respect of the property at Windsor owned by him. It thus has nothing to do with GVH and the Garland Valley property. 54The fact that it is the lease of 21 December 2008 - and that lease alone - that is relevant to GVH's complaint about FFS's failure to produce the certificate of title makes it necessary to refer to two relevant provisions. The first is a provision (clause 21.1) of the mortgage granted by GVH to FFS: "The Mortgagor shall not sell, lease or transfer or agree to sell, lease or transfer the Mortgaged Premises without first obtaining the consent in writing of the Mortgagee which consent may be withheld by the Mortgagee in its absolute discretion and the Mortgagee shall not be called upon to produce the Certificate of Title to the Mortgaged premises for the purpose of registration of any document or instrument whatsoever or for any other purpose unless the Secured Monies shall have been first duly paid and satisfied and all covenants, conditions and agreements on the part of the Mortgagor herein or in the Relevant Agreement or in any other agreement between the Mortgagor and the Mortgagee shall have been first performed observed and complied with." 55The other relevant provision is s 53(4) of the Real Property Act : "A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, chargee or covenant chargee unless the mortgagee, chargee or covenant chargee has consented to the lease before it is registered." 56It is not suggested that GVH sought the consent of FFS, as mortgagee, to the creation of the 21 December 2008 lease in favour of Defined Garden or that any such consent was ever given. It is thus clear that the creation of that lease by GVH entailed breach by it of the mortgage covenants and that s 53(4) had the consequence that the lease was not binding on FFS. 57GVH's complaint is that FFS did not produce the certificate of title to enable the lease of 21 December 2008 to be registered and that FFS thereby frustrated the action that GVH regarded as essential to the obtaining of replacement finance with which it could have paid off the FFS debt when it became due for payment. It is clear from the evidence that GVH asked for production of the certificate and that FFS, through its solicitors, replied to the effect that, as the indebtedness was due to be paid off in a month's time, GVH should wait until then. 58Two important propositions are involved in GVH's complaint: first, that, had the lease of 21 December 2008 been registered, a new financier (said to have been National Australia Bank) would have made available finance that, in the absence of registration, it was unwilling to provide; and, second, that that lease could and would have been registered had FFS produced the certificate of title to permit registration. 59In relation to the first of these propositions, GVH refers to evidence given by Mr Morello in cross-examination that, shortly before the expiry of the FFS facility in early February 2009, he was informed by GVH that it was attempting to refinance the debt. The cross-examination continued: " Q. Do you recall being informed that it was approaching the National Australia Bank? A. Not those details, no, not exactly, no. Q. You do recall that they were trying to refinance the debt? A. Yes." 60And later: " Q. Do you have any recollection of being told that the National Australia Bank were considering a loan to Garland Valley Holdings? A. I don't recall. Q. Do you have any recollection of being told that there was a need for the lease to the nursery called, Defined, to be registered? A. I recall the lease coming up but not in terms and to be registered but that is about as far as it went. Q. I put it to you that your company was informed that there was a requirement of the National Australia Bank for the lease to be registered, I put it to you that did happen, that your firm was informed of that fact, do you accept that? A. If that is what you are saying, yes, okay." 61This is the only evidence about the supposed role and attitude of the National Australia Bank (paragraphs 25 and 26 of Mr Crawford's 26 March 2009 affidavit concerning NAB were ultimately not read). That evidence does not in any way justify a finding that NAB was willing to provide replacement finance and would have done so - or would be likely to have done so - if the 21 December 2008 lease were registered. There is, in any event, no suggested basis for a finding that an incoming mortgagee would have distinguished between, on the one hand, a pre-existing lease actually registered and, on the other, a pre-existing lease not actually registered but in registrable form and in all other respects capable of being registered. 62The first of the propositions at paragraph [58] above is simply not established. It is not shown that absence of registration of the 21 December 2008 lease to Defined Garden prejudiced any attempt made by GVH to raise replacement finance. 63The second proposition may be dealt with shortly. The lease of 21 December 2008 was not in registrable form. Section 53(1) of the Real Property Act makes it clear that only a lease "in the approved form" may be registered. The approved form is Form 07L. The two pages in evidence (see paragraph [46] above) make it clear that, if there was in fact a lease consisting of those two pages and other pages, it was not in Form 07L. Furthermore, the description of the property (see paragraph [47] above) did not refer to any folio identifier and, in that respect, omitted a particular essential to Real Property Act registration. 64Even if FFS had produced the certificate of title, GVH could not have obtained registration of any duly executed lease of which the two pages in evidence are the first two pages. 65GVH's failure to make good both of the propositions stated at paragraph [58] above - coupled, I might say, with the fact that the grant by it of the lease of 21 December 2008 (assuming there to have been a full and complete lease) was a clear breach of an explicit covenant of the FFS mortgage - leads to the firm conclusion that failure of FFS to produce the certificate of title as requested did not involve moral obloquy or failure to do what was right or reasonable; nor was there, on FFS's part, bullying or thuggish behaviour, undue pressure, unfair tactics or taking advantage of vulnerability or lack of understanding, trickery or misleading conduct . It is not shown that any of these hallmarks of unconscionability identified in Tonto Home Loans Australia Pty Ltd v Tavares (above) was present or operative in what happened. 66GVH's attempt to establish unconscionability on the part of FFS in the matter of failure or refusal to produce the title deed for the Garland Valley property therefore fails. And it does not avail GVH to say that some form of blanket refusal on FFS's part unjustly thwarted it. FFS or any other mortgagee could be expected to respond favourably to a request to allow the creation and subsequent registration of a lease only by reference to a particular lease proposal. There is a world of difference between a lease for one month and a lease for ninety-nine years, a lease at $1 million per year and a lease at a peppercorn rental, a lease allowing activities permitted under relevant zoning and a lease compelling illegal activities. All these matters and others would properly and responsibly be taken into account by a mortgagee asked to consent to the grant of a lease by the mortgagor and to allow registration of that lease. The matter is not one that can be considered in the abstract or in a vacuum.

FFS's conduct - St George Bank 67I consider next Mr Crawford's allegation of unconscionable conduct of FFS referred to at item (b)(i) of paragraph [39] above. 68It is common ground that Mr Crawford granted FFS a mortgage of the property at Windsor owned by him and that mortgage was additional security for the moneys owed by GVH to FFS. It is also common ground that that mortgage was never registered and that a pre-existing registered mortgage held by St George Bank at all times enjoyed priority over it. Mr Crawford gave evidence that he had granted the mortgage to St George in October 2006 in order to "draw down funds for the roadhouse venture"; for "commencing the roadhouse venture". 69On 29 October 2008, Nationwide Capital Pty Ltd wrote to St George Bank stating that it was advancing funds to Mr Crawford on the security of the Windsor property and asking for consent to the creation of a second mortgage over that property. There was also a request that St George produce the certificate of title to enable such a second mortgage to be registered. The letter referred to an advance of $330,000 by Nationwide to Mr Crawford. 70There is no evidence of any response - positive or otherwise - by St George to these requests. In any event and as already noted, FFS was content to proceed on the basis of an unregistered mortgage of Mr Crawford's Windsor property. 71Mr Crawford maintains (correctly) that the letters of 29 October 2008 to St George Bank must have caused St George to be under a misapprehension in three respects. First, St George was led to think that finance was to be provided by Nationwide on the security of Mr Crawford's Windsor property. Second, St George was led to think that Mr Crawford was to be the borrower from Nationwide. Third, St George was led to think that the amount to be advanced was $330,000. In fact, of course, finance was made available by FFS (not Nationwide) to GVH (not Mr Crawford, although he was one of two guarantors) and the amount ultimately advanced was $220,000, not $330,000. 72But what follows? Submissions made on behalf of Mr Crawford are to the effect that FFS knew that St George, being Mr Crawford's bank, was a possible source of refinance for GVH and that the misrepresentations made by FFS to St George somehow prejudiced GVH's prospects of raising alternative finance from that source. 73But there is no evidence that GVH ever sought replacement finance from St George. Mr Crawford refers in his affidavit to having given instructions to finance brokers to arrange replacement finance in the period before maturity of the FFS loan. He also says that, in about early February 2009, the brokers told him that "they had made no progress obtaining funds to refinance the loan despite them reporting to me that they had made numerous applications and approached a number of different lenders". There is nothing to suggest that St George was one of the lenders so approached. St George is simply not mentioned. 74Mr Crawford might have a legitimate complaint if it were seen that the inaccuracies conveyed to St George by FFS's associate, Nationwide, through the letters of 29 October 2008 influenced the behaviour or attitude of St George in a way that was disadvantageous to Mr Crawford or even had the capacity to do so. As far as capacity is concerned, the only aspect that might be relevant is the uncorrected statement regarding a loan of $330,000 when the amount eventually lent was only $220,000. From a potential lender's point of view there would be a difference between indebtedness of $330,000 and indebtedness of $220,000 but there could be no real difference between a direct liability of Mr Crawford as borrower and a contingent liability of Mr Crawford as guarantor; and it would be of no relevance or consequence whatsoever that the lender was FFS not Nationwide. The abstract capacity of the inaccuracies to influence St George to act in a way that was disadvantageous to Mr Crawford should therefore be regarded as highly problematic. 75The point of particular significance is that there is no evidence that whatever negative impact the inaccuracies were capable of producing as regards the behaviour of St George ever became operative. Let it be assumed that St George said to itself, "Bearing in mind the information we have received from Nationwide, we must adopt a negative attitude to any future request for accommodation received from Mr Crawford or any company associated with him." That assumed attitude of St George, even if it was in fact produced by Nationwide's communication, is not shown to have been in fact the source of any detriment or disadvantage to Mr Crawford or FFS. That being so, there cannot be said to have been any operative unconscionability on the part of FFS - or, I suppose, its associated entity, Nationwide - in the matter of the 29 October 2008 communication to St George.

FFF's conduct - reduction of the loan amount 76Remaining for consideration in relation to Mr Crawford's allegation of unconscionability is the matter at item (b)(ii) of paragraph [39] above, that is, reduction of the loan amount from $330,000 to $220,000. 77The valuation of the Garland Valley property prepared by a valuer on Mr Crawford's instructions proceeded on the footing that the property was leased for $67,600 gross per year. The valuers said that they had been "verbally advised by both the lessee and Howard Crawford, lessor, that the property is partially subject to a lease to John and Ronda Lamb", the lease being for a term of five years expiring in 2013 at a gross rent of $1,300 per week, being $67,600 per year. The valuers also said: "We have been unable to verify the documentation related to this lease and so we reserve the right to vary our opinion of the value if the information subsequently proves to be incorrect." 78The current market value as at October 2008 was said by these valuers to be $600,000. 79FFS later commissioned a valuation of its own. This referred to the same unverified information about the lease to the Lambs. The valuers assessed the value at $450,000. 80The new valuation was received by FFS shortly after the loan and security documents had been executed but before any advance was made. The loan agreement of 31 October 2008 required FFS to make available the advance of $330,000 subject to certain conditions, including the condition that FFS should have received satisfactory searches, inquiries, inspections and replies in relation to the property and other documents as FFS or its solicitors might reasonably require and any other information or documents it considered necessary or desirable to examine or hold before providing the advance. These matters were stated in clause 6.1 of the loan agreement, particularly clauses 6.1(b), 6.1(h), 6.1(l) and 6.1(n). 81Particularly in light of the fact that it had not chosen or commissioned the original valuers, FFS did not act unreasonably in seeking a valuation of its own. Receipt of that valuation in a sum satisfactory to it was clearly within the scope of the clause 6.1 conditions. Given that the value stated by the new valuation was only 75% of the value stated by the original valuation, it was not unreasonable for FFS to take the attitude that the clause 6.1 conditions of the agreement providing for an advance of $330,000 had not been satisfied. 82FFS could, at that point, have simply declined to proceed further and, relying on cluse 6, refused to make any advance at all. Instead, it made, by the letters of 3 November 2008, an offer of a reduced loan and invited the concurrence of GVH and the guarantors. GVH or the guarantors or both could have declined to accede to the revised proposal. They could have attempted to hold FFS to the original bargain, thereby putting in issue the operation of the clause 6.1 condition in the circumstances. Or they could have told FFS that the reduced loan was unacceptable and that they would take their business elsewhere. They did neither of these things. They simply agreed to the alternative proposal put by FFS. 83There was nothing unconscionable in the conduct of FFS in and about the matter of the reduction of the loan amount. There is nothing in the evidence to suggest that GVH was in dire and immediate need of funds or under some pressing financial threat in such a way as to deprive it of all realistic ability of attempting to renegotiate or seeking finance elsewhere. Nor can it be suggested that FFS, faced with a new valuation at a much lower figure, acted in any harsh or arbitrary way. 84This part of GVH's claim against FFS also fails.

FFS is entitled to relief 85FFS is entitled to the judgment it seeks against Mr Crawford and Mr Battye as guarantors of the obligations of GVH. A certificate given by FFS under the loan and security documents puts the indebtedness of GVH at $2,230,012.78 at 13 December 2011. The guarantors are liable for the same amount as at that date, but there should be an opportunity for FFS to provide an updated certificate, after first submitting it to Mr Crawford and Mr Battye for perusal. 86There will be judgment in favour of FFS and against Mr Crawford and Mr Battye jointly and severally for the sum stated in the updated certificate. In the case of Mr Battye, however, this is subject to any contrary result emerging from his cross-claim against FFS.

Mr Battye's cross-claim 87Mr Battye's cross-claim is brought in the proceedings in which FFS sues Mr Crawford and Mr Battye on their guarantees. FFS and Mr Crawford are named as the cross-defendants, although in respect of different branches of the case Mr Battye seeks to establish. 88The core matters pleaded by Mr Battye in relation to Mr Crawford are as follows:

He and Mr Crawford were, from about May 2006, involved in a joint venture the purpose of which was to acquire the Garland Valley property and to operate the roadhouse business.
Each of Mr Crawford and Mr Battye owed to the other of them a fiduciary duty to give effect to the purpose of the joint venture and not to act in his own interests in relation thereto.
The first phase of the joint venture was from May 2006 to 23 June 2006. In about May 2006, Mr Crawford represented to Mr Battye that the Garland Valley property and the roadhouse business had a market value of $1 million and that they should purchase those assets in equal shares. Mr Crawford also represented that he had paid $2,500 representing half the price of an option to purchase and Mr Battye, relying on that representation, himself paid $2,500.
The second phase of the joint venture was from 23 June 2006 to 1 October 2006. The agreement referred to at paragraph [7] above was executed on 23 June 2006.
The third phase of the joint venture was from 1 October 2006 when Mr Crawford and Mr Battye "executed a trust in writing", with GVH as trustee and with the two individuals as "the beneficiaries of the trust and the directors and members of the trustee".
Mr Crawford, in breach of the fiduciary duty, "excluded and continues to exclude" Mr Battye from "the management and affairs of the trustee qua trustee and qua company".
Mr Crawford made misrepresentations regarding the $1 million market value and, in the 23 June 2006 agreement, that he had paid his share of the proposed purchase price. Mr Crawford never paid his half share.
On or about 27 June 2006, Mr Crawford and Mr Battye opened a joint bank account. Mr Battye deposited $481,241.53 into the account in early September 2006. Mr Crawford never paid any material sum into the account. Mr Battye paid the money into the joint account in the belief that it would be used in pursuance of the joint venture and not otherwise and Mr Crawford knew that Mr Battye paid the money on that basis. The money has been withdrawn.
The Garland Valley property and the roadhouse business were purchased in November 2006. The land was bought wholly with money provided by Mr Battye at a price of $318,000 - "a far lower price than [Mr Crawford] had led [Mr Batttye] to believe was its true market value". The business was bought by Mr Crawford "on his own account, after he had registered the trading name of the business on his own account with the ABN number XX XXX XXX XXX". 89Mr Battye's allegations concerning FFS centre on the proposition that the loan moneys were never advanced by FFS to GVH, with the result that no obligation of GVH to repay arose and there was never any occasion for the exercise of secured creditor rights by FSS against GVH and the property. Accordingly, it is said, FFS is "liable to account to the Trustee [that is, GVH] or to compensate it or to make restitution"; and Mr Battye, as a beneficiary of the trust of which GVH is the trustee, is entitled to exercise the rights of GVH in this respect because: "(a) The Trustee is insolvent. (b) There are special circumstances being (i) the matters pleaded herein; (ii) [Mr Crawford's] control of the Trustee to the wrongful exclusion of Mr Battye; (iii) [Mr Battye's] lack of means to wrest control; and (iv) the likelihood that in any event [Mr Battye] would be overborne in any attempt to wrest control." 90Mr Battye's final claim concerns Mr Crawford. He says that if he is unsuccessful in obtaining the relief he seeks against FFS (as just outlined), it should be found that Mr Crawford caused the loan proceeds to be applied in ways that involved breach of the fiduciary duty owed by him to Mr Battye.

Can Mr Battye sue for GVH? 91A preliminary point arising from Mr Battye's cross-claim should be addressed. It concerns the case he seeks to make against FFS. The claim, as framed, is a claim by GVH. In the absence of leave under s 237 of the Corporations Act 2001 (Cth), Mr Battye has no ability, as a director and shareholder of GVH, to sue on behalf of GVH. He accepts this but maintains that because GVH was at material times a trustee and he was a beneficiary, he can, in his beneficiary capacity, bring the relevant claim for GVH. 92There is an immediate problem here. As noted at paragraph [8] above, the relevant trust deed was supposedly executed by GVH as trustee at a time when GVH had not come into existence. There is no evidence that GVH, after coming into being, did anything (whether by reference to Part 2B.3 of the Corporations Act or otherwise) to ratify what had purportedly been done by or for it before it came into being. Particularly in the absence of any evidence beyond the deed itself about the existence or subsistence of the supposed trust, there is good reason to think that no such trust ever came into being, so that actions of GVH after its incorporation were actions that it took in its own right, not as trustee. 93In any event, it is not open to a beneficiary simply to sue for a remedy the entitlement to which, if there be any entitlement, is that of his or her trustee. A necessary preliminary is the obtaining by the beneficiary of an order of a court of equity enabling it to use the trustee's name in the proceedings or appointing a receiver of the cause of action: Sharpe v San Paulo Railway Co (1873) 8 Ch App 597 at 610. 94On these bases, I am not satisfied that Mr Battye can properly bring the claims against FFS that seek to benefit GVH. I shall, however, address in due course the claim that Mr Battye seeks to pursue for GVH.

Bank accounts and movements of money 95Mr Battye's cross-claim makes it necessary to go into some detail about financial aspects. 96Several matters of significance are not in dispute: that the moneys obtained from FFS were deposited by it (or, more accurately, its solicitors) into a St George Bank account in the sole name of Mr Crawford (see paragraph [32] above); that GVH itself had a bank account with NAB that was opened in July 2008 but was never operative in any real sense (it never reflected a credit balance greater than $704.96); and that a joint account of Mr Crawford and Mr Battye with St George was opened in July 2006 and, for a short period, used for their business purposes. 97Deposits totalling $481,241.53 (one for $448,916.53 and the other for $32,325.00) were made into this joint account in September 2006. These represented the proceeds of the sale of the house inherited by Mr Battye from his mother. Among cheques drawn on the joint account were a cheque dated 15 September 2006 for $38,000.00 in favour of "J Ingledew" and a cheque dated 18 September 2006 for $420,000 in favour of "H C Crawford". Both these cheques were signed by both Mr Crawford and Mr Battye. Otherwise, the only cheques of any consequence were two cheques for $10,000, one in favour of Mr Crawford and the other in favour of Mr Battye. There were apparently in the nature of returns to them as proprietors. 98Mr Crawford gave evidence that the $38,000 represented the deposits payable under the two contacts with Mr Ingledew. This is consistent with the documents each of which referred to a 10% deposit. Mr Crawford also said that the cheque for $420,000 payable to him was deposited into his own bank account and used principally to pay the balance due under the contracts with Mr Ingledew. He accepted that this did not absorb the whole $420,000 and said that the balance had been applied in other ways relevant to the GVH business, along with $330,000 that he had himself raised by borrowing from St George Bank. Mr Battye accepted in cross-examination that he signed the cheque in favour of Mr Crawford so that Mr Crawford could use the money for the purposes of their joint venture; and that he thereby put the $420,000 under the control of Mr Crawford to use as he should think fit for those purposes - although subject to what Mr Battye described as "audit" by himself - which I take to refer to an expectation that he could, if he wished, check actual applications of the money. 99Mr Crawford referred at several points to his having raised $330,000 by borrowing on the security of his Windsor property so that the funds might be used in the venture. Bank statements put into evidence by Mr Crawford show that he obtained such a line of credit in mid-2006. There is no precise evidence of the purposes for which these funds were used. Mr Battye accepted in cross-examination, however, that Mr Crawford did obtain $330,000 borrowed funds from St George for the purposes of the business and that Mr Crawford spent money on the maintenance and improvement of the Garland Valley property and the enhancement of the roadhouse. 100During the time that Mr Crawford operated the roadhouse (that is, from the time of acquisition in December 2006 until Mr and Mrs Lamb took over in August 2008), such takings as were banked were deposited into Mr Crawford's sole bank account and he likewise paid the expenses including, no doubt, for petrol acquired for re-sale and other stock-in-trade. This happened with the knowledge and consent of Mr Battye on the basis of an expectation that he could carry out checks if he wished to do so. I quote from his cross-examination: "Q. So on that basis, on the basis that some accounting would be made to you, you consented to the funds being banked into that account [ie, Mr Crawford's personal account]. That is the case, isn't it? A. Yes. Q. There was also the case of convenience, was there not? If a cheque needed to be signed and you were not around. That is another reason for that account being used? A. Yes." 101Mr Battye also confirmed that it suited him not to have to sign cheques for the roadhouse on a day-by-day basis. He lived at Glen Innes, several hours drive away and visited only occasionally. 102The matter of deposit of takings into Mr Crawford's personal account was dealt with also at a later point in Mr Battye's cross-examination. He confirmed his awareness that those funds were being dealt with in that way. The cross-examination continued: "Q. Did you ask Mr Crawford if you could be made a cosignatory tothat bank account? A. It was never offered to me, sir. Q. Did you ask him? A. No, sir. Q. Did you ask him to put in place a back to back facility for the funds to be transferred from that account to the joint account? A. Could you Q. Are you aware of such a facility? A. Where funds are automatically transferred from one account to another on an overnight basis or whatever frequency is determined? Q. Where the bank automatically does it without anyone having to further instruct the bank, that is the facility I'm talking of. You are aware of such a facility that banks are able to offer? A. Mmhm. Q. Did you ask Mr Crawford to initiate that facility? A. No. Q. Did you ask for copies of the bank statements to be sent to you? A. By way of post or whatever. Q. Did you ask Mr Crawford to direct the bank to send statements directly to you? A. No." 103Mr Crawford worked long hours at the roadhouse in the period December 2006 to August 2008. There was never any formal arrangement for him to receive salary or wages. After Mr and Mrs Lamb began conducting the business, the rent they paid was, with Mr Battye's knowledge and consent, received by Mr Crawford and paid into Mr Crawford's separate account in the same way as the takings had been deposited while Mr Crawford was operating the roadhouse. 104Finally as regards movements of money, I come to the proceeds of the FFS loan. It is not in dispute that the loan proceeds were paid by FFS's solicitors into Mr Crawford's sole bank account and that this was done by FFS on express instructions given to it by Mr Crawford. In this connection, Mr Battye confirmed several important things in cross-examination: that because he trusted Mr Crawford, he was content for him to give instructions on behalf of GVH in relation to the loan to be advanced by FFS in connection with the mortgage documentation Mr Battye had signed; that he was aware, at the time the FFS loan was advanced, that the proceeds had not gone into the GVH bank account with NAB; and that he was also aware at that time that the FFS money had gone into some other account. He says that he did not specifically know which account. But Mr Battye's evidence that Mr Crawford's separate account had, over a period of years, habitually been the destination of moneys accruing to GVH and the parties' business venture - and that this was with his knowledge and acquiescence - makes inescapable, to my mind, a finding that payment of the FFS loan proceeds into Mr Crawford's account at Mr Crawford's direction was consistent with past business practices adopted with Mr Battye's consent. 105Mr Crawford's evidence is that Mr Battye was responsible for the accounting and bookkeeping aspects of the parties activities. He sought to portray Mr Battye as someone who had represented himself as having "Commonwealth audit experience". Mr Battye in fact had no such experience; nor did he have training or expertise in accounting or financial matters beyond the rudimentary activity involved in his former employment - in essence, reconciling cash collected with cash recorded as collected. Nor were there any financial records that Mr Battye could have taken responsibility for even had he been competent to do so. The GVH bank account was never operative in any real sense. The joint account in the names of the individuals fell into disuse after the transactions referred to at paragraphs [97] above. Thereafter, all financial dealings were through the bank account in Mr Crawford's sole name. The were apparently no financial records of GVH or the joint venture beyond documents associated with the several bank accounts. 106It suited Mr Battye to assume nominal responsibility for essentially non-existent accounting activities. He had, at an early stage of the operation of the roadhouse, made an attempt, during one of his visits from Glen Innes, to involve himself in the activity of dealing with customers. But this was not at all to his liking and, after a few hours, he withdrew to the back of the property and busied himself there. It was his practice, when he visited, not to deal with customers or otherwise to involve himself in the day-to-day activities. His nominal responsibility for accounting represented some form of contribution by him. 107That Mr Battye should have adopted this stance is consistent with his demeanour in the witness box. I do not intend to be disrespectful when I say that he appeared to be a shy, retiring and even timid man who in all likelihood prefers his own company and likes system and order in his life. He was confident when speaking of his work in the public service and seemed to take comfort from its regimented and confined nature: he knew exactly what he had to do and was confident when acting within the defined scope. Beyond that, Mr Battye appeared diffident. He presented as a trusting follower, not an assertive leader, who had a dream of owning a rural property and saw Mr Crawford as someone who could make that dream come true for him. He gave evidence in a precise and thoughtful way, often asking the cross-examiner for amplification or clarification so as to be able to understand exactly what he was being asked and then giving a focussed and concise answer. 108Mr Crawford, by contrast, presented as a confident, affable and garrulous man who would relate well to customers across a counter or at a petrol pump - and to people more generally - and who preferred, when giving evidence, to make expansive statements often of questionable responsiveness and of a "broad-brush" kind. His whole approach was such as to suggest that he has no eye for detail and prefers the "big picture"; and that he is of a persuasive personality suited to deal-making. The several handwritten documents of a quasi-legal kind prepared by Mr Crawford demonstrate the confident way in which he approached the definition of the parties' relationship.

109In the light of conclusions that have been stated, Mr Battye's claim against FFS may be dealt with shortly. FFS held loan and security documentation signed by Mr Crawford and Mr Battye as directors of FFS and guarantees signed by the two individuals. Mr Crawford had conducted relevant negotiations. He was, as FFS knew, a director of GVH. FFS was entitled to act upon instructions given by Mr Crawford for GVH as to the disbursement of the loan proceeds. The instructions Mr Crawford gave - as to payment into his own account - were, as a matter of internal management of GVH, consistent with a course of conduct of long standing (and acquiesced in by both directors) regarding banking of company funds. 110I conclude, therefore, that FFS, in causing its solicitors to pay the loan proceeds in the way stated at paragraph [32] above, actually made to GVH the advance of money required by the loan documentation. 111It follows that, if Mr Battye's cross-claim against FSS were properly brought (which, for reasons I have stated, I do not think it is), that cross-claim would fail.

Was there a fiduciary relationship between the individuals? 112It is clear that Mr Crawford and Mr Battye entered into an agreement to pursue a particular venture even before they put pen to paper in any way. There were, in due course, two written agreements, one of 23 June 2006 and the other of December 2007. Each was prepared by Mr Crawford. There is no evidence of negotiation leading to the formulation of the terms signed by both. The parties also caused GVH to be incorporated so that it could be used in connection with their venture (whether or not as a trustee does not particularly matter). They became directors and took equal shareholdings. 113The individuals became associated together to pursue a common purpose. Their relationship was based on a mutual confidence that they would engage in a particular activity for their joint advantage only. This is an adaptation of words used by Mason J, Brennan J and Deane J in United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49 ; (1985) 157 CLR 1 at 12-13. But as their Honours observed (at 10), there is a distinction between a joint venture in this sense and "a simple contractual relationship", albeit a distinction that "may on occasion be blurred". 114There thus arises for consideration a question about co-existence of, on the one hand, contractual duties and those emerging from a specific form of legal structure (such as a company) and, on the other, fiduciary duties more broadly; or perhaps more accurately about the capacity of a contract or other legal structure to provide the foundation for a fiduciary relationship. In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 (at 97), Mason J said: "In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction." 115Hospital Products was a case in which a limited fiduciary obligation was found to co-exist with contractual obligations. The source of it was the overseas company's having entrusted its Australian distributor with the protection, promotion and custodianship of its product goodwill in Australia. The matter was explained by Mason J in this way (at 101): "U.S.S.C., by entrusting H.P.I. with a responsibility for protecting and promoting the market for U.S.S.C.'s products in Australia, effectively constituted H.P.I. the custodian of its product goodwill in this country. Its responsibility in procuring orders, making sales and effecting deliveries of U.S.S.C.'s products in Australia armed H.P.I. with a power and discretion to affect U.S.S.C.'s product goodwill. And in exercising this responsibility H.P.I. had a special opportunity of acting to the detriment of U.S.S.C. which was, accordingly, vulnerable to the abuse by H.P.I. of its position." 116As French CJ, Gummow J, Hayne J, Heydon J and Kiefel J pointed out in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 ; (2010) 241 CLR 1 (at [93]), the finding of fiduciary duty in Hospital Products came from the circumstance that the overseas party was "a remote principal lacking the capacity to observe what was happening half the world away" and in a situation where the Australian distributor was the only person in touch with the Australian market and thus positioned so as to enrich itself at the overseas principal's expense. This, their Honours said, created the principal's "vulnerability to the distributor's abuse of its position. 117Vulnerability of some kind, coupled with reliance, is thus identified as the source of fiduciary duty. In relation to the particular case before it, the High Court said in John Alexander's Clubs Pty Ltd (at [83]): "The only vulnerability of the Club was that which any contracting party has to breach by another. The only reliance was that which any contracting party has on performance by another. If JACS committed any breach of contract, it was quite open about it. If the Club could have established that JACS was in breach of contract, it had an ample array of contractual remedies to protect itself. It chose not to do so. It spoke of the difficulty of a social club giving an undertaking as to damages, and of the inutility of damages to a social club which wishes to continue its past activities in a new guise on the same site. It also said that monetary remedies against impecunious companies like JACS and Poplar were worthless. These factors do not justify converting the contractual relationship between JACS and the Club into a fiduciary relationship." 118The High Court cases show that three factors will be crucial to the resolution of the question whether a fiduciary relationship or a fiduciary duty exists between parties associated together under some recognised legal structure (such as a contract or company shareholdings) not of its nature productive of fiduciary consequences: the nature and incidents of that recognised legal structure; whether there exists a special kind of vulnerability or reliance; and whether there is a strong degree of trust and custodianship. 119In the present case the contracts into which the parties entered and the way in which they became associated through GVH are, of themselves, not sufficient to permit a finding of fiduciary duty. Mr Battye's claims based on breach of fiduciary duty can be sustained only if the facts disclose some vulnerability on his part and related reliance by him warranted by circumstances existing over and above the relationships created by the contracts and through the company. He must be seen to be "specially disadvantaged, vulnerable or in need of the protection of equity from the [other party's] misuse of a superior position": Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; 217 CLR 315 at [112]. He must show himself to be in a position akin to that of a partner whose credit can be pledged by any other partner in the ordinary course of the partnership business and whose relationship with the other person is based on mutual trust and confidence; or a party to a joint venture in which the participants are committed to pursue the particular activity for their joint advantage only. 120As a director of GVH, Mr Crawford owed fiduciary duties to the company itself, but no fiduciary duty as such to Mr Battye as one of the shareholders. Any such fiduciary duty arising in the company context could only come from circumstances over and above the director relationship: Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538. 121The evidence shows that the written agreements of 23 June 2006 and December 2007 were peripheral to the individuals' relationship and were in no sense a comprehensive charter of rights and obligations (compare, for example, Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1). The first agreement was concerned only to set out the basic principle of equal participation in a venture based on the Garland Valley property and the roadhouse and to record that Mr Crawford had "paid his share to date in full" (which, if it were intended to mean that he had contributed $500,000 in cash and kind was demonstrably false) and that Mr Battye had paid $2,500 (presumably the $2,500 associated with Mr Page) and was to contribute a further $497,500 in cash. The second written agreement was also directed towards providing evidence that Mr Crawford had paid his way - Mr Battye, by that time, had put up cold hard cash to the tune of more than $480,000 while such contribution as Mr Crawford had made was of a much less tangible kind. 122The parties obviously did not intend the two written agreements - both, as I have said, prepared by Mr Crawford - to define and regulate their relationship beyond the basic principle of 50/50 participation in a venture involving the particular property. 123Nor can it be accepted that the venture as originally conceived became subsumed in the company in such a way that the rights of the individuals as directors and shareholders (and as beneficiaries of any trust) came to supersede the originally agreed plan. There is no evidence that the company ever engaged in any meaningful activity beyond establishing a bank account that never became operative, purchasing the Garland Valley property and the roadhouse business, entering into the supposed lease with Defined Garden (and perhaps some form of letting to Mr and Mrs Lamb) and making the secured borrowing from FFS. Before the company was established, the vast bulk of the money that had been contributed for the purposes of the venture was put into the sole custody of Mr Crawford and under his sole control. I refer to the cheque in his favour for $420,000 dated 18 September 2006: see paragraph [97] above. Otherwise, the contributed money was paid to Mr Ingledew by means of the cheque for the two deposits under the two contracts ultimately entered into by GVH. 124After it came into existence on 10 October 2006, the company never held any money. The takings from the roadhouse business went into Mr Crawford's sole account, as did the proceeds of the company's borrowing from FFS. He had already received the $420,000 125There is no evidence that there were ever meetings of directors or shareholders of GVH or that any company law formalities were observed. There were no books of account or financial records of the company. Nor is there evidence of any other company records. There is no evidence that any of the money actually deployed in the acquisition of the Garland Valley property and the roadhouse was ever recognised as having come into the possession of GVH - even notionally or constructively - as subscription moneys on shares or as the proceeds of shareholder loans or otherwise. 126In a real and substantial sense, the individuals conducted their affairs with minimum attention to the existence of the company. They regarded themselves as in business together. The company existed on paper but did not feature prominently in their thinking. 127The fact that Mr Crawford, from September 2006 (that is, within just a few months after the parties' venture began), had sole custody and control of the money of the venture put him in a position of significant ascendancy. The money could not be spent unless he let it be spent. And it could be spent even if Mr Battye did not want it spent. Mr Crawford also had control, in fact, over discussions and negotiations with all relevant third parties: Mr Ingledew, Mr Page, Defined Garden, the potential mini-golf developer, the Lambs, the first valuer, the finance broker, FFS and the solicitors who acted on the various transactions. There is no evidence that Mr Battye dealt in any meaningful way with any of these persons. He signed what he was asked by Mt Crawford to sign. Indeed, his evidence is that, in some cases, he had only a vague idea of what was happening in relation to the various third parties. He thought that Mr Crawford was experienced in business matters. He knew that he had no such experience himself. He was content to stay at Glen Innes, making only occasional visits to the roadhouse which was several hours' drive away. And when he was there, he was content to keep to himself at the back of the property and to take what can only be regarded as ineffectual token steps on undefined administrative matters. 128Mr Battye's lack of possession of and control over money, his remoteness in Glen Innes, his exclusion (to some extent self-imposed or, at all events, not unwelcome) from business decision-making and business activities and his personality (as described at paragraph [107] above) combined to place him in a position of vulnerability vis-à-vis Mr Crawford; while Mr Crawford's unchecked control over the purse-strings, his virtually unchecked and unchallenged taking of all initiatives and his positive personality traits put him into a position of ascendancy over My Battye. 129It is not to the point for Mr Crawford to say that Mr Battye could have involved himself had he chosen to do so or that, for example, he could have demanded explanations and reconciliations regarding the cash under Mr Crawford's control. Mr Battye, in his evidence, made it clear that he considered himself to have a right of "audit". But he never exercised any such right. His attitude, until 2010, was that he trusted Mr Crawford. 130The conclusion must be that, given the factual context in which the individuals co-existed and dealt with one another, Mr Crawford owed fiduciary duties to Mr Battye. The legal structure based on the two written agreements and the company did not (and were not intended to) cover the field so far as mutual rights and obligations were concerned. That structure was subsidiary and peripheral to the personal relationship in which Mr Crawford had ascendancy and Mr Battye occupied a position of vulnerability and reliance. And Mr Crawford exercised, particularly in relation to money, custodianship carrying with it a very high degree of trust. 131Mr Crawford was therefore under a fiduciary duty to act in all relevant things so as to promote and protect the joint interests of Mr Battye and himself and to subordinate his own separate interests to those joint interests.

Breach of fiduciary duty? 132Mr Battye puts forward four broad matters as entailing breach of fiduciary duty by Mr Crawford: first, the making of an untrue representation that the market value of the Garland Valley property and the roadhouse business was $1 million; second, the making of an untrue representation in the 23 June 2006 agreement that he had paid his share of the proposed purchase price; third, that, whereas Mr Battye contributed $481,241.53 to the venture (by paying that sum into the joint bank account), Mr Crawford never contributed any material sum and took control over the whole of the money of the venture (except the $38,000 paid to Mr Ingledew by means of a cheque drawn on the joint account) and put it into his own sole bank account; and, fourth, that Mr Crawford took the roadhouse business and operated it for himself. 133As to the first matter, Mr Battye gave evidence of Mr Crawford's having said to him on several occasions (all unidentified except that one was said to have been on the riverbank at Windsor) that the land and the business had a market value of $1 million. Mr Crawford denies this. He accepts, however, that in late 2006 or early 2007 he represented that the future value of the joint venture could approximate $1 million, having regard to the value of the property and the business and their potential. 134It is much more likely that Mr Crawford was, as he says, speaking of potential rather than present value when he mentioned the sum of $1 million. The agreement of 23 June 2006 proceeded on the basis that the parties were to contribute $500,000 each for equal shares in the venture. This implied a $1 million investment overall but not, I think, a $1 million present value of the property. 135I find that Mr Crawford did not make the particular $1 million representation alleged by Mr Battye. 136Mr Crawford did, however, make the second representation upon which Mr Battye relies, that is, a representation, in the 23 June 2006 agreement, that Mr Crawford had made his contribution towards the proposed purchase price of the Garland Valley property and the business. It is not, however, possible to conclude that, as Mr Battye alleges, that representation was false. Mr Crawford had obtained the line of credit from St George by mid-2006 and it may well be that funds from that source had been contributed by him. 137As to the third aspect of the case Mr Battye seeks to make, it is not possible to conclude that Mr Crawford never contributed any material sum to the venture but I am satisfied that Mr Crawford took substantially all of the funds of the venture and put them into his own bank account. Furthermore, he never gave Mr Battye any account of the way in which the moneys had been applied. 138Mr Crawford's status as a fiduciary, coupled with his assumption of possession of and control over the funds of the joint venturers, put him into a position where he was required to account to Mr Battye for any benefit or gain obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. This formulation appears in the judgment of Deane J in Chan v Zacharia [1984] HCA 36: (1984) 154 CLR 178 at 199. In addition, he was not, of course, entitled to regard or treat those moneys as his own. He became a trustee of the moneys. From that it follows that he came to occupy a position described as follows by Gummow J in Blackwell v Bray (1992) 35 FCR 584: "One of the essential elements of a private trust is that the trustee is subject to a personal obligation to hold and deal with the trust property for the benefit of the beneficiaries, and a necessary incident of that obligation is the liability of the trustee to account to the beneficiaries for his stewardship of the trust property. That being so, a further necessary incident of the control of the trust property by the trustee is the trustee's obligation to keep proper accounts and to allow inspection of them by the cestui que trust: see Spellson v George [(1987) 11 NSWLR 300] at 315-6." 139Mr Crawford did not account for his stewardship of the moneys he held on trust. In that way, he failed in the performance of a duty owed by him. It is not to the point for Mr Crawford to say that the arrangement under which the moneys of the joint venture were put into his sole possession was consented to by Mr Battye. A trustee does not avoid his or her fundamental duty simply because a beneficiary agrees to the transaction or arrangement that gives rise to the trust. If the trustee is to avoid a finding of breach of duty, he or she must establish, by way of defence, that appropriate disclosure was made and consent was given. This is because, as Brennan CJ, Gaudron J, McHugh J and Gummow J made clear in Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 467, the fiduciary has no duty to obtain an informed consent from the person to whom the fiduciary duty is owed, rather "the existence of an informed consent would have gone to negate what otherwise was a breach of duty". 140There is no basis for a finding that Mr Crawford was, by some informed consent of Mr Battye, absolved of the duty to account for his stewardship of the moneys of the venture - much less that he was absolved of the duty to use those moneys for the purposes of the venture. 141The fourth matter put forward by Mr Battye in support of the contention that Mr Crawford breached a fiduciary duty is his alleged conduct in conducting the roadhouse business on his own account and for his own benefit. Mr Battye points, in that respect, to evidence that, while an "entity" of a "type" described as "hybrid trust" and named "The Trustee for Garland Valley Trust" obtained an Australian Business Number, it was never registered for goods and services tax; whereas, in respect of the period 1 November 2006 to 30 June 2008, Mr Crawford himself was registered for goods and services tax for the trading name "Halfway Roadhouse". This indicates that a business of that name may have been operated by Mr Crawford during that period; and that, in turn, is consistent with the evidence that it was Mr Crawford who was engaged full-time in the operation of the roadhouse from its acquisition until the letting to Mr and Mrs Lamb and that Mr Crawford banked the takings into his own account and paid the business expenses himself. 142To the extent that Mr Crawford, in these ways, utilised the joint venture assets and goodwill and received moneys attributable thereto (at the same time meeting outgoings), he did so for the benefit and account of the venture and came under a duty to account accordingly. Again, there is no basis for a finding that Mr Crawford was, by some informed consent of Mr Battye, absolved of that duty. 143In the relation to the third and fourth matters about which Mr Battye complains, there was breach of fiduciary duty by Mr Crawford.

Consequences 144Mr Battye's cross claim against Mr Crawford seeks an order that has the effect of imposing a constructive trust in Mr Battye's favour. As counsel for Mr Crawford pointed out, however, such an order could only ever be appropriate if made in respect of property or a fund somehow involved in the breach of duty. Here, no such property is identified: the Garland Valley property (which was, in any event, owned by GVH) has been sold by the receivers and there is no evidence that Mr Crawford now has in his hands any money that could be regarded as property of the joint venturers. 145Counsel for Mr Battye emphasised that the cross claim also seeks whatever other order is appropriate to the circumstances. And it is, in any event, the duty of the court to make whatever orders are needed to produce a final determination of the parties' controversy: see Supreme Court Act 1970, s 62; Civil Procedure Act 2005, s 90; Uniform Civil Procedure Rules 2005, rule 36.1. The court should nevertheless not make a particular order not expressly sought unless and until the affected parties have had an opportunity to be heard. 146That notwithstanding, the court may indicate a preliminary view about the relief that should be granted. 147The appropriate course, in my view, is to draw an analogy with a partnership of two members having equal interests. That, after all, was the substance of the joint venture relationship between the two individuals as formulated and agreed to by them at inception. Where one such partner is in breach of the fiduciary duty he owes to the other, the defaulting partner will be required to pay to the other anything that is found to be due to the other partner upon the taking of an account. 148Another relevant principle is that where a trustee or other fiduciary lays out money in breach of duty and thereby suffers loss or obtains gain, the trustee or fiduciary must make good the loss from his or her own pocket or surrender the gain to the person entitled to the money wrongly applied. 149A difficulty is that Mr Battye, while able to point to several sums that passed into the sole control of Mr Crawford, is not in a position to make complete and precise allegations as to particular suspected defaults of Mr Crawford. The position is the same as that described by Latham CJ in Peninsular and Oriental Steam Navigation Co v Johnson [1938] HCA 16; (1938) 60 CLR 189 at 220-221: "Some defaults have been proved. The circumstances are such as to suggest that there may be others, and accordingly there should be an appropriate order for a general inquiry with a full disclosure of all relevant documents." 150The present situation is complicated to some extent by the fact that the parties created GVH and conducted part of their joint enterprise through that company. It is not, however, possible simply to look through GVH and to treat its property, entitlements and liabilities as those of the two individuals. Apart from anything else, GVH owes a substantial sum to FFS (albeit a sum payment of which is guaranteed by Mr Crawford and Mr Battye) and FFS, as well as any other creditor of GVH, is entitled to look to the company itself for satisfaction before any entitlement of Mr Crawford and Mr Battye to GVH's assets is recognised. In a practical sense, neither FFS nor any other creditor of GVH is likely to obtain anything from the company which, at least on the evidence before me, has no assets from which debts of more than $2.2 million may be met. 151My inclination is to think that the court should direct that an inquiry be made into the disposition and application by Mr Crawford of all moneys received by him out of the joint bank account of the two individuals, upon advance of the loan made by FFS to GVH, from and in connection with his operation of the roadhouse business and otherwise in the course of the individuals' joint venture; and that an account be taken accordingly, with Mr Crawford then being obliged to make payment to Mr Battye upon the principles referred to at paragraphs [147] and [148] above. 152Mr Crawford and Mr Battye should, however, have an opportunity to make submissions on the appropriate form of orders before any orders are made. Indeed, they may be able to agree the appropriate form. 153That leads to a point of practicality. As there will be judgment in favour of FFS against Mr Crawford and Mr Battye jointly and severally in a sum exceeding $2.2 million, it is possible that there will be no practical utility, from Mr Battye's point of view, in taking advantage of orders of the kind just outlined. It is also possible that administration in bankruptcy may emerge relatively quickly in relation to one or both of the individuals. 154My inclination, therefore, is to order judgment in favour of FFS against Mr Crawford and Mr Battye upon receipt of the updated certificate referred to at paragraph [85] above but to allow a period before hearing submissions on the form of the orders to be made upon Mr Battye's cross-claim against Mr Crawford. 155For the present, therefore, I make the following directions:

Direct that Fast Financial Solutions Pty Ltd do, within seven days, produce and submit to Mr Crawford and Mr Battye for their consideration an updated certificate as referred to in paragraph [85] of reasons published on 10 February 2012. 2, Direct that Mr Crawford and Mr Battye do, within seven days after receipt of such updated certificate give to Fast Financial Solutions Pty Ltd in writing such comments thereon, if any, as they wish to give.
Direct that a copy of the updated certificate and all such comments, if any, be furnished promptly to my Associate.
Direct that the legal representatives of Mr Crawford and Mr Battye confer on the form of relief to be granted in favour of Mr Battye and against Mr Crawford conformably with the reasons published on 10 February 2012. 156If there is no matter of controversy arising in relation to the updated certificate, judgment will be given in favour of FFS and against Mr Crawford and Mr Battye jointly and severally without further reference to the parties. 157I also direct that the proceedings be listed before me for mention at 9.30am on 19 March 2012 for submissions regarding relief to be awarded in favour of Mr Battye and against Mr Crawford.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 February 2012

Trade Practices Act 1974(Cth)

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Judgment (18 paragraphs)

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