Investec Bank v Naude

A Jones v Dunkel issue 17Mr Naude's case was that the relevant representations on which he relied were made to him by a Mr Hamer. Mr Hamer was at the relevant time an employee of the Bank. He appears to have preceded Mr Fowler as the bank officer responsible for dealing with Mr Naude's related accounts. 18Mr Hamer left the employ of the Bank under some cloud. For a while, after leaving the Bank, Mr Hamer worked on contract for one of Mr Naude's companies. Thereafter, it appears from an exchange of emails, Mr Hamer was prepared to assist Mr Naude in Mr Naude's disputes with the Bank. 19In those circumstances, it is clear that Mr Hamer is not to be regarded as "in the camp" of the Bank, or as a witness who, in the ordinary way, the Bank might be expected to call. No inference should be drawn from the Bank's failure to call him. 20Mr Bender of counsel, for the Bank, submitted that Mr Hamer should be regarded as "in the camp" of Mr Naude. That issue had been flagged both in Mr Bender's opening and in the cross-examination of Mr Naude. 21In reply (I interpolate that, on the issues as both parties stated them, Mr Naude was the beginning party), Mr R White of counsel, for Mr Naude, sought to tender a document which, he submitted, would show that the relationship between Mr Naude and Mr Hamer had broken down in the relatively recent past, and well after the exchange of emails to which I have referred. The document was identified as a notice of discontinuance of some proceedings brought by Mr Hamer against Mr Naude in the Perth Magistrate's Court. 22Mr Bender objected to the tender of the document. I rejected it. I said I would give reasons for that rejection. I do that at this point. 23The Jones v Dunkel issue was, as one might say, out in the open from the beginning of the hearing. And as I have noted, it was flagged distinctly in the cross-examination of Mr Naude. The document could have been tendered in chief, or perhaps (subject to any question of further cross-examination) in re-examination. To wait until the evidence closed, and Mr Bender had completed his final submissions, was in my view inherently unfair. 24In any event, the document is at best equivocal. Assuming it to have the character that was attributed to it (and of course I accept what Mr White said on this point), it appears to have reflected some compromise of whatever the dispute was. Thus, the document would not of itself suggest that Mr Hamer remained out of Mr Naude's camp. It is possible, for example, that there might have been some underlying settlement favourable to Mr Hamer. 25Had the document been put into evidence at an appropriate time, there were legitimate questions that could and, in my view, would have been explored. Mr Bender was denied the opportunity to do that. 26Were it necessary to do so, I would reach the conclusion that Mr Hamer is to be regarded as a witness "in the camp" of Mr Naude. Accordingly, were it necessary to do so, I would draw the inference, in relation to Mr Hamer's potential evidence, that Mr Naude did not call him because he feared that Mr Hamer's evidence might not support his case.

History of the Powerstar and Castleworld facilities 27Mr Naude, or companies that he controlled, had had several dealings with the Bank apart from those with which these proceedings are concerned. It is only the two facilities to which I have referred that are directly in issue. Nonetheless, in my view, the history of the conduct of the various facilities (and of default under them) is relevant, in particular in assessing the defence based on asserted unconscionable conduct on the part of the Bank. It forms part of the context, or factual matrix, in and against which the question of unconscionability must be examined. 28As Mr Bender submitted, a relatively objective view of the context can be gained from the documents. 29The documentary record shows that Mr Naude was introduced to the Bank by one Woods. Apparently Mr Naude and Mr Woods were working together to acquire and develop, through a company called Woomarra Pty Ltd, a property at Kings Park Road in West Perth. I note that at one stage Mr Naude sought to suggest that it was the Bank who had introduced him to Mr Woods. That suggestion, like much else in Mr Naude's evidence, is entirely unsubstantiated by, indeed controverted by, the documents. It should be regarded as opportunistic and false. 30Mr Naude became interested in a property at Bookara, somewhere in Western Australia. He wished to acquire it for development. Ultimately, Castleworld acquired the property with a view to carrying out that development. The Bank provided the finance for that acquisition. Mr Naude gave his guarantee to the Bank of Castleworld's obligations. 31In March 2007, Mr Naude and Mr Woods considered acquiring a property, known as the Wildwood property, at Yallingup, in the Margaret River of Western Australia. They wished further to develop that property by erecting on it a number of chalets which would be let out as some form of luxury holiday accommodation. Mr Naude began to discuss with Mr Hamer the possibility that the Bank might finance the acquisition and development. 32In due course, Powerstar did acquire the property. Again, it did so with finance provided by the Bank. Again, its obligations were supported by Mr Naude's guarantee. 33In May 2007, the Bank advanced in excess of $2 million to Woomarra to enable it to fund the acquisition of the Kings Park Road property. That facility had a term of six months. It was repayable on expiry. Mr Naude had sought a single facility to provide both for acquisition and for development. The Bank refused that request. 34In June 2007, the Bank and Castleworld entered into a facility under which the Bank lent Castleworld in excess of $1.8 million to enable it to settle the purchase of the Bookara property. Castleworld appears to have committed itself to that contract well before the facility agreement was executed. 35In August 2007, the Bank agreed to lend Powerstar in excess of $6.3 million dollars to enable Powerstar to acquire the Wildwood property. By then, Mr Woods had dropped out of the picture. The Powerstar facility was for the acquisition only, not for the development of the property. It had a term of six months. The loan was repayable on expiry. Mr Naude gave his guarantee to the Bank in respect of that facility. 36The Kings Park Road facility expired in November 2007. It has not been repaid. Woomarra is in default. 37The first Powerstar facility (as I will call it) expired in March 2008. It was not repaid. That, too, led to default. However, the Bank and Powerstar executed a letter of variation under which the first Powerstar facility was extended up until 30 September 2008. 38The Castleworld facility expired in July 2008. It was not repaid. Thus, Castleworld was in dispute. 39On 21 August 2008, Castleworld was given notice of default. 40On 30 September 2008, the first Powerstar facility, as extended, expired. 41Thereafter, for a number of months, Mr Naude negotiated with the Bank to deal with the various defaults. Specifically, he sought funding from the Bank to enable Powerstar to carry out some development of the Wildwood property. Mr Naude said that it was only through carrying out some development that he could obtain the funds to repay the Bank. 42The parties reached what might be called agreement in principle that the Bank would lend an additional $2.8 million to Powerstar, provided that it was given additional security, so that Powerstar could carry out a limited development. They agreed, also, in principle, that they would execute a deed of forbearance, the effect of which would be to extend the Castleworld and Powerstar facilities, so that defaults would be cured, and to permit the Bank as mortgagee in possession to sell the Kings Park Road property. For that to happen, another company controlled by Mr Naude would have to withdraw its caveat over the Kings Park Road property. It agreed to do so. 43Negotiations continued for some time. Important steps along the way include Mr Naude's acceptance of "key indicative terms" in July 2010. 44After the key indicative terms were agreed, the Bank and Mr Naude continued to haggle over precisely what security Mr Naude could provide, to give the Bank the additional $4 million in value of security that it required to support the proposed $2.8 million advance. 45Ultimately, on 31 March 2011, the Bank and Powerstar made the second Powerstar facility agreement. There were some changes to the security properties that had been discussed. But the important aspect of the agreement was that, subject to compliance with various conditions, the Bank would advance $2.8 million dollars to fund the further development of the property, and to provide for some capitalised interest. 46Various other documents, including a variation of the Castleworld facility and a deed of forbearance, were also executed. The effect was that, for the time being at least, all defaults except that in respect of Kings Park Road were cured. 47However, matters did not rest there. It became necessary for the Bank and Mr Naude to renegotiate the securities that Mr Naude would provide. The second Powerstar facility was varied accordingly.

The claim under the second Powerstar facility 48As I have said, Mr Naude advanced two defences. One, based on alleged misleading or deceptive conduct, was dropped. In essence, Mr Naude said that he had been induced to commit Powerstar, and to sign his guarantee, by representations emanating from Mr Hamer that the Bank would provide two tranches of funding: one for the acquisition of the property and one for its development. 49There were at least three problems with that defence. The first is that it required acceptance of Mr Naude's evidence of the representations. The second is the failure to call Mr Hamer. The third is that, having regard to the express terms of the facility agreement and Mr Naude's acknowledgement that he had read them carefully and understood them, there could not have been any reliance on any representations that were made, of the kind alleged. 50As the unconscionability defence relied on s 12CB of the ASIC Act, I set out that section: 12CB Unconscionable conduct in connection with financial services (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. (5) In this section: listed public company has the same meaning as it has in the Income Tax Assessment Act 1997. 51S 12CC of the ASIC Act sets out, without limitation and without prescription, matters that the court may have regard to in deciding whether there was unconscionable conduct. I set out s 12 CC: 12CC Matters the court may have regard to for the purposes of section 12CB (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the supplier is a corporation-the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) if there is a contract between the supplier and the service recipient for the supply of the financial services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (l) the extent to which the supplier and the service recipient acted in good faith. (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 12CB in connection with the acquisition or possible acquisition of financial services from a person (the supplier), the court may have regard to: (a) the relative strengths of the bargaining positions of the acquirer and the supplier; and (b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and (c) whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the financial services; and (e) the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent financial services to a person other than the acquirer; and (f) the extent to which the acquirer's conduct towards the supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like suppliers; and (g) the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the supplier acted on the reasonable belief that the acquirer would comply with that code; and (i) the extent to which the acquirer unreasonably failed to disclose to the supplier: (i) any intended conduct of the acquirer that might affect the interests of the supplier; and (ii) any risks to the supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and (j) if there is a contract between the acquirer and the supplier for the acquisition of the financial services: (i) the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and (ii) the terms and conditions of the contract; and (iii) the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and (iv) any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the financial services; and (l) the extent to which the acquirer and the supplier acted in good faith. (3) In this section: applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. 52The approach to be taken, in relation to legislation that is not distinguishable in any significant way from s 12CB (namely, s 62B of the Retail Leases Act 1994 (NSW)), has been described recently in a decision of the Court of Appeal, PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446. Sackville AJA, with whom McColl and Leeming JJA agreed, dealt with the statutory concept of unconscionability from [93] to [116]. I take from the way in which his Honour dealt with the question the following approach. 53First, the court should apply the language of the statute rather than substitute for the statutory language some supposedly equivalent verbal formulation. 54Secondly, the court should pay due regard to the remedial and beneficial objects of the legislation. 55Thirdly, (and in this respect I do not accept the submission to the contrary put by Mr Bender), the court is not constrained by the general equitable concept of unconscionability: specifically, its focus on special disadvantage in one party and the actions of another in knowingly taking advantage of that special disability. 56Fourthly, the court is to take into account the norms from time to time of the society in which the statutory prohibition operates, in deciding whether or not conduct is to be characterised as unconscionable. 57Fifthly, the court must consider, to the extent that they are relevant, the non-exhaustive and non-prescriptive factors set out in s 12CC(1) of the ASIC Act. 58Finally, in this context, I take as appropriate, for the analysis that is required, the several steps described by Sackville AJA in PT at [112]. His Honour there identified three steps. The first is to identify the principles of law that are applicable. The second is to find the primary facts on the basis of which, it is said, the conduct in question is to be characterised as unconscionable. The third is the question of characterisation itself. 59As his Honour said at [115], the determination as to unconscionability is based on findings of primary fact, but is not really itself a finding of primary fact. It involves a broadly based value judgment, applied to the facts on which reliance is placed, to the extent that they are proved. 60As Allsop CJ noted in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23], the evaluation of the facts requires consideration of "a normative standard of conscience". His Honour said that this standard "is permeated with accepted and acceptable community values". His Honour noted, further, that "[v]alues, norms and community expectations can develop and change over time". 61Sackville AJA observed in PT at [116] that "the evaluative determination of whether the facts warrant characterising the impugned conduct as unconscionable is a question of fact". However, as I have observed, that involves a conclusory statement of fact which is based on finding facts. It cannot be regarded as itself a primary fact that requires evaluation. 62Mr White relied on the following circumstances in support of his submission that the relevant conduct had been unconscionable. He said, in my view correctly, that it was necessary to take into account the whole of the relationship, including not just the second Powerstar facility (in respect of which the claim is brought) but also the first Powerstar facility. 63Within that matrix, Mr White relied on the following matters: (1) as context, the representations said to have been made by Mr Hamer back in 2007; (2) the two tranche structure that was proposed for the Powerstar facility; (3) the failure to provide the second tranche - development finance; (4) the imposition of unreasonable conditions; (5) the second Powerstar facility itself, including the way in which it came into existence, and including Mr Naude's guarantee. 64Although of necessity those matters require individual evaluation, I accept that the question of unconscionability is not to be decided by looking at each suggested factor, and considering whether or not, by itself, it is to be characterised as unconscionable. The examination requires a conclusion as to the conduct as a whole, to the extent that it is found. 65The first matter - the alleged representations said to have been made by Mr Hamer - can be put to one side. As I have already indicated, I am not prepared to find, on the basis of Mr Naude's uncorroborated evidence, that any of those representations were made. Although Mr White submitted that some support for the making of the representations could be found in contemporaneous records, I do not accept this proposition. To the extent that those records depend on Mr Naude's veracity, they are in my view inherently suspect. Perhaps more importantly, the internal records of the Bank, showing (as business records) what Mr Hamer had reported to the credit committee, are fundamentally inconsistent with the alleged representations. 66I turn to the two tranche structure. It is clear from the first Powerstar facility that the money was advanced for the acquisition only of the property. It is equally clear that both the Bank and Powerstar contemplated that the property would be developed, and that further financial accommodation would be required to enable Powerstar to undertake that development. Finally, it is clear, at the very least, that the Bank was prepared to consider granting the second tranche, or stage, of financial accommodation. 67However, what is equally clear is that, on the plain wording of the facility agreement, the Bank had not committed itself to do so. Whether or not the further tranche was to be advanced depended on a decision of the Bank's credit committee. And, again as the documentation made clear, that decision was wholly within the discretion of the credit committee. 68Mr Naude was aware of all these matters before he committed Powerstar to the first facility, and himself to his guarantee of it. He knew that any further finance was in the discretion of the credit committee. He knew that it would be necessary not only to produce a feasibility study that satisfied the credit committee but also to satisfy whatever other requirements the credit committee might see fit to impose. 69Mr Naude may well have expected, or hoped, that he could put together a persuasive, well-researched and thorough feasibility study. He may well have expected, or hoped, that this study would give the Bank or its credit committee sufficient confidence to commit to advance the second tranche of funding. But he took the risk that this might not happen. 70Significantly, Mr Naude took that risk - knowingly - in circumstances where the Kings Park Road project had run off the rails for the very reason that the Bank was only prepared to offer a commitment to the first tranche, and had declined to advance second tranche finance. The company was left in the situation where it could not develop the property, although development of the property was the logical source of the money to repay the Bank. Undeterred by that experience, it appears, Mr Naude was prepared to accept the same structure in relation to the Powerstar facility. 71It may be accepted, in respect of the Powerstar facility, that development and sale was to be the primary source of funds to repay: what was referred to frequently as "the exit strategy". However, Mr Naude must have understood that, for the Bank, his guarantee (and what the Bank believed to be his substantial worth standing behind it) was the ultimate, or perhaps better last resort, exit strategy. 72Undoubtedly, the global financial crisis, which deepened markedly after the first Powerstar facility was made, had an adverse impact on the credit committee's appetite for second stage finance. But even if it be correct to say that the Bank was the only likely source of funds, that does not mean that the two tranche structure was, or became, unconscionable. 73In this context, it is to be noted that, ultimately, the Bank was prepared to advance funding for construction of a more limited development. On Mr Naude's projections, that more limited development, if carried through, would have returned sufficient funds to pay out all indebtedness to the Bank, and thus to relieve him of exposure under his guarantee. It would have provided an exit strategy, although one that returned at best only minimal profit to Powerstar. 74The asserted failure to provide second tranche finance occurred, not because the Bank was not prepared to do so (although as I have said it was not willing to lend the full amount sought for the larger development) but because Mr Naude could not or would not satisfy the Bank's conditions. 75If those conditions were reasonable, or not unreasonable (and in my view, as I shall explain, they were reasonable) then the Bank cannot be said to have behaved unconscionably by imposing them and by requiring them to be performed. 76It is very difficult to understand how any concept of unconscionable dealing between banker and customer could require the Banker to subjugate its legitimate interests to those of its customer, and to take on risk which, in the ordinary way, it would not contemplate accepting. But in essence, that is Mr Naude's complaint in this case. 77Mr Naude complains of the failure to provide the second tranche finance as, undoubtedly, was contemplated by the first Powerstar facility. But that complaint ignores both the supervening event of the global financial crisis and the surrounding events of default under the other facilities at the same time. 78Mr Naude complains of the accrual of interest, but that was an obligation which, as he said, he well understood. 79Thus, in my view, neither the two tranche structure, nor the failure to provide the second tranche until some years after the first tranche was granted, and then only in a more limited way, comes remotely close to unconscionable conduct. 80I turn to the question of unreasonable conditions. Mr White dealt with those in the course of his address directed to certain of the factors listed in s 12CC(1) of the ASIC Act. I shall deal with those conditions in the same way. 81Mr White started with s 12CC(1)(a): the relative strengths of the bargaining positions of the parties. He submitted that from expiry of the first Powerstar facility, there was very great disparity, because the Bank had all the security and an entitlement to interest, in circumstances where, as it must have known, Powerstar could only repay the loan by undertaking the development. 82That is undoubtedly so. The Bank was in a relatively strong position. But, just as neither the two tranche structure itself nor the failure to advance (at least relatively promptly) the second tranche were, of themselves or together unconscionable, neither is the concept of relative disparity in strength based on those factors capable of giving rise to unconscionability in the circumstances of this case. The Bank did not seek to use its position of strength in any novel or unexpected way. 83At the risk of unduly wearying the reader, those matters were well-known to Mr Naude. He knew the risk he was facing, because it was a risk that had only recently come home. Knowing of that risk, he decided, nonetheless, to undertake it. It was not possible for the parties to negotiate thereafter except on a basis that reflected (of necessity) the disparity in their bargaining positions caused by Mr Naude's assumption of that risk and by its crystallisation. 84What is entirely lacking is any relevant disparity in bargaining strength before the first Powerstar facility was negotiated. 85Mr White relied also on para (b): imposition of conditions that were not reasonably necessary for the protection of the Bank's legitimate interests. Mr White referred to the imposition of a condition, in respect of the second Powerstar facility, that the caveat over the Kings Park Road property to which I have referred be withdrawn. Mr White submitted that this was unreasonable because it related not to the Wildwood loan but to another loan. 86In my view, that submission cannot be accepted. It ignores the fact that the Bank and Mr Naude were negotiating to resolve all the defaults, on all the facilities, that had occurred. As part of that overall process, they negotiated to a solution that the Bank would sell the Kings Park Road property. The withdrawal of the caveat was necessary for that purpose. Why was it unconscionable for the Bank, in connection with another aspect of that overall negotiation, to insist on what had been agreed (in substance, if not at that stage as a matter of legal obligation)? 87In any event, as Mr Fowler observed, this could be regarded as Mr Naude's showing some goodwill to the Bank which might be of advantage to Mr Naude. 88There is another matter to be considered in this context. As Mr Fowler pointed out (T118.21), "there was a bit of argy bargy going on over the terms" on which the Bank might advance the second Powerstar facility. That argy bargy included the Bank's initial insistence on first mortgage security, and Mr Naude's refusal to provide it (at least in full) and his desire to provide additional second mortgage security instead. 89In circumstances where Mr Naude was requiring the Bank to weaken its position in some ways, it does not seem to me to be inherently reasonable for the Bank to seek to protect its position in collateral ways. 90Thus, I do not regard the inclusion of the condition, as to the caveat, as going beyond what was reasonably necessary for the protection of the Bank's legitimate interests. I stress that this conclusion is one reached on a consideration of the overall conduct at the time, and should not be limited to consideration only of the Powerstar facility. 91Mr White relied on para (i): failure to disclose intended conduct and risks flowing therefrom. Again, that appeared to assume that the Hamer representations had been made, and on Mr Hamer's failure to disclose that any future finance was in the sole discretion of the credit committee. 92The answers to that are obvious. First, I am not prepared to find that the Hamer representations were made. Secondly, Mr Naude understood, from his reading of the first facility agreement, that any future advance was at the discretion of the credit committee. 93Mr White relied on para (j), in particular, as to the negotiations and conduct in connection with them. 94In essence, this does no more than reagitate matters that have been dealt with, one way or another, by what I have said already. At the end of the day, the Bank was not bound to advance second tranche finance and Mr Naude understood this. At the end of the day, the conduct of the associated accounts had been, putting it neutrally, poor. They were all in default. And at the end of the day, the Bank was prepared not only to advance second tranche finance, but also to negotiate in a real and meaningful way over the security that it would take. 95The whole history of the negotiations leading up to the making of the second Powerstar facility shows, in my view clearly and beyond doubt, that on the fundamental commercial terms, the Bank was well and truly prepared to negotiate. 96Mr White relied on the proposition that the Bank always negotiated to improve its position. Even if that is to be accepted, it can hardly be criticised in doing so, having regard to the wholesale scale of the defaults on the Powerstar and related facilities. 97Mr White made other submissions, under this heading. As I have said, they are in substance dealt with by what I have said already and I will not deal with them individually. 98Finally, for present purposes, Mr White relied on para (k): an asserted contractual right unilaterally to vary a term of the contract. 99The submission, as I understand it (and I am conscious that I may not have understood it fully) is that the Bank had a contractual right unilaterally to vary a term of the contact because it had a right to use its discretion to withhold construction finance. To my mind, that submission is conceptually unsound. There was no obligation in the first Powerstar facility for the Bank to advance the second stage of finance. Its obligation was, at most, to consider any application. But any second stage finance could only be advanced, as the first Powerstar facility made clear, by or through a second facility. And indeed, that is what happened. 100At most, the Bank was trying to renegotiate towards provision of the second facility. But that cannot involve any variation, let alone a unilateral variation, of the first facility. 101As I have said, I accept that all the matters relied upon must be examined (to the extent that they are proved) as a whole, not merely item by item. But taking all those matters (to the extent that they have been proved) together, and putting them in the context of all the contemporaneous dealings between Mr Naude or his companies and the Bank, I do not find any basis for concluding that there was unconscionability. 102Mr Naude took on, with a keen appreciation driven by recent experience, the two tranche structure. He knew that whether or not the Bank granted second stage finance was a matter for the credit committee. He knew that his preferred (and certainly the Bank's preferred) exit strategy depended on the development of the property. But that was the very matter that, he knew, required further finance; and the very matter that was not assured under the first Powerstar facility. 103No doubt, as I have said, Mr Naude thought he could make the development sufficiently attractive to persuade the bank to advance construction finance. But he was not, on my finding, encouraged in that belief by any representation made to him by Mr Hamer. 104In short, Mr Naude accepted the two tranche structure in the knowledge that second tranche funding was not assured. 105It may be accepted that the impact of the global financial crisis (or its worsening) was of great significance. But why should it be the Bank, rather than Mr Naude, that should have shouldered the responsibility of extricating Mr Naude from the position in which he found himself as a result? This is not case where a lender, because of supervening events, seeks to withdraw from a promise or commitment of funding that has been made. The risk of supervening events is inherent in the two tranche structure. It was a risk that Mr Naude accepted. 106After the first Powerstar facility (as extended) expired, the Bank did work actively with Mr Naude to put together a proposal that the Bank would finance. That was a proposal which appears to have had the capacity to produce sufficient cash to pay out the Bank and to let Mr Naude off the hook of his guarantee. The Bank agreed to advance the money. Mr Naude was unable to comply with the conditions imposed on the advance. It has not been suggested (and if it were suggested I would reject the submission) that those conditions were unreasonable. They had been negotiated backwards and forwards - I might add, in some respects dishonestly, from Mr Naude's side - over many months. 107Mr Naude's inability to comply with the conditions that were fixed - noting that as to security they had been varied at his express request after execution of the second Powerstar facility - had nothing to do with any inherently onerous character of those conditions. The simple point is that Mr Naude could not or would not perform them. The inevitable consequence was that the Bank declined to make any further advance. 108Looking at the whole of the circumstances, from the time the first Powerstar facility was granted, the Bank's conduct, whilst undoubtedly directed in part to securing its position and minimising its exposure to risk, is far removed from conduct that is so offensive to current social norms that it requires characterisation as unconscionable. Castleworld: misleading or deceptive conduct 109Mr Naude's case was that Mr Hamer had represented to him that there was no need for Mr Naude to instruct his own solicitors to undertake due diligence on the settlement of the Castleworld purchase, because the Bank would instruct Freehills to do that (at Mr Naude's ultimate expense) and Freehills would detect any problem. According to Mr Naude, Mr Hamer advised Mr Naude to save money by using only a settlement agent. 110That characterisation of the representations comes from the way Mr White put the matter in his closing address (T149.24-42). As Mr White effectively acknowledged a little later (T151.8-14), the representation was in substance one that Freehills would perform its obligations, under its retainer by the Bank, with appropriate professional care and skill, and that as a result any impediments to settlement would be discovered. 111Mr Naude says that, based on the representation, he did not instruct lawyers to undertake any "due diligence" before settlement. He says, further, that: (1) there was some problem with the title to the Bookara property that was not detected on search; (2) after Castleworld settled the purchase, it became embroiled in litigation with the trustee of a bankrupt who asserted an interest in the property; and (3) ultimately, Castleworld, as the result of that litigation, ended up owning only two-thirds of the property. 112There are several reasons why this defence must fail. 113First, it depends on acceptance of Mr Naude's evidence, as to the conversations between him and Mr Hamer from which the representation alleged is said to arise. That aspect of Mr Naude's evidence is uncorroborated. It does not seem to have been objectively probable that Mr Hamer would have said what he is supposed to have said (I would have said, it was objectively improbable that he would have said it). Thus, I do not accept Mr Naude's evidence of the conversations. I am not satisfied that the representation was made. 114Secondly, the representation was clearly one as to a future matter. If (contrary to what I have just said) Mr Hamer did say, in effect, that Freehills would detect any defects in title that were apparent on proper searches, there is no doubt but that he had good reason to do so. One would expect a large and well respected law firm to carry out thoroughly, and with appropriate professional care and skill, its obligations under the retainer. 115Further, and to the extent that the representation is as to opinion (that there was no need for Mr Naude to retain his own lawyers), the opinion was one reasonably held (if it were held) for the same reason. 116Thirdly, there is no evidence that, at the time of settlement, there was any defect in or problem with the title that should have been discovered by the exercise of proper professional skill. Mr White submitted that there was some "notation" on the title. Neither that notation nor its consequences were proved. 117Fourthly, Mr Naude had already bound Castleworld to the purchase of the Bookara land. Unless there were some defect in title or other problem that would have justified Castleworld in not settling (and I repeat that none has been proved), the alleged (but unproven) inadequacy of the "due diligence" goes nowhere. 118Fifthly, the fact that, after settlement, Castleworld became embroiled in litigation could not of itself retrospectively falsify the alleged (but unproven) representation. Nor could it prove any defect in the performance by Freehills of its obligations under its retainer by the Bank.

Conclusion 119Mr Naude has not made good any of his defences to the Bank's claim, nor his reflexive cross claim. The Bank should have judgment in the full amount of its claim, together with interest to today's date. I will leave it to the parties to calculate the figure, so that I do not impose upon them my own lamentably deficient arithmetic. 120The Bank should also have judgment in its favour on Mr Naude's cross claim.

[Counsel addressed.] 121I make the following orders:

1. Direct entry of judgment for the plaintiff against the defendant in the sum of $10,382,342.21;
2. Direct entry of judgment for the cross defendant against the cross claimant on the cross claim;
3. Order the defendant/cross claimant to pay the plaintiff's costs of the action and the cross claim;
4. Direct that those costs be assessed on the indemnity basis;
5. Order that the exhibits be handed out.

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: 22 October 2014