Franks v Equitiloan Securities Pty Ltd

CATCHWORDS : CONTRACT - formation - variation - when ongoing commercial relationship involving series of transactions - identification of operative terms - MORTGAGES - construction - where higher rate of interest payable unless mortgagor satisfies certain conditions obliging mortgagee to accept lower rate - whether mortgagee entitled in events that happened to charge higher rate interest. - EQUITY - estoppel - promissory estoppel - where mortgagee represents that nothing will happen on expiry of loan - whether mortgagee estopped from charging higher rate interest. - RESTITUTION - where higher rate interest to which mortgagee not entitled paid under protest to obtain discharge - where mortgage assigned by original mortgagee to itself and related company - where original mortgagee received benefit of overpayment - whether original mortgagee or assignee liable to give restitution. - CONTRACT - consideration - whether contractual rights to profit share supported by consideration. - CONTRACT - construction - no question of principal. - CONTRACT - termination - repudiation - where mortgagee acts in accordance with strict legal right which it is estopped from insisting upon - whether repudiatory - acceptance - necessity for acceptance - whether repudiation accepted.

Ajayi v R T Briscoe (Nigeria) Limited [1964] 1 WLR 1326; 3 All ER 556 Crabb v Arun District Council [1976] Ch 179 CASES CITED : Franks v Equitiloan Securities Pty Limited [2007] NSWSC 706 Franks v Equitiloan Securities Pty Limited [2007] NSWSC 812 Legione v Hateley (1983) 152 CLR 406 Waltons Stores (Interstate) Limited v Maher (1987-1988) 164 CLR 387

Phillip Maurice Franks (plaintiff) Equitiloan Securities Pty Limited (first defendant) Equitiloan Limited (second defendant) PARTIES : Wayne McIvor (third defendant) Mark McIvor (fourth defendant) Equitiloan Limited (first cross-claimant) Equitiloan Securities Pty Limited (second cross-claimant) Windy Dropdown Pty Limited (cross-defendant)

COUNSEL : Mr M S Willmott SC w Mr M W Sneddon (plaintiff/cross-defendant) Mr M G McHugh w Mr A Di Francesco (defendants/cross-claimants)

SOLICITORS : DTA Lawyers (plaintiff/cross-defendant) Tucker & Cowen (defendants/cross-claimants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4333/00 Phillip Maurice Franks v Equitiloan Securities Pty Ltd & ors JUDGMENT 1 HIS HONOUR : The plaintiff Phillip Maurice Franks is the assignee of a cause of action which Windy Dropdown Pty Ltd, a company of which he was the beneficial owner and controlling mind, brought against the first defendant Equitiloan Securities Pty Ltd and the second defendant Equititrust Limited (formerly known as Equitiloan Ltd) - and their directors the third defendant Wayne McIvor and the fourth defendant Mark McIvor - for restitution of $303,064 said to have been overpaid by Windy Dropdown to Equitiloan Securities on discharge of a loan contract and mortgage (being interest purportedly charged at the "higher rate" under those documents), and of a further $236,715.47 paid by Windy Dropdown to Equititrust under what is said to have been the mistaken belief that the obligation to pay it - under a profit-share agreement - was enforceable, when it was unsupported by consideration moving from Equititrust. Equititrust cross-claims against Windy Dropdown (which is now subject to a deed of company arrangement) for further profit share, under the profit-share agreement, of $722,879.78. Equitiloan Limited - now Equititrust -managed the Equitiloan Merchant Bank, although Equitiloan Securities advanced the funds. For convenience, although at relevant times the second defendant was named Equitiloan Limited, I will refer to it by its present name Equititrust in order to distinguish it from the first defendant.

2 The main issues are: · whether the concept of higher rate interest was only capable of being given meaning and context by reference to a Credit Facility Agreement made on 20 August 1998 between Windy Dropdown, Equitiloan Securities and HGR Nominees, and if so whether that agreement continued to have application after March 1999 when a new facility commenced; · whether any event which entitled Equitiloan Securities to charge the higher rate had occurred;

· whether Equitiloan Securities was estopped from charging higher rate interest;

· whether the obligation to pay profit share under the Profit Share Agreement was unsupported by consideration moving from Equititrust; and

· whether, upon the proper construction of the Profit Share Agreement and in the events that happened, it related only to Lots 14 and 15 and not to the other lots, and/or any entitlement of Equititrust to profit share was contingent on its on-going involvement in the funding of the development, and/or the Profit Share Agreement was terminated before any right to profit share in respect of lots other than lots 14 and 15 had accrued.

3 In the late 1990s, Windy Dropdown was the proprietor of a development site at North Curl Curl being Lot 8 in DP224946, which it proposed to subdivide into nine lots, ultimately designated lots 10 to 18 in DP881696. It sought finance from Equitiloan Securities. By letter dated 3 August 1998, Equititrust, on behalf of Equitiloan Securities, offered Windy Dropdown a $5.1 million "progressively drawn down variable rate loan facility for one year", specifying that the security required would be a first mortgage over Lot 8 (which was the entire property before subdivision), a guarantee and indemnity by Mr Franks, and a fixed and floating charge over the assets and undertaking of Windy Dropdown, and that the interest rate would be "10.25% (for prompt payment) payable monthly in advance". By letter dated 4 August 1998, Windy Dropdown accepted that offer. Neither the offer nor the acceptance was expressed to be subject to contract or further documentation. Neither referred to any credit facility agreement. The form of the documentation indicates that the parties intended to be immediately bound, and there is nothing to suggest the contrary.

4 However, on 20 August 1998, Windy Dropdown, Equitiloan Securities and HGR Nominees entered into a Credit Facility Deed, the schedule to which reflects the terms of the letter of offer of 3 August 1998. It specified that the loan was repayable 12 months from the date of the agreement. It referred to the same securities as the letter of offer. It specified the higher interest rate as 16.25per cent, and the lower rate as 10.25 per cent. It contained the following definition of "money secured" (emphasis added): "Money Secured" includes: (a) the Loan Amount;

(b) all moneys hereby deemed to be principal in arrears ;

(c) all money now or hereafter owing or payable to the Lender by the Borrower , and/or the Security Provider either alone or jointly with another person now or in the future, whether directly or indirectly or contingently under this Credit Facility Deed or on any other account whatsoever , and including all such money arising from: (i) any guarantee, deed, indemnity, bond, account, document or other agreement in writing including the Security;

(ii) interest payable on the Money Secured including interest which has been capitalised ;

(iii) interest on any judgment entered by the Lender against the Borrower, and/or the Security Provider in respect of the Money Secured;

(iv) all costs, expenses or losses incurred or sustained by the Lender in relation to any failure by the Borrower or the Security Provider to comply with the terms of the Security; and

(v) all advances, further advances, loans, credits or financial accommodation whether made created or given on or before the signing hereof or that may hereafter be made created or given by the Lender in its absolute discretion to for or on account of or at the request of the Borrower and/or the Security Provider ; …

AND SHALL where the context so admits mean and include any part of the Money Secured. 5 "Security" was defined as follows (emphasis added): "Security" means each and every document, agreement or other security provided from time to time which secures the payment of the Money Secured or the performance of obligations of the Security Provider in favour of the Lender, which may be executed or provided by the Security Provider or any other person ( including this Credit Facility Deed , those documents described in Item 9 and any additional security provided in accordance with clause 4.1(c) hereof); 6 Clause 3, entitled Repayments, relevantly provided as follows (emphasis added): 3.1 The Borrower will pay to the Lender the total amount outstanding of the Money Secured on the date stipulated in Item 5 of the Schedule or such other day as agreed in writing by and between the parties hereto.

3.2 Interest under this Credit Facility Deed shall be calculated on the Money Secured or on so much thereof as remains outstanding and upon any judgment or order in which the liability of the Borrower under this Credit Facility Deed may become merged at the Higher Rate in accordance with the provisions of this clause. Such interest shall be: (a) computed from the day on which the Lender makes the first advance on account of the Money Secured;

(b) calculated and charged on the daily outstanding balances to the Borrower's account with the first such payment of interest being payable on the date set out in Item 8 on account of the Money Secured with subsequent payments being due and payable on the days referred to in Item 8 of the Schedule whilst the Money Secured or part thereof remains outstanding; and

(c) in the event of default in payment such interest shall be added to the Money Secured and thereafter such capitalised interest shall bear interest at the Higher Rate determined in accordance with this clause. 3.3 If the Borrower: (a) shall on every day on which interest is payable under this Credit Facility Deed pay to the Lender interest on the Money Secured or so much thereof as shall from time to time remain unpaid under this Credit Facility Deed at the Lower Rate; and

(b) shall also duly observe and perform all the terms, covenants and conditions contained in and implied by this Credit Facility Deed; then the Lender shall accept payment of the interest calculated and charged at the Lower Rate for every such instalment of interest payable under this Credit Facility Deed.

3.4 If the Lender shall at any time obtain judgment for all or any of the Money Secured such judgment shall until satisfied bear interest at the higher Rate.

3.5 The Borrower shall repay to the Lender the Money Secured and interest thereon by the number of instalments specified in Item 8 and in such amount specified in Item 8 . Such payments shall be made through the PD-C System or as otherwise stipulated by the Lender from time to time by notice in writing to the Borrower.

… 7 Clause 5 (Continuing Security), provided as follows: 5.1 This Credit Facility Deed shall be a continuing and running security notwithstanding any settlement of account or any other matter or thing whatsoever and shall remain in full force and effect until the Lender shall be under no further obligation whatsoever to advance further moneys under the Security and all moneys payable by the Borrower and/or the Security Provider under the Security have been paid or recovered in full and the Lender has executed a full release hereof. 8 Clause 6, entitled Events of Default, was relevantly as follows (emphasis added): 6.1 The Borrower shall at the option of the Lender be immediately in default without the necessity for any notice or demand upon the occurrence of any of the following events of default: (a) the Borrower and/or the Security Provider fails or neglects to pay on the due date for payment any part of the Money Secured, or any interest or other moneys payable at the time and in the manner provided by this Credit Facility Deed or under any Security; or

(b) The Borrower and/or the Security Provider fails or neglects to observe or perform any of the covenants conditions or agreements contained in this credit Facility Deed and the Security; or

…; AND a determination by the Lender that any of these events has occurred shall be final and binding on the Borrower. The Borrower shall promptly inform the lender in writing upon the happening of any of the events described in this clause. 9 Special Covenant 13(e) was as follows: (e) After the twelve (12) month loan term has expired and no deed of extension has been executed by the parties, the higher rate of interest is payable until either:

10 On 20 August 1998, the parties also entered into a mortgage of the Windy Dropdown property, to Equitiloan Securities (as to 61.78 per cent) and to HGR Nominees (as to 39.22 per cent) as tenants-in-common. The first advance under the credit facility was made to Windy Dropdown on 4 September 1998. The subdivision was registered on 19 November 1998. Lot 10 was sold prior to registration, by contract dated 31 October 1998, for $1.6 million. 11 On 11 November 1998, Equititrust, on behalf of Equitiloan Securities, sent to Windy Dropdown a further letter of offer, offering a "loan increase" of $400,000 to $5.5 million, specifying as the interest rate "10.25% (for prompt payment) payable monthly in advance", and as the requisite security a first mortgage over Lots 10-19 in the subdivision, and a variation of the existing mortgage. The letter did not refer to the 1998 Credit Facility Deed, nor to any other documentation. Windy Dropdown accepted this offer. 12 On 10 March 1999, Equititrust, on behalf of Equitiloan Securities, forwarded to Windy Dropdown a further letter of offer, of a "fixed rate loan facility for one year" in the amount of $6.25 million, for the purpose of paying out syndicate members (a reference to HGR Nominees) ($1,050,000), paying out existing Equitiloan debt ($4,100,000), capitalising interest ($300,000) and construction of two houses on the subdivision ($800,000). It specified, as the security required, a first mortgage of Lots 11-18 in the subdivision, a guarantee and indemnity by the directors of Windy Dropdown, a fixed and floating charge over the assets and undertaking of Windy Dropdown, and a tripartite agreement between Equitiloan Securities, Windy Dropdown and the builder. The interest rate was again specified as "10.25% (for prompt payment) payable monthly in advance". However, paragraph 6 provided that interest would be capitalised monthly based on the balance drawn down, and paragraph 10, entitled Special Conditions, relevantly contained the following: 1. Provision of partial releases of the security held will be subject to the terms agreed in the profit share agreement between Windy Dropdown Pty Ltd and Equitiloan Limited;

2. Provision of funds to assist with the payout of existing syndicate members will be conditional upon satisfactory execution of the profit share agreement.

13 Windy Dropdown accepted this offer. On 8 April 1999, consistently with the 10 March 1999 letter, Windy Dropdown and Equitiloan Securities entered into a variation of mortgage, which increased the amount secured to $6.25 million. The particulars of title of the security were amended to reflect the new Lots 11-18, in place of the previous single lot. A recital in the mortgage declared that although the principal was still outstanding, there had been no default. Clauses A and B were relevantly as follows (emphasis added): A. In consideration of the premises the Mortgagee HEREBY COVENANTS AND UNDERTAKES with the Mortgagor that the Mortgagee will not vary the Higher Rate set out in Item 6 of the Schedule or the Lower Rate set out in Item 7 of the Schedule during the currency of the said Mortgage as set out in Item 8 of the schedule. B. And in further consideration of the Premises and of the covenants on the part of the Mortgagee hereinbefore contained the Mortgagor HEREBY COVENANTS AND UNDERTAKES with the Mortgagee: (a) To pay interest on the principal sum monthly in advance as provided by the said Mortgage from the day of 1999, at the Higher Rate herein stated PROVIDED THAT if payment of interest shall be made on or before the due date as specified in the said Mortgage and if throughout the preceding month all covenants conditions and agreements on the Mortgagor's part contained or implied in the said Mortgage have been observed and performed the Mortgagee shall accept interest at the Lower Rate herein stated clear of all deductions but without prejudice to the right of the Mortgagee to require payment of interest at the Higher Rate for any month in which interest shall not be paid within the time aforesaid or in which the covenants and conditions shall not be performed or observed as aforesaid;

(b) To duly observe and perform all and singular the covenants on the Mortgagor's part and the provisos conditions and agreements contained or implied in the said Mortgage PROVIDED ALWAYS that nothing herein contained shall in any way prejudice the covenants by the Mortgagor in the said Mortgage nor the rights powers and remedies of the Mortgagee under the said Mortgage and in respect of any antecedent or future breach of the covenants provisos conditions or agreements contained in the said Mortgage;

(c) …. 14 The schedule provided that the higher rate was 16.25 per cent and the lower rate was 10.25per cent, and that the principal sum was repayable on 4 September 1999 (which was one year from the first draw down under the 1998 Credit Facility Agreement); this did not accurately reflect the 12 month term of the March 1999 facility.

15 Windy Dropdown and Equititrust also entered into the Profit Share Agreement contemplated by the 10 March letter of offer, which is a central document in the case. Though dated 10 May 1999, Windy Dropdown had executed it by 26 March. Clause 2 provided as follows (emphasis added): 2. Syndicate Payout Facility and Construction Facility Equitiloan Securities agrees to advance the Syndicate Payout Facility and the Construction Facility to Windy Dropdown upon Windy Dropdown fulfilling the pre-requisite loan conditions in clause 3 and upon terms which are contained in the Letter of Offer. 16 Other provisions of the Profit Share Agreement related to the construction of two houses on the subdivision, the machinery for ascertaining the entitlements of the parties to profit share, and the application of proceeds of lots sold in connection with partial discharges of the mortgage. Clause 6.1 relevantly provided as follows: 6.1 The parties agree that the Net Sale Proceeds arising from the sale of each lot which comprises part of the Development Site is to be apportioned as between Equitiloan [Equititrust] and Windy Dropdown as follows:

(a) Equitiloan [Equititrust] is to receive the greater of that amount which equals 6% of the Net Sale Proceeds or 6% of the minimum sale price set for the particular lot which is sold. Equitiloan [Equititrust] acknowledges that this amount is its profit share from the sale of a lot and that upon receipt of this sum, Equitiloan [Equititrust] shall have no further claim to profits arising from the sale of that particular lot;

(b) That amount which is calculated by applying the following formula shall be paid to Equitiloan Securities in repayment of principal due in respect of the Facilities. This amount shall be referred to as the "Principal Repayment Amount". The formula is: A x B = D C Where: A = the Net Sale Proceeds or the minimum sale price whichever is the greater set for the particular lot which is sold.

C = the total minimum sale price set for the sale of the particular Lot and all remaining Lots unsold at the relevant time on the Development Site referred to in schedule C or as set by Equitiloan Securities from time to time. If a house is constructed on a particular lot in accordance with clause 7, then the value under the column headed "With House" shall be used in this calculation.

B = the total amount of principal due and owing from time to time under the Facilities.

D = Principal Repayment Amount; (c) That amount equal to 4% of the minimum sale price or 4% of the Net Sale Proceeds (whichever is the greater) shall be paid to Equitiloan Securities in reduction of capitalised interest accrued on the Facilities;

(d) The balance of the Net Sale Proceeds may be retained by Windy Dropdown or at the discretion of Windy Dropdown be paid to Equitiloan Securities in reduction of principal, but subject to any provision in the Letter of Offer of Loan between Windy Dropdown and Equitiloan Securities relating to early repayment. 17 The Profit Share Agreement did not contain provisions pertaining to the advancing or repayment of loans, nor provisions relating to events of default, such as are usually found in security documentation. Clause 17 provided as follows: 17. Entire Agreement This agreement constitutes the entire agreement of the parties and supersedes all prior agreements, understandings and negotiations entered into in respect of the matters set out herein. 18 By letter dated 7 July 1999, Equititrust, on behalf of Equitiloan Securities, offered Windy Dropdown an increase of $260,000 in the facility to assist the construction of the two houses, which specified an interest rate of 10.25 per cent for prompt payment, variable in accordance with movements in the National Australia Bank indicative lending rate, and "capitalised within the approved limits". Clause 6 provided that interest would be capitalised monthly. Clause 10 (Special Conditions) relevantly provided (emphasis added): 10. Special Conditions

1. Provision of partial releases of the security held will be subject to the terms agreed in the profit share agreement between Windy Dropdown Pty Ltd and Equitiloan Limited;

2. Provision of funds to assist with the payout of existing syndicate members will be conditional upon satisfactory execution of the profit share agreement. 19 Windy Dropdown accepted this offer on 9 July 1999. A letter dated 9 July 1999 from Equititrust to Windy Dropdown confirmed a draw down of $60,000 effective that day, adding "Your interest payment due on 4th August 1999 shall be in the sum of $47,246.39 with all future payments as per the enclosed mortgage statement", which stated that the interest rate was "16.25% reducible to 10.25%"; that the loan was repayable on 4 September 1999; and that the next payment - $75,020.83 for late payment and $47,320.83 for early payment - was due on 4 October 1998 (presumably intended to be 1999). 20 On 6 September 1999, Equititrust issued a further mortgage statement, recording that the interest rate was "16.25% reducible to 10.25%"; and that the loan was repayable on 4 September 1999. On 18 November 1999, Equititrust issued yet another mortgage statement, again stating that the interest rate was "16.25% reducible to 10.25%", but this time that the loan was repayable on 4 September 2000; this change apparently anticipated a proposed extension of the loan, an offer of which was conveyed in a letter dated 14 December 1999 from Equititrust, on behalf of Equitiloan Securities, to Windy Dropdown, involving an increase in the facility of $120,000 and an extension of the term to 4 September 2000, with an interest rate of 10.25per cent for prompt payment, variable in accordance with the National Australia Bank indicator lending rate. Clause 8 of the 14 December letter (Special Conditions) was relevantly as follows (emphasis added): 8. Special Conditions

1. It is hereby agreed between the parties that notwithstanding that the Credit Facility deed entered between the parties dated 20th day of August 1998 (the Credit Facility Deed) provides for the monthly payment of interest the parties agreed that interest on the Principal Sum would be capitalised to a maximum amount of $300,000.00 and that the Borrower, having exhausted the agreed limit of such interest capitalisation has committed an Event of Default under the Credit Facility Deed and that the Lender is entitled to act in accordance with its rights upon default as set out in the Credit Facility Deed and the Security documentation set out in item 5 above.

2. Pursuant to the Profit Share Agreement the Borrower agrees that sale prices for lots comprising the Property must be first agreed to in writing by the Lender and the Borrower and that the Borrower shall only act with the Lenders prior written agreement in the marketing of the lots comprising the Property. 21 By letter dated 23 December 1999, Equititrust confirmed approval of the increase of $120,000, subject inter alia to variation of the existing Credit Facility Deed. 22 On 19 January 2000, McIvor Coghlan, solicitors for Equitiloan Securities, wrote to Windy Dropdown, enclosing a copy of Equititrust's letter of 14 December 1999 and continuing (emphasis added): You will see from your review of the enclosed letter of offer and relevant documentation that our client has approved the increased facility on condition that a number of prerequisites are satisfied. Rather than repeating such conditions in this letter, we have been instructed to advise that our client believes that they have demonstrated considerable good faith in working with you and that such good faith is further demonstrated by their approval of the increased facility limit. However, the commercial realities of the situation are that sales must be expected shortly after the auction campaign or our client will take control of the marketing, albeit sensitively . To that end a default notice will issue though any action will be delayed until the outcome of the auction is determined . 23 On 27 January 2000, McIvor Coghlan wrote to Windy Dropdown: We refer to the above matter and note that the lender and borrower were unable to agree to the terms and conditions as set out in the lender's letter dated 14 December 1999.

Accordingly, any further advances made to complete the dwellings will be advanced without express approval and will form part of the "moneys secured" under the Credit Facility Deed, the mortgage and other relevant security documentation between the parties dated 20 August 1998. All rights are reserved. 24 According to Mr Franks, he was conscious that the loan documentation in force had the effect that the term expired in March or April 2000, and as that date approached became more active in his attempts to refinance, and in the course of conversations with Mr Wayne McIvor said: "I am very concerned about what will happen in April. Do you propose to do anything about the loan?", to which Mr Wayne McIvor replied: "I can assure you that nothing will happen . If everything is proceeding properly, we are more than happy to continue with the project. We will continue to fund the project". Mr Franks says that he was comforted by those statements, and relied upon them in deciding to cease his attempts to refinance; his evidence to that effect was unchallenged. 25 In his affidavit evidence, Mr Wayne McIvor deposed to having received a telephone call from Mr Franks in about March 2000, in which Mr Franks asked "What is going to happen in March in relation to the expiry of the loan?", and he replied "Phil, at this point in time all we are concerned with is getting the houses finished ". In his affidavit, he denied having said that nothing would happen with the loan, but in cross-examination he conceded that he had said ("under conditions"): "I can assure you nothing will happen if everything is proceeding properly. We're more than happy to continue with the project", adding "We will continue to fund the project". He accepted that at no time in his dealings with Mr Franks between March and May 2000 did he refer to the fact that the loan was in default, and that he did not talk with Mr Franks about the default; he said that he did not know why he did not then say "the loan will go onto the default rate ". He was asked: Q. Did you think that to say to Mr Franks that his loan was in default and he would be charged default interest would infuriate him? A. Absolutely.

Q. Was that your reason for not telling him that at the time? A. If we had told - if we had as I believed the letter of offer said in '99 he was in default, the status of the loan hadn't changed the following year, it was still in default. I didn't raise it and I didn't wish to infuriate him. We weren't on good terms. 26 Ultimately, little turns on the differences between the competing versions of these conversations. Generally speaking, I think Mr McIvor's version is more probably correct where there is a difference: Mr McIvor's evidence seemed more founded on recollection and less on impression than that of Mr Franks, and there was nothing in it to suggest overstatement or embellishment.

27 On 23 March 2000, Equitiloan Securities and Equititrust executed a transfer of the mortgage, and a deed of assignment of the mortgage, Credit Facility Deed and Fixed and Floating Charge, from Equitiloan Securities to itself and Equititrust. The assignment of the existing mortgagee's interest to Equititrust had been foreshadowed in a letter from Equititrust to Mr Trodden on 23 December 1999, as a condition of the approval of the increase in the facility of $120,000, upon which agreement was ultimately not reached. There is no evidence that the transfer of mortgage has been registered. 28 On 17 April 2000, Equititrust forwarded to Mr Franks a "printout of loan statement as requested", up to 31 May 2000. Interest was calculated at 10.25 per cent throughout. In the column headed "Default", nothing was specified. Mr Mark McIvor explained that the computer system did not provide for inclusion of interest at the higher rate, which was calculated and applied retrospectively, and a loan statement which did not include a claim for interest at the higher rate was therefore not intended to waive any right to default interest; however, what the document objectively conveyed to Windy Dropdown is more significant than the subjective intention of Equitiloan Securities and its directors in this respect. 29 Sales were negotiated of Lots 14 and 15, on which houses had been constructed, for $2,551,000 and $1,600,000 respectively. In the light of these better than expected prices, Windy Dropdown's solicitors David Trodden & Associates, by letter to Mr Wayne McIver dated 9 April 2000, proposed an application of the proceeds of sale of Lots 14 and 15 on a basis more favourable to Windy Dropdown than that to which it was strictly entitled under the Profit Share Agreement: We refer to your recent conversations with our Mr Trodden and with Mr Franks.

We expect that settlement of the sale of the above property will occur prior to Easter and, in this regard, we would be grateful if you would prepare the necessary Discharge of Mortgage and have it available for settlement together with the Certificate of Title.

We note the terms of clause 6.1(b) of the joint venture agreement in terms of the apportionment of the sale proceeds from the sale of the property. Upon consideration of the clause against the background of the current circumstances, it is obvious that it is impossible for a strict application of the clause to produce a sensible result. This is principally for the reason that the sale price of Lot 15 and the expected values of the other lots have greatly exceeded the expectations of almost everyone (with the possible exception of Mr Franks) to the point where to use the values contained in Schedule C of the joint venture agreement in calculating the apportionment can not produce any sensible result. The sale price of Lot 15 exceeded the value attributed to it in Schedule C by $500,000.00 (or 45%) and in all probability, the sale price of Lot 14 will exceed expectations by $1,200,000.00 (or 75%). This huge increase in the value of the properties is, of course, to the great benefit of both your client and our client. However, to use the values contained in Schedule C of the joint venture agreement in calculating the apportionment will produce the following silly result:

Net sale proceeds x Principal Outstanding Minimum values ie Net Sale Proceeds x 7,000,000 (Estimated) 7,900,000 ie Net sale proceeds x 88.6% When this amount is added to the profit share which is payable to you, the result achieved will be that on Lot 15 our client will have achieved a sale price which is 45% in excess of the budgeted outcome and on Lot 14 he will have achieved a sale price which is 75% in excess of the budgeted outcome and yet it will receive no cash consideration from the sale. The clause was never designed to have this effect. It was designed to ensure that as properties were sold, your net equity position did not worsen but stayed at the same level. Similarly, it is designed to ensure that our client could, on the sale of a lot, realise its net equity in the lot if it wished to do so or, alternatively, pay a portion of it to you in reduction of your principal. Given these underlying objectives, we believe that it is proper that current values as assessed by your estate agent, Ray White Manly should be substituted for the values in Schedule C so that the principal is reduced in a fashion that does not worsen your net equity position and so that our client is also able to retain the net equity which it has from the particular lot when it is sold. Thus, the original objective of both your bank and our client in relation to the clause would be achieved.

Ray White Manly advise us that the total value of the remaining lots on the site is $11,350,000.00. We enclose a copy of their letter in this regard. On the basis of this value, we suggest that the principal reduction on the sale of lots 14 and 15 be 61.67% of the net sale proceeds being the principal of $7,000,000.00 (estimated) divided by the total value of the lots being $11,350,000.00.

We look forward to receiving your confirmation as to the above.

30 This proposal was not accepted, but there were discussions about the application of the proceeds at a further meeting between Mr Franks and the McIvors on 5 May 2000, when a proposal on behalf of Windy Dropdown that it retain an amount slightly in excess of $1 million from the sale proceeds was, if not accepted, at least not rejected. In the course of that meeting, projections in respect of the project were provided to Mr Franks, which included a reference to interest rates at 10.25 per cent. Although this was in reference to interest on development costs, as distinct from the debt to Equitiloan Securities, if Equitiloan Securities were to remain the financier it would be one and the same thing, and suggested that the applicable rate of interest remained 10.25 per cent. In the course of the conversation, Mr Wayne McIvor made reference to the possible building of further houses on other lots, as had been contemplated in earlier discussions and correspondence. My preference for Mr McIvor's evidence does not extend to his assertion that these feasibility studies were only to establish issues of value, and that the McIvors were not contemplating funding further lots but had made up their mind to sell; to my mind, the contents of the documentation are consistent only with contemplation of involvement in the development of additional lots, and coupled with the McIvors' words and conduct did convey that they were considering continuation of finance for the project, including for buildings on lots in addition to lots 14 and 15.

31 Following this meeting, the McIvors and Mr Franks lunched together in an apparently cordial and pleasant atmosphere. According to the McIvors, they did not mention the loan being in default, as their concern at the time "was to ensure to maximise the return on the defendant's security and to ensure that the sale of the houses was effected". Indeed, Mr Wayne McIvor is emphatic that there was no discussion about the interest rate, but recalls that he said to Mr Franks: "Look, Phil, we are not going to break your balls if you get these houses finished and sold in a timely fashion". In the course of his oral evidence, Mr McIvor agreed that he knew that Mr Franks was concerned about the April expiry date of the loan, and that one way of "breaking his balls" would be by charging him default interest; and though he added that his intent by that expression was to refer to the exercise of a power of sale and taking the project out of Mr Franks' hands, there is no reason why Mr Franks would necessarily have understood it in so limited a sense. 32 On 19 May 2000, Mr Trodden wrote to Mr Wayne McIvor that completion of the sales was imminent and that arrangements had been made for settlement of Lot 14 for 23 May, setting out a proposal under which Windy Dropdown would retain $1,015,000 from the total proceeds of the 2 lots.

33 On 1 June 2000, Mr Trodden had a telephone conversation with Mr Mark McIvor, in which Mr McIvor said that Equitiloan Securities would provide partial discharges only in return for the whole of the proceeds of each of the lots. Thus, despite the apparently cordial discussions of 5 May, including of the proposal that Windy Dropdown retain an amount slightly in excess of $1 million from the proceeds of the sales of Lots 14 and 15, on 2 June 2000, only days before the anticipated completion of those sales, Equitiloan Securities indicated that it would require the whole of the proceeds to be paid to it. Following that conversation, on 2 June 2000, Mr Trodden wrote to the McIvors, objecting to their resiling from the position - which it was alleged they had induced Mr Franks to assume - that slightly in excess of $1 million from the proceeds of sale would be released to Windy Dropdown.

34 As it transpired, Mr Franks - to the considerable annoyance of the McIvors - contrived to retain about $660,000 of the proceeds, paid by the purchasers as deposits or directly to Windy Dropdown, although $360,000 of it was subsequently paid to Equitiloan Securities. According to Mr Mark McIvor [Affidavit sworn 9 November 2000, par 13(b) and (c)], upon settlement of the sale of Lot 14 on 7 June 2000, Equitiloan Securities received $1,275,000 on account of principal and $523,981 on account of interest, a total of $1,798,981, while Equititrust received $144,381, being its profit share; this is despite only a single cheque being drawn apparently in favour of Equititrust [as suggested by the directions for payment by Mr Trodden dated 5 June 2000]. Similarly, according to Mr McIvor, upon settlement of Lot 15 on 28 June 2000, Equitiloan Securities received $807,305 on account of principal and $27,741 on account of interest, a total of $835,046, while Equititrust received $92,334, being its profit share. This treated Equitiloan Securities as the recipient of the funds other than profit share.

35 On 10 July 2000, Equitiloan Securities wrote to Mr Franks: "We are obliged to make various decisions as to the status of your loan", and sought details of the strategy for the sale of the remaining allotments, indicating that "upon provision of this information we shall advise of our requirements". On 17 July, Equitiloan Securities sent Mr Franks a facsimile letter, as follows: I note I have had no response to my facsimile of 10th July requesting marketing strategy for the balance of allotments. Your loan term has expired and as such is repayable on demand. Failing a satisfactory response to our facsimile by close of business on Wednesday (19th July) I shall cause default notices to issue.

36 That letter apparently crossed with a reply from David Trodden & Associates also of 17 July, which contained a proposal for the sale of Lots 12 and 13 as vacant land, and the marketing of Lot 18 on the basis of a sale from plan of a completed dwelling. Equititrust responded on 18 July that the proposal was not accepted, indicating that it had requested a marketing programme from Ray White Manly, which it would afford Windy Dropdown the opportunity to peruse and consider, but (emphasis added) " If we do not receive full co-operation we shall have no alternative but to exercise our power of sale". 37 Thus Equitiloan Securities, while threatening to exercise its rights, was refraining from doing so, and indicating that it would continue to so refrain provided Windy Dropdown gave full co-operation. Mr Trodden wrote again on 18 July 2000, requesting that documentation to make the loan compliant be forwarded for approval.

38 In a letter dated 26 July 2000, Mr Trodden asserted that Windy Dropdown had relied upon representations made by Equitiloan Securities - to the effect that Equitiloan Securities intended to see the project through, and would not precipitously take any steps to threaten the opportunities to maximise returns under the Profit Share Agreement by purporting to exercise the power of sale or taking other steps that would reduce Windy Dropdown's effective control of the site - and sought assurance that Equitiloan Securities would not take any step adverse to Windy Dropdown's interests or inconsistent with the Profit Share Agreement, concluding, "Our client, wishing to maintain and improve the cordiality of relationships, does not make any ultimatum at this stage, but would appreciate a response to the above within, say ten days". Equitiloan responded on 3 August, as follows (emphasis added): We are not agreeable to your client controlling the marketing. This is in the hands of Ray White Manly and shall proceed in accordance with their advice. We likewise wish to maintain cordial relations. However, your client needs to understand that if he is unwilling to co-operate with the marketing efforts proposed we shall exercise our rights as proposed. The Profit Share Agreement in no way ameliorates these rights. Please advise by return the status of moneys to be released to us from trust account. Upon receipt of these moneys and upon your client confirming his co-operation we are happy to consider a further advance to your client for cash flow purposes. 39 On 15 August, Mr Trodden wrote to Mr Mark McIvor, relevantly: In the spirit of pragmatism and advancing the project, our client has confirmed our instructions regarding the release of the funds held in trust to you. Our client does so upon the basis of your representations in the final paragraph of your letter of 3 August, 2000 (and earlier discussions) regarding further future funding, carrying with them the implication that you will continue to support the project to the extent of your capacity. We look forward to receiving details of your on-going arrangements for bringing the project to final fruition. 40 The next relevant development was on 6 October 2000, when Mr Trodden wrote to Equitiloan Securities that Windy Dropdown wished to discharge the mortgage, requesting preparation of a discharge and a payout figure in readiness for settlement on 20 October 2000. The request was repeated on 10 October, 11 October, 16 October, 17 October and 19 October. On 26 October 2000, Windy Dropdown instituted these proceedings, for redemption of the mortgage. Equitiloan Securities [not Equititrust] served a Notice of Default on 27 October, asserting a default under Clause 14.1(a) of the mortgage by failure to repay the principal sum and accrued interest on 26 March 2000, and in permitting a creditor to lodge a caveat. 41 Mr Mark McIvor swore an affidavit on 11 November 2000 in which he deposed that as at 17 November the amount outstanding to Equitiloan Securities [not Equititrust] would be $5,051,846, which sum included interest at the higher rate of $252,078. In order to procure a discharge, Windy Dropdown paid, under protest, the whole amount demanded, including interest at the higher rate from March 2000 until settlement. Although Mr Franks contends that this amounted to $303,064, the only evidence that quantifies it suggests that the amount paid on account of interest at the higher rate was $252,090 [Affidavit of Mr Mark McIvor sworn 5 March 2003, par 28 and annexure MM4]. Having commenced these proceedings to compel Equitiloan Securities to discharge its mortgage, Windy Dropdown then amended its claim - the mortgage having been discharged - to recover, by way of restitution, first, from Equitiloan Securities, the amount paid as interest at the higher rate; and, secondly, from Equititrust, the amount which it had paid under the profit share agreement in respect of lots 14 and 15 in the subdivision.

42 Lots 11 and 12 subsequently sold for $2,750,000, with net sale proceeds (after commission of $68,750) of $2,681,250. Lot 13 sold for $4,275,000, with net sale proceeds (after commission, adjustments and costs of $100,605) of $4,174,395. Lot 16 sold for $1,150,000, with net sale proceeds (after commission of $28,750) of $1,121,250. Lot 17 sold for $3,000,000, with net sale proceeds (after commission, adjustments and costs of $44,284) of $1,155,716. And Lot 18 sold for $4,275,000, with net sale proceeds (after commission, adjustments and costs of $84,614) of $2,915,385. In due course, Equititrust brought its cross-claim for a further $722,880, said to be its six per cent share, under the profit share agreement, of the net sale proceeds of the lots other than lots 14 and 15. 43 Windy Dropdown went into voluntary administration, and Martin John Green and Peter Krezic were appointed its administrators. A meeting of creditors held on 13 August 2004 resolved that Windy Dropdown execute a Deed of Company Arrangement, which it did on 26 August 2004; one of the consequences was that Equititrust's cross-claim against Windy Dropdown was stayed. On 24 September 2004, Equititrust lodged a proof of debt with the deed administrators, claiming $24,000 in respect of costs awarded to it in earlier interlocutory aspects of these proceedings, and a further $722,000, being the profit share which is also the subject of its cross-claim in these proceedings.

44 On 1 September 2005, the administrators executed a deed assigning to the present plaintiff, Mr Franks, "any claim or cause of action by WDD against Equitiloan Securities in respect of or arising out of the dealings between WDD and Equitiloan Securities in relation to the development by WDD of property, being lot 8 in Deposited Plan 224946, at Molong Street, North Curl Curl, New South Wales, including but not limited to claims which WDD has against Equitiloan Securities". On 7 April 2006, the administrators rejected Equititrust's proof of debt in respect of the costs in part, and rejected it in respect of the profit share claim in toto . By originating process filed in proceedings 2473/06, Equititrust appealed from that decision of the administrators. A further deed, dated 10 July 2006, between Windy Dropdown and Mr Franks provided that, for avoidance of doubt, the subject matter of the assignment under the deed of 1 September 2005 "includes all matters relating or arising out of" these proceedings, "including the actions by WDD against all defendants in those proceedings, being Equitiloan Securities Pty Limited, Equitiloan Limited [Equititrust], Wayne McIvor and Mark McIvor". 45 Equititrust's appeal against the rejection of its proof of debt was fixed for hearing before White J to commence on 7 November 2006. The present proceedings had not yet been fixed for hearing, but a callover was imminent and the parties discussed the manner and sequence in which both cases should proceed. At that stage, Equititrust did not have leave to proceed with its cross-claim against Windy Dropdown, which leave was required by (CTH) Corporations Act 2001, s 444E. One of the proposals under discussion involved the possibility that Equititrust would defer prosecuting the appeal against the rejection of its proof of debt, and instead obtain leave to prosecute its cross-claim against Windy Dropdown in these proceedings, and that Equititrust and the administrators would agree to be bound, for the purposes of the appeal, by the decision of the Court in these proceedings. Thus, on 7 November 2006, the hearing of the appeal did not proceed; his Honour made no orders (as some formalities concerning the draft orders required further attention), but it is plain that all parties then envisaged that the hearing of the cross-claim (as part of these proceedings) was to proceed first, that Equititrust would be given leave to prosecute the cross-claim against Windy Dropdown, and that the hearing of the appeal from the rejection of the proof of debt would abide the outcome of the cross-claim, in respect of which the administrators agreed to be bound by the Court's decision. 46 Although it was envisaged that his Honour would in due course make orders in chambers when short minutes were brought in, that had still not been done when the matter came before me for pre-trial directions on 6 February 2007, when, by consent, I made the following directions: 1. Subject to paragraph 2, below, pursuant to section 444E(3) of the Corporations Act 2001, leave be granted to the Cross-Claimant, Equititrust Limited (formerly known as Equitiloan Limited) to begin and proceed with its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement).

2. The leave granted in paragraph 1, above, is conditional upon Equititrust Limited not taking any step to enforce any judgment obtained by it in relation to its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement) without further leave of the Court.

3. Pursuant to section 237(2) of the Corporations Act 2001, leave be granted to Phillip Maurice Franks to defend the Cross-Claim by Equitiloan Limited against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement), on behalf of Windy Dropdown Pty Limited (subject to Deed of Company Arrangement). 47 The final hearing commenced before me on 10 April 2007, when counsel for Equititrust made an application for leave to amend its Cross-Claim by substituting Mr Franks personally for Windy Dropdown as cross-defendant. On 11 April 2007, counsel for Mr Franks applied for an adjournment of the hearing of the application for leave to amend the Cross-Claim and, as a consequence, of the final hearing of the proceedings. That application succeeded, and the costs of the application and the costs thrown away by the adjournment were reserved to the further hearing of the application, which was adjourned to 6 July 2007 [ Franks v Equitiloan Securities Pty Limited [2007] NSWSC 706]. Upon the further hearing of the application, leave to amend the Cross-Claim was refused, there was no order as to the costs thrown away by the vacation of the hearing on and following 11 April 2007, and Equititrust was ordered to pay one half of Mr Frank's costs of the application for leave to amend [ Franks v Equitiloan Securities Pty Limited [2007] NSWSC 812].

Contentions 48 On his claim for restitution of the higher rate interest paid by Windy Dropdown to Equitiloan Securities, Mr Franks submits that Equitiloan Securities was not entitled to charge interest at the higher rate because: · The concept of higher rate interest was only capable of being given meaning and context by reference to the 1998 Credit Facility Agreement, and that agreement did not operate after March 1999; · There was no event that entitled Equitiloan to charge the higher rate; · Equitiloan Securities is estopped from charging higher rate interest. 49 On his claim for restitution of profit share paid by Windy Dropdown to Equititrust, Mr Franks originally contended that Equititrust was not entitled to the profit share under the Profit Share Agreement because the obligation to pay profit share was unsupported by consideration. This contention was abandoned (in anticipation of its inevitable rejection) in final submissions. However, Windy Dropdown continued to oppose Equititrust's cross-claim for profit share in respect of the other properties, contending: · That on its proper construction, the Profit Share Agreement related only to Lots 14 and 15 and not to the other lots; · That any entitlement to profit share was contingent on the on-going involvement of Equititrust and/or Equitiloan Securities in the funding of the development; and · That the Profit Share Agreement had been terminated, before any right to profit share in respect of the other lots had accrued. Was Equitiloan Securities unable to charge higher rate interest by reason of the 1998 Credit Facility Agreement not applying after March 1999? 50 This issue involves two subsidiary questions: the first is whether Equitiloan Securities' entitlement to higher rate interest was dependent upon the 1998 Credit Facility Agreement; and the second is whether that agreement had continued application after March 1999. 51 In an on-going and somewhat flexible commercial relationship, in which there are a series of inter-related transactions, separately recorded but with some common documentation, it is not always easy to identify where the current operative obligations are to be found: later transactions may modify earlier obligations, even though the earlier is more formally documented. Here, as the offer of 14 December 1999 was rejected, the last documented agreed terms were those contained in the letter of offer of 7 July 1999. In turn, that offer was expressed as an increase of the (then) existing facility, and what resulted from its acceptance is properly to be seen as a variation of the terms contained in the letter of 10 March 1999: it referred to substantially the same security as was mentioned in the 10 March 1999 letter (save that it substituted reference to a Variation of Mortgage for the Mortgage); and it repeated many of the Special Conditions applicable to the 10 March 1999 offer. It manifests an intention that the mortgage as varied secure advances pursuant to the letter of 7 July 1999, which included the advances mentioned in the letter of 10 March 1999. 52 The reference in the 7 July letter to an interest rate "for prompt payment" is to be understood in the context that the mortgage, as varied by the variation, specified higher and lower interest rates. For present purposes it is unnecessary to resort to the credit facility agreement: that the Variation of Mortgage imposed an obligation to pay interest at the higher rate, unless it was paid promptly and there was no default, was a matter of which all the parties were on notice as at 7 July 1999 at least. Thus even on assumption that the Credit Facility Agreement was no longer operative between the parties, an entitlement to charge interest at the higher rate in certain circumstances was conferred by the mortgage as varied. Accordingly, the entitlement to charge higher rate interest was not dependent on the Credit Facility Agreement, but was supported by the mortgage as varied, which unquestionably covered advances made after March 1999.

53 However, it is useful to consider in any event whether the Credit Facility Agreement had continued operation after March 1999. The 1998 Credit Facility Agreement was expressed to be in respect of a $5.1 million progressively drawn down variable rate loan facility for one year . The November 1998 letter was expressed as an increase of that facility to $5.5 million. The March 1999 letter referred to a $6.25 million fixed rate loan facility , which involved paying out HGR and clearing the existing Equitiloan Securities debt. This March 1999 facility was thus expressed to be a different facility, upon different terms, from the 1998 credit facility. Unlike the November 1998 letter, it did not purport to increase the existing facility, but to effect a "clearing" of the pre-existing facility and its replacement by another (different) facility. Some terms of the 1998 Credit Facility Agreement were inapt for the new March 1999 facility, particularly those terms as to interest and the duration of the facility. 54 While those considerations tell in favour of the view that the March 1999 facility replaced the 1998 facility, supporting the contention that the 1998 Credit Facility Agreement had no further operation, there are also contrary indications. First, none of the documentation relating to the replacement March 1999 facility contained any of the provisions one would expect to see as to the obligations of the borrower and events of default. Secondly, and more importantly, the express terms of the Credit Facility Agreement - including in particular the definitions of "money secured" and "security", clause 5 (Continuing security), and clause 6 (Events of default) - tell in favour of the 1998 agreement continuing to operate. Decisively, moneys advanced under the March 1999 facility fell within the definition of "money secured" (c)(v) in the 1998 Credit Facility Agreement, and the provisions of clause 5 specifying the requirements for its discharge were not satisfied in March 1999.

55 Although the December 1999 letter of offer contained a specific attempt on the part of Equititrust to incorporate the terms of the 1998 Credit Facility Agreement - which had not been done in the March 1999 or June 1999 letters - that is not inconsistent with the 1998 Credit Facility Agreement having remained operative in the meantime. As the December 1999 offer was not accepted, it cannot evidence any common intent of the parties; it is more accurately to be seen as an attempt by Equitiloan Securities to buttress its position, for more abundant caution, than as any admission that the 1998 Credit Facility Agreement had not applied in the interim. Even if the offer it conveyed had been accepted, so that some inference of common intent or understanding might be drawn, it would not have denied that the 1998 Credit Facility Agreement had otherwise remained operative to secure the intervening advances in any event. And although clause 17 of the Profit Share Agreement provides that that agreement constitutes the entire agreement of the parties and supersedes all prior agreements, that is limited by the words "in respect of the matters set out herein"; the circumstance that the Profit Share Agreement does not deal with advances, repayments or defaults, shows that it was not intended to replace existing agreements in respect of loans, but only to regulate the profit share and the matters specifically addressed in it.

56 Accordingly, the 1998 Credit Facility Agreement continued to apply to the arrangements between the parties after March 1999, and applied to further advances such as those made under the March 1999 facility, save insofar as the parties otherwise agreed. Thus where the parties subsequently agreed on terms inconsistent with it, the subsequent agreement overrode or varied the earlier one. However, Special Covenant 13(e) was not varied by any later document, with the result that the provision that after the twelve month loan term had expired, if no deed of extension had been executed, the higher rate of interest was payable, remained applicable and effective.

57 However, there was nothing in the letter of 7 July 1999, or subsequently, to vary the higher rate from 16.25 per cent, nor to make it variable as distinct from fixed. The express provision contained in the 7 July letter, making interest variable according to movements in the NAB indicator loan rate, referred only to the rate for prompt payment - that is, the lower rate - and not to the higher rate. Accordingly, on no view was Equitiloan Securities entitled to increase the higher rate above 16.25 per cent, as it purported to do when it calculated the charge for higher rate interest.

58 It follows that Equitiloan Securities was not unable to charge higher rate interest by reason of the 1998 Credit Facility Agreement not applying after March 1999. That Agreement continued to apply; moreover the ability to charge higher rate interest in appropriate circumstances was conferred by the mortgage as varied - which unquestionably had continued operation - as well as by the 1998 Credit Facility Agreement. However, Equitiloan Securities was not entitled to increase the higher rate above 16.25 per cent.

Was there an event entitling Equitiloan to charge interest at the higher rate? 59 Although that question conveniently describes the issue, it does not do so precisely, because under the loan documentation (the mortgage as varied, as well as the Credit Facility Agreement), the obligation of Windy Dropdown was to pay interest at the higher rate, unless those conditions that obliged Equitiloan to accept the lower rate were satisfied. Although the wording is different, in substance the conditions specified in the mortgage and in the Credit Facility Agreement were the same, namely (1) payment of interest on or before the due date, and (2) observance and performance throughout the preceding month of all relevant covenants, conditions and agreements on the mortgagor's part contained or implied in the mortgage [Variation of Mortgage, cl B(a); Credit Facility Agreement, cl 3.3]. As the obligation was to pay interest at the higher rate unless those conditions are satisfied, the legal onus of proving satisfaction of the relevant conditions is born by the mortgagor, who claims the benefit of the exception from the obligation to pay the higher rate. In addition to those provisions, under the Credit Facility Agreement [special covenant 13(e)] interest became payable at the higher rate upon expiry of the term of the loan, unless and until a deed of extension was executed. 60 Under the March 1999 facility, although Clause 5 (entitled "Interest Rate") referred to interest being payable "monthly in advance", Clause 6 (entitled "Payment of Interest") provided that interest would be capitalised monthly based on the balance drawn each month. This provision for capitalisation overrode any earlier obligation to pay periodical instalments of interest. In those circumstances, there was no obligation to make a payment of interest each month, save by way of capitalisation. The only due date for payment of interest was, in those circumstances, the date for repayment of the loan, namely twelve months after drawdown. 61 The July 1999 loan offer increased the amount of the facility. In respect of interest rate, it provided that interest would be calculated monthly on the amount drawn "and capitalised within the approved limits", also introducing a variable interest rate. As to payment of interest, however, it continued to provide: "interest will be capitalised monthly based on the balance drawn down". It contained no other provision for payment of interest. Accordingly, it did not impose any obligation to pay interest before termination of the loan, whereupon principal and capitalised interest was to be repaid. 62 It follows that, up until the date for capital repayment - twelve months after drawdown of the March 1999 facility, namely 26 March 2000 - there could be no failure to pay interest on or before the due date, and the first condition of eligibility for the lower rate was satisfied.

63 As to the second condition (performance of other relevant covenants, conditions and agreements), while the onus of proving absence of default in this respect lies on the mortgagor, in the light of the recital in the Variation of Mortgage dated 8 April 1999 that "The principal sum remains owing but all interest has been paid and the mortgagor is not in default under the said mortgage", the mortgagee bears at least a forensic or evidentiary onus of raising the issue. It was not suggested that there was any subsequent default - other than in respect of payment of interest - before March 2000, and Equitiloan Securities only ever claimed interest at the higher rate from March 2000. I accept that, until March 2000, Windy Dropdown performed and observed all other relevant covenants, conditions and agreements. 64 As to Special Covenant 13(e), the March 1999 facility was for a term of one year, expiring in March 2000. The parties never agreed to extend that term: although a mortgage statement issued on about 18 November 1999 stated that the loan was repayable on 4 September 2000, that was apparently in anticipation of the loan offer of 14 December 1999, which included a proposed extension to 4 September 2000, but was ultimately not accepted. As McIvor Coghlan's letter of 27 January 2000 to the directors of Windy Dropdown records, the parties were unable to agree to the terms and conditions of that offer, and there is no evidence of any reliance on any suggestion that an extension had in fact been granted. 65 As has been seen, the loan offer of 14 December 1999 (which, though bearing that date, was probably forwarded under cover of Equitiloan Securities' letter of 19 January 2000), included as a proposed special condition an assertion by Equitiloan Securities and an acknowledgment by Windy Dropdown of default on the basis that, whereas the Credit Facility Deed provided for the monthly payment of interest, the parties had agreed that interest would be capitalised to a maximum amount of $300,000, and that the borrower, having exhausted the agreed limit of capitalisation, had committed an event of default. Windy Dropdown did not agree to the terms of the 14 December 1999 letter, and I have concluded, above, that in light of the terms of the March and July 1999 letters of offer, there was no obligation to pay interest before March 2000; thus the assertion in the 14 December letter of an event of default in that respect was incorrect. 66 Mr M S Willmott SC, for Mr Franks, submitted that the term of the March 1999 facility should be construed as "one year or such further period as may be necessary to finalise the building and realisation of Lots 14 and 15 ". He submitted that there could not be a contractual default until Lots 14 and 15 had been completed and sold as contemplated by the Profit Share Agreement. I do not accept this submission, which was advanced essentially on two bases. Insofar as it was suggested that such a term should be implied, it is neither obvious nor necessary to give business efficacy to the contract. It is commonplace for loan agreements to be for specified terms, even though the project which the loan is to fund may not necessarily be completed within the term. That is a risk that the borrower/developer conventionally assumes. Implication of such a term would place the lender at the mercy of the vagaries of the construction industry, and there is simply no reason to suppose that the parties would have contemplated such a position. 67 The submission was advanced also on the basis that, under the profit share agreement, Equititrust and Windy Dropdown were joint venturers who owed fiduciary obligations to each other. While there are undoubtedly many contexts in which an agreement to share profit can evidence a partnership or joint venture, that is not always so. Consideration of the terms of the Profit Share Agreement as a whole does not suggest that these parties intended to assume the fiduciary obligations inter se of joint venturers. In this case, the profit share was simply a different means of remunerating the financier for the risk it was assuming, and empowering it to control the project to protect its interests. The powers which were conferred on the financier in respect of the project were by way of securing its position, rather than by way of distributing responsibilities between joint venturers. I do not accept that this Profit Share Agreement imported relevant obligations of a fiduciary character. 68 Neither principal nor capital was repaid upon expiry of the loan in March 2000. Accordingly, from that point there was a failure to pay interest when due, and the first condition entitling Windy Dropdown to pay at only the lower rate was no longer satisfied. Moreover, Special Covenant 13(e) in the schedule to the Credit Facility Agreement had the effect that, the twelve month loan term having expired without any deed of extension having been executed, the higher rate of interest was payable. On either view, Windy Dropdown was not eligible for the lower rate of interest after March 2000, and as a matter of strict legal right Equitiloan Securities was entitled to charge the higher rate of interest from that date. Is Equitiloan Securities estopped in equity from insisting on payment of interest at the higher rate from March 2000? 69 Mr Willmott SC submitted that if, as a matter of strict legal right, Equitiloan Securities was entitled to charge the higher rate of interest from March 2000, nonetheless Equitiloan Securities was precluded from insisting on its strict legal right to be paid interest at the higher rate by a promissory estoppel arising from the course of dealing between the parties from early 2000.

70 The doctrine of equitable promissory estoppel was explained by the Privy Council in Ajayi v R T Briscoe (Nigeria) Limited [1964] 1 WLR 1326, 1330; 3 All ER 556, 559: The principle, which has been described as quasi estoppel and perhaps more aptly as promissory estoppel, is that when one party to a contract in the absence of fresh consideration agrees not to enforce his rights an equity will be raised in favour of the other party. This equity is, however, subject to the qualifications (1) that the other party has altered his position, (2) that the promisor can resile from his promise on giving reasonable notice, which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position, (3) the promise only becomes final and irrevocable if the promisee cannot resume his position.

71 The scope of the doctrine, which was accepted in Australia in Legione v Hateley (1983) 152 CLR 406, 420-1 (Gibbs CJ and Murphy J), 437 (Mason and Deane JJ), has since expanded beyond pre-existing contractual relations, and in Australia has been authoritatively described by Brennan J, in Waltons Stores (Interstate) Limited v Maher (1987-1988) 164 CLR 387, 428-9, in the following terms: In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.

72 Thus in equitable promissory estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of a legal relationship with the defendant; (2) that the defendant has induced or acquiesced in the plaintiff's adoption of that assumption; (3) that the plaintiff has acted in reliance on its assumption; (4) that the defendant knew or intended that the plaintiff so act; and (5) that it will occasion detriment to the plaintiff if the assumption is not fulfilled [ Waltons v Maher , 428-9 (Brennan J)]. Promissory estoppel, a creature of equity, is, typically, focussed on the conscience of the defendant: it operates when the defendant has induced, or acquiesced in, the adoption by the plaintiff of an assumption that the defendant will not assert its strict legal rights, so as to prevent unconscientious insistence by the defendant on those rights. It is essential to an equitable estoppel that the defendant knows or intends that the party who adopts the assumption will act or abstain from acting in reliance on it [ Crabb v Arun District Council [1976] Ch 179, 188; Waltons v Maher , 423 (Brennan J)]. 73 McIvor Coghlan's letter of 19 January 2000 was to the effect that if sales did not follow shortly after the auction campaign, Equitiloan Securities would take control of the marketing, albeit sensitively , and to that end a default notice will issue, but any action would be delayed until the outcome of the auction was determined . McIvor Coghlan's letter to Windy Dropdown of 27 January 2000 was to the effect that, negotiations over the December 1999 letter of offer having failed, any further advances to complete the dwellings would be without express approval and would form part of the "money secured" under the Credit Facility Agreement, the mortgage and other relevant security documentation, and "All rights are reserved".

74 The critical communications are the conversation in March 2000 in which Mr Wayne McIvor assured Mr Franks that nothing would happen in April (at least so long as everything was proceeding properly), the statement of account of 17 April 2000 which conveyed that a rate of 10.25 per cent continued to apply and that there was no default, and the conversation of 5 May in which Mr Wayne McIvor said that Equitiloan Securities did not intend to "break your balls", in the context of absence of any reference to default or higher rate interest during that period.

75 Mr McIvor's statement in the March 2000 conversation, "I can assure you that nothing will happen if everything is proceeding properly", in the absence of any reference to default or higher rate interest, conveyed a representation that upon expiry of the loan term, Equitiloan Securities would not take action adverse to the interests of Windy Dropdown in reliance upon its strict legal rights, so long as the completion and sale of Lots 14 and 15 proceeded satisfactorily. That representation was reinforced by the loan statement of 17 April, and the conversation of 5 May. It induced Windy Dropdown to assume that Equitiloan Securities would not take action adverse to it upon expiry of the term of the loan, at least so long as Windy Dropdown was co-operative. In that context, Mr Franks' question "Do you propose to do anything about the loan", called for the qualification, if it was the case: "Of course, the loan will go onto the default rate".

76 Mr Franks' evidence that he relied upon the March 2000 representation, by ceasing his attempts to refinance, was not challenged. He demonstrated that he had the capacity to refinance, when he did so in October 2000.

77 The absence of any reference on behalf of Equitiloan Securities to default or higher rate interest was not mere oversight, but deliberate; Equitiloan Securities viewed Mr Franks as a difficult customer and felt that any allegation of default or suggestion of higher rate interest would infuriate him and derail the project from progress towards completion and sale of Lots 14 and 15. When Equitiloan Securities told him that nothing would happen, they knew he was concerned about the consequences of expiry of the loan. I am thoroughly satisfied that Equitiloan Securities knew and intended that Windy Dropdown and Mr Franks would rely on the statement that nothing would happen upon expiry of the term of the loan. 78 The elements of a promissory estoppel are, therefore, established. From March 2000, Equitiloan Securities was estopped from insisting on its strict legal right to take action adverse to Windy Dropdown in reliance upon expiry of the loan (including by charging interest at the higher rate), so long as the sale and realisation of Lots 14 and 15 proceeded satisfactorily. 79 As is the case with many promissory estoppels, this was a position from which Equitiloan Securities was entitled to resile, but only upon giving reasonable notice. Equitiloan Securities' letter of 17 July 2000 threatened the issue of default notices "failing a satisfactory response to our facsimile by close of business on Wednesday (19th July)". A response was provided by that date, and even if it were not satisfactory to Equitiloan, did not result in the issue of default notices then. That was not notice of intention to resile from the estopped position; rather, it signified adherence to the estopped position so long as the condition (a "satisfactory response to our facsimile") was met. Equitiloan Securities' letter of 18 July 2000, indicating that a program of sale had been requested from Ray White Manly and "we shall be proceeding in accordance with their advice" concluded " If we do not receive full co-operation we shall have no alternative but to exercise our power of sale" - again, the threat was conditional (upon not receiving full co-operation), and it left open the distinct possibility (if not preference) of not exercising the power of sale. It said nothing about higher rate interest. It was insufficiently explicit to amount to reasonable notice of intention to resile from the estopped position.

80 Mr Trodden's letter of 18 July 2000 refers to "Mark McIvor's comment regarding further documentation to make the loan compliant", requesting that such documentation be forwarded for approval; this is entirely consistent with the view that Equitiloan Securities would continue to refrain from exercising its strict legal rights while the position was regularised. 81 Equitiloan Securities' letter of 3 August 2000 contained the sentence: However, your client needs to understand that if he is unwilling to co-operate with the marketing efforts proposed we shall exercise our rights as proposed. 82 The corollary is that if he were willing to co-operate , Equitiloan Securities would continue to refrain from exercising its rights. This was not notice of intention to resile from the estopped position. 83 Accordingly, until it served Notice of Default on 27 October 2000, Equitiloan Securities had not given reasonable notice of its intention to resile from the estopped position. Until then, it was estopped from insisting on its strict legal rights under the loan documentation by taking action detrimental to the interests of Windy Dropdown in reliance upon pre-existing defaults. It follows that when Windy Dropdown demanded a payout figure, Equitiloan Securities was not entitled to insist on higher rate interest. Mr Franks, as Windy Dropdown's assignee, has made good the case that despite its strict legal entitlement to higher rate interest from March 2000 until discharge of the facility, in equity Equitiloan Securities was not entitled to higher rate interest for that period, and must make restitution of the sum so charged. 84 Mr M G McHugh submits that as a result of the assignment of the mortgage and securities by Equitiloan Securities to itself and Equititrust, and any overpayment of interest can be set-off against any profit share that remains due to Equititrust. Although the claims for relief in the Further Amended Statement of Claim may not have been as felicitously expressed as possible, it was clear at least from the outset of the hearing that the claim for restitution of the overpaid interest was brought against Equitiloan Securities. The evidence of Mr Mark McIvor established that Equitiloan Securities lent funds on behalf of investors who deposited money with it and held the mortgages securing the advances, acting as a trustee, while Equititrust was a merchant bank and managed the mortgage lending scheme. The 23 March 2000 assignment was for regulatory compliance reasons, and was not intended to affect the beneficial interests: the consideration was expressed to be $1. I have referred, above, to the on-going treatment of Equitiloan Securities as the real lender despite the 23 March 2000 assignment. On the available evidence, I infer that Equitiloan Securities, not Equititrust, received the benefit of the payment on 17 November 2000 of principal and interest - including in particular the higher-rate interest. This is consistent with the manner in which Mr Mark McIvor explained that the proceeds of Lots 14 and 15 were applied. Accordingly, it is Equitiloan Securities, not Equititrust, that is obliged to give restitution. 85 On that basis, no question of set-off arises, as the debtor to Mr Franks (as assignee of Windy Dropdown) is Equitiloan Securities, a different legal entity from Windy Dropdown's creditor Equititrust. There are not mutual debts capable of being set-off. Was the $236,715 profit share paid mistakenly? 86 Mr Franks, as assignee of Windy Dropdown, originally claimed restitution of the $236,715 previously paid pursuant to the Profit Share Agreement upon the sale of Lots 124 and 15, on the footing that it had been paid under the mistaken belief that there was an enforceable obligation to do so, when - so it was said - the obligation was unsupported by consideration moving from Equititrust. In final submissions, Mr Willmott SC abandoned this contention. In my view that concession was rightly made. While it is true that, on the face of the recitals in the Profit Share Agreement, consideration moves from Equitiloan Securities and not from Equititrust, it is well established that even where consideration is stated in a formal agreement, evidence is admissible to show that there was other consideration. The evidence establishes that, in respect of each loan facility and variation, an establishment fee was charged by and paid to Equititrust. The inference is that Equititrust procured Equitiloan Securities to make the relevant advances, and that itself is consideration moving from Equititrust.

87 Moreover, on the face of the Profit Share Agreement, there was consideration moving from Equititrust: clause 8.2 provided as follows: 8.2 Equitiloan [Equititrust] agrees to pay Philip Franks a project management fee of 2.5% of the gross construction cost. 88 Further, even if there were no consideration moving from Equititrust, there was plainly consideration moving from Equitiloan Securities, which could enforce a contractual obligation of Windy Dropdown to make a payment in favour of a third party, or another party to the contract. There was, therefore, an enforceable obligation to make the payment of profit share, even if it were not enforceable by Equititrust. 89 It follows that Equititrust's profit share entitlement was supported by consideration, and there was no such mistake as had been contended. Accordingly, the claim for restitution of profit share paid to Equititrust was rightly abandoned. The Cross-Claim 90 Equititrust cross-claims for the profit share in respect of the other lots. It is common ground that if Equititrust is entitled to profit share in respect of lots other than Lots 14 and 15, the quantum of that entitlement is $722,880. Windy Dropdown resists the cross-claim on three grounds: · That, properly construed, the Profit Share Agreement related only to the two lots on which houses were built (in the events which happened, Lots 14 and 15) and not to the other lots; · That the Profit Share Agreement was contingent on the on-going involvement of Equitiloan Securities and Equititrust in the funding of the development; and · That the Profit Share Agreement had been terminated before any right to profit share in respect of lots other than Lots 14 and 15 had accrued. 91 Clause 7 of the Profit Share Agreement, entitled "Construction Approval", is concerned only with two lots, selected by Equititrust, on which houses were to be constructed; for this purpose, Equititrust selected Lots 14 and 15. But that is because Equititrust had agreed to provide construction finance only in respect of two lots. Whereas Clause 7, relating to construction finance, was concerned with two lots only, Clause 6, relating to profit share, was concerned with "each lot which comprises part of the Development Site". It is instructive that Clause 6.1 fixed the amount of profit share according to whether or not the minimum price was achieved, so as to guarantee to Equititrust six per cent of the greater of the minimum selling price and the actual sale proceeds, and in conjunction with Schedule C fixed a minimum selling price, on alternative "with house" and "without house" bases, for every lot, not just Lots 14 and 15. There is nothing to suggest that Equititrust's profit share entitlement was to be limited to the two lots on which houses were to be built. All the textual pointers are to the contrary. The circumstance that "without house" calculations were included, as well as "with house" calculations, shows that it was contemplated that the profit share would be applicable regardless of whether houses were built. I therefore reject the submission that, properly construed, the Profit Share Agreement entitled Equititrust to profit share only in respect of the two lots on which houses were built. 92 As to the argument that, under the Profit Share Agreement properly construed, any entitlement of Equititrust to profit share was contingent on the on-going involvement of Equitiloan Securities in financing the project, the starting point is that there is no express provision to that effect. Again, it is instructive that Clause 6.1 and Schedule C provide minimum selling prices for all lots on a "with house" and a "without house" basis, contemplating that lots might be sold without houses, and therefore with no further finance provided by Equitiloan Securities. For Windy Dropdown it was submitted that Clause 6.1(b) was predicated upon a percentage of a principal repayment, but a principal repayment can be made from the proceeds of an undeveloped lot as well as from those of one on which a house is erected. I therefore reject the submission that under the Profit Share Agreement, properly construed, any entitlement of Equititrust to profit share was contingent on the on-going involvement of Equitiloan Securities in financing the project. 93 As to the argument that the Profit Share Agreement was discharged in respect of future rights and obligations by the refinance of the loan facility in October 2000, with the result that Equitiloan Securities is not entitled to profit share from lots sold after that date, again, there was no express discharge of the Profit Share Agreement. As the entitlement to profit share was not dependent on on-going finance of further houses on lots other than the first two to be developed, it follows that if Windy Dropdown proceeded without further finance - using its own resources or resources obtained from elsewhere - that would not detract from Equititrust's entitlement to profit share. There is no basis for any implication that the Profit Share Agreement was discharged, just because the loan was refinanced; nor can it be said that the Profit Share Agreement was so intertwined with the loan facility that refinance of the loan necessarily brought it to an end. Such an outcome would involve attributing to the parties an intention that Windy Dropdown could, by refinancing, deprive Equititrust of its profit share at any time, in respect of lots not yet redeveloped and sold. There is no basis for any such implication; indeed it would be contrary to the implicit obligation of each contracting party to do all things necessary on its part to enable the other to have the benefit of the contract. Under the Profit Share Agreement, Equitiloan's obligation was to fund the development of two lots. In return for that, it became entitled to profit share on all the lots, not just the two it funded. In that context, it would not make sense that refinance of the loan would bring to an end the Profit Share Agreement. 94 The final argument was that the Profit Share Agreement was terminated by Windy Dropdown, for repudiation by Equititrust. 95 Windy Dropdown contends that by insisting on payment of the whole of the proceeds of sale of Lots 14 and 15, Equitiloan Securities and Equititrust repudiated the Profit Share Agreement. Equitiloan Securities contends that, because the facility was in default, it was entitled to repayment in full and thus to the whole of the proceeds - not pursuant to the Profit Share Agreement, but pursuant to its securities. 96 If the facility was in default, Equitiloan Securities was entitled to repayment in full, which in turn would have entitled it to receive the whole of the proceeds of sale of Lots 14 and 15, notwithstanding the Profit Share Agreement. On the other hand, if the facility was not in default, Clause 6.1 of the Profit Share Agreement entitled Windy Dropdown to receive a share of the proceeds of sale of Lots 14 and 15 in connection with partial discharge of the security, and in that event it would have been inconsistent with the Profit Share Agreement for Equitiloan Securities to insist upon payment to it of the whole proceeds. 97 Although I have found that the facility was, strictly, in default by reason of the term having expired, I have also concluded that Equitiloan Securities and Equititrust were estopped from taking any action adverse to Windy Dropdown on that ground. That includes insisting on repayment in full - in effect, calling up the loan. For Equitiloan Securities to insist on repayment to it of the whole of the proceeds of Lots 14 and 15 was inconsistent with the state of affairs from which departure was precluded. Equitiloan Securities was not entitled to refuse to perform its obligations under the Profit Share Agreement, and its insistence on payment of the whole of the proceeds of Lots 14 and 15 to it was repudiatory. 98 However, repudiation only brings a contract to an end with respect to future obligations if it is accepted and the innocent party elects to terminate. There was never any express acceptance, nor any communication of a decision to terminate. Windy Dropdown contends that it accepted the repudiation by requesting a payout figure, and by refinancing. Neither of those acts was, in my opinion, an acceptance. Each is equally consistent with the Profit Share Agreement remaining on foot. Moreover: · on 18 July 2000, Mr Trodden requested that documentation to make the loan compliant be forwarded for approval; · on 26 July, Mr Trodden sought assurance that Equitiloan Securities would not take any step adverse to Windy Dropdown's interests or inconsistent with the Profit Share Agreement, and expressed his client's wish to maintain and improve the cordiality of relationships; and

· on 15 August, Mr Trodden wrote "in the spirit of pragmatism and advancing the project", confirming instructions to release the funds Mr Franks had appropriated from the proceeds of sale, on the basis of representations as to future funding and continued support for the project, anticipating arrangements for bringing the project to final fruition. 99 This correspondence was consistent only with an intention that the commercial arrangements between the parties - including the Profit Share Agreement - remain on foot. Despite the repudiation, Windy Dropdown affirmed the contract. Accordingly, I am unable to find that the Profit Share Agreement was terminated for repudiation.

100 It follows that Equititrust succeeds on its cross-claim, and is entitled to judgment for $722,000. Conclusion 101 The 1998 Credit Facility Agreement continued to apply after March 1999, insofar as subsequent arrangements were not inconsistent with it. Moreover, the entitlement to charge higher rate interest was also supported by the mortgage as varied. Equitiloan Securities was not unable to charge higher rate interest. However, Equitiloan Securities was not entitled to increase the higher rate above 16.25 per cent.

102 The provision for capitalisation under the March 1999 facility overrode any earlier obligation to pay periodical instalments of interest, and the only due date for payment of interest was the date for repayment of the loan, namely twelve months after drawdown. The July 1999 offer continued to provide that interest would be capitalised monthly and contained no other provision for payment of interest. It did not impose any obligation to pay interest before termination of the loan, whereupon principal and capitalised interest was to be repaid. Until the date for capital repayment, namely 26 March 2000, there could be no failure to pay interest on or before the due date. I accept that until March 2000 Windy Dropdown performed and observed all other relevant covenants, conditions and agreements. Windy Dropdown was therefore entitled to pay interest at the lower rate until 26 March 2000 (and Equitiloan Securities has not sought to recover higher rate interest before that date).

103 I do not accept that the term of the March 1999 facility can be construed as "one year or such further period as may be necessary to finalise the building and realisation of Lots 14 and 15 ". As neither principal nor capital was repaid upon expiry of the loan in March 2000, Windy Dropdown was no longer eligible for the lower rate of interest, and as a matter of strict legal right Equitiloan Securities was entitled to charge the higher rate of interest from that date.

104 However, at least until it served Notice of Default on 27 October 2000, Equitiloan Securities was estopped from insisting on its strict legal rights under the loan documentation by taking action detrimental to the interests of Windy Dropdown in reliance upon the expiry of the term of the loan. Thus when Windy Dropdown requested a payout figure, Equitiloan Securities was not entitled to insist on higher rate interest. Equitiloan Securities must make restitution of the sum charged for higher rate interest. Despite the assignment of the securities from Equitiloan Securities to itself and Equititrust, it was Equitiloan Securities that received the benefit of the overpayment, and which must give restitution.

105 Equititrust's profit share entitlement was supported by consideration and there was no such mistake as was originally suggested. The claim for restitution of profit share paid to Equititrust in respect of Lots 14 and 15 was rightly abandoned.

106 I reject the submissions that under the Profit Share Agreement, properly construed, Equititrust was entitled to profit share only in respect of the two lots on which houses were built, and that any entitlement of Equititrust to profit share was contingent on the on-going involvement of Equitiloan Securities in financing the project. Nor was the Profit Share Agreement discharged in respect of future rights and obligations by the refinance of the loan facility in October 2000.

107 Although, the facility being (strictly) in default by reason of the term having expired, Equitiloan Securities was (strictly) entitled to repayment in full - and thus to receive the whole of the proceeds of sale of Lots 14 and 15, notwithstanding the Profit Share Agreement - the conclusion that Equitiloan and Equititrust were estopped from taking any action detrimental to Windy Dropdown in reliance on that default means that Equitiloan was not entitled to refuse to perform its obligations under the Profit Share Agreement. Its insistence on payment of the whole of the proceeds of Lots 14 and 15 to it was inconsistent with its obligations under the Profit Share Agreement, and repudiatory. However, the subsequent correspondence was consistent only with an intention that the commercial arrangements between the parties - including the Profit Share Agreement - remain on foot; Windy Dropdown affirmed the contract. I am therefore unable to conclude that the Profit Share Agreement was terminated for repudiation, and it follows that Equititrust succeeds on its cross-claim.

108 Accordingly, it appears that: · on Mr Franks' claim, there should be judgment that Equitiloan Securities pay Mr Franks the sum of $252,090, plus interest to be calculated; · on the cross-claim, there should be judgment that Windy Dropdown pay Equititrust the sum of $722,880, arguably plus interest (only arguably, because it may be inappropriate to allow interest in the context of insolvency when other creditors will not be allowed interest).

109 No question of set-off arises, as the debtor to Mr Franks (as assignee of Windy Dropdown) is Equitiloan Securities, a different legal entity from Windy Dropdown's creditor Equititrust, and there are not mutual debts capable of being set-off. 110 As no oral argument was directed to quantification of the claim or cross-claim, I shall afford the parties an opportunity to address those matters should they wish to do so, and also to address the question and calculation of interest. Further orders may also be required to dispose of the proof-of-debt proceedings, and to make provision in connection with enforcement of the judgment against Windy Dropdown. Prima facie, Equitiloan Securities should pay Mr Franks' costs of his claim, and Windy Dropdown should pay Equititrust's costs of its cross-claim, but I will afford the parties an opportunity to contend for some other costs order when short minutes are brought in.

111 At this stage, therefore, my only order is: 1. Direct that the parties bring in short minutes to give effect to this judgment.

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