Gardiner v National Australia Bank Ltd; National Australia Bank Ltd v Gardiner

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 Ballard v Multiplex [2012] NSWSC 426 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 Carr v Miller [2018] NSWSC 1424 Chalker v Clark [2008] VSCA 92 Chappel v Hart (1998) 195 CLR 232; 156 ALR 517; [1998] HCA 55 Dinh v Commonwealth Bank of Australia [2021] WASCA 127 Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 Dorfler v ANZ Banking Group Ltd (1991) 103 ALR 699 Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307 Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 Gould v Johnson (1702) 2 Salk 422; 91 ER 367 Hudson v National Australia Bank Limited [2022] FCA 1222 In the matter of Austral Bronze Pty Limited (No 2) [2020] NSWSC 1633 Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8 Magill v Magill [2006] HCA 51; 226 CLR 551 Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd [2001] FCA 1620; (2001) 114 FCR 108 Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 Neal v Ambulance Service (NSW) [2008] NSWCA 346 Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249 Payne v Parker [1976] 1 NSWLR 191 Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301 Re European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 Reilly v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1502 Rizeq v Western Australia [2017] HCA 23; (2017) 262 CLR 1 Rosenberg v Percival (2001) 205 CLR 434; 178 ALR 577; [2001] HCA 18 Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 Shannon v Permanent Custodians Ltd [2020] WASCA 198 Sims v Commonwealth of Australia [2022] NSWCA 194 Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Watson v Foxman (1995) 49 NSWLR 315 Category: Principal judgment Parties: Bradford Gardiner (First Plaintiff/Cross-Defendant) Stacey Gardiner (Second Plaintiff/Cross-Defendant) Newport Resources (NSW) Pty Ltd as trustee of the Gardiner Family Trust (Third Plaintiff) National Australia Bank (Defendant/Cross-Claimant) Representation: Counsel: Mr PE King / Ms EJ Rusiti (Plaintiffs/Cross-Defendants) Mr JC Giles SC / Ms H Mann (Defendant/Cross-Claimant)

Solicitors: Baker Love Lawyers (Plaintiffs/Cross-Defendants) Norton Rose Fulbright Australia (Defendant/Cross-Claimant) File Number(s): 2019/386958

INDEX INDEX JUDGMENT WITNESSES Jones v Dunkel FACTS Eleebana mortgage Hawks Nest property Gardiner Petroleum Rothbury property Initial concerns Blueys Beach property First Market Rate Facility Merewether property Overdraft Facility Pre-lending Review Second Market Rate Facility and the Guarantee CONTRACTS REVIEW ACT CLAIM NATIONAL CREDIT CODE CLAIM RETURNING TO THE FACTS SBS Categorisation Seeking refinance Strategy 1: assess options and improve cashflow SBS meets with Gardiner Appointing an investigating accountant McGrathNicol's first report Meeting with McGrathNicol Second meeting with SBS Refinance? A new bank manager Third meeting with SBS Strategy 2: sell remaining investment properties and repatriate to branch Fourth meeting with SBS McGrathNicol's second report Fifth meeting with SBS Strategy 3: financial support and asset sales Strategy 4: recovery McGrathNicol's third report McGrathNicol monitoring Liquidator appointed to Gardiner Petroleum ASIC ACT CLAIMS Time bar The representations Redacted McGrathNicol reports Causation and loss DECEIT Time bars Elements CODE OF BANKING PRACTICE Time bars "small business" Breach of the Code NEWPORT RESOURCES AND REINSTATEMENT CROSS CLAIM ORDERS

JUDGMENT

1. HER HONOUR: Brad and Stacey Gardiner and the trustee of their family trust, Newport Resources (NSW) Pty Ltd, sue National Australia Bank Ltd seeking compensation and ancillary orders in respect of misleading and deceptive conduct and unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), together with relief under the Contracts Review Act 1980 (NSW), the Code of Banking Practice and the National Credit Code.
2. The bank had provided finance to the former trustee of the Gardiner Family Trust, Gardiner Petroleum Pty Ltd, which operated service stations in the Newcastle area. Whilst Mr Gardiner was keen to expand the network of service stations, business cashflow was insufficient to service the company's existing obligations to pay interest and repay principal. The company also struggled to pay for fuel from cashflow, as a result of which the company's overdraft limit was frequently exceeded. The bank began to press Gardiner Petroleum to pay down debt, including by the sale of Mr and Mrs Gardiner's investment properties. Mr Gardiner strenuously resisted this and instead sought to establish new service station sites funded by increased bank finance. Something of a 'battle of wills' followed. Mr Gardiner expected the bank to continue to fund his business regardless of the bank's concerns.
3. In 2009, Gardiner Petroleum's facilities became subject to the supervision of the bank's team responsible for business customers facing financial difficulties, Strategic Business Services (SBS). At the outset, SBS appointed an investigating accountant, McGrathNicol, which identified a significant shortfall in the bank's security and recommended that the bank provide further financial support to Gardiner Petroleum to enable the business to continue to address problems identified with the business and reduce debt. For two years, SBS pursued a 'turnaround' strategy, endeavouring to bring Gardiner Petroleum's accounts into order before repatriating the customer back to the branch. Whilst initially the 'turnaround' strategies resulted in improvements in Gardiner Petroleum's operation and brought the accounts within terms, these improvements were short lived. In 2011, the bank moved to an 'enforcement' strategy, pressing the customer to sell remaining service stations and 'exit' the business. Ultimately in 2012, a liquidator was appointed to Gardiner Petroleum on the application of the Deputy Commissioner of Taxation (ATO).

WITNESSES

1. The plaintiffs relied on the evidence of Mr and Mrs Gardiner together with their daughters Eloise Harrison, Jacqueline Johnson and Josephine Cramp, son-in-law Michael Cramp, former business development manager Kerrie Cornall, former bookkeeper and external accountant Joyce Dawson and expert accountant Nicholas Gaudion.
2. Mrs Gardiner and her daughters were not required for cross-examination and nor, with great respect to them, was their evidence relevant to the plaintiffs' case. Whilst I would have been interested to hear from Mrs Gardiner as to the circumstances in which the Eleebana mortgage and the Guarantee were entered into, and why these contracts were said to be 'unjust', her affidavit was silent as to these matters. Nor was Mr Gaudion required for cross-examination. Again, his reports were largely irrelevant to the issues in the case or went beyond leave granted to adduce expert evidence.
3. Mr Gardiner was cross examined. He was a pleasant fellow. However, Mr Gardiner's evidence had an air of unreality. In particular, Mr Gardiner said that if he knew that the bank was considering how to realise its security in order to minimise its losses, he would have set about to achieve a result which resulted in him retaining the properties which the bank was pressing him to sell. It was not entirely clear how Mr Gardiner thought he could resist the bank's requests to pay down debt and yet retain the investment properties, over which the bank had first registered mortgages.
4. Mr Gardiner proved a poor historian, which was perhaps unsurprising given that these proceedings were commenced a decade after the events in question. For example, Mr Gardiner denied that he was told by the bank that he needed to reduce debt; the business records indicate otherwise. Likewise, Mr Gardiner denied that the bank had complained that he could not continue to breach the limits of an overdraft facility. That was clearly incorrect. Overall, Mr Gardiner's recollection of his dealings with the bank cast an unduly optimistic light on the financial prospects of Gardiner Petroleum and omitted the seriousness of the company's situation. Indeed, the bank's contemporaneous records note significant difficulties in persuading Mr Gardiner of the seriousness of the situation at the time.
5. Mr Gardiner became increasingly reluctant to answer questions which he perceived did not advance his case. He was evasive on occasion, for example, about having given an undertaking to sell two properties. Mr Gardiner gave several self-serving speeches and was, on occasion, argumentative. Some of Mr Gardiner's answers appeared to be directed to what he thought would advance his case and I was not entirely comfortable relying on the accuracy of these answers. I have approached his evidence with caution.

Jones v Dunkel

1. The plaintiffs submitted that the Court should draw an adverse inference in respect of the defendant's failure to call John Vasseleu, the Impaired Asset Manager who had the conduct of the Gardiners' file at SBS: Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8 per Windeyer J. I agree that Mr Vasseleu is a person who it would be natural for the bank to call; he may be regarded as "in the camp" of the bank or "a witness likely to be friendly to the interests of the other party": Payne v Parker [1976] 1 NSWLR 191 at 201-202 per Glass JA; Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343 per Kirby P with Mahoney and Clarke JJA agreeing.
2. However, if the failure to call a witness is explained, the inference cannot be drawn. In Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24, it was sufficient explanation that the plaintiff no longer spoke to the missing witness: at [118], [137] per Bathurst CJ, Beazley P and Macfarlan JA. It may be the case that the witness would not be expected to co-operate by way of prior consultation or providing a proof of evidence, and a party is not obliged to call a witness 'blind' in order to avoid the inference being drawn against them: Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437 at 449-450 per Mahoney JA.
3. Mr Vasseleu left the bank in April 2018. The bank's solicitor, Ms Johns, spoke to Mr Vasseleu on several occasions and sent a number of letters and emails asking him to give evidence in these proceedings. Mr Vasseleu told Ms Johns that he had a number of chronic health conditions and was concerned about the impact that being a witness might have on his health. It is apparent from Mr Vasseleu's emails that one of his children had a significant health condition and it was "a stressful time for our family at the moment." In light of this, the bank withdrew its request for a sworn statement from Mr Vasseleu but requested further details of his health issues and the reasons why he did not wish to give evidence. The bank arranged for independent legal advice for Mr Vasseleu and followed him up several times. Ultimately, after several months and follow up emails, Ms Johns swore an affidavit describing her efforts to gain the assistance of Mr Vasseleu.
4. The bank has gone to some lengths to encourage Mr Vasseleu to give evidence or, failing that, to provide a document explaining why he cannot do so. Mr Vasseleu is obviously unwilling to assist the bank by appearing as a witness, to provide additional details as to why he does not wish to give evidence, or to avail himself of the independent solicitor arranged by the bank. In light of Ms Johns' evidence and the accompanying correspondence, I consider that the bank's failure to call Mr Vasseleu has been explained and thus it is not appropriate to draw a Jones v Dunkel inference. The bank is not obliged to subpoena Mr Vasseleu and call him 'blind' in order to avoid the inference being drawn against it. In these circumstances, I am not prepared to draw the inference.

FACTS

1. Mr Gardiner has a Bachelor of Commerce degree and worked for BP for 14 years, becoming a regional manager. Mrs Gardiner is a qualified hairdresser.

Eleebana mortgage

1. In 1986, Mr and Mrs Gardiner purchased vacant land in Eleebana on Lake Macquarie to the south of Newcastle. In 1987, they granted a mortgage over the property to the bank, when borrowing $45,000 to build a house. It is this mortgage which Mr and Mrs Gardiner now seek to have discharged and which the bank seeks to enforce by the cross-claim. It will be immediately noted that the mortgage was executed 32 years before the commencement of these proceedings. Beyond what is here stated, nothing is known of the circumstances in which the mortgage was entered into.
2. The Eleebana mortgage is an 'all moneys' mortgage. The 'moneys hereby secured' by the mortgage is defined and includes "moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety": clause 34.
3. In 1992, Mr Gardiner began to operate his own service station business by buying the Caltex service station franchise in Toronto through his company, Gardiner's Pty Ltd. The bank provided funding for the business, secured by the mortgage over the Eleebana property. Noteworthy, from the very commencement of the service station business, the Eleebana property was used as security for business borrowings. Mr Gardiner later 'exited' the Toronto service station, owing Caltex some $132,000.

Hawks Nest property

1. In 1995, Gardiner's Pty Ltd purchased a property in Hawks Nest for $225,000, as trustee for the Anchorage Trust. Mr and Mrs Gardiner's self-managed superannuation fund, Gardiner's Superannuation Fund, owned 95% of the shares in the trust. A mortgage was granted to RAMS Home Loans to secure part of the purchase price, with the balance provided by Mr and Mrs Gardiner's self-managed superannuation fund. The involvement of the superannuation fund becomes relevant in due course, as the plaintiffs point to the sale of this property, at the insistence of the bank, as a breach of the Code of Banking Practice, to which I will return at [358].
2. In 1997, Mr Gardiner began to operate a second Caltex service station in Warners Bay. In April 1997, Mr and Mrs Gardiner and Gardiner's Pty Ltd provided a guarantee to the bank, limited to $200,000, in respect of Gardiner's Pty Ltd. Their solicitor certified that he had given them independent legal advice in respect of the guarantee. Mr Gardiner later sold the Warners Bay service station as unprofitable: see [103].
3. In May 1997, the Gardiners refinanced their Hawks Nest property with the bank. Mr Gardiner said the borrowing and security over the Hawks Nest property was transferred to the bank as additional security for business borrowings.

Gardiner Petroleum

1. In 1998, Gardiner Petroleum was incorporated; Mr Gardiner was the sole director and shareholder. Gardiner Petroleum was appointed trustee of the Gardiner Family Trust. (The bank referred to Gardiner Petroleum, Gardiner's Pty Ltd and, later, Gardiner Investments (NSW) Pty Ltd as the Gardiner Group or the Group.)
2. After this, Gardiner Petroleum was the entity which entered into leases and franchise agreements to operate subsequent Caltex service stations. The bank advanced various facilities to Gardiner Petroleum including an overdraft, a market rate facility and equipment leases. The bank registered a fixed and floating charge over Gardiner Petroleum. Clause 29 of the debenture provided: 29 Consultants 29.1 Appointment In addition to all other Rights of the Bank, if the Bank reasonably believes the Mortgagor has breached or is in danger of breaching a provision of this Deed the Bank may at its sole discretion from time to time engage accountancy, financial, management or other consultants to examine the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed and to make reports to the Bank. 29.2 Further Assurances The Mortgagor shall do, make, sign and execute all papers, documents and authorities necessary for the purposes set out in Clause 29.1 29.3 Agent of the Mortgagor with Duty to Report to Bank Any consultant appointed under Clause 29.1 is and is to be treated for all purposes as the agent of the Mortgagor but is to be free to communicate all information received by the consultant to the Bank and is to be obliged to report to the Bank on any matters affecting the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed as frequently as the Bank requires. (The bank later appointed McGrathNicol as investigating accountant pursuant to this power.)
3. In 1998, Gardiner Petroleum took on a third Caltex service station in Belmont. In August 1998, Mr and Mrs Gardiner and Gardiner's Pty Ltd gave the first of many guarantees to the bank in respect of Gardiner Petroleum, limited to $140,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee.
4. In 1999, Gardiner Petroleum commenced trading at a fourth Caltex service station in Belmont North. In March 1999, Mr and Mrs Gardiner gave a further guarantee to the bank in respect of Gardiner Petroleum, now limited to $298,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee.

Rothbury property

1. In February 2004, Mr and Mrs Gardiner purchased a property in Rothbury for $265,000. A mortgage was granted to St George Bank. Mr and Mrs Gardiner borrowed additional funds from St George to construct a house on the property. Perhaps noteworthy, the Gardiners then used different banks for Gardiner Petroleum's borrowing and their borrowings for investment properties.
2. In February 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Morisset. Gardiner Petroleum entered into a lease of the site, on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company's market rate facility was increased to $828,000 to cover stock and working capital requirements of the new Morisset site. The guarantee was increased to $1,090,525. Mr and Mrs Gardiner each signed a declaration acknowledging that they had received independent legal advice regarding the guarantee before signing it.
3. In August 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Beresfield. Again, Gardiner Petroleum entered into a lease of the site on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company's market rate facility was increased to $1.154 million to cover stock and working capital requirements of the new Beresfield site. In August 2004, the guarantee was increased to $1,527,369. Mr and Mrs Gardiner each executed a legal advice certificate in respect of the guarantee.
4. In 2005, Gardiner Petroleum's market rate facility was increased to $1.604 million to cover increased stock, turnover and repayment of beneficiary loans. The guarantee given to the bank in respect of Gardiner Petroleum was increased twice, to $2,092,974 and then to $2,397,103. On both occasions, Mr and Mrs Gardiner signed a Legal Advice Waiver, acknowledging that the bank had recommended that they obtain legal and financial advice but they were content to execute the documents without it.
5. In November 2005, Mrs Gardiner purchased a hairdressing salon using a new company, Gardiner Investments (NSW) Pty Ltd. In January 2006, Gardiner Investments executed a debenture in favour of the bank to secure a facility for $35,000.

Initial concerns

1. In August 2006, Gardiner Petroleum's market rate facility was increased to $1.747 million to cover the increased cost of fuel and to assist with continued growth in sales at Beresfield and Morisset. Mr Coddington was then Gardiner Petroleum's business banking manager. On 28 August 2006, Mr Coddington recorded concern at the bank's exposure and the manner in which the business was being operated. Group drawings and directors' wages for the 12 months ended 6 June 2006 were some $690,000 and "not sustainable at this level". Mr Coddington made a note to negotiate maximum drawings and wages at $252,000, in line with consolidated cashflow. The quarterly reporting covenant was to be extended to require detailed reporting on any negative actual to budget variance greater than 5% in income or expenditure lines.
2. Mr Coddington also noted that the clients were looking for the bank to support them in a further expansion program at Rutherford and Raymond Terrace, "Any further submission will require external (short form) valuations of both residential real estate securities presently held by the Bank in support of Group facilities. This is the maximum level of our exposure to the Group on present - future operations are required to be within approved arrangements."
3. In August 2007, Gardiner Petroleum's market rate facility was increased to $2.046 million, to be reduced at $21,350 per month. The funds were utilised to regularise the overdraft facility from an excess position and also to consolidate a small loan. The guarantee in respect of Gardiner Petroleum was increased to $2,767,949.

Blueys Beach property

1. In September 2007, Mr and Mrs Gardiner purchased a property at Blueys Beach for $672,500, subject to a mortgage granted to St George Bank. Again, the Gardiners continued to use different banks for their business and investment property borrowings.
2. Likely at about this time, Ms Cornall gave a presentation to the bank in respect of Gardiner Petroleum's proposal to expand into two new sites. According to Ms Cornall, the bank officers said that they were impressed by the achievements and growth of the company and said "We need time to attend to the matters raised and will come back to you. We understand the points you have raised." At the end of the meeting, either Mr Coddington or his colleague, Mark Sherwood, said they would have to submit a formal request "but they didn't feel that it was going to be an issue".
3. According to Mr Gardiner, Mr Coddington said, "I shed tears of joy when it was revealed that you were over-selling your fuel expectations". Mr Gardiner also said that Mr Coddington told him that, as the business grew, Eleebana could be released from the bank's security. As he and Mr Coddington walked down the stairs after the presentation, Mr Coddington said "Well, let's get on and build this business … Let's get your family home out of the bank security listings". I will return to whether these comments were likely to have been made at [54].
4. In January 2008, the bank prepared a "Client Evaluation" in respect of an application for funding of some $550,000 to establish a second Beresfield North Caltex service station. Gardiner Petroleum had entered into a lease of the Beresfield North site, on which the lessor had constructed a new service station. The lease contained an option to purchase the site after one year for $2.994 million. According to the bank memorandum, "I do not know that [Mr Gardiner] will have the capacity to exercise purchase o[p]tion - unless he sells "sites" to fund equity contribution. Prior [Senior Business Banking Manager] was involved in discussion with Gardiner. … At that time we advised clients, that to support additional outlet expansion, we would be seeking an independent review to be completed on the Group's operations."
5. The Gardiners also sought $700,000 to refinance the Rothbury property. A further $1.35 million was sought to purchase a property in Merewether "pending the sale of their existing Eleebana property … NB Undertaking to be sought for sale of Eleebana [property] within 6 months of settlement of Merewether purchase."

First Market Rate Facility

1. On 8 February 2008, the bank offered Gardiner Petroleum a market rate facility with a limit of $2,430,600 (the First Market Rate Facility). The facility was to expire on 31 August 2015, and to be repaid at $26,500 per month. As will be seen, the company struggled to make the principal repayments.
2. The facility was to be secured by a fixed and floating charge over the assets of Gardiner Petroleum and Gardiner's Pty Ltd, mortgages over leases of the Caltex service station sites, a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner's Pty Ltd limited to $3,165,958, and mortgages over the Eleebana, Hawks Nest, Rothbury and Merewether properties. The First Market Rate Facility included reporting covenants, obliging Gardiner Petroleum to provide annual accounts, interim accounts within 45 days of the close of each quarter and statutory payments certificates.
3. The letter of offer was accepted by Mr and Mrs Gardiner. In addition, Mr and Mrs Gardiner executed two FlexiPlus Mortgage Facilities Agreements in the amount of $1.35 million (for the Merewether property) and $700,000 (for the Rothbury property). Each mortgage provided that the securities to be taken by the bank were registered mortgages over the Eleebana, Rothbury, Merewether and Hawks Nest properties together with a guarantee given by Gardiner Petroleum and Gardiner's Pty Ltd for the amount of each facility and fixed and floating charges over the assets of Gardiner Petroleum and Gardiner's Pty Ltd.
4. The mortgage facilities did not have set expiry dates. However, the bank was entitled to cancel the facilities at any time, obliging the borrower (Mr and Mrs Gardiner) to repay any money owing under the facility immediately: clause 4, FlexiPlus Mortgage Facility Agreement Terms and Conditions. The mortgage facility for $700,000 advanced in respect of the Rothbury property was not repaid and now forms part of the bank's cross-claim.
5. In addition, on 26 February 2008, Mr and Mrs Gardiner signed letters to the bank, undertaking to meet the market and sell the Eleebana and Hawks Nest properties within 12 months of settlement of the purchase of the Merewether property, with full net sale proceeds to be applied to debt reduction with the bank. As will be seen, neither property was sold within the required timeframe.

Merewether property

1. On 28 February 2008, Mr and Mrs Gardiner purchased the Merewether property for $1.29 million. Mr and Mrs Gardiner borrowed the whole of the purchase price and stamp duty from the bank. Mr Gardiner said that, when buying this property, he relied on a pre-lending report obtained from PPB Recovery Forensics Advisory (PPB). In fact, the bank did not send an engagement letter for a "Pre Lending Review" to PPB until April 2008 and the report was not obtained until August 2008: see [66].
2. On 27 June 2008, the Gardiner Petroleum guarantee was increased to $3,265,000. Mr and Mrs Gardiner each gave a certificate to the bank confirming that the guarantee had been explained to them. They do not appear to have executed either a certificate counter-signed by their solicitor confirming that they had been given independent legal advice or a certificate waiving legal advice.

Overdraft Facility

1. In July 2008, Mr Coddington prepared a Short Form Credit Memorandum in support of an increase in Gardiner Petroleum's overdraft from $600,000 to $1 million. The increase would provide for "present account irregularity" to assist with working capital requirements for the Group's six service stations. The bank was still waiting on the Pre Lending Review from PPB to support an increase in the overdraft. Mr Coddington observed: Present excesses had been approved on the understanding that they would be short term nature, however, due to increasing cost of fuel stocks in +- mid June it became apparent that formal increase would be required to regularise and provide for day to day working capital … Both the flexiplus mortgages $700K & $1.35M are to reduce from the sale of Eleebana (+- $900K) & Hawks Nest Properties +- $1.2M) within the next 6 mths (>$100K).
2. An additional $159,000 was needed to pay-out the St George mortgage on the Rothbury property than the bank had previously understood. The client was incurring substantial accounting costs to PPB and its own accountants, Lawler Partners, to complete the pre-lending review. In all, unbudgeted cash items totalled $570,000. Further, "We are on notice of a further funding request … to assist in their future expansion plans, sites at Raymond Terrace and Berkeley Vale, submission request expected in the short term."
3. On 16 July 2008, the bank offered to provide Gardiner Petroleum with an overdraft facility of $1 million (the Overdraft Facility), to be secured by the same charges and mortgages as the First Market Rate Facility and a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner's Pty Ltd of $3,403,918. The overdraft was to include a financial covenant as follows: (emphasis in original) Interest cover Minimum interest cover of 2.00 times as measured for the 12 month period ending on 30/12/2007 and thereafter quarterly for Gardiner Petroleum Pty Ltd ATF The Gardiner Family Trust.
4. Again, the Overdraft Facility did not contain an expiry date. However, the bank was entitled to cancel the facility at any time, where cancellation made the loan immediately repayable: clause 2(a), Specific Conditions; clause 4.1(c), General Conditions.

Pre-lending Review

1. On 1 August 2008, PPB provided its pre-lending review to the bank. The review concluded that the Gardiners were meeting their current commitments "albeit with some strain". Further, "Introducing a cap on director's personal spending until actual trading of new sites is well established, would serve to protect the directors from potential shortfall of meeting budgets, in the event consumers experience a downturn in spending power, arising from the current volatile economic climate." If assets were sold on a going concern basis, there appeared to be sufficient assets to repay bank facilities but, in the event of a forced closure basis, a shortfall of some $788,000 had been identified. PPB further observed: We note there is an apparent cashflow strain. A review of creditors … reveals there are some payment arrangements in place … Directors spending pattern over the 2007 and 2008 years has contributed to the cashflow strain. Cash management control should be reviewed by the NAB regularly, to monitor capacity to fulfill all financial obligations are met within trading terms as new sites are added to the Group.
2. On 11 August 2008, Mr Coddington and Mr Gardiner met and went through PPB's report. Mr Gardiner was then obtaining costings for construction of a house at Merewether, with costs coming in much higher than initially projected. Mr Coddington's note records that he indicated "we would not be in a position to consider without the sales of Hawks Nest/Eleebana and the budget numbers of the business hitting projections - some thing which they are not at present. … he is aware no funding has been approved …" Mr Coddington's note further records: Eleebana - still not sold ... Will need to seek extension in respect the "6 mths selling undertaking" with approval authority in next submission ... Hawks Nest not sold - still does not expect to sell until spring selling season - aware needs to sell to progress Merewether.
3. Discussion turned to Mr Gardiner's level of drawings. Mr Gardiner stated that he and his wife were drawing about $60,000 each only but were also funding the Merewether home loan via the company. The whole family had also gone on an overseas study tour costing $104,000, which was described as a "one off". Discussion turned to funding for a proposed service station at Raymond Terrace. Mr Coddington's note records: [Gardiner] is aware that funding has not been approved - not committed. … Asked as to his Plan B - states Nil. (I suggest that he would be able to offer under sublease arrangement if NAB not able to assist). … NOTE NO COMMITMENTS GIVEN. Mr Gardiner agreed in cross-examination, "I didn't have a plan B."

Second Market Rate Facility and the Guarantee

1. On 24 September 2008, a business letter of offer was issued to Gardiner Petroleum for a market rate facility of $1 million (the Second Market Rate Facility). Unlike the First Market Rate Facility, the facility was to expire in six months, on 31 March 2009. Gardiner Petroleum was obliged to repay the Second Market Rate Facility on that date: clause 4.1(d) and clause 23 ('final repayment date' and 'facility term').
2. The Second Market Rate Facility was to be secured in the same manner as the earlier facilities. In particular, the facility was secured by a Guarantee and Indemnity given by Mr and Mrs Gardiner and Gardiner's Pty Ltd for $4,248,002 and supported by the registered mortgages over the Eleebana, Hawks Nest, Rothbury, Merewether and Blueys Beach properties, fixed and floating charges over Gardiner Petroleum and Gardiner's Pty Ltd, together with mortgages over the service station leases. The facility was also subject to the interest cover and reporting covenants.
3. Mr and Mrs Gardiner and Gardiner's Pty Ltd executed a Guarantee and Indemnity to the bank in respect of Gardiner Petroleum limited to $4,248,002 plus interest (including default and compound interest), bank fees, costs, charges and expenses accrued in relation to amounts within the limit (the Guarantee).
4. Mr and Mrs Gardiner each signed a certificate acknowledging that the Guarantee had been explained to them and they were unwilling or unable to take legal advice but nonetheless were amenable to executing the document. It is this guarantee which Mr and Mrs Gardiner now challenge.
5. Mr and Mrs Gardiner also executed a further FlexiPlus Mortgage Facility Agreement in the amount of $530,000, apparently to fund the additional St George refinance on the Blueys Beach property. The mortgage facility was, again, secured by registered mortgages over the Rothbury, Merewether, Blueys Beach and Eleebana properties, together with a guarantee given by Gardiner's Pty Ltd for $2,668,158 supported by fixed and floating charges over the assets of Gardiner's Pty Ltd and Gardiner Petroleum Pty Ltd and a registered mortgage over the Hawks Nest property. Mr and Mrs Gardiner executed a mortgage over the Blueys Beach property in favour of the bank. Gardiner Petroleum and Gardiner's Pty Ltd also gave a guarantee to the bank in respect of Mr and Mrs Gardiner, limited to $2,668,158. The bank registered a fixed and floating charge over Gardiner Petroleum.

CONTRACTS REVIEW ACT CLAIM

1. It is convenient at this juncture to consider the plaintiffs' claims under the Contracts Review Act in respect of the Eleebana mortgage and the Guarantee. Ordinarily, such claims must be brought within two years of the date on which a contract is made: section 16(a). However, as the bank now seeks to enforce both contracts by the cross-claim, the time for making an application for relief continues during the pendency of the cross-claim: section 16(c).
2. The Court may grant relief under the Act where a contract was "unjust in the circumstances relating to the contract at the time it was made": section 7(1)(a). The plaintiffs' pleading, however, tended to focus on circumstances post-dating execution of the Eleebana mortgage and the Guarantee, in particular, the bank's actions once Gardiner Petroleum's accounts were referred to SBS in 2009. The plaintiffs alleged that the contracts gave the SBS authority "to conceal and implement the Bank's exit strategy [and to] transfer … its financial risk to the Plaintiffs by its undisclosed response to the [GFC] … in selling assets of its customers". There was said to be a lack of proportionality in the contract provisions which permitted the bank "to foist upon the Plaintiffs external financial risks faced by the Defendant … arising from the global financial challenge of 2008 to 2010." The plaintiffs also relied on the bank's subsequent enforcement action and demands for payment in 2015. In addition, Mrs Gardiner was said to lack financial education and independence. Further, the provisions of the contract were not the subject of legal advice.
3. I am bound by the terms of the statute and will consider the circumstances relating to the contract at the time it was made. As to reliance on Mrs Gardiner's lack of financial education, little is known about Mrs Gardiner, other than she ran a hairdressing salon and managed staff at Gardiner Petroleum. I cannot safely conclude that she was financially naïve or uninformed.
4. As to the Eleebana mortgage, Mrs Gardiner did not give evidence as to the circumstances at the time the mortgage was executed, nor as to why it is now said the mortgage should be set aside. Mr Gardiner's evidence on the circumstances in which the Eleebana mortgage was granted was brief: see [24].
5. As I understood it, no complaint was made as to the circumstances in which the Eleebana mortgage was granted in 1987. Rather, the complaint was that the Eleebana mortgage came to secure the borrowings of Gardiner Petroleum under the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility and the Guarantee. Each of the First Market Rate Facility, the Overdraft Facility and the Second Market Rate Facility expressly provided that the facility was secured inter alia by the Eleebana mortgage. Whilst the Guarantee made no specific reference to the Eleebana mortgage, the terms of the Guarantee entitled the bank to "resort to the Securities", being all security which the bank held from Mr and Mrs Gardiner over any of their property or assets, including a mortgage: clause 12(a), clause 29 ("Securities" and "Security"). Further, as already noted, the Eleebana mortgage is an 'all moneys' mortgage: see [25].

NATIONAL CREDIT CODE CLAIM

1. It is also convenient at this juncture to consider the plaintiffs' claims under the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)), in respect of the Eleebana mortgage. As I understood it, the plaintiffs did not challenge the enforceability of the Eleebana mortgage when initially executed but only insofar as it became security for the Guarantee.
2. The plaintiffs submitted that the National Credit Code applied where finance was provided to Mr and Mrs Gardiner in respect of their family home under the 1987 mortgage. The Eleebana mortgage secured obligations under a credit contract or a related guarantee and the mortgagors were natural persons: section 7. The Guarantee was 'related' to the mortgage and the Code was also said to apply by reason of sections 4 and 8. Although the Guarantee pre-dated the Code, it was said to be nonetheless engaged when additional credit was extended after 2010 and a notice of demand was served in 2015. The Court has a wide discretion to grant relief under the Code: Shannon v Permanent Custodians Ltd [2020] WASCA 198 at [331], [345] per Quinlan CJ and Tottle J.
3. The first matter to consider is whether the National Credit Code applies at all, where the Code did not commence until after both the Eleebana mortgage and the Guarantee were executed. The National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) provides that the National Credit Code does not apply to contracts made before commencement unless it is a "carried over instrument": Item 3(1), Schedule 1. A 'carried over instrument' is a contract to which the Consumer Credit Code, as defined in the Consumer Credit (New South Wales) Act 1995 (NSW), applied: section 4, National Consumer Credit Protection (Transitional and Consequential Provisions) Act.
4. The transactions to which the Consumer Credit Code applied are broadly the same as the National Credit Code. Sections 5 and 6 of the Consumer Credit Code (being the appendix to the Consumer Credit (Queensland) Act 1994 (Qld), as applied by section 5 of the Consumer Credit (New South Wales) Act 1995 (NSW)) provided: (emphasis added) Meaning of "credit contract" 5. For the purposes of this Code, a "credit contract" is a contract under which credit is or may be provided, being the provision of credit to which this Code applies. Provision of credit to which this Code applies 6.(1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into … - (a) the debtor is a natural person … or a strata corporation …; and (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes …

RETURNING TO THE FACTS

1. In December 2008, three months after execution of the Guarantee and provision of the Second Market Rate Facility, Gardiner Petroleum requested further funding of $500,000 in order to sustain the growth then being experienced at the Raymond Terrace and Beresfield North sites.
2. On 28 January 2009, Mr Gardiner emailed Mr Coddington regarding exceedance of the overdraft limit. Mr Coddington noted that the overdraft balance was $917, 204 against a limit of $800,000. Whilst Mr Coddington noted the pressure on the overdraft due to fuel sale volumes, "we do look for the limit to be respected." The file was made "close monitoring" by the bank, following a breach of covenants in the September 2008 quarter and a delay in providing final accounts for the 2008 financial year.
3. On 3 February 2009, Mr Coddington reported to bank colleagues that he had placed a call to Mr Gardiner that morning given the overdrawn overdraft facility, "with what appears rising fuel costs I expect that we will need to look to provide some assistance … The PPB report read relatively well of business model and his management - gave us comfort then … There is still cash drain due to unsold residential property … Just a heads up at this stage".
4. On 23 February 2009, the Portfolio Review Group of the bank completed a review of the Gardiner Group and provided their conclusions to Mr Coddington. The file review noted that the bank had a weak secondary exit position, with mortgages over four of seven leasehold sites. The file was regarded as high risk, to remain under close monitoring until a period of sustained performance to budget was demonstrated. Further, the bank needed to discuss whether the customer had considered de-leveraging by selling leaseholds, injecting equity or finding an equity partner to improve cashflow and reduce risk in the current economic climate. Further, as the last credit approval required the sale of Eleebana and Hawks Nest by March 2009, an update was sought. Finally: The customer is considered highly leveraged and our current exit positions remain we[a]k. Hence, there is little margin for further deterioration in performance otherwise we have going concern issues. Position should be monitored closely via excesses/account conducts and creditor positions regularly for early signs of cash flow stress. Should further decline in performance be noted, early referral to SBS should be discussed with [Delegated Credit Authority].

SBS Categorisation

1. On 16 April 2009, Mr Coddington referred the Gardiner Petroleum facilities to SBS. On the same day, the bank approved the increase in the overdraft to $1 million until 31 May 2009 and extended the Group's existing facilities until that date. By then, the bank's total lending to Gardiner Petroleum stood at $8,543,331, while securities were valued at only $4,330,082.
2. Mr Coddington advised SBS that he could not support the company's recent request for further funding given immediate past profit performance and conduct of the account. The company's request required greater overview of operations to enable the bank to gain sufficient comfort to support the Group. Further: Continued cash strain from non core business activities of the Group's Service Station operations impacting negatively on cashflow - I now don't believe increasing fuel sales volumes are the underlying reason for present cash deficiency.
3. Mr Crosdale supported the categorisation of the account, noting that the "position with this group is less than ideal … Clearly the Group's cashflow has been under considerable strain for some time and it appears there was little chance they would be able to regularise the long dated irregular account from that source."
4. On 20 April 2009, Mr Coddington met with Mr and Mrs Gardiner and explained that the Guarantee extended to provide for the increase in the overdraft facility. According to Mr Coddington's note, both Mr and Mrs Gardiner "are aware and accepted reasoning and acknowledged in interview position. Both again placed on notice of requirement for $1M limit to be respected and that further review in conjunction with SBS will now be required - facility expiry stands now at 31/5/09".
5. The Gardiner Group was categorised on 21 April 2009 given emerging liquidity difficulties, a covenant breach, and an irregular account. (The plaintiffs' expert, Mr Gaudion, acknowledged that there were periods prior to March 2009 when the Interest Cover Ratio was below 2.0.) The file was to be managed by Mr Vasseleu. Mr Vasseleu reported to Mr Acharrie, who reported to Joseph Taylor, the head of SBS. It is apparent from the contemporaneous documents that Mr Vasseleu routinely sought approval from Mr Acharrie in respect of the Gardiner file, for example, approving extension of facilities or excesses on the overdraft limit. On occasion, Mr Acharrie consulted with Mr Taylor, for example, when deciding whether to use PPB as the investigating accountant or a 'fresh pair of eyes': see [128]. Mr Acharrie said, at a minimum, joint approvals and overviews were required on all files.

Seeking refinance

1. Mr Gardiner agreed that, before the meeting with SBS, he approached the Commonwealth Bank, ANZ and Westpac regarding the possibility of refinance. Mr Gardiner had a number of contacts at these banks, who he knew socially. Mr Gardiner believed these contacts were in a position within these banks "to give me some advice on the future growth expansions of the company, not specifically to refinance the existing debt of the company, but to provide finance moving forward … it was a broad conversation like that." No formal application was made, "It was just conversations".
2. Again, I consider that Mr Gardiner's recollection as to why he enquired about finance from alternate banks is framed in unduly optimistic terms. More likely, Mr Gardiner apprehended - as he had been told by Mr Coddington and Mr Perriman - that the bank was reluctant to extend further finance and wanted Mr Gardiner to seek equity or sell assets. Mr Gardiner's enquiries of other banks is consistent with Mr Gardiner having understood that the bank was not prepared to continue to accede to Mr Gardiner's funding requests and wished to reduce its exposure to Gardiner Petroleum. In any event, nothing came of Mr Gardiner's enquiries of the Commonwealth Bank, ANZ or Westpac.

Strategy 1: assess options and improve cashflow

1. Before leaving to meet with Mr Gardiner, Mr Vasseleu informed Mr Acharrie of the results of his preliminary review of the file, in particular, the bank may wish to consider instructing an investigating accountant, where revenues had failed to achieve projections assessed by PPB and cashflow was currently under considerable stress. Mr Vasseleu considered a key issue to be that the business was undercapitalised and, to date, had been wholly reliant on debt funding to fund business expansion strategies. Mr Vasseleu considered that the Group needed to look at urgent options to inject equity into the business. Mr Vasseleu's initial thoughts were recorded in SBS's computer file as "Strategy 1".

SBS meets with Gardiner

1. On 27 April 2009, representatives of SBS met with Mr and Mrs Gardiner together with Mr Coddington and Mr Perriman. Mr Vasseleu's note of the meeting records: (emphasis added) At the meeting Brad Gardiner provided … further plans to establish another site at Berkeley Vale towards the end of the year. … Brad conveyed that he did not have options available to source equity and/or to extend payments terms with Caltex. In any event he was reluctant to find an equity partner and relinquish control at this stage of the business' growth cycle. He also appeared of the view that given he believed the businesses were profitable and on his track record, the Bank would continue to provide funding of his business and its expansion plan. Brad further advised that an internal review of the staffing overhead of the business had been undertaken and the group had implemented immediate reduction of wages overhead of approximately $200k pa through recent termination of full and part-time staff. He did not convey any further options to internally address the cash stress on the business.
2. Mr Gardiner agreed in cross-examination, that the prospect of finding an equity partner at that time "seemed ridiculous to me especially at a time where we were on a growth curve. Introducing another person into the business in the form of equity just didn't make sense to me but I wasn't discounting it, but it was just forced on me to consider".
3. According to Mr Vasseleu's note of the meeting, he and Mr Perriman advised that there were limitations to the level of debt funding support that could be provided given the Group's limited capital and security base relative to its debts and ongoing and increasing funding requirements. The bank considered that the business needed to focus on consolidation and to consider the sale of sites and/or to seek substantial equity injection to fund its growth and mitigate the bank's concerns of the risk associated with the current business model. "Also advised that there was a need to generate and retain sufficient profits in the business to improve its internal funding capacity noting that currently there are 3 Gardiner families reliant on profits generated by the business for their personal outgoings and loan commitments placing demand on any surplus generated by the business."
4. According to Mr Vasseleu's note, "It became clearly evident that the group … did not recognise the financial limitations of their current capital base." As such, the Gardiners were advised that the bank may need to engage an investigating accountant to review the business and for the bank to consider its options and determine if it could and would be prepared to make facilities available. After much discussion, Mr Gardiner advised that he would be prepared to allow this review and asked that PPB undertake the review, given its past involvement. Mr Gardiner advised that the business had an urgent additional funding need and was informed that there was no commitment by the bank to provide further funding and, until a decision was made by the bank, Mr Gardiner needed to explore all options through extension of creditor terms or sourcing additional funding and to work within the existing overdraft limit, which had only just been increased by $200,000 on 16 April 2009.

Appointing an investigating accountant

1. The following day, Mr Vasseleu reported to Mr Acharrie on the meeting. They considered appointing PPB to conduct a review given its past involvement and to reduce costs but, after consultation with Mr Taylor, decided to appoint McGrathNicol, being "a fresh set of eyes". It will be recalled that, under the terms of the bank's fixed and floating charge over Gardiner Petroleum, the bank was entitled, at its sole discretion, to engage accountants to examine the business and affairs of Gardiner Petroleum if the bank reasonably believed that the company had breached, or was in danger of breaching, its obligations: see [31]. The plaintiffs do not suggest that the bank was not entitled to appoint an investigating accountant in the circumstances.
2. SBS also reviewed the work undertaken by the Portfolio Review Team, noting the significant cash requirements of the business given that Caltex required immediate payment for fuel and shop restocking on a cash on delivery basis. With increasing fuel volumes, Gardiner Petroleum was now required to pay for stocks pending sale. Given the depressed state of the local real estate market, sale of the Eleebana or Hawks Nest properties in the short term, at a price the customer was prepared to accept, appeared doubtful. As to the bank's options: … group needs to source alternate funding from either asset sales, equity injections and/or extension of supplier payment terms. Further agree that the Bank could be looking at crystallising a substantial loss if it was to immediately withdraw support given the marginal secondary exit option. Need to assess our options fully before making a determination on strategy. Accordingly, the appointment of an IA [investigating accountant] to assess funding requirements of group and exposure risk is considered appropriate to enable determination on any continuing support to the group and/or alternate options to mitigate risk and potential for loss.
3. On 5 May 2009, the bank appointed McGrathNicol and provided a copy of the letter of instruction to Mr Gardiner. Amongst the tasks assigned to McGrathNicol were: (emphasis added) 17. Provide an assessment of the Bank's security and ultimate realisation on both a going concern and forced sale basis; 18. Review and comment on strategies proposed by the Group to reduce debt from asset sales and/or equity raisings; 19. Identify and comment upon the alternatives open to NAB in the management of its ongoing relationship with the Group and explain your recommended strategy; … You should provide a draft copy of your report excluding your assessment of the security and recommendations to NAB which should be delivered under cover of an addendum to the report to the Group and ask them to confirm its factual accuracy in writing prior to issuing in final form. Please specifically in the addendum to the report provide your recommendations on level of funding both immediate and medium term structure timeframe for payback and key milestones if supported.

McGrathNicol's first report

1. The bank's assignment was allocated to partner Murray Smith and senior manager Sean Wiles of the restructuring team at McGrathNicol. Both are chartered accountants. It was suggested to Mr Wiles that McGrathNicol's report was prepared with an end in mind to reflect faithfully what the bank had told him it intended to do, to which Mr Wiles said, "I take … objection to that. I was undertaking alongside Mr Smith an independent business review of the business of Gardiner Petroleum."
2. Mr Wiles prepared the report under the supervision of Mr Smith. Mr Wiles had many meetings and calls with Mr Gardiner to obtain information and business records. Mr Wiles also spoke with the bookkeeper, Ms Dawson, and, later, Gardiner Petroleum's external accountant, Michael Randall from Lawler Partners. Mr Wiles said that Mr Gardiner was generally receptive to the matters being discussed and was cooperative in providing Mr Wiles with the records he requested. Mr Wiles read the report which had been prepared by PPB.
3. On 25 May 2009, McGrathNicol provided a draft report to Mr Gardiner. Of the 35-page report, two pages were redacted. One of these pages was entitled "Options for the Bank", while the other was entitled "Bank security review - high level only". The title was included but the accompanying text was not. Mr Smith said the portions to be redacted were identified in the letter of instruction. Mr Smith did not agree that he spoke to the bank, Mr Vasseleu or Mr Acharrie to decide which parts should be redacted. Mr Wiles said he took his instructions in this regard from Mr Smith. On 26 May 2009, Mr Gardiner sent a letter to McGrathNicol confirming that the draft report was factually accurate.
4. The redacted portions of the McGrathNicol report advised that the bank would experience a potential shortfall of $1.3 million to $3.1 million if it enforced its security. As to the options available to the bank, the redacted portion stated: The options available to the Bank are: Provide additional funding to the Group (to meet its commitments and fund the Group's expansion); Reduce funding to the Group or facilitate a going concern or forced sale exit; or Continue to support the Group at existing debt levels (to allow the Group to consolidate the existing business model).
5. While the business' existing operations and capital structures would not support additional debt funding, McGrathNicol advised "unless the Bank is prepared to accept potential returns significantly below its current exposure to the Group, it would appear that a going concern or forced sale exit is also not a feasible option in the short to medium term." Further, whilst the bank may well wish to reduce funding levels, "in order to sustain existing operations and preserve going concern values, this requires planning over the short to medium term in conjunction with an injection of additional equity funding and a reduction in the Group's operating overheads". That is, the bank was advised not to enforce its security, as it would lead to a significant shortfall for the bank. Rather, the bank was advised to continue to support the Group while seeking to effect improvements in the business operations and a gradual reduction in debt levels.

Meeting with McGrathNicol

1. On 2 June 2009, Mr Gardiner, Ms Dawson and Ms Cornall attended a meeting with McGrathNicol and were taken through the first report. Whilst pages in the McGrathNicol report were redacted, Mr Smith said this did not mean that the information was not discussed. Nor was it fair to say that Mr Smith did not want the Gardiners to know that, if the bank accepted one of McGrathNicol's options to exit the borrowing, then the bank would realise its security.
2. According to Mr Gardiner, Mr Smith told him, "You must sell all of your houses to help the Bank with the post-GFC Banking Practice". Mr Smith and Mr Wiles both denied this. Neither knew what was being referred to as the "post-GFC Banking Practice".

Second meeting with SBS

1. After the meeting with McGrathNicol, Mr Vasseleu and Mr Acharrie met with Mr Gardiner, Ms Dawson and Ms Cornall. According to SBS' note of the meeting, Mr Vasseleu outlined the key points in McGrathNicol's report: the business was highly capitalised; net debt to equity was high; the cashflow report showed no sustainability in servicing debt; overheads were significantly high; drawings were high; the overdraft facility had grown over time and debt reduction was not visible. Given the current economic climate, where business growth was difficult, and looking at the bank's current position "we needed to work together to reduce debt preferably within [a] few months".
2. According to SBS's note, Mr Gardiner said that he understood the current position and was willing to work with the bank. Cashflow was said to have improved since the McGrathNicol report. Mr Gardiner's two properties had been on the market for nine months. One property had been listed for $1.3 million but was now for sale for $950,000 and he was serious to sell. Mr Gardiner asked what else did the bank need him to do? Mr Vasseleu advised that, with the current position, "the bank needed to see more than 2 properties sold, we needed to see substantial improvement of cashflow going forward in interim". Further, the business needed a realistic and achievable business plan. The bank recommended that Mr Gardiner consult with external accountants who could advise on such a matter. In addition, drawings needed to be reduced immediately. Mr Vasseleu added, "We are from Strategic Business Services not collections and we work [in] partnership with the customer … we give customers the control in running their business and for that we expect the customer to deliver and commit." Mr Acharrie added, "We are here to sustain our relationship and work together to achieve what [is] realistic and achievable." Mr Vasseleu advised that the facilities had expired in May 2009 but had been renewed until the end of June.
3. A further bank note of the same meeting records that Mr Gardiner was informed that the bank was only prepared to work with the business if an acceptable programme for the sale of the Group's investment properties, excluding the family home, was put in place to reduce debt to a sustainable level against existing cashflows. The bank was not prepared to increase funding to accommodate servicing of debt and expansion of the business. The business must focus on reducing overall costs including servicing of personal and investment debt. The timelines to be allowed to sell investment properties depended on cashflow being able to support debt whilst the assets sale program was progressed.

Refinance?

1. Mr Gardiner accepted that it was then plain to him that the relationship with the bank had changed. "The meeting was such a shock that in conversation [in] the car home the prospect of talking to other banks was … heightened. I think that's a logical conclusion to draw. … We discussed amongst other things to reinvigorate approaches to … those other banks."
2. After the meeting with Mr Vasseleu, Ms Cornall attended several meetings with the Commonwealth Bank and provided that bank with documents as requested. Ms Cornall said the upshot was that the Commonwealth Bank declined to refinance Gardiner Petroleum. Ms Cornall did not recall Gardiner Petroleum approaching any other institution for refinance.
3. In contrast, Mr Gardiner said he did not go back to the Commonwealth Bank, ANZ or Westpac to explore refinance. His explanation was difficult to believe: … I had to work with this man. So, as soon as you have something lobbed on you in your life like that, you try to work with the person first rather than running off and, and spending a whole lot of time and money on some kite flying exercise with a new bank, you're better off to deal with what you've got in front of you. If Mr Vasseleu was going to be the person that I was to work with, … I was determined to understand where he was coming from, and to work with him. I believed in the bank until this time. I had a 20 year relationship with the bank. Until this man walked in the door and came before my eyes, I thought the relationship with the bank was very strong … they had helped me build my business from nothing.
4. Mr Gardiner considered it was astute not to approach another lender for refinance but to concentrate on the task at hand, "so, I wasn't running off and … panicking. I wanted to just consolidate with SBS, do the job and then return to Newcastle and … the lengthy relationship could then become more lengthy. Mr Gardiner said he chose not to pursue any discussions with other banks as he didn't want discussions with any prospective bank to 'get back' to the bank "because I trusted NAB and I was doing what Mr Vasseleu had told me to do". Where all the bank managers appeared to know each other, "I don't want my existing relationship with NAB to be soiled in any way whilst we got through this difficult process with this difficult man." Nor did Mr Gardiner want to start a relationship with a new bank under the cloud of being managed by SBS. An incoming financier would need to value the company's properties which he was in the process of listing for sale; "to an incoming bank, I viewed that as a red light".

A new bank manager

1. In June 2009, Mr Harris took over the Gardiner file from Mr Coddington. Mr Harris said the file was under the management of SBS "in joint approval with myself", albeit Mr Harris deferred to Mr Vasseleu on all major decisions. Mr Harris learned that the bank strategy was, if possible, to support the business of Gardiner Petroleum in getting back on track by improving cashflow, including by reducing debt levels by the sale of non-income producing properties and reducing costs, including wages and mortgage expenses related to the non-income producing properties, in accordance with commitments made by Gardiner Petroleum and the Gardiners to the bank. Mr Harris understood that three properties in holiday areas were non-income producing. Mr Harris was also then aware that Gardiner Petroleum's payments under its equipment leases with the bank were in arrears.
2. On 19 June 2009, Gardiner Petroleum's external accountants, Lawler Partners, provided the bank with projections for the 2010 financial year. These were analysed by bank officers, who concluded that cashflow forecasts indicated that the Group would be able to operate within its existing overdraft limit of $1 million. The bank awaited an asset sale strategy and timelines, following which a meeting would be arranged to agree on the asset sale strategy and ongoing monitoring of actual results to budget. On 3 July 2009, Mr Gardiner provided the bank with an Asset Realisation Schedule in respect of the Merewether, Blueys Beach, Hawks Nest and Rothbury properties. The four properties were then listed for sale but economic times were said to work against a quick sale of the Blueys Beach and Hawks Nest properties, being in holiday areas.
3. On 16 July 2009, Mr Harris met with Mr Gardiner and Ms Cornall to discuss the results for May 2009. According to Mr Harris' note: - Brad advised that as a result of the extremely tight management of cashflow, business had suffered in the short-term a position he would not like to see in the medium to long-term. He advised that they have, due to lack of available cash, kept less fuel stocks on sites this has resulted fuel "stock-outs" which are almost unavoidable given the cash limits they are working within. "Stock-outs are occurring weekly (averaging 2 -3 times per week). Brad does not want this pattern to continue as sites will get a reputation for being out of fuel which shall drive customers permanently away. - Past due creditors equate to approx $100K, this has reduced … again position is difficult with some suppliers stopping supply or COD. Brad advised in the medium term the business needs additional working capital assistance to efficiently run and stock the business. … They are looking for additional working capital.

Third meeting with SBS

1. On 9 October 2009, Mr Vasseleu and Mr Harris met with Mr Gardiner, Ms Dawson and Ms Cornall at Gardiner Petroleum's office. Mr Gardiner said he wanted the meeting to try to introduce some common sense before it was too late but, unfortunately, "I was just met with intimidation by Mr Vasseleu." All Mr Vasseleu wanted to talk to Mr Gardiner about was the sale of the investment properties, "He wasn't interested in much else".
2. As occurred often in Mr Gardiner's evidence, there was an element of truth and a dash of exaggeration, mixed with an inaccurate reconstruction. I did not consider this to be dishonest per se but explicable by the passage of time together with a long-standing sense of grievance. The bank's contemporaneous note gives a more accurate account of what happened.
3. According to the bank's notes, the bank officers advised that they were prepared to recommend renewal of the facilities until 31 December 2009 and an additional market rate facility to cover the expired lease residual, McGrathNicol's fees and the expired Gardiner Investments' facility of $45,000, "however it was reinforced that we expect some proactive action in selling property to reduce debt to more serviceable levels in line with cash flow. In our discussions we indicated we would recommend that at least one property (but preferably 2) either Merewether or [Rothbury] be sold by 31/12/09 and the 2 other holiday area properties by 28/2/10. However we also stressed that Nab would not be prepared to increase working capital funding and that if cash flow becomes stressed then the asset sale deadlines will be brought forward".
4. In November 2009, Gardiner Petroleum breached its financial reporting covenant. The bank extended the deadline to 15 December 2009. Mr Gardiner said that on one occasion Ms Dawson fell ill and he apologised to the bank manager, "It wasn't a problem. It was never seen to be a problem." In fact, Gardiner Petroleum routinely failed to comply with its reporting covenants: see [191]-[196], [224], [233], [238], [244].
5. In January 2010, the bank analysed the results for the September 2009 quarter provided by Lawler Partners. In summary, there was evidence of improving trends but none of the properties listed for sale had been sold. The bank arranged a meeting with Mr Gardiner on his return from holidays "to ramp up urgency to complete property sales and then report to SBS with their further recommendations to move the matter forward."

Strategy 2: sell remaining investment properties and repatriate to branch

1. According to SBS's notes, SBS moved from Strategy No 1 to Strategy No 2 in February 2010, noting that "since categorisation the group is displaying a sound improvement in cashflow, trading and balance sheet management." The strategy was premised on the sale of remaining residential investment properties which, together with improved cashflow management, may resolve the position. SBS approved the extension of facilities to 28 February 2010. That is, the bank's initial strategy had been effective in achieving positive improvements in Gardiner Petroleum's business and the operation of its bank facilities such that repatriating the account to the branch remained in view.
2. On 25 February 2010, the bank extended the expiry date of the facilities to 30 April 2010. A new market rate facility of $240,000 was advanced to cover the residual lease payment, McGrathNicol's fees and the Gardiner Investments facility: see [42]. That is, the bank continued to provide additional financial support to the Group as part of its turnaround strategy.
3. On 23 March 2010, the sale of the Blueys Beach property was completed. The bank received $637,097.56 from the purchaser, which was disbursed in reduction of a number of facilities, particularly equipment leasing. Whilst the plaintiffs complained about this allocation of proceeds, the rationale is recorded in the SMS notes, "In the foregoing strategy the group's lease servicing commitment would reduce from $34,787.20 pm to $21,652.46 pm being cash flow benefit of $13,134.74 pm ($157,616.88 pa)". That is, expensive finance was repaid. In any event, the bank had a contractual power of allocation: clause 20.1(c), mortgage memorandum.
4. Gardiner Petroleum continued to regularly exceed its $1 million overdraft account. Mr Harris sought approval from SBS for account excesses, which were approved, albeit Mr Vasseleu expressed concern that excesses were becoming more regular. On 12 April 2010, SBS's notes record a discussion with Mr Vasseleu given concern that the bank was "seeing some cash stress reappearing with recent excess requests". The bank was concerned that Mr Gardiner "still doesn't appreciate the urgency of his position and his need to deleverage his debt servicing position." The bank agreed to meet with the Gardiners and reinforce its expectations, noting that limits were due to expire on 30 April 2010.

Fourth meeting with SBS

1. On 5 May 2010, Mr Vasseleu met with Mr and Mrs Gardiner, Ms Dawson and Ms Cornall. Perhaps unexpectedly, Mr Vasseleu's note records that the Gardiners sought additional funding support from the bank. Mr Vasseleu noted that property sales had stalled and the "group do not appear to be committed sellers". Gardiner Petroleum had two service stations which were due to commence by 30 June 2010 and funding was needed to start up or the company would be in breach of head leases. Caltex was now aware of the Group's stretched cash position and had indicated that it may be prepared to assist. Mr Vasseleu's file note records: (emphasis added) Group consider that they have taken significant steps in reducing overheads/financial commitments since completion of the IA review last year. They are reluctant to divest of any further assets to deleverage their position. Further they cannot understand Bank's refusal to continue to provide further funding support to start up further sites as they considered was in place with the [Business Banking Centre] prior to referral of the file to SBS. It was reinforced to the group that Nab cannot work with them if they are unwilling to deleverage their position to a level sustainable from their existing cash flows and curtail their continuing growth strategies funded purely by debt. As again that Nab is not prepared to consider any further funding particularly of new sites. As a consequence of the foregoing presenting issues group advised that SBS would be recommending that McGrath Nicol carry out a further review to provide Nab with advice on its options before any decision is made as to continued availability of facilities and at what level of accommodation and/or its alternate options including possibility of receivership. Group instructed to seek urgent assistance from its external advisers (Lawlers) to identify all options to raise equity, quickly dispose of assets including one or more of the service station sites and deleverage their position quickly to a sustainable level. Group also instructed to obtain specialist practitioner advice urgently on the solvency of the business. Group has potential insolvency issues in the short term caused by their stubborn resistance to proactively selling non-core property assets to deleverage their debt servicing position in line with McGrathNicol's IA recommendations. Pending completion of McGrath Nicol's further IA review we may need to consider funding the group for short term excess up to max say $100k to ensure that the business continues to receive fuel deliveries. Would recommend however that the group's facilities which expired on 30/4/10 remain expired until we assess our further strategy actions once the IA report is finalised ...

McGrathNicol's second report

1. On 26 May 2010, McGrathNicol provided its second report. Large portions of the report were redacted. On 31 May 2010, Mr Gardiner confirmed the factual accuracy of McGrathNicol's second report, which was issued in final form to the bank.
2. In the unredacted report, McGrathNicol expressed the view that, if the bank enforced its security, there was some likelihood that a going concern sale could be achieved. A forced sale would likely be value destructive and result in a significant shortfall to the bank.
3. McGrathNicol assessed various possibilities for debt reduction, including the sale of service stations. Whilst the Morisset and Beresfield sites would likely attract the higher offers, the sale of either or both of these service stations would significantly reduce the level of ongoing maintainable earnings and, indirectly, the level of sustainable debt. Further: On existing debt levels, and including the sale of the above residential properties, the stand-alone sale of the site operations would not generate sufficient proceeds to adequately recapitalise the business (with the potential exception of Morisset). In addition, the sale of either Morisset or Beresfield would mean a material reduction in the Group's operational scale and change to its overall business model. The problem identified by McGrathNicol was that sale of the more profitable service stations would have the consequence that the remaining service stations would not generate enough profit to meet the company's obligations.
4. Gardiner Petroleum continued to exceed its overdraft limit. On 1 June 2010, Mr Vasseleu provided his review of McGrathNicol's second report to Mr Harris, noting the recommendations for an early sale of all non-core property assets, with Mr Gardiner to seek additional equity funding or joint venture funding for the new sites or, preferably, to exit those commitments. In addition, McGrathNicol recommended the consolidation of trading at the four remaining service stations and reorganising head office "which has a structure and cost that is excessive relative to the needs of the business." It was possible that some $3.45 million would be obtained from the sale of these assets, together with an inheritance which Mr Gardiner had received, to reduce debt levels. The remaining debt would be secured by the family home and the remaining four service station leaseholds "which only have material value in a going concern sale scenario. Our downside risk however is how we manage Brad's expectations and curtail his continuing strategy to seek and establish new sites funded by debt which will cause cash stress on our security and it is likely that he will seek to obtain funding from outside lenders."

Fifth meeting with SBS

1. On 21 June 2010, Mr Vasseleu, McGrathNicol, Mr and Mrs Gardiner and Ms Cornall participated in a teleconference "to discuss the Banking relationship moving forward" following McGrathNicol's second report. The bank was made aware that the sale of the Belmont site had already been completed and was concerned that it "should have controlled the disbursement of these funds". In cross-examination, Mr Gardiner said that he credited the money to the trading account as that was the logical thing to do where they needed working capital. However, it must have been galling for the bank to hear that the proceeds of a long-awaited asset sale were applied as Mr Gardiner thought fit rather than to pay down bank debt.
2. According to the bank's note, the Gardiners were encouraged to continue the debt reduction program by asset sales and to reduce head office costs. Discussion turned to the proposed two new sites at Wyee Road and Berkeley Vale. Notwithstanding the bank's efforts to encourage Mr Gardiner to sell assets, Mr Gardiner persisted in his efforts to obtain additional funding to open new service sites. Mr Gardiner advised that he had been able to secure favourable terms and could effectively open the sites with little capital outlay. According to Mr Harris' note of the meeting: The position was not acceptable to the Bank as again they would seek to establish sites on debt with no equity and insufficient working capital to fund growth. Gardiner's had not explored any partnering arrangements and it appeared Caltex was not interested in taking on the head leases … Bank has requested Gardiners obtain legal advice on the possible ramifications and options that are available, further they need to seek advice from Accountants business advisory service. A strategy needs to be determined to exit these liabilities …
3. According to SBS's note of the meeting: It was apparent that Brad has now come to realisation that his lack of planning in committing to these additional sites could lead to an overall failure of his businesses. He stated that he is endeavouring to come up with solutions however ... Brad had also not obtained formal advice or assistance from his solicitor and/or external accountant to assist him in extricating himself from these lease obligations. It was impressed on Brad that he needed to seek appropriate specialist input to assist him on the foregoing. In the discussions Murray Smith also encouraged Brad to engage the assistance of Caltex ... Brad conveyed reluctance to find a new operator who would compete directly with his Beresford sites with concern on the impact this would have on the viability of these sites. Our response to Brad was that if he cannot come up with a solution that fully mitigates risk of the landlords on the 2 new sites taking action against him particularly as they continue to incur costs to develop these sites then his overall business and NAB's exposure is at significant risk.

Strategy 3: financial support and asset sales

1. 'Strategy 3' was recorded in SMS by Mr Vasseleu in February 2011. Mr Vasseleu was prepared to increase the overdraft by another $100,000 but expected that "a more aggressive sale programme is pursued by the group to sell assets either to achieve a substa[i]nable debt position in the short term or sale of all assets and full repayment of all debt".
2. On 14 February 2011, Mr Gardiner advised Mr Harris that Caltex had offered $900,000 for the Raymond Terrace service station whilst the Gardiners had counter offered $1.05 million. On 15 February 2011, Mr Gardiner advised that contract had been signed for the sale of the Hawks Nest property, with exchange within 10 days. In addition, Mr Gardiner advised Mr Harris that he was meeting with the United Group, which was exploring options to expand in the Newcastle area. Mr Gardiner wanted to test the market rather than just rely on Caltex.
3. The company was then in excess of its overdraft limit of $1.1 million. The excess was approved by SBS, to be restored to the approved overdraft limit by 22 February 2011. On 18 February 2011, Mr Vasseleu asked Mr Harris, to follow up evidence of the exchange of contracts on the Hawks Nest property "and impress on Brad that he needs to be cognisant that [they] may not be prepared to continue to pay excess drawings and he must be realistic in his expectations on the selling price for his sites particularly the one in negotiation and not put the negotiations at risk that Caltex walks away from their offer. In regard to testing the market this should have occurred some time ago and concurrently with the negotiations with Caltex and not at this late stage." Mr Harris reported that he had conveyed SBS's concerns to Mr Gardiner.
4. On 24 February 2011, Mr Vasseleu held a telephone conference with Mr Gardiner, Ms Dawson and Mr Harris to discuss strategy in light of recent excesses and the potential sale of Hawks Nest and the Raymond Terrace service station. SBS's file note records: IAM [Impaired Asset Manager, Mr Vasseleu] asked if following sales if creditors would be in order. Answer received not definitive but BBM [Business Banking Manager, Mr Harris] advised customer having trouble with creditors. No answer provided by customers. We anticipate that they will require release of some funds to satisfy creditors. In this regard we would insist on collecting funds of say circa $1.3m on the Raymond Terrace sale and allow them to retain circa $200k from the stock and equipment proceeds to satisfy unsecured creditors. IAM advised customer that a remedy to the cash stress needs to be found. NAB cannot keep extending and pushing limits up for excesses between now and the sale as has been done in the past. Action must be taken between now and prospective sale of 2 assets. Furthermore, significant time will be required for Caltex to complete [due diligence] to effect sale; IAM needs to see sustainability of business in the next 2-3 months. IAM advised them that they must be realistic with the price asking for Raymond Terrace given their tenuous position and not to place the whole business at risk by holding out for best price and risk Caltex walking away from their offer Interim accounts provided for 6 months to 31/12/2010 show deteriorating sales and profitability trends. …

Strategy 4: recovery

1. In June 2011, the bank moved to 'Strategy 4', when the file was categorised as 'recovery' as opposed to 'turnaround'. On 22 June 2011, Mr Vasseleu and Mr Harris had a telephone conference with Mr Gardiner. Mr Vasseleu advised that Gardiner Petroleum's accounts continued to remain irregular and the bank could not continue to micro-manage the account. The bank could not continue to approve excesses on the working account to fund the business' cashflow deficiency where, on 17 June 2011, the account stood at $1.56 million. The bank now required full debt repayment and the meeting was to discuss how to achieve this and maximise the return for the bank.
2. Given this, the bank now intended to crystalise the debt and provide $100,000 working capital in a credit only account. Loan repayments would be further deferred but McGrathNicol would be appointed to conduct a review on the business. Mr Gardiner was expected to maintain fuel payments within limit constraints. Any future excesses would not be supported as the business model did not support the debt position. Non-core assets and some core assets had been sold but, according to forecasts provided to the bank, cashflow would remain negative to the end of the year. "The Bank will now exit relationship." While this could be achieved through a voluntary administration or receivership, neither was ideal where the bank had brick and mortar security valued at $2.4 million against debt of $4.2 million. The preferred strategy was managed sales and refinance through cooperation from Mr Gardiner. Mr Vasseleu advised that goodwill needed to be preserved to maximise returns, where the bank was in a potential substantial loss position.
3. That is, for over two years, the bank pressed for the reduction of debt while permitting excesses on the overdraft to allow the business to continue to operate. When the bank concluded that these efforts were no longer viable, it clearly informed Mr Gardiner about this change. The bank made no secret of the gap between the debt owed and the value of the security. The bank made plain that it wished to realise its security on a going concern basis in order to maximise sale proceeds.

McGrathNicol's third report

1. On 22 June 2011, the bank retained McGrathNicol to conduct an independent business review, including to review and assess the alternative asset realisation options. The bank advised that it would be relying on the review to determine whether it was prepared to enter into a formal deed or arrangement with the Group for the orderly voluntary sale of the business and personal assets as an alternative to a formal appointment under the bank's security. A copy of the letter was provided to Mr Gardiner.
2. On 24 June 2011, contracts were exchanged on the Rothbury property, with settlement in 90 days. Mr Gardiner asked to suspend the mortgage payment to save cash.
3. On 28 June 2011, McGrathNicol provided the bank with some preliminary views in respect of the Group's cash forecasts, considering that the current overdraft limit of $440,000 should be sufficient to meet trading commitments whilst it negotiated an extension to its payment plan with the ATO and McGrathNicol finalised its review.
4. Gardiner Petroleum did not comply with its reporting covenants and, on 12 July 2011, the bank wrote to the company advising that it had extended the date for provision of the information until 31 August 2011.
5. On 14 July 2011, McGrathNicol provided a draft of its third report and, on 18 July 2011 reported to the bank on its recent call with Mr Gardiner and Lawler Partners to set up ongoing fortnightly monitoring. McGrathNicol suggested that the next step was to "maintain momentum" with the bank putting its requirements in writing in the form of a forbearance letter or deed.
6. On 20 July 2011, the bank reviewed McGrathNicol's report, noting that the Group continued to have trade and statutory creditor pressure, with a significant increase in aged creditors in 90 days. This was a direct result of the Group's attempt to maintain the overdraft limit by stretching terms with non-Caltex trade creditors and the ATO. The Group seemed to be facing increased cashflow pressures. The overdraft balance had again been fluctuating over the limit. A managed sale process was considered the best option to sell assets to a limited market of potential buyers without announcing a distressed seller, thereby maintaining maximum realisation potential. McGrathNicol advised: This option is entirely reliant on bank support and continuance of facilities and overdraft support in conjunction with forbearance from any enforcement action by the Bank to be incorporated into a deed along with strict covenants and timelines to be met by customer in lieu of default of their facilities.

McGrathNicol monitoring

1. On 1 August 2011, the bank asked McGrathNicol to undertake weekly monitoring "to ensure that Brad is kept on his toes". On 2 August 2011, the overdraft limit was exceeded. Mr Harris advised that "the Bank shall on this, and only this, occasion honour payment of drawings over the facility limit. Any future drawings in excess of limits shall not be honoured."
2. On 4 August 2011, McGrathNicol provided the first monitoring report for the three weeks ended 22 July 2011, noting that Mr Gardiner "has made little progress on selling his remaining sites, and continues to struggle to manage his cashflows and working capital (as evidenced by the breach of the overdraft limits and payment plan with the ATO). This reinforces the need for continued weekly monitoring of the Group, its cashflows and Brad's progress with interested parties, and also the Bank setting strict forbearance terms that clearly defined the timetable for sales." The first monitoring report noted that "the Group is still progressing sales, but in a slow and reluctant manner …". Lawler Partners had again recommended that Mr Gardiner meet with a member of its insolvency practice and a meeting had been tentatively scheduled for 8 August 2011.
3. On 9 August 2011, SBS's notes record that the customer would require further lending of up to $100,000 to support their cashflow shortfall whilst attempting to sell the business assets on a going concern basis. McGrathNicol was to assess additional working capital funding required.
4. On 18 August 2011, McGrathNicol provided its second monitoring report. Fuel 'stock outs' are now becoming a regular issue at all sites. McGrathNicol suggested it may be worth considering some added flexibility in the Group's overdraft "whilst ensuring that Brad doesn't lose momentum on the site sales side". The monitoring report noted that management had become more active in its pursuit of site sales, with interested parties for two sites recently identified. Creditors now stood at $1 million due to outstanding GST, previously misreported by management. A payment plan had been agreed in respect of unpaid payroll tax.
5. On 29 August 2011, McGrathNicol provided an update following conversations with Mr Gardiner. A potential purchaser for Beresfield North service station had been found, while Caltex had shown interest in the Morisset service station. "More recently, Brad appears to be making some progress to realising these assets as going concern businesses. It remains unclear whether sales will be sufficiently progressed by 30 September to meet the terms of the proposed forbearance arrangements". McGrathNicol also noted that the incidence of fuel 'stock outs' had been increasing over the past two weeks, which was beginning to impact customers. McGrathNicol considered that it may be necessary to provide additional overdraft funding to maintain trading and goodwill while Mr Gardiner continued to facilitate a going concern sale.

Liquidator appointed to Gardiner Petroleum

1. On 12 September 2012, orders were made for Gardiner Petroleum to be wound up, on the application of the ATO.
2. On 14 September 2012, the bank prepared a Bad Debt Report, noting that the balance of facilities for Mr and Mrs Gardiner and Gardiner Petroleum totalled $3,354,905. The only remaining security was the Eleebana property. A bad debt provision of $2,783,296 was raised. The report summarised the bank's efforts to achieve going concern asset sales in order to avoid the risk of crystalising a substantial loss if the bank had immediately withdrawn support. Going forward, it was expected that the ATO or one of the Group's creditors would seek to bankrupt Mr and Mrs Gardiner. As there was no equity in the family home, the bank expected a bankruptcy trustee to disclaim the home. In that event, the bank would be required to seek orders for possession. The family home had been valued at $680,000, with estimated realisable value assessed at $615,000.
3. The report concluded with "key lessons learned", being that primary exit serviceability was based on untested forecasts without the mitigant of a strong secondary exit position. Ms Stacker explained that primary exit serviceability was revenue used to service the debt whilst secondary exit referred to the security that underpinned the loans. Mr Acharrie explained that "untested" means that the forecasts were not subject to an audit, "they were just taken at face value from the person that wrote the deal." The report noted that each new service station was 100% debt funded and reliant on the director's portfolio of residential investment properties as equity in lieu of cash equity contributions. It was essential that the business model had the appropriate mix of cash and debt funding to be viable, particularly where there was a weak secondary exit position as was evident for this group. No further action was recommended in a Lending Standards Review Report.
4. On 29 October 2012, the bank issued a Notice of Cancellation to Mr and Mrs Gardiner in respect of the remaining mortgage facility, with an amount then owing of $742,187.58. On 8 November 2012, the bank issued a default notice to Mr and Mrs Gardiner seeking payment of $743,524.43, failing which the bank would seek to repossess the Eleebana property. On 11 April 2014, the bank gave Gardiner Petroleum notice of cancellation of its facilities, with a total amount owing of $3,644,600.79. Further notices of default, demand and cancellation were issued to Gardiner Petroleum, Gardiner's Pty Ltd and Mr and Mr Gardiner thereafter. The last demand was issued by the bank to Mr and Mrs Gardiner on 6 November 2015 in the sum of $4,818,041.05. According to SMS notes, none of the bank's demands generated a response from Mr or Mrs Gardiner. The bank received no further monies from Gardiner Petroleum or the guarantors.

ASIC ACT CLAIMS

1. The plaintiffs complain that, until March 2009, the bank represented that the plaintiffs were valued customers and high net worth individuals and, further, that the financial services supplied by the bank were suitable for the plaintiffs' purposes. On this basis, the plaintiffs brought all of their banking business to the bank. However, following a request by Mr Coddington to show the Group's sites to Mr Vasseleu "to pave the way of the family business for the future", Mr Vasseleu represented that it was necessary for the bank to conduct a 'health check' of the plaintiffs' assets, notwithstanding the recent review by PPB. The plaintiffs reluctantly agreed.
2. Further, in June 2009, Mr Vasseleu is said to have made further representations on behalf of the bank that, post the GFC, the plaintiffs' LVR had changed with the result that the bank required, and was entitled to require, the plaintiffs to sell down all residential properties other than the family home to reduce borrowings. The bank's future goodwill towards the plaintiffs and further financial support was dependent on the sale of these assets. Once the plaintiffs reduced their LVR, the bank would re-transfer management and supervision of the plaintiffs' account back to the local business unit so that normal trading conditions may resume and the plaintiffs' business would grow again after the head office intervention.
3. There was said to be no basis for these representations, which were said to be misleading and deceptive contrary to section 12DA of the ASIC Act. Had the plaintiffs known the true position, they would have taken steps to seek alternate debt or equity finance. By providing the plaintiffs with only redacted copies of McGrathNicol's reports, the bank denied the plaintiffs the opportunity to do so. The bank's conduct was also said to be unconscionable contrary to section 12CB of the ASIC Act, where, at the time, the plaintiffs were said to not be in default. The sale of the plaintiffs' assets and the destruction of their growing and successful business was not reasonably necessary for the protection of the bank's legitimate interests and made the plaintiffs' financial position worse.

Time bar

1. An action for damages suffered as a consequence of misleading and deceptive conduct or unconscionable conduct must be commenced within six years after the day on which the cause of action accrues: section 12GF(2), ASIC Act. The cause of action accrues when loss or damage is sustained as a consequence of the contravening conduct: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 (Mason CJ, Dawson, Gaudron and McHugh JJ), at 536 (Brennan J) and at 539 (Deane J).
2. Ascertaining when loss or damage was sustained in this case is no easy matter where the plaintiffs failed to adduce any admissible evidence on the subject. However, as I understood it, the loss or damage arose when the plaintiffs' assets were sold as a consequence of the bank's representations. The first sale was Blueys Beach, completed on 23 March 2010 (see [172]), being more than nine years before commencement of the proceedings. The last assets were sold in August 2012, being the Beresfield and North Beresfield service stations (see [284]). This was more than seven years before commencement of the proceedings. Whether the assets were sold at an undervalue is not known. Assuming that the circumstances of the sale at the bank's insistence caused loss, such loss was sustained more than six years before commencement of the proceedings.
3. Gardiner Petroleum went into liquidation in September 2012, more than seven years before the commencement of these proceedings. To the extent that the plaintiffs suffered loss as a consequence of the failure of Gardiner Petroleum's business, any such loss was sustained more than six years before the commencement of these proceedings. The claims under the ASIC Act are time barred.
4. The plaintiffs also sought relief under section 12GM(1) and (7) of the ASIC Act. While section 12GM(5) provides that an application under section 12GM(2) must be made within six years after the day on which the cause of action arose, no limitation period is specified for applications under sub-sections 12GM(1) and (7). As such, the plaintiffs contended that their application was not time barred.
5. As explained by O'Bryan J in Reilly v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1502, while section 12GM(1) is not subject to an express limitation period, the Court's power to grant relief under the sub-section is expressly dependent on there being a proceeding instituted under Division 2 of Part 2 of the ASIC Act. In that way, the Court's power to grant relief under section 12GM(1) is subject to any limitation period that applies to the other relief that is sought. If that other relief is a claim for damages under section 12GF(1), the six year limitation period in section 12GF(2) will apply in respect of relief sought under section 12GM(1): at [90]-[92], citing Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 at 545-6 in respect of the statutory predecessor, section 87 of the Trade Practices Act 1974 (Cth) ("Although s 87 contains no time limitation, the proceeding on which the power to grant relief under s 87 depends will be barred if it is instituted outside the time, if any, limited for instituting that proceeding"); Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd [2001] FCA 1620; (2001) 114 FCR 108 at [53] and [55] (Wilcox, French and Drummond JJ); Dorfler v ANZ Banking Group Ltd (1991) 103 ALR 699 at 702 (Spender J), Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307, [309]-[312] (Rares J) and Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249 at [369] (Gordon J).

The representations

1. If I am wrong about this then, as I understand it, the plaintiffs contended that Gardiner Petroleum's business was, in fact, in a good state. As the bank had issued no default notices, Gardiner Petroleum was not in default. The plaintiffs were 'tricked' by the bank into cooperating in the sale of their assets by the promise that, once some of the assets were sold, Gardiner Petroleum could continue to trade and prosper. If the bank had shared the unredacted McGrathNicol reports with the Gardiners, then they would have been aware of what the bank had in mind. Had the Gardiners known that the bank's plan 'all along' was to require the Gardiners to sell all of their assets, then the Gardiners would have ceased to cooperate.
2. When determining whether conduct is misleading or deceptive, the Court needs to ask itself whether the impugned conduct, viewed as a whole, had a sufficient tendency to lead a person exposed to the conduct into error: Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 at [98] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [39] per French CJ, Crennan, Bell and Keane JJ; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [25] per French CJ. Conduct is only likely to mislead or deceive if there is a real or not remote chance or possibility of it doing so: see Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87. Where alleged misleading or deceptive conduct is constituted by spoken words, "it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances": in Watson v Foxman (1995) 49 NSWLR 315 at 318-9 per McLelland CJ in Eq.
3. I understand that Mr Vasseleu is said to have made the representations at the first meeting with Mr Gardiner on 27 April 2009 (see [122]-[127]) and the second meeting on 2 June 2009 (see [143]-[150]). As to the representations said to have been made at the first meeting, I accept that Mr Vasseleu represented that the bank wished to appoint an investigating accountant to review Gardiner Petroleum's position; Mr Vasseleu may have described this as a 'health check'. I do not accept, however, that Mr Vasseleu represented that the GFC had affected the bank's LVR ratio and that Gardiner Petroleum had to comply with a lower LVR ratio as part of the bank's post-GFC policy.

Redacted McGrathNicol reports

1. As to the suggested misleading and deceptive conduct by redaction of the McGrathNicol reports, Mr Gardiner accepted that he received and read the McGrathNicol engagement letter, which made clear that parts of the report would not be provided to Gardiner Petroleum. It also made clear reference to various matters that the report was to address, including assessment of the bank's security and ultimate realisation on both going concern and forced sale basis and alternatives open to the bank. It is plain from the bank's first letter of instruction that the bank was interested to know how best to reduce the amount owed by the Group.
2. When McGrathNicol's first redacted report is viewed together with the bank's letter of instruction, it is fairly obvious that the redacted portions address the bank's request for advice on its security position and the likely outcome if the security was realised on a going concern or forced sale basis. Having read the letter of instruction, Mr Gardiner would have been unsurprised to see these portions were redacted, as the bank had requested McGrathNicol to provide this advice to the bank only. The topic of the redacted portions - and thus what the bank was thinking about - would have been fairly obvious.
3. Nor did the redactions in the McGrathNicol report disclose an 'exit strategy' as suggested by the plaintiffs, but rather a strategy of continuing to support Gardiner Petroleum, including with additional funding. McGrathNicol cautioned against any quick exit, which would likely result in the bank sustaining significant losses on the account. Nor did the bank "exit" the relationship at that time, but continued to lend money, and in greater amounts, to Gardiner Petroleum.
4. Further, the fact that portions of the McGrathNicol report were redacted did not necessarily mean that the information was not discussed, either with McGrathNicol or with SBS: see [141], [143]. The contemporaneous records indicate that the substance of McGrathNicol's views on these subjects were discussed with the customer.
5. The same can be said for McGrathNicol's second report, although I understand the plaintiffs' complaint is focussed on the first report. The engagement letter was copied to Mr Gardiner and made plain that McGrathNicol's advice to the bank about the security and preferrable actions would not be provided to Gardiner Petroleum. A draft report was again provided to Mr Gardiner, with redaction of the 'bank only' parts. The subject of those parts, at a level of generality, was also apparent.

Causation and loss

1. If I am wrong about this, and the representations were in fact made and constituted misleading and deceptive conduct or unconscionable conduct, then the plaintiffs have not established that the conduct was causative of loss or damage. As pleaded, loss and damage was said to have been caused by the plaintiffs' ignorance of the bank's plans to sell them up, depriving them of the opportunity to refinance and prosper.
2. Mr Gardiner said he only had access to the unredacted version of McGrathNicol's first report in 2020, during discovery in these proceedings. If he had had the unredacted report at the time, Mr Gardiner said his position would have changed. If Mr Gardiner had been aware that there would be a shortfall of $3.1 million if the bank enforced its security, "That would've been a red light to me that the bank was considering other options other than helping me. … This would have flagged with me a further motive that I [did not know] about". Had he been alerted to these matters, Mr Gardiner said: I would've sought legal advice. Further, I would not have agreed to the proposed selling of my investment property assets in fear that there was something happening behind me that I wasn't aware of. I would've consulted with my accountants, and I would've … sought to introduce a strategy that did not involve selling my investment properties, rather selling one of my high value service stations which probably would've been a more favourable outcome.
3. Mr Gardiner said that if he had been aware that the bank was anticipating a going concern exit, "everything would have changed in my mind. … I wouldn't have agreed to the bank's demands to sell my investment properties had I known that I was going to be entering into a going concern sale of my service stations. … I was building my network, not selling my network. … A going concern sale would have alerted me that I was entering into some sort of going concern sell down and I was the liquidator." Rather than sell his investment properties, Mr Gardiner said he would have arranged a further strategy that would possible have involved the sale of at least one of his high value sites, thereby potentially eradicating the entire debt or close to it. He would also have sought alternate banking arrangements.
4. Generally, hindsight evidence as to what one would have done is given little weight: Australian Executor Trustees (SA) Ltd v Kerr (2021) 151 ACSR 204; [2021] NSWCA 5 at [284] to [290] per Gleeson JA (Leeming JJA and Emmett AJA agreeing), citing Chappel v Hart (1998) 195 CLR 232; 156 ALR 517; [1998] HCA 55 at [65]; Rosenberg v Percival (2001) 205 CLR 434; 178 ALR 577; [2001] HCA 18 at [16] (Gleeson CJ). More reliable is evidence of the conduct of the party at the relevant time, contemporaneous evidence as to how the party felt about certain matters, the evidence of others in a position to assess the plaintiff's conduct and motivations and other matters that may have influenced the plaintiff: Neal v Ambulance Service (NSW) [2008] NSWCA 346 at [40] (Basten JA with Tobias JJA and Handley AJA agreeing).

DECEIT

1. The plaintiffs contended that the bank made false representations, deceiving the plaintiffs into selling their assets when it was not necessary to do so. Had the plaintiffs known the bank's true position, they would have taken a different course, seeking alternative debt or equity finance. It is said that the bank deceived the plaintiffs by representing that the bank's strategy was to work with the plaintiffs to save the service station business. By redacting the McGrathNicol reports, the bank concealed its true plan. In fact, the bank intended to liquidate all assets of the plaintiffs and their business, but failed to disclose this strategy. The bank adopted "fictional calculations" in the McGrathNicol reports. By relying on the bank's representations, the plaintiffs are said to have lost the whole of their residential and business assets.

Time bars

1. A cause of action founded on tort is not maintainable if brought at the expiration of six years from when the cause of action first accrues, being when loss or damage is sustained: Limitation Act 1969 (NSW), s 14(1)(b), Wardley v Western Australia. However, the plaintiffs relied on section 54 of the Limitation Act 1969 (NSW), contending that the bank confirmed their cause of action by pleading a set-off as part of its Cross-claim. Further, the plaintiffs alleged that they first discovered the bank's 'financial exit strategy' after inspection of the documents discovered by the bank in April 2021. At no stage during the pendency of the credit facilities with the bank prior to the commencement of the proceedings did the bank or McGrathNicol disclose to the plaintiffs the bank's 'financial exit strategy'. As such, it was suggested that section 55 of the Limitation Act 1969 (NSW) had the effect that the limitation period in relation to their allegations did not start running until then.
2. As to section 54, confirmation is effective only if it happens before the expiry of the limitation period: section 54(1). Confirmation after expiry of the limitation period does not revive it: Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 565 (Wilson J). As earlier analysed at [296]-[297], any loss was sustained more than six years before commencement of these proceedings in December 2019. The bank filed its Commercial List Response in March 2020 and a cross-claim in April 2020. Assuming for the moment that either pleading confirmed the plaintiffs' cause of action in deceit, any such confirmation was made after the limitation period had expired.
3. As to section 55, the deceit claim was added to the plaintiffs' pleading on 5 August 2022 by the Further Amended Commercial List Statement. By the Amended Commercial List Reply filed on 5 August 2022, the plaintiffs contended that their cause of action was fraudulently concealed within the meaning of section 55. As I understand the plaintiffs' pleading, reliance was placed on section 55(1)(b) of the Limitation Act, which provides: 55 Fraud and deceit (1) Subject to subsection (3) where - … (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.

Elements

1. If I am wrong about this, the tort of deceit has five elements: first, the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage caused by reliance on the false representation: Magill v Magill [2006] HCA 51; 226 CLR 551 at [114] per Gummow, Kirby and Crennan JJ. As their Honours there emphasised, "the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation": at [114].
2. As McDougall J observed in Carr v Miller [2018] NSWSC 1424, an allegation of deceit is serious and the Court must take the gravity of the allegation into account in deciding whether it is satisfied on the balance of probabilities that the allegation has been made good; there must be a feeling of actual satisfaction that the deceitful conduct took place and that the elements of deceit have been made out: at [93]-[94].
3. None of these elements were established. To the extent any representations about the bank's strategy and intentions were made to the plaintiffs, they were made openly and the bank adopted the strategy that it said it was adopting, being to encourage Gardiner Petroleum to reduce its debt and to manage its cash flow. As earlier observed, the redaction of portions of the McGrathNicol reports did not result in a false representation. It was apparent from the bank's letter of instruction and the headings of the redacted portions what the bank wanted advice about and, thus, what the bank was thinking about. Nor did the redacted portions record the suggested "exit" strategy.
4. More important than McGrathNicol's advice and presentation of options was the strategy which the bank decided to pursue. The bank's contemporaneous records evidence consistent, clear communication with the Gardiners about what the bank wanted to achieve, what the bank wanted them to do and why. Further, for reasons earlier stated, the plaintiffs have not established causation or loss.

CODE OF BANKING PRACTICE

1. The bank is said to have failed to comply with the Code of Banking Practice when requiring Mr and Mrs Gardiner to refinance the properties then mortgaged to St George with the bank, without informing them that the bank proposed to use the additional equity as part of its 'post-GFC' intervention and for the bank's benefit. Further, Mr Vasseleu required the plaintiffs to sell their assets urgently and without delay, thereby resulting in sales proceeds less than might otherwise be achieved. The bank required the plaintiffs and Gardiner Petroleum to pay for McGrathNicol's "expensive accounting reports" and withdrew the bank's financial facilities without adequate notice "contrary to … promises". The bank was said to have influenced the outcome of McGrathNicol's reports and caused sections of the reports which did not support its plans to be redacted. Some of the pleading is scandalous and unsupported by any evidence and will not be repeated here. Ultimately it is said that the plaintiffs thereby suffered loss and damage, being all of the residential investments and business.

Time bars

1. This is a claim for breach of contract. The limitation period is six years from accrual of the cause of action, being when the contract was breached: section 14(1) Limitation Act 1969; Gould v Johnson (1702) 2 Salk 422; 91 ER 367. The alleged breaches of contract date from 2008 to May 2010. Clearly, these proceedings are out of time. To the extent that the plaintiffs relied on sections 54 or 55 of the Limitation Act to extend the limitation period, I have concluded that these sections do not apply in the circumstances of this case: see [338]-[344].

"small business"

1. If I am wrong about this, the question is whether the Code of Banking Practice applied in the circumstances of the case, where the Code sets standards of good banking practice for the bank to follow when dealing with individual and small business customers and their guarantors: clause 1.1, Code of Banking Practice (May 2004). 'Small business' is, relevantly, a business which employs less than 20 full time or equivalent employees: Part F 'Application and Definitions', 'small business' and 'you and your'.
2. Mr Gardiner said that, as at April 2009, Gardiner Petroleum had six permanent full-time employees. In addition, casual employees ran the service stations. He calculated the number of full-time equivalent employees to cover these service station shifts as an additional seven employees, bringing the total to 13 full time or equivalent employees. Mr Gardiner said April 2009 was a time at which the business "had more employees than at any other time."
3. Mr Gardiner's calculation seems odd where six service stations were then operating 24 hours a day, seven days a week and the seventh service station was open 16 hours a day, seven days a week. In his last affidavit, Mr Gardiner deposed that the 'total weekly hours worked by part time employees' of Gardiner Petroleum was at least 980 hours. This alone would have amounted to the equivalent of 24.5 full time employees.
4. Also at odds with Mr Gardiner's evidence, a Client Evaluation prepared by the bank in January 2008 recorded that Gardiner Petroleum employed approximately 80 staff, four of whom were employed in key senior management positions looking after the day-to-day operations of the site. However, Mr Gardiner said this was not an accurate statement; the company had 50 staff, being six full-time staff and another 44 casual staff who assisted in operating the service stations. I do note, however, that in his resume, Mr Gardiner describes himself as the managing director and founder of the largest Caltex multi-site business in Australia, with an annual turnover of $80 million "and I employed 100 employees".
5. I also note that, in January 2012, Direct Credit Report records at least 38 people to whom wages were being paid. Presumably, the company's employees were much reduced by this time. The Bad Debt Report completed on 14 September 2012 reported that, at its peak, the company employed approximately 60 people.

Breach of the Code

1. If I am wrong about this, the Code of Banking Practice was incorporated into the relevant contracts by the bank's General Conditions, for example, clause 20 of the General Conditions to the Second Market Rate Facility. The plaintiffs contend that the bank was in breach of its obligation to act fairly and reasonably towards Gardiner Petroleum in a consistent and ethical manner. The bank was obliged to act prudently with diligence, care and skill. The bank was obliged to work with the plaintiffs if they experienced financial difficulties and not to cause them to draw on their superannuation. The latter obligation arose under the Code of Banking Practice adopted in 2013, and I will consider whether this obligation applied at [362].
2. The alleged breaches of the provisions of the Code of Banking Practice have not been established. Clause 2.2 required the bank to act fairly and reasonably in a consistent and ethical manner where, "In doing so we will consider your conduct, our conduct and the contract between us". This obligation requires no more than conduct in good faith: Dinh v Commonwealth Bank of Australia [2021] WASCA 127 at [135]-[139]. I do not consider that the bank breached this obligation. Rather, Mr and Mrs Gardiner did not perform their undertakings given in 2008 to sell properties to reduce debt. Gardiner Petroleum could not comply with the terms of its facilities and sought more finance. The bank afforded Gardiner Petroleum and the plaintiffs repeated opportunities and indulgences.
3. Clause 25.1 required the bank to exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessment methods and in forming its opinion as to the customer's ability to repay. It does not require the bank to be satisfied that the customer has the ability to repay a facility before offering it: Dinh v CBA at [178]-[180]. The bank may take due care and decide that, although it is possible that the borrower may not be able to repay the loan, it will offer the loan in any event: Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 at [163]-[164] (McLeish JA, Whelan JA and Garde AJA agreeing); Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 at [26] (Meagher JA, Macfarlan and White JJA agreeing). The bank did not act in breach of this obligation, particularly where the plaintiffs' complaint is that more money, not less, should have been lent.

NEWPORT RESOURCES AND REINSTATEMENT

1. The third plaintiff was Newport Resources, which was appointed as trustee of the Gardiner Family Trust on 28 November 2019, seven years after Gardiner Petroleum automatically ceased to be trustee on the appointment of a liquidator.
2. Newport Resources was joined to the proceedings in February 2022. The bank responded to the joinder by maintaining that Newport Resources had no right or power to sue in these proceedings as the deed by which it was appointed trustee of the Gardiner Family Trust did not vest any trust property in the company. Gardiner Petroleum was the proper plaintiff but any chose in action vested in ASIC on deregistration: section 601AD(2), Corporations Act 2001 (Cth).
3. The plaintiffs then added a further prayer for relief in the Further Amended Summons, seeking an order to the extent necessary to reinstate the registration of Gardiner Petroleum pursuant to section 601AH(2) of the Corporations Act and to add the company as a plaintiff to the proceedings. No mention was made of this matter by the plaintiffs during the hearing. I am tempted to treat it as not pressed, particularly where ASIC would need to be notified of any application to reinstate a company and there is no evidence that it had been so notified: Regulatory Guide 83 - Reinstatement of Companies(ASIC Guide) at RG 83.42.
4. I will resist that temptation. Section 601AD of the Corporations Act provides that, on deregistration, a company ceases to exist; all property that the company held on trust immediately before deregistration vests in the Commonwealth while other property vests in ASIC.
5. Subsection 601AH(2) of the Corporations Act provides that the Court may make an order that ASIC reinstate the registration of a company if an application for reinstatement is made by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. As Gleeson JA explained in Re European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 at [17]-[18], the expression "aggrieved person" is of wide import and should be construed liberally and includes a person who has been damaged in the legal sense. As Brereton J observed in Re Regional Planners Developments Co Pty Ltd (2015) 110 ACSR 457, a person is aggrieved by the deregistration of a company if they are thereby precluded from suing the company and it may be just for the company's registration to be reinstated for the purpose of enabling the applicant to pursue its remedies: at [11]. Similarly, in Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301 at [103], Gillard J observed: … in my view, it follows, once the Court comes to the view that the first and third plaintiffs are persons aggrieved by the deregistration, in that there is a valuable right which each wishes to establish in a court or tribunal, that in the circumstances it would be just that the company's registration be reinstated.

CROSS CLAIM

1. Mr and Mrs Gardiner admitted that they were liable to the bank in relation to the outstanding facility advanced to them personally and that the amount was secured by the Eleebana mortgage. This amount related to $700,000 advanced by the bank in 2008 to refinance the Rothbury property: see [50] and [58]. The monies owing under the Eleebana mortgage may be established by a Dobbs certificate: clause 1. At the hearing, the bank tendered a certificate evidencing that $1,336,430.40 was secured by the mortgage.
2. The plaintiffs have not established a basis to resist enforcement of the Guarantee. Under the Guarantee, Mr and Mrs Gardiner undertook to pay "all the amounts which the customer [Gardiner Petroleum] owes NAB" up to the limit of $4,248,002, together with any amounts falling outside that limit which represent interest and fees accrued in relation to amounts within that limit and owing by the customer to the bank. A Dobbs certificate established that the monies owed by Mr and Mrs Gardiner to the bank pursuant to the Guarantee of the debt of Gardiner Petroleum was $11,439,192.69.
3. Ms Stacker explained that, since the last demand issued by the bank to Mr and Mrs Gardiner on 6 November 2015, interest continued to accrue on the amount outstanding under the Overdraft Facility in accordance with clause 6 at 9.02% per annum. Interest continued to accrue on the amounts owing under the First Market Rate Facility in accordance with clause 6 at 3.64% per annum. Interest continued to accrue on the amount owing under the Second Market Rate Facility in accordance with clause 6 at 5.56% per annum. In short, in the seven years which had passed since the last demand until the conclusion of the hearing, the amount owing had doubled.
4. The Second Market Rate Facility listed the Guarantee in its list of "Securities" and stated that the Guarantee was supported by the Eleebana mortgage. The Eleebana mortgage is an 'all moneys' mortgage. The 'money hereby secured' is defined and includes "moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety". This includes monies owing under the Guarantee. The monies owing have been established by the Dobbs certificate, as permitted under cl.22.1 of the Guarantee.
5. In the result, the bank is entitled to the relief claimed by the cross-claim.

ORDERS

1. The plaintiffs also sought equitable relief, to which the bank objected in the absence of any clear pleading; it was not necessary to resolve that debate where no entitlement to equitable relief was apparent. For these reasons, I make the following orders: 1. Dismiss the Further Amended Summons. 2. Judgment for the defendant against the first and second plaintiffs in the amount of $12,775,622 as at 18 October 2022. 3. Grant liberty to the defendant within seven days to provide an updated Dobbs certificate as at the date of this judgment, so that the judgment debt in Order 2 may be updated accordingly. 4. Order that the first and second plaintiffs give the defendant possession of all the land comprised in Certificate of Title Folio Identifier 690/736691 and known as 8 Wollundry Close, Eleebana in the State of New South Wales (Eleebana property). 5. Grant leave to issue a writ of possession in respect of the Eleebana property. 6. Order the plaintiffs to pay the defendant's costs of the proceedings. 7. In the event that any party seeks a variation to Order 6: 1. Direct the party seeking the variation to provide any affidavits and submissions (limited to three pages) in support of the variation within 14 days. 2. Direct any other party to provide any affidavits and submissions (limited to three pages) in response within a further 14 days. 3. Such application to be determined on the papers. 1. Grant liberty to the parties within 14 days to advise any errors or omissions.

Amendments 20 February 2023 - Minor typographical amendments. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 February 2023